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 June 30, 2021
2022 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated | ☐ | Smaller reporting company | ☒ | |
(Do not check if a smaller reporting company) | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
None |
| None |
| None |
As of August 9, 2021,12, 2022, there were 28,389,493 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
MOBILESMITH, INC.
FORM 10-Q
For the Quarterly Period Ended June 30, 20212022
TABLE OF CONTENTS
|
| Page No. | ||
|
|
| ||
Item 1. | Financial Statements |
| ||
|
|
| ||
| Condensed Balance Sheets as of June 30, | 3 | ||
|
|
| ||
| 4 | |||
|
|
| ||
| 5 | |||
|
|
| ||
| 6 | |||
|
|
| ||
| 7 | |||
|
|
| ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | |||
|
|
| ||
18 | ||||
|
|
| ||
18 | ||||
| ||||
|
|
| ||
19 | ||||
|
| |||
19 | ||||
|
|
| ||
19 | ||||
|
|
| ||
19 | ||||
|
|
| ||
19 | ||||
|
|
| ||
20 | ||||
|
|
| ||
| 21 |
2 |
Table of Contents |
PART I – FINANCIAL INFORMATION
MOBILESMITH, INC.
CONDENSED BALANCE SHEETS
|
| June 30, |
| December 31, |
|
| June 30, |
| December 31, |
| ||||||
|
| 2021 |
| 2020 |
|
| 2022 |
| 2021 |
| ||||||
ASSETS |
| (unaudited) |
|
|
|
| Unaudited |
|
|
| ||||||
Current Assets |
|
|
|
|
|
|
|
|
|
| ||||||
Cash and Cash Equivalents |
| $ | 831,191 |
| $ | 161,744 |
|
| $ | 472,434 |
| $ | 372,581 |
| ||
Restricted Cash and Cash Equivalents |
| 199,737 |
| 189,179 |
|
| 169,337 |
| 202,761 |
| ||||||
Accounts Receivable, Net of Allowance for Doubtful Accounts of $0 and $30,000 respectively |
| 283,633 |
| 113,906 |
| |||||||||||
Accounts Receivable, Net of Allowance for Doubtful Accounts of $15,000 and $0, respectively |
| 155,133 |
| 80,875 |
| |||||||||||
Prepaid Expenses and Other Current Assets |
|
| 74,306 |
|
|
| 43,286 |
|
|
| 58,388 |
|
|
| 50,304 |
|
Total Current Assets |
| 1,388,867 |
| 508,115 |
|
| 855,292 |
| 706,521 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating Lease Right-of-Use Asset |
|
| 428,142 |
|
|
| 512,124 |
|
|
| 254,544 |
|
|
| 342,383 |
|
Total Assets |
| $ | 1,817,009 |
|
| $ | 1,020,239 |
|
| $ | 1,109,836 |
|
| $ | 1,048,904 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
| ||||||
Current Liabilities |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts Payable |
| $ | 26,092 |
| $ | 155,850 |
|
| $ | 104,748 |
| $ | 83,942 |
| ||
Interest Payable |
| 183,921 |
| 271,868 |
|
| 15,617 |
| 17,646 |
| ||||||
Other Liabilities And Accrued Expenses |
| 263,839 |
| 237,750 |
|
| 165,459 |
| 156,986 |
| ||||||
Operating Lease Liability Current |
| 149,525 |
| 161,936 |
|
| 149,525 |
| 149,525 |
| ||||||
Contract With Customer Liability |
| 676,990 |
| 649,789 |
|
| 431,910 |
| 464,162 |
| ||||||
First PPP Loan, Current |
| 0 |
| 423,067 |
| |||||||||||
Bank Loan |
|
| 5,000,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,000,000 |
|
Total Current Liabilities |
| 6,300,367 |
| 1,900,260 |
|
| 867,259 |
| 5,872,261 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Second PPP Loan |
| 542,000 |
| 0 |
| |||||||||||
First PPP Loan, Long-Term |
| 0 |
| 119,033 |
| |||||||||||
Bank Loan |
| 5,000,000 |
| 0 |
| |||||||||||
Operating Lease Liability |
| 365,115 |
| 432,058 |
|
|
| 196,594 |
|
|
| 282,534 |
| |||
Convertible Notes Payable, Net of Discount |
| 0 |
| 972,108 |
| |||||||||||
Bank Loan |
|
| 0 |
|
|
| 5,000,000 |
| ||||||||
Total Liabilities |
| 7,207,482 |
| 8,423,459 |
|
| 6,063,853 |
| 6,154,795 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Commitments and Contingencies (Note 3) |
|
|
|
|
|
|
|
|
|
| ||||||
Stockholders' Deficit |
|
|
|
|
| |||||||||||
Preferred Stock, $0.001 Par Value, 5,000,000 Shares Authorized, Including 1,750,000 Authorized and Designated for Series A Convertible Preferred Shares: 1,300,687 Issued and Outstanding as of June 30, 2021 and 1,166,297 Issued and Outstanding as of December 31, 2020. |
| 114,072,014 |
| 103,649,344 |
| |||||||||||
Common Stock, $0.001 Par Value, 100,000,000 Shares Authorized At June 30, 2021 and December 31, 2020; 28,389,493 Shares Issued and Outstanding at June 30, 2021 and 28,389,493 Shares Issued and Outstanding at December 31, 2020. |
| 28,390 |
| 28,390 |
| |||||||||||
Stockholders’ Deficit |
|
|
|
|
| |||||||||||
Preferred Stock, $0.001 Par Value, 5,000,000 Shares Authorized, Including 1,750,000 Authorized and Designated for Series A Convertible Preferred Shares: 1,521,179 Issued and Outstanding as of June 30, 2022 and 1,403,276 Issued and Outstanding as of December 31, 2021. |
| 132,459,976 |
| 127,162,277 |
| |||||||||||
Common Stock, $0.001 Par Value, 100,000,000 Shares Authorized at June 30, 2022 and December 31, 2021; 28,389,493 Shares Issued and Outstanding at June 30, 2022 and 28,389,493 Shares Issued and Outstanding at December 31, 2021. |
| 28,390 |
| 28,390 |
| |||||||||||
Additional Paid-in Capital - Common Shares |
| 131,796,969 |
| 130,103,361 |
|
| 122,056,344 |
| 123,015,819 |
| ||||||
Accumulated Deficit |
|
| (251,287,846 | ) |
|
| (241,184,315 | ) |
|
| (259,498,727 | ) |
|
| (255,312,377 | ) |
Total Stockholders' Deficit |
|
| (5,390,473 | ) |
|
| (7,403,220 | ) | ||||||||
Total Liabilities and Stockholders' Deficit |
| $ | 1,817,009 |
|
| $ | 1,020,239 |
| ||||||||
Total Stockholders’ Deficit |
|
| (4,954,017 | ) |
|
| (5,105,891 | ) | ||||||||
Total Liabilities and Stockholders’ Deficit |
| $ | 1,109,836 |
|
| $ | 1,048,904 |
|
The accompanying notes are an integral part of these condensed financial statements.
