MobileSmith (MOSTQ) 10-Q 6 May 16 2016 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	May. 05, 2016
Document And Entity Information
Entity Registrant Name	MobileSmith, Inc.
Entity Central Index Key	1,113,513
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		19,827,542
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2,016

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Current assets
Cash and cash equivalents	$ 366,258	$ 580,220
Restricted cash	73,527	124,988
Trade Accounts Receivable, Net of Allowance for Doubtful Accounts of $16,050	396,163	183,350
Prepaid expenses and other current assets	71,382	69,552
Total current assets	907,330	958,110
Property and equipment, net	94,912	98,963
Capitalized software, net	363,512	390,518
Intangible assets, net	50,725	55,099
Other assets	2,502	6,264
Total Other Assets	511,651	550,844
TOTAL ASSETS	1,418,981	1,508,954
Current liabilities
Trade Accounts Payable	101,048	45,717
Accrued Expenses	200,628	247,858
Accrued interest	355,395	350,613
Capital Lease Obligations	31,535	30,877
Deferred revenue	1,315,122	1,007,970
Bank Loan	5,000,000	5,000,000
Convertible Notes Payable, Related Parties, Net of Discount	34,662,120	33,363,488
Convertible Notes Payable, Net of Discount	680,640	680,640
Total current liabilities	42,346,488	40,727,163
Long-term liabilities:
Capital Lease Obligations	75,626	83,761
Deferred Rent	50,928	53,592
Total long-term liabilities	126,554	137,353
Total liabilities	$ 42,473,042	$ 40,864,516
Commitments and Contingencies (Note 3)
Stockholders' deficit:
Preferred Stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding at March 31, 2016 and December 31, 2015	$ 0	$ 0
Common Stock, $0.001 par value, 45,000,000 shares authorized, 19,827,542 shares issued and outstanding at March 31, 2016 and December 31, 2015	19,828	19,828
Additional paid-in capital	97,965,453	97,545,601
Accumulated deficit	(139,039,342)	(136,920,991)
Total stockholders' deficit	(41,054,061)	(39,355,562)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 1,418,981	$ 1,508,954

CONDENSED CONSOLIDATED BALANCE3

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Allowance for Doubtful Accounts	$ 16,050	$ 16,050
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
	Mar. 31, 2016	Mar. 31, 2015
REVENUES:
Subscription and Support	$ 471,130	$ 396,188
Professional Services and Other	0	30,000
Total revenues	471,130	426,188
COST OF REVENUES
Subscription and Support	115,321	59,469
Professional Services and Other	5,063	9,273
Total Cost of Revenue	120,384	68,742
GROSS PROFIT	350,746	357,446
OPERATING EXPENSES:
Sales and marketing	235,724	292,199
Research and development	406,543	340,140
General and administrative	352,973	314,566
Total operating expenses	995,240	946,905
LOSS FROM OPERATIONS	(644,494)	(589,459)
OTHER INCOME (EXPENSE):
Other Income	8,039	379
Interest expense, net	(1,481,896)	(1,267,136)
Total Other Expense	(1,473,857)	(1,266,757)
NET LOSS	$ (2,118,351)	$ (1,856,216)
NET LOSS PER COMMON SHARE:
Basic and Fully Diluted	$ (0.11)	$ (0.09)
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 STATEME5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (2,118,351)	$ (1,856,216)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	40,630	40,567
Bad Debt Expense (Gain on Reversal of Bad Debt)	0	(6,000)
Amortization of Debt Discount	697,233	583,432
Share Based Compensation	21,251	21,308
Changes in assets and liabilities:
Accounts Receivable	(212,813)	75,871
Prepaid Expenses and Other Assets	1,932	(18,138)
Accounts Payable	55,331	11,292
Deferred revenue	307,152	(101,110)
Accrued and other expenses	(45,112)	(177,651)
Net Cash Used in Operating Activities	(1,252,747)	(1,426,645)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments to Acquire Property, Plant and Equipment	(5,199)	(4,916)
Net Cash Used in Investing Activities	(5,199)	(4,916)
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash used to pay interest expense	51,461	49,752
Proceeds from Issuance of Long Term Debt	1,000,000	1,700,000
Repayments of debt borrowings	(7,477)	(6,871)
Net cash provided by financing activities	1,043,984	1,742,881
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(213,962)	311,320
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	580,220	320,286
CASH AND CASH EQUIVALENTS, END OF PERIOD	366,258	631,606
Supplemental disclosures of cash flow information:
Cash paid during the period for: Interest	775,723	804,328
The Company Recorded Debt Discount Associated with Beneficial Conversion Feature	$ 398,601	$ 0

