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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware |
95-4439334 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
5400 Trinity Road, Suite 208
Raleigh, North Carolina |
27607 |
(Address of principal executive offices) |
(Zip Code) |
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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(Do not check if a smaller reporting company) |
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Page No. |
PART I – FINANCIAL INFORMATION | ||
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Item 1. |
Financial Statements |
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Condensed Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015 |
3 |
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Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2016 and 2015 |
4 |
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Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2016 and 2015 |
5 |
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Condensed Consolidated Statement of Stockholders' Deficit for the period ended March 31, 2016 (unaudited) |
6 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
15
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Item 4. |
Controls and Procedures |
15 |
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PART II – OTHER INFORMATION | ||
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Item 2. |
Unregistered Sales of Equity Security and Use of Proceeds |
16 |
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Item 6. |
Exhibits |
16 |
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Signatures |
17
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ASSETS | ||
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March 31, |
December 31, |
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2016 |
2015 |
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(unaudited) |
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Current Assets |
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Cash and Cash Equivalents |
$366,258 |
$580,220 |
Restricted Cash |
73,527 |
124,988 |
Trade Accounts Receivable, Net of Allowance for Doubtful Accounts of $16,050 |
396,163 |
183,350 |
Prepaid Expenses and Other Current Assets |
71,382 |
69,552 |
Total Current Assets |
907,330 |
958,110 |
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Property & Equipment, Net |
94,912 |
98,963 |
Capitalized Software, Net |
363,512 |
390,518 |
Intangible Assets, Net |
50,725 |
55,099 |
Other Assets |
2,502 |
6,264 |
Total Other Assets |
511,651 |
550,844 |
Total Assets |
$1,418,981 |
$1,508,954 |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||
Current Liabilities |
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Trade Accounts Payable |
$101,048 |
$45,717 |
Accrued Expenses |
200,628 |
247,858 |
Accrued Interest |
355,395 |
350,613 |
Capital Lease Obligations |
31,535 |
30,877 |
Deferred Revenue |
1,315,122 |
1,007,970 |
Bank Loan |
5,000,000 |
5,000,000 |
Convertible Notes Payable, Related Parties, Net of Discount |
34,662,120 |
33,363,488 |
Convertible Notes Payable, Net of Discount |
680,640 |
680,640 |
Total Current Liabilities |
42,346,488 |
40,727,163 |
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Long-Term Liabilities |
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Capital Lease Obligations |
75,626 |
83,761 |
Deferred Rent |
50,928 |
53,592 |
Total Long-Term Liabilities |
126,554 |
137,353 |
Total Liabilities |
42,473,042 |
40,864,516 |
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Commitments and Contingencies (Note 3) |
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Stockholders' Deficit |
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Preferred Stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding at March 31, 2016 and December 31, 2015 |
- |
- |
Common Stock, $0.001 par value, 45,000,000 shares authorized, 19,827,542 shares issued and outstanding at March 31, 2016 and December 31, 2015 |
19,828 |
19,828 |
Additional Paid-in Capital |
97,965,453 |
97,545,601 |
Accumulated Deficit |
(139,039,342) |
(136,920,991) |
Total Stockholders' Deficit |
(41,054,061) |
(39,355,562) |
Total Liabilities and Stockholders' Deficit |
$1,418,981 |
$1,508,954 |
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Three Months Ended | |
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March 31, |
March 31, |
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2016 |
2015 |
REVENUES: |
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Subscription and Support |
$471,130 |
$396,188 |
Professional Services and Other |
- |
30,000 |
Total Revenue |
471,130 |
426,188 |
COST OF REVENUES: |
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Subscription and Support |
115,321 |
59,469 |
Professional Services and Other |
5,063 |
9,273 |
Total Cost of Revenue |
120,384 |
68,742 |
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GROSS PROFIT |
350,746 |
357,446 |
OPERATING EXPENSES: |
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Sales and Marketing |
235,724 |
292,199 |
Research and Development |
406,543 |
340,140 |
General and Administrative |
352,973 |
314,566 |
Total Operating Expenses |
995,240 |
946,905 |
LOSS FROM OPERATIONS |
(644,494) |
(589,459) |
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OTHER INCOME (EXPENSE): |
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Other Income |
