UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172020
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission file number 001-32634
MOBILESMITH, INC.
(Exact name of registrant as specified in its charter)
| Delaware | | 95-4439334 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
5400 Trinity Road, Suite 208 Raleigh, North Carolina | | 27607 |
| (Address of principal executive offices) | | (Zip Code) |
(855) 516-2413
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | | Name of each exchange on which registered |
| None | | None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐·No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐·No ☑
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 (§232.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑
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):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ (Do not check if a smaller reporting company)
| Smaller reporting company | ☒ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐·No ☑
The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 20172020 was approximately $8.7$19.4 million (based on the closing sale price of $1.09$2.22 per share on such date).
The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of March 28, 201823, 2021 was 24,722,647.28,389,493.
TABLE OF CONTENTS
| PART I |
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| Item 1. | Business | | 3
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| Item 1A. | Risk Factors | | 6
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| Item 1B. | Unresolved Staff Comments | | 10 |
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| Item 2. | Properties | | 10 |
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| Item 3. | Legal Proceedings | | 10 |
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| Item 4. | Mine Safety Disclosures | | 10 |
| PART II |
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| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | | 11 |
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| Item 6. | Selected Financial Data | | 11 |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 12 |
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| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | | 1718 |
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| Item 8. | Financial Statements and Supplementary Data | | F-1 |
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| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | | 1819
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| Item 9A. | Controls and Procedures | | 1819
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| Item 9B. | Other Information | | 1819
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| Item 10. | Directors, Executive Officers and Corporate Governance | 19
20 |
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| Item 11. | Executive Compensation | 22
20 |
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 27
20 |
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| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 29
20 |
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| Item 14. | Principal Accounting Fees and Services | 29
20 |
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| Item 15. | Exhibits, Financial Statement Schedules | 30
21 |
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| Item 16. | Summary
| 3222 |
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SIGNATURES
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| 3323 |
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| EXHIBIT INDEX | 34 24
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Special Note Regarding Forward-Looking Statements
Information set forth in this Annual Report on Form 10-K contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”), 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 products, market acceptance of our new product offerings, including updates to our Platform, rate of new user subscriptions, market penetration of our products and expectations regarding our revenues and expenses, 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,” and elsewhere in this report 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.
ITEM 1. BUSINESS
General
MobileSmith, Inc. (referred to herein as, “MobileSmith,” the “Company,” “us,” “we,” or “our”) was incorporated in Delaware in August 1993 and became a public company through a self-registration in February 2005. The Company’s common stock trades on the OTC Market (OTC.QB) under the symbol “MOST”.
Principal Products and Services
We develop and marketMobileSmith is a developer of software applications for the healthcare industry solutionsindustry. Our software products include a cloud-based collection of applications that run on our architected healthcare technology ecosystem. The architecture is designed to do the following:
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improve experience of healthcare patients and consumers, who are often at the same time members of various medical insurance networks
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optimize delivery of healthcare by meansand relationship between members and insurance networks
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increase adoption, utilization and intelligence of mobile technology. Our software-as-a-service (“SaaS”)EMRs (electronic medical records), extend EMR's usability to patients and consumers of healthcare
Since 2013 the Company focused exclusively on the development of do-it-yourself customer facing platform and related services provide a catalog of vetted mobile app tools that can be rapidly customized and implemented by healthcare organizations with goals of addressing many key pain points of the industry, including preventable readmissions, adherence to treatment plans, management of chronic conditions. Our flagship product is the MobileSmith® Platform (the “Platform”). The Platform is an innovative hosted set of tools that enablesenabled organizations to rapidly create, deploy, and manage custom, native smartphone and tablet apps specific to healthcare industry deliverable across iOS and Android mobile platforms without writing a single line of code. Platform related services often include data integration, trainingDuring 2017 the Company concluded that it had its highest rate of success with clients within the Healthcare industry and integrationconcentrated 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 third party services. We also provide consulting services, which include assistance with design and implementation ofe-health mobile strategy, implementation of mobile marketing strategy and development of mobile apps. Revenue from such services is included in the Professional Services and Other Revenue line of our Statement of Operations. Delivery of Professional Services requires allocationsolutions that consist of a portioncatalog of our research and development efforts into Cost of Revenue.
The Platform has applications outside of healthcare and has been successfully deployed in retail and real estate operations.
Mode of Operations
In our business model the customers acquire accessready to the Platform through user subscription agreements and are able to obtain control ofdeploy mobile app production. We often refersolutions (App Blueprints) and support services. In 2019 and 2020 we consolidated our current solutions under a single offering branded Peri™. Peri™ is designed to bridge the gap between healthcare industry system tools and healthcare consumer's mobile device.
From time to time we have provided custom software development services. Such services are not core to our business model as platform-as-a-service ("PaaS"), because we not only offer cloud software to create mobile apps, we offer infrastructure to hostand will likely decrease in significance in the newly created mobile apps, back-office tools to manage those apps, cloud tools to connect customers data or ability to incorporate existing third party software code into customer apps. Out Platform is a truly comprehensive offering and thus more accurately described by the PaaS model. In the industry and this report terms SaaS and PaaS may be used interchangeably as common reference to cloud computing model. future.
Our business model allows for creation and management of any desired number of apps by our customers for a monthly subscription fee. The on-demand PaaS model developed using multi-tenant architecture enables end users to visit a website and use the PaaS applications, all via a web browser, with no installation, no special information technology knowledge and no maintenance. The PaaS application is transformed into a service that can be used anytime and anywhere by the end user. Multi-tenant PaaS applications also permit us to add needed functionality to our applications in one location for the benefit of all end users. This capability allows us to provide upgrades universally.
Target Market and Sales Channels
During 2017 we completed a strategic shift and focused our business activities and research and development activities primarily on healthcarethe Healthcare industry in the United States. AlthoughIn 2018 we refined our Platform was designed with broad use in mind, our customer base started to increasingly gravitate towards healthcare clientsfocus by identifying two target markets: (i) healthcare providers (including hospitals, hospital systems and hospitalsthe United States Veterans Health Administration) and once we developed industry expertise, validated use cases that demonstrate return on investment from use of mobile apps in(ii) healthcare we solidified our focus on the healthcare industry.
We identified several trends in healthcare that are affecting use of mobile technology in healthcare market:
payer market (including insurance companies and insurance brokers).
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Increased pressures on healthcare industry to provide consumer-focused services,Both markets are targeted with a diversified sales workforce that includes direct sales and resellers, such as evidenced by entry of non-traditional healthcare players, like retail pharmacies into offering primary healthcare nation wide;
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Tech-savvy Generation X and Millennial consumers are becoming primary healthcare consumers and are demanding ease of use and transparency in healthcare and expect mobile access to healthcare services, information and interaction with the healthcare provider via mobile device;
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Increasing pressure from both government regulation and the traditional private payers to reduce costs by compensating healthcare providers based on value and outcome delivered.
We believe that the do-it-yourself model for creation and management of apps will become a cost effective solution for healthcare clients who have an ever increasing need to interact with their customers and employees through mobile devices. Single apps may reach their limits of usability very quickly, if made complex. The Platform provides the subscriber with the capacity to create multiple, customized non-template apps with designated functionalities and specific designs without incurring additional costs.
channel partners.
Principal Customers
In 2016During 2019 we hadincreased our services to a major retail customergovernment agency and the revenue from that accounted for approximately 15%relationship comprised 17% of our 2016recognized aggregate revenue. TheThis same customer accounted for approximately 7%12% of 2017 revenue. In 2017 we had a major healthcarerecognized revenue in 2020. The contract with this customer was completed in federal government space that2020. Such services are not core to our business model and unlikely to be significant in the future.
For the year ended December 31, 2020, one customer accounted for 46%12% of our 2017the Company’s revenue. The revenue from this major government customer had been deferredin compliance with United States Generally Accepted Accounting Principles ("US GAAP") revenue recognition requirementsTwo customers accounted for sale91% of software products and services and was recognized during 2017, when such requirements were met. Contracts with both the major retail and major government customers endednet accounts receivable balance as of December 31, 2017. Our future revenues will be negatively impacted by loss of these two major customers.
2020.
Research and Development
In 2017 we continued to enhance the Platform with various functionalities sought by current and target customers. We continuously monitor such demand, rapidly develop the functionalities and make them available to all our customers, current and future.
During 2017 and 2018 we focused our Blueprints featuretechnological and design efforts on our Blueprint features, that dominated our offering to healthcare providers in 2019 (Blueprint is afully customizable pre-built app targeting specific healthcare related business function or health condition)proved successful, so we focused on Platform enhancements to optimize its use:.
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We completed a “clone app” featureDuring 2019 we invested heavily in development of our Peri™ solution, which was introduced to the market during that allows any app or app Blueprintyear and in 2020 we continued to be easily copied, stored, or modified to be shared across any customer account. We will continue to enhance this feature until our platform can offer a crowd-sourced app block functionality;
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We added a new wayfinding app block that allows any healthcare company to plug in a mapping platformrefine the product and provide a Google maps blue dot style navigation through their hospital complexes;
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We added a set of services offerings to help our customers quickly customize and deploy our Blueprints.
Based on a detailed competitive assessment, we started a process of modernizing our Platform to take advantage of the latest iOS and Android capabilities: we released support for Android’s Material Design Language, as well as support for Android 8 (Oreo) and iOS 11. We expect to complete this project to support VIPER architecture that allows pluggable custom code blocks in 2018.
Our research and development team has begun a fundamental redesign of the Platform architecture to take advantage of new technologies from Amazon Web Service to provide highly scalable multi-tenant functionality. add features.
We incurred research and development expenses of approximately $1.67 million and $1.7 million in 2017 and 2016, respectively.
Competition
We occupy a unique position among a larger numberhave been successful in penetrating the healthcare provider technology market and developed extensive expertise in the industry. With many of rapid app development platforms onour customers we enjoy five-plus year relationships. However, the market, becauses we provide a no-code platform that allows for full customization of developed apps and includes ability to quickly add reusable custom native code or hybrid HTML 5 code targetinghealthcare provider technology industry specific features, complex user interfaces, and workflows into a single seamless app user experience.is highly competitive. Our competitors tendrange from successful established companies to focus on only one rapid app development style (no code, hybrid, or low code) which limits their abilityemerging start-ups. Many of these companies have significantly greater financial, personnel, and other resources than we do. Moreover, more companies enter the industry and market every year. As a result of this, we expect the competition we face to either leverage non-programmers, or their ability to quickly provide custom functionality.grow stronger in the next five years.
Investment in building our expertise in healthcare industry adds to our competitive advantage.
Intellectual Property
During 2014, we stopped pursuing the majority of our patent applications as we determined that the cost of pursuing them is greater than the potential protection provided by them. Since then we have been granted one patent associated with our Platform.technology.
We also have several trademarks registered and pending with the U.S. Patent and Trademark Office. These trademarks cover certain brand names that identify specifics of the Platform user interface.our offerings.
Employees
As of December 31, 2017,2020, we had 3228 full time employees and no part-time employees. None of our employees are subject to collective bargaining agreements.
Available Information
Our corporate information is accessible through our main web portal at www.MobileSmith.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. Although we endeavor to keep our website current and accurate, there can be no guarantees that the information on our website is up to date or correct. We make available, free of charge, access to all reports filed with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and amendments to these reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The Company’s reports filed with, or furnished to, the SEC are also available on the SEC’s website www.sec.gov.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below and elsewhere in this Annual Report on Form 10-K before making an investment decision. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. Our common stock is considered speculative and the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. The following risk factors are not the only risk factors facing the Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business.
The effects of the COVID-19 pandemic have materially affected how we and our customers are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.
Conditions caused by the COVID-19 pandemic significantly impacted our main customer base - healthcare providers in the United States. Healthcare providers in many states were overwhelmed with COVID-19 patients during 2020 and beginning of 2021. Many hospitals halted elective and critical surgical procedures, which are the main target of our primary Peri™ offering. Many hospitals furloughed their non-essential staff or re-assigned their staff to intensive care units. We have experienced difficulties in our selling process, in engaging decision makers within hospital organizations. Travel limitations have also restricted access to our current and potential customers.
Elective surgeries are a significant component of hospital revenues. Without such revenue healthcare systems may incur significant losses from operations and reduced cashflows. We may experience an increase in non-renewals for subscription to our software products or adverse changes to the payment terms under existing contracts.
If the COVID-19 pandemic has an extended substantial impact on our employees and customers, our results of operations, our liquidity and access to financing may be negatively impacted.
A default by us in respect to the amounts outstanding on the notes outstanding under the commercial bank loan when due in 2022 would enable the bank to foreclose on our assets.
The Company has an outstanding Loan and Security Agreement (the “LSA”) with Comerica Bank in the amount of $5,000,000, which matures in June of 2022 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, 2021, which term is renewable for one year periods, unless notice of non-renewal is given by UBS AG at least 45 days prior to the then current expiration date. The provision of any such notice by UBS will constitute an event of default under the LSA, at which time all amounts outstanding under the LSA will become due and payable. As of the filing date of this Form 10-K, 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.We also have no commitments of funding should UBS elect to not renew the letter of credit.
Any foreclosure efforts under the LSA could force us to substantially curtail or cease our operations.
Historically, we have operated at a loss, and we continue to do so.
We have had recurring losses from operations and continue to have negative cash flows. If we do not become cash flow positive through additional financing or growth, we may have to cease operations and liquidate our business.
We are dependent on existing and other investors for the financing of our operations and their inability or unwillingness to fund our operations can have a material adverse effect on our operations.
WeSince inception, we have not yet achieved positive cash flows from operations, and our main source of operating funds issince 2007 was the sale of notes under two convertible note facilities that we implemented.implemented and through issuance of subordinated promissory notes. See Item 7, “Management’s Discussion and Analysis “Liquidity and Capital Resources”. Since November 2007In December of 2020 and January of 2021 we exchanged all non-bank debt into Series A Convertible Preferred stock (the "Series A Preferred") with the same investors. We expect to finance our operations through the dateissuance of this report, we have raised approximately $47.7 million through these note facilities and we have the ability to raise up to an additional $25.6 million under such facilities from existing note holders and others upon request. However, no assurance can be provided that we will in fact be able to raise needed amounts through the facilities or through any other sources on commercially reasonable terms. Series A Convertible Preferred Stock going forward. If financing through the note facilitiesissuance of Series A Convertible Preferred Stock becomes unavailable, we will need to seek other sources of funding. The inability to raise additional funds when needed whether through the note facilities or otherwise,on terms acceptable to us may have a material adverse effect on our operations.
Our independent registered public accounting firm indicatesThe fact that it hasthere is substantial doubt that we canabout our ability to continue as a going concern. Our independent registered public accounting firm’s opinionconcern may negatively affect our ability to raise additional funds, among other things. If we fail to raise sufficient capital, we will not be able to implement our business plan, we may have to liquidate our business, and you may lose your investment.
Cherry Bekaert LLP, our independent registered public accounting firm, has expressed substantialOur audited financial statements underscore doubt in its report included within this Annual Report on Form 10-K about our ability to continue as a going concern given our recurring losses from operations and deficiencies in working capital and equity, which are described in the first risk factor above. This reportconcern. Such disclosure could materially limit our ability to raise additional funds by issuing new debtequity or equitydebt securities or otherwise. If we fail to raise sufficient capital, we will not be able to implement our business plan and, we may have to liquidate our business, and youwhich may loseresult in the loss of your entire investment. You should consider disclosures related to the going concern that we have made in our independent registered public accounting firm’s reportfinancial statements when determining if an investment in us is suitable.
A default by us in respect of the amounts outstanding on the notes outstanding under the note facilities and the commercial bank loans when due in 2018 would enable these creditors to foreclose on our assets.
The Notes currently outstanding under the Convertible Note Facilities, which together with interest accrued as of the date of this report on Form 10-K aggregate approximately $41.3 million, come due in November 2018. In addition, we have an outstanding Loan and Security Agreement (the “LSA”) with Comerica Bank in the amount of $5,000,000, which matures in June of 2018 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, 2018, which term is renewable for one year periods, unless notice of non-renewal is given by UBS AG at least 45 days prior to the then current expiration date. The provision of any such notice by UBS will constitute an event of default under the LSA, at which time all amounts outstanding under the LSA will become due and payable. As of the date of this report on Form 10-K, 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.
Unless we can defer payment on the notes or such notes are in fact converted into our common stock, of which no assurance can be provided, we will need to find other sources of funding to pay the amounts that are scheduled to come due in November 2018. We also have no commitment from any funding source should UBS elect to not renew the letter of credit.
Furthermore, the amounts under the LSA as well as approximately $23.6 million under the Notes, are secured by a lien on our assets. A default by us under these notes or the LSA would enable these creditors to foreclose on our assets. Additionally, the non-renewal of the letter of credit securing the UBS note, which is currently scheduled to expire on May 31, 2018, would also trigger an event of default under the LSA as well as the outstanding notes. Any foreclosure could force us to substantially curtail or cease our operations.
The delivery of software via the SaaS business model is more vulnerable to cyber-crime than the sale of pre-packaged software.
Our service involves the storage and transmission of customers’ proprietary information. If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise and, as a result, unauthorized access is obtained to our customers’ data or our data, our reputation could be damaged, our business may suffer, and we could incur significant liability. In addition, third parties may attempt to fraudulently induce employees or customers to disclose sensitive information such as user names, passwords, or other information in order to gain access to our customers’ data or our data, which could result in significant legal and financial exposure and a loss of confidence in the security of our service that would harm our future business prospects. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose sales and customers.
Our business is currently dependent on the success of a single product, the Platform, and related services.Peri® offering.
Our business model is dependent on the commercial success of the Platform.Peri™. Our future financial performance and revenue growth will depend on acceptance by the market of our vision that mobile app development byproduct. If the market does not accept Peri™ as a non-developerviable product to address the market’s needs, it will becomehave a mainstream solution for businesses of all sizes. Our growth is dependentmaterially adverse impact on the introduction of new features to the Platform and innovation in the area of mobile app development solutions for a wide range of customers.our business.
Government regulation may subject us to liability or require us to change the way we do business.
The laws and regulations that govern our business change rapidly. Evolving areas of law that are relevant to our business include privacy and security laws, proposed encryption laws, content regulation, information security accountability regulation, sales and use tax laws and regulations and attempts to regulate activities on the Internet. In addition to being directly subject to certain requirements of the HIPAA privacy and security regulations, we are required through contracts with our customers known as “business associate agreements” to protect the privacy and security of certain personal and health related information. We are required to comply with revised requirements under the HIPAA privacy and security regulations. The rapidly evolving and uncertain regulatory environment could require us to change how we do business or incur additional costs. Further, we cannot predict how changes to these laws and regulations might affect our business. Failure to comply with applicable laws and regulations could subject us to civil and criminal penalties, subject us to contractual penalties, including termination of our customer agreements, damage our reputation and have a detrimental impact on our business.
Our propriety rights may prove difficult to enforce.
Our Platform technology is not patent protected and is not exclusive to us, as there are various platforms in the market that allow for creation of mobile apps, ranging from “do it yourself” platforms for creation of template apps to platform tools designed for use by developers. Although we consider our Platform unique, in that it allows for creation of sophisticated mobile apps by non-developers, there is no guarantee that another company will not build a similar platform.
Furthermore, many key aspects of networking technology are governed by industry wide standards, which are usable by all market entrants. Although we are not dependent on any individual patents or group of patents for particular segments of the business for which we compete, if we are unable to protect our proprietary rights to the totality of the features (including aspects of products protected other than by patent rights) in a market, we may find ourselves at a competitive disadvantage to others who need not incur the substantial expense, time, and effort required to create innovative products that have enabled us to be successful.
We may be found to infringe on intellectual property rights of others.
Third parties, including customers, may in the future assert claims or initiate litigation related to exclusive patent, copyright, trademark, and other intellectual property rights to technologies and related standards that are relevant to us. Because of the existence of a large number of patents in the mobile apps field, the secrecy of some pending patents, and the rapid rate of issuance of new patents, it is not economically practical or even possible to determine in advance whether a product or any of its components infringes or will infringe on the patent rights of others. The asserted claims and/or initiated litigation can include claims against us or our manufacturers, suppliers, or customers, alleging infringement of their proprietary rights with respect to our existing or future products or components of those products. Regardless of the merit of these claims, they can be time-consuming, result in costly litigation and diversion of technical and management personnel, or require us to develop a non-infringing technology or enter into license agreements. Where claims are made by customers, resistance even to unmeritorious claims could damage customer relationships. There can be no assurance that licenses will be available on acceptable terms and conditions, if at all, or that our indemnification by our suppliers will be adequate to cover our costs if a claim were brought directly against us or our customers. Furthermore, because of the potential for high court awards that are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims settled for significant amounts. If any infringement or other intellectual property claim made against us by any third party is successful, if we are required to indemnify a customer with respect to a claim against the customer, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results, and financial condition could be materially and adversely affected.
Our exposure to risks associated with the use of intellectual property may be increased as a result of acquisitions, as we have a lower level of visibility into the development process with respect to such technology or the care taken to safeguard against infringement risks.
Officers, directors, principal stockholders and other related parties control us. This might lead them to make decisions that do not align with interests of minority stockholders.
