UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ ☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~

2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-32634

~~____________________________~~

~~MOBILESMITH, INC.~~

~~(Exact name of registrant as specified in its charter)~~

~~____________________________~~

~~Delaware~~	~~95-4439334~~ 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)

~~____________________________~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☑☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

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 Exchange Act). Yes ☐ No ☑

☒

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None		None		None

As of ~~November 13, 2017,~~August 9, 2021, there were ~~24,722,647~~28,389,493 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

MOBILESMITH, INC.

FORM 10-Q

For the Quarterly Period Ended ~~September~~June 30, ~~2017~~

2021

TABLE OF CONTENTS

		Page No.
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed ~~Consolidated~~ Balance Sheets as of ~~September~~June 30, ~~2017~~2021 (unaudited) and December 31, ~~2016~~2020	3

	Condensed ~~Consolidated~~ Statements of Operations (unaudited) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020	4

	Condensed ~~Consolidated~~ Statements of Cash Flows (unaudited) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020	5

	Condensed ~~Consolidated Statement~~Statements of Stockholders' Deficit (unaudited) for the ~~period~~three and six months periods ended ~~September~~June 30, ~~2017 (unaudited)~~2021 and June 30, 2020	6

	Notes to Condensed ~~Consolidated~~ Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11 14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15 18

Item 4.	Controls and Procedures	15 18

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	19

Item 2.	Unregistered Sales of Equity Security and Use of Proceeds	16 19

Item 3.	Defaults Upon Senior Securities	19

Item 4.	Mine Safety Disclosures	19

Item 5.	Other Information	19

Item 6.	Exhibits	20

	Signatures	21


~~Item 6.~~	~~Exhibits~~	162

	~~Signatures~~	17 Table of Contents

PART I – FINANCIAL INFORMATION

MOBILESMITH, INC.

CONDENSED ~~CONSOLIDATED~~ BALANCE SHEETS

ASSETS

September 30,

December 31,

2017

2016

(unaudited)

Current Assets

Cash and Cash Equivalents
$1,443,262
$548,146
Restricted Cash
  61,713
  116,577
Trade Accounts Receivable, Less Allowance for Doubtful Accounts of $12,500 and $0, Respectively
  267,939
  273,091
Prepaid Expenses and Other Current Assets
  49,549
  64,642
Total Current Assets
  1,822,463
  1,002,456



Property and Equipment, Net
  81,647
  104,129
Capitalized Software, Net
  195,903
  274,833
Intangible Assets, Net
  24,469
  37,593
Total Other Assets
  302,019
  416,555
Total Assets
$2,124,482
$1,419,011



LIABILITIES AND STOCKHOLDERS’ DEFICIT


Current Liabilities


Trade Accounts Payable
$84,059
$43,518
Accrued Expenses
  178,673
  193,836
Accrued Interest
  881,242
  455,269
Capital Lease Obligations
  36,624
  36,950
Deferred Revenue
  1,239,165
  1,404,951
Bank Loan
  5,000,000
  -
Total Current Liabilities
  7,419,763
  2,134,524



Long-Term Liabilities


Bank Loan
  -
  5,000,000
Convertible Notes Payable, Related Parties, Net of Discount
  43,788,609
  39,655,579
Convertible Notes Payable, Net of Discount
  680,640
  680,640
Capital Lease Obligations
  36,733
  63,834
Deferred Rent
  30,839
  42,189
Total Long-Term Liabilities
  44,536,821
  45,442,242
Total Liabilities
  51,956,584
  47,576,766



Commitments and Contingencies (Note 3)


Stockholders' Deficit


Preferred Stock, $0.001 Par Value, 5,000,000 Shares Authorized, No Shares Issued and Outstanding at September 30, 2017 and December 31, 2016
  -
  -
Common Stock, $0.001 Par Value, 100,000,000 Shares Authorized At September 30, 2017 and December 31, 2016; 19,827,542 Shares Issued and Outstanding at September 30, 2017 and December 31, 2016
  19,828
  19,828
Additional Paid-in Capital
  98,650,709
  98,245,063
Accumulated Deficit
  (148,502,639)
  (144,422,646)
Total Stockholders' Deficit
  (49,832,102)
  (46,157,755)
Total Liabilities and Stockholders' Deficit
$2,124,482
$1,419,011

	June 30,			December 31,
	2021			2020
ASSETS	(unaudited)
Current Assets
Cash and Cash Equivalents	$	831,191		$	161,744
Restricted Cash and Cash Equivalents		199,737			189,179
Accounts Receivable, Net of Allowance for Doubtful Accounts of $0 and $30,000 respectively		283,633			113,906
Prepaid Expenses and Other Current Assets		74,306			43,286
Total Current Assets		1,388,867			508,115

Operating Lease Right-of-Use Asset		428,142			512,124
Total Assets	$	1,817,009		$	1,020,239

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts Payable	$	26,092		$	155,850
Interest Payable		183,921			271,868
Other Liabilities And Accrued Expenses		263,839			237,750
Operating Lease Liability Current		149,525			161,936
Contract With Customer Liability		676,990			649,789
First PPP Loan, Current		0			423,067
Bank Loan		5,000,000			0
Total Current Liabilities		6,300,367			1,900,260

Second PPP Loan		542,000			0
First PPP Loan, Long-Term		0			119,033
Operating Lease Liability		365,115			432,058
Convertible Notes Payable, Net of Discount		0			972,108
Bank Loan		0			5,000,000
Total Liabilities		7,207,482			8,423,459

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: 1,300,687 Issued and Outstanding as of June 30, 2021 and 1,166,297 Issued and Outstanding as of December 31, 2020.		114,072,014			103,649,344
Common Stock, $0.001 Par Value, 100,000,000 Shares Authorized At June 30, 2021 and December 31, 2020; 28,389,493 Shares Issued and Outstanding at June 30, 2021 and 28,389,493 Shares Issued and Outstanding at December 31, 2020.		28,390			28,390
Additional Paid-in Capital - Common Shares		131,796,969			130,103,361
Accumulated Deficit		(251,287,846	)		(241,184,315	)
Total Stockholders' Deficit		(5,390,473	)		(7,403,220	)
Total Liabilities and Stockholders' Deficit	$	1,817,009		$	1,020,239

The accompanying notes are an integral part of these condensed ~~consolidated~~ financial statements.