3 |
Table of Contents |
MOBILESMITH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
| 3 Months Ended |
| 3 Months Ended |
| 6 Months Ended |
| 6 Months Ended |
|
| 3 Months Ended |
| 3 Months Ended |
| 6 Months Ended |
| 6 Months Ended |
| ||||||||||||||
|
| June 30, |
| June 30, |
| June 30, |
| June 30, |
|
| June 30, |
| June 30, |
| June 30, |
| June 30, |
| ||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Subscription and Support |
| $ | 398,358 |
| $ | 491,367 |
| $ | 816,343 |
| $ | 1,010,766 |
|
| $ | 295,607 |
|
| $ | 398,358 |
|
| $ | 625,509 |
|
| $ | 816,343 |
| |||
Services and Other |
|
| 0 |
|
|
| 116,405 |
|
|
| 0 |
|
|
| 221,578 |
| ||||||||||||||||
Total Revenue |
| 398,358 |
| 607,772 |
| 816,343 |
| 1,232,344 |
|
| 295,607 |
| 398,358 |
| 625,509 |
| 816,343 |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
COST OF REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Subscription and Support |
| 199,944 |
| 181,221 |
| 405,247 |
| 346,622 |
|
| 148,249 |
| 199,944 |
| 271,820 |
| 405,247 |
| ||||||||||||||
Services and Other |
|
| 0 |
|
|
| 0 |
|
|
| 9,000 |
|
|
| 93,162 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9,000 |
|
Total Cost of Revenues |
| 199,944 |
| 181,221 |
| 414,247 |
| 439,784 |
|
| 148,249 |
| 199,944 |
| 271,820 |
| 414,247 |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
GROSS PROFIT |
|
| 198,414 |
|
|
| 426,551 |
|
|
| 402,096 |
|
|
| 792,560 |
|
|
| 147,358 |
|
|
| 198,414 |
|
|
| 353,689 |
|
|
| 402,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Selling and Marketing |
| 476,147 |
| 301,052 |
| 1,004,441 |
| 668,366 |
|
| 343,810 |
| 476,147 |
| 721,693 |
| 1,004,441 |
| ||||||||||||||
Research and Development |
| 858,571 |
| 750,438 |
| 1,734,237 |
| 1,378,233 |
|
| 997,667 |
| 858,571 |
| 2,064,863 |
| 1,734,237 |
| ||||||||||||||
General and Administrative |
|
| 705,489 |
|
|
| 824,517 |
|
|
| 1,611,373 |
|
|
| 1,649,318 |
|
|
| 801,104 |
|
|
| 705,489 |
|
|
| 1,633,038 |
|
|
| 1,611,373 |
|
Total Operating Expenses |
|
| 2,040,207 |
|
|
| 1,876,007 |
|
|
| 4,350,051 |
|
|
| 3,695,917 |
|
|
| 2,142,581 |
|
|
| 2,040,207 |
|
|
| 4,419,594 |
|
|
| 4,350,051 |
|
LOSS FROM OPERATIONS |
|
| (1,841,793 | ) |
|
| (1,449,456 | ) |
|
| (3,947,954 | ) |
|
| (2,903,357 | ) |
|
| (1,995,223 | ) |
|
| (1,841,793 | ) |
|
| (4,065,905 | ) |
|
| (3,947,954 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Other Income |
| 596 |
| 5,682 |
| 598 |
| 11,686 |
| |||||||||||||||||||||||
Interest Expense, Net |
| (48,671 | ) |
| (1,759,173 | ) |
| (191,138 | ) |
| (3,610,276 | ) |
| (72,874 | ) |
| (48,075 | ) |
| (120,445 | ) |
| (190,540 | ) | ||||||||
Gain on Debt Extinguishment - PPP Loan Forgiveness |
| 0 |
| 0 |
| 542,100 |
| - |
|
| 0 |
| 0 |
| 0 |
| 542,100 |
| ||||||||||||||
Loss on Debt Extinguishment |
|
| 0 |
|
|
| (4,864,750 | ) |
|
| (6,507,137 | ) |
|
| (4,864,750 | ) | ||||||||||||||||
Losses on Debt Extinguishments |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (6,507,137 | ) | ||||||||||||||||
Total Other Expense |
| (48,075 | ) |
| (6,618,241 | ) |
| (6,155,577 | ) |
| (8,463,340 | ) |
| (72,874 | ) |
| (48,075 | ) |
| (120,445 | ) |
| (6,155,577 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
| $ | (1,889,868 | ) |
| $ | (8,067,697 | ) |
| $ | (10,103,531 | ) |
| $ | (11,366,697 | ) |
| $ | (2,068,097 | ) |
| $ | (1,889,868 | ) |
| $ | (4,186,350 | ) |
| $ | (10,103,531 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Plus: Dividend on Series A Convertible Preferred Stock |
| 0 |
| 0 |
| (2,597,699 | ) |
| 0 |
| ||||||||||||||||||||||
Plus: Deemed Dividend on Series A Convertible Preferred Stock |
| (1,000,000 | ) |
| 0 |
| (6,269,401 | ) |
| 0 |
|
| (979,020 | ) |
| (1,000,000 | ) |
| (4,443,425 | ) |
| (6,269,401 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS |
| $ | (2,889,868 | ) |
| $ | (8,067,697 | ) |
| $ | (16,372,932 | ) |
| $ | (11,366,697 | ) |
| $ | (3,047,117 | ) |
| $ | (2,889,868 | ) |
| $ | (11,227,474 | ) |
| $ | (16,372,932 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
NET LOSS PER COMMON SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Basic and Fully Diluted from Continuing Operations |
| $ | (0.10 | ) |
| $ | (0.28 | ) |
| $ | (0.58 | ) |
| $ | (0.40 | ) |
| $ | (0.11 | ) |
| $ | (0.10 | ) |
| $ | (0.40 | ) |
| $ | (0.58 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE: Basic And Fully Diluted |
|
| 28,389,493 |
|
|
| 28,389,493 |
|
|
| 28,389,493 |
|
|
| 28,389,493 |
| ||||||||||||||||
WEIGHTED-AVERAGE NUMBER OF SHARES USED IN,COMPUTING NET LOSS PER COMMON SHARE: Basic And Fully Diluted |
| 28,389,493 |
| 28,389,493 |
| 28,389,493 |
| 28,389,493 |
|
The accompanying notes are an integral part of these condensed financial statements.
4 |
Table of Contents |
MOBILESMITH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
|
| 6 Months Ended |
| 6 Months Ended |
|
| 6 months ended |
| 6 Months Ended |
| ||||||
|
| June 30, |
| June 30, |
|
| June 30, |
| June 30, |
| ||||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
| ||||||
Net Loss |
| $ | (10,103,531 | ) |
| $ | (11,366,697 | ) |
| $ | (4,186,350 | ) |
| $ | (10,103,531 | ) |
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and Amortization |
| 0 |
| 12,506 |
| |||||||||||
Bad Debt Expense |
| 15,000 |
| 0 |
| |||||||||||
Amortization of Debt Discount |
| 78,120 |
| 1,585,823 |
|
| 0 |
| 78,120 |
| ||||||
Share Based Compensation |
| 1,693,608 |
| 1,502,457 |
|
| 1,638,224 |
| 1,693,608 |
| ||||||
Gain of Debt Extinguishment (PPP Loan Forgiveness) |
| (542,100 | ) |
| 0 |
|
| 0 |
| (542,100 | ) | |||||
Losses on Debt Extinguishments |
| 6,507,137 |
| 4,864,750 |
|
| 0 |
| 6,507,137 |
| ||||||
Changes in Assets and Liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts Receivable |
| (169,727 | ) |
| (199,097 | ) |
| (89,258 | ) |
| (169,727 | ) | ||||
Prepaid Expenses and Other Assets |
| (31,020 | ) |
| 30,254 |
|
| (8,084 | ) |
| (31,020 | ) | ||||
Accounts Payable |
| (129,758 | ) |
| (117,274 | ) |
| 20,806 |
| (129,758 | ) | |||||
Contract Liability |
| 27,201 |
| (189,752 | ) |
| (32,252 | ) |
| 27,201 |
| |||||
Operating Lease Right-of-use Asset |
| 83,982 |
| 80,088 |
|
| 87,839 |
| 83,982 |
| ||||||
Operating Lease Liability |
| (79,354 | ) |
| (73,272 | ) |
| (85,940 | ) |
| (79,354 | ) | ||||
Accrued and Other Expenses |
|
| 41,747 |
|
|
| (1,559,991 | ) |
|
| 6,444 |
|
|
| 41,747 |
|
Net Cash Used in Operating Activities |
|
| (2,623,695 | ) |
|
| (5,430,205 | ) |
|
| (2,633,571 | ) |
|
| (2,623,695 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds From Issuance of Subordinated Promissory Notes, Related Party |
| 0 |
| 1,250,000 |
| |||||||||||
Proceeds From Issuance of Convertible Notes Payable, Related Party |
| 0 |
| 1,200,000 |
| |||||||||||
Proceeds From Issuance of Convertible Notes Payable |
| 0 |
| 2,900,000 |
| |||||||||||
Repayments of Financing Lease Obligations |
| 0 |
| (6,378 | ) | |||||||||||
Proceeds From First PPP Loan |
| 0 |
| 542,100 |
| |||||||||||
Proceeds From Second PPP Loan |
| 542,000 |
| 0 |
|
| 0 |
| 542,000 |
| ||||||
Proceeds From Issuance of Shares of Series A Preferred Stock |
|
| 2,761,700 |
|
|
| 0 |
|
|
| 2,700,000 |
|
|
| 2,761,700 |
|
Net Cash Provided by Financing Activities |
|
| 3,303,700 |
|
|
| 5,885,722 |
|
|
| 2,700,000 |
|
|
| 3,303,700 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| 680,005 |
| 455,517 |
|
| 66,429 |
| 680,005 |
| ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD |
|
| 350,923 |
|
|
| 314,967 |
|
|
| 575,342 |
|
|
| 350,923 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD |
| $ | 1,030,928 |
|
| $ | 770,484 |
|
| $ | 641,771 |
|
| $ | 1,030,928 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Composition of Cash, Cash Equivalents and Restricted Cash Balance: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash and Cash Equivalents |
| $ | 831,191 |
| $ | 582,568 |
|
| $ | 472,434 |
| $ | 831,191 |
| ||
Restricted Cash |
|
| 199,737 |
|
|
| 187,916 |
|
|
| 169,337 |
|
|
| 199,737 |
|
Total Cash, Cash Equivalents and Restricted Cash |
| $ | 1,030,928 |
| $ | 770,484 |
|
| $ | 641,771 |
| $ | 1,030,928 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
| ||||||
Operating Lease Payments |
| $ | 102,863 |
|
| $ | 111,550 |
|
| $ | 103,080 |
| $ | 102,863 |
| |
Cash Paid During the Period for Interest |
| $ | 97,319 |
|
| $ | 3,825,607 |
|
| $ | 120,454 |
| $ | 97,319 |
| |
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-Cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Recorded Debt Discount Associated with Beneficial Conversion Feature |
| $ | 0 |
|
| $ | 8,035,278 |
| ||||||||
|
|
|
|
|
| |||||||||||
Issued Series A Preferred Shares Valued at $7,760,970 in Exchange for Carrying Value of Debt (Including Accrued Interest, Premiums and Discounts) of $1,153,832 |
| $ | 6,507,137 |
|
| $ | 0 |
| ||||||||
Recorded Beneficial Conversion Feature Associated with Issuance of Series A Preferred |
| $ | 6,269,401 |
|
| $ | 0 |
| ||||||||
Conversion Of Notes Payable Into Common Shares |
| $ | 0 |
|
| $ | 156,980 |
| ||||||||
Recorded Discount Associated with Beneficial Conversion Feature on Issuance of Series A Convertible Preferred Shares |
| $ | 4,443,425 |
| $ | 6,269,401 |
| |||||||||
Issued Series A Preferred Shares Fair Valued At $7,660,970 in Exchange for Carrying Value of Debt (Including Accrued Interest, Premiums And Discounts) of $1,153,833 |
| $ | 0 |
| $ | 6,507,137 |
| |||||||||
Issued 54,966 Shares of Series A Preferred Shares Fair Valued at $2,597,699 as Dividend Paid in Kind |
| $ | 2,597,699 |
| $ | 0 |
|
The accompanying notes are an integral part of these condensed financial statements.