8,039 |
379 |
Interest Expense, Net |
(1,481,896) |
(1,267,136) |
Total Other Expense |
(1,473,857) |
(1,266,757) |
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NET LOSS |
$(2,118,351) |
$(1,856,216) |
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NET LOSS PER COMMON SHARE: |
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Basic and Fully Diluted |
$(0.11) |
$(0.09) |
WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE: |
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Basic And Fully Diluted |
19,827,542 |
19,827,542 |
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Three Months Ended | |
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March 31, |
March 31, |
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2016 |
2015 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net Loss |
$(2,118,351) |
$(1,856,216) |
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: |
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Depreciation and Amortization |
40,630 |
40,567 |
Bad Debt Expense (Gain on Reversal of Bad Debt) |
- |
(6,000) |
Amortization of Debt Discount |
697,233 |
583,432 |
Share Based Compensation |
21,251 |
21,308 |
Changes in Assets and Liabilities: |
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Accounts Receivable |
(212,813) |
75,871 |
Prepaid Expenses and Other Assets |
1,932 |
(18,138) |
Accounts Payable |
55,331 |
11,292 |
Deferred Revenue |
307,152 |
(101,110) |
Accrued and Other Expenses |
(45,112) |
(177,651) |
Net Cash Used in Operating Activities |
(1,252,747) |
(1,426,645) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Payments to Acquire Property, Plant and Equipment |
(5,199) |
(4,916) |
Net Cash Used in Investing Activities |
(5,199) |
(4,916) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Restricted Cash Used to Pay Interest Expense |
51,461 |
49,752 |
Proceeds from Issuance of Long Term Debt |
1,000,000 |
1,700,000 |
Repayments of Debt Borrowings |
(7,477) |
(6,871) |
Net Cash Provided by Financing Activities |
1,043,984 |
1,742,881 |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(213,962) |
311,320 |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
580,220 |
320,286 |
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$366,258 |
$631,606 |
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Supplemental Disclosures of Cash Flow Information: |
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Cash Paid During the Period for Interest |
$775,723 |
$804,328 |
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Non-Cash Investing and Financing Activities |
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The Company Recorded Debt Discount Associated with Beneficial Conversion Feature |
$398,601 |
$- |
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Common Stock |
Additional |
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$0.001 |
Paid-In |
Accumulated |
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Shares |
Par Value |
Capital |
Deficit |
Totals |
BALANCES, DECEMBER 31, 2015 |
19,827,542 |
$19,828 |
$97,545,601 |
$(136,920,991) |
$(39,355,562) |
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Equity-Based Compensation |
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- |
21,251 |
- |
21,251 |
Beneficial Conversion Feature Recorded as a Result of Issuance of Convertible Debt |
|
- |
398,601 |
- |
398,601 |
Net Loss |
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- |
|
(2,118,351) |
(2,118,351) |
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BALANCES, MARCH 31, 2016 |
19,827,542 |
$19,828 |
$97,965,453 |
$(139,039,342) |
$(41,054,061) |
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Debt Description |
March31, |
December31, |
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2016 |
2015 |
Maturity |
Rate |
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Comerica Bank LSA |
$5,000,000 |
$5,000,000 |
June 2016 |
3.85% |
Capital lease obligations - Noteholder lease |
86,800 |
92,270 |
August 2019 |
8.00% |
Capital lease obligations - office furniture |
20,361 |
22,368 |
September 2016 |
9.80% |
Convertible notes - related parties, net of discount of $1,712,111 and $2,010,743, respectively |
34,662,120 |
33,363,488 |
November 2016 |
8.00% |
Convertible notes, net of discount of $50,129 |
680,640 |
680,640 |
November 2016 |
8.00% |
Total debt |
40,449,921 |
39,158,766 |
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Less: current portion of long term debt |
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Capital lease obligations |
31,535 |
30,877 |
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Comerica Bank LSA |
5,000,000 |
5000000 |
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Convertible notes - related parties, net of discount of $1,712,111 and $2,010,743, respectively |
34,662,120 |
33,363,488 |
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Convertible notes, net of discount of $50,129 |
680,640 |
680,640 |
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Total current portion of long term debt |
40,374,295 |
39,075,005 |
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Debt - long term |
$75,626 |
$83,761 |
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Convertible Notes Type: |
Balance |
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2007 NPA notes, net of discount |
$29,082,353 |
2014 NPA notes, net of discount |
6,260,407 |