Table of Contents

MOBILESMITH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

September 30,

September 30,

2017

2016

2017

2016
REVENUES:

Subscription and Support
$1,886,344
$415,166
$2,932,687
$1,380,465
Professional Services and Other
  -
  -
  -
  4,154
   Total Revenue
  1,886,344
  415,166
  2,932,687
  1,384,619
COST OF REVENUES:




Subscription and Support
  147,535
  138,175
  431,457
  346,544
Professional Services and Other
  -
  11,418
  29,304
  67,660
            Total Cost of Revenue
  147,535
  149,593
  460,761
  414,204





GROSS PROFIT
  1,738,809
  265,573
  2,471,926
  970,415
OPERATING EXPENSES:




    Sales and Marketing
  299,559
  288,129
  865,181
  849,303
Research and Development
  406,113
  446,490
  1,295,647
  1,253,889
General and Administrative
  367,342
  257,615
  1,165,708
  1,009,976
            Total Operating Expenses
  1,073,014
  992,234
  3,326,536
  3,113,168
INCOME (LOSS) FROM OPERATIONS
  665,795
  (726,661)
  (854,610)
  (2,142,753)





OTHER INCOME (EXPENSE):




    Other Income
  365
  153,918
  1,549
  165,486
    Interest Expense, Net
  (1,104,318)
  (997,730)
  (3,226,932)
  (3,701,073)
             Total Other Expense
  (1,103,953)
  (843,812)
  (3,225,383)
  (3,535,587)





NET LOSS
$(438,158)
$(1,570,473)
$(4,079,993)
$(5,678,340)





NET LOSS PER COMMON SHARE:




Basic and Fully Diluted
$(0.02)
$(0.08)
$(0.21)
$(0.29)
WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE:

Basic and Fully Diluted
  19,827,542
  19,827,542
  19,827,542
  19,827,542

	3 Months Ended			3 Months Ended			6 Months Ended			6 Months Ended
	June 30,			June 30,			June 30,			June 30,
	2021			2020			2021			2020
REVENUES:
Subscription and Support	$	398,358		$	491,367		$	816,343		$	1,010,766
Services and Other		0			116,405			0			221,578
Total Revenue		398,358			607,772			816,343			1,232,344

COST OF REVENUE:
Subscription and Support		199,944			181,221			405,247			346,622
Services and Other		0			0			9,000			93,162
Total Cost of Revenues		199,944			181,221			414,247			439,784

GROSS PROFIT		198,414			426,551			402,096			792,560

OPERATING EXPENSES:
Selling and Marketing		476,147			301,052			1,004,441			668,366
Research and Development		858,571			750,438			1,734,237			1,378,233
General and Administrative		705,489			824,517			1,611,373			1,649,318
Total Operating Expenses		2,040,207			1,876,007			4,350,051			3,695,917
LOSS FROM OPERATIONS		(1,841,793	)		(1,449,456	)		(3,947,954	)		(2,903,357	)

OTHER INCOME (EXPENSE):
Other Income		596			5,682			598			11,686
Interest Expense, Net		(48,671	)		(1,759,173	)		(191,138	)		(3,610,276	)
Gain on Debt Extinguishment - PPP Loan Forgiveness		0			0			542,100			-
Loss on Debt Extinguishment		0			(4,864,750	)		(6,507,137	)		(4,864,750	)
Total Other Expense		(48,075	)		(6,618,241	)		(6,155,577	)		(8,463,340	)

NET LOSS	$	(1,889,868	)	$	(8,067,697	)	$	(10,103,531	)	$	(11,366,697	)

Plus: Deemed Dividend on Series A Convertible Preferred Stock		(1,000,000	)		0			(6,269,401	)		0

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(2,889,868	)	$	(8,067,697	)	$	(16,372,932	)	$	(11,366,697	)

NET LOSS PER COMMON SHARE:
Basic and Fully Diluted from Continuing Operations	$	(0.10	)	$	(0.28	)	$	(0.58	)	$	(0.40	)

WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE: Basic And Fully Diluted		28,389,493			28,389,493			28,389,493			28,389,493

The accompanying notes are an integral part of these condensed ~~consolidated~~ financial statements.

Table of Contents

MOBILESMITH, INC.

CONDENSED ~~CONSOLIDATED~~ STATEMENTS OF CASH FLOWS

(unaudited)

Nine Months Ended

September 30,

September 30,

2017

2016

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Loss
$(4,079,993)
$(5,678,340)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:


Depreciation and Amortization
  122,873
  123,324
Bad Debt Expense
  12,500
  33,300
Amortization of Debt Discount
  486,527
  1,248,736
Share Based Compensation
  327,149
  63,309
Impairment of Long Lived Assets
-
  8,356
Changes in Assets and Liabilities:


Accounts Receivable
  (7,348)
  (81,805)
Prepaid Expenses and Other Assets
  15,093
  9,563
Accounts Payable
  40,541
  13,633
Deferred Revenue
  (165,786)
  353,595
Accrued and Other Expenses
  399,462
  (33,583)
Net Cash Used in Operating Activities
  (2,848,982)
  (3,939,912)



CASH FLOWS FROM INVESTING ACTIVITIES:


Payments to Acquire Property, Plant and Equipment
  (8,339)
  (26,483)
Net Cash Used in Investing Activities
  (8,339)
  (26,483)



CASH FLOWS FROM FINANCING ACTIVITIES:


Restricted Cash Used to Pay Interest Expense
  166,812
  166,610
Deposit of Cash to Restricted Account
  (111,948)
  (114,765)
Proceeds From Issuance of Short Term Loan from Related Party
  150,000
  -
Repayments of Short Term Loan from Related Party
  (150,000)
  -
Proceeds From Issuance of Long Term Debt
  3,725,000
  3,750,000
Repayments of Debt Borrowings
  (27,427)
  (22,911)
Net Cash Provided by Financing Activities
  3,752,437
  3,778,934



NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
  895,116
  (187,461)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
  548,146
  580,220
CASH AND CASH EQUIVALENTS, END OF PERIOD
$1,443,262
$392,759



Supplemental Disclosures of Cash Flow Information:


Cash Paid During the Period for Interest
$2,314,434
$2,397,504



Non-Cash Investing and Financing Activities


The Company Recorded Debt Discount Associated with Beneficial Conversion Feature
$78,497
$533,216
Financed Purchase of a Vehicle
-
$18,365

