Blueprint
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
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☑
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For
the quarterly period ended June 30, 2018
OR
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☐
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Commission
File Number: 001-32634
____________________________
MOBILESMITH, INC.
(Exact name of
registrant as specified in its charter)
____________________________
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Delaware
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95-4439334
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(State or other jurisdiction of incorporation
or organization)
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(I.R.S. Employer Identification
No.)
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5400
Trinity Road, Suite 208
Raleigh,
North Carolina
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27607
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(Address of principal executive offices)
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(Zip Code)
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(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
growth company" in Rule 12b-2 of the Exchange Act. (Check
one):
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated
filer
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☐ (Do
not check if a smaller reporting company)
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Smaller reporting company
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☒
|
|
|
|
Emerging growth
company
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☐
|
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 ☑
As of August 14,
2018, there were 28,236,633 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, 2018
TABLE
OF CONTENTS
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Page No.
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PART
I – FINANCIAL INFORMATION
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Item
1.
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Financial
Statements
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Condensed
Consolidated Balance Sheets as of June 30, 2018 (unaudited) and
December 31, 2017
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3
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Condensed
Consolidated Statements of Operations (unaudited) for the three and
six months ended June 30, 2018 and 2017
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4
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Condensed
Consolidated Statements of Cash Flows (unaudited) for the six
months ended June 30, 2018 and 2017
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5
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Condensed
Consolidated Statement of Stockholders' Deficit for the period
ended June 30, 2018 (unaudited)
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6
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Notes to Condensed
Consolidated Financial Statements (unaudited)
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7
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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14
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Item
3.
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Quantitative and
Qualitative Disclosures About Market Risk
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18
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Item
4.
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Controls and
Procedures
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18
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PART
II – OTHER INFORMATION
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Item
2.
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Unregistered Sales
of Equity Security and Use of Proceeds
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19
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Item
6.
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Exhibits
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19
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Signatures
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20
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PART I – FINANCIAL
INFORMATION
MOBILESMITH,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
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ASSETS
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Current
Assets
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Cash
and Cash Equivalents
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$1,129,126
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$58,484
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Restricted
Cash
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60,144
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120,372
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Accounts
Receivable
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332,708
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260,403
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Prepaid
Expenses and Other Current Assets
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103,321
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71,992
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Total
Current Assets
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1,625,299
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511,251
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Property
and Equipment, Net
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60,581
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71,603
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Capitalized
Software, Net
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116,973
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169,593
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Intangible
Assets, Net
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11,341
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20,093
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48,940
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-
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Total
Other Assets
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237,835
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261,289
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Total
Assets
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$1,863,134
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$772,540
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LIABILITIES AND STOCKHOLDERS'
DEFICIT
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Current
Liabilities
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Accounts
Payable
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$206,375
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$125,982
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Accrued
Expenses
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253,914
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201,528
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Accrued
Interest
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761,221
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865,822
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Capital
Lease Obligations
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31,172
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34,927
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Contract
Liability, Current
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648,821
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860,927
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Bank
Loan
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-
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5,000,000
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Convertible
Notes Payable, Related Parties, Net of Discount
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-
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37,101,243
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Convertible
Notes Payable, Net of Discount
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-
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680,640
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Total
Current Liabilities
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1,901,503
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44,871,069
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Long-Term
Liabilities
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Capital
Lease Obligations
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13,083
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28,907
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Deferred
Rent
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16,409
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26,286
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Contract
Liability
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1,040,681
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527,576
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Bank
Loan
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5,000,000
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Subordinated
Promissory Note, Related Party
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525,000
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Convertible
Notes Payable, Related Parties, Net of Discount
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34,516,300
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Convertible
Notes Payable, Net of Discount
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655,640
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Total
Long-Term Liabilities
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41,767,113
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582,769
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Total
Liabilities
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43,668,616
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45,453,838
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Commitments
and Contingencies (Note 3)
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Stockholders'
Deficit
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Preferred
Stock, $0.001 Par Value, 5,000,000 Shares Authorized, No Shares
Issued and Outstanding at June 30, 2018 and December 31,
2017
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-
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-
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Common
Stock, $0.001 Par Value, 100,000,000 Shares Authorized At June 30,
2018 and December 31, 2017; 28,236,633 and 24,722,647 Shares Issued
and Outstanding at June 30, 2018 and December 31, 2017,
Respectively
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28,237
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24,723
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Additional
Paid-in Capital
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112,682,775
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105,795,621
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Accumulated
Deficit
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(154,516,494)
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(150,501,642)
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Total
Stockholders' Deficit
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(41,805,482)
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(44,681,298)
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Total
Liabilities and Stockholders' Deficit
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$1,863,134
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$772,540
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The
accompanying notes are an integral part of these condensed
consolidated financial statements.
MOBILESMITH,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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REVENUES:
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$520,918
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$638,941
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$1,017,741
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$1,046,343
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Total
Revenue
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520,918
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638,941
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1,017,741
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1,046,343
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COST
OF REVENUES:
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Subscription
and Support
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183,885
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140,315
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345,420
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283,922
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Professional
Services and Other
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-
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15,748
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-
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29,304
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Total
Cost of Revenue
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183,885
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156,063
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345,420
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313,226
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GROSS
PROFIT
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337,033
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482,878
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672,321
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733,117
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Sales
and Marketing
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386,492
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285,860
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683,730
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565,622
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Research
and Development
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426,090
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440,425
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767,491
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889,534
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General
and Administrative
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674,361
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321,300
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1,197,405
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798,366
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Total
Operating Expenses
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1,486,943
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1,047,585
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2,648,626
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2,253,522
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LOSS
FROM OPERATIONS
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(1,149,910)
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(564,707)
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(1,976,305)
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(1,520,405)
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Other
Income
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2
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594
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1,599
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1,184
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Interest
Expense, Net
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(1,110,525)
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(1,085,616)
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(2,105,423)
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(2,122,614)
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Total
Other Expense
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(1,110,523)
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(1,085,022)
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(2,103,824)
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(2,121,430)
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NET
LOSS
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$(2,260,433)
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$(1,649,729)
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$(4,080,129)
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$(3,641,835)
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NET LOSS PER COMMON SHARE:
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Basic
and Fully Diluted
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$(0.08)
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$(0.08)
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$(0.14)
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$(0.18)
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WEIGHTED-AVERAGE NUMBER OF SHARES USED IN
COMPUTING NET LOSS PER COMMON SHARE:
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Basic
and Fully Diluted
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28,236,633
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19,827,542
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28,236,633
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19,827,542
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The accompanying
notes are an integral part of these condensed consolidated
financial statements.