Total convertible notes, net of discount |
$35,342,760 |
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Year: |
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2016 |
$29,444 |
2017 |
39,259 |
2018 |
34,189 |
2019 |
19,412 |
|
122,304 |
Less amount representing interest |
(15,143) |
Capital lease obligations |
$107,161 |
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Year: |
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2016 |
$124,146 |
2017 |
167,786 |
2018 |
172,418 |
2019 |
44,082 |
Total |
$508,432 |
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Number of
Shares
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Weighted
Average
Exercise Price
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Weighted
Average
Remaining
Contractual Term |
Aggregate
Intrinsic
Value |
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Outstanding, December 31, 2015 |
361,349 |
$1.44 |
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Cancelled |
(75,000) |
1.50 |
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Issued |
- |
- |
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Outstanding, March 31, 2016 |
286,349 |
$1.42 |
2.62 |
$166,338 |
Vested and exercisable, March 31, 2016 |
223,285 |
$1.36 |
2.93 |
$142,084 |
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Three months ended March 31 |
Increase (Decrease) | ||
|
2016 |
2015 |
$ |
% |
Revenue |
471,130 |
426,188 |
44,942 |
11% |
Cost of Revenue |
120,384 |
68,742 |
51,642 |
75% |
Gross Profit |
350,746 |
357,446 |
(6,700) |
(2%) |
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Sales and Marketing |
235,724 |
292,199 |
(56,475) |
(19%) |
Research and Development |
406,543 |
340,140 |
66,403 |
20% |
General and Administrative |
352,973 |
314,566 |
38,407 |
12% |
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Interest Expense |
1,481,896 |
1,267,136 |
214,760 |
17% |
● |
our ability to expand revenue volume; |
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our ability to maintain product pricing as expected, particularly in light of increased competition and its unknown effects on market dynamics; |
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our continued need to reduce our cost structure while simultaneously expanding the breadth of our business, enhancing our technical capabilities, and pursing new business opportunities. |
● |
the refusal of the lenders under the convertible note facilities to extend the facility or the due date of the outstanding notes thereunder beyond November 14, 2016. |
Exhibit No. |
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Description |
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31.1 |
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Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) (Filed herewith) |
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31.2 |
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Certification of Principal Financial and Accounting Officer Pursuant to Rule 13a-14(a) (Filed herewith) |
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32.1 |
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Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 (Furnished herewith) |
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32.2 |
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Certification of Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350 (Furnished herewith) |
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101.1 |
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The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statement
of Stockholders’ Deficit and (v) related notes to these condensed consolidated financial statements, tagged as blocks of text and in detail (Filed herewith) |
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MOBILESMITH, INC. |
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May 6, 2016 |
By: |
/s/ Amir Elbaz |
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Amir Elbaz |
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Chief Executive Officer |
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May 6, 2016 |
By: |
/s/Gleb Mikhailov |
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Gleb Mikhailov |
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Chief Financial Officer |
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1. |
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I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 of MobileSmith, Inc.; | ||
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
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3. |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
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4. |
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||
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a) |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting. |
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5. |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | ||
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a) |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b) |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Amir Elbaz |
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Amir Elbaz |
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Chief Executive Officer
(Principal Executive Officer) |
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1. |