CONDENSED CONSOLIDATED STATEME6

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (Unaudited) - 3 months ended Mar. 31, 2016 - USD ($)	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Beginning Balance, shares at Dec. 31, 2015	19,827,542
Beginning Balance, amount at Dec. 31, 2015	$ 19,828	$ 97,545,601	$ (136,920,991)	$ (39,355,562)
Equity-Based Compensation		21,251		21,251
Beneficial Conversion Feature Recorded as a Result of Issuance of Convertible Debt		398,601		398,601
Net loss			(2,118,351)	(2,118,351)
Ending Balance, shares at Mar. 31, 2016	19,827,542
Ending Balance, amount at Mar. 31, 2016	$ 19,828	$ 97,965,453	$ (139,039,342)	$ (41,054,061)

1. DESCRIPTION OF BUSINESS AND

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION	3 Months Ended
	Mar. 31, 2016
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 software products and services and targets businesses whose need is to connect with their stakeholders (customers, employees, broader public) through a variety of mobile devices and do so with the fastest time to market possible, while by-passing the need to write a single line of code. The Company’s flagship product is the MobileSmith® Platform (the “Platform”). The Platform is an innovative app development platform that enables organizations to rapidly create, deploy, and manage custom, native smartphone and tablet apps deliverable across iOS and Android mobile platforms without writing a single line of code. These condensed consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, which was created to explore the concept of a consumer targeted mobile app development platform. From time to time, the Company may create additional wholly-owned subsidiaries in order to test various new services as a part of its research and development process. The subsidiary has not had material activity in 2016. The Company’s principal products and services include: ● subscription to its Software as a Service (“SaaS”) cloud based mobile app development platform to customers who design and build their own apps; ● dedicated internal and secure mobile development platform for the U.S. Department of Defense and related contractors; ● custom mobile application design and development services; ● mobile application marketing services; and ● mobile strategy implementation consulting. The Company prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnote disclosures it normally includes in its audited annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its financial position, results of operations, cash flows, and stockholders’ deficit as of March 31, 2016. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 on file with the SEC (the “Annual Report”). Except as otherwise noted, there have been no material changes to the Company’s significant accounting policies as compared to the significant accounting policies described in the Annual Report. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the three months ended March 31, 2016 and 2015, the Company incurred net losses as well as negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Recently Issued Accounting Pronouncements The Company evaluates new significant accounting pronouncements at each reporting period. For the period ended March 31, 2016, the Company did not adopt any new pronouncement that had or is expected to have a material effect on the Company’s presentation of its condensed consolidated financial statements. All pronouncements that are expected to affect future year financial statements are disclosed in the Annual Report on Form 10-K for the year ended December 31, 2015.

2. DEBT

2. DEBT	3 Months Ended
	Mar. 31, 2016
Debt Disclosure [Abstract]
2. DEBT	The table below summarizes the Company’s debt at March 31, 2016 and December 31, 2015: Debt Description March31, December31, 2016 2015 Maturity Rate Comerica Bank LSA $ 5,000,000 $ 5,000,000 June 2016 3.85 % Capital lease obligations - Noteholder lease 86,800 92,270 August 2019 8.00 % Capital lease obligations - office furniture 20,361 22,368 September 2016 9.80 % Convertible notes - related parties, net of discount of $1,712,111 and $2,010,743, respectively 34,662,120 33,363,488 November 2016 8.00 % Convertible notes, net of discount of $50,129 680,640 680,640 November 2016 8.00 % Total debt 40,449,921 39,158,766 Less: current portion of long term debt Capital lease obligations 31,535 30,877 Comerica Bank LSA 5,000,000 5000000 Convertible notes - related parties, net of discount of $1,712,111 and $2,010,743, respectively 34,662,120 33,363,488 Convertible notes, net of discount of $50,129 680,640 680,640 Total current portion of long term debt 40,374,295 39,075,005 Debt - long term $ 75,626 $ 83,761 Convertible Notes During the three months ended March 31, 2016, the Company privately placed $1,000,000 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 March 31, 2016 by type: Convertible Notes Type: Balance 2007 NPA notes, net of discount $ 29,082,353 2014 NPA notes, net of discount 6,260,407 Total convertible notes, net of discount $ 35,342,760

