☑
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ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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☐
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TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Delaware
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95-4439334
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(State or other
jurisdiction of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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5400
Trinity Road, Suite 208
Raleigh,
North Carolina
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27607
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(Address of
principal executive offices)
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(Zip
Code)
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Large accelerated
filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☐
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Smaller reporting
company
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☑
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(Do not check if a
smaller reporting company)
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PART
I
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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6
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Item
1B.
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Unresolved Staff
Comments
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10
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Item
2.
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Properties
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10
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Item
3.
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Legal
Proceedings
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10
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Item
4.
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Mine Safety
Disclosures
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10
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PART
II
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Item
5.
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Market for
Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
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11
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Item
6.
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Selected Financial
Data
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11
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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12
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Item
7A.
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Quantitative and
Qualitative Disclosures About Market Risk
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17
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Item
8.
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Financial
Statements and Supplementary Data
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F-1
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Item
9.
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Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
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18
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Item
9A.
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Controls and
Procedures
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18
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Item
9B.
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Other
Information
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18
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PART
III
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||
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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19
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Item
11.
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Executive
Compensation
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22
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Item
12.
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Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder
Matters
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27
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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29
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Item
14.
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Principal
Accounting Fees and Services
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29
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PART
IV
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||
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Item
15.
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Exhibits, Financial
Statement Schedules
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30
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Item
16.
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Summary
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32 |
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SIGNATURES
|
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33 |
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EXHIBIT
INDEX
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34
|
●
|
A customer may hire
an enterprise software application vendor and outsource the
creation of a mobile app based on the defined specifications. A
customer often does not have control over the creation of the final
product and any subsequent modifications of the delivered
product.
|
●
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A large company
with existing in-staff development teams may acquire a subscription
to a Mobile Application Development Platform (“MADP”).
MADP space is represented by the following solutions: HP’s
Anywhere Mobile Development Platform, SAP’s Sybase Unwired
Platform, IBM’s Worklight, KONY Solutions, Appcelerator, and
Xamarin(now part of Microsoft). Customers that use an MADP have
full control over creation of the mobile apps, but are required to
have developers on staff.
|
●
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A company may
subscribe to one of several do-it-yourself platforms (“DIY
platforms”). Customers that use a DIY platform have full
control over the app creation process and developer knowledge is
not required to produce those apps. Current DIY platforms
predominantly have narrow specializations (e.g., event app creation
platforms).
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●
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The Platform allows for creation of apps with
sophisticated functionality;
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●
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The Platform is designed for use by ordinary
users who are not professional developers. The primary users
of the Platform within our customers' organizations are marketing
and designer teams - individuals who have the best understanding of
the behavior and demands of the end users of the apps;
and
|
●
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We developed significant expertise in
application of mobile app technology in
healthcare.
|
Year Ended December 31, 2015:
|
High
|
Low
|
First
Quarter
|
$1.95
|
$0.65
|
Second
Quarter
|
$1.75
|
$1.01
|
Third
Quarter
|
$1.75
|
$0.61
|
Fourth
Quarter
|
$1.60
|
$1.00
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
First
Quarter
|
$2.00
|
$0.61
|
Second
Quarter
|
$2.00
|
$1.40
|
Third
Quarter
|
$1.50
|
$0.75
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Fourth
Quarter
|
$1.49
|
$0.75
|
Convertible
Notes Type:
|
Balance
|
|
|
2007 NPA
notes, net of discount
|
$29,666,930
|
2014 NPA
notes, net of discount
|
10,669,289
|
Total
convertible notes
|
$40,336,219
|
|
Year ended December 31,
|
Increase (Decrease)
|
||
|
2016
|
2015
|
|
$%
|
Revenue
|
1,865,613
|
1,820,806
|
44,807
|
2%
|
Cost
of Revenue
|
571,793
|
458,599
|
113,194
|
25%
|
Gross
Profit
|
1,293,820
|
1,362,207
|
(68,387)
|
(5%)
|
|
|
|
|
|
Sales
and Marketing
|
1,153,336
|
1,175,636
|
(22,300)
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(2%)
|
Research
and Development
|
1,700,617
|
1,427,172
|
273,445
|
19%
|
General
and Administrative
|
1,378,730
|
1,231,137
|
147,593
|
12%
|
|
|
|
|
|
Interest
Expense
|
(4,732,612)
|
(5,241,236)
|
508,624
|
(10%)
|
●
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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.
|
|
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Page
|
|
|
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REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
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F-2
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CONSOLIDATED
BALANCE SHEETS
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F-3
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CONSOLIDATED
STATEMENTS OF OPERATIONS
|
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F-4
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CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
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F-5
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CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
|
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F-6
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
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F-7
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|
/s/ CHERRY BEKAERT
LLP
|
|
Raleigh, North
Carolina
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March 22, 2017
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MOBILESMITH, INC.
|
|||||
CONSOLIDATED
BALANCE SHEETS
|
ASSETS
|
|
|
|
December 31,
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December 31,
|
|
2016
|
2015
|
Current
Assets
|
|
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Cash
and Cash Equivalents
|
$548,146
|
$580,220
|
Restricted
Cash
|
116,577
|
124,988
|
Trade
Accounts Receivable, Net of Allowance for Doubtful Accounts of
$0 and $16,050, Respectively
|
273,091
|
183,350
|
Prepaid
Expenses and Other Current Assets
|
64,642
|
69,552
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Total
Current Assets
|
1,002,456
|
958,110
|
|
|
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Property
& Equipment, Net
|
104,129
|
98,963
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Capitalized
Software, Net
|
274,833
|
390,518
|
Intangible
Assets, Net
|
37,593
|
55,099
|
Other
Assets
|
-
|
6,264
|
Total
Other Assets
|
416,555
|
550,844
|
Total
Assets
|
$1,419,011
|
$1,508,954
|
|
|
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
Current
Liabilities
|
|
|
Trade
Accounts Payable
|
$43,518
|
$45,717
|
Accrued
Expenses
|
193,836
|
247,858
|
Accrued
Interest
|
455,269
|
350,613
|
Capital
Lease Obligations
|
36,950
|
30,877
|
Deferred
Revenue
|
1,404,951
|
1,007,970
|
Bank
Loan
|
-
|
5,000,000
|
Convertible
Notes Payable, Related Parties, Net of Discount
|
-
|
33,363,488
|
Convertible
Notes Payable, Net of Discount
|
-
|
680,640
|
Total
Current Liabilities
|
2,134,524
|
40,727,163
|
|
|
|
Long-Term
Liabilities
|
|
|
Bank
Loan
|
5,000,000
|
-
|
Convertible
Notes Payable, Related Parties, Net of Discount
|
39,655,579
|
-
|
Convertible
Notes Payable, Net of Discount
|
680,640
|
-
|
Capital
Lease Obligations
|
63,834
|
83,761
|
Deferred
Rent
|
42,189
|
53,592
|
Total
Long-Term Liabilities
|
45,442,242
|
137,353
|
Total
Liabilities
|
47,576,766
|
40,864,516
|
|
|
|
Commitments
and Contingencies (Note 3)
|
|
|
Stockholders'
Deficit
|
|
|
Preferred
Stock, $0.001 Par Value, 5,000,000 Shares Authorized, No Shares
Issued and Outstanding at December 31, 2016 and December 31,
2015
|
-
|
-
|
Common
Stock, $0.001 Par Value, 100,000,000 and 45,000,000 Shares
Authorized At December 31, 2016 and December 31, 2015,
Respectively; 19,827,542 Shares Issued and Outstanding at December
31, 2016 and December 31, 2015
|
19,828
|
19,828
|
Additional
Paid-in Capital
|
98,245,063
|
97,545,601
|
Accumulated
Deficit
|
(144,422,646)
|
(136,920,991)
|
Total
Stockholders' Deficit
|
(46,157,755)
|
(39,355,562)
|
Total
Liabilities and Stockholders' Deficit
|
$1,419,011
|
$1,508,954
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
|
MOBILESMITH,
INC.
|
||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Year Ended
|
|
|
December 31,
|
December 31,
|
|
2016
|
2015
|
REVENUES:
|
|
|
Subscription
and Support
|
$1,861,459
|
$1,657,867
|
Professional
Services and Other
|
4,154
|
162,939
|
Total
Revenue
|
1,865,613
|
1,820,806
|
|
|
|
COST
OF REVENUES:
|
|
|
Subscription
and Support
|
509,247
|
358,257
|
Professional
Services and Other
|
62,546
|
100,342
|
Total
Cost of Revenue
|
571,793
|
458,599
|
|
|
|
GROSS
PROFIT
|
1,293,820
|
1,362,207
|
|
|
|
OPERATING
EXPENSES:
|
|
|
Sales
and Marketing
|
1,153,336
|
1,175,636
|
Research
and Development
|
1,700,617
|
1,427,172
|
General
and Administrative
|
1,378,730
|
1,231,137
|
Other
|
(3,144)
|
7,020
|
Total
Operating Expenses
|
4,229,539
|
3,840,965
|
LOSS
FROM OPERATIONS
|
(2,935,719)
|
(2,478,758)
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
Other
Income
|
166,676
|
3,085
|
Interest
Expense, Net
|
(4,732,612)
|
(5,241,236)
|
|
|
|
Total
Other Expense
|
(4,565,936)
|
(5,238,151)
|
|
|
|
NET
LOSS
|
$(7,501,655)
|
$(7,716,909)
|
|
|
|
NET
LOSS PER COMMON SHARE:
|
|
|
Basic
and Fully Diluted
|
$(0.38)
|
$(0.39)
|
WEIGHTED-AVERAGE
NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON
SHARE:
|
||
Basic
And Fully Diluted
|
19,827,542
|
19,827,542
|
|
Year Ended
|
|
|
December 31,
|
December 31,
|
|
2016
|
2015
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Net
Loss
|
$(7,501,655)
|
$(7,716,909)
|
Adjustments
to Reconcile Net Loss to Net Cash Used in Operating
Activities:
|
|
|
Depreciation
and Amortization
|
165,351
|
162,447
|
Bad
Debt Expense (Gain on Reversal of Bad Debt)
|
34,500
|
(1,450)
|
Amortization
of Debt Discount
|
1,408,873
|
2,335,151
|
Share
Based Compensation
|
132,680
|
85,233
|
Impairment
of Long Lived Assets
|
8,356
|
7,020
|
Changes
in Assets and Liabilities:
|
|
|
Accounts
Receivable
|
(124,241)
|
12,007
|
Prepaid
Expenses and Other Assets
|
11,174
|
10,469
|
Accounts
Payable
|
(2,199)
|
(49,145)
|
Deferred
Revenue
|
396,981
|
428,706
|
Accrued
and Other Expenses
|
39,230
|
(17,572)
|
Net
Cash Used in Operating Activities
|
(5,430,950)
|
(4,744,043)
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
Payments
to Acquire Property, Plant and Equipment
|
(27,316)
|
(17,658)
|
Net
Cash Used in Investing Activities
|
(27,316)
|
(17,658)
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
Restricted
Cash Used to Pay Interest Expense
|
220,177
|
195,316
|
Deposit
of Cash to Restricted Account
|
(211,766)
|
(195,304)
|
Proceeds
From Issuance of Long Term Debt
|
5,450,000
|
5,050,000
|
Repayments
of Debt Borrowings
|
(32,219)
|
(28,377)
|
Net
Cash Provided by Financing Activities
|
5,426,192
|
5,021,635
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(32,074)
|
259,934
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
580,220
|
320,286
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$548,146
|
$580,220
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
Cash
Paid During the Period for Interest
|
$3,262,119
|
$3,042,537
|
|
|
|
Non-Cash
Investing and Financing Activities
|
|
|
The
Company Recorded Debt Discount Associated with Beneficial
Conversion Feature
|
$566,782
|
$6,994
|
The
Company Acquired an Auto
Finance Loan to Finance a
Purchase of a Company
Vehicle
|
$18,365
|
$-
|
|
Common Stock
|
Additional Paid-In Capital
|
Accumulated Deficit
|
Totals
|
|
|
|
|
|
|
|
|
Shares
|
Par Value
|
|
|
|
BALANCES, DECEMBER 31, 2014
|
19,827,542
|
$19,828
|
$97,453,374
|
$(129,204,082)
|
$(31,730,880)
|
|
|
|
|
|
|
Equity-Based
Compensation
|
|
-
|
85,223
|
-
|
85,223
|
Beneficial
Conversion Feature Recorded as a Result of Issuance of Convertible
Debt
|
|
-
|
6,994
|
-
|
6,994
|
Net
Loss
|
|
-
|
-
|
(7,716,909)
|
(7,716,909)
|
|
|
|
|
|
|
BALANCES, DECEMBER 31, 2015
|
19,827,542
|
$19,828
|
$97,545,601
|
$(136,920,991)
|
$(39,355,562)
|
|
|
|
|
|
|
Equity-Based
Compensation
|
|
-
|
132,680
|
-
|
132,680
|
Beneficial
Conversion Feature Recorded as a Result of Issuance of Convertible
Debt
|
|
-
|
566,782
|
-
|
566,782
|
Net
Loss
|
|
-
|
-
|
(7,501,655)
|
(7,501,655)
|
BALANCES, DECEMBER 31, 2016
|
19,827,542
|
$19,828
|
$98,245,063
|
$(144,422,646)
|
$(46,157,755)
|
1.
