Blueprint
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
|
☑
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
For
the quarterly period ended September 30, 2016
OR
|
☐
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
Commission
File Number: 001-32634
____________________________
MOBILESMITH, INC.
(Exact name of
registrant as specified in its charter)
____________________________
|
Delaware
|
95-4439334
|
|
(State or other jurisdiction of incorporation
or organization)
|
(I.R.S. Employer Identification
No.)
|
|
5400
Trinity Road, Suite 208
Raleigh,
North Carolina
|
27607
|
|
(Address of principal executive offices)
|
(Zip Code)
|
(855) 516-2413
(Registrant’s
telephone number, including area code)
____________________________
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days:
Yes ☑ No ☐
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post
such files). Yes ☑ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large accelerated
filer
|
☐
|
Accelerated
filer
|
☐
|
|
Non-accelerated
filer
|
☐
|
Smaller reporting
company
|
☑
|
|
(Do not check if a
smaller reporting company)
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ☐ No ☑
As of
November 8, 2016, there
were 19,827,542 shares of the registrant’s common
stock, par value $0.001 per share, outstanding.
MOBILESMITH,
INC.
FORM
10-Q
For the Quarterly
Period Ended September 30, 2016
TABLE
OF CONTENTS
|
|
|
Page No.
|
|
PART
I – FINANCIAL INFORMATION
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of September 30, 2016 (unaudited)
and December 31, 2015
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations (unaudited) for the three and
nine months ended September 30, 2016 and 2015
|
4
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 2016 and 2015
|
5
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Stockholders' Deficit for the period
ended September 30, 2016 (unaudited)
|
6
|
|
|
|
|
|
|
Notes to Condensed
Consolidated Financial Statements (unaudited)
|
7
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|
|
|
|
|
Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
11
|
|
|
|
|
|
Item
3.
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Quantitative and
Qualitative Disclosures About Market Risk
|
15
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|
|
|
|
|
Item
4.
|
Controls and
Procedures
|
15
|
|
|
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PART
II – OTHER INFORMATION
|
|
|
|
|
|
Item
2.
|
Unregistered Sales
of Equity Security and Use of Proceeds
|
16
|
|
|
|
|
|
Item
6.
|
Exhibits
|
16
|
|
|
|
|
|
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Signatures
|
17
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|
|
|
|
PART I – FINANCIAL
INFORMATION
MOBILESMITH,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
ASSETS
|
2016
|
|
|
Current
Assets
|
|
|
|
Cash
and Cash Equivalents
|
$392,759
|
$580,220
|
|
Restricted
Cash
|
73,143
|
124,988
|
|
Trade
Accounts Receivable, Net of Allowance for Doubtful Accounts of
$33,300 and $16,050, Respectively
|
231,855
|
183,350
|
|
Prepaid
Expenses and Other Current Assets
|
66,253
|
69,552
|
|
Total
Current Assets
|
764,010
|
958,110
|
|
|
|
|
|
Property
& Equipment, Net
|
114,099
|
98,963
|
|
Capitalized
Software, Net
|
301,143
|
390,518
|
|
Intangible
Assets, Net
|
41,973
|
55,099
|
|
Other
Assets
|
-
|
6,264
|
|
Total
Other Assets
|
457,215
|
550,844
|
|
Total
Assets
|
$1,221,225
|
$1,508,954
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
Current
Liabilities
|
|
|
|
Trade
Accounts Payable
|
$59,350
|
$45,717
|
|
Accrued
Expenses
|
136,653
|
247,858
|
|
Accrued
Interest
|
436,228
|
350,613
|
|
Capital
Lease Obligations
|
36,203
|
30,877
|
|
Deferred
Revenue
|
1,361,565
|
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
|
2,029,999
|
40,727,163
|
|
|
|
|
|
Long-Term
Liabilities
|
|
|
|
Bank
Loan
|
5,000,000
|
-
|
|
Convertible
Notes Payable, Related Parties, Net of Discount
|
37,829,008
|
-
|
|
Convertible
Notes Payable, Net of Discount
|
680,640
|
-
|
|
Capital
Lease Obligations and Other Notes Payable
|
73,356
|
83,761
|
|
|
45,599
|
53,592
|
Total
Long-Term Liabilities
|
43,628,603
|
137,353
|
|
|
45,658,602
|
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 September 30, 2016 and December 31,
2015
|
-
|
-
|
|
Common
Stock, $0.001 Par Value, 100,000,000 and 45,000,000 Shares
Authorized At September 30, 2016 and December 31, 2015,
Respectively; 19,827,542 Shares Issued and Outstanding at September
30, 2016 and December 31, 2015
|
19,828
|
19,828
|
|
Additional
Paid-in Capital
|
98,142,126
|
97,545,601
|
|
|
(142,599,331)
|
(136,920,991)
|
Total
Stockholders' Deficit
|
(44,437,377)
