MobileSmith (MOSTQ) 10-Q 12 May 15 2015 Q1 Quarterly report Financial data

Document_and_Entity_Informatio

Document and Entity Information	3 Months Ended
	Mar. 31, 2015	11-May-15
Document And Entity Information
Entity Registrant Name	MobileSmith, Inc.
Entity Central Index Key	1113513
Document Type	10-Q
Document Period End Date	31-Mar-15
Amendment Flag	FALSE
Current Fiscal Year End Date	-19
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		19,827,542
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2015

CONDENSED_CONSOLIDATED_BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Mar. 31, 2015	Dec. 31, 2014
Current assets
Cash and cash equivalents	$631,606	$320,286
Restricted cash	75,248	125,000
Trade Accounts Receivable, Net of Allowance for Doubtful Accounts of $11,500 and $22,000, Respectively	124,036	193,907
Prepaid expenses and other current assets	86,985	64,973
Total current assets	917,875	704,166
Property and equipment, net	112,621	116,567
Capitalized software, net	479,770	507,217
Intangible assets, net	68,234	72,604
Other assets	17,550	21,312
Total Other Assets	678,175	717,700
TOTAL ASSETS	1,596,050	1,421,866
Current liabilities
Trade Accounts Payable	106,154	94,862
Accrued Expenses	100,966	106,668
Accrued interest	331,593	501,957
Capital Lease Obligations	28,983	28,378
Deferred revenue	478,154	579,264
Total current liabilities	1,045,850	1,311,129
Long-term liabilities:
Bank Loan	5,000,000	5,000,000
Convertible Notes Payable, Related Parties, Net of Discount	28,268,762	25,985,330
Convertible Notes Payable, Net of Discount	680,640	680,640
Capital Lease Obligations	107,161	114,637
Deferred Rent	59,425	61,010
Total long-term liabilities	34,115,988	31,841,617
Total liabilities	35,161,838	33,152,746
Commitments and Contingencies (Note 3)
Stockholders' deficit:
Preferred Stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding at March 31, 2015 and December 31, 2014	0	0
Common Stock, $0.001 par value, 45,000,000 shares authorized,19,827,542 shares issued and outstanding at March 31, 2015 and December 31, 2014	19,828	19,828
Additional paid-in capital	97,474,682	97,453,374
Accumulated deficit	-131,060,298	-129,204,082
Total stockholders' deficit	-33,565,788	-31,730,880
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$1,596,050	$1,421,866

CONDENSED_CONSOLIDATED_BALANCE1

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Mar. 31, 2015	Dec. 31, 2014
Statement of Financial Position [Abstract]
Allowance for Doubtful Accounts	$11,500	$22,000
Stockholders' equity:
Preferred stock, par value	$0.00	$0.00
Preferred stock, authorized	5,000,000	5,000,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value	$0.00	$0.00
Common stock, authorized	45,000,000	45,000,000
Common stock, issued	19,827,542	19,827,542
Common stock, outstanding	19,827,542	19,827,542

CONDENSED_CONSOLIDATED_STATEME

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
REVENUES:
Subscription and Support	$396,188	$187,945
Professional Services and Other	30,000	0
Total revenues	426,188	187,945
COST OF REVENUES
Subscription and Support	59,469	135,587
Professional Services and Other	9,273	0
Total Cost of Revenue	68,742	135,587
GROSS PROFIT (LOSS)	357,446	52,358
OPERATING EXPENSES:
Sales and marketing	292,199	220,157
Research and development	340,140	268,877
General and administrative	314,566	335,167
Total operating expenses	946,905	824,201
LOSS FROM OPERATIONS	-589,459	-771,843
OTHER INCOME (EXPENSE):
Other Income	379	1,256
Interest expense, net	-1,267,136	-826,442
Total Other Expense	-1,266,757	-825,186
NET LOSS	($1,856,216)	($1,597,029)
NET LOSS PER COMMON SHARE:
Basic and Fully Diluted	($0.09)	($0.08)
WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE:
Basic and fully diluted	19,827,542	19,827,542