|
SUMMARY
OF BUSINESS AND DESCRIPTION OF GOING CONCERN
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
●
|
persuasive evidence
of an arrangement exists;
|
●
|
delivery has
occurred;
|
●
|
the fees are fixed
or determinable; and
|
●
|
collection is
considered reasonably assured.
|
Computer hardware
and office equipment
|
5
years
|
Computer
software
|
5
years
|
Furniture and
fixtures
|
5
years
|
Leasehold
improvements
|
Shorter of the
estimated useful life or the lease term
|
Dividend
yield
|
|
|
0.00
|
%
|
Expected
volatility
|
|
|
58.00
|
%
|
Risk-free interest
rate
|
|
|
1.56
|
%
|
Expected lives
(years)
|
|
|
4.9
|
|
3.
|
PROPERTY
AND EQUIPMENT AND CAPITALIZED SOFTWARE
|
|
December 31,
|
December 31,
|
|
2016
|
2015
|
|
|
|
Computer
hardware
|
$102,203
|
$85,547
|
Computer
software
|
37,884
|
37,884
|
Furniture
and fixtures
|
89,580
|
78,919
|
Equipment
|
25,558
|
7,193
|
Leasehold
improvements
|
34,162
|
34,162
|
|
289,386
|
243,705
|
Less
accumulated depreciation
|
(185,257)
|
(144,742)
|
Property
and equipment, net
|
$104,129
|
$98,963
|
|
December 31,
|
December 31,
|
|
2016
|
2015
|
|
|
|
Capitalized
software
|
$736,678
|
$756,175
|
Less
accumulated amortization
|
(461,845)
|
(365,657)
|
Capitalized
software, net
|
$274,833
|
$390,518
|
4.
|
INTANGIBLE
ASSETS
|
|
December 31,
2016
|
December 31,
2015
|
||||
|
Gross
|
|
Net
|
Gross
|
|
Net
|
Asset Category
|
Carrying
|
Accumulated
|
Carrying
|
Carrying
|
Accumulated
|
Carrying
|
|
Amount
|
Amortization
|
Amount
|
Amount
|
Amortization
|
Amount
|
Acquired license
and costs
|
$108,534
|
$74,940
|
$33,594
|
$108,534
|
$59,435
|
$49,099
|
Other
|
10,000
|
6,001
|
3,999
|
10,000
|
4,000
|
6,000
|
Total
|
$118,534
|
$80,941
|
$37,593
|
$118,534
|
$63,435
|
$55,099
|
|
|
|
|
|
|
|
Year ending December 31:
|
|
2017
|
$17,505
|
2018
|
17,505
|
2019
|
2,583
|
|
$37,593
|
5.
|
DEBT
|
Debt Description
|
December 31,
|
December 31,
|
|
|
|
2016
|
2015
|
Maturity
|
Rate
|
|
|
|
|
|
Comerica
Bank Loan and Security Agreement
|
$5,000,000
|
$5,000,000
|
June
2018
|
3.85%
|
Capital
lease obligations - Noteholder lease
|
69,717
|
92,270
|
August
2019
|
8.00%
|
Capital
lease obligations - office furniture and other
equipment
|
14,044
|
22,368
|
August
2018
|
9.80%
|
Capital
lease obligations - vehicle
|
17,023
|
-
|
July
2021
|
5.59%
|
Convertible
notes - related parties, net of discount of $1,168,652 and
$2,010,743, respectively
|
39,655,579
|
33,363,488
|
November
2018
|
8.00%
|
Convertible
notes, net of discount of $50,129
|
680,640
|
680,640
|
November
2018
|
8.00%
|
Total
debt
|
45,437,003
|
39,158,766
|
|
|
|
|
|
|
|
Less: current
portion of long term debt
|
|
|
|
|
Capital
lease obligations
|
36,950
|
30,877
|
|
|
Comerica
Bank LSA
|
-
|
5,000,000
|
|
|
Convertible
notes - related parties, net of discount of $2,010,743
|
-
|
33,363,488
|
|
|
Convertible
notes, net of discount of $50,129
|
-
|
680,640
|
|
|
|
|
|
|
|
Total
current portion of long term debt
|
36,950
|
39,075,005
|
|
|
|
|
|
|
|
Debt
- long term
|
$45,400,053
|
$83,761
|
|
|
Convertible
Notes Type:
|
Balance
|
|
|
2007 NPA
notes, net of discount
|
$29,666,930
|
2014 NPA
notes, net of discount
|
10,669,289
|
Total
convertible notes
|
$40,336,219
|
●
|
a maturity date of
the earlier of (i) November 14, 2018, (ii) a Change of Control (as
defined in the 2014 NPA), or (iii) when, upon or after the
occurrence of an Event of Default (as defined in the 2014 NPA),
other than for a bankruptcy related, such amounts are declared due
and payable by at least two-thirds of the aggregate outstanding
principal amount of the 2014 NPA Notes;
|
●
|
an interest rate of
8% per year, with accrued interest payable in cash in quarterly
installments commencing on the third month anniversary of the date
of issuance of the 2014 NPA Note with the
final installment payable on the maturity date of the
note;
|
●
|
a conversion price
per share that is fixed at $1.43;
|
●
|
optional conversion
upon noteholder request; provided that, if at the time of any such
request, the Company does not have a sufficient number of shares of
common stock authorized to allow for such conversion, the
noteholder may only convert that portion of their Notes outstanding
for which the Company has a sufficient number of authorized shares
of common stock. To the extent multiple noteholders
under the 2014 NPA, the 2007 NPA, or both, request conversion of
its notes on the same date, any limitations on conversion shall be
applied on a pro rata basis. In such case, the noteholder may
request that the Company call a special meeting of its stockholders
specifically for the purpose of increasing the number of shares of
common stock authorized to cover conversions of the remaining
portion of the notes outstanding as well as the maximum issuances
contemplated pursuant to the Company’s 2004 Equity
Compensation Plan, within 90 calendar days after the
Company’s receipt of such request; and
|
●
|
may not be prepaid
without the consent of holders of at least two-thirds of the
aggregate outstanding principal amount of 2014 NPA
Notes.
|
●
|
a maturity date of
the earlier of (i) November 14, 2018, (ii) a Change of Control (as
defined in the amended 2007 NPA), or (iii) when, upon or after the
occurrence of an Event of Default (as defined in the amended 2007
NPA) such amounts are declared due and payable by a 2007 NPA
Noteholder or made automatically due and payable in accordance with
the terms of the 2007 NPA;
|
●
|
an interest rate of
8% per year;
|
●
|
a total borrowing
commitment of $33.3 million;
|
●
|
a conversion price
that is fixed at $1.43; and
|
●
|
optional conversion
upon 2007 NPA Noteholder request, provided that, if at the time of
any such request, the Company does not have a sufficient number of
shares of common stock authorized to allow for such conversion, as
well as the issuance of the maximum amount of common stock
permitted under the Company’s 2004 Equity Compensation Plan,
the 2007 NPA Noteholder may request that the Company call a special
meeting of its stockholders specifically for the purpose of
increasing the number of shares of common stock authorized to cover
the remaining portion of the Notes outstanding as well as the
maximum issuances permitted under the 2004 Equity Compensation
Plan.
|
|
●
|
|
a maturity date of
June 9, 2018;
|
|
●
|
|
a variable interest
rate at prime plus 0.6% payable quarterly;
|
|
●
|
|
secured by
substantially all of the assets of the Company, including the
Company’s intellectual property;
|
|
●
|
|
secured by an
extended irrevocable SBLC issued by UBS AG (Geneva, Switzerland)
(“UBS AG”) with an initial term expiring on May 31,
2015, which term is automatically renewable for one year periods,
unless notice of non-renewal is given by UBS AG at least 45 days
prior to the then current expiration date (no such notice has been
given and SBLC was extended to expire on May 31, 2017);
and
|
|
●
|
|
acceleration of
payment of all amounts due thereunder upon the occurrence and
continuation of certain events of default, including but not
limited to, failure by the Company to perform its obligations,
observe the covenants made by it under the LSA, failure to renew
the UBS AG SBLC, and insolvency of the Company.
|
Year:
|
|
2017
|
$43,477
|
2018
|
38,407
|
2019
|
23,631
|
2020
|
4,219
|
Thereafter
|
2,461
|
|
112,195
|
Less amount
representing interest
|
(11,411)
|
Capital lease
obligations
|
$100,784
|
|
|
6.
|
COMMITMENTS
AND CONTINGENCIES
|
Year:
|
|
|
|
2017
|
$167,786
|
2018
|
172,418
|
2019
|
44,082
|
Total
|
$384,286
|
7.
|
STOCKHOLDERS’
DEFICIT
|
|
|
|
Weighted
|
|
|
|
Weighted
|
Average
|
Aggregate
|
|
Number
of
|
Average
|
Remaining
|
Intrinsic
|
|
Shares
|
Exercise
Price
|
Contractual Term
|
Value
|
|
|
|
|
|
Outstanding,
December 31, 2014
|
403,661
|
$1.45
|
|
|
Cancelled
|
(42,312)
|
1.53
|
|
|
Issued
|
-
|
-
|
|
|
Outstanding,
December 31, 2015
|
361,349
|
1.44
|
|
|
Cancelled
|
(146,409)
|
1.52
|
|
|
Issued
|
1,968,860
|
1.49
|
|
|
Outstanding,
December 31, 2016
|
2,184,160
|
$1.48
|
4.28
|
$31,760
|
Vested and
exercisable, December 31, 2016
|
335,813
|
$1.41
|
3.37
|
$31,070
|
8.
|
INCOME
TAXES
|
|
December 31,
|
December 31,
|
|
2016
|
2015
|
Net
Current Deferred Income Tax Assets Related To:
|
|
|
Allowance
For Doubtful Accounts
|
$73,000
|
$81,000
|
Depreciation
And Amortization
|
144,000
|
141,000
|
Impairment
Charges
|
34,000
|
30,000
|
Stock-Based
Compensation Expenses
|
91,000
|
91,000
|
Accrued
Liabilities
|
11,000
|
11,000
|
Other
|
3,923
|
7,000
|
Net
Operating Loss Carryforwards
|
35,916,000
|
33,617,000
|
Total
|
36,272,923
|
33,978,000
|
Less
Valuation Allowance
|
(36,272,923)
|
(33,978,000)
|
Net
Current Deferred Income Tax
|
$-
|
$-
|
|
December 31,
|
December 31,
|
|
2016
|
2015
|
|
|
|
Tax
Benefit Computed At Statutory Rate Of 34%
|
$(2,550,563)
|
$(2,623,749)
|
State
Income Tax Benefit, Net Of Federal Effect
|
(341,625)
|
(351,428)
|
Permanent
Differences
|
|
|
Stock-Based
Compensation
|
51,153
|
32,861
|
Debt
Discount Amortization
|
543,177
|
900,294
|
Other
|
2,935
|
(4,978)
|
Change
In Valuation Allowance - Continuing Operations
|
2,294,923
|
2,047,000
|
Totals
|
$-
|
$-
|
9.
|
MAJOR
CUSTOMERS AND CONCENTRATIONS
|
10.
|
EMPLOYEE
BENEFIT PLAN
|
11.
|
SUBSEQUENT
EVENTS
|
(i)
|
pertain to the
maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our
assets;
|
|
|
(ii)
|
provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations
of our management and directors; and
|
|
|
(iii)
|
provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
|
Name
|
|
Age
|
|
Position
|
|
Officer Since
|
|
|
|
|
|
|
|
EXECUTIVE OFFICERS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bob Dieterle
|
|
50
|
|
Chief
Executive Officer
|
|
2014
|
Gleb Mikhailov
|
|
37
|
|
Chief
Financial Officer
|
|
2013
|
Name
|
|
Age
|
|
Position
|
|
Director Since
|
|
|
|
|
|
|
|
DIRECTORS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randy J.