|
(39,355,562)
|
|
Total
Liabilities and Stockholders' Deficit
|
$1,221,225
|
$1,508,954
|
|
|
|
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
|
MOBILESMITH,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
Subscription
and Support
|
$415,166
|
$463,291
|
$1,380,465
|
$1,237,024
|
|
Professional
Services and Other
|
-
|
31,080
|
4,154
|
91,080
|
|
Total
Revenue
|
415,166
|
494,371
|
1,384,619
|
1,328,104
|
|
COST
OF REVENUES:
|
|
|
|
|
|
Subscription
and Support
|
138,175
|
125,600
|
346,544
|
259,298
|
|
Professional
Services and Other
|
11,418
|
46,697
|
67,660
|
70,242
|
|
Total
Cost of Revenue
|
149,593
|
172,297
|
414,204
|
329,540
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
265,573
|
322,074
|
970,415
|
998,564
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
Sales
and Marketing
|
288,129
|
307,857
|
849,303
|
867,153
|
|
Research
and Development
|
446,490
|
356,098
|
1,253,889
|
1,029,923
|
|
General
and Administrative
|
257,615
|
299,029
|
1,009,976
|
897,247
|
|
Total
Operating Expenses
|
992,234
|
962,984
|
3,113,168
|
2,794,323
|
|
LOSS
FROM OPERATIONS
|
(726,661)
|
(640,910)
|
(2,142,753)
|
(1,795,759)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
153,918
|
594
|
165,486
|
2,084
|
|
Interest
Expense, Net
|
(997,730)
|
(1,331,602)
|
(3,701,073)
|
(3,910,355)
|
|
Total
Other Expense
|
(843,812)
|
(1,331,008)
|
(3,535,587)
|
(3,908,271)
|
|
|
|
|
|
|
|
NET
LOSS
|
$(1,570,473)
|
$(1,971,918)
|
$(5,678,340)
|
$(5,704,030)
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE:
|
|
|
|
|
Basic
and Fully Diluted
|
$(0.08)
|
$(0.10)
|
$(0.29)
|
$(0.29)
|
|
WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET
LOSS PER COMMON SHARE:
|
|
Basic
and Fully Diluted
|
19,827,542
|
19,827,542
|
19,827,542
|
19,827,542
|
The accompanying
notes are an integral part of these condensed consolidated
financial statements.
MOBILESMITH,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
Loss
|
$(5,678,340)
|
$(5,704,030)
|
|
Adjustments
to Reconcile Net Loss to Net Cash Used in Operating
Activities:
|
|
|
|
Depreciation
and Amortization
|
123,324
|
121,685
|
|
Bad
Debt Expense (Gain on Reversal of Bad Debt)
|
33,300
|
(10,500)
|
|
Amortization
of Debt Discount
|
1,248,736
|
1,750,296
|
|
Share Based Compensation
|
63,309
|
63,925
|
|
Impairment of Long Lived Assets
|
8,356
|
-
|
|
Changes
in Assets and Liabilities:
|
|
|
|
Accounts
Receivable
|
(81,805)
|
(644,305)
|
|
Prepaid
Expenses and Other Assets
|
9,563
|
4,235
|
|
Accounts
Payable
|
13,633
|
(42,827)
|
|
Deferred
Revenue
|
353,595
|
600,870
|
|
Accrued
and Other Expenses
|
(33,583)
|
(147,659)
|
|
Net
Cash Used in Operating Activities
|
(3,939,912)
|
(4,008,310)
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Payments
to Acquire Property, Plant and Equipment
|
(26,483)
|
(10,340)
|
|
Net
Cash Used in Investing Activities
|
(26,483)
|
(10,340)
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Restricted
Cash Used to Pay Interest Expense
|
166,610
|
146,083
|
|
Deposit
of Cash to Restricted Account
|
(114,765)
|
(97,388)
|
|
Proceeds
from Issuance of Long Term Debt
|
3,750,000
|
3,750,000
|
|
Repayments
of Debt Borrowings
|
(22,911)
|
(21,057)
|
|
Net
Cash Provided by Financing Activities
|
3,778,934
|
3,777,638
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(187,461)
|
(241,012)
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
580,220
|
320,286
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$392,759
|
$79,274
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
Cash
Paid During the Period for Interest
|
$2,397,504
|
$2,289,464
|
|
|
|
|
|
Non-Cash
Investing and Financing Activities
|
|
|
|
The
Company Recorded Debt Discount Associated with Beneficial
Conversion Feature
|
$533,216
|
$-
|
|
Financed
Purchase of a Vehicle
|
$18,365
|
$ -
|
The accompanying
notes are an integral part of these condensed consolidated
financial statements.
MOBILESMITH,
INC.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR
THE PERIOD ENDED SEPTEMBER 30, 2016
(unaudited)
|
|
|
|
|
|
|
|
|
$0.001
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, DECEMBER 31, 2015
|
19,827,542
|
$19,828
|
$97,545,601
|
$(136,920,991)
|
$(39,355,562)
|
|
|
|
|
|
|
|
|
Equity-Based
Compensation
|
|
-
|
63,309
|
-
|
63,309
|
|
Beneficial
Conversion Feature Recorded as a Result of Issuance of Convertible
Debt
|
|
-
|
533,216
|
-
|
533,216
|
|
Net
Loss
|
|
-
|
-
|
(5,678,340)
|
(5,678,340)
|
|
BALANCES, SEPTEMBER 30, 2016
|
19,827,542
|
$19,828
|
$98,142,126
|
$(142,599,331)
|
$(44,437,377)
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these condensed consolidated
financial statements.