Our principal stockholders beneficially own or control a large percentage of our outstanding common stock. Certain of these principal stockholders hold Notes,Series A Convertible Preferred equity, which may be exercised or converted into additional shares of our common stock under certain conditions. The Noteholdersholders of Series A Preferred shares have designated a bond representative to act as their agent. We have agreed that the bond representative shall be granted access to our facilities and personnel during normal business hours, shall have the right to attend all meetings of the Board of Directors and its committees, and shall receive all materials provided to the Board of Directors or any committee. In addition, so long as the NotesSeries A Preferred shares are outstanding, we have agreed that we will not take certain material corporate actions without approval of the bond representative.Agent.
Our principal stockholders, acting together, would have the ability to control substantially all matters submitted to our stockholders for approval (including the election and removal of directors and any merger, consolidation, or sale of all or substantially all of our assets) and to control our management and affairs. Accordingly, this concentration of ownership may have the effect of delaying, deferring, or preventing a change in control of us; impeding a merger, consolidation, takeover, or other business combination involving us; or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could materially and adversely affect the market price of our common stock.
Mr. Avy Lugassy controls Grasford Investments Ltd. (“Grasford”). and other entities of which he is either a beneficial owner or exercises significant influence or control. As of December 31, 2017,the date of this report , Grasford holds 8,830,269,10,054,045 , or 35.7%35.6%, of the Company’s issued and outstanding common stock andstock. In addition, Avy Lugassy holds or controls approximately $13.8 million459,230 in aggregate principal amount of our promissory notes,Series A Preferred shares, which are currently convertible at the election of the holder into additional 9,668,72913,776,900 shares of common stock. Being a significant owner of our company, Mr. Lugassy may exercise significant influence on our operations through his ability to vote his shares.
In addition, as of the date of this report, Union Bancaire Privée (“UBP”) holds 4,895,105,7,167,832, or 19.8%25.4% of the Company’s issued and outstanding common stock and approximately $25.2 million 695,728 in aggregate principal amountSeries A Preferred shares convertible into additional 20,871,840 shares of the Notes.common stock . Because UBP may convert its Notes upon request,Series A Preferred shares, if UBP so converts, it would acquire a significant percentage of our shares of common stock and, like Grasford, would be able to exercise significant influence on the Company’s operations as a result.
Future utilization of net operating loss carryforwards may be limited.
In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in equity ownership of greater than 50% of the Company within a three-year period can result in an annual limitation on the Company’s ability to utilize its net operating loss carryforwards that were created during tax periods prior to the change in ownership. A change in ownership may result from the issuance of shares of the Company’s common stock pursuant to conversion of the NotesSeries A Preferred or any other event that would resultresults in the issuance of common or preferred shares of the Company, among other events.
Any future issuance of our shares of common stock could have a dilutive effect on the value of our existing shares of common stock.
The conversion price on our outstanding Series A Preferred stock is 30 shares of common for one share of preferred, which equates to purchase price of one share of common stock for every $1.43 of investment into convertible promissory notes is fixed at $1.43.or Series A Preferred Shares and on March 22, 2021 the closing price of our stock was $3.23 per share. As of the date of this report, we have $40,530,0001,277,377 of face value NotesSeries A Preferred outstanding convertible into 28,342,65738,321,310 shares of common stock.stock, which would more than double our current number of shares of common stock outstanding. As we continue to issue more notes,of the Series A Preferred, the number of conversion shares will increase.
The ability of our Board of Directors to issue additional stock may prevent or make more difficult certain transactions, including a sale or merger of the Company.
Our Board of Directors will beis authorized to issue up to 5,000,000 shares of preferred stock with powers, rights and preferences designated by it.it, of which it designated 1,750,000 for Series A Convertible Preferred stock. Shares of voting or convertible preferred stock could be issued, or rights to purchase such shares could be issued, to create voting impediments or to frustrate persons seeking to effectaffect a takeover or otherwise gain control of the Company. The ability of the Board of Directors to issue such additional shares of preferred stock, with rights and preferences it deems advisable, could discourage an attempt by a party to acquire control of the Company by tender offer or other means. Such issuances could therefore deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium over the market price for their shares in a tender offer or the temporary increase in market price that such an attempt could cause. Moreover, the issuance of such additional shares of preferred stock to persons friendly to the Board of Directors could make it more difficult to remove incumbent officers and directors from office even if such change were to be favorable to stockholders generally.
There currently is no activevery limited public market for our Common Stockcommon stock and there can be no assurance that ana more active public market will ever develop. Failure to develop or maintain a trading market could negatively affect the value of our Common Stockcommon stock and make it difficult or impossible for you to sell your shares.
There is currently no activea very limited public market for shares of our Common Stockcommon stock and a more active one may never develop. Our Common Stock is quoted on the OTC Markets, QB Tier. The OTC Markets is a thinly traded market and lacks the liquidity of certain other public markets with which some investors may have more experience. Our shares of common stock are traded infrequently and even an insignificant investment in our shares of common stock may be illiquid.
We may not ever be able to satisfy the listing requirements for our Common Stockcommon stock to be listed on a national securities exchange, which is often a more widely-tradedwidely traded and liquid market. Some, but not all, of the factors which may delay or prevent the listing of our Common Stockcommon stock on a more widely-traded and liquid market include the following: our stockholders’ equity may be insufficient; the market value of our outstanding securities may be too low; our net income from operations may be too low; our Common Stockcommon stock may not be sufficiently widely held; we may not be able to secure market makers for our Common Stock;common stock; and we may fail to meet the rules and requirements mandated by the several exchanges and markets to have our Common Stockcommon stock listed. Should we fail to satisfy the initial listing standards of the national exchanges, or our Common Stockcommon stock is otherwise rejected for listing, and remains listed on the OTC Markets or is suspended from the OTC Markets, the trading price of our Common Stockcommon stock could suffer and the trading market for our Common Stockcommon stock may be less liquid and our Common Stockcommon stock price may be subject to increased volatility, making it difficult or impossible to sell shares of our Common Stock.common stock.
Penny Stock Regulations are applicable to investment in shares of our Common Stock.common stock.
Broker-dealer practices in connection with transactions in "penny stocks" are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges, provided that current prices and volume information with respect to transactions in such securities are provided by the exchange or system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to penny stock rules. Many brokers will not deal with penny stocks, restricting the market for our shares of common stock.
We do not intend to pay any cash dividends on our shares of Common Stock;common stock; thus our stockholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.None.
ITEM 2. PROPERTIES
We do not own any real property. The Company's corporate office in Raleigh North Carolina consists of approximately 7,000 square feet. The lease term for the premises commenced in July 2013 and continues throughwith an initial term that expired in March 2019. The Company has extended the lease containsthrough April 2024. As a result of the amendment the Company has received an option to renew for two additional three-year terms.incentive from the landlord valued at approximately $100,000.
Accounting principles generally accepted in the United States of America require that the total rent expense to be incurred over the term of the lease be recognized on a straight-line basis. Deferred rent represents the cumulative excess of the straight-line expense over the payments made. The average annual rent expense over the term of the lease is approximately $156,000.$190,000.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently not involved inaware of any pendingsuch legal proceedings or claims that we anticipate would resultbelieve will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operations.operating result.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is currently quoted on the OTC Market (OTC.QB) under the symbol “MOST.” Although trading in our Common Stockcommon stock has occurred on a relatively consistent basis, the volume of shares traded has been sporadic.sporadic and very low. There can be no assurance that an established trading market will develop, that the current market will be maintained or that a liquid market for our Common Stock will be available in the future. Investors should not rely on historical stock price performance as an indication of future price performance.
The following table shows the quarterly high and low bid prices for our Common Stock over the last two completed fiscal years as quoted on the OTC Market (OTC.QB). The prices represent quotations by dealers without adjustments for retail mark-ups, mark-downs or commission and may not represent actual transactions.
| Year Ended December 31, 2016: | | | |
| Year Ended December 31, 2019: | | High | Low |
| First Quarter | $2.00
| $0.61
| $1.90 | $1.10 |
| Second Quarter | $2.00
| $1.40
| $1.91 | $1.01 |
| Third Quarter | $1.50
| $0.75
| $1.90 | $1.05 |
| Fourth Quarter | $1.49
| $0.75
| $4.69 | $1.00 |
| | | |
| | | |
| Year Ended December 31, 2017: | | |
| Year Ended December 31, 2020: | | |
| First Quarter | $1.40
| $1.25
| $5.50 | $2.40 |
| Second Quarter | $1.44
| $0.45
| $3.10 | $1.30 |
| Third Quarter | $1.75
| $0.25
| $4.15 | $1.36 |
| Fourth Quarter | $1.99
| $1.00
| $6.23 | $1.51 |
As ofMarch 27, 201823, 2021 there were 159160 holders of record of shares of our common stock.
Dividend Policy
We have never declared or paid any cash dividends on shares of our common stock and do not intend to declare or pay dividends for the foreseeable future. As long as
The holders of Series A Convertible Preferred stock are entitled to dividend that yields 8% on the Notes are outstanding, we must receive approval from the bond representative designated by the Noteholdersstated value invested. The dividend is payable in order to pay any dividend oncash or in additional shares of our common stock.Series A Convertible Preferred stock, at the option of the Company.
Issuer Repurchases of Equity Securities
We do not have a stock repurchase program for our common stock and have not otherwise purchased any shares of our common stock.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion summarizes significant factors affecting the operating results, financial condition and liquidity of MobileSmith for the two-year period ended December 31, 2017.2020. This discussion should be read in conjunction with the financial statements and notes thereto included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K and the more detailed discussion and analysis of our financial condition and results of operations in conjunction with the risks described in Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K.
Overview of Financing Activities and Sources of Cash
From November 14, 2007 and through the dateNovember of this report on Form 10-K,2020, we have financed our working capital deficiency primarily through the issuance of ourconvertible promissory notes under two convertible note facilities.facilities and subordinated promissory notes to related parties. The first, established in November 2007, is evidenced by the Convertible Secured Subordinated Note Purchase Agreement, dated November 14, 2007, as amended (as so amended, the “2007 NPA”) and the second, established in December 2014, is evidenced by the unsecured Convertible Subordinated Note Purchase Agreement (the “2014 NPA”); together with the 2007 NPA, the(the “Convertible Note Facilities”)) with Union Bancaire Privée, UBP SA ("UBP"). All references in this filing to “2007 NPA Notes” will mean notes issued under the 2007 NPA and all references to “2014 NPA Notes" will mean notes issued under the 2014 NPA. All references to the Convertible Notes will mean any convertible note or notes issued either under 2007 or 2014 NPAs. All references to Subordinated Promissory Notes will mean any subordinated note or notes, as defined under Subordinated Promissory Notes, Related Parties in "Debt" footnote in ITEM 8. Financial Statements and Supplementary Data.
From November 14, 2007 and through December 10, 2014, we have financed our working capital deficiency primarily with the issuance of Notes under the 2007 NPA. On December 11, 2014 the Company entered into the 2014 NPA and issued its first 2014 NPA Note to UBP. We intend to primarily use our 2014 NPA for future issuances of convertible notes.
In June of 20162020 we extended maturity of both the 2007 and 2014 NPA Notes from November of 20162020 to November of 2018,2022, which lengthened the period of time over which the debt discount is amortized.
During 2017,2020, we borrowed a total of $3,725,000$4,550,000 under the 2014 NPA and converted $7,000,000 in principal amount of 2007 NPA Notes into shares of common stock. The aggregate balance of the Notes as of December 31, 2017 was $37,781,883, net of discount of $498,117.NPA.
Amounts outstandingIn addition, during 2020 we also borrowed a total of $1,910,000 through issuance of Subordinated Promissory Notes to related parties to finance our working capital shortfalls.
On December 23, 2020, the Company and all but one debt investor entered into a debt exchange transaction where the Company exchanged its convertible debt and promissory notes plus accrued but unpaid interest into Series A Convertible Preferred Stock.
The total of 1,158,141 shares of Series A Convertible Preferred Stock were issued in exchange for $49,684,127 of face value of debt that also included accrued interest. On January 28, 2021 the Company exchanged remaining face value of $2,900,000 of convertible debt for 70,014 shares of Series A Convertible Preferred stock.
Starting in December of 2020, we have entered into Series A Convertible Preferred Stock purchased agreements for our Series A Convertible Preferred Stock and started financing our shortfall in operations by issuance of preferred shares under the agreement. In 2020, we issued 8,158 of Series A Convertible Preferred in exchange for $350,000 in cash.
Each share of our Series A Convertible Preferred Stock is convertible at any time into 30 shares of our common stock (subject to adjustment as set forth in the Certificate of Designation), which equates to the same conversion rate that existed under our 2007 and 2014 Notes. Each share of Series A Convertible Preferred Stock is entitled to an annual dividend equal to $3.43, which equates to an annual dividend rate of 8% which is the same as annual interest rate that existed under the 2007 NPAand 2014 Notes. The dividend is payable in January and July of each year and may, at the Company’s discretion, be paid either in cash or in additional shares of Series A Convertible Preferred Stock based on the formula set forth in the Certificate of Designations.A summary of the terms of the Series A Convertible Preferred Stock are securedas follows:●
Each share of Series A Preferred Stock shall have a par value of $0.001 per share and a stated value equal to $42.90 (the “Stated Value”);
●
Each share of the Series A Preferred Stock then outstanding shall be entitled to receive an annual dividend equal to $3.43, subject to proration related to the timing of issuance. Such dividend is designed to have an effective yield of 8%on invested stated value;
●
Each dividend shall be paid either in shares of Series A Preferred Stock (“Payment-in-Kind”) or in cash, at the option of the Corporation, on the respective Dividend Date;
●
The Holders of Series A Preferred Stock shall have no voting rights with respect to any matters to be voted on by the stockholders of the Corporation;
●
The Holders of Series A Preferred Stock shall have certain Board observation and inspection rights administered through a lien on alldesignated Agent;
●
Each share of our assets.Series A Preferred Stock shall be convertible, at any time and from time to time, at the option of the Holder into30 shares of Common Stock, which results in conversion ratio of $1.43 of stated value of Series A Preferred Stock into one share of common stock (the "Series A Preferred Conversion Price");
●
The shares are subject to automatic conversion immediately prior to the occurrence of a Fundamental Transaction, as defined in a Certificate of Designation. A Fundamental Transaction includes, but is not limited to, a sale, merger or similar change in ownership.
The table below summarizes convertible notes issued as of December 31, 2017 by NPA type:
Convertible Notes Type: | |
2007 NPA notes, net of discount | $23,271,479
|
2014 NPA notes, net of discount | 14,510,404
|
Total convertible notes | $37,781,883
|
Comerica LSA
We have an outstanding Loan and Security Agreement (the "LSA") with Comerica Bank pursuant to which $5,000,000 is outstanding with an original maturity date of June 9, 2016. On May 24, 2016,June 9, 2020, the Company and Comerica Bank entered into FirstThird Amendment to the LSA, which extended the maturity of the LSA to June 6, 2018.9, 2022.
The LSA is secured by an extended irrevocable letter of credit issued by UBS AG (Geneva, Switzerland) with a renewed term expiring on May 31, 2018,2021, which term is automatically renewable for one year periods, unless notice of non-renewal is given by UBS AG at least 45 days prior to the then current expiration date. The provision of any such notice by UBS will constitute an event of default under the LSA, at which time all amounts outstanding under the LSA will become due and payable. As of the date of this report on Form 10-K, no such notice has been provided to us norand we have not we been provided with any indication that we are to receive notice of non-renewal of the letter of credit.
The Company is actively working with the debt holders to extend the maturity of both Notes and the LSA; however no assurance can be provided that the Company will be successful in obtaining such extension.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2017 AND THE YEAR ENDED DECEMBER 31,Significance of Human Capital in Our Operations.2016
2017 Highlights
During 2017 the Company focused on growing our customer base while keeping our expense level, including payroll at 2016 levels. Although the goals of such expense control were measured in cash used in operations as opposed to expense reported under US GAAP, the results of operations below reflect the results of such containment effortsOur success depends on the expense side. For the most part operating expenses wereperformance of employees and contractors that make up our team of about 30 individuals. The team is by far our largest investment and cost. We make significant investments in line with 2016 amounts with exceptiontechnical skills and knowledge of stock based compensation which was $476,957 for the Company in 2017 in comparison to $132,680 in 2016. Stock based compensation was impacted by stock options grants to our board chairman in August of 2016 and employees in November of 2016; both resulted in expense for a portionhealthcare industry. As such, expansion of the yearteam often comes with additional recruiting expenses. All of our employees are currently based in 2016 and full yearthe United States. During 2020 we invested in 2017. In addition,remote work environment, which allowed us to expand our hiring practices geographically from local markets to include the Company granted stock options to two new board members in 2017, which further increased stock based compensation in 2017 when compared to 2016.entire United States.
Comparison of Operating Results for Fiscal Years Ended December 31, 2020 and 2019
Results of Operations
| | | | |
| | | | | | Year ended
December 31,
2020 | Year ended
December 31,
2019 | Increase (Decrease)
$ | Increase (Decrease)
% |
| Revenue | 3,452,888
| 1,865,613 | 1,587,275
| 85% | $2,197,079 | $2,801,708 | $(604,629) | -22% |
| Cost of Revenue | 609,829
| 571,793
| 38,036
| 7% | 833,945 | 1,068,983 | (235,038) | -22% |
| Gross Profit | 2,843,059
| 1,293,820
| 1,549,239 | 120% | 1,363,134 | 1,732,725 | (369,591) | -21% |
| | | |
| Sales and Marketing | 1,175,920
| 1,153,336
| 22,584 | 2% | |
| Selling and Marketing | | 1,328,246 | 1,445,246 | (117,000) | -8% |
| Research and Development | 1,674,221
| 1,700,617
| (26,396)
| (2%) | 2,820,222 | 2,771,003 | 49,219 | 2% |
| General and Administrative | 1,610,543
| 1,378,730
| 231,813
| 17% | 3,325,366 | 3,629,622 | (304,256) | -8% |
| | | |
| Interest Expense | 4,463,059 | 4,732,612 | (269,553)
| (6%) | 6,040,630 | 4,894,233 | 1,146,397 | 23% |
| Losses on Debt Extinguishments | | $59,353,584 | $- | $59,353,584 | |
Revenue increaseddecreased by $1,587,275,$604,629, or 85%22%. The increase in revenuesdecrease of $200,000 accounted for completion of a large contract with a government agency. The remainder of the decrease is primarily attributableassociated with loss of customers due to the recognition and recordingnon-renewals of previously deferred revenues. Our revenues were previously impacted by one significant governmental contract for which revenue recognition until the 2017 Period 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. contracts.
CCostost of Revenue increaseddecreased by $38,036,$235,038, or 7%22%. Such increaseA decrease of $77,000 is attributable to andecrease in license and use fees paid to our service partners, whose technology is integrated into our service offerings. A decrease of $218,000 is attributable to outsourced and internal development costs associated with delivery of custom development services. Decrease of $58,000 was due to change in amortization expense. The decreases were offset by increase in sizepayroll costs of $88,000 due to expansion of our Client Success team and an increase in employee stock based compensation as a result of issuances of stock options under the 2016 Equity Compensation plan.product delivery team.
Gross Profit increaseddecreased by $1,549,239,$369,591, or 120% and is primarily attributable to commencement21%. Contract non-renewals resulted in loss of customers who predominantly had purchased subscription services that carry higher margins than services revenue recognition in the 2017 period on a major contract as referred to above. Associated costs of delivery have been incurred and accrued in previous periods.or contracts with integrations with service partners.
SalesSelling and Marketing expense decreased by $117,000, or 8%. Personnel expense which includes both employees and contractors decreased by $66,000 as we restructured our team and kept certain positions unfilled until later in year. We increased by $22,584, or 2%. Compensation of the sales team increased by $136,000 driven byhiring for selling and marketing activities which resulted in an increase in salaries and commissionrecruiting expense driven by higher sales. Tradeshow related expenses have increased$86,000. Travel decreased by approximately $36,000. The increases were offset$46,000 due to COVID pandemic limitations. Stock based compensation decreased by decreases in marketing campaign related expenses by approximately $118,000 and decrease of $32,000 in other marketing and promotion related expenses.
$107,000.
Research and Development expense decreasedincreased by $26,396,$49,219, or 2%. SalariesPersonnel cost increased by $118,000 because our developers devoted less time to revenue generating custom development and related recruitment feesmore time to overall product development. Recruiting costs decreased $133,000, as the Company left certain vacant positions unfilled for longer periods of time in comparison to 2016. The decrease in salaries was offset by increase in stock$91,000. Stock based compensation of approximately $56,000 and approximately $47,000 of lower allocations of research and development team expense to cost of revenue in 2017 when compared to 2016.increased by $28,000.
General and Administrative expense decreased by $304,256, or 8%. Stock based compensation decreased by $290,000. Travel expense and IT related costs decreased by 107,000 and 36,000, respectively. Personnel expensecosts , which includes the Board of Directors and consultants, increased by $231,813, or 17%. An increase of $246,000 is attributable to stock based compensation expense as a result stock options grants to employees and board members. An increase of $45,000 resulted from higher board member compensation. The expenses were offset by decreases in board meeting and executive travel of approximately $40,000 and a decrease in legal expense of $16,000 in addition to changes in other minor expense categories.