	6 Months Ended			6 Months Ended
	June 30,			June 30,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(10,103,531	)	$	(11,366,697	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and Amortization		0			12,506
Amortization of Debt Discount		78,120			1,585,823
Share Based Compensation		1,693,608			1,502,457
Gain of Debt Extinguishment (PPP Loan Forgiveness)		(542,100	)		0
Losses on Debt Extinguishments		6,507,137			4,864,750
Changes in Assets and Liabilities:
Accounts Receivable		(169,727	)		(199,097	)
Prepaid Expenses and Other Assets		(31,020	)		30,254
Accounts Payable		(129,758	)		(117,274	)
Contract Liability		27,201			(189,752	)
Operating Lease Right-of-use Asset		83,982			80,088
Operating Lease Liability		(79,354	)		(73,272	)
Accrued and Other Expenses		41,747			(1,559,991	)
Net Cash Used in Operating Activities		(2,623,695	)		(5,430,205	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Issuance of Subordinated Promissory Notes, Related Party		0			1,250,000
Proceeds From Issuance of Convertible Notes Payable, Related Party		0			1,200,000
Proceeds From Issuance of Convertible Notes Payable		0			2,900,000
Repayments of Financing Lease Obligations		0			(6,378	)
Proceeds From First PPP Loan		0			542,100
Proceeds From Second PPP Loan		542,000			0
Proceeds From Issuance of Shares of Series A Preferred Stock		2,761,700			0
Net Cash Provided by Financing Activities		3,303,700			5,885,722

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		680,005			455,517
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD		350,923			314,967
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	1,030,928		$	770,484

Composition of Cash, Cash Equivalents and Restricted Cash Balance:
Cash and Cash Equivalents	$	831,191		$	582,568
Restricted Cash		199,737			187,916
Total Cash, Cash Equivalents and Restricted Cash	$	1,030,928		$	770,484

Supplemental Disclosures of Cash Flow Information:
Operating Lease Payments	$	102,863		$	111,550
Cash Paid During the Period for Interest	$	97,319		$	3,825,607

Non-Cash Investing and Financing Activities:
Recorded Debt Discount Associated with Beneficial Conversion Feature	$	0		$	8,035,278

Issued Series A Preferred Shares Valued at $7,760,970 in Exchange for Carrying Value of Debt (Including Accrued Interest, Premiums and Discounts) of $1,153,832	$	6,507,137		$	0
Recorded Beneficial Conversion Feature Associated with Issuance of Series A Preferred	$	6,269,401		$	0
Conversion Of Notes Payable Into Common Shares	$	0		$	156,980

The accompanying notes are an integral part of these condensed ~~consolidated~~ financial statements.

Table of Contents

MOBILESMITH, INC.

CONDENSED ~~CONSOLIDATED STATEMENT~~STATEMENTS OF STOCKHOLDERS’ DEFICIT

~~FOR THE PERIOD ENDED SEPTEMBER 30, 2017~~

(unaudited)

                                       Common Stock

Additional Paid-In Capital

Accumulated Deficit

Totals

$0.001

Shares

Par Value

BALANCES, DECEMBER 31, 2016
  19,827,542
$19,828
$98,245,063
$(144,422,646)
$(46,157,755)






Equity-Based Compensation
  -
-
     327,149
-
327,149
Beneficial Conversion Feature Recorded as a Result of Issuance of Convertible Debt
  -
-
78,497
-
78,497
Net Loss
  -
-
-
  (4,079,993)
  (4,079,993)
BALANCES, SEPTEMBER 30, 2017
  19,827,542
$19,828
$98,650,709
$(148,502,639)
$(49,832,102)

	Series A Convertible Preferred Stock, Shares		Series A Convertible 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, JANUARY 1, 2020		-	$	0	$	0			28,271,598	$	28,272	$	118,431,878	$	(169,774,475	)	$	(51,314,325	)
Equity-Based Compensation													721,681					721,681
Beneficial Conversion Feature Recorded as a Result Of Issuance Of Convertible Debt													2,000,000					2,000,000
Conversion of Notes Payable to Common Stock									48,951		49		65,191					65,240
Net Loss															(3,299,000	)	$	(3,299,000	)
BALANCES, MARCH 31, 2020		-	$	0	$	0			28,320,549	$	28,321	$	121,218,750	$	(173,073,475	)		(51,826,404	)

Equity-Based Compensation													780,776					780,776
Beneficial Conversion Feature Recorded as a Result Of Issuance Of Convertible Debt													6,035,278					6,035,278
Conversion of Notes Payable to Common Stock									68,944		69		91,671					91,740
Net Loss															(8,067,697	)		(8,067,697	)
BALANCES, JUNE 30, 2020		-	$	0	$	0			28,389,493	$	28,390	$	128,126,475	$	(181,141,172	)	$	(52,986,307	)

BALANCES, JANUARY 1, 2021		1,166,297	$	1,166	$	103,648,178			28,389,493	$	28,390	$	130,103,361	$	(241,184,315	)	$	(7,403,220	)
Equity-Based Compensation													886,935					886,935
Exchange of Debt for Series A Convertible Preferred Shares on January 28, 2021		70,014		70		7,660,900												7,660,970
Issuance of Series A Convertible Preferred for Cash		41,066		41		1,761,659												1,761,700
Beneficial Conversion Feature Recorded as a Result Of Issuance Of Series A Convertible Preferred Shares of $5,269,401						5,269,401												5,269,401
Deemed Dividend to the Holders of Series A Preferred Shares Resulting From Amortization of Discount Associated with the Beneficial Conversion Feature						(5,269,401	)											(5,269,401	)
Net Loss															(8,213,663	)		(8,213,663	)
BALANCES, MARCH 31, 2021		1,277,377	$	1,277	$	113,070,737			28,389,493	$	28,390	$	130,990,296	$	(249,397,978	)	$	(5,307,278	)
Equity-Based Compensation													806,673					806,673
Issuance of Series A Convertible Preferred for Cash		23,310		23		999,977												1,000,000
Beneficial Conversion Feature Recorded as a Result Of Issuance Of Series A Convertible Preferred Shares						1,000,000												1,000,000
Deemed Dividend to the Holders of Series A Preferred Shares Resulting From Amortization of Discount Associated with the Beneficial Conversion Feature						(1,000,000	)											(1,000,000	)
Net Loss															(1,889,868	)		(1,889,868	)
BALANCES, JUNE 30, 2021		1,300,687	$	1,300	$	114,070,714			28,389,493	$	28,390	$	131,796,969	$	(251,287,846	)	$	(5,390,473	)

The accompanying notes are an integral part of these condensed ~~consolidated~~ financial statements.

Table of Contents

MOBILESMITH, INC.

NOTES TO CONDENSED ~~CONSOLIDATED~~ FINANCIAL STATEMENTS

For the ~~Quarterly~~Six Months' Period Ended ~~September~~June 30, ~~2017~~

2021

(unaudited)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

MobileSmith, Inc. (referred to herein as the “Company,” “us,” “we,” or “our”) was incorporated as Smart Online, Inc. in the State of Delaware in 1993. The Company changed its name to MobileSmith, Inc. effective July 1, 2013.