5 |
Table of Contents |
MOBILESMITH, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(unaudited)
|
| Series A Convertible Preferred Stock, Shares |
|
| Series A Convertible Preferred Stock, $0.001 Par Value |
|
|
Additional Paid-In Capital, Series A Convertible Preferred Stock |
|
| Common Stock, Shares |
|
| Common Stock, $0.001 Par Value |
|
| Additional Paid-In Capital, Common Stock |
|
| Accumulated Deficit |
|
| Totals |
| ||||||||||||||||||||||||||||||||||||||||
BALANCES, JANUARY 1, 2020 |
|
| - |
|
| $ | 0 |
|
| $ | 0 |
|
|
| 28,271,598 |
|
| $ | 28,272 |
|
| $ | 118,431,878 |
|
| $ | (169,774,475 | ) |
| $ | (51,314,325 | ) | ||||||||||||||||||||||||||||||||
Equity-Based Compensation |
|
|
|
|
|
|
|
|
|
|
| 721,681 |
|
| 721,681 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Beneficial Conversion Feature Recorded as a Result Of Issuance Of Convertible Debt |
|
|
|
|
|
|
|
|
|
|
| 2,000,000 |
|
| 2,000,000 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Notes Payable to Common Stock |
|
|
|
|
|
|
| 48,951 |
| 49 |
| 65,191 |
|
| 65,240 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,299,000 | ) |
| $ | (3,299,000 | ) | |||||||||||||||||||||||||||||||||
BALANCES, MARCH 31, 2020 |
| - |
| $ | 0 |
| $ | 0 |
| 28,320,549 |
| $ | 28,321 |
| $ | 121,218,750 |
| $ | (173,073,475 | ) |
| (51,826,404 | ) | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Equity-Based Compensation |
|
|
|
|
|
|
|
|
|
|
| 780,776 |
|
|
| 780,776 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Beneficial Conversion Feature Recorded as a Result Of Issuance Of Convertible Debt |
|
|
|
|
|
|
|
|
|
|
| 6,035,278 |
|
|
| 6,035,278 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Notes Payable to Common Stock |
|
|
|
|
|
|
| 68,944 |
| 69 |
| 91,671 |
|
|
| 91,740 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (8,067,697 | ) |
|
| (8,067,697 | ) | ||||||||||||||||||||||||||||||||
BALANCES, JUNE 30, 2020 |
|
| - |
|
| $ | 0 |
|
| $ | 0 |
|
|
| 28,389,493 |
|
| $ | 28,390 |
|
| $ | 128,126,475 |
|
| $ | (181,141,172 | ) |
| $ | (52,986,307 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Series A Convertible Preferred Stock, Shares |
|
| Series A Convertible Preferred Stock, $0.001 Par Value |
|
| Additional Paid-In Capital, Series A Convertible Preferred Stock |
|
| Common Stock, Shares |
|
| Common Stock, $0.001 Par Value |
|
| Additional Paid-In Capital, Common Stock |
|
| Accumulated Deficit |
|
| Totals |
| |||||||||||||||||||||||
BALANCES, JANUARY 1, 2021 |
|
| 1,166,297 |
|
| $ | 1,166 |
|
| $ | 103,648,178 |
|
|
| 28,389,493 |
|
| $ | 28,390 |
|
| $ | 130,103,361 |
|
| $ | (241,184,315 | ) |
| $ | (7,403,220 | ) |
|
| 1,166,297 |
|
| $ | 1,166 |
|
| $ | 103,648,178 |
|
|
| 28,389,493 |
|
| $ | 28,390 |
|
| $ | 130,103,361 |
|
| $ | (241,184,315 | ) |
| $ | (7,403,220 | ) |
Equity-Based Compensation |
|
|
|
|
|
|
|
|
|
|
| 886,935 |
|
|
| 886,935 |
|
|
|
|
|
|
|
|
|
|
|
| 886,935 |
|
|
| 886,935 |
| ||||||||||||||||||||||||||||||
Exchange of Debt for Series A Convertible Preferred Shares on January 28, 2021 |
| 70,014 |
| 70 |
| 7,660,900 |
|
|
|
|
|
|
|
|
| 7,660,970 |
|
| 70,014 |
| 70 |
| 7,660,900 |
|
|
|
|
|
|
|
|
| 7,660,970 |
| ||||||||||||||||||||||||||||||
Issuance of Series A Convertible Preferred for Cash |
| 41,066 |
| 41 |
| 1,761,659 |
|
|
|
|
|
|
|
|
| 1,761,700 |
|
| 41,066 |
| 41 |
| 1,761,659 |
|
|
|
|
|
|
|
|
| 1,761,700 |
| ||||||||||||||||||||||||||||||
Beneficial Conversion Feature Recorded as a Result Of Issuance Of Series A Convertible Preferred Shares of $5,269,401 |
|
|
|
| 5,269,401 |
|
|
|
|
|
|
|
|
| 5,269,401 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Beneficial Conversion Feature Recorded as a Result Of Issuance Of Series A Convertible Preferred Shares |
|
|
|
|
| 5,269,401 |
|
|
|
|
|
|
|
|
| 5,269,401 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Deemed Dividend to the Holders of Series A Preferred Shares Resulting From Amortization of Discount Associated with the Beneficial Conversion Feature |
|
|
|
| (5,269,401 | ) |
|
|
|
|
|
|
|
|
| (5,269,401 | ) |
|
|
|
|
| (5,269,401 | ) |
|
|
|
|
|
|
|
|
| (5,269,401 | ) | |||||||||||||||||||||||||||||
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (8,213,663 | ) |
|
| (8,213,663 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (8,213,663 | ) |
|
| (8,213,663 | ) | |
BALANCES, MARCH 31, 2021 |
| 1,277,377 |
| $ | 1,277 |
| $ | 113,070,737 |
| 28,389,493 |
| $ | 28,390 |
| $ | 130,990,296 |
| $ | (249,397,978 | ) |
| $ | (5,307,278 | ) |
| 1,277,377 |
| $ | 1,277 |
| $ | 113,070,737 |
| 28,389,493 |
| $ | 28,390 |
| $ | 130,990,296 |
| $ | (249,397,978 | ) |
| $ | (5,307,278 | ) | ||||||||||||||||
Equity-Based Compensation |
|
|
|
|
|
|
|
|
|
|
| 806,673 |
|
|
| 806,673 |
|
|
|
|
|
|
|
|
|
|
|
| 806,673 |
|
|
| 806,673 |
| ||||||||||||||||||||||||||||||
Issuance of Series A Convertible Preferred for Cash |
| 23,310 |
| 23 |
| 999,977 |
|
|
|
|
|
|
|
|
| 1,000,000 |
|
| 23,310 |
| 23 |
| 999,977 |
|
|
|
|
|
|
|
|
| 1,000,000 |
| ||||||||||||||||||||||||||||||
Beneficial Conversion Feature Recorded as a Result Of Issuance Of Series A Convertible Preferred Shares |
|
|
|
| 1,000,000 |
|
|
|
|
|
|
|
|
| 1,000,000 |
|
|
|
|
|
| 1,000,000 |
|
|
|
|
|
|
|
|
| 1,000,000 |
| |||||||||||||||||||||||||||||||
Resulting From Amortization of Discount Associated with the |
|
|
|
|
| (1,000,000 | ) |
|
|
|
|
|
|
|
|
| (1,000,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,889,868 | ) |
|
| (1,889,868 | ) | ||||||||||||||||||||||||||||||||
BALANCES, JUNE 30, 2021 |
|
| 1,300,687 |
|
| $ | 1,300 |
|
| $ | 114,070,714 |
|
|
| 28,389,493 |
|
| $ | 28,390 |
|
| $ | 131,796,969 |
|
| $ | (251,287,846 | ) |
| $ | (5,390,473 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
BALANCES, JANUARY 1, 2022 |
|
| 1,403,276 |
|
| $ | 1,402 |
|
| $ | 127,160,875 |
|
|
| 28,389,493 |
|
| $ | 28,390 |
|
| $ | 123,015,819 |
|
| $ | (255,312,377 | ) |
| $ | (5,105,891 | ) | ||||||||||||||||||||||||||||||||
Equity-Based Compensation |
|
|
|
|
|
|
|
|
|
|
| 817,522 |
|
|
| 817,522 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Exchange of Debt for Series A Convertible Preferred Shares |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Series A Convertible Preferred Shares for Cash |
| 39,627 |
| 40 |
| 1,699,960 |
| - |
| 0 |
| 0 |
| 0 |
| 1,700,000 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Dividend on Series A Convertible Preferred Shares |
| 54,966 |
| 55 |
| 2,597,644 |
| - |
| 0 |
| (2,597,699 | ) |
| 0 |
| 0 |
| ||||||||||||||||||||||||||||||||||||||||||||||
Beneficial Conversion Feature Recorded as a Result Of Issuance Of Series A Convertible Preferred Shares |
| - |
| 0 |
| 3,464,405 |
| - |
| 0 |
| 0 |
| 0 |
| 3,465,405 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Deemed Dividend to the Holders of Series A Preferred Shares Resulting From Amortization of Discount Associated with the Beneficial Conversion Feature |
|
|
|
| (1,000,000 | ) |
|
|
|
|
|
|
|
|
| (1,000,000 | ) |
| - |
| 0 |
| (3,464,405 | ) |
| - |
| 0 |
| 0 |
| 0 |
| (3,465,405 | ) | |||||||||||||||||||||||||||||
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,889,868 | ) |
|
| (1,889,868 | ) |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (2,118,253 | ) |
|
| (2,118,253 | ) | |
BALANCES, JUNE 30, 2021 |
|
| 1,300,687 |
|
| $ | 1,300 |
|
| $ | 114,070,714 |
|
|
| 28,389,493 |
|
| $ | 28,390 |
|
| $ | 131,796,969 |
|
| $ | (251,287,846 | ) |
| $ | (5,390,473 | ) | ||||||||||||||||||||||||||||||||
BALANCES, MARCH 31, 2022 |
|
| 1,497,869 |
|
| $ | 1,497 |
|
| $ | 131,458,479 |
|
|
| 28,389,493 |
|
| $ | 28,390 |
|
| $ | 121,235,642 |
|
| $ | (257,430,630 | ) |
| $ | (4,706,622 | ) | ||||||||||||||||||||||||||||||||
Equity-Based Compensation |
|
|
|
|
|
|
|
|
|
|
| 820,702 |
|
|
| 820,702 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Exchange of Debt for Series A Convertible Preferred Shares |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| 0 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Series A Convertible Preferred Shares for Cash |