$95,000.
Interest expenseExpense decreasedincreased by $269,553,$1,146,397 or 6%23%. The cash partCash portion of interest expense increased by $334,000$470,000 due to an increase in average face value of our debt. The cashNon-cash interest portion wasincreased by $760,000 due to amortization of debt discount and debt premiums. The increases were offset by a decrease of approximately $610,000 in debt discount amortizationas a result of the discount being amortized over additional two years attributable to the extension of the maturity date for our convertible debt, which was implemented in May 2016 andComerica interest by $73,000 due to conversion of $7,000,000 of Notes into shares of common stock by UBPdecrease in October of 2017.the variable interest rate on Comerica Loan.
Losses on Debt Extinguishments of $59.3535,584 resulted from two debt exchange transactions, which took place in May and December of 2020. For more information about the transaction refer to "Debt" footnote of the financial statements included in this Form 10K.
Liquidity and Capital Resources
We have not yet achieved positive cash flows from operations, and historically our main source of funds for our operations continues to behad been the sale of our convertible promissory notes issued under our convertible note facilities and subordinated promissory notes to related parties. Subsequent to the exchange of debt for Series A Convertible Note Facilities.Preferred Stock that was completed on January 28, 2021, our source of funding is expected to be issuance of Series A Convertible Preferred stock. We need to continue to rely on this sourceoutside funding until we are able to generate sufficient cash from revenues to fund our operations or obtain alternate sources of financing.operations. We believe that anticipated cash flows from operations, and additional issuances of Notes, of which no assurance can be provided,Series A Convertible Preferred Stock, together with cash on hand, will provide sufficient funds to finance our operations at least for the next 12 months from the date of this report. 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 be available to us under the Convertible Note Facilities or otherwise on acceptable terms, orif 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.
During 2017, the Company raised gross proceeds of $3,725,000 from the private placement to UBP under 2014 NPA. Subsequent to December 31, 2017 and through the date of this report,2020 the Company issued additional$1,650,000 and $2,900,000 in 2014 NPA Notesnotes to UBP in the amount of $2,250,000related and a short term bridge loan to a related party in the amount of $325,000.unrelated parties, respectively.
In addition, during the year the Company issued $1,910,000 in subordinated promissory to related parties.
We issued 350,000 in Series A Convertible Preferred shares and received a $542,100 PPP loan.
Nonetheless, there are factors that can impact our ability to continue to fund our operating the next twelve months. These include:
| ● | Our ability to expand revenue volume;volume during and post the COVID-19 pandemic, when healthcare systems have been concentrating their efforts on emergency services, recovery from pandemic and may postpone other initiatives;
|
| | |
| ● | 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.opportunities; |
| |
| ● | Our ability to raise capital amidst global economic downturn associated with COVID-19 pandemic.
|
In addition, if UBS were to elect not to not renew the irrevocable letter of credit issued by it beyond May 31, 2018,2021, 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 filing date of this report on Form 10-K, 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, all notes issued under the 2007 and 2014 NPAs mature on November 14, 2018and Comerica LSA matures on June 6, 2018. The Company is actively working with the debt holders to extend the maturity of both Notes and the LSA.
Uses of Cash
During the year ended December 31, 2017, we used in operating activities approximately $7.6 million, which was offset by $3.4 million in cash collected from our customers, nettingapproximately $4.2 million of net cash used in operating activities. Approximately $3.2 million of this amount was used to pay interest payments on the convertible notes and bank debt; approximately $3.3 million for payroll, benefits and related costs; approximately $370,000 was used for non-payroll related sales and marketing efforts, such as tradeshows and marketing campaigns and approximately $756,000 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 year ended December 31, 2016, we used in operating activities approximately $7.7 million, which was offset by $2.3 million in cash collected from our customers, netting approximately $5.4 million of net cash used in operating activities. Approximately $3.2 million of this amount was used to pay interest payments on the convertible notes and bank debt; approximately $3.3 million for payroll, benefits and related costs; approximately $485,000 was used for non-payroll related sales and marketing efforts, such as tradeshows and marketing campaigns and approximately $722,000 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.expenditures.
Going Concern
Our independent registered public accounting firm has issued an emphasis of matter paragraph in their report included in this Annual Report on Form 10-K in which they express substantial doubt as to our ability to continue as a going concern. The 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, extend payment terms, 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.
Critical accounting policies and estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, bad debts, intangible assets and income taxes. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations.
Revenue Recognition and Deferred Revenue and Multiple Element Arrangements
We follow U.S. GAAP principlesRevenue Recognition: General Overview and Performance Obligations to Customers
The Company derives revenue primarily from contracts for subscription to the suite of revenue recognition, which allows recognizing revenue only: (a) when an arrangement exists; (b) whene-health mobile solutions and, to a much lesser degree, ancillary services provided in connection with subscription services.
The Company’s contracts include the Company delivered its obligations under such arrangement; (c) whenfollowing performance obligations:
●
Access to the fees are fixed or determinable; and (d) when collectioncontent available on the App Blueprint Catalog, including hosting of the fees billed is reasonably assured. Certain customers prepay the annual subscription fees at the beginningdeployed apps;
●
App Build and Managed Services;
●
Custom development work.
The majority of the term. In suchCompany’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 except for some custom development work which is capable of being distinct. 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. The transaction price may include a significant financing component in instances a deferred revenue liabilitywhere Company offers discounts for accelerated payments on the long-term contracts. A significant financing component is recorded in other assets and is amortized as interest expense in the Company’s statement of operations 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 our balance sheet and the stand-alone selling price. The subscription revenue is then recognized asover the term of the contract, using the output method of time elapsed. Other performance obligations underidentified are evaluated based on the specific terms of the agreement are fulfilledusually 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 us. Often Mobilesmith’sthe 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 combine various typeswith a term exceeding 12 months. These costs are amortized through the term of deliverablesthe contract and are recorded as sales and marketing expense. As of December 31, 2020 the Company’s other assets include approximately $5,000 of such as subscription feescosts.
Contract Liabilities
A new contract liability is created every time the Company records receivables due from its customers and various professional services. Such Multiple-Element Arrangements are broken out into separate unitshas not satisfied the requirements to recognize revenue. Contract liability represents Company’s obligation to transfer services for which the Company has already invoiced. Most of accounting aligned with various deliverables within the arrangement. contract liabilities will be recognized in revenue over a period of 12 to 36 months.
Share-Based Compensation
The value of each deliverable withinCompany measures share-based compensation cost at the arrangement is determinedgrant date based on the best estimate of selling price (“BESP”) and the assignedfair value of each unitthe award. The Company recognizes compensation cost on a straight-line basis over the requisite service period. The requisite service period is generally three years. The Company accounts for forfeitures as they occur. The Company uses the simplified method allowed by SAB 107 for estimating expected term of accounting is recognizedthe options in revenue as individual obligations are delivered.
Salecalculating the fair value of software takes place whenthe awards that have a term of more than 7 years because the Company sells perpetual license to the Platform through installation in a private cloud. Revenue recognition begins when all elementsdoes not have reliable historical data on exercise of the agreement, besides post-contract customer support, are delivered (including installation, if applicable). The software revenue is recognized ratably over the period of post-contract customer support.its options.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-9 Revenue from Contracts with Customers (Topic 606). This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017,Fair Value Measurements
Certain debt and early adoption is permitted. Originallyequity transactions require the Company planned to adopt the standard early. During the current period the Company concluded that costs of early adoption outweighed the anticipated benefits during the year and concluded that the adoption will take place with the period beginning on January 1, 2018, in compliance with therecord newly issued standards.The Company selected a retrospective approachfinancing instruments at fair value at the time of adoption, at which time cumulative effectissuance. The Company follows guidance in ASC 820 Fair Value Measurements to determine fair value of initially adoptingsuch instruments. We use Level 3 from the standard will be recognizedfair value hierarchy prescribed by ASC 820. Level 3 inputs require us to use significant judgements and unobservable inputs when determining fair value of financing instruments. Such judgements and inputs are described in retained earnings as of the date of adoption and additionaldetail in footnote disclosures will be included6 in the financial statements. Prior periods will not be retrospectively adjusted. The Company expectsstatements that adoption of Topic 606 will not have a material impact to its consolidated financial statements.accompany this report.
Recoverability and Impairment of Long-Lived Assets
We evaluate the recoverability of our long-lived assets every reporting period or whenever events and circumstances indicate that the value may be impaired.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
| | | Page |
| | | |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | | F-2 |
| | | |
CONSOLIDATED BALANCE SHEETS | | F-3 |
| | | |
CONSOLIDATED STATEMENTS OF OPERATIONS | | F-4 |
| | | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | | F-5 |
| | | |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT | | F-6 |
| | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | | F-7 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of MobileSmith, Inc.
Raleigh, North Carolina
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MobileSmith, Inc. (the “Company”) as of December 31, 20172020 and 2016,2019, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2017,2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017,2020, in conformity with accounting principles generally accepted in the United States of America.America (“US GAAP”).
Explanatory Paragraph – Going Concern Uncertainty
TheseThe accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a working capital deficiency as of December 31, 2017.2020. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans concerning theseregarding those matters are also described in Note 1 to the financial statements.1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
| |
| |
/s/ CHERRY BEKAERT LLP | |
| |
We have served as the Company's auditors since 2009. | |
| |
Raleigh, North Carolina | |
March, 29, 2018 | |
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.Debt and Equity Instruments
As disclosed in Notes 4 and 6 to the financial statements, the Company has entered into convertible note agreements with individuals including related parties. The accounting for the transactions were complex, as it required assessment as to whether features, other than the conversion feature, required bifurcation and separate valuation. Additionally, the transactions were complex as they required valuation of the conversion feature in the debt instrument, which involved estimation of the fair value of the debt instrument absent of any conversion feature, and evaluation of the appropriate classification of the conversion feature in the financial statements.
Our audit procedures included the following:
●
We obtained an understanding of the internal controls and processes in place over management’s valuation assessments.
●
We obtained and read the underlying convertible note agreements.
●
We evaluated the Company’s selection of the valuation methodology and significant assumptions used by the Company, and evaluated the completeness and accuracy of the underlying data supporting the significant assumptions. Specifically, when assessing the key assumptions, we evaluated the appropriateness of the Company’s estimates of its credit risk, volatility, dividend yield, and the market risk free rate for stock compensation.
●
We evaluated the Company’s selection of the valuation methodology and significant assumptions used by the Company, and evaluated the completeness and accuracy of the underlying data supporting the significant assumptions over debt and equity transactions.
●
We tested a sample of convertible debt and equity transactions to ensure they are properly recorded in accordance with US GAAP.
●
We verified proper approval of equity transactions.
●
We tested management’s application of the relevant accounting guidance.
Revenue from Contracts with Customers
The Company had $2,197,079 in revenues for the year ended December 31, 2020. As disclosed in Note 2 to the financial statements, the Company derives revenue primarily from contracts with custom work for specific deliverables and multiple performance obligations.
Due to the nature of the Company’s contracts including multiple performance obligations, management exercises significant judgment in the following areas in determining appropriate revenue recognition:
●
Identification of the contract with the customer
●
Determination of which products and services are considered distinct performance obligations that should be accounted for separately or combined
●
Determination of stand-alone selling prices for each performance obligation
●
Estimation of contract transaction price and allocation of the transaction price to the performance obligations
●
The pattern of delivery for each distinct performance obligation
As a result, a high degree of auditor judgement was required in performing audit procedures to evaluate the reasonableness of management’s judgments. Changes in these judgments can have a material effect on the
amount of revenue recognized on these contracts. Based on our knowledge of the Company, we determined the nature and extent of procedures to be performed over revenue, including the determination of the revenue streams over which those procedures were performed. Our audit procedures included the following for each revenue stream where procedures were performed:
●
Obtained an understanding of the internal controls and processes in place over the Company’s revenue recognition processes.
●
Analyzed the significant assumptions and estimates made by management as discussed above.
●
Assessed the recorded revenue by selecting a sample of transactions, analyzing the related contract, testing management’s identification of distinct performance obligations, and comparing the amounts recognized for consistency with underlying documentation.
/s/ Cherry Bekaert LLP
We have served as the Company’s auditor since 2009. Raleigh, North Carolina
March 23, 2021
| MOBILESMITH, INC. |
CONSOLIDATED BALANCE SHEETS |
| ASSETS | | |
| | | |
| Current Assets | | |
| Cash and Cash Equivalents | $58,484 | $548,146 |
| Restricted Cash | 120,372 | 116,577 |
Trade Accounts Receivable
| 260,403 | 273,091 |
| Prepaid Expenses and Other Current Assets | 71,992 | 64,642 |
| Total Current Assets | 511,251 | 1,002,456 |
| | | |
| Property and Equipment, Net | 71,603 | 104,129 |
| Capitalized Software, Net | 169,593 | 274,833 |
| Intangible Assets, Net | 20,093 | 37,593 |
| Total Other Assets | 261,289 | 416,555 |
| Total Assets | $772,540 | $1,419,011 |
| | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | |
| Current Liabilities | | |
| Trade Accounts Payable | $125,982 | $43,518 |
| Accrued Expenses | 201,528 | 193,836 |
| Accrued Interest | 865,822 | 455,269 |
| Capital Lease Obligations | 34,927 | 36,950 |
| Deferred Revenue | 1,388,503 | 1,404,951 |
| Bank Loan | 5,000,000 | - |
| Convertible Notes Payable, Related Parties, Net of Discount | 37,101,243
| -
|
Convertible Notes Payable, Net of Discount | 680,640
| -
|
| Total Current Liabilities | 45,398,645 | 2,134,524 |
| | | |
| Long-Term Liabilities | | |
| Bank Loan | - | 5,000,000 |
| Convertible Notes Payable, Related Parties, Net of Discount | -
| 39,655,579 |
| Convertible Notes Payable, Net of Discount | -
| 680,640 |
| Capital Lease Obligations | 28,907 | 63,834 |
| Deferred Rent | 26,286 | 42,189 |
| Total Long-Term Liabilities | 55,193 | 45,442,242 |
| Total Liabilities | 45,453,838 | 47,576,766 |
| | | |
| Commitments and Contingencies (Note 6) | | |
| Stockholders' Deficit | | |
| Preferred Stock, $0.001 Par Value, 5,000,000 Shares Authorized, No Shares Issued and Outstanding at December 31, 2017 and December 31, 2016 | - | - |
| Common Stock, $0.001 Par Value, 100,000,000 Shares Authorized At December 31, 2017 and December 31, 2016; 24,722,647 and 19,927,542 Shares Issued and Outstanding at December 31, 2017 and December 31, 2016, Respectively | 24,723 | 19,828 |
| Additional Paid-in Capital | 105,795,621 | 98,245,063 |
| Accumulated Deficit | (150,501,642) | (144,422,646) |
| Total Stockholders' Deficit | (44,681,298) | (46,157,755) |
| Total Liabilities and Stockholders' Deficit | $772,540 | $1,419,011 |
The accompanying notes are an integral part of these consolidated financial statements.
|
MOBILESMITH, INC. |
CONSOLIDATED STATEMENTS OF OPERATIONS |
| | |
| | | |
| | |
| REVENUES: | | |
| Subscription and Support | $3,452,888 | $1,861,459 |
| Professional Services and Other | - | 4,154 |
| Total Revenue | 3,452,888 | 1,865,613 |
| | | |
| COST OF REVENUES: | | |
| Subscription and Support | 609,829 | 509,247 |
| Professional Services and Other | - | 62,546 |
| Total Cost of Revenue | 609,829 | 571,793 |
| | | |
GROSS PROFIT
| 2,843,059 | 1,293,820 |
| | | |
| OPERATING EXPENSES: | | |
| Sales and Marketing | 1,175,920 | 1,153,336 |
| Research and Development | 1,674,221 | 1,700,617 |
| General and Administrative | 1,610,543 | 1,378,730 |
| Impairment of Long Lived Assets, Net | - | 8,356 |
| Gain on Reversal of a Liability | - | (11,500) |
| Total Operating Expenses | 4,460,684 | 4,229,539 |
| LOSS FROM OPERATIONS | (1,617,625) | (2,935,719) |
| | | |
| OTHER INCOME (EXPENSE): | | |
| Other Income | 1,688 | 166,676 |
| Interest Expense, Net | (4,463,059) | (4,732,612) |
| Total Other Expense | (4,461,371) | (4,565,936) |
| | | |
| NET LOSS | $(6,078,996) | $(7,501,655) |
| | | |
| NET LOSS PER COMMON SHARE: | | |
Basic and Fully Diluted
| $(0.25) | $(0.38) |
WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE: |
| Basic And Fully Diluted | 24,722,647 | 19,827,542 |
| | December 31, | December 31, |
| | 2020 | 2019 |
| | |
| Current Assets | | |
| Cash and Cash Equivalents | $161,744 | $71,482 |
| Restricted Cash and Cash Equivalents | 189,179 | 243,485 |
| Accounts Receivable, Net of Allowance for Doubtful Accounts of $30,000 and $5,250, Respectively | 113,906 | 109,187 |
| Prepaid Expenses and Other Current Assets | 43,286 | 75,489 |
| Total Current Assets | 508,115 | 499,643 |
| | | |
| Property and Equipment, Net | - | 29,368 |
| Capitalized Software, Net | - | 5,470 |
| Operating Lease Right-of-Use Asset | 512,124 | 674,338 |
| Total Assets | $1,020,239 | $1,208,819 |
| | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | |
| Current Liabilities | | |
| Accounts Payable | $155,850 | $242,249 |
| Interest Payable | 271,868 | 1,834,694 |
| Other Liabilities And Accrued Expenses | 237,750 | 263,889 |
| Operating Lease Liability Current | 161,936 | 149,525 |
| Contract With Customer Liability Current | 649,789 | 1,051,271 |
| Bank Loan | - | 5,000,000 |
| PPP Loan Current | 423,067 | - |
| Subordinated Promissory Notes, Related Parties | - | 3,518,250 |
| Convertible Notes Payable, Related Parties, Net of Discount | - | 39,230,432 |
| Convertible Notes Payable, Net of Discount | - | 610,740 |
| Total Current Liabilities | 1,900,260 | 51,901,050 |
| | | |
| | | |
| Operating Lease Liability | 432,058 | 593,994 |
| Contract With Customer Liability | - | 28,100 |
| Bank Loan | 5,000,000 | - |
| PPP Loan | 119,033 | - |
| Convertible Notes Payable, Net of Discount | 972,108 | - |
| Total Liabilities | 8,423,459 | 52,523,144 |
| | | |
| Commitments and Contingencies (Note 3) | | |
| Stockholders' Deficit | | |
| Preferred Stock, $0.001 Par Value, 5,000,000 Shares Authorized, Including 1,750,000 Authorized and Designated for Series A Convertible Preferred Shares: 1,166,297 Issued and Outstanding as of December 31, 2020 and zero as of December 31, 2019 | 103,649,344 | - |
| Common Stock, $0.001 Par Value, 100,000,000 Shares Authorized at December 31, 2020 and December 31, 2019; 28,389,493 Shares Issued and Outstanding at December 31, 2020 and 28,271,598 Shares Issued and Outstanding at December 31, 2019 | 28,390 | 28,272 |
| Additional Paid-in Capital - Common Shares | 130,103,361 | 118,431,878 |
| Accumulated Deficit | (241,184,315) | (169,774,475) |
| Total Stockholders' Deficit | (7,403,220) | (51,314,325) |
| Total Liabilities and Stockholders' Deficit | $1,020,239 | $1,208,819 |
The accompanying notes are an integral part of these consolidated financial statements.
MOBILESMITH, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
| | Year Ended | Year Ended |
| | December 31, | December 31, |
| | 2020 | 2019 |
| REVENUES: | | |
| Subscription and Support | $1,928,899 | $2,319,514 |
| Services and Other | 268,180 | 482,194 |
| Total Revenue | 2,197,079 | 2,801,708 |
| | | |
| COST OF REVENUES: | | |
| Subscription and Support | 737,783 | 754,743 |
| Services and Other | 96,162 | 314,240 |
| Total Cost of Revenue | 833,945 | 1,068,983 |
| | | |
| GROSS PROFIT | 1,363,134 | 1,732,725 |
| | | |
| OPERATING EXPENSES: | | |
| Selling and Marketing | 1,328,246 | 1,445,246 |
| Research and Development | �� 2,820,222 | 2,771,003 |
| General and Administrative | 3,325,366 | 3,629,622 |
| Total Operating Expenses | 7,473,834 | 7,845,871 |
| LOSS FROM OPERATIONS | (6,110,700) | (6,113,146) |
| | | |
| OTHER INCOME (EXPENSE): | | |
| Other Income | 95,074 | 1,843 |
| Interest Expense, Net | (6,040,630) | (4,894,233) |
| Loss on Debt Extinguishment | (59,353,584) | - |
| Total Other Expense | (65,299,140) | (4,892,390) |
| NET LOSS | $(71,409,840) | $(11,005,536) |
| | | |
| Plus: Deemed Dividend on Series A Convertible Preferred Stock | (37,438,180) | - |
| | | |
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $(108,848,020) | $(11,005,536) |
| | | |
NET LOSS PER COMMON SHARE: | |
| Basic and Fully Diluted from Continuing Operations | $(3.83) | $(0.39) |
| | | |
WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE: Basic And Fully Diluted | 28,389,493 | 28,271,598 |
The accompanying notes are an integral part of these financial statements.