The same year the Company ~~develops solutions for healthcare industry~~focused 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 condensed consolidated financial statements include accounts of~~During 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 concept~~development and sales and marketing efforts in that industry. During 2018 we further refined our Healthcare offering and redefined our product - a suite of e-health mobile solutions that consist of a ~~consumer targeted~~catalog of ready to deploy mobile app ~~development platform. From time~~solutions (App Blueprints) and support services. In 2019 and 2020, we consolidated our current solutions under a single offering branded Peri™. Peri™ is a cloud-based collection of applications that run of our architected healthcare technology ecosystem. The architecture is designed to ~~time,~~do the Company may create additional wholly-owned subsidiaries in order to test various new services as a part of its research and development process. The subsidiary has not had material activity in 2017.

~~The Company’s principal products and services include:~~

~~● Subscription to its Software as a Service ("SaaS") cloud based~~following:

●	improve experience of healthcare patients and consumers, who are often at the same time members of various medical insurance networks

●	optimize delivery of healthcare and 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 healthcare Peri™ is designed to bridge the gap between healthcare industry system tools and healthcare consumer's mobile device.

Our flagship PeriOp offering is an EMR integrated mobile app ~~development platform~~based set of pre- and postoperative instructions (which we refer to ~~customers who design~~as Clinical Pathways), that establishes a direct two-way clinical procedure management process between a patient and ~~build their own apps;~~

~~● Managed services for custom mobile application design, development~~a healthcare provider and ~~implementation;~~

~~● Mobile application marketing services;~~by doing so improves patient engagement and

~~● Mobile strategy implementation consulting.~~

procedural adherence.

The Company prepared the accompanying unaudited condensed ~~consolidated~~ financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnote disclosures it normally includes in its audited annual ~~consolidated~~ financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its financial position, results of operations, cash flows, and stockholders’ deficit as of ~~September~~June 30, ~~2017.~~2021. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These condensed ~~consolidated~~ financial statements and accompanying notes should be read in conjunction with the audited annual ~~consolidated~~ financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2020 on file with the SEC (the “Annual Report”).

Except as otherwise noted, there have been no material changes to the Company’s significant accounting policies as compared to the significant accounting policies described in the Annual Report. The accompanying condensed ~~consolidated~~ financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016,~~2021, the Company incurred net losses as well as negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed ~~consolidated~~ financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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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 from the issuance of notes under a convertible secured subordinated note purchase agreement facility which was established in 2007 (the "2007 NPA"), and an unsecured convertible subordinated note purchase agreement facility established in 2014 (the "2014 NPA"), and subordinated promissory notes to related parties. In December of 2020 and January of 2021, we exchanged all our non-bank debt, including the debt issued under the 2007 NPA and the 2014 NPA, into Series A Convertible Preferred Stock (the "Series A Preferred Stock") with the same investors. We expect to finance our operations through the issuance of Series A Preferred Stock going forward. If financing through issuance of Series A Preferred Stock becomes unavailable, we will need to seek other sources of funding. As such, there is substantial doubt about the Company's ability to continue as a going concern.

Recently Issued Accounting Pronouncements

and Their Impact on Significant Accounting Policies

The ~~Company evaluates new~~Company's significant accounting ~~pronouncements at each reporting period. For~~policies are detailed in "Note 2: Significant Accounting Policies" of the ~~period ended September 30, 2017,~~Company's Annual Report.

On August 5, 2020, the ~~Company did~~FASB issued ASU 2020-06 "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is not ~~adopt any new pronouncement that had or is~~ expected to have a material ~~effect~~impact on the ~~Company’s presentation~~financial statements of ~~its condensed consolidated financial statements.~~

~~In May 2014,~~ the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-9 Revenue from Contracts with Customers (Topic 606). This guidance requires an entity to recognize revenue to depictCompany. For the ~~transfer of promised goods or services to customers in an amount that reflects~~Company the ~~consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance~~ASU is not effective ~~for annual reporting periods beginning after December 15, 2017, and~~until fiscal year 2024, but early adoption is ~~permitted. Originally the Company planned to adopt the standard early. During the~~permitted as early as current ~~period the Company concluded that costs of early adoption outweigh the anticipated benefits during the upcoming~~fiscal year ~~and concluded that the adoption will take place with the period beginning on January 1, 2018, in compliance with the issued standards.~~The Company has commenced work to assess the impact of the new revenue standard on its principal revenue streams. The Company has not made a determination on the impact to its consolidated financial statements. The Company is implementing changes to its accounting processes, internal controls and disclosures to support the new accounting.

ending December 31, 2021.

2. DEBT

The table below summarizes the ~~Company’s~~Company's debt outstanding ~~at September~~on June 30, ~~2017~~2021 and December 31, ~~2016:~~

Debt Description

September 30,

December 31,

2017

2016

Maturity

Rate

Comerica Bank Loan and Security Agreement
$5,000,000
$5,000,000
June 2018
4.85%
Capital lease obligations - Noteholder lease
  51,583
  69,717
August 2019
  8.00%
Capital lease obligations - office furniture and other equipment
  7,248
  14,044
August 2018
  9.80%
Capital lease obligations - vehicle
  14,526
  17,023
July 2021
  5.59%
Convertible notes - related parties, net of discount of $760,622 and $1,168,652, respectively
  43,788,609
  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
  49,542,606
  45,437,003







Less:  current portion of long term debt




Capital lease obligations
  36,624
  36,950


Comerica Bank Loan and Security Agreement
  5,000,000
  -


Total current portion of long term debt
  5,036,624
  36,950







Debt - long term
$44,505,982
$45,400,053

~~Convertible Notes~~

~~During the nine months ended September 30, 2017, the Company privately placed $3,725,000 in principal amount of additional~~ ~~unsecured Convertible Subordinated Notes~~ ~~(the “2014 NPA Notes”) to Union Bancaire Privée (“UBP”) under its existing~~ ~~unsecured Convertible Subordinated Note Purchase Agreement dated December 10, 2014~~ (the “2014 NPA”). The 2014 NPA Notes are convertible by the holder into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at a per share conversion price of $1.43.

~~The table below summarizes convertible notes issued as of September 30, 2017 by type:~~

~~Convertible Notes Type:~~	~~Balance~~

~~2007 NPA notes, net of discount~~	$~~30,020,339~~
~~2014 NPA notes, net of discount~~	~~14,448,910~~
~~Total convertible notes, net of discount~~	$~~44,469,249~~

~~Comerica LSA~~

2020:

Debt Description	June 30,		December 31,
	2021		2020		Maturity	Rate

Comerica Bank Loan and Security Agreement	$	5,000,000	$	5,000,000	June, 2022		3.85	%
Second PPP Loan		542,000		0	February, 2026		1.00	%
First PPP Loan		0		542,100	April, 2022		1.00	%
Convertible notes, net of discount of $1,927,892 as of December 31, 2020		0		972,108	November, 2022		8.00	%
Total debt		5,542,000		6,514,208

Less: current portion of long term debt		0		423,067
Debt - long term	$	5,542,000	$	6,091,141

Bank Loan

The Company has an outstanding Loan and Security Agreement with Comerica Bank ("Comerica") dated June 9, 2014 (the "LSA") in the amount of $5,000,000, with an extended maturity of June 9, 2022. The LSA is secured by an extended irrevocable letter of credit issued by UBS AG (Geneva, Switzerland) ("UBS AG") with a renewed term expiring on May 31, 2022, 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 quarterly;

●	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.