MOBILESMITH,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net
Loss
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$(4,080,129)
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$(3,641,835)
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Adjustments
to Reconcile Net Loss to Net Cash Used in Operating
Activities:
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Depreciation
and Amortization
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80,691
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82,049
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Bad
Debt Expense
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-
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12,500
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Amortization
of Debt Discount
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409,183
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322,056
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Share
Based Compensation
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506,542
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213,196
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Changes
in Assets and Liabilities:
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Accounts
Receivable
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(72,305)
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(270,489)
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Prepaid
Expenses and Other Assets
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(14,992)
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2,617
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Accounts
Payable
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86,708
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6,535
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Contract Liability
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300,999
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1,100,827
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Accrued
and Other Expenses
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(68,407)
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16,260
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Net
Cash Used in Operating Activities
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(2,851,710)
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(2,156,284)
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Payments
to Acquire Property, Plant and Equipment
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(8,297)
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(8,339)
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Net
Cash Used in Investing Activities
|
(8,297)
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(8,339)
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CASH FLOWS FROM FINANCING ACTIVITIES:
|
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Proceeds
From Issuance of Short Term Loan from Related Party
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525,000
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-
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Proceeds
From Issuance of Long Term Debt
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3,365,000
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2,225,000
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Repayments
of Debt Borrowings
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(19,579)
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(18,097)
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Net
Cash Provided by Financing Activities
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3,870,421
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2,206,903
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NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED
CASH
|
1,010,414
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42,280
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CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF
PERIOD
|
178,856
|
664,723
|
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CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF
PERIOD
|
$1,189,270
|
$707,003
|
|
|
|
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Supplemental
Disclosures of Cash Flow Information:
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Cash
Paid During the Period for Interest
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$1,791,718
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$1,771,509
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Non-Cash
Investing and Financing Activities
|
|
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The
Company Recorded Debt Discount Associated with Beneficial
Conversion Feature
|
$1,359,126
|
$5,070
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The
Company Converted $5,025,000 of its Convertible Notes into Common
Shares
|
$5,025,000
|
$-
|
The accompanying
notes are an integral part of these condensed consolidated
financial statements.
MOBILESMITH,
INC.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR
THE PERIOD ENDED JUNE 30, 2018
(unaudited)
|
|
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|
BALANCES, DECEMBER 31, 2017
|
24,722,647
|
$24,723
|
$105,795,621
|
$(150,501,642)
|
$(44,681,298)
|
|
|
|
|
|
|
|
|
Equity Based
Compensation
|
|
|
506,542
|
-
|
506,542
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|
Beneficial
Conversion Feature Recorded as a Result of Issuance of Convertible
Debt
|
|
|
1,359,126
|
-
|
1,359,126
|
|
Conversion of Notes Payable to Common
Stock
|
3,513,986
|
3,514
|
5,021,486
|
-
|
5,025,000
|
|
Cumulative
adjustment related to adoption of Topic 606 Revenue from Contracts
with Customers (See Note 1)
|
|
|
-
|
65,277
|
65,277
|
|
Net
Loss
|
|
|
-
|
(4,080,129)
|
(4,080,129)
|
|
BALANCES, JUNE 30, 2018
|
28,236,633
|
$28,237
|
$112,682,775
|
$(154,516,494)
|
$(41,805,482)
|
The accompanying
notes are an integral part of these condensed consolidated
financial statements.
MOBILESMITH,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Quarterly Period Ended June 30, 2018
(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 highest rate of success with clients within
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 consists of:
●
access
to a catalog of ready to deploy mobile app solutions (app Blueprint
catalog)
●
related
deployment, support and integration services (app build and managed
services and custom development, where applicable) ;
●
hosting of the
deployed mobile apps.
Our flagship
MobileSmith® Platform has
transformed from a do-it-yourself customer facing platform into an
internally used engine that supports the deployment of mobile apps
created from Blueprints, integration of various third-party code
and services into the mobile apps produced from Blueprints, hosting
of deployed apps and design of new Blueprints.
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 June 30, 2018.
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, 2017 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 six months ended June
30, 2018 and 2017, 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 and Their Impact on
Significant Accounting Policies
The
Company's significant accounting policies are detailed in "Note 2:
Significant Accounting Policies" of the Company's Annual Report on
Form 10-K for the year ended December 31,
2017.
Adoption
of
Financial Accounting Standards Board, Accounting Standards
Codification, Topic 606, Revenue Recognition ("Topic 606") did not have material
impact on the Company's condensed consolidated financial
statements. The adoption of Topic 606 did result in changes
to the Company's accounting policies and introduced new definitions
and disclosure requirements that are discussed below and throughout
these condensed consolidated financial
statements.
Revenue Recognition: General Overview and Performance Obligations
to Customers
The
Company derives revenue primarily from contracts for subscription
to the suite of e-health mobile solutions and, to a much lesser
degree, ancillary services provided in connection with subscription
services.