CONDENSED_CONSOLIDATED_STATEME1

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	($1,856,216)	($1,597,029)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	40,567	41,507
Bad Debt Expense Reversal	-6,000	0
Amortization of Debt Discount	583,432	246,213
Share Based Compensation	21,308	28,004
Changes in assets and liabilities:
Accounts Receivable	75,871	-132,180
Prepaid Expenses and Other Current Assets	-18,138	11,283
Accounts Payable	11,292	17,204
Deferred revenue	-101,110	125,230
Accrued and other expenses	-177,651	50,960
Net Cash Used in Operating Activities	-1,426,645	-1,208,808
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments to Acquire Property, Plant and Equipment	-4,916	-5,165
Net Cash Used in Investing Activities	-4,916	-5,165
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash used to pay interest expense	49,752	50,556
Proceeds from Issuance of Long Term Debt	1,700,000	1,230,000
Repayments of debt borrowings	-6,871	-5,965
Net cash provided by financing activities	1,742,881	1,274,591
NET INCREASE IN CASH AND CASH EQUIVALENTS	311,320	60,618
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	320,286	223,514
CASH AND CASH EQUIVALENTS, END OF PERIOD	631,606	284,132
Supplemental disclosures of cash flow information:
Cash paid during the period for: Interest	804,328	577,271
The Company Recorded Debt Discount Associated with Beneficial Conversion Feature	$0	$1,625,357

CONDENSED_CONSOLIDATED_STATEME2

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (Unaudited) (USD $)	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Beginning Balance, amount at Dec. 31, 2014	$19,828	$97,453,374	($129,204,082)	($31,730,880)
Beginning Balance, shares at Dec. 31, 2014	19,827,542
Equity-Based Compensation	0	21,308	0	21,308
Net loss	0	0	-1,856,216	-1,856,216
Ending Balance, amount at Mar. 31, 2015	$19,828	$97,474,682	($131,060,298)	($33,565,788)
Ending Balance, shares at Mar. 31, 2015	19,827,542

1_DESCRIPTION_OF_BUSINESS_AND_

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION	3 Months Ended
	Mar. 31, 2015
Accounting Policies [Abstract]
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION	MobileSmith, Inc. (referred to herein as the “Company,” “us,” “we,” or “our”) was incorporated as Smart Online, Inc. in the State of Delaware in 1993. The Company changed its name to MobileSmith, Inc. effective July 1, 2013. The Company develops and markets software products and services tailored to users of mobile devices. 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.
	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.  This subsidiary has not had material activity in 2015.
	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 March 31, 2015. 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, 2014, as amended, on file with the SEC (the “Annual Report”).
	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 three months ended March 31, 2015 and 2014, the Company incurred net losses as well as negative cash flows.  These factors indicate that the Company may be unable to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
	Recently Issued Accounting Pronouncements
	The Company evaluates new significant accounting pronouncements at each reporting period. For the period ended March 31, 2015, 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 May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-9 Revenue from Contracts with Customers (Topic 606). This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. The Company will adopt this standard in fiscal year 2017 and is currently assessing its impact.
	In August of 2014, the FASB issued ASU 2014-15 Presentation of Financial Statements – Going Concern (Subtopic 205-40).  This ASU defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and provides guidance on required financial statement footnote disclosures. The ASU is effective for annual periods ending after December 15, 2016.  The Company will adopt the ASU in fiscal year 2016.

2_DEBT

2. DEBT	3 Months Ended
	Mar. 31, 2015
Debt Disclosure [Abstract]
2. DEBT	The table below summarizes the Company’s debt at March 31, 2015 and December 31, 2014:
	Debt Description	March 31,		December 31,
		2015		2014		Maturity	Rate
	Bank Loan	$	5,000,000	$	5,000,000	16-Jun		3.85	%
	Capital lease obligations - Noteholder lease		108,042		113,093	19-Aug		8	%
	Capital lease obligations - office furniture		28,102		29,922	16-Sep		9.8	%
	Convertible notes - related parties, net of discount of $3,755,469 and $4,338,901, respectively		28,268,762		25,985,330	16-Nov		8	%
	Convertible notes, net of discount of $50,129		680,640		680,640	16-Nov		8	%
	Total debt		34,085,546		31,808,985
	Less:  current portion of long term debt
	Capital lease obligations		28,983		28,378
	Total current portion of long term debt		28,983		28,378
	Debt - long term	$	34,056,563	$	31,780,607
	Convertible Notes
	During the three months ended March 31, 2015, the Company sold $1,700,000 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”) at conversion prices equal to $1.43 on the date of sale.
	The table below summarizes convertible notes issued as of March 31, 2015 by type:
	Convertible Notes Type:	Balance
	2007 NPA notes, net of discount	$	26,749,402
	2014 NPA notes		2,200,000
	Total convertible notes	$	28,949,402