Tomlin
|
|
57
|
|
Director, Chairman
of the Board
|
|
2016
|
Ronen
Shviki
|
|
46
|
|
Director
|
|
2013
|
Jon
Campbell
|
|
52
|
|
Director
|
|
2013
|
Amir
Elbaz
|
|
40
|
|
Director
|
|
2010*
|
Name and Principal Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Option Awards ($) (1)
|
All Other Compensation ($)
|
Total
($)
|
|
|
|
|
|
|
|
Amir
Elbaz
|
2015
|
$180,000
|
$
|
$-
|
$-
|
$180,000
|
Chief
Executive Officer (2)
|
2016
|
$180,000
|
$
|
$127,300
|
$-
|
$307,300
|
|
|
|
|
|
|
|
Bob
Dieterle
|
2015
|
$142,866
|
$
|
$-
|
$22,695(3)
|
$165,561
|
Chief
Executive Officer (3)
|
2016
|
$169,033
|
$
|
$117,250
|
$21,302(3)
|
$307,585
|
|
|
|
|
|
|
|
Gleb
Mikhailov
|
2015
|
$121,200
|
$
|
$-
|
$-
|
$121,200
|
Chief
Financial Officer
|
2016
|
$132,200
|
$
|
$90,450
|
$-
|
$222,650
|
(1)
|
Amounts in this
column reflect the aggregate grant date fair value computed in
accordance with FASB ASC 718 with respect to employee stock options
granted under our Equity Incentive Plan. The assumptions used to
calculate the fair value of stock option grant are set forth in
Note 2 (Significant Accounting Policies) to our financial
statements, which are included in the Annual Report on Form
10-K. The grant-date fair value does not necessarily reflect
the value of shares which may be received in the future with
respect to these awards. The fair value of the stock options will
likely vary from the actual value the holder receives because the
actual value depends on the number of options exercised and the
market price of our Common Stock on the date of
exercise.
|
(2)
|
Mr. Elbaz has
served on the Board since January 2010, as Chairman of the Board
since November 2012 and as Chief Executive Officer of the Company
since May 1, 2013. Mr. Elbaz resigned from his positions of a
Chairman and CEO in January of 2017.
|
(3)
|
Mr. Dieterle has
served as Senior Vice President and General Manager of the Company
since February 2011 and Chief Operating Officer since May 13, 2014
and as CEO since January 17, 2017. Mr. Dieterle
receives monthly commissions tied to revenue realized from
customers. Such commissions are included in "All Other
Compensation" column in the table above.
|
Name
|
Grant
Date
|
All Other Stock
Awards:
Number of
Shares of Stock
or Units
(#)
|
Grant Date/Fair
Value of Stock and
Option Awards
($)
|
|
|
|
|
Amir
Elbaz,
|
11/21/2016
|
190,000
|
127,300
|
Former Chairman of
the Board, Former Chief Executive Officer, and
Director
|
|
|
|
Bob
Dieterle,
|
11/21/2016
|
175,000
|
117,250
|
Chief Executive
Officer
|
|
|
|
Gleb
Mikhailov,
|
11/21/2016
|
135,000
|
90,450
|
Chief Financial
Officer, Treasurer and Vice President
|
|
|
|
|
Option Awards
|
|
|
|
|
Number of
|
Number of
|
|
|
|
securities
|
Securities
|
|
|
|
underlying
|
underlying
|
|
|
|
unexercised
|
unexercised
|
|
|
|
options (#)
|
Option (#)
|
Option exercise
|
|
Name
|
Exercisable
|
Unexercisable
|
price ($/Sh)
|
Option expiration date
|
|
|
|
|
|
Randy
J Tomlin
|
65,988
|
402,872
|
$1.50
|
8/1/2023
|
Amir
Elbaz
|
20,000
|
-
|
$1.14
|
3/25/2020
|
Amir
Elbaz
|
7,037
|
182,963
|
$1.49
|
11/21/2020
|
Bob
Dieterle
|
75,000
|
-
|
$1.14
|
3/25/2020
|
Bob
Dieterle
|
6,481
|
168,519
|
$1.49
|
11/21/2020
|
Gleb
Mikhailov
|
5,000
|
130,000
|
$1.49
|
11/21/2020
|
|
|
Base
Salary
($)
|
|
|
Continuation
of Benefits
($)
|
|
|
Accrued
Vacation Pay
($)
|
|
|
Total Payments and Value of Equity Awards
($)
|
|
||||
Payments
|
|
$
|
45,000
|
|
|
$
|
2,500
|
|
|
$
|
700
|
|
|
$
|
48,200
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Total
Payments
|
|
||||
|
|
|
|
|
Continuation
|
|
|
Vacation
|
|
|
and
Value of
|
|
||||
|
|
Base
Salary
|
|
|
of
Benefits
|
|
|
Pay
|
|
|
Equity
Awards
|
|
||||
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
||||
Payments
|
|
$
|
225,000
|
|
|
$
|
2,500
|
|
|
$
|
700
|
|
|
$
|
228,200
|
|
Name
|
|
Fees
Earned or Paid in Cash ($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)
|
|
|
All
Other Compensation ($)
|
|
|
Total
($)
|
|
|||||
Ronen
Shviki
|
|
$
|
18,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,000
|
|
Jon
Campbell
|
|
$
|
18,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,000
|
|
Randy J
Tomlin
|
|
$
|
16,771
|
|
|
$
|
-
|
|
|
$
|
436,040
|
|
|
$
|
-
|
|
|
$
|
452,811
|
|
|
|
% of Shares Beneficially
|
Name and Address of Beneficial Owner
(1)
|
Shares Beneficially Owned(2)
|
Owned
|
|
|
|
Avy
Lugassy
|
|
|
126 Chemin des Hauts, Crets 1253
Vandeeuvres, Geneva. Switzerland (3)
|
18,498,998
|
62.70%
|
|
|
|
Union Bancaire Privee, UBP
SA (4)
|
19,067,958
|
49.0%
|
Rue
du Rhone 9698 | CP | CH1211 Geneva 1,
Switzerland
|
|
|
|
|
|
Doron Rotler
(5)
|
2,929,734
|
14.40%
|
c/o
S. Rotler
|
|
|
134
Aluf David Street Ramat Gan 52236, Israel
|
|
|
|
|
|
Directors and Named Executive Officers:
|
|
|
Randy
J. Tomlin, Chairman of the Board
|
105,059(6)
|
*
|
Bob
Dieterle, Chief Executive Officer
|
96,065(6)
|
*
|
Gleb
Mikhailov, Chief Financial Officer
|
16,250(6)
|
*
|
Amir
Elbaz, Director
|
42,870(6)
|
|
Jon
Campbell, Director
|
-
|
*
|
Ronen
Shviki, Director
|
-
|
*
|
|
|
|
|
|
|
All executive officers and directors as a group (6)
persons
|
260,245
|
1.30%
|
|
|
|
|
Number of
|
|
|
|
|
|
securities
|
|
|
|
|
|
remaining
|
|
|
|
|
|
available for
|
|
|
Number of
|
|
|
future issuance
|
|
|
securities to be
|
|
Weighted
|
under equity
|
|
|
issued upon
|
|
average
|
compensation
|
|
|
exercise of
|
|
exercise price
|
plans
|
|
|
outstanding
|
|
of outstanding
|
(excluding
|
|
|
options,
|
|
options,
|
securities
|
|
|
warrants and
|
|
warrants and
|
reflected in
|
|
Plan Category
|
rights (a)
|
|
rights (b)
|
column (a)(c))
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
|
2,184,160
|
(1)
|
$
1.48
|
13,031,140
|
(2)
|
Equity
compensation plans not approved by security holders
|
|
|
|
|
|
Total
|
2,184,160
|
|
$
1.48
|
13,031,140
|
|
(1)
|
Consists of shares
issuable upon exercise of outstanding options under the
Company’s 2004 and 2016 Equity Compensation
Plans.
|
(2)
|
All of the shares
remaining for future issuance under the 2016 Equity Compensation
Plan are available for issuance as options or restricted stock
awards.
|
|
|
Twelve
months ended December 31,
|
|
|
Twelve
months ended December 31,
|
|
||
|
|
2016
|
|
|
2015
|
|
||
Audit
Fees
|
|
$
|
75,500
|
|
|
$
|
75,000
|
|
Audit-Related
Fees
|
|
2,500
|
|
|
None
|
|
||
Tax
Fees
|
|
None
|
|
|
None
|
|
||
All Other
Fees
|
|
None
|
|
|
None
|
|
||
Total
Fees
|
|
$
|
78,000
|
|
|
$
|
75,000
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(a)
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(1)
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Financial
Statements:
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Report of
Independent Registered Public Accounting Firm
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FINANCIAL
STATEMENTS:
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Consolidated
Balance Sheets as of December 31, 2016 and 2015
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Consolidated
Statements of Operations for the Years Ended December 31, 2016
and 2015
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Consolidated
Statements of Cash Flows for the Years Ended December 31, 2016
and 2015
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Consolidated
Statements of Stockholders’ Deficit for the Years Ended
December 31, 2016 and 2015
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Notes to
Consolidated Financial Statements
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3.1
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Amended and
Restated Certificate of Incorporation, dated January 4, 2005, as
amended to date (incorporated herein by reference to Exhibit 3.1 to
our Quarterly Report on Form 10-Q, as filed with the SEC on August
14, 2013)
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3.2
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Seventh Amended and
Restated Bylaws, effective July 1, 2013 (incorporated herein by
reference to Exhibit 3.3 to our Quarterly Report on Form 10-Q, as
filed with the SEC on August 14, 2013)
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4.1
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Specimen Common
Stock Certificate (filed herewith)
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4.2
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Convertible Secured
Subordinated Note Purchase Agreement, dated November 14, 2007, by
and among Smart Online, Inc. and certain investors (incorporated
herein by reference to Exhibit 4.1 to our Quarterly Report on Form
10-Q, as filed with the SEC on November 14, 2007)
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4.3
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Form of Convertible
Secured Subordinated Promissory Note (incorporated herein by
reference to Exhibit 4.2 to our Quarterly Report on Form 10-Q, as
filed with the SEC on November 14, 2007)
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4.4
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First Amendment to
Convertible Secured Subordinated Note Purchase Agreement, dated
August 12, 2008, by and among Smart Online, Inc. and certain
investors (incorporated herein by reference to Exhibit 4.1 to our
Quarterly Report on Form 10-Q, as filed with the SEC on November
12, 2008)
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4.5
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Second Amendment
and Agreement to Join as a Party to Convertible Secured
Subordinated Note Purchase Agreement and Registration Rights
Agreement, dated November 21, 2008, by and among Smart Online, Inc.
and certain investors (incorporated herein by reference to Exhibit
4.5 to our Annual Report on Form 10-K, as filed with the SEC on
March 30, 2009)
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4.6
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Third Amendment to
Convertible Secured Subordinated Note Purchase Agreement and
Registration Rights Agreement and Amendment to Convertible Secured
Subordinated Promissory Notes, dated February 24, 2009, by and
among Smart Online, Inc. and certain investors (incorporated herein
by reference to Exhibit 4.6 to our Annual Report on Form 10-K, as
filed with the SEC on March 30, 2009)
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4.7
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Form of Convertible
Secured Subordinated Promissory Note to be issued post January 2009
(incorporated herein by reference to Exhibit 4.7 to our Annual
Report on Form 10-K, as filed with the SEC on March 30,
2009)
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4.8
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Fourth Amendment to
Convertible Secured Subordinated Note Purchase Agreement, Second
Amendment to Convertible Secured Subordinated Promissory Notes and
Third Amendment to Registration Rights Agreement, dated March 5,
2010, by and among Smart Online, Inc. Atlas Capital S.A. and
Crystal Management Ltd. (incorporated herein by reference to
Exhibit 99.1 to our Current Report on Form 8-K, as filed with the
SEC on March 8, 2010).