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Convertible Notes and January 2021 Debt Exchange

On January 28, 2021 the Company exchanged its remaining unsecured Convertible Subordinated Notes (the “2014 NPA Notes”) under its existing unsecured Convertible Subordinated Note Purchase Agreement dated December 10, 2014 (the “2014 NPA”) for Series A Preferred Stock. The carrying value of 2014 NPA Notes of $1,075,713 consisting of face value of $2,900,000 net of unamortized discount of $1,849,773 plus accrued interest of $103,605 was exchanged for 70,014 shares of Series A Preferred Stock ("the January 2021 Debt Exchange"). The January 2021 Debt Exchange was accounted for as debt extinguishment and the newly issued shares of Series A Preferred Stock were recorded at fair value in accordance with ASC 470 "Debt". The issued shares were fair valued at $7,660,970. The difference between the carrying amount of extinguished debt and fair value of the Series A Preferred Stock issued resulted in loss recorded on the statement of operations of $6,507,137.

Second PPP Loan

On February 9 2021, the Company received $542,000 of proceeds from a note payable issued under either the Small Business Administration "the SBA" Paycheck Protection Program ("PPP") 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 Company's initial PPP Loan, the second loan contains a loan forgiveness covered period of six months from the date of ~~June 6, 2018.~~

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 (the "Loan Forgiveness Application Submission 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. If any portion of the loan is not forgiven, the Company may start making payments on, but not before February of 2022 - the end of the Loan Forgiveness Application Submission Period.

Forgiveness of First PPP Loan

On February 18, 2021 our first PPP Loan was forgiven by the SBA in its entirety. The forgiveness was accounted for as debt extinguishment which resulted in a gain of $542,100 recorded in our statement of operations.

3. COMMITMENTS AND CONTINGENCIES

~~Aggregate future lease commitments~~

The Company leases computers, office equipment, office furniture and a company vehicle under capital lease agreements that expire through July 2021. Total amount financed under these capital leases at September 30, 2017 was $73,357. This obligation is included within the Company’s total debt.

~~The table below summarizes Company’s future obligations under its capital leases:~~

Year:

2017
$10,869
2018
  38,345
2019
  23,631
2020
  4,219
Thereafter
  2,461

79,525
Less amount representing interest
   (6,168)
Capital lease obligations
$73,357

The Company leases its office space in Raleigh, North Carolina pursuant to a lease with an initial term that expires in March 2019. The lease contains an option to renew for two additional three-year lease terms.

~~The table below summarizes the Company’s future obligation under its office lease:~~

Year:

2017
$42,524
2018
172,418
2019
44,082

Total
$259,024

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.

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4. ~~EQUITY AND EQUITY BASED COMPENSATION~~

AsSTOCKHOLDERS DEFICIT

Preferred Stock

On January 28, 2021 and as a result of ~~September 30, 2017, options to purchase 2,164,006~~the January 2021 Debt Exchange transaction the Company issued 70,014 shares of ~~Common~~Series A Preferred Stock. On the date of the January 2021 Debt Exchange the market value of the common stock was above the Series A Preferred Stock 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 January 2021 Debt Exchange and charged to loss attributable to common shareholders on the Company's Statement of Operations in the amount of $3,507,701.

In addition, the Company issued 64,376 shares of Series A Preferred Stock in exchange for $2,761,700 in cash funding. The shares were ~~granted under 2016~~ issued with beneficial conversions feature discount and resulted in a deemed dividend with charge to loss attributable to common shareholders of $2,761,700.

Series A Preferred Stock with the following standard 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.

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Equity Compensation Plan ~~in addition to 172,406 options granted under previous plans.~~

The following is a summary of the stock option activity for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~

Number of
Shares

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual Term

Aggregate
Intrinsic
Value

Outstanding, December 31, 2016
  2,184,160

$1.48

Cancelled
  (185,894)
  1.52

Issued
  338,146

  1.40

Outstanding, September 30, 2017
  2,336,412

$1.47

  4.10

$90,445
Vested and exercisable, September 30, 2017
  834,527

$1.50

  3.25

$52,146

2021:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding, December 31, 2020	$	10,683,300		$	1.85		7.4	$	17,060,533
Cancelled		(902,500	)		1.57
Issued		1,475,000			3.10
Outstanding, June 30, 2021	$	11,255,800			2.04		7.9		21,752,184
Vested and exercisable, June 30, 2021	$	5,195,821		$	1.85		7.3	$	11,032,574

Aggregate intrinsic value represents the difference between the closing price of the Company’s common stock ~~at September~~on June 30, ~~2017~~2021, and the exercise price of outstanding, in-the-money stock options. The closing price of the common stock ~~at September~~on June 30, ~~2017,~~2021, as reported on the OTCQB, ~~Venture Marketplace,~~ was ~~$1.50~~$3.50 per share.

~~At September~~

On June 30, ~~2017, $1,078,227~~2021, an amount of $11,495,025 unvested expense related to outstanding stock options has yet to be recorded over a weighted average period of 3.3 years.

5.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 ~~outstanding~~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 January 2021 Debt Exchange resulted in transaction which required the Company to recognize debt extinguishment and to record newly issued financing instrument at fair value at the date of the transaction on a non-recurring basis. Fair value measurement was categorized as Level 3 fair value measurement due to use of various unobservable inputs to the pricing model. A single most significant factor included in pricing models was the Level 1 input of observable market value of MobileSmith common stock ~~options.~~

~~5. MAJOR CUSTOMERS~~on the date of the transaction, 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 transaction.

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The Company used the income approach to arrive at the fair value of the Series A Stock on January 28, 2021 - the date of the exchange. Using this approach the value of Series A Preferred Stock 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 the Monte Carlo model to simulate future movement of our common stock and discounted the results back to January 28, 2021 transaction date. The model used the following notable inputs:

●	the market price of the Company common stock on January 28, 2021 of $3.10 as a starting point of simulation

●	the risk free rate and discount rate of 1.35%;

●	volatility of 80%;

●	term of simulation extended to 15 years;

●	the model also considered the probability of a Fundamental Transaction (as defined in Series A Preferred Stock certificate of designation) and probabilities of payment of dividend in cash or in additional preferred shares.