3. COMMITMENTS AND CONTINGENCIE

3. COMMITMENTS AND CONTINGENCIES	3 Months Ended
	Mar. 31, 2016
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 March 31, 2016 was $107,161. This obligation is included within the Company’s total debt. The table below summarizes Company’s future obligations under its capital leases: Year: 2016 $ 29,444 2017 39,259 2018 34,189 2019 19,412 122,304 Less amount representing interest (15,143 ) Capital lease obligations $ 107,161 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: 2016 $ 124,146 2017 167,786 2018 172,418 2019 44,082 Total $ 508,432 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	3 Months Ended
	Mar. 31, 2016
Equity [Abstract]
4. EQUITY COMPENSATION	The following is a summary of the stock option activity for the three months ended March 31, 2016: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding, December 31, 2015 361,349 $ 1.44 Cancelled (75,000 ) 1.50 Issued - - Outstanding, March 31, 2016 286,349 $ 1.42 2.62 $ 166,338 Vested and exercisable, March 31, 2016 223,285 $ 1.36 2.93 $ 142,084 Aggregate intrinsic value represents the difference between the closing price of the Company’s common stock at March 31, 2016 and the exercise price of outstanding, in-the-money stock options. The closing price of the common stock at March 31, 2016, as reported on the Over-the-Counter Bulletin Board, was $2.00 per share. At March 31, 2016, $39,690

5. MAJOR CUSTOMERS AND CONCENTR

5. MAJOR CUSTOMERS AND CONCENTRATION	3 Months Ended
	Mar. 31, 2016
Risks and Uncertainties [Abstract]
5. MAJOR CUSTOMERS AND CONCENTRATION	For the three months ended March 31, 2016, one major customer accounted for 15% of total revenues and one customer accounted for 62% of the accounts receivable balance. 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.

6. SUBSEQUENT EVENTS

6. SUBSEQUENT EVENTS	3 Months Ended
	Mar. 31, 2016
Subsequent Events [Abstract]
6. SUBSEQUENT EVENTS	On April 14, 2016, the Company issued one 2014 NPA Note to UBP in the principal amount of $700,000 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, 2016
Debt Disclosure [Abstract]
Company's debt	Debt Description March31, December31, 2016 2015 Maturity Rate Comerica Bank LSA $ 5,000,000 $ 5,000,000 June 2016 3.85 % Capital lease obligations - Noteholder lease 86,800 92,270 August 2019 8.00 % Capital lease obligations - office furniture 20,361 22,368 September 2016 9.80 % Convertible notes - related parties, net of discount of $1,712,111 and $2,010,743, respectively 34,662,120 33,363,488 November 2016 8.00 % Convertible notes, net of discount of $50,129 680,640 680,640 November 2016 8.00 % Total debt 40,449,921 39,158,766 Less: current portion of long term debt Capital lease obligations 31,535 30,877 Comerica Bank LSA 5,000,000 5000000 Convertible notes - related parties, net of discount of $1,712,111 and $2,010,743, respectively 34,662,120 33,363,488 Convertible notes, net of discount of $50,129 680,640 680,640 Total current portion of long term debt 40,374,295 39,075,005 Debt - long term $ 75,626 $ 83,761
Summary of convertible notes	Convertible Notes Type: Balance 2007 NPA notes, net of discount $ 29,082,353 2014 NPA notes, net of discount 6,260,407 Total convertible notes, net of discount $ 35,342,760

3. COMMITMENTS AND CONTINGENC14

3. COMMITMENTS AND CONTINGENCIES (Tables)	3 Months Ended
	Mar. 31, 2016
Commitments and Contingencies Disclosure [Abstract]
Company's future obligations under its capital leases	Year: 2016 $ 29,444 2017 39,259 2018 34,189 2019 19,412 122,304 Less amount representing interest (15,143 ) Capital lease obligations $ 107,161
Company's future obligation under the new office and vehicle leases	Year: 2016 $ 124,146 2017 167,786 2018 172,418 2019 44,082 Total $ 508,432