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4.9
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Form of Convertible
Secured Subordinated Promissory Note to be issued post March 5,
2010 (incorporated herein by reference to Exhibit 99.1 to our
Current Report on Form 8-K, as filed with the SEC on March 8,
2010).
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4.10
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Fifth Amendment to
Convertible Secured Subordinated Note Purchase Agreement, Third
Amendment to Convertible Secured Subordinated Promissory Notes and
Fourth Amendment to Registration Rights Agreement, dated June 13,
2012, by and among Smart Online, Inc., Atlas Capital S.A. and
Crystal Management Ltd. (incorporated herein by reference to
Exhibit 99.1 to Form 8-K, as filed with the SEC on June 19,
2012)
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4.11
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Sixth Amendment and
Agreement to Join as a Party to Convertible Secured Subordinated
Note Purchase Agreement, Fourth Amendment to Convertible Secured
Subordinated Promissory Notes and Fifth Amendment and Agreement to
Join as a Party to Registration Rights Agreement, dated June 26,
2013, by and among Smart Online, Inc., Grasford Investments Ltd.,
Atlas Capital S.A. and Crystal Management Ltd. (incorporated herein
by reference to Exhibit 10.1 to Form 8-K, as filed with the SEC on
July 2, 2013)
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4.12
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Seventh Amendment
to Convertible Secured Subordinated Note Purchase Agreement and
Fifth Amendment to Convertible Secured Subordinated Promissory
Notes (incorporated herein by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q, as filed with the SEC on May 5,
2015
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4.13
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Eighth Amendment to
Convertible Secured Subordinated Note Purchase Agreement and Sixth
Amendment to Convertible Secured Subordinated Promissory Note
(incorporated herein by reference to Form 8-K, as filed with the
SEC on June 13, 2014)
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10.1*
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2004 Equity
Compensation Plan (incorporated herein by reference to Exhibit 10.1
to our Registration Statement on Form SB-2, as filed with the SEC
on September 30, 2004)
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10.2*
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Form of Incentive
Stock Option Agreement under 2004 Equity Compensation Plan
(incorporated herein by reference to Exhibit 10.2 to our Annual
Report on Form 10-K, as filed with the SEC on July 11,
2006)
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10.3*
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Form of Incentive
Stock Option Agreement under Smart Online, Inc.’s 2004 Equity
Compensation Plan (incorporated herein by reference to Exhibit 10.7
to our Quarterly Report on Form 10-Q, as filed with the SEC on May
15, 2007)
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10.4*
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Form of
Non-Qualified Stock Option Agreement under 2004 Equity Compensation
Plan (incorporated herein by reference to Exhibit 10.3 to our
Annual Report on Form 10-K, as filed with the SEC on July 11,
2006)
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10.5*
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Form of
Non-Qualified Stock Option Agreement under Smart Online,
Inc.’s 2004 Equity Compensation Plan (incorporated herein by
reference to Exhibit 10.8 to our Quarterly Report on Form 10-Q, as
filed with the SEC on May 15, 2007)
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10.6*
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Form of revised
Non-Qualified Stock Option Agreement under Smart Online,
Inc.’s 2004 Equity Compensation Plan (incorporated herein by
reference to Exhibit 10.6 to our Annual Report on Form 10-K, as
filed with the SEC on April 15, 2010)
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10.7*
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Form of Restricted
Stock Agreement under Smart Online, Inc.’s 2004 Equity
Compensation Plan (incorporated herein by reference to Exhibit 10.6
to our Quarterly Report on Form 10-Q, as filed with the SEC on May
15, 2007)
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10.8*
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Form of Restricted
Stock Award Agreement (for Employees) under Smart Online,
Inc.’s 2004 Equity Compensation Plan (incorporated herein by
reference to Exhibit 10.1 to our Current Report on Form 8-K, as
filed with the SEC on August 21, 2007)
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10.9*
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Form of Restricted
Stock Agreement for Employees (incorporated herein by reference to
Exhibit 10.1 to Amendment No. 1 to our Current Report on Form 8-K,
as filed with the SEC on February 11, 2008)
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10.10*
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Form of Restricted
Stock Agreement (Non-Employee Director) under Smart Online,
Inc.’s 2004 Equity Compensation Plan (incorporated herein by
reference to Exhibit 10.1 to our Current Report on Form 8-K, as
filed with the SEC on May 31, 2007)
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10.11*
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Form of Restricted
Stock Agreement (Non-Employee Directors) (incorporated herein by
reference to Exhibit 10.3 to our Current Report on Form 8-K, as
filed with the SEC on December 3, 2007)
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10.12*
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Form of revised
Restricted Stock Agreement under Smart Online, Inc.’s 2004
Equity Compensation Plan (Non-Employee Director) (incorporated
herein by reference to Exhibit 10.12 to our Annual Report on Form
10-K, as filed with the SEC on April 15, 2010)
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10.13
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Registration Rights
Agreement, dated November 14, 2007, by and among Smart Online, Inc.
and certain investors (incorporated herein by reference to Exhibit
10.6 to our Quarterly Report on Form 10-Q, as filed with the SEC on
November 14, 2007)
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10.14
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Security Agreement,
dated November 14, 2007, among Smart Online, Inc. and Doron
Roethler, as agent for certain investors (incorporated herein by
reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q, as
filed with the SEC on November 14, 2007)
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10.15
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Letter Agreement
for $6,500,000.00 Term Facility dated December 6, 2010, by Israel
Discount Bank of New York, and agreed and accepted by Smart Online,
Inc. (incorporated herein by reference to Form 8-K, as filed with
the SEC on December 6, 2010)
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10.16
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First Amendment
to Office Lease Agreement dated April 28, 2011, between Smart
Online, Inc. and Nottingham Hall LLC (incorporated herein by
reference to our Annual Report on Form 10-K, as filed with the SEC
on March 20, 2012)
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10.17
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Promissory Note
dated June 6, 2013, made by Smart Online, Inc. for the benefit of
Israel Discount Bank of New York, as lender (incorporated herein by
reference to Exhibit 10.2 to Form 8-K, as filed with the SEC on
July 2, 2013)
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10.18
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Guaranty dated June
6, 2013, made by Atlas Capital, SA for the benefit of Israel
Discount Bank of New York (incorporated by reference to Exhibit
10.3 to Form 8-K, as filed with the SEC on July 2,
2013)
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10.19*
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Professional
Services Agreement, effective as of May 1, 2013, by and between
Smart Online, Inc. and Entre-Strat Consulting, LLC (portions of
this exhibit have been omitted pursuant to a request for
confidential treatment) (incorporated herein by reference to
Exhibit 10.4 to our Quarterly Report on Form 10-Q, as filed with
the SEC on August 14, 2013)
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10.20*
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Partner Agreement,
dated May 24, 2013, by and between Smart Online, Inc. and Jon
Campbell (incorporated by reference herein to Exhibit 10.1 to our
Quarterly Report on Form 10-Q, as filed with the SEC on November
14, 2013)
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10.21
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Amendment to
Security Agreement, dated November 14, 2007, among Smart Online,
Inc. and Doron Roethler, as agent for certain investors
(incorporated herein by reference to Exhibit 10.7 to our Quarterly
Report on Form 10-Q, as filed with the SEC on November 14, 2007),
effective as of June 9, 2014 (incorporated by reference herein to
Exhibit 10.2 to our Quarterly Report on Form 10-Q, as filed with
the SEC on August 13, 2014)
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10.22
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Loan and Security
Agreement dated June 9, 2014 by and between Comerica Bank and
MobileSmith, Inc. (incorporated by reference herein to Exhibit 10.1
to our Quarterly Report on Form 10-Q, as filed with the SEC on
August 13, 2014)
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10.23
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Convertible
Subordinated Note Purchase Agreement dated December 11, 2014
(incorporated herein by reference to Exhibit 4.1 to form 8-K, as
filed with the SEC on December 12, 2014)
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10.24
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Form of Convertible
Subordinated Promissory Note (incorporated herein by reference to
Exhibit 4.1 to form 8-K, as filed with the SEC on December 12,
2014)
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10.25*
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Employment
Agreement between Smart Online, Inc. and Bob Dieterle dated April
1, 2010 (filed
herewith)
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23.1
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Consent of
Independent Registered Public Accounting Firm (filed herewith)
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31.1
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Certification of
Principal Executive Officer Pursuant to Rule
13a-14/15d-14 (filed
herewith)
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31.2
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Certification of
Principal Financial Officer Pursuant to Rule 13a-14/15d-14
(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 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 Annual Report on Form 10-K for
the year ended December 31, 2014, formatted in XBRL (eXtensible
Business Reporting language): (i) the Balance Sheets, (ii) the
Statements of Operations, (iii) the Statements of Cash Flows, (iv)
the Statements of Stockholders’ Deficit and (v) related notes
to these financial statements, tagged as blocks of text and in
detail (filed
herewith)
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/s/
Bob
Dieterle
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/s/ Gleb Mikhailov
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Bob
Dieterle
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Gleb
Mikhailov,
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Chief Executive
Officer (Principal Executive Officer)
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Chief Financial
Officer (Principal Financial Officer and Accounting
Officer)
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Date: March
22, 2017
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Date: March
22, 2017
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March
22, 2017
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By:
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/s/ Bob Dieterle
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Bob
Dieterle
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Chief Executive
Officer
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(principal
executive officer)
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March
22, 2017
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By:
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/s/ Gleb Mikhailov
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Gleb
Mikhailov
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Chief Financial
Officer
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(principal
financial and accounting officer)
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March
22, 2017
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By:
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/s/
Randy J.
Tomlin
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Randy
J. Tomlin
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Chairman
of the Board of Directors
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March
22, 2017
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By:
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/s/
Amir
Elbaz
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Amir
Elbaz
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Director
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March
22, 2017
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By:
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/s/ Ronen Shviki
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Ronen
Shviki
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Director
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March , 22
2017
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By
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/s/ Jon Campbell
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Jon
Campbell
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Director
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Exhibit
No.
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Description
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3.1
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Amended and
Restated Certificate of Incorporation, dated June
7, 2016, as
amended to date (incorporated herein by reference to Exhibit 3.1 to
our Quarterly Report on Form 10-Q, as filed with the SEC on August
4, 2016)
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3.2
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Seventh Amended and
Restated Bylaws, effective July 1, 2013 (incorporated herein by
reference to Exhibit 3.3 to our Quarterly Report on Form 10-Q, as
filed with the SEC on August 14, 2013)
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4.1
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Specimen Common
Stock Certificate (filed herewith)
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4.2
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Convertible Secured
Subordinated Note Purchase Agreement, dated November 14, 2007, by
and among Smart Online, Inc. and certain investors (incorporated
herein by reference to Exhibit 4.1 to our Quarterly Report on Form
10-Q, as filed with the SEC on November 14, 2007)
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4.3
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Form of Convertible
Secured Subordinated Promissory Note (incorporated herein by
reference to Exhibit 4.2 to our Quarterly Report on Form 10-Q, as
filed with the SEC on November 14, 2007)
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4.4
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First Amendment to
Convertible Secured Subordinated Note Purchase Agreement, dated
August 12, 2008, by and among Smart Online, Inc. and certain
investors (incorporated herein by reference to Exhibit 4.1 to our
Quarterly Report on Form 10-Q, as filed with the SEC on November
12, 2008)
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4.5
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Second Amendment
and Agreement to Join as a Party to Convertible Secured
Subordinated Note Purchase Agreement and Registration Rights
Agreement, dated November 21, 2008, by and among Smart Online, Inc.
and certain investors (incorporated herein by reference to Exhibit
4.5 to our Annual Report on Form 10-K, as filed with the SEC on
March 30, 2009)
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4.6
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Third Amendment to
Convertible Secured Subordinated Note Purchase Agreement and
Registration Rights Agreement and Amendment to Convertible Secured
Subordinated Promissory Notes, dated February 24, 2009, by and
among Smart Online, Inc. and certain investors (incorporated herein
by reference to Exhibit 4.6 to our Annual Report on Form 10-K, as
filed with the SEC on March 30, 2009)
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4.7
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Form of Convertible
Secured Subordinated Promissory Note to be issued post January 2009
(incorporated herein by reference to Exhibit 4.7 to our Annual
Report on Form 10-K, as filed with the SEC on March 30,
2009)
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4.8
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Fourth Amendment to
Convertible Secured Subordinated Note Purchase Agreement, Second
Amendment to Convertible Secured Subordinated Promissory Notes and
Third Amendment to Registration Rights Agreement, dated March 5,
2010, by and among Smart Online, Inc. Atlas Capital S.A. and
Crystal Management Ltd. (incorporated herein by reference to
Exhibit 99.1 to our Current Report on Form 8-K, as filed with the
SEC on March 8, 2010).