MOBILESMITH, INC.
STATEMENTS OF CASH FLOWS
| | | Year Ended |
| | | December 31, |
| | | 2020 | 2019 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | |
| Net Loss | $(6,078,996) | $(7,501,655) | $(71,409,840) | $(11,005,536) |
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | | |
| Depreciation and Amortization | 163,604 | 165,351 | 34,838 | 74,526 |
| Bad Debt Expense | 12,500 | 34,500 | 30,000 | 4,750 |
| Amortization of Debt Discount | 799,161 | 1,408,873 | 3,184,641 | 1,207,760 |
| Amortization of Debt Premium | | (1,218,824) | - |
| Share Based Compensation | 476,957 | 132,680 | 3,109,763 | 3,471,568 |
| Impairment of Long Lived Assets | - | 8,356 | |
| Losses on Debt Extinguishments | | 59,353,584 | - |
| Changes in Assets and Liabilities: | | |
| Accounts Receivable | 188 | (124,241) | (34,719) | 157,450 |
| Prepaid Expenses and Other Assets | (7,350) | 11,174 | 32,203 | 50,309 |
| Accounts Payable | 76,149 | (2,199) | (86,399) | 75,568 |
| Deferred Revenue | (16,448) | 396,981 | |
| Contract Liability | | (429,582) | (623,624) |
| Operating Lease Right-of-use Asset | | 162,214 | 174,133 |
| Operating Lease Liability | | (149,525) | (138,066) |
| Accrued and Other Expenses | 408,657 | 39,230 | 111,880 | 228,569 |
| Net Cash Used in Operating Activities | (4,165,578) | (5,430,950) | (7,309,766) | (6,322,593) |
| | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | |
| Payments to Acquire Property, Plant and Equipment | (8,339) | (27,316) | |
| Net Cash Used in Investing Activities | (8,339) | (27,316) | |
| | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | |
| Restricted Cash Used to Pay Interest Expense | 228,836 | 220,177 | |
| Deposit of Cash to Restricted Account | (232,631) | (211,766) | |
| Proceeds From Issuance of Long Term Debt | 3,725,000 | 5,450,000 | |
| Repayments of Debt Borrowings | (36,950) | (32,219) | |
| Proceeds From Issuance of Subordinated Promissory Notes, Related Party | | 1,910,000 | 2,993,250 |
| Proceeds From Issuance of Convertible Notes Payable, Related Party | | 1,650,000 | 3,160,000 |
| Proceeds From Issuance of Convertible Notes Payable | | 2,900,000 | - |
| Proceeds From PPP Loan | | 542,100 | - |
| Proceeds From Issuance of Shares of Series A Preferred Stock | | 350,000 | - |
| Repayments of Financing Lease Obligations | | (6,378) | (22,591) |
| Net Cash Provided by Financing Activities | 3,684,255 | 5,426,192 | 7,345,722 | 6,130,659 |
| | | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (489,662) | (32,074) | 35,956 | (191,934) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 548,146 | 580,220 | |
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $58,484 | $548,146 | |
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | | 314,967 | 506,901 |
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | | $350,923 | $314,967 |
| | | |
| Composition of Cash, Cash Equivalents and Restricted Cash Balance: | | |
| Cash and Cash Equivalents | | $161,744 | $71,482 |
| Restricted Cash | | 189,179 | 243,485 |
| Total Cash, Cash Equivalents and Restricted Cash | | $350,923 | $314,967 |
| | | |
| Supplemental Disclosures of Cash Flow Information: | | |
| Operating Lease Payments | | $191,805 | $172,809 |
| Cash Paid During the Period for Interest | $3,253,345 | $3,262,119 | $3,919,183 | $3,451,266 |
| | | |
| Non-Cash Investing and Financing Activities: | | |
| The Company Recorded Debt Discount Associated with Beneficial Conversion Feature | $78,496
| $566,782 | |
| Financed Purchase of a Vehicle | | $18,365 | |
| The Company converted 7,000,000 of its convertible notes into common shares | $7,000,000 | | |
| Adoption of ASC 842 - Operating Lease Right-Of-Use Asset and Lease Obligations | | $- | $883,634 |
| Recorded Debt Discount Associated with Beneficial Conversion Feature | | $8,404,858 | $877,413 |
| Issued Series A Preferred Shares Valued at $103,299,334 in Exchange for Carrying Value of Debt (Including Accrued Interest, Premiums and Discounts) of $48,810,510 | | $103,299,344 | $- |
| Recorded Beneficial Conversion Feature Associated with Issuance of Series A Preferred | | $37,438,180 | $- |
| The Company Converted $156,980 of its Convertible Notes into Common Shares | | $156,980 | $- |
The accompanying notes are an integral part of these consolidated financial statements.
MOBILESMITH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 20172020 AND 20162019
| | | Additional Paid-In Capital | | | Series A Convertible Preferred Stock, Shares | Preferred Stock, $0.001 Par Value | Additional Paid-In Capital, Series A Convertible Preferred Stock | Common Stock, Shares | Common Stock, $0.001 Par Value | Additional Paid-In Capital, Common Stock | Accumulated Deficit | Totals |
| | | | | | |
| BALANCES, DECEMBER 31, 2015 | 19,827,542 | $19,828 | $97,545,601 | $(136,920,991) | $(39,355,562) | |
| BALANCES, DECEMBER 31, 2018 | | - | $- | 28,271,598 | $28,272 | $114,082,897 | $(158,771,112) | $(44,659,943) |
| | | |
| Equity-Based Compensation | | - | 132,680 | - | 132,680
| | 3,471,568 | | 3,471,568 |
| Beneficial Conversion Feature Recorded as a Result of Issuance of Convertible Debt | | - | 566,782
| - | 566,782
| |
| Beneficial Conversion Feature Recorded as a Result Of Issuance Of Convertible Debt | | | 877,413 | | 877,413 |
| Cumulative Adjustment Related To Adoption Of ASC842 Guidance On Accounting For Leases | | | 2,173 |
| Net Loss | | - | -
| (7,501,655) | | (11,005,536) |
| | | |
| BALANCES, DECEMBER 31, 2016 | 19,827,542 | $19,828 | $98,245,063
| $(144,422,646) | $(46,157,755) | |
| BALANCES, DECEMBER 31, 2019 | | - | 28,271,598 | $28,272 | $118,431,878 | $(169,774,475) | $(51,314,325) |
| | | |
| Equity-Based Compensation | | - | 476,957
| - | 476,957
| | 3,109,763 | | 3,109,763 |
| Beneficial Conversion Feature Recorded as a Result of Issuance of Convertible Debt | | - | 78,496
| - | 78,496
| |
Conversion of Notes Payable to Common Stock | 4,895,105 | 4,895
| 6,995,105 | | 7,000,000 | | 117,895 | 118 | 156,862 | | 156,980 |
| Beneficial Conversion Feature Recorded as a Result Of Issuance Of Convertible Debt | | | 8,404,858 | | 8,404,858 |
| Exchange of Debt for Series A Convertible Preferred Shares on December 23, 2020 | | 1,158,141 | 1,158 | 103,298,186 | | 103,299,344 |
| Issuance of Series A Convertible Preferred for Cash | | 8,156 | 8 | 349,992 | | 350,000 |
| Beneficial Conversion Feature Recorded as a Result Of Issuance Of Series A Convertible Preferred Shares of $37,438,180 | | | 37,438,180 | | 37,438,180 |
| Deemed Dividend to the Holders of Series A Preferred Shares Resulting From Amortization of Discount Associated with the Beneficial Conversion Feature | | | (37,438,180) | | (37,438,180) |
| Net Loss | | - | -
| (6,078,996) | | (71,409,840) |
| BALANCES, DECEMBER 31, 2017 | 24,722,647
| $24,723
| $105,795,621
| $(150,501,642) | $(44,681,298) | |
| | | |
| BALANCES, DECEMBER 31, 2020 | | 1,166,297 | $1,166 | $103,648,178 | 28,389,493 | $28,390 | $130,103,361 | $(241,184,315) | $(7,403,220) |
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 20172020 AND 20162019
1. | 1. SUMMARY OF BUSINESS AND DESCRIPTION OF GOING CONCERN |
Description of Business and Going Concern
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 develops solutions for the healthcare industryfocused exclusively on development of do-it-yourself customer facing platform that focus on improvements in delivery of healthcare by means of mobile technology. The Company’s flagship product is the MobileSmith® Platform (the “Platform”). The Platform is an innovative hosted set of tools that enablesenabled organizations to rapidly create, deploy, and manage custom, native smartphone and tablet apps specific to healthcare industry deliverable across iOS and Android mobile platforms without writing a single line of code. The Platform has applications in other industries and has been successfully deployed in retail and real estate operations.
These consolidated financial statements include accounts ofDuring 2017 the Company concluded that it had its highest rate of success with clients within the Healthcare industry and concentrated its wholly-owned subsidiary, which was created to explore the conceptdevelopment and sales and marketing efforts in that industry. During 2018 we further refined our Healthcare offering and redefined our product - a suite of e-health mobile solutions that consist of a consumer targetedcatalog of ready to deploy mobile app development platform. From time to time, the Company may create additional wholly-owned subsidiaries in order to test various new services assolutions (App Blueprints) and support services. In 2019 and 2020 we consolidated our current solutions under a partsingle offering branded Peri™. Peri™ is a cloud-based collection of its research and development process. This subsidiary did not have material activity in 2016 or 2017.applications that run of our architected healthcare technology ecosystem. The architecture is designed to:
The Company’s principal products and services include:
●
Subscription to its Software as a Service (“SaaS”) cloud based mobile app development platform to customersimprove experience of healthcare patients and consumers, who designare often at the same time members of various medical insurance networks
●
optimize delivery of healthcare and build their own apps;relationship between members and insurance networks
●
increase adoption, utilization and intelligence of EMRs (electronic medical records), extend EMR's usability to patients and consumers of healthcareManaged services for customPeri™ is designed to bridge the gap between healthcare industry system tools and healthcare consumer's mobile application design, development and implementation;device.
●
Mobile application marketing services; and
●
Mobile strategy implementation consulting.
Our flagship PeriOp offering is an EMR integrated mobile app based set of pre and postoperative instructions (which we refer to as Clinical Pathways), that establishes a direct two-way clinical procedure management process between a patient and a healthcare provider and by doing so improves patient engagement and procedural adherence.
The accompanying 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 years ended December 31, 20172020 and 2016,2019, the Company incurred net losses, as well as negative cash flows from operations, and at December 31, 20172020 and 2016,2019, had deficiencies in working capital. These factors indicate that the Company may be unable to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company’s continuation as a going concern depends upon its ability to generate sufficient cash flows to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitable operations and positive cash flows. Since November 2007, the Company has been funding its operations, in part, from the proceeds of the issuance of notes under a convertible secured subordinated note purchase agreement facility which was established in 2007 as well as,(the "2007 NPA"), an unsecured convertible subordinated note purchase agreement facility established in 2014. As of2014 (the "2014 NPA") and subordinated promissory notes to related parties. In December 31, 2017,2020 and January 2021 the Company had $38,280,000exchanged all of face value outstanding under these facilitiesits non-bank debt for Series A Convertible Preferred stock and the Company is entitled to sell to the investors additional notes under these facilities in an amount not exceeding $27,820,000 , when requested to by the Company, subject to the terms and conditions specified in these facilities. There can be no assurance that the Company will in fact be able to raise additional capital through these facilities or even from other sources on commercially acceptable terms or at all.
The Notes underterminated both 2007 and 2014 NPA matureNPAs.
The Company is authorized to issue up to 1,750,000 in NovemberSeries A Convertible Preferred stock at a price of 2018 and the Comerica LSA matures in June of 2018.$42.9 per share. The Company management is actively negotiating extensionexpects that Series A Convertible Preferred stock will remain it main source of maturityfunding in foreseeable future.
Based on the 2007 and 2014 NPAs by at least two years and refinancing of Comerica LSA by extending its maturity.
above, there is substantial doubt about the Company's ability to continue as a going concern.
2. | SIGNIFICANT2.SIGNIFICANT ACCOUNTING POLICIES |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires management to make estimates and assumptions in the Company’s financial statements and notes thereto. Significant estimates and assumptions made by management include the determination of performance obligations and the best estimateallocation of selling priceconsideration among performance obligations, and the determination of when the deliverables included in multiple-deliverableCompany has met the requirements to recognize revenue arrangements, deferral of certain revenues,related to the performance obligations, share-based compensation and allowance for accounts receivable, estimated useful lives of property and equipment, recoverability of capitalized software asset and other long lived assets.receivable. Actual results could differ from those estimates.
Fair Value of Financial Instruments
US GAAP requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Due to the short period of time to maturity, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued liabilities, and notes payable reported in the financial statements approximate the fair value.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The Federal Deposit Insurance Corporation (FDIC)("FDIC") covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits.
Revenue RecognitionRecognition: General Overview and Performance Obligations to Customers
The Company derives revenue primarily from contracts for subscription services charged to customers accessing the Platformsuite of e-health mobile solutions and, to a much lesser degree, professionalancillary services provided in connection with subscription services.
The Company recognizes revenues whenCompany’s contracts include the following criteria have been met:performance obligations:
● | persuasive evidence of an arrangement exists; |
● | delivery has occurred; |
● | the fees are fixed or determinable; and |
● | collection is considered reasonably assured. |
●
Access to the content available on the App Blueprint Catalog, including hosting of the deployed apps;
Subscription Revenues●
Subscription revenuesApp Build and Managed Services; and
●
Custom development work.
The majority of the Company’s contracts are recognized ratablyfor a subscription to a catalog of mobile App Blueprints, and hosting of the deployed apps and related services. Custom work for specific deliverables is documented in statements of work or separate contracts. 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 except for certain custom development work which is capable of being distinct. 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. The transaction price is impacted by the terms of a contracted agreement with the customer. Such terms range from one to three years. The transaction price excludes any marketing or sales discounts or any future renewal periods, unless the renewal periods represent a material right given to customer to extend the agreement. The transaction price may include a significant financing component in instances where the Company offers discounts for accelerated payments on the long-term contracts. Significant financing components are recorded in other assets and amortized as interest expense in the Company’s Statement of Operations over the contract term of the arrangement beginningcontract.
The transaction price is predominantly allocated to a 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 date that our servicestand-alone selling price. The subscription revenue is made available tothen recognized over time over the customer. Amounts that have been invoicedterm of the contract, using the output method of time elapsed. Other performance obligations identified are recorded in revenue or deferred revenue, dependingevaluated based on whether the revenue recognition criteria have been met.
Software Revenue
Sale of software takes place when the Company sells perpetual license to the Platform through installation in a private cloud. Revenue recognition begins when all elementsspecific terms of the agreement besides post-contract customer support, are delivered (including installation). The software revenue isusually recognized ratably overat a point in time upon delivery of a specific documented output. Management believes that such chosen methods faithfully depict satisfaction of the periodCompany performance obligations and transfer of post-contract customer support in accordance with ASC 985-605.benefit to the customers.
Professional Services RevenuesThe 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. The unbilled portion of transaction price related to revenue earned represents contracted consideration receivable by the Company that was not yet billed.
Professional services revenues consist
Incremental Costs of fees for professional services, which relate to developmentObtaining a Contract
The Company’s incremental costs of custom code or certain data integration connectors, mobile application marketing services, and mobile strategy implementation consulting. These revenuesobtaining a contract include sales commissions. Sales commissions 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.
Contract Liabilities
A new contract liability is created every time the Company records receivables due from its customers. The contract liability represents the Company’s obligation to transfer services are rendered for time and material contracts and whenwhich the milestones are achieved and accepted byCompany has already invoiced. Most of the customer for fixed-fee contracts. Deliverycontract liabilities will be recognized in revenue over a period of such revenue may be outsourced12 to 36 months.
Customer Credit Risk
Most of the Company's trusted vendors, depending on our internal capacity to deliver such services.
receivables (billings) are collected within 30-45 days. The majority of the Company's customers are healthcare organizations, which historically have had low credit risk.
Multiple-Element Arrangements
The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. In order to account for deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery.
In determining whether professional service revenues have standalone value, the Company considers availability of professional services from other vendors, the nature of the Company’s professional services, and whether the Company sells professional services to customers without the subscription.
When multiple deliverables are included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple-deliverable arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting.
Vendor-specific objective evidence (“VSOE”) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists.
If VSOE of selling price is not available, third-party evidence (“TPE”) of selling price is used to establish the selling price if it exists. If VSOE of selling price and TPE of selling price are not available, then the best estimate of selling price (“BESP”) is to be used. VSOE and TPE do not currently exist for any of the Company’s deliverables. Accordingly, the Company uses its BESP to determine the relative selling price.
The Company determines its BESP for its deliverables based on its overall pricing objectives, taking into consideration market conditions and entity-specific factors. The Company evaluates its BESP by reviewing historical data related to sales of its deliverables. Total consideration under the contract is allocated to each of the separate units of accounting through application of the relative selling price method.
Deferred Revenue
Deferred revenue consists of billings or payments received prior to the date when revenue is recognized.
Cost of Revenues
Cost of revenues includes salaries of customer support teams, costs of infrastructure, that supports the Platform, expenses for outsourced work to fulfill the contracted work, and amortization charges for the Platform.capitalized software.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability or failure of its customers to make required payments. The need for an allowance for doubtful accounts is evaluated based on specifically identified amounts that management believes to be potentially uncollectible. If actual collections experience changes, revisions to the allowance may be required.
Property and Equipment
The Company records property and equipment at cost and provides for depreciation and amortization using the straight-line method for financial reporting purposes over the estimated useful lives. The estimated useful lives by asset classification are as follows:
Computer hardware and office equipment | 5 years |
Computer software | 5 years |
Furniture and fixtures | 5 years |
Leasehold improvements | Shorter of the estimated useful life or the lease term |
Software Development Costs
The Company capitalized certain costs of development and subsequent enhancement of the Platform through the middle of 2013. The Company started capitalizing software development costs when technological feasibility of the Platform or its enhancements had been established. The Company expensed costs associated with preliminary project stage and research activities. The Company’s policy provided for the capitalization of certain payroll, benefits, and other payroll-related costs for employees who were directly associated with development.
During 2012, the Platform was substantially completed. During 2013, the Company’s development efforts became more driven by market requirements and rapidly changing customers’ needs. As a result, the Company’s development team adopted the Agile iterative approach to software development. Due to Agile’s short development cycles and focus on rapid production, the Company ceased capitalizing software development costs mid-way through 2013 as the documentation produced under the Agile method did not meet requirements necessary to establish technological feasibility. No development costs were capitalized in 2016 or 2017 and the Company does not expect to capitalize substantial development costs in the future.
Intangible Assets
Intangible assets consist of the perpetual license for critical Platform software, costs associated with the Company’s patent filings and other acquired intangible assets. The Company also owns several copyrights and trademarks related to products, names, and logos used throughout its non-acquired product lines.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets every reporting period or whenever events and circumstances indicate that the value may be impaired.
Advertising Costs
Advertising costs consist primarily of industry related tradeshows and marketing campaigns. Advertising costs are expensed as incurred, or the first time the advertising takes place, applied consistently based on the nature of the advertising activity. The amounts related to advertising during 2017 and 2016 were $268,133 and $382,932, respectively.
Share-Based Compensation
The Company measures share-based compensation cost at the grant date based on the fair value of the award. The Company recognizes compensation cost on a straight-line basis over the requisite service period. The requisite service period is generally three years. The compensation cost is recognized net of estimated forfeiture activity.
The fair value of option grants under the Company’s equity compensation plan during the yearyears ended December 31, 2017 was estimated using the following weighted-average assumptions :
Dividend yield | | | 0.00 | % |
Expected volatility | | | 102.80 | % |
Risk-free interest rate | | | 1.90 | % |
Expected lives (years) | | | 7.0 | |
2020 and 2019 were $248,261 and $234,203, respectively.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of shares of common stock outstanding during the periods. Diluted net loss per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Shares of common stock issuable upon conversion of Convertible Subordinated Promissory Notes (the “Notes”), conversion of Series A Convertible Preferred Stock and exercise of share-based awards are excluded from the calculation of the weighted average number, because the effect of the conversion and exercise would be anti-dilutive.