MOBILESMITH,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Quarterly Period Ended September 30, 2016
(unaudited)
1. DESCRIPTION
OF BUSINESS AND BASIS OF PRESENTATION
MobileSmith, Inc.
(referred to herein as the “Company,” “us,”
“we,” or “our”) was incorporated as
Smart Online, Inc. in the State of Delaware in 1993. The Company
changed its name to MobileSmith, Inc. effective July 1, 2013. The
Company develops software products and services and targets
businesses who need to connect with their stakeholders (customers,
employees, broader public) through a variety of mobile devices and
do so within 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 condensed
consolidated financial statements include accounts of the
Company and its wholly owned subsidiary, which was created to
explore the concept of a consumer targeted mobile app development
platform. From time to time, the Company may create
additional wholly-owned subsidiaries in order to test various new
services as a part of its research and development
process. The subsidiary has not had material
activity in 2016.
The Company’s
principal products and services include:
●
subscription to its
Software as a Service ("SaaS") cloud based mobile app development
platform to customers who design and build their own
apps;
●
dedicated internal
and secure mobile development platform for the U.S. Department of
Defense and related contractors;
●
custom
mobile application design and development services;
●
mobile
application marketing services; and
●
mobile
strategy implementation consulting.
The Company
prepared the accompanying unaudited condensed consolidated
financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”).
Pursuant to these rules and regulations, the Company has condensed
or omitted certain information and footnote disclosures it normally
includes in its audited annual consolidated financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”). In management’s opinion, the
Company has made all adjustments (consisting only of normal,
recurring adjustments, except as otherwise indicated) necessary to
fairly present its financial position, results of operations, cash
flows, and stockholders’ deficit as of September 30, 2016.
The Company’s interim period operating results do not
necessarily indicate the results that may be expected for any other
interim period or for the full fiscal year. These
condensed consolidated financial statements and accompanying
notes should be read in conjunction with the audited annual
consolidated financial statements and notes thereto included
in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2015 on file with the SEC (the
“Annual Report”).
Except as otherwise
noted, there have been no material changes to the Company’s
significant accounting policies as compared to the significant
accounting policies described in the Annual Report. The
accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. During the nine months ended September
30, 2016 and 2015, the Company incurred net losses as well as
negative cash flows from operations. These factors raise
substantial doubt about the Company’s ability to continue as
a going concern. The accompanying condensed consolidated financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the
amounts or classification of liabilities that might be necessary
should the Company be unable to continue as a going
concern.
Recently Issued Accounting Pronouncements
The Company
evaluates new significant accounting pronouncements at each
reporting period. For the period ended September 30, 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 condensed consolidated financial
statements.
In March 2016, the
Financial Accounting Standards Board
(FASB), issued a new accounting standard
intended to simplify various aspects related to how share-based
payments are accounted for and presented in the financial
statements. The new guidance includes provisions to reduce the
complexity related to income taxes, statement of cash flows, and
forfeitures when accounting for share-based payment transactions.
The new standard is effective for annual periods beginning after
December 15, 2016, and interim periods within annual periods
beginning after December 15, 2017. Early adoption is permitted. The
Company is currently evaluating the impact that this new standard
will have on its condensed consolidated financial statements and
related disclosures.
In August 2016, the
FASB issued new guidance to address how specific cash receipts and
payments are classified in cash flow statements, to reduce
diversity in practice. The new standard is effective for annual
periods beginning after December 15, 2017, and for interim periods
within fiscal years beginning after December 15, 2018. Early
adoption is permitted. The Accounting Standards Update (ASU) calls
for application of retrospective transition method to each period
presented. The Company is currently evaluating the impact of ASU
and plans to adopt its provisions for the annual period ending
December 31, 2016.
2. DEBT
The table below
summarizes the Company’s debt outstanding at September 30,
2016 and December 31, 2015:
|
Debt Description
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
|
|
|
|
|
|
Comerica
Bank Loan and Security Agreement
|
$5,000,000
|
$5,000,000
|
June
2018
|
3.85%
|
|
Capital
lease obligations - Noteholder lease
|
75,526
|
92,270
|
August
2019
|
8.00%
|
|
Capital
lease obligations - office furniture
|
16,201
|
22,368
|
August
2018
|
9.80%
|
|
Capital
lease obligations - vehicle
|
17,832
|
-
|
July
2021
|
5.59%
|
|
Convertible
notes - related parties, net of discount of $1,295,223 and
$2,010,743, respectively
|
37,829,008
|
33,363,488
|
November
2018
|
8.00%
|
|
Convertible
notes, net of discount of $50,129
|
680,640
|
680,640
|
November
2018
|
|
|
Total
debt
|
43,619,207
|
39,158,766
|
|
|
|
|
|
|
|
|
|
Less: current
portion of long-term debt
|
|
|
|
|
|
Capital
lease obligations
|
36,203
|
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
|
36,203
|
39,075,005
|
|
|
|
|
|
|
|
|
|
Debt
- long-term
|
$43,583,004
|
$83,761
|
|
|
Convertible Notes
During the nine
months ended September 30, 2016, the Company privately placed
$3,750,000 in principal amount of additional unsecured Convertible Subordinated
Notes (the “2014 NPA Notes”) to Union
Bancaire Privée (“UBP”) under its
existing unsecured
Convertible Subordinated Note Purchase Agreement dated
December 10, 2014 (the “2014 NPA”). The
2014 NPA Notes are convertible by the holder into shares of the
Company’s common stock, par value $0.001 per share (the
“Common Stock”) at a per share conversion price of
$1.43.