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4.9
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Form of Convertible
Secured Subordinated Promissory Note to be issued post March 5,
2010 (incorporated herein by reference to Exhibit 99.1 to our
Current Report on Form 8-K, as filed with the SEC on March 8,
2010).
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4.10
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Fifth Amendment to
Convertible Secured Subordinated Note Purchase Agreement, Third
Amendment to Convertible Secured Subordinated Promissory Notes and
Fourth Amendment to Registration Rights Agreement, dated June 13,
2012, by and among Smart Online, Inc., Atlas Capital S.A. and
Crystal Management Ltd. (incorporated herein by reference to
Exhibit 99.1 to Form 8-K, as filed with the SEC on June 19,
2012)
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4.11
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Sixth Amendment and
Agreement to Join as a Party to Convertible Secured Subordinated
Note Purchase Agreement, Fourth Amendment to Convertible Secured
Subordinated Promissory Notes and Fifth Amendment and Agreement to
Join as a Party to Registration Rights Agreement, dated June 26,
2013, by and among Smart Online, Inc., Grasford Investments Ltd.,
Atlas Capital S.A. and Crystal Management Ltd. (incorporated herein
by reference to Exhibit 10.1 to Form 8-K, as filed with the SEC on
July 2, 2013)
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4.12
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Seventh Amendment
to Convertible Secured Subordinated Note Purchase Agreement and
Fifth Amendment to Convertible Secured Subordinated Promissory
Notes (incorporated herein by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q, as filed with the SEC on May 5,
2015
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4.13
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Eighth Amendment to
Convertible Secured Subordinated Note Purchase Agreement and Sixth
Amendment to Convertible Secured Subordinated Promissory Note
(incorporated herein by reference to Form 8-K, as filed with the
SEC on June 13, 2014)
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4.14
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Ninth Amendment to
Convertible Secured Subordinated Note Purchased Agreement, Seventh
Amendment to Convertible Secured Subordinated Promissory Note
and Sixth Amendment to Registration Rights Agreement, dated May 17,
2016 (incorporated by reference to Exhibit 10.1 to Current Report
on form 8-K as filed with the SEC on May 18,
2016
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4.15
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First
Amendment to Convertible Subordinated Note PUrchase Agreement and
First Amendment to Convertible Subordinated Promissory Note dated
May 17, 2016 (incorporated by reference to Exhibit 10.1 to the
Current Report on form 8-K filed with the SEC on May 18,
2016)
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10.1*
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2004 Equity
Compensation Plan (incorporated herein by reference to Exhibit 10.1
to our Registration Statement on Form SB-2, as filed with the SEC
on September 30, 2004)
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10.2*
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Form of Incentive
Stock Option Agreement under 2004 Equity Compensation Plan
(incorporated herein by reference to Exhibit 10.2 to our Annual
Report on Form 10-K, as filed with the SEC on July 11,
2006)
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10.3*
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Form of Incentive
Stock Option Agreement under Smart Online, Inc.’s 2004 Equity
Compensation Plan (incorporated herein by reference to Exhibit 10.7
to our Quarterly Report on Form 10-Q, as filed with the SEC on May
15, 2007)
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10.4*
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Form of
Non-Qualified Stock Option Agreement under 2004 Equity Compensation
Plan (incorporated herein by reference to Exhibit 10.3 to our
Annual Report on Form 10-K, as filed with the SEC on July 11,
2006)
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10.5*
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Form of
Non-Qualified Stock Option Agreement under Smart Online,
Inc.’s 2004 Equity Compensation Plan (incorporated herein by
reference to Exhibit 10.8 to our Quarterly Report on Form 10-Q, as
filed with the SEC on May 15, 2007)
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10.6*
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Form of revised
Non-Qualified Stock Option Agreement under Smart Online,
Inc.’s 2004 Equity Compensation Plan (incorporated herein by
reference to Exhibit 10.6 to our Annual Report on Form 10-K, as
filed with the SEC on April 15, 2010)
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10.7*
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Form of Restricted
Stock Agreement under Smart Online, Inc.’s 2004 Equity
Compensation Plan (incorporated herein by reference to Exhibit 10.6
to our Quarterly Report on Form 10-Q, as filed with the SEC on May
15, 2007)
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10.8*
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Form of Restricted
Stock Award Agreement (for Employees) under Smart Online,
Inc.’s 2004 Equity Compensation Plan (incorporated herein by
reference to Exhibit 10.1 to our Current Report on Form 8-K, as
filed with the SEC on August 21, 2007)
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10.9*
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Form of Restricted
Stock Agreement for Employees (incorporated herein by reference to
Exhibit 10.1 to Amendment No. 1 to our Current Report on Form 8-K,
as filed with the SEC on February 11, 2008)
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10.10*
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Form of Restricted
Stock Agreement (Non-Employee Director) under Smart Online,
Inc.’s 2004 Equity Compensation Plan (incorporated herein by
reference to Exhibit 10.1 to our Current Report on Form 8-K, as
filed with the SEC on May 31, 2007)
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10.11*
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Form of Restricted
Stock Agreement (Non-Employee Directors) (incorporated herein by
reference to Exhibit 10.3 to our Current Report on Form 8-K, as
filed with the SEC on December 3, 2007)
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10.12*
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Form of revised
Restricted Stock Agreement under Smart Online, Inc.’s 2004
Equity Compensation Plan (Non-Employee Director) (incorporated
herein by reference to Exhibit 10.12 to our Annual Report on Form
10-K, as filed with the SEC on April 15, 2010)
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10.13
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Registration Rights
Agreement, dated November 14, 2007, by and among Smart Online, Inc.
and certain investors (incorporated herein by reference to Exhibit
10.6 to our Quarterly Report on Form 10-Q, as filed with the SEC on
November 14, 2007)
|
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10.14
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Security Agreement,
dated November 14, 2007, among Smart Online, Inc. and Doron
Roethler, as agent for certain investors (incorporated herein by
reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q, as
filed with the SEC on November 14, 2007)
|
10.15
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First Amendment
to Office Lease Agreement dated April 28, 2011, between Smart
Online, Inc. and Nottingham Hall LLC (incorporated herein by
reference to our Annual Report on Form 10-K, as filed with the SEC
on March 20, 2012)
|
10.17
|
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Guaranty dated June
6, 2013, made by Atlas Capital, SA for the benefit of Israel
Discount Bank of New York (incorporated by reference to Exhibit
10.3 to Form 8-K, as filed with the SEC on July 2,
2013)
|
10.18*
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|
Professional
Services Agreement, effective as of May 1, 2013, by and between
Smart Online, Inc. and Entre-Strat Consulting, LLC (portions of
this exhibit have been omitted pursuant to a request for
confidential treatment) (incorporated herein by reference to
Exhibit 10.4 to our Quarterly Report on Form 10-Q, as filed with
the SEC on August 14, 2013)
|
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10.19*
|
|
Partner Agreement,
dated May 24, 2013, by and between Smart Online, Inc. and Jon
Campbell (incorporated by reference herein to Exhibit 10.1 to our
Quarterly Report on Form 10-Q, as filed with the SEC on November
14, 2013)
|
|
|
|
10.20
|
|
Amendment to
Security Agreement, dated November 14, 2007, among Smart Online,
Inc. and Doron Roethler, as agent for certain investors
(incorporated herein by reference to Exhibit 10.7 to our Quarterly
Report on Form 10-Q, as filed with the SEC on November 14, 2007),
effective as of June 9, 2014 (incorporated by reference herein to
Exhibit 10.2 to our Quarterly Report on Form 10-Q, as filed with
the SEC on August 13, 2014)
|
|
|
|
10.21
|
|
Loan and Security
Agreement dated June 9, 2014 by and between Comerica Bank and
MobileSmith, Inc. (incorporated by reference herein to Exhibit 10.1
to our Quarterly Report on Form 10-Q, as filed with the SEC on
August 13, 2014)
|
|
|
|
10.22
|
|
Convertible
Subordinated Note Purchase Agreement dated December 11, 2014
(incorporated herein by reference to Exhibit 4.1 to form 8-K, as
filed with the SEC on December 12, 2014)
|
|
|
|
10.23
|
|
Form of Convertible
Subordinated Promissory Note (incorporated herein by reference to
Exhibit 4.1 to form 8-K, as filed with the SEC on December 12,
2014)
|
|
|
|
10.24
|
|
Employment
Agreement between MobileSmith Inc. and Bob Dieterle dated April 1,
2010 (incorporated herein by reference to Exhibit 10.25 to form
10-K, as filedwith the SEC on March 20, 2015)
|
|
|
|
10.25
|
|
2016 Equity
Compensation Plan (incorporated by reference to the definitive
Proxy Statement on Schedule 14D filed with the SEC on April 12,
2016)
|
|
|
|
23.1
|
|
Consent of
Independent Registered Public Accounting Firm (filed herewith)
|
|
|
|
31.1
|
|
Certification of
Principal Executive Officer Pursuant to Rule
13a-14/15d-14 (filed
herewith)
|
|
|
|
31.2
|
|
Certification of
Principal Financial Officer Pursuant to Rule 13a-14/15d-14
(filed
herewith)
|
|
|
|
32.1
|
|
Certification of
Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
(furnished
herewith)
|
|
|
|
32.2
|
|
Certification of
Principal Financial Officer Pursuant to 18 U.S.C. Section 1350
(furnished
herewith)
|
|
|
|
101.1
|
|
The following
materials from the Company’s Annual Report on Form 10-K for
the year ended December 31, 2016, formatted in XBRL (eXtensible
Business Reporting language): (i) the Balance Sheets, (ii) the
Statements of Operations, (iii) the Statements of Cash Flows, (iv)
the Statements of Stockholders’ Deficit and (v) related notes
to these financial statements, tagged as blocks of text and in
detail (filed
herewith)
|
1.
|
I have reviewed
this Annual Report on Form 10-K for the year ended December 31,
2016 of MobileSmith, Inc.;
|
2.
|
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;
|
3.
|
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;
|
4.
|
The
registrant’s other certifying officer(s) 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:
|
|
(a)
|
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;
|
|
|
|
|
(b)
|
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;
|
|
|
|
|
(c)
|
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
|
|
|
|
|
(d)
|
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;
and
|
5.
|
The
registrant’s other certifying officer(s) 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):
|
|
(a)
|
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
|
|
|
|
|
(b)
|
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.
|
Date: March 22,
2017
|
By:
|
/s/ Bob Dieterle
|
|
|
|
Bob
Dieterle
Chief Executive Officer
(Principal
Executive Officer)
|
|
1.
|
I have reviewed
this Annual Report on Form 10-K for the year ended December 31,
2016 of MobileSmith, Inc.;
|
2.
|
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;
|
3.
|
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;
|
4.
|
The
registrant’s other certifying officer(s) 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:
|
|
(a)
|
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;
|
|
|
|
|
(b)
|
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;
|
|
|
|
|
(c)
|
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
|
|
(d)
|
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;
and
|
5.
|
The
registrant’s other certifying officer(s) 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):
|
|
(a)
|
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
|
|
|
|
|
(b)
|
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.
