MobileSmith (MOSTQ) 10-Q 6 Nov 15 2015 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Nov. 06, 2015
Document And Entity Information
Entity Registrant Name	MobileSmith, Inc.
Entity Central Index Key	1,113,513
Document Type	10-Q
Document Period End Date	Sep. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		19,827,542
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2,015

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2015	Dec. 31, 2014
Current assets
Cash and cash equivalents	$ 79,274	$ 320,286
Restricted cash	76,305	125,000
Trade Accounts Receivable, Net of Allowance for Doubtful Accounts of $11,500 and $22,000, Respectively	848,712	193,907
Prepaid expenses and other current assets	72,136	64,973
Total current assets	1,076,427	704,166
Property and equipment, net	100,578	116,567
Capitalized software, net	424,874	507,217
Intangible assets, net	59,479	72,604
Other assets	10,026	21,312
Total Other Assets	594,957	717,700
TOTAL ASSETS	1,671,384	1,421,866
Current liabilities
Trade Accounts Payable	52,035	94,862
Accrued Expenses	60,226	106,668
Accrued interest	405,493	501,957
Capital Lease Obligations	30,232	28,378
Deferred revenue	1,180,134	579,264
Bank Loan	5,000,000	0
Total current liabilities	6,728,120	1,311,129
Long-term liabilities:
Bank Loan	0	5,000,000
Convertible Notes Payable, Related Parties, Net of Discount	31,485,626	25,985,330
Convertible Notes Payable, Net of Discount	680,640	680,640
Capital Lease Obligations	91,726	114,637
Deferred Rent	56,257	61,010
Total long-term liabilities	32,314,249	31,841,617
Total liabilities	$ 39,042,369	$ 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 September 30, 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 September 30, 2015 and December 31, 2014	19,828	19,828
Additional paid-in capital	97,517,299	97,453,374
Accumulated deficit	(134,908,112)	(129,204,082)
Total stockholders' deficit	(37,370,985)	(31,730,880)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 1,671,384	$ 1,421,866

CONDENSED CONSOLIDATED BALANCE3

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Sep. 30, 2015	Dec. 31, 2014
Statement of Financial Position [Abstract]
Allowance for Doubtful Accounts	$ 11,500	$ 22,000
Stockholders' equity:
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, authorized	5,000,000	5,000,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized	45,000,000	45,000,000
Common stock, issued	19,827,542	19,827,542
Common stock, outstanding	19,827,542	19,827,542

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
REVENUES:
Subscription and Support	$ 463,291	$ 157,675	$ 1,237,024	$ 540,403
Professional Services and Other	31,080	20,000	91,080	20,000
Total revenues	494,371	177,675	1,328,104	560,403
COST OF REVENUES
Subscription and Support	125,600	137,523	259,298	397,792
Professional Services and Other	46,697	9,790	70,242	9,790
Total Cost of Revenue	172,297	147,313	329,540	407,582
GROSS PROFIT	322,074	30,362	998,564	152,821
OPERATING EXPENSES:
Sales and marketing	307,857	247,214	867,153	702,998
Research and development	356,098	294,818	1,029,923	825,432
General and administrative	299,029	325,229	897,247	1,007,798
Impairment of Long Lived Assets	0	24,952	0	41,248
Total operating expenses	962,984	892,213	2,794,323	2,577,476
LOSS FROM OPERATIONS	(640,910)	(861,851)	(1,795,759)	(2,424,655)
OTHER INCOME (EXPENSE):
Other Income	594	3,537	2,084	5,425
Interest expense, net	(1,331,602)	(1,239,846)	(3,910,355)	(3,161,531)
Gain on reversal of a liability	0	0	0	169,861
Gain (Loss) On Debt Extinguishment	0	0	0	50,129
Total Other Expense	(1,331,008)	(1,236,309)	(3,908,271)	(2,936,116)
NET LOSS	$ (1,971,918)	$ (2,098,160)	$ (5,704,030)	$ (5,360,771)
NET LOSS PER COMMON SHARE:
Basic and Fully Diluted	$ (0.10)	$ (0.11)	$ (0.29)	$ (0.27)
WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE:
Basic and fully diluted	19,827,542	19,827,542	19,827,542	19,827,542