Recently Issued Accounting Pronouncements
The Company evaluates new significant accounting pronouncements at each reporting period. For the year ended December 31, 2017,2020, the Company did not adoptidentify any new pronouncement that had or is expected to have a material effect on the Company’s presentation of its consolidated financial statements.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-9 Revenue from Contracts with Customers (Topic 606). This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017, and early adoption is permitted. Originally the Company planned to adopt the standard early. During the current period the Company concluded that costs of early adoption outweighed the anticipated benefits during the year and adopted the standard effective January 1, 2018, in compliance with the issued standards. The Company selected a modified retrospective approach at the time of adoption, at which time cumulative effect of initially adopting the standard will be recognized in retained earnings as of the date of adoption and additional footnote disclosures will be included in the financial statements. Prior periods will not be retrospectively adjusted.3. DEBT
The Company used a comprehensive approach to assessCompany's debt had been significantly impacted by the impactfollowing transactions that took place in 2020:
●
April 30, 2020 extension of maturity of non-bank debt through November 14, 2022 (the "April 2020 Debt Modification")
●
May 6, 2020 exchange of $4,063,250 in related party subordinated promissory notes for the notes issued under the December 11, 2014 unsecured Convertible Subordinated Note Purchase Agreement, as amended (the “2014 NPA”) (the "May 2020 Note Exchange")
●
Debt exchange of all non-bank debt for equity that was completed on two different dates: most of the guidance the contract portfolio. The review is now substantially completedebt was exchanged on December 23, 2020 (the "December 2020 Debt Exchange") and the Company expects to record a cumulative effect adjustment to accumulated deficit upon adoption of the new revenue standard as of January 1, 2018. The cumulative adjustment will decrease Company's accumulated deficit by approximately $70,000. The cumulative adjustment is related to incremental upfront contract acquisition cost (such as sales commissions on contracts with a term of longer than 12 months) and financing component of transaction price (a discount givenremaining debt was exchanged subsequent to the customer to accelerate paymentsyear end on long term contracts). New standard requires contract acquisition costs to be capitalized and amortized over estimated life of the asset; under current guidance these costs are expenses when incurred. In regard to financing component of transaction price, the new standard requires to account for such costs seperately as interest expense. Currently, the revenue is reported net of financing discounts.January 28, 2021 (the "January 2021 Exchange")
The Company has identified that adoption of Topic 606 will not have a material impact to its consolidated financial statements.
The FASB's new leases standard ASU 2016-02 Leases (Topic 842) was issued on February 25, 2016. ASU 2016-02 is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets, referred to as "Lessees", to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases (i.e. operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of those leases.
Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption will be permitted for all companies and organizations upon issuance of the standard. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018 and 2017. See Notes 5 and 6 for the Company's current lease commitments. The Company is currently in the process of evaluating the impact that this new leasing ASU will have on its financial statements.
On November 17, 2016 FASB issued ASU 2016-18, which the Company will adopt effective January 1, 2018. This ASU may impact the way restricted cash is presented on the statement of cash flows.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by the accounting literature contains three levels as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimations.
3. | PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE |
| | | |
| | | |
| Computer hardware | $110,541 | $102,203 |
| Computer software | 37,884 | 37,884 |
| Furniture and fixtures | 89,580 | 89,580 |
| Equipment | 25,558 | 25,558 |
| Leasehold improvements | 34,162 | 34,162 |
| | 297,725 | 289,386 |
| Less accumulated depreciation | (226,122) | (185,257) |
| Property and equipment, net | $71,603 | $104,129 |
Capitalized software consists of the following:
| | | |
| | | |
| Capitalized software | $736,678 | $736,678
|
| Less accumulated amortization | (567,085) | (461,845) |
| Capitalized software, net | $169,593
| $274,833
|
During the years ended December 31, 2017 and 2016, the Company recorded depreciation and amortization expense related to its property, equipment and capitalized software of $146,104 and $147,845 respectively.
The following table summarizes information about the Company’s intangible assets:
| | |
| | | | | | Net |
| Asset Category | | | | Carrying | | |
| Amount
| Amortization | | Amount | | |
| Acquired license and costs | $108,534 | $90,445
| $18,089
| $108,534 | $74,940
| $33,594
|
| Other | 10,000 | 7,996
| 2,004
| 10,000 | 6,001
| 3,999
|
| Total | $118,534 | $98,441
| $20,093
| $118,534 | $80,941
| $37,593
|
| | | | | | | |
During the years ended December 31, 2017 and 2016, the Company recorded amortization expense related to its intangible assets of $17,500 and $17,506, respectively.
The following table presents the estimated future amortization expense related to intangible assets held at December 31, 2017:
Year ending December 31: | |
| 2018 | $17,510 |
| 2019 | 2,583
|
| | $20,093
|
The table below summarizes the Company’s debt at December 31, 20172020 and December 31, 2016:2019:
| Debt Description | | | | |
| | | | | |
| Comerica Bank Loan and Security Agreement | $5,000,000 | $5,000,000 | June 2018 | 5.10% |
| Capital lease obligations - Noteholder lease | 45,294
| 69,717 | August 2019 | 8.00% |
| Capital lease obligations - office furniture and other equipment | 4,870
| 14,044
| August 2018 | 9.80% |
| Capital lease obligations - vehicle | 13,670
| 17,023
| July 2021 | 5.59% |
| Convertible notes - related parties, net of discount of $447,988 and $1,168,652, respectively | 37,101,243
| 39,655,579 | November 2018 | 8.00% |
| Convertible notes, net of discount of $50,129 | 680,640 | 680,640 | November 2018 | 8.00% |
| Total debt | 42,845,717
| 45,437,003
| | |
| | | | | |
| Less: current portion of long term debt | | | | |
| Convertible notes - related parties, net of discount of $447,988 and $1,168,652, respectively | 37,101,243 | -
| | |
| Convertible notes, net of discount of $50,129 | 680,640
| -
| | |
| Capital lease obligations | 34,927
| 36,950
| | |
| Comerica Bank LSA | 5,000,000
| -
| | |
| Total current portion of long term debt | 42,816,810 | 36,950 | | |
| | | | | |
| Debt - long term | $28,907
| $45,400,053 | | |
| Debt Description | December 31, | December 31, | | |
| | 2020 | 2019 | Maturity | Rate |
| | | | | |
| Comerica Bank Loan and Security Agreement | $5,000,000 | $5,000,000 | June 2022 | 3.85% |
| PPP Loan | 542,100 | - | April 2022 | 1.00% |
| Convertible notes - related parties, net of discounts of $0 and $1,193,801, respectively | - | 39,230,432 | November 2022 | 8.00% |
| Convertible notes, net of discount of $1,927,892 and $45,029, respectively | 972,108 | 610,740 | November 2022 | 8.00% |
| Subordinated Promissory Note, Related Party | - | 3,518,250 | November 2022 | 8.00% |
| Total debt | 6,514,208 | 48,359,422 | | |
| Less: current portion of long term debt | 423,067 | - | | |
| Debt - long term | $6,091,141 | $48,359,422 | | |
Bank Loan
The Company has an outstanding Loan and Security Agreement with Comerica Bank dated June 9, 2014 (the "LSA") in the amount of $5,000,000, with an extended maturity date of June 9, 2022. The LSA is secured by an extended irrevocable letter of credit issued by UBSAG (Geneva, Switzerland) ("UBS AG") with a renewed term expiring on May 31, 2021, which term is renewable for one year periods, unless notice of non-renewal is given by UBS AG at least 45 days prior to the then current expiration date.
The LSA with Comerica has the following additional terms:
●
a variable interest rate at prime plus 0.6% payable monthly;
●
secured by substantially all of the assets of the Company, including the Company’s intellectual property;
●
acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, including but not limited to, failure by the Company to perform its obligations, observe the covenants made by it under the LSA, failure to renew the UBS AG SBLC, and insolvency of the Company.
Paycheck Protection Program Loan
On April 29, 2020 the Company borrowed $542,100 through issuance of a promissory note in accordance with the Paycheck Protection Program ("PPP") established by Section 1102 of the CARES Act and implemented and administered by the Small Business Administration (the "PPP loan"). The PPP loan matures on April 29, 2022. The PPP loan carries interest at 1% per year and is payable in 18 monthly installments of $30,513. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP loan contains events of default and other provisions customary for a loan of this type. Pursuant to the PPP rules, all or portion of this loan may be forgiven. The actual amount of the loan forgiveness will depend, in part, on the total amount of payroll costs, certain allowed rent and utility costs. Not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs. The Company used the proceeds from the PPP loan for qualifying expenses, applied for forgiveness of the PPP loan in accordance with the terms of the CARES Act. Such forgiveness was granted to the Company on February 18, 2021.
Convertible Notes under 2007 and 2014 NPAsOverview
Since November 14, 2007 and through December 10, 2014, the Company financed its working capital deficiency primarily through the issuance of its notes of up to $33,300,000 in principal (the “2007 NPA Notes”) under the Convertible Secured Subordinated Note Purchase Agreement, dated November 14, 2007, as amended (as so amended, the(the “2007 NPA”). On December 11, 2014 the Company entered into an unsecured Convertible Subordinated Note Purchase Agreement, amended (as so amended,2014 NPA for the “2014 NPA”) with Union Bancaire Privée, UBP SA ("UBP") and has financed its operations through issuancesum of notes (the "2014up to $40,000,000 in principal ("2014 NPA Notes") through. At the request of the note holder any amounts borrowed under the 2007 NPA and the 2014 NPA. NPA allow the principal amount to be converted to common shares at a conversion price of $1.43 per share.
Maturity of 2014 and 2007 NPA Notes had been extended several times. The most recent such extension moved maturity date to November 14, 2022. Notes under both 2014 and 2007 NPAs were issued with identical terms. Such main terms are as follows: (a) allow for optional conversion into common stock upon request of a noteholder at a price of $1.43 (b) pay 8% interest twice per year in January and July (c) subordinated to the Bank Loan.
Majority of 2007 and 2014 NPA notes are related party notes. Grasford Investments, Ltd. ("Grasford"), the Company’s largest stockholder, owned $12,076,282 in face value amount of 2007 NPA Notes as of December 31, 2019. Grasford is controlled by Avy Lugassy, one of the Company’s principal shareholders. Grasford's entire holding was exchanged in the December 2020 Debt Exchange. UBP owned $27,617,180 in combined face value of 2007 and 2014 NPA Notes as of December 31, 2019 and is considered a significant beneficial owner. UBP's holdings grew to $28,817,180 during 2020, which was exchanged in the December 2020 Debt Exchange. Crystal Management owned $730,769 in face value of 2007 NPA Notes as of December 31, 2019. Crystal Management is controlled by Doron Rotler, the third largest shareholder of the Company. The entire holding was exchanged in the December 2020 Debt Exchange.
During 2017,2020 the Company raised gross proceedsissued $2,900,000 in 2014 NPA notes to an unrelated party on three different occasions. These notes were the only non-bank notes outstanding as of $3,725,000 fromDecember 31, 2020 and were exchanged in the private placement to UBP under 2014 NPA.January 2021 Exchange transaction. The carrying value of the notes as of December 31, 2020 was $972,108 and represented face value of $2,900,000, net of discount of $1,927,892 .
Subordinated Promissory Notes, Related Parties
The Company has issued subordinated notes to related parties to finance its shortfall in working capital. The subordinated notes carry interest rate of 8% per year, which is paid twice a year. The subordinated notes are unsecured and are subordinated to all other Company debt. The subordinated notes had maturity date in November of 2022. Avy Lugassy, one of the Company's principal shareholders is a beneficial owner of the related parties holding the subordinated notes.
The Company started the year with $3,518,250 on January 1, 2020 in outstanding notes and issued additional $1,910,000 notes during the year under the same terms. During the May 2020 Note Exchange $4,063,250 of subordinated promissory notes to related parties were exchanged for the same face value of 2014 NPA note under the terms described above (refer to "May 2020 Note Exchange" paragraph below for more detail), which were subsequently exchanged again in the December 2020 Debt Exchange. The remaining balance of $1,365,000 in subordinated promissory notes to related parties were also exchanged in the December 2020 Debt Exchange.
April 2020 Debt Modification
On May 17, 2016,April 30, 2020, the Company and the holders of the majority of the aggregate outstanding principal amount of the Notes issued under the 2014 NPA Notes(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 NPA Notes(the "2007 NPA”) agreed to extend to November 14, 2018 the maturity datedates of the 2014 NPA Notes and the 2007 NPA Notes.Notes to November 14, 2022. In addition, the 2014 NPA was amended to allow the Company to issue 2014 NPA Notes as consideration of cancellation of other indebtedness. Except as so extended,for above mentioned modifications, all of the terms relating to the outstanding 2007 NPA 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, 2018.2022.
May 2020 Note Exchange
On May 6, 2020, the Company and related party holders of $4,063,250 in subordinated promissory notes exchanged those notes for the 2014 NPA Notes issued under 2014 NPA (the "May 2020 Note Exchange"). Avy Lugassy, one of Company's principal shareholders is a beneficial owner of the entities holding newly issued 2014 NPA Notes. The newly issued 2014 NPA Notes mature on November 14, 2022 and have the terms identical to other 2014 NPA Notes. The May 2020 Note Exchange was accounted for as debt extinguishment and the newly issued 2014 NPA Notes were recorded at fair value in accordance with ASC 470 "Debt". The total fair value of the 2014 NPA Notes issued as a result of the May 2020 Note Exchange was determined to be $8,928,000. The May 2020 Note Exchange transaction resulted in loss recorded on the statement of operations of $4,864,750 and a premium on the newly issued convertible debt of $4,864,750. The embedded beneficial conversion feature present in the newly issued debt in the amount of $4,063,250 resulted in a debt discount and a charge to paid-in capital.
Amortization of debt discount and debt premium was scheduled to be recorded in interest expense through the maturity date of the notes.
December 2020 Debt Exchange
On December 23, 2020, the Company and all but one debt investor entered into a debt exchange transaction where the Company exchanged its convertible and non-convertible debt plus accrued but unpaid interest into Series A Convertible Preferred equity. The December 2020 Debt Exchange transaction was accounted for as debt extinguishment and the newly issued Series A Convertible Preferred Shares were recorded at fair value in accordance with ASC 470 "Debt". The total of 1,158,141 shares were issued in December 2020 Debt Exchange fair valued at $103,299,344. The combined face value of debt exchanged was $47,989,660 in addition to accrued but unpaid interest of $1,694,467 for a total of $49,684,127. The carrying value of the debt exchanged was $48,810,508 due to inclusion of unamortized debt discounts and debt premiums in the amounts of $4,519,542 and $3,645,924, respectively. The difference between the carrying amount of extinguished debt and fair value of the Series A Preferred Shares issued resulted in loss recorded on the statement of operations of $54,488,834.
As a result of modification, any unamortized discount will be amortized into interest expense through the new maturity date of November 14, 2018.December 2020 Debt Exchange, the original 2007 and 2014 NPAs and related notes with participating investors were cancelled.
In October 2017 UBP converted $7,000,000During the year the Company recorded $3,184,641 in amortization of its 2007 NPA Notes into 4,895,105 sharesdebt discount, offset by $1,218,824 of Company common stock at the stated conversion priceamortization of $1.43 per share.debt premium.
F-14
The table below summarizes convertible notes issued asAs of December 31, 2017 by type:
Convertible Notes Type:
| |
2007 NPA notes, net of discount | $23,271,479
|
2014 NPA notes, net of discount | 14,510,404
|
Total convertible notes | $37,781,883
|
Convertible notes issued under 2014 NPA
The aggregate principal amount of 2014 NPA Notes that may be issued under2020 the 2014 NPA is $40 million, of which $14,725,000 had been borrowed as of December 31, 2017. The 2014 NPA Notes are convertible into shares of the Company’s common stock, par value $0.001 per share, and are subordinated to the $5 million outstanding under the Company’s Loan and Security Agreement (the “LSA”) with Comerica Bank and to any promissory notes outstanding under the Company’s existing 2007 NPA program.
The 2014 NPA Notes have the following terms:
● | a maturity date of the earlier of (i) November 14, 2018, (ii) a Change of Control (as defined in the 2014 NPA), or (iii) when, upon or after the occurrence of an Event of Default (as defined in the 2014 NPA), other than for a bankruptcy related, such amounts are declared due and payable by at least two-thirds of the aggregate outstanding principal amount of the 2014 NPA Notes; |
● | an interest rate of 8% per year, with accrued interest payable in cash in quarterly installments commencing on the third month anniversary of the date of issuance of the 2014 NPA Note with the final installment payable on the maturity date of the note;
|
● | a conversion price per share that is fixed at $1.43; |
● | optional conversion upon noteholder request; provided that, if at the time of any such request, the Company does not have a sufficient number of shares of common stock authorized to allow for such conversion, the noteholder may only convert that portion of their Notes outstanding for which the Company has a sufficient number of authorized shares of common stock. To the extent multiple noteholders under the 2014 NPA, the 2007 NPA, or both, request conversion of its notes on the same date, any limitations on conversion shall be applied on a pro rata basis. In such case, the noteholder may request that the Company call a special meeting of its stockholders specifically for the purpose of increasing the number of shares of common stock authorized to cover conversions of the remaining portion of the notes outstanding as well as the maximum issuances contemplated pursuant to the Company’s 2004 Equity Compensation Plan, within 90 calendar days after the Company’s receipt of such request; and |
● | may not be prepaid without the consent of holders of at least two-thirds of the aggregate outstanding principal amount of 2014 NPA Notes. |
Convertible notes issued under 2007 NPA
The aggregate principal amount of 2007 NPA Notes that may be issued under the 2007 NPA is $33,300,000, of which $30,755,000 had been borrowed as of December 31, 2017. The 2007 NPA Notes are convertible into shares of the Company’s common stock, par value $0.001 per share, and are subordinated to the $5 million outstanding under the LSA with Comerica Bank.
As amended, the 2007 NPA Notes have the following terms:
● | a maturity date of the earlier of (i) November 14, 2018, (ii) a Change of Control (as defined in the amended 2007 NPA), or (iii) when, upon or after the occurrence of an Event of Default (as defined in the amended 2007 NPA) such amounts are declared due and payable by a 2007 NPA Noteholder or made automatically due and payable in accordance with the terms of the 2007 NPA; |
● | an interest rate of 8% per year; |
● | a total borrowing commitment of $33.3 million; |
● | a conversion price that is fixed at $1.43; and |
● | optional conversion upon 2007 NPA Noteholder request, provided that, if at the time of any such request, the Company does not have a sufficient number of shares of common stock authorized to allow for such conversion, as well as the issuance of the maximum amount of common stock permitted under the Company’s 2004 Equity Compensation Plan, the 2007 NPA Noteholder may request that the Company call a special meeting of its stockholders specifically for the purpose of increasing the number of shares of common stock authorized to cover the remaining portion of the Notes outstanding as well as the maximum issuances permitted under the 2004 Equity Compensation Plan. |
Related Party Convertible Notes under 2007 and 2014 NPAs
Grasford, the Company’s largest stockholder, owns $13,826,282 in face value amount of 2007 NPA Notes as of December 31, 2017. Grasford is controlled by Avy Lugassy, one of the Company’s principal shareholders.
UBP owns $22,992,180 in combined face value amount of 2007 and 2014 NPA Notes as of December 31, 2017 in addition to 4,895,105 shares of common stock and is considered a significant beneficial owner.
Crystal Management owns $730,769 in face value amount of 2007 NPA Notes as of December 31, 2016. Crystal Management is controlled by Doron Rotler, the third largest shareholder of the Company.
Interest expense for 2017 for convertible notes was $4,219,510, including amortization of discount of $799,161.
Interest expense for 2016 for convertible notes was$4,494,905, including amortization of discount of $1,408,973.
Comerica LSA
The Company has anapproximately $250,000 in interest outstanding Loan and Security Agreement with Comerica Bank dated June 9, 2014 with original maturity of June 9, 2016. On May 24, 2016, the Company and Comerica Bank entered into First Amendmentrelated to the LSA, which extended the maturity of the LSA to June 6, 2018.non-bank debt.
The LSA with Comerica has the following terms:
| ● | | a maturity date of June 9, 2018; |
| ● | | a variable interest rate at prime plus 0.6% payable quarterly; |
| ● | | secured by substantially all of the assets of the Company, including the Company’s intellectual property; |
| ● | | secured by an extended irrevocable SBLC issued by UBS AG (Geneva, Switzerland) (“UBS AG”) with an initial term expiring on May 31, 2015, which term is automatically 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 (no such notice has been given and SBLC was extended to expire on May 31, 2018); and |
| ● | | acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, including but not limited to, failure by the Company to perform its obligations, observe the covenants made by it under the LSA, failure to renew the UBS AG SBLC, and insolvency of the Company. |
Capital Leases
On September 4, 2009, the Company entered into a sale transaction whereby it sold its computer equipment, furniture, fixtures and certain personal property located at its former principal executive offices in Durham, North Carolina (collectively, the “Equipment”) on an “as-is, where-is” basis to the holders of the Company’s Notes, on a ratable basis in proportion to their respective holdings of Notes, for $200,000 (“Purchase Price”). The Purchase Price was paid through a $200,000 reduction, on a ratable basis, in the outstanding aggregate principal amount of the Notes. The Purchase Price represented the fair market value of the Equipment based on an independent appraisal.
The payments on the lease are made monthly. The balance of the lease as of December 31, 2017 was $45,294.
In September 2013 the Company purchased furniture for its new office by execution of a five-year non-cancellable lease, which is accounted for as a capital lease. The unpaid balance on the lease as of December 31, 2017 is $4,870.4.