|
Date: March 22,
2017
|
By:
|
/s/ Gleb
Mikhailov
|
|
|
|
Gleb
Mikhailov
|
|
|
|
Chief Financial
Officer (Principal Financial and Accounting Officer)
|
|
/s/ Amir
Elbaz
|
|
Bob
Dieterle
|
|
Chief Executive
Officer
|
|
(Principal Executive
Officer)
|
|
March 22,
2017
|
|
/s/ Gleb
Mikhailov
|
|
Gleb
Mikhailov
|
|
Chief Financial
Officer
|
|
(Principal
Financial and Accounting Officer)
|
|
March 22,
2017
|
|
Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Mar. 20, 2017 |
Jun. 30, 2016 |
|
Document And Entity Information | |||
Entity Registrant Name | MobileSmith, Inc. | ||
Entity Central Index Key | 0001113513 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 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 Public Float | $ 12,300,000 | ||
Entity Common Stock, Shares Outstanding | 19,827,542 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2016 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
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 | 100,000,000 | 45,000,000 |
Common stock, issued | 19,827,542 | 19,827,542 |
Common stock, outstanding | 19,827,542 | 19,827,542 |
STATEMENTS OF STOCKHOLDERS’ DEFICIT - USD ($) |
Common Stock |
Additional Paid-In Capital |
Retained Earnings / Accumulated Deficit |
Total |
---|---|---|---|---|
Beginning Balance, shares at Dec. 31, 2014 | 19,827,542 | |||
Beginning Balance, amount at Dec. 31, 2014 | $ 19,828 | $ 97,453,374 | $ (129,204,082) | $ (31,730,880) |
Equity-based compensation | 85,233 | 85,233 | ||
Beneficial Conversion Feature Recorded as a Result of Issuance of Convertible Debt | 6,994 | 6,994 | ||
Net loss | (7,716,909) | (7,716,909) | ||
Ending Balance, shares at Dec. 31, 2015 | 19,827,542 | |||
Ending Balance, amount at Dec. 31, 2015 | $ 19,828 | 97,545,601 | (136,920,991) | (39,355,562) |
Equity-based compensation | 132,680 | 132,680 | ||
Beneficial Conversion Feature Recorded as a Result of Issuance of Convertible Debt | 566,782 | 566,782 | ||
Net loss | (7,501,655) | (7,501,655) | ||
Ending Balance, shares at Dec. 31, 2016 | 19,827,542 | |||
Ending Balance, amount at Dec. 31, 2016 | $ 19,828 | $ 98,245,063 | $ (144,422,646) | $ (46,157,755) |
1. SUMMARY OF BUSINESS AND DESCRIPTION OF GOING CONCERN |
12 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | ||||||||||||
Summary Of Business And Description Of Going Concern | ||||||||||||
1. SUMMARY OF BUSINESS AND DESCRIPTION OF GOING CONCERN | Description of Business and Going Concern 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 Company’s 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 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. This subsidiary has not had material activity in 2015 or 2016.
The Company’s principal products and services include:
The accompanying 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 years ended December 31, 2016 and 2015, the Company incurred net losses, as well as negative cash flows from operations, and at December 31, 2016 and 2015, had deficiencies in working capital. These factors indicate that the Company may be unable to continue as a going concern. The 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.
The Company’s continuation as a going concern depends upon its ability to generate sufficient cash flows to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitable operations and positive cash flows. Since November 2007, the Company has been funding its operations, in part, from the proceeds of the issuance of notes under a convertible secured subordinated note facility which was established in 2007, as well as, an unsecured convertible subordinated note facility established in 2014. As of December 31, 2016, the Company had $41,555,000 of face value outstanding under these facilities and the Company is entitled to sell to the investors additional notes under these facilities in an amount not exceeding $31,545,000, when requested to by the Company, subject to the terms and conditions specified in these facilities. There can be no assurance that the Company will in fact be able to raise additional capital through these facilities or even from other sources on commercially acceptable terms or at all.
In May 2016, Company management negotiated an extension of the Notes under the 2007 and 2014 NPA to mature in November of 2018, and refinanced the Comerica LSA by extending its maturity to June of 2018.
|
2. SIGNIFICANT ACCOUNTING POLICIES |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||
2. SIGNIFICANT ACCOUNTING POLICIES | Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires management to make estimates and assumptions in the Company’s financial statements and notes thereto. Significant estimates and assumptions made by management include the determination of the best estimate of selling price of the deliverables included in multiple-deliverable revenue arrangements, deferral of certain revenues, share-based compensation, allowance for accounts receivable, estimated useful lives of property and equipment, recoverability of capitalized software asset and other long lived assets. Actual results could differ from those estimates.
Fair Value of Financial Instruments US GAAP requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Due to the short period of time to maturity, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued liabilities, and notes payable reported in the financial statements approximate the fair value.
Cash and Cash Equivalents All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The Federal Deposit Insurance Corporation (FDIC) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits.
Revenue Recognition The Company derives revenue primarily from subscription services charged to customers accessing the Platform and, to a much lesser degree, professional services provided in connection with subscription services.
The Company recognizes revenues when the following criteria have been met:
Subscription Revenues Subscription revenues are recognized ratably over the contract term of the arrangement beginning on the date that our service is made available to the customer. Amounts that have been invoiced are recorded in revenue or deferred revenue, depending on whether the revenue recognition criteria have been met.
Software Revenue Sale of software takes place when the Company sells perpetual license to the Platform through installation in a private cloud. Revenue recognition begins when all elements of the agreement, besides post-contract customer support, are delivered (including installation). The software revenue is recognized ratably over the period of post-contract customer support in accordance with ASC 985-605.
Professional Services Revenues Professional services revenues consist of fees for professional services, which relate to app design and development, training, system implementation and data integration, mobile application marketing services, and mobile strategy implementation consulting. These revenues are recognized as the services are rendered for time and material contracts and when the milestones are achieved and accepted by the customer for fixed-fee contracts.
Multiple-Element Arrangements The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. In order to account for deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery.
In determining whether professional service revenues have standalone value, the Company considers availability of professional services from other vendors, the nature of the Company’s professional services, and whether the Company sells professional services to customers without the subscription.
When multiple deliverables are included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple-deliverable arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting.
Vendor-specific objective evidence (“VSOE”) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists.
If VSOE of selling price is not available, third-party evidence (“TPE”) of selling price is used to establish the selling price if it exists. If VSOE of selling price and TPE of selling price are not available, then the best estimate of selling price (“BESP”) is to be used. VSOE and TPE do not currently exist for any of the Company’s deliverables. Accordingly, the Company uses its BESP to determine the relative selling price.
The Company determines its BESP for its deliverables based on its overall pricing objectives, taking into consideration market conditions and entity-specific factors. The Company evaluates its BESP by reviewing historical data related to sales of its deliverables. Total consideration under the contract is allocated to each of the separate units of accounting through application of the relative selling price method.
Deferred Revenue Deferred revenue consists of billings or payments received prior to the date when revenue is recognized.
Cost of Revenues Cost of revenues includes salaries of customer support teams, costs of infrastructure that supports the Platform, expenses for outsourced work to fulfill the contracted work, and amortization charges for the Platform.
Allowance for Doubtful Accounts The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability or failure of its customers to make required payments. The need for an allowance for doubtful accounts is evaluated based on specifically identified amounts that management believes to be potentially uncollectible. If actual collections experience changes, revisions to the allowance may be required.
Property and Equipment The Company records property and equipment at cost and provides for depreciation and amortization using the straight-line method for financial reporting purposes over the estimated useful lives. The estimated useful lives by asset classification are as follows:
Software Development Costs The Company capitalized certain costs of development and subsequent enhancement of the Platform through the middle of 2013. The Company started capitalizing software development costs when technological feasibility of the Platform or its enhancements had been established. The Company expensed costs associated with preliminary project stage and research activities. The Company’s policy provided for the capitalization of certain payroll, benefits, and other payroll-related costs for employees who were directly associated with development.
During 2012, the Platform was substantially completed. During 2013, the Company’s development efforts became more driven by market requirements and rapidly changing customers’ needs. As a result, the Company’s development team adopted the Agile iterative approach to software development. Due to Agile’s short development cycles and focus on rapid production, the Company ceased capitalizing software development costs mid-way through 2013 as the documentation produced under the Agile method did not meet requirements necessary to establish technological feasibility. No development costs were capitalized in 2015 or 2016 and the Company does not expect to capitalize substantial development costs in the future.
Intangible Assets Intangible assets consist of the perpetual license for critical Platform software, costs associated with the Company’s patent filings and other acquired intangible assets. The Company also owns several copyrights and trademarks related to products, names, and logos used throughout its non-acquired product lines.
Impairment of Long-Lived Assets The Company evaluates the recoverability of its long-lived assets every reporting period or whenever events and circumstances indicate that the value may be impaired.
During 2016, the Company recorded a loss on impairment of intangible assets in the amount of $8,356, mostly related to impairment of previously capitalized software, which were replaced with new functionality in our Platform.
Advertising Costs Advertising costs consist primarily of industry related tradeshows and marketing campaigns. Advertising costs are expensed as incurred, or the first time the advertising takes place, applied consistently based on the nature of the advertising activity. The amounts related to advertising during 2016 and 2015 were $382,932 and $342,718, respectively.
Share-Based Compensation The Company measures share-based compensation cost at the grant date based on the fair value of the award. The Company recognizes compensation cost on a straight-line basis over the requisite service period. The requisite service period is generally three years. The compensation cost is recognized net of estimated forfeiture activity.
The fair value of option grants under the Company’s equity compensation plan during the year ended December 31, 2016 was estimated using the following weighted-average assumptions:
Net Loss Per Share Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the periods. Diluted net loss per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Shares of common stock issuable upon conversion of Convertible Subordinated Promissory Notes (the “Notes”) and exercise of share-based awards are excluded from the calculation of the weighted average number, because the effect of the conversion and exercise would be anti-dilutive.
Recently Issued Accounting Pronouncements The Company evaluates new significant accounting pronouncements at each reporting period. For the year ended December 31, 2016, the Company did not adopt any new pronouncement that had or is expected to have a material effect on the Company’s presentation of its consolidated financial statements.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-9 Revenue from Contracts with Customers (Topic 606). This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017, and early adoption is permitted. The Company will adopt the standard early effective for annual reporting period beginning on January 1, 2017 and related interim reporting periods. The new standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We expect that the new standard will simplify our revenue recognition process and may result in acceleration of certain revenue that is currently included in our deferred revenue line item on the balance sheet. We expect to adopt a retrospective approach at the time of adoption, at which time cumulative effect of initially adopting the standard will be recognized in retained earnings as of the date of adoption and additional footnote disclosures will be included in the financial statements. Due to the complexity of certain of our subscription contracts, the actual revenue recognition treatment required under the standard will be dependent on contract-specific terms.
The FASB's new leases standard ASU 2016-02 Leases (Topic 842) was issued on February 25, 2016. ASU 2016-02 is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets, referred to as "Lessees", to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases (i.e. operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of those leases.
Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption will be permitted for all companies and organizations upon issuance of the standard. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018 and 2017. See Notes 5 and 6 for the Company's current lease commitments. The Company is currently in the process of evaluating the impact that this new leasing ASU will have on its financial statements.
Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by the accounting literature contains three levels as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimations.
|
3. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE |
Capitalized software consists of the following:
During the years ended December 31, 2016 and 2015, the Company recorded depreciation and amortization expense related to its property, equipment and capitalized software of $147,845 and $144,942, respectively.
The Company also recorded an impairment charge of $8,356 and $7,020 related to capitalized software during years ended December 31, 2016 and 2015, respectively. |
4. INTANGIBLE ASSETS |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4. INTANGIBLE ASSETS | The following table summarizes information about the Company’s intangible assets:
During the years ended December 31, 2016 and 2015, the Company recorded amortization expense related to its intangible assets of $17,506 and $17,505, respectively.
The following table presents the estimated future amortization expense related to intangible assets held at December 31, 2016:
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5. DEBT |
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5. DEBT | The table below summarizes the Company’s debt at December 31, 2016 and December 31, 2015:
Convertible Notes Overview
Since November 14, 2007 and through December 10, 2014, the Company financed its working capital deficiency primarily through the issuance of its notes (the “2007 NPA Notes”) under the Convertible Secured Subordinated Note Purchase Agreement, dated November 14, 2007, as amended (as so amended, the “2007 NPA”). On December 11, 2014 the Company entered into an unsecured Convertible Subordinated Note Purchase Agreement, amended (as so amended, the “2014 NPA”) with Union Bancaire Privée, UBP SA ("UBP") and has financed its operations through issuance of notes (the "2014 NPA Notes") through 2014 NPA.
During 2016, the Company raised gross proceeds of $5,450,000 from the private placement to UBP under 2014 NPA.