| 23,310 |
| 23 |
| 999,977 |
| - |
| 0 |
| 0 |
| 0 |
| 1,000,000 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Dividend on Series A Convertible Preferred Shares |
| - |
| 0 |
| 0 |
| - |
| 0 |
|
|
| 0 |
| 0 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Beneficial Conversion Feature Recorded as a Result Of Issuance Of Series A Convertible Preferred Shares |
| - |
| 0 |
| 699,300 |
| - |
| 0 |
| 0 |
| 0 |
| 699,300 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Deemed Dividend to the Holders of Series A Preferred Shares Resulting From Amortization of Discount Associated with the Beneficial Conversion Feature |
| - |
| 0 |
| (699,300 | ) |
| - |
| 0 |
| 0 |
| 0 |
| (699,300 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Net Loss |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (2,068,097 | ) |
|
| (2,068,097 | ) | ||||||||||||||||||||||||||||||||
BALANCES, JUNE 30, 2022 |
|
| 1,521,179 |
|
| $ | 1,520 |
|
| $ | 132,458,456 |
|
|
| 28,389,493 |
|
| $ | 28,390 |
|
| $ | 122,056,344 |
|
| $ | (259,498,727 | ) |
| $ | (4,954,017 | ) |
The accompanying notes are an integral part of these condensed financial statements.
6 |
Table of Contents |
MOBILESMITH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
For the Six Months'Months’ Period Ended June 30, 20212022
(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 same year the Company focused exclusively on development of do-it-yourself customer facing platform that enabled 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. During 2017 the Company concluded that it had its highest rate of success with clients within the Healthcare industry and concentrated its development and sales and marketing efforts in that industry. During 2018 we further refined our Healthcare offering and redefined our product - a suite of e-health mobile solutions that consist of a catalog of ready to deploy mobile app solutions (App Blueprints) and support services. In 2019 and 2020 we consolidated our current solutions under a single offering branded Peri™. Peri™ is a cloud-based collection of applications that run ofon our architected healthcare technology ecosystem. The architecture is designed to do the following:to:
● | improve experience of healthcare patients and consumers, who are often at the same time members of various medical insurance networks |
● |
|
| increase adoption, utilization and intelligence of EMRs (electronic medical records), extend |
OurDuring 2021 we advanced our flagship PeriOp offering to be market ready. PeriOp is an EMR integrated mobile app basedapp-based set of pre-pre and postoperative instructions (which we refer to as Clinical Pathways), that establishes a direct two-way clinical procedure management process between a patient and a healthcare provider and by doing so improves patient engagement and procedural adherence. PeriOp digitizes and streamlines for both patients and providers “the last mile of healthcare delivery” between scheduled procedure and day of surgery with an emphasis on patient’s readiness. PeriOp digitizes and streamlines “the first mile” of post-surgery recovery journey with a focus on maintaining positive surgical outcomes and avoidance of readmissions.
PeriOp has not yet generated significant revenue. Most of our revenue is generated from App Blueprint solutions and related supporting services, where applicable.
The Company prepared the accompanying unaudited condensed 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 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 June 30, 2021.2022. 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 financial statements and accompanying notes should be read in conjunction with the audited annual financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 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 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 six months ended June 30, 2021,2022, 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 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, theThe Company has been funding its operations, in part, from the proceeds from the issuance of notes under a convertible secured subordinated note purchase agreement facility which was established in 2007 (the "2007 NPA"), and an unsecured convertible subordinated note purchase agreement facility established in 2014 (the "2014 NPA"), and subordinated promissory notes to related parties. In December of 2020 and January of 2021, we exchanged all our non-bank debt, including the debt issued under the 2007 NPA and the 2014 NPA, into Series A Convertible Preferred Stock (the "Series A Preferred Stock") with the same investors. We expect to finance our operations through the issuance ofits Series A Preferred Stock going forward. If financing(with the terms set forth in Note 4 below) to related parties. However, there can be no assurance that the Company will in fact be able to raise additional capital through issuance oft its Series A Preferred Stock becomes unavailable, we will need to seekor even from other sources on commercially accepted terms, if at all, or to be able to negotiate additional extensions of funding.the Comerica LSA on terms acceptable to the Company, if at all. As such, there is substantial doubt about the Company'sCompany’s ability to continue as a going concern.
7 |
Table of Contents |
Recently Issued Accounting Pronouncements and Their Impact on Significant Accounting Policies
The Company'sCompany’s significant accounting policies are detailed in "Note“Note 2: Significant Accounting Policies"Policies” of the Company'sCompany’s Annual Report.
On August 5, 2020, the FASB issued ASU 2020-06 "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is not expected to have a material impact on the financial statements of the Company. For the Company the ASU is not effective until fiscal year 2024, but early adoption is permitted as early as current fiscal year ending December 31, 2021.
2. DEBT
The table below summarizes the Company'sCompany’s debt outstanding on June 30, 20212022 and December 31, 2020: 2021:
Debt Description |
| June 30, |
|
| December 31, |
|
|
|
| |||||
|
| 2021 |
|
| 2020 |
|
| Maturity |
| Rate |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Comerica Bank Loan and Security Agreement |
| $ | 5,000,000 |
|
| $ | 5,000,000 |
|
| June, 2022 |
|
| 3.85 | % |
Second PPP Loan |
|
| 542,000 |
|
|
| 0 |
|
| February, 2026 |
|
| 1.00 | % |
First PPP Loan |
|
| 0 |
|
|
| 542,100 |
|
| April, 2022 |
|
| 1.00 | % |
Convertible notes, net of discount of $1,927,892 as of December 31, 2020 |
|
| 0 |
|
|
| 972,108 |
|
| November, 2022 |
|
| 8.00 | % |
Total debt |
|
| 5,542,000 |
|
|
| 6,514,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of long term debt |
|
| 0 |
|
|
| 423,067 |
|
|
|
|
|
|
|
Debt - long term |
| $ | 5,542,000 |
|
| $ | 6,091,141 |
|
|
|
|
|
|
|
Debt Description |
| June 30, |
|
| December 31, |
|
|
|
| |||||
|
| 2022 |
|
| 2021 |
|
| Maturity |
| Rate |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Comerica Bank Loan and Security Agreement |
| $ | 5,000,000 |
|
| $ | 5,000,000 |
|
| June 2024 |
|
| 5.35 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current portion of long term debt |
|
| 0 |
|
|
| 5,000,000 |
|
|
|
|
|
|
|
Debt - long term |
| $ | 5,000,000 |
|
| $ | 0 |
|
|
|
|
|
|
|
Bank Loan
The Company has an outstanding Loan and Security Agreement with Comerica Bank ("Comerica"(“Comerica”) dated June 9, 2014 (the "LSA"“LSA”) in the amount of $5,000,000, with an extended maturity of June 9, 2022. On May 31, 2022 the Company and Comerica Bank entered into Fourth Amendment to the LSA, which extended the maturity of the LSA to June 9, 2024, as reported on a Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2022. The LSA is secured by an extended irrevocable letter of credit issued by UBS AG (Geneva, Switzerland) ("(“UBS AG"AG”) with a renewed term expiring on May 31, 2022,2023, which term is 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.