3_COMMITMENTS_AND_CONTINGENCIE

3. COMMITMENTS AND CONTINGENCIES	3 Months Ended
	Mar. 31, 2015
Commitments and Contingencies Disclosure [Abstract]
3. COMMITMENTS AND CONTINGENCIES	Aggregate future lease commitments
	The Company leases computers, office equipment and office furniture under capital lease agreements that expire through August 2019. Total amount financed under these capital leases were $136,444 at March 31, 2015. This obligation is included within the Company’s total debt.
	The table below summarizes Company’s future obligations under its capital leases:
	Year:
	2015	$	29,444
	2016		39,259
	2017		39,259
	2018		34,189
	2019		19,412
			161,563
	Less amount representing interest		(25,119	)
	Capital lease obligations	$	136,444
	The Company leases its office space in Raleigh, North Carolina pursuant to a lease with an initial term that expires in March 2019.  The lease contains an option to renew for two three-year terms.  In addition, the Company leases a vehicle pursuant to a lease that expires in July 2016.
	The table below summarizes the Company’s future obligations under its office and vehicle leases:
	Year:
	2015	$	122,076
	2016		165,678
	2017		167,786
	2018		172,418
	2019		44,082
	Total	$	672,040
	Legal Proceedings
	The Company may be subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, certain pending patent and privacy matters, including class action lawsuits, as well as inquiries, investigations, audits and other regulatory proceedings.
	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_COMPENSATION

4. EQUITY COMPENSATION	3 Months Ended
	Mar. 31, 2015
Equity [Abstract]
4. EQUITY COMPENSATION	The following is a summary of the stock option activity for the three months ended March 31, 2015:
					Weighted
			Weighted		Average	Aggregate
		Number of	Average		Remaining	Intrinsic
		Shares	Exercise Price		Contractual Term	Value
	Outstanding, December 31, 2014	403,661		1.45
	Cancelled	-42,312		1.53
	Issued	-		-
	Outstanding, March 31, 2015	361,349	$	1.44	4.37	$	78,735
	Vested and exercisable, March 31, 2015	226,965	$	1.35	4.85	$	65,109
	Aggregate intrinsic value represents the difference between the closing price of the Company’s common stock at March 31, 2015 and the exercise price of outstanding, in-the-money stock options. The closing price of the common stock at March 31, 2015, as reported on the Over-the-Counter Bulletin Board, was $1.60 per share.
	At March 31, 2015, $124,828 of unvested expense has yet to be recorded related to outstanding stock options.

5_MAJOR_CUSTOMERS_AND_CONCENTR

5. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK	3 Months Ended
	Mar. 31, 2015
Risks and Uncertainties [Abstract]
5. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK	For the three months ended March 31, 2015, three major customers accounted for 44% of total revenues and three customers accounted for 66% of the accounts receivable balance.  For the three months ended March 31, 2014, three major customers accounted for 34% of total revenues and two customers accounted for 73% of the accounts receivable balance.

6_SUBSEQUENT_EVENTS

6. SUBSEQUENT EVENTS	3 Months Ended
	Mar. 31, 2015
Subsequent Events [Abstract]
6. SUBSEQUENT EVENTS	Subsequent to March 31, 2015, the Company sold one 2014 NPA Note to UBP in the total amount of $1,500,000 on the same terms as the currently outstanding 2014 NPA Notes. The note matures on November 14, 2016.

2_DEBT_Tables

2. DEBT (Tables)	3 Months Ended
	Mar. 31, 2015
Debt Disclosure [Abstract]
Company's debt	Debt Description	March 31,		December 31,
		2015		2014		Maturity	Rate
	Bank Loan	$	5,000,000	$	5,000,000	16-Jun		3.85	%
	Capital lease obligations - Noteholder lease		108,042		113,093	19-Aug		8	%
	Capital lease obligations - office furniture		28,102		29,922	16-Sep		9.8	%
	Convertible notes - related parties, net of discount of $3,755,469 and $4,338,901, respectively		28,268,762		25,985,330	16-Nov		8	%
	Convertible notes, net of discount of $50,129		680,640		680,640	16-Nov		8	%
	Total debt		34,085,546		31,808,985
	Less:  current portion of long term debt
	Capital lease obligations		28,983		28,378
	Total current portion of long term debt		28,983		28,378
	Debt - long term	$	34,056,563	$	31,780,607
Summary of convertible notes	Convertible Notes Type:	Balance
	2007 NPA notes, net of discount	$	26,749,402
	2014 NPA notes		2,200,000
	Total convertible notes	$	28,949,402