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I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 of MobileSmith, Inc.; | ||
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
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3. |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
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4. |
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||
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a) |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting. |
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5. |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | ||
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a) |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b) |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Gleb Mikhailov |
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Gleb Mikhailov |
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Chief Financial Officer
(Principal Financial and Accounting Officer) |
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(1) |
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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(2) |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Amir Elbaz |
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Amir Elbaz |
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Chief Executive Officer
(Principal Executive Officer) |
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(1) |
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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(2) |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Gleb Mikhailov |
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Gleb Mikhailov |
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Chief Financial Officer
(Principal Financial and Accounting Officer) |
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Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
May. 05, 2016 |
|
Document And Entity Information | ||
Entity Registrant Name | MobileSmith, Inc. | |
Entity Central Index Key | 0001113513 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 19,827,542 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2016 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for Doubtful Accounts | $ 16,050 | $ 16,050 |
Stockholders' equity: | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, authorized | 5,000,000 | 5,000,000 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, authorized | 45,000,000 | 45,000,000 |
Common stock, issued | 19,827,542 | 19,827,542 |
Common stock, outstanding | 19,827,542 | 19,827,542 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
REVENUES: | ||
Subscription and Support | $ 471,130 | $ 396,188 |
Professional Services and Other | 0 | 30,000 |
Total revenues | 471,130 | 426,188 |
COST OF REVENUES | ||
Subscription and Support | 115,321 | 59,469 |
Professional Services and Other | 5,063 | 9,273 |
Total Cost of Revenue | 120,384 | 68,742 |
GROSS PROFIT | 350,746 | 357,446 |
OPERATING EXPENSES: | ||
Sales and marketing | 235,724 | 292,199 |
Research and development | 406,543 | 340,140 |
General and administrative | 352,973 | 314,566 |
Total operating expenses | 995,240 | 946,905 |
LOSS FROM OPERATIONS | (644,494) | (589,459) |
OTHER INCOME (EXPENSE): | ||
Other Income | 8,039 | 379 |
Interest expense, net | (1,481,896) | (1,267,136) |
Total Other Expense | (1,473,857) | (1,266,757) |
NET LOSS | $ (2,118,351) | $ (1,856,216) |
NET LOSS PER COMMON SHARE: | ||
Basic and Fully Diluted | $ (0.11) | $ (0.09) |
WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE: | ||
Basic and fully diluted | 19,827,542 | 19,827,542 |
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (Unaudited) - 3 months ended Mar. 31, 2016 - USD ($) |
Common Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Total |
---|---|---|---|---|
Beginning Balance, shares at Dec. 31, 2015 | 19,827,542 | |||
Beginning Balance, amount at Dec. 31, 2015 | $ 19,828 | $ 97,545,601 | $ (136,920,991) | $ (39,355,562) |
Equity-Based Compensation | 21,251 | 21,251 | ||
Beneficial Conversion Feature Recorded as a Result of Issuance of Convertible Debt | 398,601 | 398,601 | ||
Net loss | (2,118,351) | (2,118,351) | ||
Ending Balance, shares at Mar. 31, 2016 | 19,827,542 | |||
Ending Balance, amount at Mar. 31, 2016 | $ 19,828 | $ 97,965,453 | $ (139,039,342) | $ (41,054,061) |
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
3 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||
Accounting Policies [Abstract] | |||||||||||
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | MobileSmith, Inc. (referred to herein as the Company, us, we, or our) was incorporated as Smart Online, Inc. in the State of Delaware in 1993. The Company changed its name to MobileSmith, Inc. effective July 1, 2013. The Company develops software products and services and targets businesses whose need is to connect with their stakeholders (customers, employees, broader public) through a variety of mobile devices and do so with the fastest time to market possible, while by-passing the need to write a single line of code. The Companys flagship product is the MobileSmith® Platform (the Platform). The Platform is an innovative app development platform that enables organizations to rapidly create, deploy, and manage custom, native smartphone and tablet apps deliverable across iOS and Android mobile platforms without writing a single line of code.