The LSA with Comerica has the following additional terms:
● | 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; 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. |
The Company is in compliance with its LSA covenants as of June 30, 2022.
8 |
Table of Contents |
Convertible Notes and January 2021 Debt Exchange
On January 28, 2021 the Company exchanged its remaining unsecured Convertible Subordinated Notes (the “2014 NPA Notes”) under its existing unsecured Convertible Subordinated Note Purchase Agreement dated December 10, 2014 (the “2014 NPA”) for Series A Preferred Stock. The carrying value of 2014 NPA Notes of $1,075,713 consisting of face value of $2,900,000 net of unamortized discount of $1,849,773 plus accrued interest of $103,605 was exchanged for 70,014 shares of Series A Preferred Stock ("the January 2021 Debt Exchange"). The January 2021 Debt Exchange was accounted for as debt extinguishment and the newly issued shares of Series A Preferred Stock were recorded at fair value in accordance with ASC 470 "Debt". The issued shares were fair valued at $7,660,970. The difference between the carrying amount of extinguished debt and fair value of the Series A Preferred Stock issued resulted in loss recorded on the statement of operations of $6,507,137.
Second PPP Loan
On February 9 2021, the Company received $542,000 of proceeds from a note payable issued under either the Small Business Administration "the SBA" Paycheck Protection Program ("PPP") under section 7(a)(36) of the Small Business Act or the SBA's Paycheck Protection Program Second Draw Loans under Section 7(a)(37) of the Small Business Act. The note matures in five years and bears interest at 1% per year. Similar to the Company's initial PPP Loan, the second loan contains a loan forgiveness covered period of six months from the date of issuance in which the Company will not be obligated to make any payments of principal or interest. If the Company does not submit a loan forgiveness application within ten months after the end of the loan forgiveness covered period, the Company must begin making principal and interest after that period (the "Loan Forgiveness Application Submission Period"). Interest continues to accrue during the deferment period. If the Company is unable to or does not follow those guidelines for the loan to be forgiven by the SBA, the Company would be required to repay a portion of or the entire balance of the loan proceeds in full. If any portion of the loan is not forgiven, the Company may start making payments on, but not before February of 2022 - the end of the Loan Forgiveness Application Submission Period.
Forgiveness of First PPP Loan
On February 18, 2021 our first PPP Loan was forgiven by the SBA in its entirety. The forgiveness was accounted for as debt extinguishment which resulted in a gain of $542,100 recorded in our statement of operations.
3. COMMITMENTS AND CONTINGENCIES
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. STOCKHOLDERS DEFICIT
Preferred Stock
On January 28, 2021 and as a result of the January 2021 Debt Exchange transactionFebruary 24, 2022 the Company issued 70,014a total of 54,966 shares of Series A Preferred Stock. OnStock as payment in kind for dividends declared by the dateboard of directors, with respect to the January 2021 Debt Exchange the market valuethen outstanding Series A Preferred Stock.. The issuance of the common stock was above the Series A Preferred Stock conversion price of $1.43, which resulted in the conversion feature that was beneficial to the holder on the date of the exchange. The resulting beneficial conversion feature was recorded at fair value on February 24, 2022 as a discount and amortized in its entirety as a deemed dividend on the date of the January 2021 Debt Exchange and charged to loss attributable to common shareholders on the Company's Statement of Operations in the amount of $3,507,701. determined below:
● | The value of the 54,966 shares of Series A Preferred Stock dividend was recorded at $2,597,699. In absence of retained earnings, the dividend resulted in a charge to additional paid in capital for Common Stock. In addition, on February 24, 2022 the market value of the common stock was above the Series A Preferred Stock conversion price of $1.43, which resulted in the conversion feature that was beneficial to the holder. The resulting beneficial conversion feature was recorded as a discount and amortized in its entirety as a deemed dividend and charged to loss attributable to common shareholders on the Company’s Statement of Operations in the amount of $1,764,405. |
In addition, during the six month period ended June 30, 2022 the Company issued 64,37662,937 shares of Series A Preferred Stock in exchange for $2,761,700$2,700,000 in cash funding. The shares were issued with beneficial conversions feature discount and resulted in a deemed dividend with charge to loss attributable to common stock shareholders of $2,761,700.$ 2,399,300.
Our Series A Preferred Stock withhas the following standard terms:
● | Each share of Series A Preferred Stock shall have a par value of $0.001 per share and a stated value equal to $42.90 (the |
● | Each share of the Series A Preferred Stock then outstanding shall be entitled to receive an annual dividend equal to $3.43, subject to proration related to the timing of issuance. Such dividend is designed to have an effective yield of 8% on |
● | Each dividend shall be paid either in shares of Series A Preferred Stock |
● | The |
● | The |
● | Each share of Series A Preferred Stock shall be convertible, at any time and from time to time, at the option of the Holder into 30 shares of Common Stock, which results in conversion ratio of $1.43 of |
● | The shares are subject to automatic conversion immediately prior to the occurrence of a Fundamental Transaction, as defined in |
Table of Contents |
Equity Compensation Plan
The following is a summary of the stock option activity for the six months ended June 30, 2021: 2022:
|
| Number of Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding, December 31, 2020 |
| $ | 10,683,300 |
|
| $ | 1.85 |
|
|
| 7.4 |
|
| $ | 17,060,533 |
|
Cancelled |
|
| (902,500 | ) |
|
| 1.57 |
|
|
|
|
|
|
|
|
|
Issued |
|
| 1,475,000 |
|
|
| 3.10 |
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2021 |
| $ | 11,255,800 |
|
| 2.04 |
|
|
| 7.9 |
|
| 21,752,184 |
| ||
Vested and exercisable, June 30, 2021 |
| $ | 5,195,821 |
|
| $ | 1.85 |
|
|
| 7.3 |
|
| $ | 11,032,574 |
|
|
| Number of Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding, December 31, 2021 |
|
| 10,883,300 |
|
| $ | 2.06 |
|
|
| 7.6 |
|
| $ | 9,553,832 |
|
Cancelled |
|
| (1,774,610 | ) |
|
| 1.93 |
|
|
|
|
|
|
|
|
|
Issued |
|
| 500,000 |
|
|
| 2.55 |
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2022 |
|
| 9,608,690 |
|
|
| 2.11 |
|
|
| 7.4 |
|
|
| 12,275,437 |
|
Vested and exercisable, June 30, 2022 |
|
| 5,462,850 |
|
| $ | 1.96 |
|
|
| 6.8 |
|
| $ | 7,786,913 |
|
Aggregate intrinsic value represents the difference between the closing price of the Company’s common stock on June 30, 2021,2022, and the exercise price of outstanding, in-the-money stock options. The closing price of the common stock on June 30, 2021,2022, as reported on the OTCQB, was $3.50$3.39 per share.
On June 30, 2021,2022, an amount of $11,495,025$7,161,694 unvested expense related to outstanding stock options has yet to be recorded over a weighted average period of 3.32.9 years.
5. FAIR VALUE MEASUREMENTS
We are required to provide financial statement users with information about assets and liabilities measured at fair value in the balance sheet or disclosed in the notes to the financial statements regarding (1) the valuation techniques and inputs used to develop fair value measurements, including the related judgments and assumptions made, (2) the uncertainty in the fair value measurements as of the reporting date, and (3) how changes in the measurements impact the performance and cash flows of the entity.
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.
The January 2021 Debt ExchangeFebruary 24, 2002 issuance of Series A Preferred Stock as payment in kind for dividends resulted in transaction which required the Company to recognize debt extinguishment and to record newly issued financing instrumentSeries A Preferred Stock at fair value at the date of the transaction on a non-recurring basis. Fair value measurement was categorized as Level 3 fair value measurement due to use of various unobservable inputs to the pricing model. A single most significant factor included in pricing models wasThe Company used a valuation method that takes into consideration both the Level 1 input of observable market value of MobileSmith common stock on the date of the transaction, as quoted on the OTCQB. Despite theOTCQB, that, although being thinly traded, nature of the Company stock, the quoted market value could not be ignored and Level 3 inputs resulting from a Fundamental Analysis to arrive at Company Enterprise Value. The single most significant factor included in determination ofthe valuation is the weighting between values resulting from Level 1 and Level 3 input models.