6. DISAGGREGATED PRESENTATION OF REVENUE AND ~~CONCENTRATION~~

OTHER RELEVANT INFORMATION

The tables below depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors, such as type of customer and type of contract.

Customer size impact on billings and revenue:

	6 Months Ended June 30, 2021				6 Months Ended June 30, 2020
	Billings		GAAP Revenue		Billings		GAAP Revenue
Top 5 Customers (Measured By Amounts Billed)	$	342,000	$	221,640	$	433,010	$	435,747
All Other Customers	$	501,543	$	594,703	$	615,259	$	796,597
	$	843,543	$	816,343	$	1,048,269	$	1,232,344

For the ~~nine~~six months ended ~~September~~June 30, ~~2017, one major customer accounted for 54% of total revenues and~~2021, three customers accounted for ~~84%~~70% of the accounts receivable ~~balance. For the nine months ended September 30, 2016, one major~~balance and no customer accounted for ~~16%~~more than 10% of total ~~revenues and three~~revenue.

For the six months ended June 30, 2020, four customers accounted for ~~67%~~74% of the accounts receivable ~~balance.~~

6.balance and one customer accounted for 18% of total revenue.

Below is a summary of new customer acquisition impact on billings and revenue:

	6 Months Ended June 30, 2021				6 Months Ended June 30, 2020
	Billings		GAAP Revenue		Billings		GAAP Revenue
Customers In Existence As Of The Beginning Of The Period (Including Upgrades)	$	843,543	$	816,343	$	1,036,182	$	1,232,344
Customers Acquired During The Period	$	0	$	0	$	12,087	$	0
	$	843,543	$	816,343	$	1,048,269	$	1,232,344

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7. LEASES

Leases (Topic 842) Disclosures

We are a lessee for a non-cancellable operating lease for our corporate office in Raleigh, North Carolina. We are also a lessee for a non-cancellable finance lease for a corporate vehicle and office furniture. Financing leases are not significant in terms of both balances and period expenses. The operating lease for the corporate office expires on April 30, 2024.

The following table summarizes the information about our operating lease:

The following table summarizes the information about operating lease:	Six Months Ended June 30, 2021
Operating lease expense	$	102,863
Remaining Lease Term (Years)	2.7 years
Discount Rate		8	%

Maturities of operating lease liability as of June 30, 2021 were as follows:	Operating Lease Expense		Variable Lease Expense		Total Lease Expense
2021 (remaining 6 months)	$	95,537	$	6,843	$	102,380
2022		191,074		14,096		205,170
2023		191,074		14,519		205,593
2024		63,691		4,840		68,531
Total lease payments	$	541,376	$	40,298		581,674
Less imputed interest						(67,034	)
Total					$	514,640

8. SUBSEQUENT EVENTS

~~On October 24, 2017~~

Subsequent to June 30, 2021 the Company granted approximately 760,000 of stock options to certain employees. The newly issued ~~a total~~stock options replaced stock options previously expired unexercised. The newly issued stock options have an exercise price equal to the fair market price of ~~4,895,105 shares~~$1.63 on the date of ~~its common stock to UBP upon UBP’s conversion of $7 million in principal amount of 2007 NPA notes.~~

grant, 10-year term and 5-year vesting.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information set forth in this Quarterly Report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and other laws. Forward-looking statements consist of, among other things, trend analyses, statements regarding future events, future financial performance, our plan to build our business and the related expenses, our anticipated growth, trends in our business, our ability to continue as a going concern, and the sufficiency of our capital resources including funds that we may be able to raise ~~under~~through our ~~convertible note facility,~~Series A Preferred Stock, our ability to raise financing from other sources and/or ability to defer expenditures, the impact of the liens on our assets securing amounts owed to third parties, expectation regarding competitors as more and larger companies attempt to market products/services competitive to our company, market acceptance of our new product offerings, including updates to our Platform, rate of new user subscriptions, market penetration of our products and expectations regarding our revenues and expense, all of which are based on current expectations, estimates, and forecasts, and the beliefs and assumptions of our management. Words such as “expect,” “anticipate,” “project,” “intend,” “plan,” “estimate,” variations of such words, and similar expressions also are intended to identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers are directed to risks and uncertainties identified under Part I, Item 1A, “Risk Factors,” in the Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020 and our subsequent periodic reports filed with the SEC for factors that may cause actual results to be different than those expressed in these forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

The following discussion is designed to provide a better understanding of our unaudited condensed ~~consolidated~~ financial statements, including a brief discussion of our business and products, key factors that impacted our performance, and a summary of our operating results. The following discussion should be read in conjunction with the unaudited condensed ~~consolidated~~ financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the audited annual ~~consolidated~~ financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report. Historical results and percentage relationships among any amounts in the condensed ~~consolidated~~ financial statements are not necessarily indicative of trends in operating results for any future periods.

Overview

~~We develop and market~~

MobileSmith is a developer of software applications for the healthcare ~~industry solutions~~industry. 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:

●	improve experience of healthcare patients and consumers, who are often at the same time members of various medical insurance networks

●	optimize delivery of healthcare and 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 healthcare

Since 2013 the Company focused exclusively on the development of ~~healthcare by means~~do-it-yourself customer facing platform that enabled organizations to rapidly create, deploy, and manage custom, native smartphone and tablet apps deliverable across iOS and Android mobile platforms without writing a single line of code. During 2017 the Company concluded that it had its highest rate of success with clients within the Healthcare industry and concentrated its development and sales and marketing efforts in that industry. During 2018 we further refined our Healthcare offering and redefined our product - a suite of e-health mobile ~~technology. Our software-as-a-service (“SaaS”) platform and related services provide~~solutions that consist of a catalog of ~~vetted~~ready to deploy mobile app solutions (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 ~~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~~consumer's mobile device.

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From time to ~~treatment plans, management of chronic conditions. Our flagship product is the MobileSmith® Platform (the “Platform”). Platform related~~time, we have provided custom software development services. Such services often include data integration, training and integration of third party services. We also provide consulting services, which include assistance with design and implementation of mobile strategy, implementation of mobile marketing strategy and the 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 allocation of a portion of our research and development efforts into Cost of Revenue.

~~In our business model – the customers acquire access to the Platform through user subscription agreements and~~ are ~~able to obtain control of mobile app production. We often refer~~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 host~~and will likely decrease in significance in the newly created mobile apps and back-office tools to manage those apps. Our 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.

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.

During 2014, for the first time we installed our Platform in a local or a private cloud configuration for one of our government clients. Our Platform was safely placed behind the firewalls of a government department which would allow the organization to create and manage multiple mobile apps with targeted functionality for targeted audiences without going outside of the secure setting.

future.