In July 2016, the Company acquired a vehicle, that it had been previously leasing since July of 2013. The vehicle is financed through a 5 year auto loan. The payments are made monthly. The unpaid balance on the note payable is $13,670 as of December 31, 2017.
The table below details future payments under capital leases:
Year: | |
2018
| $38,345
|
2019
| 23,631
|
2020
| 4,219
|
| Thereafter | 2,461 |
| | 68,656
|
| Less amount representing interest | (4,822) |
| Capital lease obligations | $63,834
|
| | |
6. COMMITMENTS AND CONTINGENCIES
| COMMITMENTS AND CONTINGENCIES |
Operating Leases
On July 29, 2013, the Company signed a 65-month lease for new office space in Raleigh, North Carolina, effective October 30, 2013. The landlord built the space to the Company’s specifications and provided the Company with five months free rent as an incentive. Rent expense is being recognized over the entire 65-month term of the lease on a straight-line basis. The initial term of the lease ends in March 2019. The lease contains an option to renew for two three-year terms, which the Company is currently evaluating. Monthly rent is approximately $15,000 per month.
The table below summarizes the Company’s future obligations under the new office lease:
Year: | |
| 2018 | $172,418 |
| 2019 | 44,082 |
| Total | $216,500
|
Rent expense for the years ended December 31, 2017 and 2016 was $166,729, and $155,603, respectively.
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.
7. | 5. STOCKHOLDERS’ DEFICIT |
Common Stock
The Company is authorized to issue 100,000,000 shares of common stock, $0.001 par value per share. As of December 31, 2017,2020, the Company had 24,722,64728,389,493 shares of common stock outstanding. Holders of the Company’s shares of common stock are entitled to one vote for each share held.
Preferred Stock
The Board of Directors is authorized, without further stockholder approval, to issue up to 5,000,000 shares of $0.001 par value preferred stock in one or more series and to fix the rights, preferences, privileges, and restrictions applicable to such shares, including dividend rights, conversion rights, terms of redemption, and liquidation preferences, and to fix the number of shares constituting any series and the designations of such series. There were no shares of preferred stock outstanding at December 31, 2017 and 2016.
Equity Compensation PlansOn December 10, 2020 the Board of Directors authorized to designate 1,750,000 of 5,000,000 as Series A Convertible Preferred Stock with the following terms:
●
Each share of Series A Preferred Stock shall have a par value of $0.001 per share and a stated value equal to $42.90 (the “Stated Value”);
●
Each share of the Series A Preferred Stock then outstanding shall be entitled to receive an annual dividend equal to $3.43, subject to proration related to the timing of issuance. Such dividend is designed to have an effective yield of 8%on invested stated value;
●
Each dividend shall be paid either in shares of Series A Preferred Stock (“Payment-in-Kind”) or in cash, at the option of the Corporation, on the respective Dividend Date;
●
The Holders of Series A Preferred Stock shall have no voting rights with respect to any matters to be voted on by the stockholders of the Corporation;
●
The Holders of Series A Preferred Stock shall have certain Board observation and inspection rights administered through a designated Agent;
●
Each share of Series A Preferred Stock shall be convertible, at any time and from time to time, at the option of the Holder into 30 shares of Common Stock, which results in conversion ratio of $1.43 of stated value of Series A Preferred Stock into one share of common stock (the "Series A Preferred Conversion Price");
●
The shares are subject to automatic conversion immediately prior to the occurrence of a Fundamental Transaction, as defined in a Certificate of Designation. A Fundamental Transaction includes, but is not limited to, a sale, merger or similar change in ownership.
On December 23, 2020 the Company issued 1,158,141 of Series A Convertible Preferred shares in the December 2020 Debt Exchange transaction (refer to "Debt" footnote for more detail on the transaction). The December 2020 Debt Exchange resulted in a debt extinguishment treatment and the Series A Convertible Preferred was recorded at its fair value of $103,299,344. On the date of the December 2020 Debt Exchange the market value of the common stock was above the Series A Preferred Conversion Price of $1.43, which resulted in the conversion feature that was beneficial to the holder on the date of the exchange. The resulting beneficial conversion feature was recorded as a discount and amortized in its entirety as a deemed dividend on the date of the December 2020 Debt Exchange and charged to loss attributable to common shareholders on the Company's Statement of Operations in the amount of $37,176,330.
2004 Equity Compensation PlanDuring the period ended December 31, 2020 the Company issued 8,156 shares of Series A Convertible Preferred in exchange of 350,000 in cash funding. The shares were issued with a beneficial conversions feature discount and resulted in a deemed dividend with charge to loss attributable to common shareholders of $261,850.
The Company adopted its 2004 Equity Compensation Plan (the “2004 Plan”) as of March 31, 2004. The 2004 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock, and other direct stock awards to employees (including officers) and directors of the Company as well as to certain consultants and advisors. The total number of shares of common stock reserved for issuance under the 2004 Plan is 5,000,000 shares, subject to adjustment in the event of a stock split, stock dividend, recapitalization, or similar capital change. The Company can’t make any new grants under the plan.
Equity Compensation Plans
2016 Equity Compensation Plan
In May 2016, the Company’s shareholders authorized adoption of the approved MobileSmith Inc. 2016 Equity Compensation Plan for officers, directors, employees and consultants, initially reserving for issuance thereunder 15,000,000 shares of Common Stock.
Stock.
The exercise price for incentive stock options granted under the above plans is required to be no less than the fair market value of the common stock on the date the option is granted, except for options granted to 10% stockholders, which are required to have an exercise price of not less than 110% of the fair market value of the common stock on the date the option is granted. Incentive stock options typically have a maximum term of 10 years, except for option grants to 10% stockholders, which are subject to a maximum term of five years. Non-statutory stock options have a term determined by either the Board of Directors or the Compensation Committee of the Board of Directors. Options granted under the plans are not transferable, except by will and the laws of descent and distribution.
A summary of the status of the stock option issuances as of December 31, 20172020 and 2016,2019, and changes during the periods ended on these dates is as follows:
| | | | | Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | |
| Outstanding, December 31, 2015 | 361,349
| $1.44
| | |
| Outstanding, December 31, 2018 | | $6,704,716 | $1.83 | 7.4 | $765,927 |
| Cancelled | (146,409) | 1.52
| | (1,892,900) | 1.52 | |
| Issued | 1,969,250
| 1.49
| | 7,533,980 | 1.66 | |
| Outstanding, December 31, 2016 | 2,184,160
| 1.48
| | |
| Outstanding, December 31, 2019 | | 12,345,796 | 1.73 | 8.3 | $13,823,410 |
| Cancelled | (231,039)
| 1.52
| | (3,102,496) | 1.73 | |
| Issued | 705,126
| 1.71
| | 1,440,000 | 2.64 | |
| Outstanding, December 31, 2017 | 2,658,247
| 1.54
| 4.29
| $654,701
| |
| Vested and exercisable, December 31, 2017 | 1,070,224
| $1.48
| 3.32 | $305,866
| |
| Outstanding, December 31, 2020 | | 10,683,300 | 1.85 | 7.58 | $17,060,533 |
| Vested and exercisable, December 31, 2020 | | $5,018,530 | $1.76 | 6.46 | $8,501,174 |
Weighted-average grant-date fair values of options issued during 2020 and 2019 were $2.27 and $1.42, respectively.
At December 31, 2017, $1,412,8332020, $9,316,951 of unvested expense remains to be recorded related to all options outstanding.
Exercise prices for options outstanding as of December 31, 20172020 ranged between $.90 and $1.99.$2.75.
The Company measures share-based compensation cost at the grant date based on the fair value of the award. The Company recognizes compensation cost on a straight-line basis over the requisite service period. The requisite service period is generally three years. The Company accounts for forfeitures as they occur.
The Company uses the simplified method allowed by SAB 107 for estimating expected term of the options in calculating the fair value of the awards that have a term of more than 7 years because the Company does not have reliable historical data on exercise of its options. The simplified method was used for options granted in 2020 and 2019.
The fair value of option grants under the Company’s equity compensation plan during the years ended December 31, 2020 and 2019 was estimated using Black-Scholes pricing model using the following weighted-average assumptions :
| | | |
| Dividend yield | 0.00% | 0.00% |
| Expected volatility | 115% | 112% |
| Risk-free interest rate | .4% | 2.12% |
| Expected lives (years) | 6.5 | 6 |
6. FAIR VALUE MEASUREMENTS
We are required to provide financial statement users with information about assets and liabilities measured at fair value in the balance sheet or disclosed in the notes to the financial statements regarding (1) the valuation techniques and inputs used to develop fair value measurements, including the related judgments and assumptions made, (2) the uncertainty in the fair value measurements as of the reporting date, and (3) how changes in the measurements impact the performance and cash flows of the entity.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by the accounting literature contains three levels as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimations.
The 2020 May 2020 Note Exchange and the December 2020 Debt Exchange resulted in transactions which required the Company to recognize debt extinguishments in both instances and to record newly issued financing instruments at fair value at the dates of the transactions on a non-recurring basis. Fair value measurements in both transactions were categorized as Level 3 fair value measurements due to use of various unobservable inputs to the pricing models. A single most significant factor included in pricing models was the Level 1 input of observable market value of MobileSmith common stock on the date of the transactions, as quoted on the OTCQB. Despite the thinly traded nature of the Company stock, the quoted market value could not be ignored in determination of fair value in the transactions.
Fair value measurements in the May 2020 Note Exchange transaction (refer to "Debt" footnote for the description of the transaction)
The Company used a binomial model to determine the fair value of the newly issued instrument.
The significant unobservable inputs and information used to develop those inputs include the following:
●
the volatility of stock price was determined to be 86% and was based on the volatility of the Company’s stock price as quoted on the Over-the-Counter Bulletin Board (the “OTCBB”) for the period of 2.5 years, which approximated the period remaining until maturity of the convertible instrument at the time of the transaction;
●
the risk free rate of .24%;
●
the credit spread over the risk free rate of approximately 8%;
●
the nodes of the binomial model were extended for two and a half years, which approximates the time period until maturity of the convertible instrument; and
●
the conversion ratio of $1.43 per share of common stock
Fair value measurements in December 2020 Debt Exchange transaction (refer to "Stockholder's deficit" footnote for the description of the transaction)
The Company used income approach to arrive at the fair value of the Series A Convertible Preferred stock on December 23, 2020 - the date of the exchange. Using this approach the value of Series A Convertible Preferred holding is equal to the present value of the cash flow streams that can be expected to be generated by the holder in a combination of dividends and conversion of preferred shares into common and subsequent sale of the common shares. The Company used Monte Carlo model to simulate future movement of our common stock and discounted the results back to December 23, 2020 transaction date. The model used the following notable inputs:
●
the market price of the Company common stock on December 23, 2020 of $2.50 as a starting point of simulation
●
the risk free rate and discount rate of 1.23%;
●
term of simulation extended to 15 years;
●
the model also considered the probability of a Fundamental Transaction (as defined in Series A Convertible Preferred Stock certificate of designation) and probabilities of payment of dividend in cash or in additional preferred shares.
As of December 31, 2020 and 2019, we believe that the fair value of our financial instruments other than cash and cash equivalents, such as, accounts receivable, our bank loan, notes payable, and accounts payable approximate their carrying amounts.
The Company accounts for income taxes under the asset and liability method in accordance with the requirements of US GAAP. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
U.S. Tax Cuts and Jobs Act of 2017. On December 22, 2017, U.S. tax legislation known as the U.S. Tax Cuts and Jobs Act of 2017 (the “TCJA”) was enacted. For corporations, the TCJA amends existing U.S. Internal Revenue Code by reducing the corporate income tax rate and modifying several business deduction and international tax provisions. Specifically, the corporate income tax rate was reduced to 21% from 34%, which resulted in revaluation of our deferred tax assets and liabilities and adjustment to the corresponding valuation allowance. Other changes that may have significant future impact on the Company's financial position relates to net operating losses, which going forward will have an unlimited carryforward period (previously 20 years) and no carryback period (previously 2 years), but deductions for such losses are limited to 80% of taxable income (previously 100% of taxable income) beginning with the 2018 tax year.
The balances of deferred tax assets and liabilities are as follows:
| | | |
| | | |
| Net Current Deferred Income Tax Assets Related To: | | |
| Allowance For Doubtful Accounts | $50,000
| $73,000 |
| Depreciation And Amortization | 91,000 | 144,000 |
| Impairment Charges | 20,000 | 34,000 |
| Stock-Based Compensation Expenses | 60,000 | 91,000 |
| Accrued Liabilities | 8,000 | 11,000 |
| Other | 16,860
| 3,923
|
| Net Operating Loss Carryforwards | 25,042,000 | 35,916,000
|
| Total | 25,287,860 | 36,272,923
|
| Less Valuation Allowance | (25,287,860) | (36,272,923) |
| Net Current Deferred Income Tax | $-
| $-
|
Under US GAAP, a valuation allowance is provided when it is more likely than not that the deferred tax asset will not be realized.
Total income tax expense differs from expected income tax expense (computed by applying the U.S. federal corporate income tax rate of 34% to profit (loss) before taxes) as follows:
| | | |
| | | |
| Tax Benefit Computed At Statutory Rate Of 34% | $(2,066,859) | $(2,550,563) |
| State Income Tax Benefit, Net Of Federal Effect | (276,837) | (341,625) |
| Permanent Differences | | |
| Stock-Based Compensation | 162,165 | 51,153 |
| Debt Discount Amortization | 308,109 | 543,177 |
| Other | 2,485
| 2,935 |
| Impact of U.S. tax Cuts and Jobs Act of 2017 | 12,856,000
| -
|
Change In Valuation Allowance
| (10,985,063) | 2,294,923
|
| Totals | $- | $- |
| | December 31, 2020 | December 31, 2019 |
| Net current deferred income tax assets related to: | |
| Allowance for doubtful accounts | $(5,000) | $1,000 |
| Depreciation, amortization and impairment | 84,000 | 104,000 |
| Deferred revenue | 41,000 | 41,000 |
| Stock-based expenses | 53,000 | 53,000 |
| Other | - | 9,325 |
| Net operating loss carryforwards | 21,433,000 | 22,719,000 |
| Total | 21,606,000 | 22,927,325 |
| Less valuation allowance | (21,606,000) | (22,927,325) |
| Net current deferred income tax | $- | $- |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Tax benefit computed at statutory rate of 21% | $(14,996,067) | $(2,311,162) |
| State income tax benefit, net of federal effect | (856,918) | (132,066) |
| Permanent differences: | | |
| Stock based compensation | 690,367 | 770,688 |
| Debt discount amortization | 436,411 | 268,123 |
| Loss on debt extinguishment | 13,176,496 | - |
| Other | 145,036 | (52,583) |
| Expiration of NOLs | 2,726,000 | 1,863,000 |
| Change in valuation allowance - continuing operations | (1,321,325) | (406,000) |
| Totals | $- | $- |
As of December 31, 2017,2020, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $98$96.5 million, of which don't have an expiration date.$19.3 million will never expire and approximately $77.2 million will expire between 2021 and 2037. For state tax purposes, the NOL carryforwards expire between 20182021 and 2033.2035. In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in equity ownership of greater than 50% of the Company within a three-year period can result in an annual limitation on the Company’s ability to utilize its NOL carryforwards that were created during tax periods prior to the change in ownership.
The Company has reviewed its tax positions and has determined that it has no significant uncertain tax positions at December 31, 2017.2020.
9. |
8. MAJOR CUSTOMERS AND CONCENTRATIONS |
A customer that individually generates more than 10% of revenue is considered a major customer.
For the year ended December 31, 2017,2020, one customer accounted for 46%12% of the Company’s revenue. Two customers accounted for 91% of the net accounts receivable balance as of December 31, 2020. Four vendors accounted for 60% of the accounts payable balance as of December 31, 2020.
For the year ended December 31, 2019, one customer accounted for 16% of the Company’s revenue. Three customers accounted for 77%81% of the net accounts receivable balance as of December 31, 2017.2019. One vendor accounted for 13%30% of the accounts payable balance as of December 31, 2017.2019.
For the year ended December 31, 2016, one customer accounted for 15% of the Company’s revenue. Two customers accounted for 75% of net accounts receivable balance as of December 31, 2016. Two vendors accounted for 65% of accounts payable balance as of December 31, 2016.
9. EMPLOYEE BENEFIT PLAN
10. | EMPLOYEE BENEFIT PLAN |
All full-time employees who meet certain age and length of service requirements are eligible to participate in the Company’s 401(k) Plan. The plan provides for contributions by the Company in such amounts as the Board of Directors may annually determine, as well as a 401(k) option under which eligible participants may defer a portion of their salaries. The Company contributed a total of approximately $36,800$34,000 and $37,000$36,000 to the plan during 20172020 and 2016,2019, respectively.
10. 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:
| | 12 Months Ended
December 31, 2020 | 12 Months Ended
December 31, 2019 |
| | Billings | GAAP Revenue | Billings | GAAP Revenue |
| Top 5 Customers (Measured By Amounts Billed) | $588,169 | $589,858 | $877,030 | $787,386 |
| All Other Customers | $1,237,247 | $1,607,221 | $1,344,054 | $2,014,322 |
| | $1,825,416 | $2,197,079 | $2,221,084 | $2,801,708 |
New customer acquisition impact on billings and revenue:
| | 12 Months Ended
December 31, 2020 | 12 Months Ended
December 31, 2019 |
| | Billings | GAAP Revenue | Billings | GAAP Revenue |
| Customers In Existence As Of The Beginning Of The Period (Including Upgrades) | $1,620,831 | $2,108,289 | $1,964,834 | $2,778,014 |
| Customers Acquired During The Period | $204,585 | $88,790 | $256,250 | $23,694 |
| | $1,825,416 | $2,197,079 | $2,221,084 | $2,801,708 |
As of December 31, 2020 the aggregate amount of the transaction price allocated to unsatisfied (or partially satisfied) performance obligations was $875,154 of which $649,789 had been billed to the customers and recorded as a contract liability and $225,365 remained unbilled as of December 31, 2020. 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 December 31, 2020) | Unbilled | Total |
| | | | |
| 2021 | $649,789 | $125,930 | $ 775,719 |
| 2022 | - | 79,435 | 79,435 |
| 2023 | - | 20,000 | 20,000 |
| | $649,789 | $225,365 | $875,154 |
At January 1, 2020 the total contract liability balance was $1,051,271 (net of the Topic 606 adoption adjustment), of which approximately $1,005,000 was recognized in revenue during the twelve months ended December 31, 2020.
11. LEASES
We are a lessee for a non-cancellable operating lease for our corporate office in Raleigh, North Carolina. The operating lease for the corporate office expires on April 30, 2024.
The following table summarizes the information about operating lease:
11. | SUBSEQUENT EVENTSYear Ended
December 31,
2020 |
The following table summarizes the information about operating lease: | |
Operating lease expense | $204,966 |
Remaining Lease Term (Years)
| 3.25 years |
| Discount Rate | 8% |
Future maturities of operating lease liability as of December 31, 2020, were as follows:
| | Operating Lease Expense | Variable Lease Expense | Total Lease Expense |
| 2021 | $191,074 | $13,686 | $ 204,760 |
| 2022 | 191,074 | 14,096 | 205,170 |
| 2023 | 191,074 | 14,519 | 205,593 |
| 2024 | 63,691 | 4,840 | 68,531 |
| Total lease payments | $636,913 | $47,141 | 684,054 |
| Less imputed interest | | | (90,060) |
| Total | | | $593,994 |
12.SUBSEQUENT EVENTS
On January 28, 2021 the Company exchanged the remaining face value of $2,900,000 of convertible debt for 70,014 shares of Series A Convertible Preferred stock (the "January 2021 Debt Exchange")
Subsequent to December 31, 2017,2020 the Company issued two 2014 NPA Notes to UBPa total of 41,066 shares of Series A Convertible Preferred stock in exchange for $1,761,700 of cash investment.
On February 18, 2021 the total amount of $2,250,000 on the same terms as the currently outstanding 2014 NPA Notes. The notes mature on November 14, 2018. Company's PPP loan was forgiven in its entirety.
In addition,February 2021, the Company borrowed $325,000 throughreceived approximately $542,000 of proceeds from a related party short term bridge loan.note payable issued under either the SBA's Paycheck Protection Program under section 7(a)(36) of the Small Business Act or the SBA's Paycheck Protection Program Second Draw Loans under Section 7(a)(37) of the Small Business Act. The note matures in five years and bears interest at 1% per year. Similar to the initial PPP Loan, the second loan contains a loan forgiveness covered period of six months from the date of issuance in which the Company will not be obligated to make any payments of principal or interest. If the Company does not submit a loan forgiveness application within ten months after the end of the loan forgiveness covered period, the Company must begin making principal and interest after that period. Interest continues to accrue during the deferment period. If the Company is unable to or does not follow those guidelines for the loan to be forgiven by the SBA, the Company would be required to repay a portion of or the entire balance of the loan proceeds in full.