The fair value inof Series A Preferred Stock was determined to be $2,597,699. The fair value calculated by three valuation methods and by weighting the transaction.results of each method calculation to arrive at the final fair value.
Table of Contents |
Method 1. Monte Carlo simulation based on the OTCQB quoted value of Common Stock
The Company used the income (discounted cash flow) approach to arrive at the fair value of the Series A Preferred Stock on January 28, 2021 - the date of the exchange.February 24, 2022. Using this approach, the value of Series A Preferred Stock is equal to the present value of the cash flow streams that can be expected to be generated by the holderCompany in a combination of dividends and conversion of preferred shares into common and subsequent sale of the common shares.future. The Company used the Geometric Brownian Motion/Monte Carlo model to simulate future movement of our common stockequity securities and discounted the results back to January 28, 2021the February 24, 2022 transaction date. The model used the following notable inputs:
● | the market price of the Company common stock on |
● | the risk free rate and discount rate of |
● | volatility of |
● | term of simulation |
● | the model also considered the probability of a Fundamental Transaction (as defined in Series A Preferred Stock certificate of designation) and probabilities of payment of dividend in cash or in additional preferred shares. |
Method 2. Monte Carlo simulation based on the value of Common Stock determined using Fundamental analysis
The Company used the income (discounted cash flow) approach to arrive at the fair value of the Series A Preferred Stock on February 24, 2022. Using this approach, the value of Series A Preferred Stock is equal to the present value of the cash flow streams that can be expected to be generated by the Company in the future. The Company used the Geometric Brownian Motion/Monte Carlo model to simulate future movement of equity securities and discounted the results back to the February 24, 2022 transaction date. The model used the following notable inputs:
● | the price of the Company common stock on February 24, 2022 of $0.54 as a starting point of simulation (as derived from total equity value from Fundamental Analysis) |
● | the risk free rate and discount rate of 2.16%; |
● | volatility of 65.0%; |
● | term of simulation is 15 years; |
● | the model also considered the probability of a Fundamental Transaction (as defined in Series A Preferred Stock certificate of designation) and probabilities of payment of dividend in cash or in additional preferred shares. |
Method 3. Monte Carlo simulation of total equity value based on the Fundamental Analysis
The Company used the income (discounted cash flow) approach to arrive at the fair value of the Series A Preferred Stock on February 24, 2022. Using this approach, the total equity value payouts were simulated, allocated to Series A Preferred Stock and discounted back to the date of the transaction. The Company used the Geometric Brownian Motion/Monte Carlo model to simulate future movement of total equity. The model used the following notable inputs:
● | total equity value of $39,158,000 as of the date of transaction, as derived from Fundamental Analysis |
● | the risk free rate and discount rate of 1.96%; |
● | volatility of 60.0%; |
● | term of simulation is 10 years; |
● | the model also considered the probability of a Fundamental Transaction (as defined in Series A Preferred Stock certificate of designation) and probabilities of payment of dividend in cash or in additional preferred shares. |
Fundamental Analysis.
The Company performed Fundamental Analysis to arrive at Business Enterprise Value (“BEV”) as of February 24, 2022 of approximately $39,000,000.
11 |
Table of Contents |
The key assumptions used in arriving at the BEV are as follows:
● | Multiple applied to the revenue to determine terminal value is 12x. |
● | Discount rate applied to the cash flows and terminal value is 50% as customary for a first stage/early development company |
● | fully diluted number of shares to calculate adjusted equity value is 72,836,053 shares of common stock allocated as follows: 28,389,493 shares to common stock and 44,446,560 to shares of common stock issuable upon conversion of 1,481,552 shares of Series A Preferred Stock |
● | number of annual periods considered for discounted cash flows is three years. |
6. DISAGGREGATED PRESENTATION OF REVENUE AND OTHER RELEVANT INFORMATION
The tables below depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors, such as type of customer and type of contract.
Customer size impact on billings and revenue:
|
| 6 Months Ended June 30, 2022 |
|
| 6 Months Ended June 30, 2021 |
| ||||||||||
|
| Billings |
|
| GAAP Revenue |
|
| Billings |
|
| GAAP Revenue |
| ||||
Top 5 Customers (Measured By Amounts Billed) |
| $ | 392,000 |
|
| $ | 235,785 |
|
| $ | 342,000 |
|
| $ | 221,640 |
|
All Other Customers |
|
| 201,257 |
|
|
| 389,724 |
|
|
| 501,543 |
|
|
| 594,703 |
|
|
| $ | 593,257 |
|
| $ | 625,509 |
|
| $ | 843,543 |
|
| $ | 816,343 |
|
|
| 6 Months Ended June 30, 2021 |
|
| 6 Months Ended June 30, 2020 |
| ||||||||||
|
| Billings |
|
| GAAP Revenue |
|
| Billings |
|
| GAAP Revenue |
| ||||
Top 5 Customers (Measured By Amounts Billed) |
| $ | 342,000 |
|
| $ | 221,640 |
|
| $ | 433,010 |
|
| $ | 435,747 |
|
All Other Customers |
| $ | 501,543 |
|
| $ | 594,703 |
|
| $ | 615,259 |
|
| $ | 796,597 |
|
|
| $ | 843,543 |
|
| $ | 816,343 |
|
| $ | 1,048,269 |
|
| $ | 1,232,344 |
|
For the six months ended June 30, 2022, two customers accounted for 75% of the accounts receivable balance and no customer accounted for more than 10% of total revenue.
For the six months ended June 30, 2021, three customers accounted for 70% of the accounts receivable balance and no customer accounted for more than 10% of total revenue.
For the six months ended June 30, 2020, four customers accounted for 74% of the accounts receivable balance and one customer accounted for 18% of total revenue.
Below is a summary of new customer acquisition impact on billings and revenue:
|
| 6 Months Ended June 30, 2021 |
|
| 6 Months Ended June 30, 2020 |
| ||||||||||
|
| Billings |
|
| GAAP Revenue |
|
| Billings |
|
| GAAP Revenue |
| ||||
Customers In Existence As Of The Beginning Of The Period (Including Upgrades) |
| $ | 843,543 |
|
| $ | 816,343 |
|
| $ | 1,036,182 |
|
| $ | 1,232,344 |
|
Customers Acquired During The Period |
| $ | 0 |
|
| $ | 0 |
|
| $ | 12,087 |
|
| $ | 0 |
|
|
| $ | 843,543 |
|
| $ | 816,343 |
|
| $ | 1,048,269 |
|
| $ | 1,232,344 |
|
|
| 6 Months Ended June 30, 2022 |
|
| 6 Months Ended June 30, 2021 |
| ||||||||||
|
| Billings |
|
| GAAP Revenue |
|
| Billings |
|
| GAAP Revenue |
| ||||
Customers In Existence As Of The Beginning Of The Period (Including Upgrades) |
| $ | 593,257 |
|
| $ | 625,509 |
|
| $ | 843,543 |
|
| $ | 816,343 |
|
Customers Acquired During The Period |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| $ | 593,257 |
|
| $ | 625,509 |
|
| $ | 843,543 |
|
| $ | 816,343 |
|
7. LEASES
Leases (Topic 842) Disclosures
We are a lessee for a non-cancellable operating lease for our corporate office in Raleigh, North Carolina. We are also a lessee for a non-cancellable finance lease for a corporate vehicle and office furniture. Financing leases are not significant in terms of both balances and period expenses. The operating lease for the corporate office expires on April 30, 2024.
The following table summarizes the information about our operating lease:
The following table summarizes the information about operating lease: |
| Six Months Ended June 30, 2022 |
| |
Operating lease expense |
| $ | 103,080 |
|
Remaining Lease Term (Years) |
|
| 1.83 |
|
Discount Rate |
|
| 8 | % |
The following table summarizes the information about operating lease: |
| Six Months Ended June 30, 2021 |
| |
Operating lease expense |
| $ | 102,863 |
|
Remaining Lease Term (Years) |
| 2.7 years |
| |
Discount Rate |
|
| 8 | % |
12 |
Table of Contents |
Maturities of operating lease liability as of June 30, 2021 were as follows: |
| Operating Lease Expense |
|
| Variable Lease Expense |
|
| Total Lease Expense |
| |||||||||||||||
2021 (remaining 6 months) |
| $ | 95,537 |
| $ | 6,843 |
| $ | 102,380 |
| ||||||||||||||
Maturities of operating lease liability as of June 30, 2022 were as follows: |
| Operating Lease Expense |
|
| Variable Lease Expense |
|
| Total Lease Expense |
| |||||||||||||||
2022 |
| 191,074 |
| 14,096 |
| 205,170 |
|
| $ | 95,537 |
| $ | 7,048 |
| $ | 102,585 |
| |||||||
2023 |
| 191,074 |
| 14,519 |
| 205,593 |
|
| 191,074 |
| 14,519 |
| 205,593 |
| ||||||||||
2024 |
|
| 63,691 |
|
|
| 4,840 |
|
|
| 68,531 |
|
|
| 63,691 |
|
|
| 4,840 |
|
|
| 68,531 |
|
Total lease payments |
| $ | 541,376 |
| $ | 40,298 |
| 581,674 |
|
| $ | 350,302 |
| $ | 26,407 |
| 376,709 |
| ||||||
Less imputed interest |
|
|
|
|
|
| (67,034 | ) |
|
|
|
|
|
| (30,590 | ) | ||||||||
Total |
|
|
|
|
| $ | 514,640 |
|
|
|
|
|
| $ | 346,119 |
|
8. SUBSEQUENT EVENTS
Subsequent to June 30, 20212022, to the date of the filing of this Form 10-Q, the Company issued 17,483 shares of Series A Preferred Stock in exchange for $750,000 of cash investment.