CONDENSED CONSOLIDATED STATEME5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (5,704,030)	$ (5,360,771)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	121,685	124,358
Bad Debt Expense	(10,500)	11,500
Amortization of Debt Discount	1,750,296	1,310,833
Share Based Compensation	63,925	78,108
Impairment of long lived assets	0	41,248
Gain on debt extinguishment	0	(50,129)
Changes in assets and liabilities:
Accounts Receivable	(644,305)	(40,883)
Prepaid Expenses and Other Current Assets	4,235	(6,878)
Accounts Payable	(42,827)	(20,918)
Deferred revenue	600,870	237,771
Accrued and other expenses	(147,659)	(61,611)
Net Cash Used in Operating Activities	(4,008,310)	(3,737,372)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments to Acquire Property, Plant and Equipment	(10,340)	(10,239)
Net Cash Used in Investing Activities	(10,340)	(10,239)
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash used to pay interest expense	146,083	144,267
Deposit of Cash to Restricted Account	(97,388)	(125,000)
Repayment of Bank Loan	0	(5,000,000)
Proceeds from Bank Loan	0	5,000,000
Proceeds from Issuance of Long Term Debt	3,750,000	3,940,000
Repayments of debt borrowings	(21,057)	(19,355)
Net cash provided by financing activities	3,777,638	3,939,912
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(241,012)	192,301
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	320,286	223,514
CASH AND CASH EQUIVALENTS, END OF PERIOD	79,274	415,815
Supplemental disclosures of cash flow information:
Cash paid during the period for: Interest	2,435,123	1,823,617
The Company Recorded Debt Discount Associated with Beneficial Conversion Feature	$ 0	$ 4,316,567

CONDENSED CONSOLIDATED STATEME6

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (Unaudited) - 9 months ended Sep. 30, 2015 - USD ($)	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Beginning Balance, shares at Dec. 31, 2014	19,827,542
Beginning Balance, amount at Dec. 31, 2014	$ 19,828	$ 97,453,374	$ (129,204,082)	$ (31,730,880)
Equity-Based Compensation		63,925		63,925
Net loss			(5,704,030)	(5,704,030)
Ending Balance, shares at Sep. 30, 2015	19,827,542
Ending Balance, amount at Sep. 30, 2015	$ 19,828	$ 97,517,299	$ (134,908,112)	$ (37,370,985)

1. DESCRIPTION OF BUSINESS AND

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION	9 Months Ended
	Sep. 30, 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. The 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 September 30, 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 on file with the SEC (the “Annual Report”). Except as otherwise noted, there have been no material changes to the Company’s significant accounting policies as compared to the significant accounting policies described in the Annual Report. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the nine months ended September 30, 2015 and 2014, the Company incurred net losses as well as negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Recently Issued Accounting Pronouncements The Company evaluates new significant accounting pronouncements at each reporting period. For the period ended September 30, 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, 2017, and early adoption is not permitted. The Company will adopt this standard in fiscal year 2018 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 and is currently assessing its impact on the Company’s financial statements, if any.

2. DEBT

2. DEBT	9 Months Ended
	Sep. 30, 2015
Debt Disclosure [Abstract]
2. DEBT	The table below summarizes the Company’s debt at September 30, 2015 and December 31, 2014: Debt Description September 30 December 31, 2015 2014 Maturity Rate Comerica Bank LSA $ 5,000,000 $ 5,000,000 June 2016 3.85 % Capital lease obligations - Noteholder lease 97,632 113,093 August 2019 8.00 % Capital lease obligations - office furniture 24,326 29,922 September 2016 9.80 % Convertible notes - related parties, net of discount of $2,588,605 and $4,338,901, respectively 31,485,626 25,985,330 November 2016 8.00 % Convertible notes, net of discount of $50,129 680,640 680,640 November 2016 8.00 % Total debt 37,288,224 31,808,985 Less: current portion of long term debt Capital lease obligations 30,232 28,378 Comerica Bank LSA 5,000,000 - Total current portion of long term debt 5,030,232 28,378 Debt - long term $ 32,257,992 $ 31,780,607 Convertible Notes During the nine months ended September 30, 2015, the Company privately placed $3,750,000 in principal amount of additional unsecured Convertible Subordinated Notes unsecured Convertible Subordinated Note Purchase Agreement dated December 10, 2014 The table below summarizes convertible notes issued as of September 30, 2015 by type: Convertible Notes Type: Balance 2007 NPA notes, net of discount $ 27,916,266 2014 NPA notes 4,250,000 Total convertible notes, net of discount $ 32,166,266