The
Company’s contracts include the following performance
obligations:
●
Access
to the content available on the App Blueprint Catalog, including
hosting of the deployed apps;
●
App
Build and Managed Services;
●
Custom
development work.
The
majority of the Company’s contracts are for subscription to a
catalog of mobile app Blueprints, hosting of the deployed apps and
related services. Custom work for specific deliverables is
documented in the statements of work. Customers may enter into
subscription and various statements of work concurrently or
consecutively. Most of the Company’s performance obligations
are not considered to be distinct from the subscription to
Blueprints, hosting of deployed apps and related services and are
combined into a single performance obligation. New statements of
work and modifications of contracts are reviewed each reporting
period and significant judgment is applied as to nature and
characteristics of the new or modified performance obligations on a
contract by contract basis.
Revenue Recognition: Transaction Price of the Contract and
Satisfaction of Performance Obligations
The
transaction price of the contract is an aggregate amount of
consideration payable by customer for delivery of contracted
services. Transaction price is impacted by the terms of a
contracted agreement with the customer. Such terms range from one
to three years. Transaction price excludes any future renewal
periods or any marketing or sales discounts. Transaction price may
include a significant financing component in instances where
Company offers discounts for accelerated payments on the long-term
contracts. Significant financing component is recorded in
other assets and is amortized as interest expense in the
Company’s income statement over the term of the
contract.
The
transaction price is predominantly allocated to the single
performance obligation of access to the Blueprints, hosting and
related services and to a lesser degree allocated between the
access and other distinct performance obligations based on the
stand-alone selling price. The subscription revenue is then
recognized over time over the term of the contract, using the
output method of time elapsed. Other performance obligations are
usually recognized at a point in time upon delivery of a specific
documented output. Management believes that such chosen methods
faithfully depict satisfaction of Company performance obligations
and transfer of benefit to the customers.
The full
transaction price of the contract may be billed in its entirety or
in agreed upon installments. Billed transaction price in
excess of revenue recognized results in the recording of a contract
liability. Unbilled portion of transaction price represents
contracted consideration receivable by the Company, that was not
yet billed.
Incremental Costs of Obtaining a Contract
The
Company’s incremental costs of obtaining a contract include
sales commissions and are recognized as other assets on the balance
sheet for the contracts with a term exceeding 12 months. These
costs are amortized through the term of the contract and are
recorded as sales and marketing expense. As of June 30, 2018 the
Company’s other assets include approximately $59,000 of such
costs.
Contract Liabilities
A
new contract liability is created every time the Company records
receivables due from its customers. Contract liability represents
Company’s obligation to transfer services for which the
Company has already invoiced. Most of the contract
liabilities will be recognized in revenue over a period of 12 to 36
months.
Customer
Credit Risk
Most of Company's
receivables (billings) are collected within 30-45 day period.
The majority of Company's customers are healthcare organizations,
which historically have had low credit
risk.
Use of
practical expedients in application of the Topic
606
The newly adopted
recognition standard prescribes the application of accounting
standards to individual contracts with customers, but allows for
the application of the guidance to a portfolio of contracts (or
performance obligations) with similar characteristics if the effect
of such application is immaterial. The Company applies
practical expedients in following instances:
●
The
Company does not adjust promised amount of consideration for the
effects of a significant financing component if, at contract
inception, the period between when the Company transfers its
services to a customer and when the customer pays services will be
one year or less.
●
The
Company recognizes incremental costs of obtaining a contract as
expenses when incurred if the amortization period of the asset that
the Company otherwise would have recognized is one year or
less.
Transition
Disclosures in the Period of Adoption of Topic
606
The Company applied
the transition guidance in Topic 606 to the contracts that were not
substantially completed as of January 1,
2018.
The Company selected a modified retrospective approach at the time
of adoption, at which time cumulative effect of initially adopting
the standard is to be recognized in retained earnings as of the
date of adoption and additional footnote disclosures will be
included in the financial statements. The impact of adoption
on the selected accounts is as follows:
The cumulative effects of the changes made to the
Company's Condensed Consolidated Balance Sheet at January 1, 2018
due to the adoption of Topic 606 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
Prepaid
Expenses and Other Current Assets
|
$71,992
|
$65,277
|
$137,269
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
Accumulated
Deficit
|
$(150,501,642)
|
$65,277
|
$(150,436,365)
|
The following tables summarize the current period impacts of
adopting Topic 606 on our Condensed Consolidated Financial
Statements:
Condensed
Consolidated Balance Sheet:
|
|
As Reported
as of 06/30/2018
|
Balances without Adoption of Topic 606
|
|
|
Assets:
|
|
|
|
|
Prepaid
Expenses and Other Current Assets
|
$103,321
|
$ 54,266
|
$49,055*
|
|
Other
Assets
|
48,940
|
-
|
48,940*
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Contract
Liability
|
1,689,502
|
1,645,812
|
43,690**
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
Accumulated
Deficit
|
$(154,516,494)
|
$(154,581,771)
|
$65,277
|
*Total impact on
the Company's assets was $97,995, of which $59,391 resulted from
capitalization of sales commissions and $38,604 was related to
capitalization of interest expense for significant financing
component. The combined impact is presented on a classified
basis to reflect the current and non-current nature of the
balances.
**Represents the
combined impact of adjustments to capitalized sales commissions and
interest expense for significant financing component on the
contract liability.