On August 8, 2022, the Company granted approximately 760,000 of2,250,000 stock options to certain employees.employees and contractors. The newlyoptions are issued stock options replaced stock options previously expired unexercised. The newly issued stock options have anunder standard Company terms: term of ten years, vesting over five years and exercise price equal to theat or above fair market price of $1.63value on the date of grant, 10-year term and 5-year vesting.grant.
13 |
Table of Contents |
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 through our Series A Preferred Stock, 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, 20202021 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 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 financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the audited annual financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report.Report on the Form 10-K for the period ended December 31, 2021 filed with the SEC on March 25, 2022. Historical results and percentage relationships among any amounts in the condensed financial statements are not necessarily indicative of trends in operating results for any future periods.
Overview
MobileSmith is a developer of software applications for the healthcare industry. Our software products include a cloud-based collection of applications that run on our architected healthcare technology ecosystem. The architecture is designed to do the following:
● | improve experience of healthcare patients and consumers, who are often at the same time members of various medical insurance networks |
● |
|
| increase adoption, utilization and intelligence of EMRs (electronic medical records), extend |
Since 2013 the Company focused exclusively on the development of do-it-yourself customer facing platform that enabled 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. During 2017 the Company concluded that it had its highest rate of success with clients within the Healthcare industry and concentrated its development and sales and marketing efforts in that industry. During 2018 we further refined our Healthcare offering and redefined our product - a suite of e-health mobile solutions that consist of a catalog of ready to deploy mobile app solutions (App Blueprints) and support services. In 2019 and 2020 we consolidated our current solutions under a single offering branded Peri™. Peri™ is designed to bridge the gap between healthcare industry system tools and healthcare consumer's mobile device.
14 |
Table of Contents |
From timeDuring 2021 we advanced our flagship PeriOp offering to time,be market ready. PeriOp is an EMR integrated mobile app-based set of pre and postoperative instructions (which we have provided custom software development services. Suchrefer to as Clinical Pathways), that establishes a direct two-way clinical procedure management process between a patient and a healthcare provider and, by doing so, improves patient engagement and procedural adherence and also removes manual paper based pre and post procedural processes. PeriOp digitizes and streamlines for both patients and providers “the last mile of healthcare delivery” between scheduled procedure and day of surgery with emphasis on patient’s readiness. PeriOp digitizes and streamlines “the first mile” of post-surgery recovery journey with a focus on maintaining positive surgical outcomes and avoidance of readmissions.
PeriOp has not yet generated significant revenue. Most of our revenue is generated from App Blueprint solutions and related supporting services, are not core to our business model and will likely decrease in significance in the future. where applicable.
Target Market and Sales Channels
During 2017 we completed a strategic shift and focused our business and research and development activities primarily on the Healthcare industry in the United States.
In 2018 we refined our healthcare focus by identifying two target markets: (i) healthcare providers (including hospitals, hospital systems and the United States Veterans Health Administration) and (ii) healthcare payer market (including insurance companies and insurance brokers).
In 2021 we further refined our focus within the healthcare providers. We concentrated our efforts on hospital systems with large employed physician groups who use either Cerner or Epic Systems as their primary EMRs (electronic medical records). Additionally, we are investigating ambulatory surgery centers (ASC) market for feasibility.
Both markets are targeted with a diversified sales workforce that includes direct sales and resellers, such as channel partners.
Significance of Human Capital in Our Operations.
Our success depends on the performance of employees and contractors that make up our team of about 3025 individuals. The team is by far our largest investment and cost. We make significant investments in technical skills and knowledge of the healthcare industry. As such, expansion of the team often comes with additional recruiting expenses. All of our employees are currently based in the United States, but our contractors may be located in jurisdictions outside of the United States. During 20202021 we invested in remote work environment, which allowed us to expand our employee hiring practices geographically from local markets to include the entire United States.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2021 (the “2021 Period”)2022 to the Three Months Ended June 30, 2020 (the “2020 Period”).2021.
|
| Three months ended June 30, 2021 |
|
| Three months ended June 30, 2020 |
|
| Increase (Decrease)$ |
|
| Increase (Decrease)% |
| ||||
Revenue |
| $ | 398,358 |
|
| $ | 607,772 |
|
| $ | (209,414 | ) |
|
| -34 | % |
Cost of Revenue |
|
| 199,944 |
|
|
| 181,221 |
|
|
| 18,723 |
|
|
| 10 | % |
Gross Profit |
|
| 198,414 |
|
|
| 426,551 |
|
|
| (228,137 | ) |
|
| -53 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing |
|
| 476,147 |
|
|
| 301,052 |
|
|
| 175,095 |
|
|
| 58 | % |
Research and Development |
|
| 858,571 |
|
|
| 750,438 |
|
|
| 108,133 |
|
|
| 14 | % |
General and Administrative |
|
| 705,489 |
|
|
| 824,517 |
|
|
| (119,028 | ) |
|
| -14 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
| 48,671 |
|
|
| 1,759,173 |
|
|
| (1,710,502 | ) |
|
| -97 | % |
Loss on Debt Extinguishment |
| $ | - |
|
| $ | 4,864,750 |
|
| $ | (4,864,750 | ) |
|
| -100 | % |
Revenue decreased by $209,414 or 34%. A decrease of $105,000 accounted for completion of a large contract with a government agency during the three months ended June 30, 2020. The remainder of the decrease is associated with loss of customers due to non-renewals of contracts and new sales below target.
Cost of Revenue increased by $18,723 or 10%. The increase is attributed to an increase in payroll costs for a delivery team and increase in hosting costs.
Gross Profit decreased by $228,137 or 53%. The decrease is primarily attributable to a decrease in revenue.
Selling and Marketing expense increased by $175,095 or 58%. During 2020 we kept certain sales positions unfilled, as we evaluated the impact of COVID-19 on the healthcare industry. In last quarter of 2020 and during the first quarter of 2021 we started expanding our sales and marketing team, which resulted in an increase in payroll costs of $137,000 and increase in stock based compensation of $75,000. During the same period, we incurred an offsetting decrease of $42,000 in marketing campaigns, PR and marketing outsourced services.
Research and Development expense increased by $108,133 or 14%. In 2021 we invested in our product development team by expanding it and the team spent less time on efforts associated with delivery of services revenue. As a result, payroll and related expenses increased by approximately $55,000 and stock based compensation increased by $63,000.
|
| Three months ended June 30, 2022 |
|
| Three months ended June 30, 2021 |
|
| Increase (Decrease) % |
|
| Increase Decrease % |
| ||||
Revenue |
| $ | 295,607 |
|
| $ | 398,358 |
|
| $ | (102,751 | ) |
|
| -26 | % |
Cost of Revenue |
|
| 148,249 |
|
|
| 199,944 |
|
|
| (51,695 | ) |
|
| -26 | % |
Gross Profit |
|
| 147,358 |
|
|
| 198,414 |
|
|
| (51,056 | ) |
|
| -26 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing |
|
| 343,810 |
|
|
| 476,147 |
|
|
| (132,337 | ) |
|
| -28 | % |
Research and Development |
|
| 997,667 |
|
|
| 858,571 |
|
|
| 139,096 |
|
|
| 16 | % |
General and Administrative |
|
| 801,104 |
|
|
| 705,489 |
|
|
| 95,615 |
|
|
| 14 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
| 72,874 |
|
|
| 48,075 |
|
|
| 24,799 |
|
|
| 52 | % |
15 |
Table of Contents |
Revenue decreased by $102,751 or 26%. The entirety of the decrease is associated with loss of healthcare customers due to non-renewals of contracts and renewals for smaller value.
Cost of Revenue decreased by $51,695 or 26%. The decrease is a direct result of decreased costs for the clients we currently maintain.
Gross Profit decreased by $51,056 or 26%. The decrease is primarily attributed to the decrease in revenue.