4. EQUITY COMPENSATION (Tables)

4. EQUITY COMPENSATION (Tables)	3 Months Ended
	Mar. 31, 2016
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, 2015 361,349 $ 1.44 Cancelled (75,000 ) 1.50 Issued - - Outstanding, March 31, 2016 286,349 $ 1.42 2.62 $ 166,338 Vested and exercisable, March 31, 2016 223,285 $ 1.36 2.93 $ 142,084

2. DEBT (Details)

2. DEBT (Details) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Debt Details
Comerica Bank LSA	$ 5,000,000	$ 5,000,000
Capital leases obligations - Noteholder lease	86,800	92,270
Capital lease obligations - Office furniture	20,361	22,368
Convertible notes - related parties, net of discount of $1,712,111 and $2,010,743, respectively	34,662,120	33,363,488
Convertible notes, net of discount of $50,129	680,640	680,640
Total debt	40,449,921	39,158,766
Less: current portion of long term debt
Capital lease obligations	31,535	30,877
Comerica Bank LSA	5,000,000	5,000,000
Convertible notes - related parties, net of discount of $2,010,743	34,662,120	33,363,488
Convertible notes, net of discount of $50,129	680,640	680,640
Total current portion of long term debt	40,374,295	39,075,005
Debt - long term	$ 75,626	$ 83,761

2. DEBT (Details 1)

2. DEBT (Details 1)	Mar. 31, 2016USD ($)
Convertible notes, net of discount	$ 35,342,760
2007 NPA notes, net of discount
Convertible notes, net of discount	29,082,353
2014 NPA notes
Convertible notes, net of discount	$ 6,260,407

3. COMMITMENTS AND CONTINGENC18

3. COMMITMENTS AND CONTINGENCIES (Details)	Mar. 31, 2016USD ($)
Commitments and Contingencies Disclosure [Abstract]
2,016	$ 29,444
2,017	39,259
2,018	34,189
2,019	19,412
Thereafter	122,304
Less amount representing interest	(15,143)
Capital lease obligations	$ 107,161

3. COMMITMENTS AND CONTINGENC19

3. COMMITMENTS AND CONTINGENCIES (Details 1)	Mar. 31, 2016USD ($)
Commitments and Contingencies Disclosure [Abstract]
2,016	$ 124,146
2,017	167,786
2,018	172,418
2,019	44,082
Total	$ 508,432

4. EQUITY COMPENSATION (Details

4. EQUITY COMPENSATION (Details)	3 Months Ended
	Mar. 31, 2016USD ($)$ / sharesshares
Equity Compensation Details
Number of Shares Outstanding, Beginning | shares	361,349
Number of Shares Cancelled | shares	(75,000)
Number of Shares Issued | shares	0
Number of Shares Outstanding, Ending | shares	286,349
Stock Options Vested and Exercisable Number of Shares | shares	223,285
Weighted Average Exercise Price Outstanding, Beginning | $ / shares	$ 1.44
Weighted Average Exercise Price Cancelled | $ / shares	1.50
Weighted Average Exercise Price Issued | $ / shares	0
Weighted Average Exercise Price Outstanding, Ending | $ / shares	1.42
Weighted Average Exercise Price Vested and exercisable, Ending | $ / shares	$ 1.36
Weighted Average Remaining Contractual Life (in years) Outstanding	2 years 7 months 13 days
Weighted Average Remaining Contractual Life (in years) Vested and expected to vest	2 years 11 months 5 days
Aggregate Intrinsic Value Outstanding | $	$ 166,338
Aggregate Intrinsic Value vested and expected to vest | $	$ 142,084

5. MAJOR CUSTOMERS AND CONCEN21

5. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Details Narrative)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
One Customers
Percentage of revenues from major customers	15.00%
Percentage of accounts receivables from major customers	62.00%
Three Customers
Percentage of revenues from major customers		44.00%
Percentage of accounts receivables from major customers		66.00%