Condensed
Consolidated Statements of Operations:
|
|
As Reported
for the Period Ended
06/30/2018
|
Balances without Adoption of Topic 606
|
|
|
REVENUES:
|
|
|
|
|
Subscription
and Support
|
$1,017,741
|
$1,011,393
|
$6,348
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
Sales
and Marketing
|
$683,730
|
$675,532
|
$8,198
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
Interest
Expense, Net
|
$(2,105,423)
|
$(2,096,301)
|
$(9,122)
|
2. DEBT
The table below
summarizes the Company's debt outstanding at June 30, 2018 and
December 31, 2017:
|
Debt Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comerica
Bank Loan and Security Agreement
|
$5,000,000
|
$5,000,000
|
June
2020
|
5.60%
|
|
Capital
lease obligations - Noteholder lease
|
32,332
|
45,294
|
August
2019
|
8.00%
|
|
Capital
lease obligations - office furniture and other
equipment
|
-
|
4,870
|
August
2018
|
9.80%
|
|
Capital
lease obligations - vehicle
|
11,923
|
13,670
|
July
2021
|
5.59%
|
|
Convertible
notes - related parties, net of discount of $1,397,930 and
$447,988, respectively
|
34,516,300
|
37,101,243
|
November
2020
|
8.00%
|
|
Convertible
notes, net of discount of $50,129
|
655,640
|
680,640
|
November
2020
|
8.00%
|
|
Subordinated
Promissory Note, Related Party
|
525,000
|
-
|
November
2020
|
8.00%
|
|
Total
debt
|
40,741,195
|
42,845,717
|
|
|
|
|
|
|
|
|
|
Less: current
portion of long term debt
|
|
|
|
|
|
Capital
lease obligations
|
31,172
|
34,927
|
|
|
|
Convertible
notes - related parties, net of discount of $447,988
|
-
|
37,101,243
|
|
|
|
Convertible
notes, net of discount of $50,129
|
-
|
680,640
|
|
|
|
Comerica
Bank Loan and Security Agreement
|
-
|
5,000,000
|
|
|
|
Subordinated
Promissory Note, Related Party
|
-
|
-
|
|
|
|
Total
current portion of long term debt
|
31,172
|
42,816,810
|
|
|
|
|
|
|
|
|
|
Debt
- long term
|
$40,710,023
|
$28,907
|
|
|
Convertible Notes
During the six
months ended June 30, 2018, the Company privately placed $3,365,000
in principal amount of additional unsecured Convertible Subordinated
Notes (the “2014 NPA Notes”) to Union
Bancaire Privée (“UBP”) under its
existing unsecured
Convertible Subordinated Note Purchase Agreement dated
December 10, 2014 (the “2014 NPA”). The
2014 NPA Notes are convertible by the holder into shares of the
Company’s common stock, par value $0.001 per share (the
“Common Stock”) at a per share conversion price of
$1.43.
On May 25, 2018, the Company and the holders of the
majority of the aggregate outstanding principal amount of the
2014 NPA Notes and holders of the majority of the aggregate
outstanding principal amount of the Secured Promissory Notes
(the “2007 NPA Notes”) issued under the
Convertible Secured Subordinated Note Purchase Agreement dated
November 14, 2007 (the "2007 NPA”) agreed to extend to
November 14, 2020, the maturity date of the 2014 NPA Notes and the
2007 NPA Notes. Except as so extended, all of the terms
relating to the outstanding 2007 Notes and the 2014 Notes continue
in full force and effect. The Company is entitled to utilize the
amounts available for future borrowing under each of the 2007 Note
Purchase Agreement and the 2014 Note Purchase Agreement through
November 14, 2020.
As a result of
modification, any unamortized discount will be amortized into
interest expense through the new maturity date of November 14,
2020.
The market value of the
Company’s common stock on the date of each issuance of the
2014 NPA Notes to UBP was higher than the conversion price, which
resulted in a beneficial conversion feature totaling $1,359,126 and
corresponding debt discount, which is being amortized into interest
expense through the maturity of the
Notes.
During the three
months period ended June 30, 2018 three noteholders converted a
total of $5,025,000 of Notes into 3,513,986 shares of Company's
common stock at the stated conversion price of $1.43 per
share.
The table below summarizes convertible notes issued and outstanding
as of June 30, 2018 by type:
|
Convertible Notes Type:
|
|
|
|
|
|
2007
NPA notes, net of discount
|
$18,407,559
|
|
2014
NPA notes, net of discount
|
16,764,381
|
|
Total
convertible notes, net of discount
|
$35,171,940
|
Comerica
LSA
The Company has an outstanding Loan and Security Agreement with
Comerica Bank dated June 9, 2014 in the amount of $5,000,000, with
original maturity of June 9, 2016. On June 8, 2018, the Company and Comerica Bank
entered into Second Amendment to the LSA, which extended the
maturity of the LSA to June 9, 2020. LSA is secured by
an extended irrevocable letter of credit issued by UBS AG (Geneva,
Switzerland) ("UBS AG") with a renewed term expiring on May 31,
2019, 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.
3. COMMITMENTS
AND CONTINGENCIES
Aggregate future lease commitments
The Company leases
computers, office equipment, office furniture and company vehicle
under capital lease agreements that expire through July 2021. Total
amount financed under these capital leases at June 30, 2018 was
$44,255. This obligation is included within the
Company’s total debt.