Selling and Marketing expense decreased by $132,337 or 28%. Personnel and related recruiting costs decreased by approximately $95,000 as the Company adjusted its selling strategy under the leadership of our new CEO Chris Caramanico. Equity based compensation decreased by approximately $58,000. These decreases were partially offset by an increase in outsourced marketing costs of $18,000.
Research and Development expense increased by $139,096 or 16%. Personnel and related contractor expense increased payroll costs by approximately $59,000 and related equity based compensation by $78,000.
General and Administrative expense decreasedincreased by $119,028$95,615 or 14% predominantly due to decrease. The increase is a result of increased legal and compliance costs of $42,000, increase in board of directors’ compensation of $23,000 and an increase in stock based compensation of $110,000.$19,000.
Interest Expense decreasedincreased by $1,710,502$24,799 or 97%52%. DecreaseThe increase is a direct result of the Comerica loan extension related interest and cost and overall increase in interest expense is associated with the debt elimination transactions.
Loss on Debt Extinguishments of $4,864,750 in 2020 Period resulted from modifications of convertible notes.rate.
Comparison of the Six Months Ended June 30, 2021 (the “2021 Period”)2022 to the Six Months Ended June 30, 2020 (the “2020 Period”).2021.
|
| Six months ended June 30, 2021 |
|
| Six months ended June 30, 2020 |
|
| Increase (Decrease)$ |
|
| Increase (Decrease)% |
|
| Six Months ended June 30, 2022 |
|
| Six Months ended June 30, 2021 |
|
| Increase (Decrease) $ |
|
| Increase Decrease % |
| ||||||||
Revenue |
| $ | 816,343 |
| $ | 1,232,344 |
| $ | (416,001 | ) |
| -34 | % |
| $ | 625,509 |
| $ | 816,343 |
| $ | (190,834 | ) |
| -23 | % | ||||||
Cost of Revenue |
| 414,247 |
| 439,784 |
| (25,537 | ) |
| -6 | % |
| 271,820 |
| 414,247 |
| (142,427 | ) |
| -34 | % | ||||||||||||
Gross Profit |
| 402,096 |
| 792,560 |
| (390,464 | ) |
| -49 | % |
| 353,689 |
| 402,096 |
| (48,407 | ) |
| -12 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Selling and Marketing |
| 1,004,441 |
| 668,366 |
| 336,075 |
| 50 | % |
| 721,693 |
| 1,004,441 |
| (282,748 | ) |
| -28 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Research and Development |
| 1,734,237 |
| 1,378,233 |
| 356,004 |
| 26 | % |
| 2,064,863 |
| 1,734,237 |
| 330,626 |
| 19 | % | ||||||||||||||
General and Administrative |
| 1,611,373 |
| 1,649,318 |
| (37,945 | ) |
| -2 | % |
| 1,633,038 |
| 1,611,373 |
| 21,665 |
| 1 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
| |||||||||||||
Interest Expense |
| 191,138 |
| 3,610,276 |
| (3,419,138 | ) |
| -95 | % |
| 120,445 |
| 190,540 |
| (70,095 | ) |
| -37 | % | ||||||||||||
Loss on Debt Extinguishment |
| 6,507,137 |
| 4,864,750 |
| 1,642,387 |
| 34 | % |
| - |
| 6,507,137 |
| (6,507,137 | ) |
| -100 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Gain on Debt Extinguishment - PPP Loan Forgiveness |
| $ | 542,000 |
| $ | - |
| $ | 542,000 |
| 0 | % |
| $ | - |
| $ | 542,100 |
| $ | (542,100 | ) |
| -100 | % |
Revenue decreased by $416,001$190,834 or 34%23%. A decrease of $105,000 accounted for completion of a large contract with a government agency. The remainderentirety of the decrease is associated with loss of healthcare customers due to non-renewals of contracts and new sales below target.renewals for smaller value.
Cost of Revenue decreased by $25,537$142,427 or 6%34%. The decrease is primarily attributed to a completionthe restructuring of a single large contract with a government agency during the three months ended June 30, 2020.our delivery team.
Gross Profit decreased by $390,464$48,407 or 49%12%. The decrease is primarily attributable to a decrease in revenue.direct result of decreased costs for the clients we currently maintain.
Selling and Marketing expense increaseddecreased by $336,075$282,748 or 50%28%. During 2020 we kept certain sales positions unfilled,Personnel and related recruiting costs decreased by approximately $212,000 as we evaluated the impactCompany adjusted its selling strategy under the leadership of COVID-19 on the healthcare industry. In last quarter of 2020 and during the first quarter of 2021 we started expanding our sales and marketing team, which resulted innew CEO Chris Caramanico. Equity based compensation decreased by approximately $103,000. The decreases were partially offset by an increase in payrolltravel related costs of $232,000, increase in related recruiting costs of $41,000 and increase in stock based compensation of $134,000. During the same period, we incurred offsetting decreases of $15,000 in travel costs and $77,000 decrease in marketing campaigns, PR and marketing outsourced services.$26,000.
Research and Development expense increased by $356,004$330,626 or 26%19%. In 2021 we investedDuring the first quarter of 2022, the Company expanded its product team, which resulted in our product development team by expanding it and the team spent less time on efforts associated with delivery of services revenue. As a result,increase in payroll and related expenses increasedcost by approximately $184,000$164,000 and stockequity based compensation increased by $145,000.
General and Administrative expense decreased by $37,945 or 2%. The decrease can be attributed$165,000 for the six month period ended June 30, 2022 compared to fluctuationsthe similar period in various general and administrative costs.
Interest Expense decreased by $3,419,138 or 95%. Decrease in interest expense is associated with the debt elimination transactions.2021.
16 |
Table of Contents |
Gain on Debt Extinguishment - PPP Loan ForgivenessGeneral and Administrative expense increased by $21,665 or 1%. The Company's first PPP loan was forgiven during the 2021 Period.increase is predominantly attributed to increase in board member compensation of $21,000.
Interest Expense decreased by $70,095 or 37%. The decrease is primarily a result of the decrease in interest expense associated with the debt elimination transactions, which completed on January 28, 2021.
Loss on Debt Extinguishments of $6,507,137 resulted from a debt exchange transaction which took place on January 28, 2021.
Gain on Debt Extinguishments-PPP Loan Forgivenessof 2021. For more information about$542,100 was due to the transaction refer to "Debt" footnote of the financial statements included in this Form 10Q. In 2020 Period lossCompany’s first PPP loan being forgiven on debt extinguishment resulted from modifications of convertible notes.February 19, 2021.
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 Series A Preferred Stock. We will continue to rely on this source 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 funding under the Series A Preferred Stock, 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. Changes in our operating plans, lower than anticipated sales, increased expenses, impact of COVID-19 pandemic (as described in "Risk Factors"“Risk Factors” of our Annual Report on Form 10-K for the period ending December 31, 20202021 filed with the SEC) or other events may cause us to seek additional equity or debt financing in future periods. There can be no guarantee that financing will continue to be available to us through the sale of our Series A Preferred Stock or otherwise on acceptable terms or at all. Additional equity and convertible debt financing will be dilutive to the holders of shares of our common stock.
Nonetheless, there are factors that can impact our ability to continue to fund our operating activities for 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. |
● | Our ability to predict and offset the extended impact COVID-19 will have to our primary |
In addition, we have an outstanding Loan and Security Agreement (the "LSA"“LSA”) with Comerica Bank in the amount of $5 million, which matures in June of 20222024 and is secured by an extended irrevocable letter of credit issued by UBS AG (Geneve, Switzerland) ("(“UBS AG"AG”) with a renewed term expiring on May 31, 2022.2023.
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, 20202021 in which they express substantial doubt as to our ability to continue as a going concern. The condensed 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.
17 |
Table of Contents |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for smaller reporting companies.
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 three months ended June 30, 2021.2022. 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 June 30, 2021,2022, our disclosure controls and procedures were effective at a reasonable level of assurance.
Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2021,2022, there were no changes made in our internal controls 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 controls over financial reporting.reporting, with exception of changes in controls over valuation process referred to above.
18 |
Table of Contents |
PART II – OTHER INFORMATION
ITEM 1. 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.
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 June 30, 20212022 without registration under the Securities Act of 1933, as amended (the "Securities Act"“Securities Act”):
Between April 1, 20212022 and June 30, 2021,2022, we issued to an accredited investor 23,310 shares of our Series A Preferred Stock for an aggregate purchase price of $1,000,000. The proceeds were used to finance shortfalls in working capital.
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 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
19 |
Table of Contents |
ITEM 6. EXHIBITS
Exhibit No. |
| Description |
|
|
|
| Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) (Filed herewith) | |
| ||
| ||
| ||
| Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 (Furnished herewith) | |
| ||
| ||
| ||
101.1 |
| The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, |
20 |
Table of Contents |
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.
| MOBILESMITH, INC. |
| |
|
|
|
|
August | By: | /s/ |
|
|
|
|
|
|
| Chief Executive Officer (Principal Executive Officer) |
|
August | By: | /s/ Gleb Mikhailov |
|
|
| Gleb Mikhailov |
|
|
| Chief Financial Officer (Principal Financial and Accounting Officer) |
|
21 |