3. COMMITMENTS AND CONTINGENCIE

3. COMMITMENTS AND CONTINGENCIES	9 Months Ended
	Sep. 30, 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 at September 30, 2015 was $121,958. This obligation is included within the Company’s total debt. The table below summarizes Company’s future obligations under its capital leases: Year: 2015 $ 9,815 2016 39,259 2017 39,259 2018 34,189 2019 19,412 141,934 Less amount representing interest (19,976 ) Capital lease obligations $ 121,958 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 operating leases: Year: 2015 $ 41,172 2016 165,678 2017 167,786 2018 172,418 2019 44,082 Total $ 591,136 Legal Proceedings From time to time, the Company may be subject to routine litigation, claims or disputes in the ordinary course of business. The Company defends itself vigorously in all such matters. In the opinion of management, no pending or known threatened claims, actions or proceedings against the Company are expected to have a material adverse effect on its financial position, results of operations or cash flows. However, the company cannot predict with certainty the outcome or effect of any such litigation or investigatory matters or any other pending litigations or claims. There can be no assurance as to the ultimate outcome of any such lawsuits and investigations. The Company will record a liability when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company periodically evaluates developments in its legal matters that could affect the amount of liability that it has previously accrued, if any, and makes adjustments as appropriate. Significant judgment is required to determine both the likelihood of there being, and the estimated amount of, a loss related to such matters, and the Company’s judgment may be incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matters that the Company may be required to accrue for, there may be an exposure to loss in excess of the amount accrued, and such amounts could be material.

4. EQUITY COMPENSATION

4. EQUITY COMPENSATION	9 Months Ended
	Sep. 30, 2015
Equity [Abstract]
4. EQUITY COMPENSATION	The following is a summary of the stock option activity for the nine months ended September 30, 2015: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding, December 31, 2014 403,661 $ 1.45 Cancelled (42,312) 1.53 Issued - - Outstanding, September 30, 2015 361,349 $ 1.44 3.87 $ 45,142 Vested and exercisable, September 30, 2015 258,078 $ 1.37 4.25 $ 40,979 Aggregate intrinsic value represents the difference between the closing price of the Company’s common stock at September 30, 2015 and the exercise price of outstanding, in-the-money stock options. The closing price of the common stock at September 30, 2015, as reported on the Over-the-Counter Bulletin Board, was $1.45 per share. At September 30, 2015, $82,211

5. MAJOR CUSTOMERS AND CONCENTR

5. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK	9 Months Ended
	Sep. 30, 2015
Risks and Uncertainties [Abstract]
5. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK	For the nine months ended September 30, 2015, two major customers accounted for 31% of total revenues and three customers accounted for 81% of the accounts receivable balance. For the nine months ended September 30, 2014, one major customer accounted for 20% of total revenues and three customers accounted for 51% of the accounts receivable balance.

6. SUBSEQUENT EVENTS

6. SUBSEQUENT EVENTS	9 Months Ended
	Sep. 30, 2015
Subsequent Events [Abstract]
6. SUBSEQUENT EVENTS	On October 10, 2015, the Company sold one 2014 NPA Note to UBP in the principal amount of $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)	9 Months Ended
	Sep. 30, 2015
Debt Disclosure [Abstract]
Company's debt	Debt Description September 30 December 31, 2015 2014 Maturity Rate Comerica Bank LSA $ 5,000,000 $ 5,000,000 June 2016 3.85 % Capital lease obligations - Noteholder lease 97,632 113,093 August 2019 8.00 % Capital lease obligations - office furniture 24,326 29,922 September 2016 9.80 % Convertible notes - related parties, net of discount of $2,588,605 and $4,338,901, respectively 31,485,626 25,985,330 November 2016 8.00 % Convertible notes, net of discount of $50,129 680,640 680,640 November 2016 8.00 % Total debt 37,288,224 31,808,985 Less: current portion of long term debt Capital lease obligations 30,232 28,378 Comerica Bank LSA 5,000,000 - Total current portion of long term debt 5,030,232 28,378 Debt - long term $ 32,257,992 $ 31,780,607
Summary of convertible notes	Convertible Notes Type: Balance 2007 NPA notes, net of discount $ 27,916,266 2014 NPA notes 4,250,000 Total convertible notes, net of discount $ 32,166,266