The table below
summarizes Company’s future obligations under its capital
leases:
|
Year:
|
|
|
2018
|
$16,669
|
|
2019
|
23,631
|
|
2020
|
4,219
|
|
Thereafter
|
2,461
|
|
|
46,980
|
|
Less
amount representing interest
|
(2,725)
|
|
Capital
lease obligations
|
$44,255
|
The Company leases
its office space in Raleigh, North Carolina pursuant to an
operating lease with an initial term that expires in March
2019. The Company expects to extend the lease through
April of 2024.
|
Year:
|
|
|
2018
|
$86,600
|
|
2019
|
44,082
|
|
Total
|
$130,682
|
Legal Proceedings
From time to time,
the Company may be subject to routine litigation, claims or
disputes in the ordinary course of business. The Company
defends itself vigorously in all such matters. In the
opinion of management, no pending or known threatened claims,
actions or proceedings against the Company are expected to have a
material adverse effect on its financial position, results of
operations or cash flows. However, the company cannot
predict with certainty the outcome or effect of any such litigation
or investigatory matters or any other pending litigations or
claims. There can be no assurance as to the ultimate
outcome of any such lawsuits and investigations. The
Company will record a liability when it believes that it is both
probable that a loss has been incurred and the amount can be
reasonably estimated. The Company periodically evaluates
developments in its legal matters that could affect the amount of
liability that it has previously accrued, if any, and makes
adjustments as appropriate. Significant judgment is required
to determine both the likelihood of there being, and the estimated
amount of, a loss related to such matters, and the Company’s
judgment may be incorrect. The outcome of any proceeding is not
determinable in advance. Until the final resolution of any such
matters that the Company may be required to accrue for, there may
be an exposure to loss in excess of the amount accrued, and such
amounts could be material.
4. EQUITY
AND EQUITY BASED COMPENSATION
As of June 30, 2018, options to
purchase 7,488,744 shares of Common Stock were granted under 2016
Equity Compensation Plan, in addition to 102,250 options granted
under previous plans.
The
following is a summary of the stock option activity for the six
months ended June 30, 2018:
|
|
|
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contractual Term
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2017
|
2,658,247
|
$1.54
|
|
|
|
Cancelled
|
(125,011)
|
1.25
|
|
|
|
Issued
|
5,057,758
|
1.95
|
|
|
Outstanding,
June 30, 2018
|
7,590,994
|
1.81
|
7.76
|
$5,200,768
|
|
Vested
and exercisable, June 30, 2018
|
1,401,939
|
$1.53
|
4.05
|
$1,315,298
|
Aggregate intrinsic
value represents the difference between the closing price of the
Company’s common stock at June 30, 2018 and the exercise
price of outstanding, in-the-money stock options. The closing price
of the common stock at June 30, 2018, as reported on the OTCQB
Venture Marketplace, was $2.50 per share.
At June 30, 2018,
$7,969,536 unvested expense has yet to be recorded related to
outstanding stock options.
5. 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, 2018
|
6 months
Ended June 30, 2017
|
|
|
|
|
|
|
|
Top
5 customers (measured by amounts billed)
|
$476,969
|
$128,453
|
$1,243,912
|
$408,871
|
|
All
other customers
|
810,235
|
889,288
|
909,142
|
637,473
|
|
|
$1,287,204
|
$1,017,741
|
$2,153,013
|
$1,046,343
|
For the six months ended June 30, 2018, four
customers accounted for 71% of the accounts receivable
balance. For the six months ended June 30, 2017,
two major customers accounted for 31% of total
revenues and one customer accounted for 52% of the accounts
receivable balance.
New customer
acquisition impact on billings and revenue:
|
|
6 Months Ended June 30, 2018
|
6 Months Ended June 30, 2017
|
|
|
|
|
|
|
|
Customers
in existence as of the beginning of the period (including
upgrades)
|
$901,898
|
$963,936
|
$1,300,960
|
$870,629
|
|
Customers
acquired during the period
|
385,306
|
53,805
|
852,054
|
175,714
|
|
|
$1,287,204
|
$1,017,741
|
$2,153,013
|
$1,046,343
|
As of June 30, 2018
the aggregate amount of the transaction price allocated to
unsatisfied (or partially satisfied) performance obligations was
$2,948,453, of which $1,689,502 had been billed to the customers
and recorded as contract liability and $1,273,047 remained unbilled
as of June 30, 2018. The following table describes the
timing of when the Company expects to recognize the revenue from
the unsatisfied performance obligations.
|
|
Billed (Contract Liability as of June 30, 2018)
|
|
|
|
2018
|
$648,821
|
$221,106
|
$869,927
|
|
2019
|
836,049
|
575,329
|
1,411,378
|
|
2020
|
204,632
|
462,516
|
667,148
|
|
2021
|
-
|
14,096
|
14,096
|
|
|
$1,689,502
|
$1,273,047
|
$2,962,549
|
At January 1, 2018
total contract liability balance was $1,338,465 (net of the Topic
606 adoption adjustment), of which $532,833 was recognized in
revenue during the six months ended June 30,
2018.
6.
SUBSEQUENT EVENTS
On July 31, 2018,
the Company issued one 2014 NPA Note to UBP in the principal amount
of $250,000 on the same terms as the currently outstanding 2014 NPA
Notes. The note matures on November 14,
2020.
ITEM
2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Information set forth in this Quarterly Report on Form 10-Q
contains various forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, Section 21E of the
Securities Exchange Act of 1934 (the “Exchange Act”)
and other laws. Forward-looking statements consist of,
among other things, trend analyses, statements regarding future
events, future financial performance, our plan to build our
business and the related expenses, our anticipated growth, trends
in our business, our ability to continue as a going concern, and
the sufficiency of our capital resources including funds that we
may be able to raise under our convertible note facility, our
ability to raise financing from other sources and/or ability to
defer expenditures, the impact of the liens on our assets securing
amounts owed to third parties, expectation regarding competitors as
more and larger companies attempt to market products/services
competitive to our company, market acceptance of our new product
offerings, 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, 2017 and our subsequent periodic
reports filed with the SEC for factors that may cause actual
results to be different than those expressed in these
forward-looking statements. Except as required by law, we undertake
no obligation to revise or update publicly any forward-looking
statements for any reason.
The following
discussion is designed to provide a better understanding of our
unaudited condensed consolidated financial statements, including a
brief discussion of our business and products, key factors that
impacted our performance, and a summary of our operating
results. The following discussion should be read in
conjunction with the unaudited condensed consolidated financial
statements and the notes thereto included in Part I, Item 1 of this
Quarterly Report on Form 10-Q, and the audited annual
consolidated financial statements and notes thereto and
Management’s Discussion and Analysis of Financial Condition
and Results of Operations contained in the Annual
Report. Historical results and percentage relationships
among any amounts in the condensed consolidated financial
statements are not necessarily indicative of trends in operating
results for any future periods.