These condensed consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, which was created to explore the concept of a consumer targeted mobile app development platform. From time to time, the Company may create additional wholly-owned subsidiaries in order to test various new services as a part of its research and development process. The subsidiary has not had material activity in 2016.
The Companys principal products and services include:
The Company prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnote disclosures it normally includes in its audited annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). In managements opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its financial position, results of operations, cash flows, and stockholders deficit as of March 31, 2016. The Companys interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited annual consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2015 on file with the SEC (the Annual Report).
Except as otherwise noted, there have been no material changes to the Companys significant accounting policies as compared to the significant accounting policies described in the Annual Report. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the three months ended March 31, 2016 and 2015, the Company incurred net losses as well as negative cash flows from operations. These factors raise substantial doubt about the Companys ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Recently Issued Accounting Pronouncements
The Company evaluates new significant accounting pronouncements at each reporting period. For the period ended March 31, 2016, the Company did not adopt any new pronouncement that had or is expected to have a material effect on the Companys presentation of its condensed consolidated financial statements. All pronouncements that are expected to affect future year financial statements are disclosed in the Annual Report on Form 10-K for the year ended December 31, 2015. |
2. DEBT |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2. DEBT | The table below summarizes the Companys debt at March 31, 2016 and December 31, 2015:
Convertible Notes
During the three months ended March 31, 2016, the Company privately placed $1,000,000 in principal amount of additional unsecured Convertible Subordinated Notes (the 2014 NPA Notes) to Union Bancaire Privée (UBP) under its existing unsecured Convertible Subordinated Note Purchase Agreement dated December 10, 2014 (the 2014 NPA). The 2014 NPA Notes are convertible by the holder into shares of the Companys common stock, par value $0.001 per share (the Common Stock) at a per share conversion price of $1.43. The market value of the Companys common stock on the date of issuance of the $1,000,000 2014 NPA Note to UBP was higher than the conversion price, which resulted in a beneficial conversion feature of $398,601 and corresponding debt discount, which is being amortized into interest expense through the maturity of the Note.
The table below summarizes convertible notes issued as of March 31, 2016 by type:
|
3. COMMITMENTS AND CONTINGENCIES |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3. COMMITMENTS AND CONTINGENCIES | Aggregate future lease commitments
The Company leases computers, office equipment and office furniture under capital lease agreements that expire through August 2019. Total amount financed under these capital leases at March 31, 2016 was $107,161. This obligation is included within the Companys total debt.
The table below summarizes Companys future obligations under its capital leases:
The Company leases its office space in Raleigh, North Carolina pursuant to a lease with an initial term that expires in March 2019. The lease contains an option to renew for two three-year terms. In addition, the Company leases a vehicle pursuant to a lease that expires in July 2016.
The table below summarizes the Companys future obligations under its office and vehicle operating leases:
Legal Proceedings
From time to time, the Company may be subject to routine litigation, claims or disputes in the ordinary course of business. The Company defends itself vigorously in all such matters. In the opinion of management, no pending or known threatened claims, actions or proceedings against the Company are expected to have a material adverse effect on its financial position, results of operations or cash flows. However, the company cannot predict with certainty the outcome or effect of any such litigation or investigatory matters or any other pending litigations or claims. There can be no assurance as to the ultimate outcome of any such lawsuits and investigations. The Company will record a liability when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company periodically evaluates developments in its legal matters that could affect the amount of liability that it has previously accrued, if any, and makes adjustments as appropriate. Significant judgment is required to determine both the likelihood of there being, and the estimated amount of, a loss related to such matters, and the Companys judgment may be incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matters that the Company may be required to accrue for, there may be an exposure to loss in excess of the amount accrued, and such amounts could be material. |
4. EQUITY COMPENSATION |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4. EQUITY COMPENSATION | The following is a summary of the stock option activity for the three months ended March 31, 2016:
Aggregate intrinsic value represents the difference between the closing price of the Companys common stock at March 31, 2016 and the exercise price of outstanding, in-the-money stock options. The closing price of the common stock at March 31, 2016, as reported on the Over-the-Counter Bulletin Board, was $2.00 per share.