Target Market and Sales Channels

~~We identified several trends that are affecting our target market:~~

●

~~Mobile devices have transformed the way end-users interact with each other, and allow for new efficiencies for business to structure both customer and employee interactions;~~

●

~~Technology departments cannot keep up with the demand for the business transforming apps required by both operational business units and marketing departments;~~

●

Non-programmers have become accustomed to solving business problems with do-it-yourself (DIY) software technologies, such as website building, business process management, customer relationship management and others.

We believe that the do-it-yourself model for creation and management of apps will become a cost effective solution for enterprise 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.

During 2017, we ~~concluded that we have amassed significant expertise providing mobile app based solutions to healthcare industry~~completed a strategic shift and ~~refocused~~focused our ~~efforts predominantly~~business and research and development activities primarily on the ~~healthcare and healthcare related~~Healthcare industry ~~going forward. We will continue targeting other industries, if solutions for those industries are based on our core expertise in healthcare.~~ ~~Our strategy includes engagement of federal and state governments, who are major players~~ in the ~~delivery~~United States. In 2018 we refined our healthcare focus by identifying two target markets: (i) healthcare providers (including hospitals, hospital systems and the United States Veterans Health Administration) and (ii) healthcare payer market (including insurance companies and insurance brokers).

Both markets are targeted with a diversified sales workforce that includes direct sales and resellers, such as channel partners.

Significance of Human Capital in Our Operations.

Our success depends on the performance 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 technical skills and knowledge of healthcare ~~indirectly through Medicare and Medicaid systems and directly by providing healthcare to nation's active military and its veterans through a Veterans Affairs system. We will continue working~~industry. As such, expansion of the team often comes with additional recruiting expenses. All of our ~~government clients with a goal of making our return on investment~~employees are currently based ~~solutions available~~ in the ~~public center.~~

United States. During 2020 we invested in remote work environment, which allowed us to expand our hiring practices geographically from local markets to include the entire United States.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended ~~September~~June 30, ~~2017~~2021 (the ~~“2017~~“2021 Period”) to the Three Months Ended ~~September~~June 30, ~~2016~~2020 (the ~~“2016~~“2020 Period”).

Three Months Ended September 30,

Increase (Decrease)

2017

2016

$

%

Revenue
  1,886,344

  415,166

  1,471,178

  354%
Cost of Revenue
  147,535

  149,593
  (2,058)
  (1%)
Gross Profit
  1,738,809

  265,573

  1,473,236

  555%





Sales and Marketing
  299,559

  288,129

  11,430

  4%
Research and Development
  406,113

  446,490

  (40,377)
  (9%)
General and Administrative
  367,342

  257,615

  109,727

  43%





Interest Expense
  1,104,318

  997,730

  106,588

  11%

	Three months ended June 30, 2021		Three months ended June 30, 2020		Increase (Decrease)$			Increase (Decrease)%
Revenue	$	398,358	$	607,772	$	(209,414	)		-34	%
Cost of Revenue		199,944		181,221		18,723			10	%
Gross Profit		198,414		426,551		(228,137	)		-53	%

Selling and Marketing		476,147		301,052		175,095			58	%
Research and Development		858,571		750,438		108,133			14	%
General and Administrative		705,489		824,517		(119,028	)		-14	%

Interest Expense		48,671		1,759,173		(1,710,502	)		-97	%
Loss on Debt Extinguishment	$	-	$	4,864,750	$	(4,864,750	)		-100	%

Revenue decreased by $209,414 or 34%. A decrease of $105,000 accounted for completion of a large contract with a government agency during the three months ended June 30, 2020. The remainder of the decrease is associated with loss of customers due to non-renewals of contracts and new sales below target.

Cost of Revenue increased by ~~$1,471,178~~$18,723 or ~~354%~~10%. The increase ~~in revenues~~ is primarily attributable to the recognition and recording of previously deferred revenues. Our revenues were previously impacted by one significant contract for which revenue recognition until the 2017 Period had been deferred in compliance with United States Generally Accepted Accounting Principles ("US GAAP") revenue recognition requirements for sale of software products and services. Throughout 2017 revenue recognition criteria have been met and therefore, the Company commenced related revenue recognition in accordance with our revenue recognition policy.

~~Cost of Revenue~~ decreased by $2,058 or (1%), but overall Cost of Revenue was comparable between two periods. Period to period fluctuations take place due to composition of Customer Success team deliverables and services component of these deliverables.

~~Gross Profit~~ ~~increased by $1,473,236 or 555% and is primarily attributable to commencementduring year 2017~~ ~~of revenue recognition on a major contract as referred to above. Associated costs of delivery have been incurred and accrued in previous periods.~~

~~Sales and Marketing~~ ~~expense increased by $11,430 or 4%. Increase of approximately $40,000 is attributable~~attributed to an increase in ~~compensation due to the expansion of our sales~~payroll costs for a delivery team and increase in commission expense related to an increase in contract bookings and collections in the 2017 Period in comparison to 2016 Period. Increase in sales compensation expense is offset by a decrease in volume of marketing campaigns as we re-evaluated our key marketing activities and strategy in the 2017 Period.

~~Research and Development~~ ~~expense~~hosting costs.

Gross Profit decreased by ~~$40,377~~$228,137 or ~~(9%)~~53%. ~~This~~The decrease is attributable to a $34,000 decrease in payroll and related expenses and $25,000 decrease in recruiting expense. These decreases were partially offset by increase in employee stock based compensation expense.

~~General and Administrative~~ ~~expense increased by $109,727 or 43%. Such increase is~~ primarily attributable to increase in employee stock based compensation expense of approximately $70,000 and increase in bad debt expenses of $66,000, offset by decreases in legal and compliance expenses expenses, infrusctructure costs and travel expenses.

~~Interest Expense~~ ~~increased by $106,588 or 11%. Such increase is mostly attributable to an increase in the face value of our convertible debt and increase in variable interest rate on our bank loan.~~

~~Comparison of the Nine Months Ended September 30, 2017 (the “2017 Period”) to the Nine Months Ended September 30, 2016 (the “2016 Period”).~~

Nine Months Ended September 30,

  Increase (Decrease)

2017

2016

  $

%

Revenue
  2,932,687

  1,384,619

  1,548,068

  112%
Cost of Revenue
  460,761

  414,204
  46,557

  11%
Gross Profit
  2,471,926
  970,415

  1,501,511

  155%





Sales and Marketing
  865,181

  849,303

  15,878
  2%
Research and Development
  1,295,647
  1,253,889

  41,758

  3%
General and Administrative
  1,165,708

  1,009,976
  155,732
  15%





Interest Expense
  3,226,932
  3,701,073

  (474,141)
  (13%)

~~Revenue~~ ~~increased by $1,548,068 or 112%.~~ The increase in revenues is attributable to the recognition of previously deferred revenues. Our revenues were previously impacted by one significant contract for which revenue recognition had been 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 on that contract have been met and approximately $1.6 million of revenue has been recognized in accordance with our revenue recognition policy.