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 Secured
Promissory Notes (the “2007 NPA Notes”) under the
Convertible Secured Subordinated Note Purchase Agreement dated
November 14, 2007 (the "2007 NPA”) 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 market value of
the Company’s common stock on the date of each issuance of
the 2014 NPA Notes to UBP was higher than the conversion price,
which resulted in a beneficial conversion feature totaling $533,216
and corresponding debt discount, which is being amortized into
interest expense through the maturity of the Notes.
The table below summarizes convertible notes issued as of September
30, 2016 by type:
|
|
|
|
|
|
|
2007
NPA notes, net of discount
|
$29,547,833
|
2014
NPA notes, net of discount
|
8,961,815
|
|
Total
convertible notes, net of discount
|
$38,509,648
|
Comerica
LSA
On May 24, 2016,
the Company and Comerica Bank entered into First Amendment to Loan
and Security Agreement with Comerica Bank dated June 9, 2014,
extending to June 6, 2018 the maturity date of the outstanding loan
thereunder, which was originally scheduled to become due on June 6,
2016.
3. COMMITMENTS
AND CONTINGENCIES
Aggregate future lease commitments
The Company leases
computers, office equipment, office furniture and company vehicle
under capital lease agreements that expire through July 2021. Total
amount financed under these capital leases at September 30, 2016
was $109,559. This obligation is included within the
Company’s total debt.
The table below
summarizes Company’s future obligations under its capital
leases:
|
Year:
|
|
|
2016
|
$10,692
|
|
2017
|
43,477
|
|
2018
|
38,407
|
|
2019
|
23,631
|
|
2020
|
4,219
|
|
|
2,461
|
|
Total
|
122,887
|
Less
amount representing interest
|
(13,328)
|
Capital
lease obligations
|
$109,559
|
The Company leases
its office space in Raleigh, North Carolina pursuant to a lease
with an initial term that expires in March 2019. The
lease contains an option to renew for two additional three-year
lease terms.
The table
below summarizes the Company’s future obligation under
its office lease:
|
Year:
|
|
|
2016
|
$41,381
|
|
2017
|
167,786
|
|
2018
|
172,418
|
|
2019
|
44,082
|
|
Total
|
$425,667
|
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.
4. EQUITY
AND EQUITY BASED COMPENSATION
In May 2016, the Company’s shareholders voted to increase the
number of authorized shares of Common Stock from 45
million to 100 million shares. The increase became effective
on June 7, 2016.
In May 2016, the Company’s
shareholders approved the adoption of the
MobileSmith Inc. 2016 Equity Compensation Plan for officers, directors, employees and
consultants, initially reserving for issuance thereunder 15,000,000
shares of Common Stock. As of September 30, 2016,
options to purchase 468,860 shares of Common Stock
were granted under 2016 Equity Compensation
Plan.
The
following is a summary of the stock option activity for the nine
months ended September 30, 2016:
|
|
|
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contractual Term
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2015
|
361,349
|
$1.44
|
|
|
|
Cancelled
|
(122,983)
|
1.55
|
|
|
|
Issued
|
468,860
|
1.50
|
|
|
Outstanding,
September 30, 2016
|
707,226
|
1.46
|
5.27
|
$13,113
|
|
Vested
and exercisable, September 30, 2016
|
206,230
|
$1.36
|
2.38
|
$13,113
|
Aggregate intrinsic
value represents the difference between the closing price of the
Company’s common stock at September 30, 2016 and the exercise
price of outstanding, in-the-money stock options. The closing price
of the common stock at September 30, 2016, as reported on the
OTCQB Venture Marketplace, was $1.25 per
share.
At September 30,
2016, $264,886 unvested expense has yet to be recorded related to
outstanding stock options.
5. MAJOR
CUSTOMERS AND CONCENTRATION
For the nine months ended September 30, 2016, one major customer
accounted for 16% of total revenues and three customers accounted
for 67% of the accounts receivable balance. For the nine
months ended September 30, 2015, two major customers accounted for
31% of total revenues and three customers accounted for 81% of the
accounts receivable balance.
6.
SUBSEQUENT EVENTS
On October 21,
2016, the Company issued one 2014 NPA Note to UBP in the principal
amount of $900,000 on the same terms as the currently outstanding
2014 NPA Notes. The note matures on November 14,
2018.