3. COMMITMENTS AND CONTINGENC14

3. COMMITMENTS AND CONTINGENCIES (Tables)	9 Months Ended
	Sep. 30, 2015
Commitments and Contingencies Disclosure [Abstract]
Company's future obligations under its capital leases	Year: 2015 $ 9,815 2016 39,259 2017 39,259 2018 34,189 2019 19,412 141,934 Less amount representing interest (19,976 ) Capital lease obligations $ 121,958
Company's future obligation under the new office and vehicle leases	Year: 2015 $ 41,172 2016 165,678 2017 167,786 2018 172,418 2019 44,082 Total $ 591,136

4. EQUITY COMPENSATION (Tables)

4. EQUITY COMPENSATION (Tables)	9 Months Ended
	Sep. 30, 2015
Equity Compensation Tables
Schedule of Stock Options Outstanding	Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding, December 31, 2014 403,661 $ 1.45 Cancelled (42,312) 1.53 Issued - - Outstanding, September 30, 2015 361,349 $ 1.44 3.87 $ 45,142 Vested and exercisable, September 30, 2015 258,078 $ 1.37 4.25 $ 40,979

2. DEBT (Details)

2. DEBT (Details) - USD ($)	Sep. 30, 2015	Dec. 31, 2014
Debt Details
Comerica Bank LSA	$ 5,000,000	$ 5,000,000
Capital leases obligations - Noteholder lease	97,632	113,093
Capital lease obligations - Office furniture	24,326	29,922
Convertible notes - related parties, net of discount of $2,588,605 and $4,338,901, respectively	31,485,626	25,985,330
Convertible notes, net of discount of $50,129	680,640	680,640
Total debt	37,288,224	31,808,985
Less: current portion of long term debt
Capital lease obligations	30,232	28,378
Comerica Bank LSA	5,000,000	0
Total current portion of long term debt	5,030,232	28,378
Debt - long term	$ 32,257,992	$ 31,780,607

2. DEBT (Details 1)

2. DEBT (Details 1)	Sep. 30, 2015USD ($)
Convertible notes, net of discount	$ 32,166,266
2007 NPA notes, net of discount
Convertible notes, net of discount	27,916,266
2014 NPA notes
Convertible notes, net of discount	$ 4,250,000

3. COMMITMENTS AND CONTINGENC18

3. COMMITMENTS AND CONTINGENCIES (Details)	Sep. 30, 2015USD ($)
Commitments and Contingencies Disclosure [Abstract]
2,015	$ 9,815
2,016	39,259
2,017	39,259
2,018	34,189
2,019	19,412
Thereafter	141,934
Less amount representing interest	(19,976)
Capital lease obligations	$ 121,958

3. COMMITMENTS AND CONTINGENC19

3. COMMITMENTS AND CONTINGENCIES (Details 1)	Sep. 30, 2015USD ($)
Commitments and Contingencies Disclosure [Abstract]
2,015	$ 41,172
2,016	165,678
2,017	167,786
2,018	172,418
2,019	44,082
Total	$ 591,136

4. EQUITY COMPENSATION (Details

4. EQUITY COMPENSATION (Details)	9 Months Ended
	Sep. 30, 2015USD ($)$ / sharesshares
Equity Compensation Details
Number of Shares Outstanding, Beginning | shares	403,661
Number of Shares Cancelled | shares	(42,312)
Number of Shares Issued | shares	0
Number of Shares Outstanding, Ending | shares	361,349
Stock Options Vested and Exercisable Number of Shares | shares	258,078
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	$ 1.37
Weighted Average Remaining Contractual Life (in years) Outstanding	3 years 10 months 13 days
Weighted Average Remaining Contractual Life (in years) Vested and expected to vest	4 years 3 months
Aggregate Intrinsic Value Outstanding | $	$ 45,142
Aggregate Intrinsic Value vested and expected to vest | $	$ 40,979

5. MAJOR CUSTOMERS AND CONCEN21

5. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Details Narrative)	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Two Customer
Percentage of revenues from major customers	31.00%
One Customers
Percentage of revenues from major customers		20.00%
Three Customers
Percentage of accounts receivables from major customers	81.00%	51.00%