On May 17, 2016, the Company and the holders of the majority of the aggregate outstanding principal amount of 2014 NPA Notes and holders of the majority of the aggregate outstanding principal amount of the 2007 NPA Notes agreed to extend to November 14, 2018 the maturity date of the 2014 NPA Notes and the 2007 NPA Notes. Except as so extended, all of the terms relating to the outstanding 2007 Notes and the 2014 Notes continue in full force and effect. The Company is entitled to utilize the amounts available for future borrowing under each of the 2007 Note Purchase Agreement and the 2014 Note Purchase Agreement through November 14, 2018.
As a result of modification, any unamortized discount will be amortized into interest expense through the new maturity date of November 14, 2018.
The table below summarizes convertible notes issued as of December 31, 2016 by type:
Convertible notes issued under 2014 NPA
The aggregate principal amount of 2014 NPA Notes that may be issued under the 2014 NPA is $40 million, of which $11,000,000 had been borrowed as of December 31, 2016. The 2014 NPA Notes are convertible into shares of the Company’s common stock, par value $0.001 per share, and are subordinated to the $5 million outstanding under the Company’s Loan and Security Agreement (the “LSA”) with Comerica Bank and to any promissory notes outstanding under the Company’s existing 2007 NPA program.
The 2014 NPA Notes have the following terms:
Convertible notes issued under 2007 NPA
The aggregate principal amount of 2007 NPA Notes that may be issued under the 2014 NPA is $33,300,000, of which $30,755,000 had been borrowed as of December 31, 2016. The 2007 NPA Notes are convertible into shares of the Company’s common stock, par value $0.001 per share, and are subordinated to the $5 million outstanding under the LSA with Comerica Bank.
As amended, the 2007 NPA Notes have the following terms:
Related Party Convertible Notes under 2007 and 2014 NPAs
Grasford, the Company’s largest stockholder, owns $13,826,282 in face value amount of 2007 NPA Notes as of December 31, 2016. Grasford is controlled by Avy Lugassy, one of the Company’s principal shareholders.
UBP owns $26,267,180 in combined face value amount of 2007 and 2014 NPA Notes as of December 31, 2016 and is considered a significant beneficial owner.
Crystal Management owns $730,769 in face value amount of 2007 NPA Notes as of December 31, 2016. Crystal Management is controlled by Doron Rotler, the second largest shareholder of the Company.
Interest expense for 2016 for convertible notes was $4,494,905, including amortization of discount of $1,408,973.
Interest expense for 2015 for convertible notes was $5,020,148, including amortization of discount of $2,335,151.
Comerica LSA
The Company has an outstanding Loan and Security Agreement with Comerica Bank dated June 9, 2014 with original maturity of June 9, 2016. On May 24, 2016, the Company and Comerica Bank entered into First Amendment to the LSA, which extended the maturity of the LSA to June 6, 2018.
The LSA with Comerica has the following terms:
Capital Leases
On September 4, 2009, the Company entered into a sale transaction whereby it sold its computer equipment, furniture, fixtures and certain personal property located at its former principal executive offices in Durham, North Carolina (collectively, the “Equipment”) on an “as-is, where-is” basis to the holders of the Company’s Notes, on a ratable basis in proportion to their respective holdings of Notes, for $200,000 (“Purchase Price”). The Purchase Price was paid through a $200,000 reduction, on a ratable basis, in the outstanding aggregate principal amount of the Notes. The Purchase Price represented the fair market value of the Equipment based on an independent appraisal.
The payments on the lease are made monthly. The balance of the lease as of December 31, 2016 was $69,717.
In September 2013 the Company purchased furniture for its new office by execution of a five-year non-cancellable lease, which is accounted for as a capital lease. The unpaid balance on the lease as of December 31, 2016 is $14,044.
In July 2016, the Company acquired a vehicle, that it had been previously leasing since July of 2013. The vehicle is financed through a 5 year auto loan. The payments are made monthly. The unpaid balance on the note payable is $17,023.
The table below details future payments under capital leases:
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6. COMMITMENTS AND CONTINGENCIES |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||
6. COMMITMENTS AND CONTINGENCIES | Operating Leases
On July 29, 2013, the Company signed a 65-month lease for new office space in Raleigh, North Carolina, effective October 30, 2013. The landlord built the space to the Company’s specifications and provided the Company with five months free rent as an incentive. Rent expense is being recognized over the entire 65-month term of the lease on a straight-line basis. The lease contains an option to renew for two, three-year terms. Monthly rent is approximately $14,000 per month.
The table below summarizes the Company’s future obligations under the new office lease:
Rent expense for the years ended December 31, 2016 and 2015 was $155,603 and $155,116, respectively.
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 Company’s 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.
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7. STOCKHOLDERS EQUITY |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7. STOCKHOLDERS EQUITY | Common Stock
The Company is authorized to issue 100,000,000 shares of common stock, $0.001 par value per share. As of December 31, 2016, the Company had 19,827,542 shares of common stock outstanding. Holders of the Company’s shares of common stock are entitled to one vote for each share held.
Preferred Stock
The Board of Directors is authorized, without further stockholder approval, to issue up to 5,000,000 shares of $0.001 par value preferred stock in one or more series and to fix the rights, preferences, privileges, and restrictions applicable to such shares, including dividend rights, conversion rights, terms of redemption, and liquidation preferences, and to fix the number of shares constituting any series and the designations of such series. There were no shares of preferred stock outstanding at December 31, 2016 and 2015.
Equity Compensation Plans
2004 Equity Compensation Plan
The Company adopted its 2004 Equity Compensation Plan (the “2004 Plan”) as of March 31, 2004. The 2004 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock, and other direct stock awards to employees (including officers) and directors of the Company as well as to certain consultants and advisors. The total number of shares of common stock reserved for issuance under the 2004 Plan is 5,000,000 shares, subject to adjustment in the event of a stock split, stock dividend, recapitalization, or similar capital change. The Company can’t make any new grants under the plan.
2016 Equity Compensation Plan
In May 2016, the Company’s shareholders authorized adoption of the approved MobileSmith Inc. 2016 Equity Compensation Plan for officers, directors, employees and consultants, initially reserving for issuance thereunder 15,000,000 shares of Common Stock.
The exercise price for incentive stock options granted under the above plans is required to be no less than the fair market value of the common stock on the date the option is granted, except for options granted to 10% stockholders, which are required to have an exercise price of not less than 110% of the fair market value of the common stock on the date the option is granted. Incentive stock options typically have a maximum term of 10 years, except for option grants to 10% stockholders, which are subject to a maximum term of five years. Non-statutory stock options have a term determined by either the Board of Directors or the Compensation Committee of the Board of Directors. Options granted under the plans are not transferable, except by will and the laws of descent and distribution.
A summary of the status of the stock option issuances as of December 31, 2016 and 2015, and changes during the periods ended on these dates is as follows:
At December 31, 2016, $1,073,959 of unvested expense remains to be recorded related to all options outstanding.
Exercise prices for options outstanding as of December 31, 2016 ranged between $.90 and $1.95.
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8. INCOME TAXES |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
8. INCOME TAXES | The Company accounts for income taxes under the asset and liability method in accordance with the requirements of US GAAP. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
The balances of deferred tax assets and liabilities are as follows:
Under US GAAP, a valuation allowance is provided when it is more likely than not that the deferred tax asset will not be realized.
Total income tax expense related to continuing operations differs from expected income tax expense (computed by applying the U.S. federal corporate income tax rate of 34% to profit (loss) before taxes) as follows:
As of December 31, 2016, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $93 million, which expire between 2018 and 2038. For state tax purposes, the NOL carryforwards expire between 2017 and 2032. In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in equity ownership of greater than 50% of the Company within a three-year period can result in an annual limitation on the Company’s ability to utilize its NOL carryforwards that were created during tax periods prior to the change in ownership.
The Company has reviewed its tax positions and has determined that it has no significant uncertain tax positions at December 31, 2016. |
9. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK |
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Notes to Financial Statements | |
9. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | A customer that individually generates more than 10% of revenue is considered a major customer.
For the year ended December 31, 2016, one customer accounted for
15% of the Company’s revenue. Two customers accounted for 75% of net accounts receivable balance as of December 31, 2016.
Two vendors accounted for 65% of accounts payable balance as of December 31, 2016.
For the year ended December 31, 2015, two customers accounted for 27% of the Company’s revenue. Three customers accounted for 72% of net accounts receivable balance as of December 31, 2015. Four vendors accounted for 93% of accounts payable balance as of December 31, 2015.
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10. EMPLOYEE BENEFIT PLAN |
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Compensation and Retirement Disclosure [Abstract] | |
10. EMPLOYEE BENEFIT PLAN | All full-time employees who meet certain age and length of service requirements are eligible to participate in the Company’s 401(k) Plan. The plan provides for contributions by the Company in such amounts as the Board of Directors may annually determine, as well as a 401(k) option under which eligible participants may defer a portion of their salaries. The Company contributed a total of approximately $37,000 and $28,000 to the plan during 2016 and 2015, respectively.
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11. SUBSEQUENT EVENTS |
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Subsequent Events [Abstract] | |
11. SUBSEQUENT EVENTS | Subsequent to December 31, 2016, the Company sold one 2014 NPA Note to UBP in the total amount of $1,000,000 on the same terms as the currently outstanding 2014 NPA Notes. The note matures on November 14, 2018. |
2. SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Use of Estimates | The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires management to make estimates and assumptions in the Company’s financial statements and notes thereto. Significant estimates and assumptions made by management include the determination of the best estimate of selling price of the deliverables included in multiple-deliverable revenue arrangements, deferral of certain revenues, share-based compensation, allowance for accounts receivable, estimated useful lives of property and equipment, recoverability of capitalized software asset and other long lived assets. Actual results could differ from those estimates.
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Fair Value of Financial Instruments | US GAAP requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Due to the short period of time to maturity, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued liabilities, and notes payable reported in the financial statements approximate the fair value.
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Cash and Cash Equivalents | All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The Federal Deposit Insurance Corporation (FDIC) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits.
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Revenue Recognition | The Company derives revenue primarily from subscription services charged to customers accessing the Platform and, to a much lesser degree, professional services provided in connection with subscription services.
The Company recognizes revenues when the following criteria have been met:
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Subscription Revenues | Subscription revenues are recognized ratably over the contract term of the arrangement beginning on the date that our service is made available to the customer. Amounts that have been invoiced are recorded in revenue or deferred revenue, depending on whether the revenue recognition criteria have been met.
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Software Revenues | Sale of software takes place when the Company sells perpetual license to the Platform through installation in a private cloud. Revenue recognition begins when all elements of the agreement, besides post-contract customer support, are delivered (including installation). The software revenue is recognized ratably over the period of post-contract customer support in accordance with ASC 985-605.
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Professional Services Revenues | Professional services revenues consist of fees for professional services, which relate to app design and development, training, system implementation and data integration, mobile application marketing services, and mobile strategy implementation consulting. These revenues are recognized as the services are rendered for time and material contracts and when the milestones are achieved and accepted by the customer for fixed-fee contracts.
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Multiple-Element Arrangements | The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. In order to account for deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery.
In determining whether professional service revenues have standalone value, the Company considers availability of professional services from other vendors, the nature of the Company’s professional services, and whether the Company sells professional services to customers without the subscription.
When multiple deliverables are included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple-deliverable arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting.
Vendor-specific objective evidence (“VSOE”) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists.
If VSOE of selling price is not available, third-party evidence (“TPE”) of selling price is used to establish the selling price if it exists. If VSOE of selling price and TPE of selling price are not available, then the best estimate of selling price (“BESP”) is to be used. VSOE and TPE do not currently exist for any of the Company’s deliverables. Accordingly, the Company uses its BESP to determine the relative selling price.
The Company determines its BESP for its deliverables based on its overall pricing objectives, taking into consideration market conditions and entity-specific factors. The Company evaluates its BESP by reviewing historical data related to sales of its deliverables. Total consideration under the contract is allocated to each of the separate units of accounting through application of the relative selling price method.
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Deferred Revenue | Deferred revenue consists of billings or payments received prior to the date when revenue is recognized.
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Cost of Revenues | Cost of revenues includes salaries of customer support teams, costs of infrastructure that supports the Platform, expenses for outsourced work to fulfill the contracted work, and amortization charges for the Platform.