ITEM
2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Information set forth in this Quarterly Report on Form 10-Q
contains various forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, Section 21E of the
Securities Exchange Act of 1934 (the “Exchange Act”)
and other laws. Forward-looking statements consist of,
among other things, trend analyses, statements regarding future
events, future financial performance, our plan to build our
business and the related expenses, our anticipated growth, trends
in our business, our ability to continue as a going concern, and
the sufficiency of our capital resources including funds that we
may be able to raise under our convertible note facility, our
ability to raise financing from other sources and/or ability to
defer expenditures, the impact of the liens on our assets securing
amounts owed to third parties, expectation regarding competitors as
more and larger companies attempt to market products/services
competitive to our company, market acceptance of our new product
offerings, including updates to our Platform, rate of new user
subscriptions, market penetration of our products
and expectations regarding our revenues and
expense, all of which are based on current expectations,
estimates, and forecasts, and the beliefs and assumptions of our
management. Words such as “expect,”
“anticipate,” “project,”
“intend,” “plan,” “estimate,”
variations of such words, and similar expressions also are intended
to identify such forward-looking statements. These forward-looking
statements are subject to risks, uncertainties, and assumptions
that are difficult to predict. Therefore, actual results may differ
materially and adversely from those expressed in any
forward-looking statements. Readers are directed to
risks and uncertainties identified under Part I, Item 1A,
“Risk Factors,” in the Annual Report on Form 10-K
for the year ended December 31, 2015 and our subsequent periodic
reports filed with the SEC for factors that may cause actual
results to be different than those expressed in these
forward-looking statements. Except as required by law, we undertake
no obligation to revise or update publicly any forward-looking
statements for any reason.
The following
discussion is designed to provide a better understanding of our
unaudited condensed consolidated financial statements, including a
brief discussion of our business and products, key factors that
impacted our performance, and a summary of our operating
results. The following discussion should be read in
conjunction with the unaudited condensed consolidated financial
statements and the notes thereto included in Part I, Item 1 of this
Quarterly Report on Form 10-Q, and the audited annual
consolidated financial statements and notes thereto and
Management’s Discussion and Analysis of Financial Condition
and Results of Operations contained in the Annual
Report. Historical results and percentage relationships
among any amounts in the condensed consolidated financial
statements are not necessarily indicative of trends in operating
results for any future periods.
Overview
We develop and market a
software-as-a-service (“SaaS”) platform that allows
non-programmers to design and build native mobile applications for
smartphones and tablets. Our flagship product is
the MobileSmith® Platform (the
“Platform”). Platform related services often include
data integration and training. We also provide consulting
services, which include assistance with design and implementation
of mobile strategy, implementation of mobile marketing strategy and
the development of mobile apps. Revenue from such
services is included in the Professional Services and Other Revenue
line of our Statement of Operations. Delivery of
Professional Services requires allocation of a portion of our
research and development efforts into Cost of
Revenue.
In our business
model – the customers acquire access to the Platform through
user subscription agreements and are able to obtain control of
mobile app production. We often refer to our business model as
platform-as-a-service ("PaaS"), because we not only offer cloud
software to create mobile apps, we offer infrastructure to host the
newly created mobile apps and back-office tools to manage those
apps. Out Platform is a truly comprehensive offering and thus
more accurately described by the PaaS model. In the industry
and this report terms SaaS and PaaS may be used interchangeably as
common reference to cloud computing model.
Our business model
allows for creation and management of any desired number of apps by
our customers for a monthly subscription fee. The on-demand PaaS
model developed using multi-tenant architecture enables end users
to visit a website and use the PaaS applications, all via a web
browser, with no installation, no special information technology
knowledge and no maintenance. The PaaS application is transformed
into a service that can be used anytime and anywhere by the end
user. Multi-tenant PaaS applications also permit us to add needed
functionality to our applications in one location for the benefit
of all end users. This capability allows us to provide upgrades
universally.
During 2014, for
the first time we installed our Platform in a local or a private
cloud configuration for one of our government clients. Our
Platform was safely placed behind the firewalls of a government
department which would allow the organization to create and manage
multiple mobile apps with targeted functionality for targeted
audiences without going outside of the secure setting.
Target Market
and Sales Channels
We believe that the
do-it-yourself model for creation and management of apps will
become a cost effective solution for enterprise clients who have an
ever increasing need to interact with their customers and employees
through mobile devices. Single apps may reach their limits of
usability very quickly, if made complex. The Platform provides the
subscriber with the capacity to create multiple, customized
non-template apps with designated functionalities and specific
designs without incurring additional costs.
Our market
penetration strategy focuses on three distinct
sectors:
Healthcare clients:
Healthcare
organizations, such as hospitals and healthcare
networks, follow departmental segmentation and focus on a
specific territorial reach. Additionally, healthcare organizations
are subject to increased regulation as a result of the Affordable
Care Act and may be subject to penalties for delivering inefficient
care under new Medicare regulations. Hospitals increasingly turn to
portfolios of apps to increase efficiency and remain competitive.
Outpatient care apps, wellness apps, physician referral apps,
appointment apps, discharge apps, facility way-finding apps are
just a few example areas where healthcare organizations are
increasingly using app portfolios. We believe that the Platform has
a significant competitive advantage in the healthcare space due to
its ability to deliver a variety of targeted mobile solutions cost
effectively.
Enterprise clients:
The second sector
combines all other large and multi-national enterprise clients,
where large-scale customization based on functionality or territory
is of the highest value, and other contributors such as time to
market, technology reach, and ease of use play important roles.
These target clients may include large food chains, media and PR
companies, software solutions providers, hardware manufacturers,
mortgage brokers and real estate franchises.
Government:
We believe that the
Platform has a unique capability to service various structures
within federal, state and local governments, as government
structure is highly segmented by function and territory. In
addition, the Platform can be safely placed behind the firewalls of
individual departments, where data security is a primary concern.