Overview
We develop and market healthcare industry solutions
designed to improve delivery of healthcare by means of mobile
technology. Our suite of e-health mobile solutions and
related services provide a catalog of vetted mobile app tools that
can be rapidly customized to fit the needs of a specific healthcare
organization with goals of addressing many key pain points of the
industry. Apps built from our Blueprints focus
on:
● improvements in hospital's HCAHPS scores (the
Hospital Consumer Assessment of Healthcare Providers and Systems
score) through increased customer satisfaction from improvements in
patient engagement;
● reductions
of same-day cancellations and preventable re-admissions with
tailored Perioperative Apps resulting in direct savings to the
hospitals;
● making it
easy for patients to connect with care options through ER/Urgent
care and Physician Referral Apps resulting in savings to the
hospitals.
Our services offering
includes:
●
access
to a catalog of ready to deploy mobile app solutions (app Blueprint
catalog);
●
related
deployment, support and integration services (app build and managed
services and custom development, where applicable) ;
●
hosting of the
deployed mobile apps.
Our flagship
MobileSmith® Platform has
transformed from customer facing into an internal platform that
supports the deployment of mobile apps created from Blueprints,
integration of various third-party code and services into the
mobile apps produced from Blueprints, hosting of deployed apps and
design of new Blueprints that can be rapidly deployed by the
Healthcare industry.
Target Market
and Sales Channels
During 2017 we completed a strategic shift and focused our business
activities and research and development primarily on healthcare
industry in the United States. In 2018 we continue to refine our
healthcare focus with expansion of our service offering to health
insurance companies - the payer market.
RESULTS
OF OPERATIONS
Highlights of operational
results.
Company revenue in
2018 when compared to 2017 fluctuated significantly due to revenue
from two major customers, that did not renew their contracts in
2018. The first such
customer is a government agency with a
significant contract for which revenue recognition was deferred in
compliance with United States Generally Accepted Accounting
Principles ("US GAAP") revenue recognition requirements for sale of
software products and services. During
the 2017 Period, revenue recognition criteria have been satisfied
and therefore, the Company commenced and completed related revenue
recognition in accordance with our revenue recognition
policy. There is no revenue associated with this
contract in 2018. The second customer is a retail customer,
which did not renew the contract as their technological needs in
retail and our healthcare focused offering
diverged.
Comparison of the Three Months Ended June 30, 2018 (the “2018
Period”) to the Three Months Ended June 30, 2017 (the
“2017 Period”).
|
|
Three Months Ended June 30,
|
|
|
|
2018
|
|
$
|
|
|
Revenue
|
520,918
|
638,941
|
(118,023)
|
-18%
|
|
Cost
of Revenue
|
183,885
|
156,063
|
27,822
|
18%
|
|
Gross
Profit
|
337,033
|
482,878
|
(145,845)
|
-30%
|
|
|
|
|
|
|
|
Sales
and Marketing
|
386,492
|
285,860
|
100,632
|
35%
|
|
Research
and Development
|
426,090
|
440,425
|
(14,335)
|
-3%
|
|
General
and Administrative
|
674,361
|
321,300
|
353,061
|
110%
|
|
|
|
|
|
|
|
Interest
Expense
|
1,110,525
|
1,085,616
|
24,909
|
2%
|
Revenue
decreased by $118,023 or 18%. The decrease is primarily
attributable to revenue from contracts with two major customers as
discussed above, offset by new customer revenue and existing
clients upgrades.
|
|
|
|
|
Revenue
from Contracts With Two Major Customers
|
$-
|
$252,229
|
|
Revenue
from Other Contracts
|
520,918
|
386,713
|
|
Total
Revenue
|
$520,918
|
$638,942
|
Cost of Revenue
increased by $27,822 or 18%. This increase is attributable to
third-party costs to support our services
offering.
Gross Profit
decreased by $145,845 or 30%. Such decrease is attributable
to the reduced revenue as documented above.
Sales and Marketing
expense increased by $100,632 or 35%. An increase of $36,000
is attributable to increase in compensation due to expansion of our
sales team. An increase of $10,000 is attributable to
increase in client and prospect related travel. An increase
of $33,000 is due to an increase in employee stock based
compensation. An increase of $20,000 is attributable to
increases in tradeshow and marketing campaign
activities.
Research and
Development expense decreased by $14,335 or 3%.
Salaries expense decreased by $79,000 as the Company left certain
vacant positions unfilled for the 2018 Period compared to the 2017
Period, offset by an increase of $64,000 in employee stock based
compensation.
General and
Administrative expense increased by $353,061 or 110% during
the 2018 period. An increase of $213,000 is attributable to
increase in employee stock based compensation. An increase of
$120,000 is attributable to the expansion of the Company's board of
directors and concomitant expenses, increase in executive
compensation and severance payments to a former Chief Executive
Officer. An increase of $27,000 is attributable to an
increase in professional services expense, offset by a decrease in
bad debt expense.
Interest Expense
increased by $24,909 or 2%. The cash part of interest expense
decreased by approximately $117,000 due to the decrease in the face
value of our outstanding convertible debt after partial conversion
of outstanding notes. Debt discount amortization increased by
$112,000 due to beneficial conversion feature associated with
recently issued convertible notes. Interest expense
increased by $27,000 related to Loan and Security Agreement with
Comerica Bank (LSA) which is currently scheduled to mature in June
2019 - a combination of an increase in variable interest rate on
the LSA and inclusion in interest of transaction costs associated
with the extension of maturity date of the LSA.