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Allowance for Doubtful Accounts | The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability or failure of its customers to make required payments. The need for an allowance for doubtful accounts is evaluated based on specifically identified amounts that management believes to be potentially uncollectible. If actual collections experience changes, revisions to the allowance may be required.
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Property and Equipment | The Company records property and equipment at cost and provides for depreciation and amortization using the straight-line method for financial reporting purposes over the estimated useful lives. The estimated useful lives by asset classification are as follows:
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Software Development Costs | The Company capitalized certain costs of development and subsequent enhancement of the Platform through the middle of 2013. The Company started capitalizing software development costs when technological feasibility of the Platform or its enhancements had been established. The Company expensed costs associated with preliminary project stage and research activities. The Company’s policy provided for the capitalization of certain payroll, benefits, and other payroll-related costs for employees who were directly associated with development.
During 2012, the Platform was substantially completed. During 2013, the Company’s development efforts became more driven by market requirements and rapidly changing customers’ needs. As a result, the Company’s development team adopted the Agile iterative approach to software development. Due to Agile’s short development cycles and focus on rapid production, the Company ceased capitalizing software development costs mid-way through 2013 as the documentation produced under the Agile method did not meet requirements necessary to establish technological feasibility. No development costs were capitalized in 2015 or 2016 and the Company does not expect to capitalize substantial development costs in the future.
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Intangible Assets | Intangible assets consist of the perpetual license for critical Platform software, costs associated with the Company’s patent filings and other acquired intangible assets. The Company also owns several copyrights and trademarks related to products, names, and logos used throughout its non-acquired product lines.
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Impairment of Long-Lived Assets | The Company evaluates the recoverability of its long-lived assets every reporting period or whenever events and circumstances indicate that the value may be impaired.
During 2016, the Company recorded a loss on impairment of intangible assets in the amount of $8,356, mostly related to impairment of previously capitalized software, which were replaced with new functionality in our Platform. |
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Advertising Costs | Advertising costs consist primarily of industry related tradeshows and marketing campaigns. Advertising costs are expensed as incurred, or the first time the advertising takes place, applied consistently based on the nature of the advertising activity. The amounts related to advertising during 2016 and 2015 were $382,932 and $342,718, respectively. |
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Share Based Compensation | The Company measures share-based compensation cost at the grant date based on the fair value of the award. The Company recognizes compensation cost on a straight-line basis over the requisite service period. The requisite service period is generally three years. The compensation cost is recognized net of estimated forfeiture activity.
The fair value of option grants under the Company’s equity compensation plan during the year ended December 31, 2016 was estimated using the following weighted-average assumptions:
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Net Loss Per Share | Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the periods. Diluted net loss per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Shares of common stock issuable upon conversion of Convertible Subordinated Promissory Notes (the “Notes”) and exercise of share-based awards are excluded from the calculation of the weighted average number, because the effect of the conversion and exercise would be anti-dilutive.
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Recently Issued Accounting Pronouncements | The Company evaluates new significant accounting pronouncements at each reporting period. For the year ended December 31, 2016, the Company did not adopt any new pronouncement that had or is expected to have a material effect on the Company’s presentation of its consolidated financial statements.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-9 Revenue from Contracts with Customers (Topic 606). This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017, and early adoption is permitted. The Company will adopt the standard early effective for annual reporting period beginning on January 1, 2017 and related interim reporting periods. The new standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We expect that the new standard will simplify our revenue recognition process and may result in acceleration of certain revenue that is currently included in our deferred revenue line item on the balance sheet. We expect to adopt a retrospective approach at the time of adoption, at which time cumulative effect of initially adopting the standard will be recognized in retained earnings as of the date of adoption and additional footnote disclosures will be included in the financial statements. Due to the complexity of certain of our subscription contracts, the actual revenue recognition treatment required under the standard will be dependent on contract-specific terms.
The FASB's new leases standard ASU 2016-02 Leases (Topic 842) was issued on February 25, 2016. ASU 2016-02 is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets, referred to as "Lessees", to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases (i.e. operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of those leases.
Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption will be permitted for all companies and organizations upon issuance of the standard. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018 and 2017. See Notes 5 and 6 for the Company's current lease commitments. The Company is currently in the process of evaluating the impact that this new leasing ASU will have on its financial statements.
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Fair Value Measurements | Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by the accounting literature contains three levels as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimations. |
2. SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Dec. 31, 2016 | |||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||
Schedule of useful life |
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Schedule of fair value assumptions for option grants |
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3. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and equipment |
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Capitalized software |
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4. INTANGIBLE ASSETS (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of intangible assets |
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Schedule of estimated future amortization expense related to intangible assets |
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5. DEBT (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company's debt |
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Summary of convertible notes |
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Schedule of future payments under capital leases |
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6. COMMITMENTS AND CONTINGENCIES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||
Company's future obligation under the new office and vehicle leases |
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7. STOCKHOLDERS EQUITY (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock Options |
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8. INCOME TAXES (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of deferred tax assets and liabilities |
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Schedule of income tax reconciliation |
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2. SIGNIFICANT ACCOUNTING POLICIES (Details) |
12 Months Ended |
---|---|
Dec. 31, 2016 | |
Computer hardware and office equipment | |
Life | 5 years |
Computer software | |
Life | 5 years |
Furniture and fixtures | |
Life | 5 years |
Leasehold improvements | |
Life | Shorter of the estimated useful life or the lease term |
2. SIGNIFICANT ACCOUNTING POLICIES (Details 1) |
12 Months Ended |
---|---|
Dec. 31, 2016 | |
Significant Accounting Policies Details 1 | |
Dividend yield | 0.00% |
Expected volatility | 58.00% |
Risk free interest rate | 1.56% |
Expected lives (years) | 4 years 10 months 24 days |
2. SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Significant Accounting Policies Details Narrative | ||
Loss on impairment of intangible assets | $ 8,356 | |
Advertising Costs | $ 382,932 | $ 342,718 |
3. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Property and equipment, gross | $ 289,386 | $ 243,705 |
Less accumulated depreciation | (185,257) | (144,742) |
Property and equipment, net | 104,129 | 98,963 |
Computer hardware | ||
Property and equipment, gross | 102,203 | 85,547 |
Computer software | ||
Property and equipment, gross | 37,884 | 37,884 |
Furniture and fixtures | ||
Property and equipment, gross | 89,580 | 78,919 |
Equipment | ||
Property and equipment, gross | 25,558 | 7,193 |
Leasehold improvements | ||
Property and equipment, gross | $ 34,162 | $ 34,162 |
3. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE (Details 1) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Property And Equipment And Capitalized Software Details 1 | ||
Capitalized software | $ 736,678 | $ 756,175 |
Less accumulated amortization | (461,845) | (365,657) |
Capitalized software, net | $ 274,833 | $ 390,518 |
3. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Depreciation and amortization expense | $ 147,845 | $ 144,942 |
Capitalized software | ||
Impairment | $ 8,356 | $ 7,020 |
4. INTANGIBLE ASSETS (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Intangible assets, gross carrying amount | $ 118,534 | $ 118,534 |
Accumulated amortization intangible assets | 80,941 | 63,435 |
Intangible assets, net carrying amount | 37,593 | 55,099 |
Acquired license and costs | ||
Intangible assets, gross carrying amount | 108,534 | 108,534 |
Accumulated amortization intangible assets | 74,940 | 59,435 |
Intangible assets, net carrying amount | 33,594 | 49,099 |
Other | ||
Intangible assets, gross carrying amount | 10,000 | 10,000 |
Accumulated amortization intangible assets | 6,001 | 4,000 |
Intangible assets, net carrying amount | $ 3,999 | $ 6,000 |
4. INTANGIBLE ASSETS (Details 1) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Year ending December 31: | ||
2017 | $ 17,505 | |
2018 | 17,505 | |
2019 | 2,583 | |
Total | $ 37,593 | $ 55,099 |
4. INTANGIBLE ASSETS (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Intangible Assets Details Narrative | ||
Intangible asset aggregate amortization expense | $ 17,506 | $ 17,505 |
5. DEBT (Details 1) |
Dec. 31, 2016
USD ($)
|
---|---|
Convertible Notes | $ 40,336,219 |
2007 NPA | |
Convertible Notes | 29,666,930 |
2014 NPA | |
Convertible Notes | $ 10,669,289 |
5. DEBT (Details 2) |
Dec. 31, 2016
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
2017 | $ 43,477 |
2018 | 38,407 |
2019 | 23,631 |
2020 | 4,219 |
Thereafter | 2,461 |
Capital Leases, Future Minimum Payments Due | 112,195 |
Less amount representing interest | (11,411) |
Capital lease obligations | $ 100,784 |
6. COMMITMENTS AND CONTINGENCIES (Details) |
Dec. 31, 2016
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
2017 | $ 167,786 |
2018 | 172,418 |
2019 | 44,082 |
Total | $ 384,286 |
6. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Commitments And Contingencies Details Narrative | ||
Rent expense | $ 155,603 | $ 155,116 |
7. STOCKHOLDERS' EQUITY (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Stockholders Equity Details | ||
Number of Shares Outstanding, Beginning | 361,349 | 403,661 |
Number of Shares Cancelled | (146,409) | (42,312) |
Number of Shares Issued | 1,968,860 | 0 |
Number of Shares Outstanding, Ending | 2,184,160 | 361,349 |
Stock Options Vested and Exercisable Number of Shares | 335,813 | |
Weighted Average Exercise Price Outstanding, Beginning | $ 1.44 | $ 1.45 |
Weighted Average Exercise Price Cancelled | 1.52 | 1.53 |
Weighted Average Exercise Price Issued | 0.00 | 0.00 |
Weighted Average Exercise Price Outstanding, Ending | 1.48 | $ 1.44 |
Weighted Average Exercise Price Vested and exercisable, Ending | $ 1.41 | |
Weighted Average Remaining Contractual Life (in years) Outstanding | 4 years 3 months 11 days | |
Weighted Average Remaining Contractual Life (in years) Vested and expected to vest | 3 years 4 months 13 days | |
Aggregate Intrinsic Value Outstanding | $ 31,760 | |
Aggregate Intrinsic Value vested and expected to vest | $ 31,070 |
8. INCOME TAXES (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Net current deferred income tax assets related to: | ||
Allowance for doubtful accounts | $ 73,000 | $ 81,000 |
Depreciation and amortization | 144,000 | 141,000 |
Impairment charges | 34,000 | 30,000 |
Stock-based compensation expenses | 91,000 | 91,000 |
Accrued liabilities | 11,000 | 11,000 |
Other | 3,923 | 7,000 |
Net operating loss carryforwards | 35,916,000 | 33,617,000 |
Total | 36,272,923 | 33,978,000 |
Less valuation allowance | (36,272,923) | (33,978,000) |
Net current deferred income tax | $ 0 | $ 0 |
8. INCOME TAXES (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Income Tax Disclosure [Abstract] | ||
Tax benefit computed at statutory rate of 34% | $ (2,550,563) | $ (2,623,749) |
State income tax benefit, net of federal effect | (341,625) | (351,428) |
Permanent differences: | ||
Stock based compensation | 51,153 | 32,861 |
Debt discount amortization | 543,177 | 900,294 |
Other | 2,935 | (4,978) |
Change in valuation allowance - continuing operations | 2,294,923 | 2,047,000 |
Totals | $ 0 | $ 0 |
8. INCOME TAXES (Details Narrative) |
12 Months Ended |
---|---|
Dec. 31, 2016
USD ($)
| |
Income Taxes Details Narrative | |
Federal net operating loss carryforward | $ 93,000,000 |
Carryforward expiration | Between 2018 and 2038 |
9. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Details Narrative) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
One Customer | Revenue | ||
% Concentration | 15.00% | |
Two Customers | Revenue | ||
% Concentration | 27.00% | |
Two Customers | Accounts Receivable | ||
% Concentration | 75.00% | |
Two Customers | Accounts Payable | ||
% Concentration | 65.00% | |
Three Customers | Accounts Receivable | ||
% Concentration | 72.00% | |
Four Customers | Accounts Payable | ||
% Concentration | 93.00% |
10. EMPLOYEE BENEFIT PLAN (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Employee Benefit Plan Details Narrative | ||
Employee benefit plan contibution | $ 37,000 | $ 28,000 |
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