Replicating the Platform and placing it behind a secure firewall
would allow an organization to create and manage multiple mobile
apps with targeted functionality for targeted audiences without
going outside of the secure firewall.
RESULTS
OF OPERATIONS
Third Quarter 2016
Highlights
We continuously
evaluate capabilities of our Platform and seek new industries where
our Platform can deliver the greatest value. We
also continuously evaluate needs of our current and potential
customers, including healthcare customers, and seek to align our
product offerings, new Platform features
and customer service focus with those needs. During 2016 we
concluded that in order to sustain our revenue growth, our Platform
should be complemented by additional features that would produce
for our customers accelerated return on investment by targeting
specific challenging pain points in their
operations. The newly adopted strategy was introduced during
third quarter of 2016 and materialized in
the creation of a suite of app Blueprints -
which are fully customizable apps that can be rapidly
tailored by our customers to their own organization's
structure and needs and quickly deployed to address their
own specific variation of existing industry pain point. Our
current suite of app Blueprints targets customers in healthcare
space. We have amassed over the past several
years much experience in the mobile healthcare space
and our new app Blueprints are designed
to share that expertise with our Platform customers in a manner
that is scalable and in line with our SaaS recurring revenue
model.
Comparison of the Three Months Ended September 30, 2016 (the
“2016 Period”) to the Three Months Ended September 30,
2015 (the “2015 Period”).
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
Revenue
|
415,166
|
494,371
|
(79,205)
|
(16)%
|
|
Cost
of Revenue
|
149,593
|
172,297
|
(22,704)
|
(13)%
|
|
Gross
Profit
|
265,573
|
322,074
|
(56,501)
|
(18)%
|
|
Sales
and Marketing
|
288,129
|
307,857
|
(19,728)
|
(6)%
|
|
Research
and Development
|
446,490
|
356,098
|
90,392
|
25%
|
|
General
and Administrative
|
257,615
|
299,029
|
(41,414)
|
(14)%
|
|
|
|
|
|
|
|
Interest
Expense
|
997,730
|
1,331,602
|
(333,872)
|
(25)%
|
Revenue decreased by $79,205 or
16%. The
decrease is attributable to decreased sales mainly due
to our re-evaluation of the Platform
offerings driven by changes in customer needs and
implementation of our new strategy, which resulted in
changes to our sales and
marketing operations. The
implementation resulted in delayed sales execution and higher than
expected customer churn. In addition, our revenues were impacted by
one major contract for which revenue recognition has been deferred
in compliance with US GAAP (“United States
Generally Accepted Accounting Principles”) revenue
recognition requirements for sale of software products and
services. Such deferred revenue totaled
approximately $783,000 which comprised approximately 60% of the
total deferred revenue balance. Once all revenue recognition
criteria are met, the revenue will be recognized in accordance with
our revenue recognition policy.
Cost of Revenue
decreased by $22,704 or
13%. A decrease of
$34,000 was primarily attributable to the one-time payment in the
2015 period of a commission in respect of the securing of a
contract; additional decrease of approximately $39,000 in costs of
services related to a contract that ended in September
2015. The decreases were offset by
an increase of $52,000 in cost of revenue attributable to
the growth of our Customer Success team resulting from the
reorganization of our existing workforce in the 2016
Period.
Gross Profit
decreased by $56,501 or 18%. The
decrease
is attributable to
decreased revenues, in addition to reorganization of our
existing internal workforce which resulted in expansion of
our Customer Success team.
Sales and Marketing
expense decreased by $19,728
or 6%. Payroll and sales commissions decreased by
approximately $45,000, offset by increase of $33,000 in marketing
campaign spending. The remainder of the decrease is
attributable to the decrease in sales and marketing related
travel.
Research and
Development expense increased by $90,392 or
25%. This increase is attributable to an increase in
payroll and related costs as a result of growth in our development
and product teams, an increase in teams' general
compensation levels and increase in recruiting fees, as we continue
to compete for top talent in a highly competitive labor market for
software engineers and developers.
General and
Administrative expense decreased by $41,414
or 14% during the 2016 period. A decrease of $66,000 is
attributable to the reversal of a non-cash reserve for doubtful
accounts recorded during 2016 Period,
offset by an increase in President's compensation upon
promotion, increase in number of Board directors and other
general administrative costs.
Interest
Expense decreased by $333,872 or
25%. The cash part of interest expense increased by
approximately $93,000 due to the increase in the face value of our
convertible debt. The cash interest portion was offset
by a decrease of approximately $427,000 in debt discount
amortization as a result of the
discount being amortized over an additional two years
attributable to the extension of the maturity date for
our convertible debt, which was implemented in May
2016.
Comparison of the Nine Months Ended September 30, 2016 (the
“2016 Nine Months Period”) to the Nine Months Ended
September 30, 2015 (the “2015 Nine Months
Period”).
|
|
Nine months Ended September 30,
|
|
|
|
|
|
|
|
|
Revenue
|
1,384,619
|
1,328,104
|
56,515
|
4%
|
|
Cost
of Revenue
|
414,204
|
329,540
|
84,664
|
26%
|
|
Gross
Profit
|
970,415
|
998,564
|
(28,149)
|
(3)%
|
|
Sales
and Marketing
|
849,303
|
867,153
|
(17,850)
|
(2)%
|
|
Research
and Development
|
1,253,889
|
1,029,923
|
223,966
|
22%
|
|
General
and Administrative
|
1,009,976
|
897,247
|
112,729
|
13%
|
|
|
|
|
|
|
|
Interest
Expense
|
3,701,073
|
3,910,355
|
(209,282)
|
(5)%
|
Revenue increased by $56,515 or 4%, which
is considered flat in comparison to our past growth.