3_COMMITMENTS_AND_CONTINGENCIE1

3. COMMITMENTS AND CONTINGENCIES (Tables)	3 Months Ended
	Mar. 31, 2015
Commitments and Contingencies Disclosure [Abstract]
Company's future obligations under its capital leases	Year:
	2015	$	29,444
	2016		39,259
	2017		39,259
	2018		34,189
	2019		19,412
			161,563
	Less amount representing interest		(25,119	)
	Capital lease obligations	$	136,444
Company's future obligation under the new office and vehicle leases	Year:
	2015	$	122,076
	2016		165,678
	2017		167,786
	2018		172,418
	2019		44,082
	Total	$	672,040

4_EQUITY_COMPENSATION_Tables

4. EQUITY COMPENSATION (Tables)	3 Months Ended
	Mar. 31, 2015
Equity Compensation Tables
Schedule of Stock Options Outstanding					Weighted
			Weighted		Average	Aggregate
		Number of	Average		Remaining	Intrinsic
		Shares	Exercise Price		Contractual Term	Value
	Outstanding, December 31, 2014	403,661		1.45
	Cancelled	-42,312		1.53
	Issued	-		-
	Outstanding, March 31, 2015	361,349	$	1.44	4.37	$	78,735
	Vested and exercisable, March 31, 2015	226,965	$	1.35	4.85	$	65,109

2_DEBT_Details

2. DEBT (Details) (USD $)	Mar. 31, 2015	Dec. 31, 2014
Debt Details
Bank Loan	$5,000,000	$5,000,000
Capital leases obligations - Noteholder lease	108,042	113,093
Capital lease obligations - Office furniture	28,102	29,922
Convertible notes - related parties, net of discount of $3,755,469 and $4,338,901, respectively	28,268,762	25,985,330
Convertible notes, net of discount of $50,129	680,640	680,640
Total debt	34,085,546	31,808,985
Less: current portion of long term debt
Capital lease obligations	28,983	28,378
Total current portion of long term debt	28,983	28,378
Debt - long term	$34,056,563	$31,780,607

2_DEBT_Details_1

2. DEBT (Details 1) (USD $)	Mar. 31, 2015
Convertible notes	$28,949,402
2007 NPA notes, net of discount
Convertible notes	26,749,402
2014 NPA notes
Convertible notes	$2,200,000

3_COMMITMENTS_AND_CONTINGENCIE2

3. COMMITMENTS AND CONTINGENCIES (Details) (USD $)	Mar. 31, 2015
Commitments and Contingencies Disclosure [Abstract]
2015	$29,444
2016	39,259
2017	39,259
2018	34,189
2019	19,412
Thereafter	161,563
Less amount representing interest	-25,119
Capital lease obligations	$136,444

3_COMMITMENTS_AND_CONTINGENCIE3

3. COMMITMENTS AND CONTINGENCIES (Details 1) (USD $)	Mar. 31, 2015
Commitments and Contingencies Disclosure [Abstract]
2015	$122,076
2016	165,678
2017	167,786
2018	172,418
2019	44,082
Total	$672,040

4_EQUITY_COMPENSATION_Details

4. EQUITY COMPENSATION (Details) (USD $)	3 Months Ended
	Mar. 31, 2015
Equity Compensation Details
Number of Shares Outstanding, Beginning	403,661
Number of Shares Cancelled	-42,312
Number of Shares Issued	0
Number of Shares Outstanding, Ending	361,349
Stock Options Vested and Exercisable Number of Shares	226,965
Weighted Average Exercise Price Outstanding, Beginning	$1.45
Weighted Average Exercise Price Cancelled	$1.53
Weighted Average Exercise Price Issued	$0
Weighted Average Exercise Price Outstanding, Ending	$1.44
Weighted Average Exercise Price Vested and exercisable, Ending	$1.35
Weighted Average Remaining Contractual Life (in years) Outstanding	4 years 4 months 3 days
Weighted Average Remaining Contractual Life (in years) Vested and expected to vest	4 years 10 months 6 days
Aggregate Intrinsic Value Outstanding	$78,753
Aggregate Intrinsic Value vested and expected to vest	$65,109

5_MAJOR_CUSTOMERS_AND_CONCENTR1

5. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Details Narrative)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Three Customers
Percentage of revenues from major customers	44.00%	34.00%
Percentage of accounts receivables from major customers	66.00%
Two Customer
Percentage of accounts receivables from major customers		73.00%