On March 21, 2018 the Company granted 366,980 options to a newly appointed board member.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 quarter ended December 31, 2017.2020. 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 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 December 31, 2017,2020, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control system was designed to provide reasonable assurance to our management and the Board of Directors regarding the preparation and fair presentation of published financial statements.
Our internal control over financial reporting includes those policies and procedures that:
| (i) | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| | |
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| | |
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
In making the assessment of adequate internal control over financial reporting, our management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on that assessment and those criteria, management believes that our internal control over financial reporting waswere effective as of December 31, 2017.2020.
During our fourth quarter ended December 31, 2017,2020, there were no changes made in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.GOVERNANCE
The following table sets forth certain information concerning the Company’s current executive officers and directors, their ages, their officesInformation required by Item 10 is incorporated by reference from our definitive Proxy Statement relating to our Annual Meeting of Stockholders, to be filed with the Company, if any, their principal occupations or employment forSEC within 120 days after the past five years.
| Name | | Age | | Position | | Officer Since |
| | | | | | | |
EXECUTIVE OFFICERS: | | | | | | |
| | | | |
| | |
Bob Dieterle
| | 51 | | Chief Executive Officer | | 2014** |
Gleb Mikhailov
| | 38 | | Chief Financial Officer
| | 2013 |
| Name | | Age | | Position | | Director Since |
| | | | | | | |
| DIRECTORS: | | | | | | |
| | | | | | | |
| Randy J. Tomlin | | 57 | | Director, Executive Chairman of the Board
| | 2016 |
| Ronen Shviki | | 46 | | Director
| | 2013 |
Ray Hemmig
| | 68 | | Director | | 2017 |
| Robert Smith | | 66 | | Director
| | 2017 |
| Amir Elbaz | | 40 | | Director
| | 2010* |
* Mr. Elbaz was Chief Executive Officer through January 17, 2017, a position he held since May 2013.
** Mr. Dieterle joined the Company in Februaryend of 2010 as a General Manager.
Bob Dieterle, Chief Executive Officer
On January 17, 2017 the Board appointed Bob Dieterle, the Company's President, to serve as Chief Executive Officer of the Company.
Mr. Dieterle joined the Company in January of 2011 as a General Manager. Mr. Dieterle is Chief Innovator of the Company’s flagship product, the MobileSmith™ Platform. Mr. Dieterle brings with him over 20 years of global technology experience from companies like IBM and Lenovo and is an accomplished thought leader in the adoption and commercialization of emerging technologies at the consumer and enterprise levels. Prior to joining the Company, Mr. Dieterle served as the Executive Director of World Wide Product Management and Marketing of Services at Lenovo from May 2006 to December 2009. Mr. Dieterle has a B.S. in Electrical Engineering from North Carolina State University, and an M.B.A. from Duke University’s Fuqua School of Business.
Gleb Mikhailov, Chief Financial Officer
Chief Financial Officer since April 2013. From January 2013 to March 2013, Mr. Mikhailov served as the Manager of Financial Reporting and SEC Consulting in the SEC Solutions Group of Citrin Cooperman, LLP, an accounting firm providing business solutions and accounting services to middle market companies. From January 2005 until December 2012, Mr. Mikhailov was employed by EisnerAmper LLP, a full-service advisory and public accounting firm, in its Private Business Services Group and Audit and Assurance Group. He was a Manager at EisnerAmper LLP since 2010. Mr. Mikhailov holds a B.A. in Accounting from Rutgers, The State University of New Jersey and an M.B.A. from Rutgers Business School. Mr. Mikhailov holds a CPA license issued by the State of New Jersey.
Randy J Tomlin, Executive Chairman of the Board
On January 17, 2017 the Board appointed current board member Randy J. Tomlin, age 57, to assume responsibilities of Executive Chairman of the Board. Randy J. Tomlin was appointed to the Board on August 4, 2016.
Until his retirement in February 2016, Mr. Tomlin, served as a Senior Vice President UVerse Field Operations for AT&T, a position he has held since March 2008. At UVerse Field Operations for AT&T Mr. Tomlin was responsible for all field operations for AT&T Uverse, including service, installation at customer homes, repair and maintenance. From May 2006 to March 2008 Mr. Tomlin was a President of AT&T Network – California and Nevada, where he was in charge of teams that engineered, built and maintained the networks that carried all network traffic in two states. Mr. Tomlin began his career with Southwestern Bell in 1982, and has held various managerial positions in Customer Service, Network and External Affairs throughout his 34year career at AT&T. During his career with AT&T he also served as Senior Vice President of Enterprise Operations Support, responsible for leading the Network Services Staff organization as well as the network standardization effort to move to common centers, best practices and a single suite of systems. Mr. Tomlin led many of SBC’s acquisitions integration activities, including AT&T, BellSouth, and Cingular.
Mr. Tomlin received his bachelor’s degree in Finance from Texas A&M University in College Station, Texas.
The Board believes that Randy J. Tomlin’s contribution to the Board includes his experience in successfully managing a complex division of a global technology company with a contemporaneous focus on customer service and operational efficiency. In addition, Mr. Tomlin’s recognition in the technology industry may benefit us in the form of formation of valuable partnerships and other strategic opportunities.
Ray Hemmig, Director
On August 11, 2017, the Board of Directors appointed Ray Hemmig to the Board.
Ray Hemmig has more than 40 years of executive and board experience in the retail and restaurant industries, including: J. C. Penney, Hickory Farms of Ohio, Grandy’s (VP Operations, COO; EVP (Saga Corp), Ace Cash Express (CEO, Executive Chairman, Chairman), Buffet Partners, LP dba Furr’s Fresh Buffet (CEO, Chairman). He founded in October 1995 Retail and Restaurant Growth Capital (RRGC) - a small business investment company (SBIC) that has been providing growth capital to retail and restaurant industries for over 20 years. In 2013 Mr. Hemmig founded Hemmig Investments, LTD - a family investment office based in Dallas, TX, which is involved in non-controlling investments in privately held businesses in a variety of industries.
Mr. Hemmig has served on multiple public and privately held company boards: Communications World; Party City (NYSE:PRTY); On the Border; Ace Cash Express; Restoration Hardware (NYSE:RH); Full House Resorts (NASDAQ:FLL), as well as numerous other privately held company boards in the US and abroad. Mr. Hemmig is also an active member and board member of the North Texas Chapter of the National Association of Corporate Directors (NACD), where he holds the highest “Leadership Fellow” Director status. He was a Director of The University of Texas at Dallas’s, Institute for Excellence in Corporate Governance (the "IECG"), and currently, he is the Chair of the Jindal School of Management Advisory Board at The University of Texas at Dallas (the "UTD"), where he also serves on the Development Board. He is a frequent speaker on the subjects of corporate governance.
Mr. Hemmig received his business education from the University of Toledo in Toledo, Ohio.
Mr. Hemmig is a member of both Audit and Compensation Committees and a Chairman of the Compensation Committee.
The Board believes that Mr. Hemmig's contribution to the Board includes his background in the management of developing businesses from operational and corporate governance standpoints.
Amir Elbaz, Director
Until January of 2017 Mr. Elbaz held positions of Chief Executive Officer since May 2013 and Chairman of the Company’s Board of Directors since November of 2012. During his tenure as a member of the Board, and its Chairman and Company CEO, Mr. Elbaz has been actively involved in the Company operations and played significant role in ensuring that the Company's products and strategy had continued backing of investors and shareholders. Mr. Elbaz continues in the employ of the Company primarily focusing on investor and public relations and regulatory and operational compliance.
The Board believes Mr. Elbaz's significant experience in the technology sector, coupled with this extensive financial and economic background and his deep knowledge of our company provide invaluable insight with respect to the Company’s business and technologies.
Ronen Shviki, Director
Mr. Shviki has served on the Board since February 2013. Since January 2013, Mr. Shviki has served as the Vice President for Business Development of Mendelssohn Ltd., an Israeli distribution company. Prior to this, Mr. Shviki served in the Israel Defense Forces as a Colonel in the Army branch. Mr. Shviki holds a B.A. in Business Administration from Interdisciplinary Center Herzliya and an LLB from Interdisciplinary Center Herzliya.
The Board believes Mr. Shviki’s extensive marketing and management experience, in addition to his knowledge of the international marketplace, contributes to the strategic composition of the Board.
Mr. Shviki is a member of both Audit and Compensation Committees.
Robert Smith, Director
On October 31, 2017, the Board of Directors appointed Robert L. Smith to the Board.
Robert Smith is an experienced multi-facility health care executive with varied background in complex urban and rural health care settings. During his 40-year career in the industry he has held CEO and other executive positions of various for profit and non-profit hospitals and health care organizations, where he demonstrated ability to turnaround, create, and grow business units in complex and competitive environments. Mr. Smith's broad business experience includes reorganization, restructuring and public company experience at the CEO and Board of Directors level. Mr. Smith has served on the boards of various healthcare organizations. He currently serves on the boards of Parkland Center for Clinical Innovation and Cobalt Rehabilitation Hospitals. He is a 2011 recipient of the Texas Hospital Associations Earl N. Collier Award for Distinguished Health Care Administration. Mr. Smith received his Master of Health Administration Degree from Washington University School of Medicine, St. Louis, MO and his Bachelor of Science Degree in Psychology from University of Missouri in St. Louis, MO.
Mr. Smith is a member of both Audit and Compensation Committees and the Chairman of the Audit Committee.
The Board believes that Mr. Smith's background in healthcare will provide the Company management with insights regarding market penetration and enhance management's and Board's ability to interpret healthcare industry changes.
Section 16(a) Beneficial Ownership Reporting Compliance
The members of the Board, its executive officers, and persons who hold more than 10% of the Company’s outstanding shares of common stock, $0.001 par value per share, or common stock, are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which requires them to file reports with respect to their ownership of the Company’s common stock and their transactions in such common stock. Based upon the Company’s review of the Section 16(a) reports in its records for fiscal year 2017 transactions in the Company’s common stock, the Company believes that all reporting requirements under Section 16(a) for fiscal year 2017 were met in a timely manner by its directors, executive officers, and greater than 10% beneficial owners, except that Union Bancaire Privée, or UBP, has not filed a Form 3 or any subsequent reports in respect of its ownership of 4,895,105 shares of Company common stock and $22,992,180 in principal amount of the Company’s convertible Notes,which Notes may be converted into shares of the Company’s common stock by UBP at any time upon notice, as of December 31, 2017.
Code of Ethics
The Company has adopted a Code of Ethics applicable to its executives, including the principal executive officer, principal financial officer, and principal accounting officer, as defined by applicable rules of the SEC. The Company will promptly deliver free of charge, upon request, a copy the Code of Ethics to any stockholder requesting a copy. Requests should be directed to the Company’s Chief Financial Officer at 5400 Trinity Rd., Suite 208, Raleigh, NC, 27607. If the Company makes any amendments to the Code of Ethics other than technical, administrative, or other non-substantive amendments, or grants any waivers, including implicit waivers, from a provision of the Code of Ethics to the Company’s Chief Executive Officer, Chief Financial Officer, Chief Operating Officer or certain other finance executives, the Company will disclose the nature of the amendment or waiver, its effective date, and to whom it applies in a Current Report on Form 8-K.
The Board
The size of the Board is currently comprised of five members. The Board believes that the current number of directors is appropriate at this time; however, the Board will consider adding members in the future with additional skills and professional connections that will be of benefit to the Company.
We do not have any defined policy or procedure requirements for stockholders to submit recommendations or nominations for directors. The board of directors believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. Our company does not currently have any specific or minimum criteria for the election of nominees to the board of directors and we do not have any specific process or procedure for evaluating such nominees. The board of directors will assess all candidates, whether submitted by management or stockholders, and make recommendations for election or appointment. A shareholder who wishes to communicate with our board of directors may do so by directing a written request addressed to our Chief Executive Officer, Bob Dieterle, at the address appearing on the first page of this report.
Audit Committee and Audit Committee Financial Expert
The board of directors formed an audit committee on February 1, 2018 and adopted audit committee charter. Messrs Hemmig, Smith and Shviki, serve on the Audit Committee.The Board of Directors has determined that each member of the Audit Committee is independent within the meaning of the Company's and NASDAQ's director independence standards and the SEC's heightened director independence standards for Audit Committee members as determined under the Exchange Act. The Board of Directors has also determined that Messrs Hemmig and Smith qualify as "Audit Committee financial experts" under the rules of the SEC.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes the compensation earned during the years ended December 31, 2017 and December 31, 2016 by our principal executive officer, our former principal executive officer, the two other most highly paid executive officers who were serving as executive officers on December 31, 2017:
SUMMARY COMPENSATION TABLE
Name and Principal Position | | Year | | | | All Other Compensation ($) | |
| Randy J Tomlin | | 2016 | $ 16,665
| $- | $436,039 | $- | $452,704 |
| Executive Chairman of the Board | | 2017 | $ 120,000
| $- | $- | $- | $120,000 |
| | | | | | |
| Bob Dieterle | | 2016 | $169,033 | $- | $117,250 | $21,302(3) | $307,585 |
| Chief Executive Officer (3) | | 2017 | $180,000 | $- | $- | $45,479(3) | $225,479 |
| | | | | | |
| Gleb Mikhailov | | 2016 | $132,200 | $- | $90,450 | $- | $222,650 |
| Chief Financial Officer | | 2017 | $132,200 | $5,624 | $- | $- | $137,824 |
| | | | | | |
| Amir Elbaz | | 2016 | $180,000 | $- | $127,300 | $- | $307,300 |
| Former Chief Executive Officer (2) | | 2017 | $103,333 | $- | $- | $- | $103,333 |
(1) | Amounts in this column reflect the aggregate grant date fair value computed in accordance with FASB ASC 718 with respect to employee stock options granted under our Equity Incentive Plan. The assumptions used to calculate the fair value of stock option grant are set forth in Note 2 (Significant Accounting Policies) to our financial statements, which are included in the Annual Report on Form 10-K. The grant-date fair value does not necessarily reflect the value of shares which may be received in the future with respect to these awards. The fair value of the stock options will likely vary from the actual value the holder receives because the actual value depends on the number of options exercised and the market price of our Common Stock on the date of exercise. |
(2)
| Mr. Elbaz has served on the Board since January 2010, as Chairman of the Board since November 2012 and as Chief Executive Officer of the Company since May 1, 2013. Mr. Elbaz resigned from his positions of a Chairman and CEO in January of 2017. |
(3) | Mr. Dieterle has served as Senior Vice President and General Manager of the Company since February 2010 and Chief Operating Officer since May 13, 2014 and as CEO since January 17, 2017. Mr. Dieterle receives monthly commissions tied to revenue realized from customers. Such commissions are included in "All Other Compensation" column in the table above.
|
Grants of Plan-Based Awards for Year Ended December 31, 2017
There were no grants of plan-based awards in 2017 to our Named Executive Officers.
Outstanding Equity Awards
The following table provides information about outstanding equity awards held by the named executive officers as of December 31, 2017:
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | Option exercise |
|
| Name | | | | Option expiration date |
| Randy J Tomlin | 224,445 | 244,415 | $1.50 | 8/1/2023 |
| Bob Dieterle | 75,000 | - | $1.14 | 3/25/2020 |
| Bob Dieterle | 65,625 | 109,375 | $1.49 | 11/21/2020 |
| Gleb Mikhailov | 50,625 | 84,375 | $1.49 | 11/21/2020 |
| Amir Elbaz | 20,000 | - | $1.14 | 3/25/2020 |
| Amir Elbaz | 71,250 | 118,750 | $1.49 | 11/21/2020 |
Option Exercises and Stock Vested in 2017
None of our named executive officers acquired shares upon exercise of options during the year; 263,226 shares previously granted to the named executive officers vested during the year.
Employment and Consulting Agreements
We and Bob Dieterle entered into an employment agreement dated as of February 1, 2010, pursuant to which Mr. Dieterle served as our General Manager, Senior Vice President of Operations, Chief Operating Officer through January 17, 2017, whereupon he was appointed as our Chief Executive Officer. Under the agreement, Mr. Dieterle was paid an annual salary at the per annum rate of $180,000 in the year 2017. The agreement contains certain provisions for early termination and change in control, which may result in a severance payment equal up to one year of base salary then in effect. These severance benefits are discussed in more detail below under “Potential Payments upon Change of Control or Termination following a Change of Control.” In addition, Mr. Dieterle received in 2017 $45,479 as commissions in respect of revenues recorded by us for such year. The agreements includes certain confidentiality and non-compete provisions that prohibit the executive from competing with us, or soliciting our employees, for such period as he is receiving payments from our company following the termination of his employment.
We and Randy Tomlin, our Executive Chairman, entered into a consulting agreement on August 1, 2016 pursuant to which he was paid a monthly consulting fee of $10,000, or $120,000 in 2017. In addition, in connection with his engagement, Mr. Tomlin was granted options under the Company’s 2016 Equity Incentive Plan, to purchase 468,860 shares of the Company’s common stock par value $0.001 per share, which options are scheduled to vest over a three-year period in equal quarterly installments, at exercise price of $1.50 per share, subject to accelerated vesting upon the occurrence of certain specified events. In addition, under his agreement with us, in the event we are acquired by a party to whom we are introduced by Mr. Tomlin, then he is entitled to compensation equal to 1% of the net proceeds paid by the acquirer. Additionally, for his participation in marketing of Company products and services Mr. Tomlin is entitled to a commission equal to the 4% of the net sale proceeds if a customer and sale transaction fits certain defined criteria. As of the date of this report on Form 10-K, Mr. Tomlin was not paid any fees in respect of such commissions. The agreement provides that it is terminable by either party upon 30-days prior written notice to the other.
We have not entered into employment agreement with any of the other named executive officers.
Potential Payments upon Change of Control or Termination following a Change of Control
Assuming the employment of Mr. Dieterle, our Chief Executive Officer, was terminated involuntarily and without cause, or that he resigned with good reason, prior to a change of control occurring on December 31, 2017, he would have been entitled to cash payments equal to the amounts set forth in the below table, subject to any deferrals required under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). The following table summarizes the value of compensation and benefits as a result of a termination occurring prior to a change of control as of December 31, 2017.
| | | Continuation of Benefits ($) | | Total Payments and Value of Equity Awards($) |
| Payments | $45,000
| $2,500 | $1,061
| $48,561
|
Assuming the employment of Mr. Dieterle was terminated involuntarily and without cause, or that he resigned with good reason during the 12 months following a change of control occurring on December 31, 2017, in accordance with the terms of the employment agreements with him he would have been entitled to cash payments in the amounts below, subject to any deferrals required under the Code. The following table summarizes the value of compensation and benefits as a result of a termination occurring immediately following a change of control as of December 31, 2017:
| | | | | | | | | Accrued | | | Total Payments | |
| | | | | | Continuation | | | Vacation | | | and Value of | |
| | | Base Salary | | | of Benefits | | | Pay | | | Equity Awards | |
| | | ($) | | | ($) | | | ($) | | | ($) | |
| Payments | | $ | 225,000 | | | $ | 2,500 | | | $ | 1,061
| | | $ | 228,561 | |
Other than as specified above, we currently have no arrangements with any of the other named executive officers with respect to payments in connection with a termination of their employment or a change in control of the Company.
Compensation of Directors
The following table summarizes the compensation paid to the directors for the fiscal year ended December 31, 2017, not covered in the tables above.2020.
| Name | Fees Earned or Paid in Cash ($) | | | All Other Compensation ($) | |
| Ronen Shviki | $18,000 | $- | $- | $- | $18,000 |
| Randy J Tomlin | $117,720 | $- | $- | $- | $117,720 |
Ray Hemmig
| $12,500 | $- | $605,517
| $- | $618,017 |
Robert Smith
| $5,000 | $- | $402,294 | $- | $407,294 |
Principal Stockholders and Share Ownership by ManagementMATTERS
The following table sets forth information regarding beneficial ownershipInformation required by Item 12 is incorporated by reference from our definitive Proxy Statement relating to our Annual Meeting of Stockholders, to be filed with the SEC within 120 days after the end of the Company’s common stock as of March 27, 2017, by (i) each person who is known by the Company to beneficially own more than 5% of the Company’s common stock; (ii) each person who served as a named executive officer of the Company in fiscal year 2016, (iii) each person serving as a director or nominated for election as a director; and (iv) all current executive officers and directors as a group. Except as otherwise indicated by footnote, to the Company’s knowledge, the persons named in the table below have sole voting and investment power with respect to all shares of the Company’s common stock shown as beneficially owned by them.ended December 31, 2020.
Name and Address of Beneficial Owner (1) | Shares Beneficially Owned(2) | % of Shares BeneficiallyOwned |
| | | |
| | | |
| Avy Lugassy | | |
| 126 Chemin des Hauts, Crets 1253 Vandeeuvres, Geneva. Switzerland (3) | 18,498,998 | 53.80% |
| | | |
| Union Bancaire Privee, UBP SA (4) | 22,546,979 | 53.20% |
| Rue du Rhone 9698 | CP | CH1211 Geneva 1, Switzerland | | |
| | | |
| Doron Rotler (5) | 2,929,734 | 11.60% |
| c/o S. Rotler | | |
| 134 Aluf David Street Ramat Gan 52236, Israel | | |
| | | |
| Directors and Named Executive Officers: | | |
| Randy J. Tomlin, Executive Chairman of the Board | 263,517 | * |
| Bob Dieterle, Chief Executive Officer | 155,208 | * |
| Gleb Mikhailov, Chief Financial Officer | 61,875 | * |
| Amir Elbaz, Director | 107,083 | * |
| Ray Hemmig, Director | 75,770 | * |
| Ronen Shviki, Director | - | * |
| Robert Smith, Director | 50,969 | * |
| | | |
All executive officers and directors as a group (6) persons | 714,423 | 2.80% |
* Less than 2%.