The revenue was flat
primarily due to re-evaluation of our Platform
offerings driven by changes in customer needs and
the implementation of our new strategy,
which resulted in changes to our sales
and marketing operation. The
implementation resulted in delayed sales execution and higher than
expected customer churn. In addition, our revenues were impacted by
one major contract for which revenue recognition has been deferred
in compliance with US GAAP (“United States
Generally Accepted Accounting Principles”) revenue
recognition requirements for sale of software products and
services. Such deferred revenue
totaled approximately $783,000, which comprised
approximately 60% of the total deferred revenue balance. Once all
revenue recognition criteria are met, the revenue will be
recognized in accordance with our revenue recognition
policy.
Cost of Revenue increased by $84,664 or 26%. An
increase of $126,000 is attributable to the growth of our Customer
Success team resulting from the
reorganization of our existing workforce in the 2016 Nine Months
Period. Such increase is offset by
a decrease in cost of services related to a development services
contract that ended in September 2015.
Gross
Profit decreased by $28,149 or 3%. The
decrease
is attributable to
decreased revenues, in addition to reorganization of our existing
internal workforce which resulted in expansion of our Customer
Success team.
Sales and Marketing expense decreased by
$17,850 or 2%. The decrease is mostly due to decrease in
commissions resulting from decreased level of
sales.
Research and Development expense increased by
$223,966 or 22%. This increase is attributable to an increase in
payroll and related costs due to the growth of our development and
product teams, as well as increase in teams’ general
compensation levels as we continue to compete for top talent in a
highly competitive labor market for software engineers and
developers.
General and Administrative expense increased by
$112,729 or 13%. Bad debt expense increased by approximately
$23,000. An increase of $39,000 is attributable to a general
increase in payroll and benefits related expenses, as
well as an increase in board member compensation due to
the addition of a new board member. Legal and
compliance costs increased by approximately $19,000. The remaining
increase is a combination of changes in general operational costs,
such as insurance, purchases of software and hardware and other
general expenditures.
Interest Expense decreased by $209,282 or 5%. The cash part
of interest expense increased by approximately $290,000 due to the
increase in the face value of our debt. The cash interest portion
was offset by a decrease of approximately $500,000 in debt discount
amortization as a result of the discount being amortized over an
additional two years due to the extension of the maturity date for
our convertible debt which was implemented in May
2016.
Liquidity and Capital
Resources
We have not yet achieved positive cash
flows from operations, and our main source of funds for our
operations continues to be the sale of our notes
under our two convertible note facilities.
In May 2016 we extended to
November 14, 2018 (from November 16, 2016) the maturity date
of the notes outstanding under this
facility. We are also authorized to
utilize the facilities through November 2018. We need
to continue to rely on the facilities until we are able to generate
sufficient cash from revenues to fund our operations or obtain
alternate sources of financing. We believe that anticipated cash
flows from operations, and additional issuances of notes under the
facility, of which no assurance can be provided, together with cash
on hand, will provide sufficient funds to finance our operations
for the next 12 months from the date of this report on Form
10-Q. Changes in our operating plans, lower than
anticipated sales, increased expenses, or other events may cause us
to seek additional equity or debt financing in future periods.
There can be no guarantee that financing will be available to us
under the convertible note facilities or otherwise on acceptable
terms or at all. The convertible note facilities are scheduled to
expire on November 14, 2018 and all outstanding notes thereunder,
which stood at $40,755,000 as of the date of this report, are to
come due and payable on such date. Additional equity and
convertible debt financing could be dilutive to the holders of
shares of our common stock, and additional debt financing, if
available, could impose greater cash payment obligations and more
covenants and operating restrictions.
Nonetheless, there
are factors that can impact our ability to continue to fund
our operating the next twelve months. These include:
●
our
ability to expand revenue volume;
●
our
ability to maintain product pricing as
expected, particularly in light of increased competition and its
unknown effects on market dynamics;
●
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.
In addition, if UBS
were to elect to not renew the irrevocable letter of credit issued
by it beyond May 31, 2017, the currently scheduled expiration date,
then such non-renewal will result in an event of default under
our Loan
and Security Agreement (the “LSA”) with Comerica
Bank, at which time all amounts outstanding thereunder,
which are approximately $5,000,000 as of the date of this report,
will become due and payable. Currently, the letter of credit is
automatically extended 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. As of the date of this report
on Form 10Q, no such notice has been provided to us nor have we
been provided with any indication that we are to receive notice of
non-renewal of the letter of credit.
On May 24, 2016, we
and Comerica Bank agreed to extend the maturity date of the LSA
to June 9, 2018.