RESULTS
OF OPERATIONS
Comparison of the Six Months Ended June 30, 2018 (the “2018
Period”) to the Six Months Ended June 30, 2017 (the
“2017 Period”).
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
$
|
%
|
|
Revenue
|
1,017,741
|
1,046,343
|
(28,602)
|
-3%
|
|
Cost
of Revenue
|
345,420
|
313,226
|
32,194
|
10%
|
|
Gross
Profit
|
672,321
|
733,117
|
(60,796)
|
-8%
|
|
|
|
|
|
|
|
Sales
and Marketing
|
683,730
|
565,622
|
118,108
|
21%
|
|
Research
and Development
|
767,491
|
889,534
|
(122,043)
|
-14%
|
|
General
and Administrative
|
1,197,405
|
798,366
|
399,039
|
50%
|
|
|
|
|
|
|
|
Interest
Expense
|
2,105,423
|
2,122,614
|
(17,191)
|
-1%
|
Revenue
decreased by $28,602 or 3%. Such
decrease is primarily attributable to revenue from contracts with
two major customers as discussed above, offset by new customer
revenue and existing clients upgrades.
|
|
|
|
|
Revenue
from Contracts With Two Major Customers
|
$14,447
|
$324,454
|
|
Revenue
from Other Contracts
|
1,003,294
|
721,889
|
|
Total
Revenue
|
$1,017,741
|
$1,046,343
|
Cost of Revenue
increased by $32,194 or 10%. This increase is
attributable to third-party costs to support our services
offering .
Gross Profit
decreased by $60,796 or 8%. Such increase is attributable to
the decrease in revenue as documented above.
Sales and Marketing
expense increased by $118,108 or 21%. An increase of $66,000
is attributable to increase in salary compensation and related
benefits due to expansion of our sales team. An increase of
$31,000 is attributable to more frequent client and prospect
related travel. An increase of $31,000 is due to an increase
in employee stock based compensation. An increase of $16,000
is attributable to increase in tradeshow activity, offset by a
decrease of $23,000 in marketing campaigns
expense.
Research and
Development expense decreased by $122,043 or 14%.
Salaries expense decreased by $173,000 as the Company left certain
vacant positions unfilled for the 2018 Period compared to the 2017
Period, offset by an increase of $54,000 attributable to decrease
in employee stock based compensation.
General and
Administrative expense increased by $399,039 or 50% during
the 2018 period. An increase of $211,000 is attributable to
increase in employee stock based compensation. An increase of
$140,000 is attributable to
the expansion of the Company's board of directors and concomitant
expenses, increase in executive compensation and severance payments
to a former Chief Executive Officer. An increase of
$27,000 is attributable to increase in executive travel expense.
An increase of $31,000 is attributable to an increase in
professional services expenses, offset by a decrease in other minor
expense categories.
Interest
Expense decreased by $17,191 or 1%. The cash
part of interest expense decreased by approximately $147,000 due to
the decrease in the face value of our convertible debt after
partial conversion of notes in shares of common stock. Debt
discount amortization increased by $87,000 due to beneficial
conversion feature associated with recently issued convertible
notes. Interest expense
increased by $36,000 related to Comerica LSA - a combination of an
increase in variable interest rate on the LSA and inclusion in
interest of transaction costs associated with the extension of
maturity date of the LSA.
Liquidity and Capital
Resources
We have not yet achieved positive cash
flows from operations, and our main source of funds for our
operations continues to be the sale of our notes under our
convertible note facilities. We expect to 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 convertible note facilities, 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, 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 under the convertible note
facilities or otherwise on acceptable terms or at all.
Additional equity and convertible debt financing could be dilutive
to the holders of shares of our common stock, and additional debt
financing, if available, could impose greater cash payment
obligations and more covenants and operating
restrictions.
Nonetheless, there
are factors that can impact our ability to continue to fund
our operating 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.
In addition, we
have an outstanding Loan and Security Agreement (the "LSA") with
Comerica Bank in the amount of $5 million, which matures in June of
2020 and is secured by an extended irrevocable letter of credit
issued by UBS AG (Geneva, Switzerland) ("UBS AG") with a renewed
term expiring on May 31, 2019, 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. If UBS
were to elect to not renew the irrevocable letter of credit issued
by it beyond May 31, 2019, the currently scheduled expiration date,
then such non-renewal will result in an event of default under the
LSA, at which time all amounts outstanding under the LSA of
approximately $5 million will become due and payable. Currently,
the letter of credit is automatically extended for one year
periods, unless notice of non-renewal is given by UBS AG at least
45 days prior to the then current expiration date. As of
the date of this report on Form 10Q, no such notice has been
provided to us nor have we been provided with any indication that
we are to receive notice of non-renewal of the letter of
credit.
Additionally, we
extended maturities on all notes issued under the 2007 and 2014
NPAs through November 14, 2020 and extended maturity of
Comerica LSA through June 9, 2020.
Uses of
Cash
During the six
months ended June 30, 2018, we used in operating activities
approximately $4.0 million, which was offset by $1.2 million in
cash collected from our customers, netting approximately
$2.8
million of net cash used in operating activities.
Approximately $1.8 million of this amount was used to pay
interest payments on the convertible notes and bank debt;
approximately $1.5 for payroll, benefits and related costs;
approximately $212,000 was used for non-payroll related sales and
marketing efforts, such as tradeshows and marketing campaigns and
approximately $517,000 was used for other non-payroll development
and general and administrative expenses, which included among other
things: infrastructure costs, rent, insurance, legal, professional,
compliance, and other expenditures.
During the six
months ended June 30 2017, we used in operating activities
approximately $4.0 million, which was offset by $1.8 million in
cash collected from our customers, netting approximately
$2.1million
of net cash used in operating activities.