At March 31, 2016, $39,690 unvested expense has yet to be recorded related to outstanding stock options. |
5. MAJOR CUSTOMERS AND CONCENTRATION |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Risks and Uncertainties [Abstract] | |
5. MAJOR CUSTOMERS AND CONCENTRATION | For the three months ended March 31, 2016, one major customer accounted for 15% of total revenues and one customer accounted for 62% of the accounts receivable balance. For the three months ended March 31, 2015, three major customers accounted for 44% of total revenues and three customers accounted for 66% of the accounts receivable balance. |
6. SUBSEQUENT EVENTS |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Subsequent Events [Abstract] | |
6. SUBSEQUENT EVENTS | On April 14, 2016, the Company issued one 2014 NPA Note to UBP in the principal amount of $700,000 on the same terms as the currently outstanding 2014 NPA Notes. The note matures on November 14, 2016. |
2. DEBT (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company's debt |
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Summary of convertible notes |
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3. COMMITMENTS AND CONTINGENCIES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Company's future obligations under its capital leases |
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Company's future obligation under the new office and vehicle leases |
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4. EQUITY COMPENSATION (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Compensation Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock Options Outstanding |
|
2. DEBT (Details) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Debt Details | ||
Comerica Bank LSA | $ 5,000,000 | $ 5,000,000 |
Capital leases obligations - Noteholder lease | 86,800 | 92,270 |
Capital lease obligations - Office furniture | 20,361 | 22,368 |
Convertible notes - related parties, net of discount of $1,712,111 and $2,010,743, respectively | 34,662,120 | 33,363,488 |
Convertible notes, net of discount of $50,129 | 680,640 | 680,640 |
Total debt | 40,449,921 | 39,158,766 |
Less: current portion of long term debt | ||
Capital lease obligations | 31,535 | 30,877 |
Comerica Bank LSA | 5,000,000 | 5,000,000 |
Convertible notes - related parties, net of discount of $2,010,743 | 34,662,120 | 33,363,488 |
Convertible notes, net of discount of $50,129 | 680,640 | 680,640 |
Total current portion of long term debt | 40,374,295 | 39,075,005 |
Debt - long term | $ 75,626 | $ 83,761 |
2. DEBT (Details 1) |
Mar. 31, 2016
USD ($)
|
---|---|
Convertible notes, net of discount | $ 35,342,760 |
2007 NPA notes, net of discount | |
Convertible notes, net of discount | 29,082,353 |
2014 NPA notes | |
Convertible notes, net of discount | $ 6,260,407 |
3. COMMITMENTS AND CONTINGENCIES (Details) |
Mar. 31, 2016
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
2016 | $ 29,444 |
2017 | 39,259 |
2018 | 34,189 |
2019 | 19,412 |
Thereafter | 122,304 |
Less amount representing interest | (15,143) |
Capital lease obligations | $ 107,161 |
3. COMMITMENTS AND CONTINGENCIES (Details 1) |
Mar. 31, 2016
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
2016 | $ 124,146 |
2017 | 167,786 |
2018 | 172,418 |
2019 | 44,082 |
Total | $ 508,432 |
5. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Details Narrative) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
One Customers | ||
Percentage of revenues from major customers | 15.00% | |
Percentage of accounts receivables from major customers | 62.00% | |
Three Customers | ||
Percentage of revenues from major customers | 44.00% | |
Percentage of accounts receivables from major customers | 66.00% |
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