Uses of
Cash
During the nine
months ended September 30, 2016, we used in operating activities
approximately $5.6 million, which was offset by $1.7 million in
cash collected from our customers. The
uses of cash were as follows: approximately $2.4 million was
used to pay interest payments on the convertible notes
and bank debt; approximately $2.4 million for payroll, benefits and
related costs; approximately $335,000 was used for
non-payroll related sales and marketing efforts, such as tradeshows
and marketing campaigns and approximately $450,000 was used for
other non-payroll development and general and administrative
expenses, which included among other things: infrastructure costs,
rent, insurance, legal, professional, compliance, and other
expenditures.
During the nine
months ended September 30, 2015, we used in operating activities
approximately $5.3 million, which was offset by $1.3 million in
cash collected from our customers. The uses of cash
were as follows: approximately $2.3 million was
used to pay interest payments on the convertible
notes and bank debt; approximately $2.0 million was
used for payroll, benefits and related costs; approximately
$335,000 was used for non-payroll related
sales and marketing efforts, such as tradeshows and marketing
campaigns and approximately $436,000 was used for other non-payroll
development and general and administrative expenses, which included
among other things: infrastructure costs, rent, insurance, legal,
professional, compliance, and other expenditures.
Capital Expenditures and Investing Activities
Our capital
expenditures are limited to the purchase of new office equipment
and new mobile devices that are used for testing. Cash used for
investing activities was not significant and we do not plan any
significant capital expenditures in the near future.
Going
Concern
Our independent
registered public accounting firm has issued an emphasis of matter
paragraph in their report included in the Annual Report on
Form 10-K for the year ended December 31, 2015 in which they
express substantial doubt as to our ability to continue as a going
concern. The condensed consolidated financial statements do not
include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts or
classification of liabilities that might be necessary should we be
unable to continue as a going concern. Our continuation as a going
concern depends on our ability to generate sufficient cash flows to
meet our obligations on a timely basis, to obtain additional
financing that is currently required, and ultimately to attain
profitable operations and positive cash flows. There can be no
assurance that our efforts to raise capital or increase revenue
will be successful. If our efforts are unsuccessful, we may have to
cease operations and liquidate our business.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
applicable.
ITEM
4. CONTROLS AND PROCEDURES
Our management,
with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures for the nine months ended
September 30, 2016. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be
disclosed by a company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s
rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its
principal executive and principal financial officers, as
appropriate to allow for timely decisions regarding required
disclosure. Management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives,
as ours are designed to do, and management necessarily applies its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on such evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of
September 30, 2016, our disclosure controls and procedures were
effective at a reasonable assurance level.
Changes
in Internal Control over Financial Reporting
During the three
months ended September 30, 2016, there were no changes made in
our internal control over financial reporting (as such term is
defined in Rule 13a-15(f) of the Exchange Act) that have materially
affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART
II – OTHER INFORMATION
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
The following
paragraph sets forth certain information with respect to all
securities sold by us during the three months ended September 30,
2016 without registration under the Securities Act:
Between July 1,
2016 and September 30, 2016, we issued to one accredited investor
$1,200,000 in principal amount of our convertible notes under the
2014 Note Purchase Agreement. The note is convertible into shares
of our Common Stock at a per share conversion rate of $1.43. All
notes issued under this facility are scheduled to mature on
November 14, 2018.
All of the
securities issued in the transactions described above were issued
without registration under the Securities Act in reliance upon the
exemptions provided in Section 4(2) of the Securities Act. The
recipient of securities in such transaction acquired the securities
for investment only and not with a view to or for sale in
connection with any distribution thereof. Appropriate legends were
affixed to the share certificates issued in all of the above
transactions. The recipient represented that it was an
“accredited investor” within the meaning of Rule 501(a)
of Regulation D under the Securities Act, or had such knowledge and
experience in financial and business matters as to be able to
evaluate the merits and risks of an investment in its common
stock. The recipient had adequate access, through their
relationships with the Company and its officers and directors, to
information about the Company. None of the transactions described
above involved general solicitation or advertising.
ITEM
6. EXHIBITS
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Exhibit No.
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Description
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10.1
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Letter
Agreement dated as of August 1, 2016 between MobileSmith, Inc. and
Randy Tomlin (Incorporated
herein by reference to the Current Report on
Form 8-K filed on August 10, 2016)+
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31.1
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Certification of
Principal Executive Officer Pursuant to Rule 13a-14(a)
(Filed
herewith)
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31.2
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Certification of
Principal Financial and Accounting Officer Pursuant to Rule
13a-14(a) (Filed
herewith)
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32.1
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Certification of
Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
(Furnished
herewith)
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32.2
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Certification of
Principal Financial and Accounting Officer Pursuant to 18 U.S.C.
Section 1350 (Furnished
herewith)
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101.1
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The following
materials from the Company’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2016, formatted in XBRL
(eXtensible Business Reporting Language): (i) the Condensed
Consolidated Balance Sheets, (ii) the Condensed Consolidated
Statements of Operations, (iii) the Condensed Consolidated
Statements of Cash Flows, (iv) the Condensed Consolidated Statement
of Stockholders’ Deficit and (v) related notes to these
condensed consolidated financial statements, tagged as blocks of
text and in detail (Filed
herewith).
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+ Management
Agreement
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SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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MOBILESMITH,
INC.
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November
9,
2016
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By:
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/s/
Amir Elbaz
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Amir
Elbaz
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Executive Chairman
(Principal Executive Officer)
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November
9,
2016
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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 (Principal Financial and Accounting
Officer)
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