Approximately $1.8 million of this amount was used to pay
interest payments on the convertible notes and bank debt;
approximately $1.6 million for payroll, benefits and related costs;
approximately $201,000 was used for non-payroll related sales and
marketing efforts, such as tradeshows and marketing campaigns and
approximately $416,000 was used for other non-payroll development
and general and administrative expenses, which included among other
things: infrastructure costs, rent, insurance, legal, professional,
compliance, and other expenditures.
Capital Expenditures and Investing Activities
Our capital
expenditures are limited to the purchase of new office equipment
and new mobile devices that are used for testing. Cash used for
investing activities was not significant and we do not plan any
significant capital expenditures in the near future.
Going
Concern
Our independent
registered public accounting firm has issued an emphasis of matter
paragraph in their report included in the Annual Report on
Form 10-K for the year ended December 31, 2017 in which they
express substantial doubt as to our ability to continue as a going
concern. The condensed consolidated financial statements do not
include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts or
classification of liabilities that might be necessary should we be
unable to continue as a going concern. Our continuation as a going
concern depends on our ability to generate sufficient cash flows to
meet our obligations on a timely basis, to obtain additional
financing that is currently required, and ultimately to attain
profitable operations and positive cash flows. There can be no
assurance that our efforts to raise capital or increase revenue
will be successful. If our efforts are unsuccessful, we may have to
cease operations and liquidate our business.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
applicable.
ITEM
4. CONTROLS AND PROCEDURES
Our management,
with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures for the six months ended June
30, 2018. 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
March 31, 2018, our disclosure controls and procedures were
effective at a reasonable assurance level.
Changes
in Internal Control over Financial Reporting
During the quarter
ended June 30, 2018, 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.
PART
II – OTHER INFORMATION
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
The following
paragraph sets forth certain information with respect to all
securities sold by us during the three months ended June 30, 2018
without registration under the Securities Act:
Between April 1,
2018 and June 30, 2018, we issued to one accredited investor
$1,115,000 in principal amount of our convertible notes under the
2014 Note Purchase Agreement. The note is convertible into shares
of our Common Stock at a per share conversion rate of $1.43. All
notes issued under this facility are scheduled to mature on
November 14, 2020.
The securities
issued in the transactions described above were issued without
registration under the Securities Act in reliance upon the
exemptions provided in Section 4(2) of the Securities Act. The
recipient of securities in such transaction acquired the securities
for investment only and not with a view to or for sale in
connection with any distribution thereof. Appropriate legends were
affixed to the share certificates issued in all of the above
transactions. The recipient represented that it was an
“accredited investor” within the meaning of Rule 501(a)
of Regulation D under the Securities Act, or had such knowledge and
experience in financial and business matters as to be able to
evaluate the merits and risks of an investment in its common
stock. The recipient had adequate access, through their
relationships with the Company and its officers and directors, to
information about the Company. None of the transactions described
above involved general solicitation or advertising.
ITEM
6. EXHIBITS
|
Exhibit
No.
|
Description
|
|
|
|
31.1
|
Certification of
Principal Executive Officer Pursuant to Rule 13a-14(a)
(Filed
herewith)
|
|
|
|
31.2
|
Certification of
Principal Financial and Accounting Officer Pursuant to Rule
13a-14(a) (Filed
herewith)
|
|
|
|
32.1
|
Certification of
Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
(Furnished
herewith)
|
|
|
|
32.2
|
Certification of
Principal Financial and Accounting Officer Pursuant to 18 U.S.C.
Section 1350 (Furnished
herewith)
|
|
|
|
|
10.1
|
Separation
Agreement and General Release between MobileSmith, Inc. and Bob
Dieterle dated June 1, 2018 (incorporated by reference from the
Company’s current report on Form 8-K filed on June 1,
2018)
|
|
|
|
|
10.2
|
Tenth
Amendment to Convertible Secured Subordinated Note Purchase
Agreement, Eighth Amendment to Convertible Secured Subordinated
Promissory Notes and Seventh Amendment to Registration Rights
Agreement, dated June 5,2018 , by and among MobileSmith, Inc.,
Grasford Investments LTD. and Union Bancaire Privee ("UBP")
(incorporated by reference from the Company’s current report
on Form 8-K filed on June 28, 2018)
|
|
|
|
|
10.3
|
Second Amendment
to Convertible Subordinated Note Purchase Agreement and Second
Amendment to Convertible Subordinated Promissory Notes, dated June
5, 2018, by and among MobileSmith, Inc., and UBP (incorporated by
reference from the Company’s current report on Form 8-K filed
on June 28, 2018)
|
|
|
|
|
10.4
|
Second Amendment to Loan and Security Agreement by and among
MobileSmith, Inc., and Comerica Bank dated June 8, 2018
(incorporated by reference from the Company’s current report
on Form 8-K filed on June 28, 2018)
|
|
|
|
|
10.5
|
The following
materials from the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2018, formatted in XBRL (eXtensible
Business Reporting Language): (i) the Condensed Consolidated
Balance Sheets, (ii) the Condensed Consolidated Statements of
Operations, (iii) the Condensed Consolidated Statements of Cash
Flows, (iv) the Condensed Consolidated Statement of
Stockholders’ Deficit and (v) related notes to these
condensed consolidated financial statements, tagged as blocks of
text and in detail (Filed herewith).
|
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 14,
2018
|
By:
|
/s/
Randy Tomlin
|
|
|
|
|
Randy
Tomlin
|
|
|
|
|
Chief Executive
Officer (Principal Executive Officer)
|
|
|
|
|
|
|
|
August 14,
2018
|
By:
|
/s/
Gleb Mikhailov
|
|
|
|
|
Gleb
Mikhailov
|
|
|
|
|
Chief Financial
Officer (Principal Financial and Accounting
Officer)
|
|