(1) Unless otherwise indicated, the address of such individual is c/o MobileSmith, Inc., 5400 Trinity Road, Suite 208, Raleigh, North Carolina 27607.
(2) In computing the number of shares beneficially owned by a person and the percentage ownership of a person, shares of our common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of the Record Date are deemed outstanding. Such shares, however, are not deemed outstanding for purposes of computing the percentage ownership of each other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock.
(3) The record holder of the shares is Grasford Investments Ltd., or Grasford, which is controlled by Mr. Lugassy, as principal. Beneficial ownership is comprised of 8,830,269 shares of the Company’s common stock and 9,668,729 shares issuable upon conversion of the Company's Convertible Notes due November 2018 (the "Convertible Notes") held by Grasford.
(4) Comprised of 4,895,105 shares issued and 17,651,874 shares issuable upon conversion of the Convertible Notes.
(5) Comprised of 2,332,807 shares of Common Stock held as of record by Mountain Top LTD., a British Anguilla company (an entity controlled by Mr. Rotler), 85,900 shares held in the name of Mr. Rotler and 511,027 shares of the Company’s common stock issuable upon conversion of Convertible Notes held by Crystal Management Ltd., a company registered in British Anguilla (entity controlled by Mr. Rotler).
Equity Compensation Plans
The following table provides information, as of December 31, 2017, regarding the Company’s compensation plans (including individual compensation arrangements) under which the Company is authorized to issue equity securities.
EQUITY COMPENSATION PLAN INFORMATION
| | | | | Number of | |
| | | | | securities | |
| | | | | remaining | |
| | | | | available for | |
| | Number of | | | future issuance | |
| | securities to be | | Weighted | under equity | |
| | issued upon | | average | compensation | |
| | exercise of | | exercise price | plans | |
| | outstanding | | of outstanding | (excluding | |
| | options, | | options, | securities | |
| | warrants and | | warrants and | reflected in | |
Plan Category | rights (a) | | rights (b) | column (a)(c)) | |
| | | | | | |
| Equity compensation plans approved by security holders | 2,658,247 | (1) | $ 1.54 | 12,499,014
| (2) |
| Equity compensation plans not approved by security holders | - | | -
| -
| |
| Total | 2,658,247 | | $ 1.54 | 12,499,014
| |
(1) | Consists of shares issuable upon exercise of outstanding options under the Company’s 2004 and 2016 Equity Compensation Plans. |
(2) | All of the shares remaining for future issuance under the 2016 Equity Compensation Plan are available for issuance as options or restricted stock awards. |
Certain Relationships and Related TransactionsINDEPENDENCE
Sale LeasebackInformation required by Item 13 is incorporated by reference from our definitive Proxy Statement relating to our Annual Meeting of Company Equipment with Noteholders. On September 4, 2009, the Company entered into a sale-leaseback agreementStockholders, to be filed with the current holdersSEC within 120 days after the end of the Notes. The noteholders paid a market rate cost of $200,000 through the reduction of current outstanding debt under such Notes in exchange for all of the Company’s office furniture, equipment and computers. The noteholders then leased all furniture, equipment and computers back to the Company over a 10fiscal year period. The purchase price of $200,000 represented the fair market value of the equipment based on an independent appraisal of the equipment by Dynamic Office Services and Coastal Computers, which are not affiliated with the Company.ended December 31, 2020.
SaleInformation required by Item 14 is incorporated by reference from our definitive Proxy Statement relating to our Annual Meeting of Convertible NotesStockholders, to Certain Related Parties. As of March 26, 2018,be filed with the Company had $40.5 million of convertible Notes outstanding of which Grasford, an affiliated party, held $13.8 million and UBP, significant shareholder, held $25.2 million. During 2017,SEC within 120 days after the Company paid approximately $980,000 and $1,940,000 in interest to Grasford and UBP, respectively, for the aggregate amount of Notes held by them.
Sale of 2014 NPA Notes to Certain Related Parties
During 2017 the Company issued Convertible Notes in aggregate principal amount of $3,725,000 to UBP under the following terms:
●
a maturity dateend of the earlier of (i) November 14, 2018, (ii) a Change of Control (as defined in the 2014 NPA), or (iii) when, upon or after the occurrence of an Event of Default (as defined in the 2014 NPA), such amounts are declared due and payable by a noteholder or made automatically due and payable in accordance with the terms of the Note.
●
an interest rate of 8% perfiscal year with accrued interest payable in cash in quarterly installments commencing on the third month anniversary of the date of issuance of the Note with the final installment payable on the maturity date of the Convertible Note.
●
a conversion price per share that is fixed at $1.43.
●
may not be prepaid without the consent of holders of at least two thirds of the aggregate outstanding principal amount of Notes issued under the 2014 NPA.
Policy for Approval of Related Party Transactions
The Company requires that any related party transactions must be approved by the full Board of Directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit and Non-Audit Fees
Aggregate fees for professional services rendered for the Company by Cherry Bekaert LLP, our independent registered public accounting firm, for the fiscal years ended December 31, 2017 and 2016 are set forth below.2020.
| | Twelve months ended December 31, | Twelve months ended December 31, |
| | 2017 | |
| Audit Fees | $76,500 | $75,000 |
| Audit-Related Fees | 7,500 | 2,500 |
| Tax Fees | | |
| All Other Fees | | |
| Total Fees | $84,000
| $78,000 |
Audit Fees and audit related fees were for professional services rendered for the audits of our consolidated financial statements, quarterly review of the financial statements included in Quarterly Reports on Form 10-Q, consents, and other assistance required to complete the year-end audit of the consolidated financial statements.
Our full Board pre-approves all audit and permissible non-audit services to be provided by our independent registered public accountants and the estimated fees for these services. None of the services provided by the independent registered public accountants that are described above were approved by the Audit Committee pursuant to a waiver of the pre-approval requirements of the SEC’s rules and regulations.
PART IV
ITEM 15. EXHIBITS
| (a) | (1) | Financial Statements: |
| |
| Report of Independent Registered Public Accounting Firm |
| FINANCIAL STATEMENTS: | | | | |
| | | | | |
Consolidated Balance Sheets as of December 31, 20172020 and 20162019 | | | | |
| | | | | |
Consolidated Statements of Operations for the Years Ended December 31, 20172020 and 20162019 | | | | |
| | | | | |
Consolidated Statements of Cash Flows for the Years Ended December 31, 20172020 and 20162019 | | | | |
| | | | | |
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 20172020 and 20162019 | | | | |
| | | | | |
Notes to Consolidated Financial Statements | | | | |
(b) Exhibits
Exhibit Description No. | | Description | | 3.1 | | Amended and Restated Certificate of Incorporation, dated January 4, 2005, as amended to date (incorporated herein by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q, as filed with the SEC on August 14, 2013) | | | | | | 3.2 | | Seventh Amended and Restated Bylaws, effective July 1, 2013 (incorporated herein by reference to Exhibit 3.3 to our Quarterly Report on Form 10-Q, as filed with the SEC on August 14, 2013) | | | | | 4.13.3 | | Specimen CommonCertificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock Certificate (filed herewith) |
4.2 | | Convertible Secured Subordinated Note Purchase Agreement, dated November 14, 2007, by and among Smart Online, Inc. and certain investors (incorporated herein by reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q, as filed with the SEC on November 14, 2007) | | | | 4.3 | | Form of Convertible Secured Subordinated Promissory Note (incorporated herein by reference to Exhibit 4.2 to our Quarterly Report on Form 10-Q, as filed with the SEC on November 14, 2007) | | | | 4.4 | | First Amendment to Convertible Secured Subordinated Note Purchase Agreement, dated August 12, 2008, by and among Smart Online, Inc. and certain investors (incorporated herein by reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q, as filed with the SEC on November 12, 2008) | | | | 4.5 | | Second Amendment and Agreement to Join as a Party to Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement, dated November 21, 2008, by and among Smart Online, Inc. and certain investors (incorporated herein by reference to Exhibit 4.5 to our Annual Report on Form 10-K, as filed with the SEC on March 30, 2009) | | | | 4.6 | | Third Amendment to Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement and Amendment to Convertible Secured Subordinated Promissory Notes, dated February 24, 2009, by and among Smart Online, Inc. and certain investors (incorporated herein by reference to Exhibit 4.6 to our Annual Report on Form 10-K, as filed with the SEC on March 30, 2009) | | | | 4.7 | | Form of Convertible Secured Subordinated Promissory Note to be issued post January 2009 (incorporated herein by reference to Exhibit 4.7 to our Annual Report on Form 10-K, as filed with the SEC on March 30, 2009) | | | | 4.8 | | Fourth Amendment to Convertible Secured Subordinated Note Purchase Agreement, Second Amendment to Convertible Secured Subordinated Promissory Notes and Third Amendment to Registration Rights Agreement, dated March 5, 2010, by and among Smart Online, Inc. Atlas Capital S.A. and Crystal Management Ltd. (incorporated herein by reference to Exhibit 99.1 to our Current Report on Form 8-K, as filed with the SEC on March 8, 2010). | | | | 4.9 | | Form of Convertible Secured Subordinated Promissory Note to be issued post March 5, 2010 (incorporated herein by reference to Exhibit 99.1 to our Current Report on Form 8-K, as filed with the SEC on March 8, 2010). | | | | 4.10 | | Fifth Amendment to Convertible Secured Subordinated Note Purchase Agreement, Third Amendment to Convertible Secured Subordinated Promissory Notes and Fourth Amendment to Registration Rights Agreement, dated June 13, 2012, by and among Smart Online, Inc., Atlas Capital S.A. and Crystal Management Ltd. (incorporated herein by reference to Exhibit 99.1 to Form 8-K, as filed with the SEC on June 19, 2012) | | | | 4.11 | | Sixth Amendment and Agreement to Join as a Party to Convertible Secured Subordinated Note Purchase Agreement, Fourth Amendment to Convertible Secured Subordinated Promissory Notes and Fifth Amendment and Agreement to Join as a Party to Registration Rights Agreement, dated June 26, 2013, by and among Smart Online, Inc., Grasford Investments Ltd., Atlas Capital S.A. and Crystal Management Ltd. (incorporated herein by reference to Exhibit 10.1 to Form 8-K, as filed with the SEC on July 2, 2013) | | | | 4.12 | | Seventh Amendment to Convertible Secured Subordinated Note Purchase Agreement and Fifth Amendment to Convertible Secured Subordinated Promissory Notes (incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, as filed with the SEC on May 5, 2015 | | | | 4.13 | | Eighth Amendment to Convertible Secured Subordinated Note Purchase Agreement and Sixth Amendment to Convertible Secured Subordinated Promissory Note (incorporated herein by reference to Form 8-K, as filed with the SEC on June 13, 2014) |
10.1* | | 2004 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.1 to our Registration Statement on Form SB-2, as filed with the SEC on September 30, 2004) | | | | 10.2* | | Form of Incentive Stock Option Agreement under 2004 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.2 to our Annual Report on Form 10-K, as filed with the SEC on July 11, 2006) | | | | 10.3* | | Form of Incentive Stock Option Agreement under Smart Online, Inc.’s 2004 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q, as filed with the SEC on May 15, 2007) | | | | 10.4* | | Form of Non-Qualified Stock Option Agreement under 2004 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.3 to our Annual Report on Form 10-K, as filed with the SEC on July 11, 2006) |
10.5* | | Form of Non-Qualified Stock Option Agreement under Smart Online, Inc.’s 2004 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.8 to our Quarterly Report on Form 10-Q, as filed with the SEC on May 15, 2007) | | | | 10.6* | | Form of revised Non-Qualified Stock Option Agreement under Smart Online, Inc.’s 2004 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.6 to our Annual Report on Form 10-K, as filed with the SEC on April 15, 2010) | | | | 10.7* | | Form of Restricted Stock Agreement under Smart Online, Inc.’s 2004 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q, as filed with the SEC on May 15, 2007) | | | | 10.8* | | Form of Restricted Stock Award Agreement (for Employees) under Smart Online, Inc.’s 2004 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on August 21, 2007) | | | | 10.9* | | Form of Restricted Stock Agreement for Employees (incorporated herein by reference to Exhibit 10.1 to Amendment No. 1 to our Current Report on Form 8-K, as filed with the SEC on February 11, 2008) | | | | 10.10* | | Form of Restricted Stock Agreement (Non-Employee Director) under Smart Online, Inc.’s 2004 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on May 31, 2007) | | | | 10.11* | | Form of Restricted Stock Agreement (Non-Employee Directors) (incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K, as filed with the SEC on December 3, 2007) | | | | 10.12* | | Form of revised Restricted Stock Agreement under Smart Online, Inc.’s 2004 Equity Compensation Plan (Non-Employee Director) (incorporated herein by reference to Exhibit 10.12 to our Annual Report on Form 10-K, as filed with the SEC on April 15, 2010) | | | | 10.13 | | Registration Rights Agreement, dated November 14, 2007, by and among Smart Online, Inc. and certain investors (incorporated herein by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q, as filed with the SEC on November 14, 2007) | | | | 10.14 | | Security Agreement, dated November 14, 2007, among Smart Online, Inc. and Doron Roethler, as agent for certain investors (incorporated herein by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q, as filed with the SEC on November 14, 2007) |
10.15 | | Letter Agreement for $6,500,000.00 Term Facility dated December 6, 2010, by Israel Discount Bank of New York, and agreed and accepted by Smart Online, Inc. (incorporated herein by reference3.1 to Form 8-K, as filed with the SEC on December 6, 2010)31, 2020) |
| | | | 10.16 | | First Amendment to Office Lease Agreement dated April 28, 2011, between Smart Online, Inc. and Nottingham Hall LLC (incorporated herein by reference to our Annual Report on Form 10-K, as filed with the SEC on March 20, 2012) |
10.17 | | Promissory Note dated June 6, 2013, made by Smart Online, Inc. for the benefit of Israel Discount Bank of New York, as lender (incorporated herein by reference to Exhibit 10.2 to Form 8-K, as filed with the SEC on July 2, 2013) | | | | 10.18 | | Guaranty dated June 6, 2013, made by Atlas Capital, SA for the benefit of Israel Discount Bank of New York (incorporated by reference to Exhibit 10.3 to Form 8-K, as filed with the SEC on July 2, 2013) |
10.19* | | Professional Services Agreement, effective as of May 1, 2013, by and between Smart Online, Inc. and Entre-Strat Consulting, LLC (portions of this exhibit have been omitted pursuant to a request for confidential treatment) (incorporated herein by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q, as filed with the SEC on August 14, 2013) | | | | 10.20* | | Partner Agreement, dated May 24, 2013, by and between Smart Online, Inc. and Jon Campbell (incorporated by reference herein to Exhibit 10.1 to our Quarterly Report on Form 10-Q, as filed with the SEC on November 14, 2013) | | | | 10.21 | | Amendment to Security Agreement, dated November 14, 2007, among Smart Online, Inc. and Doron Roethler, as agent for certain investors (incorporated herein by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q, as filed with the SEC on November 14, 2007), effective as of June 9, 2014 (incorporated by reference herein to Exhibit 10.2 to our Quarterly Report on Form 10-Q, as filed with the SEC on August 13, 2014) | | | | 10.22 | | Loan and Security Agreement dated June 9, 2014 by and between Comerica Bank and MobileSmith, Inc. (incorporated by reference herein to Exhibit 10.1 to our Quarterly Report on Form 10-Q, as filed with the SEC on August 13, 2014) | | | | | 10.2310.2* | | Convertible Subordinated Note Purchase Agreement dated December 11, 2014 (incorporated herein by reference to Exhibit 4.1 to form 8-K, as filed with the SEC on December 12, 2014) | | | | 10.24 | | Form of Convertible Subordinated Promissory Note (incorporated herein by reference to Exhibit 4.1 to form 8-K, as filed with the SEC on December 12, 2014) | | | | 10.25* | | Employment Agreement between Smart Online, Inc. and Bob Dieterle dated April 1, 2010 (incorporated herein by reference to Exhibit 10.25 to annual report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on December 12, 2014)
| | | | 10.26* | | LetterAgreement dated as of October 11, 2017 between MobileSmith, Inc. and Robert Smith(incorporated (incorporated herein by reference to Exhibit 10.1 to form 88- K, as filed with the SEC on November 6, 2017) .. | | | | | 10.3* | | .
Executive Employment Agreement dated as of January 1, 2021 between MobileSmith, Inc. and Jerry Lepore (incorporated herein by reference to Exhibit 10.1 to Form 8- K, as filed with the SEC on January 5, 2021)
| | | | | 10.27*10.4 | | LetterForm of Series A Exchange Agreement dated as of August 11, 2017 between MobileSmith Inc. and Ray Hemmig(incorporatedvarious entities (incorporated herein by reference to Exhibit 10.1 to form 8Form 8- K, as filed with the SEC on August 17, 2017).
| | | | 10.28* | | Letter Agreement dated as of July 1, 2016 between MobileSmith, Inc. and Randy Tomlin(incorporated herein by reference to Exhibit 10.1 to form 8 K, as filed with the SEC on August 10, 2016).December 31, 2020)
| | | | | | 23.1 | | Consent of Independent Registered Public Accounting Firm (filed herewith) | | | | | | 31.1 | | Certification of Principal Executive Officer Pursuant to Rule 13a-14/15d-14 (filed herewith) | | | | | | 31.2 | | Certification of Principal Financial Officer Pursuant to Rule 13a-14/15d-14 (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 Officer Pursuant to 18 U.S.C. Section 1350 (furnished herewith) | | | | | | 101.1 | | The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2014,2020, formatted in XBRL (eXtensible Business Reporting language): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows, (iv) the Statements of Stockholders’ Deficit and (v) related notes to these financial statements, tagged as blocks of text and in detail (filed herewith) |
_________________ * Management contract or compensatory plan. ITEM 16. SUMMARY
Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. (Registrant) | | | | | | /s/ Bob DieterleJerry Lepore
| | | /s/ Gleb Mikhailov | | Bob Dieterle
Jerry Lepore | | | Gleb Mikhailov, | | | Chief Executive Officer (Principal Executive Officer) | | | Chief Financial Officer (Principal Financial Officer and Accounting Officer) | | | | | | | | Date: March 29,2018
23, 2021 | | | Date: March 29, 201823, 2021 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 29, 201823, 2021 | By: | /s/ Bob Dieterle
Jerry Lepore | | | | | Bob Dieterle
Jerry Lepore | | | | | Chief Executive Officer
| | | | | (principal executive officer) | | | | | | | March 29, 201823, 2021 | By: | /s/ Gleb Mikhailov | | | | | Gleb Mikhailov | | | | | Chief Financial Officer | | | | | (principal financial and accounting officer) | | | | | | | March 29, 2018
23, 2021 | By: | /s/ Randy J. TomlinAmir Elbaz
| | | | | Randy J. Tomlin
Amir Elbaz | | | | | Executive Chairman of the Board of Directors
Director | | | | | | | March 29, 2018
23, 2021 | By: | /s/ Amir ElbazRonen Shviki
| | | | | Amir Elbaz
Ronen Shviki | | | | | Director | | | | | | | March 29, 201823, 2021 | By: | /s/ Ronen ShvikiRobert Smith | | | | | Ronen ShvikiRobert Smith | | | | | Director, Chairman of the Board | | | | | | | March 29, 2018
| By: | /s/ Robert Smith
|
| | | | Robert Smith
| | | | Director | | | | | | | March 29, 2018 | By | /s/ Ray Hemmig
| | | | | Ray Hemmig
| | | | | Director | | | | | | | | | | | | | |
EXHIBIT INDEX Exhibit No. | | Description | | | | | | 14, 2013) | | | | | | | | | | | 4.1 | | Specimen Common Stock Certificate (filed herewith) |
| | Amendment to Security Agreement, dated November 14, 2007, among Smart Online, Inc. and Doron Roethler, as agent for certain investors (incorporated herein by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q, as filed with the SEC on November 14, 2007), effective as of June 9, 2014 (incorporated by reference herein to Exhibit 10.2 to our Quarterly Report on Form 10-Q, as filed with the SEC on August 13, 2014) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Letter Agreement dated as of October 11, 2017 between MobileSmith, Inc. and Robert Smith (incorporated herein by reference to Exhibit 10.1 to form 88- K, as filed with the SEC on November 6, 2017) .. | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 101.1 | | The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2017,2020, formatted in XBRL (eXtensible Business Reporting language): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows, (iv) the Statements of Stockholders’ Deficit and (v) related notes to these financial statements, tagged as blocks of text and in detail (filed herewith) |
_________________ * Management contract or compensatory plan. 24
36
|