~~Cost of Revenue~~ increased by $46,557 or 11%. Such increase is attributable to the growth of our Customer Success team as a result of realigning our workforce to deliver professional services in mobile app strategy and design.

~~Gross Profit~~ increased by $1,501,511 or 155%. Gross Profit was positively impacted by the revenue recognition from the one significant customer contract referred to above for which revenue recognition commenced in 2017 Period, as described above.

~~Sales and Marketing~~ expense increased by $15,878 or 2%. Sales and marketing team compensation increased by approximately $91,000 mostly as a result of increase in salaries of our sales team and commission expense related to increase in contract bookings and collections in 2017 Period in comparison to 2016 Period. Increase in commission expense was offset by overall decrease in marketing spending on campaigns and tradeshows as we continue to adjust our sales and marketing activities to conform to our overall sales and marketing goals.

~~Research and Development~~ ~~expense increased by $41,758 or 3%.~~ ~~This increase is~~ attributable to a decrease in ~~amount~~revenue.

Selling and Marketing expense increased by $175,095 or 58%. During 2020 we kept certain sales positions unfilled, as we evaluated the impact of ~~our research~~COVID-19 on the healthcare industry. In last quarter of 2020 and ~~development team's effort that was allocated to cost of revenue in the 2017 Period in comparison to 2016 Period.~~ ~~Certain service components of our customer agreements required dedicated time from our development team and such effort was recorded as cost of revenue~~ during the ~~period such services were delivered. In addition to the development~~first quarter of 2021 we started expanding our sales and marketing team, ~~effort allocation, the Research and Development expense was impacted by~~which resulted in an increase in ~~employee~~payroll costs of $137,000 and increase in stock based compensation ~~as a result~~ of $75,000. During the ~~grant~~same period, we incurred an offsetting decrease of ~~stock options under the 2016 Equity Compensation plan.~~

~~General~~$42,000 in marketing campaigns, PR and ~~Administrative~~ marketing outsourced services.

Research and Developmentexpense increased by ~~$155,732~~$108,133 or ~~15%~~14%. In 2021 we invested in our product development team by expanding it and the team spent less time on efforts associated with delivery of services revenue. As a result, payroll and related expenses increased by approximately $55,000 and stock based compensation increased by $63,000.

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General and Administrative expense decreased by $119,028 or 14% predominantly due to decrease in stock based compensation of $110,000.

Interest Expense decreased by $1,710,502 or 97%. Decrease in interest expense is associated with the debt elimination transactions.

Loss on Debt Extinguishments of $4,864,750 in 2020 Period resulted from modifications of convertible notes.

Comparison of the Six Months Ended June 30, 2021 (the “2021 Period”) to the Six Months Ended June 30, 2020 (the “2020 Period”).

	Six months ended June 30, 2021		Six months ended June 30, 2020		Increase (Decrease)$			Increase (Decrease)%
Revenue	$	816,343	$	1,232,344	$	(416,001	)		-34	%
Cost of Revenue		414,247		439,784		(25,537	)		-6	%
Gross Profit		402,096		792,560		(390,464	)		-49	%

Selling and Marketing		1,004,441		668,366		336,075			50	%

Research and Development		1,734,237		1,378,233		356,004			26	%
General and Administrative		1,611,373		1,649,318		(37,945	)		-2	%

Interest Expense		191,138		3,610,276		(3,419,138	)		-95	%
Loss on Debt Extinguishment		6,507,137		4,864,750		1,642,387			34	%

Gain on Debt Extinguishment - PPP Loan Forgiveness	$	542,000	$	-	$	542,000			0	%

Revenue decreased by $416,001 or 34%. A decrease of $105,000 accounted for completion of a large contract with a government agency. The remainder of the decrease is associated with loss of customers due to non-renewals of contracts and new sales below target.

Cost of Revenue decreased by $25,537 or 6%. The decrease is attributed to a completion of a single large contract with a government agency during the ~~2017 Period. This increase~~three months ended June 30, 2020.

Gross Profit decreased by $390,464 or 49%. The decrease is primarily attributable to a decrease in revenue.

Selling and Marketing expense increased by $336,075 or 50%. During 2020 we kept certain sales positions unfilled, as we evaluated the impact of COVID-19 on the healthcare industry. In last quarter of 2020 and during the first quarter of 2021 we started expanding our sales and marketing team, which resulted in an increase in ~~employee~~payroll costs of $232,000, increase in related recruiting costs of $41,000 and increase in stock based ~~compensation.~~

~~Interest Expense~~ ~~decreased by $474,141 or (13%). The cash part~~compensation of ~~interest~~$134,000. During the same period, we incurred offsetting decreases of $15,000 in travel costs and $77,000 decrease in marketing campaigns, PR and marketing outsourced services.

Research and Development expense increased by ~~approximately $290,000 due to~~$356,004 or 26%. In 2021 we invested in our product development team by expanding it and the ~~increase in the face value~~team spent less time on efforts associated with delivery of ~~our convertible debt. The cash interest portion was offset by a decrease of approximately $760,000 in debt discount amortization~~asservices revenue. As a result, payroll and related expenses increased by approximately $184,000 and stock based compensation increased by $145,000.

General and Administrative expense decreased by $37,945 or 2%. The decrease can be attributed to fluctuations in various general and administrative costs.

Interest Expense decreased by $3,419,138 or 95%. Decrease in interest expense is associated with the debt elimination transactions.

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Gain on Debt Extinguishment - PPP Loan Forgiveness The Company's first PPP loan was forgiven during the 2021 Period.

Loss on Debt Extinguishments of $6,507,137 resulted from a debt exchange transaction, which took place on January 28 of 2021. For more information about the transaction refer to "Debt" footnote of the ~~discount being amortized over additional two years attributable to the extension~~financial statements included in this Form 10Q. In 2020 Period loss on debt extinguishment resulted from modifications of ~~the maturity date for our~~ convertible ~~debt, which was implemented in May 2016.~~

notes.

Liquidity and Capital Resources

We have not yet achieved positive cash flows from operations, and our main source of funds for our operations continues to be the sale of our ~~notes under the Convertible Note Facilities.~~Series A Preferred Stock. We will continue to rely on this source until we are able to generate sufficient cash from revenues to fund our operations or obtain alternate sources of financing. We believe that anticipated cash flows from operations, and additional ~~issuances of notes,~~funding under the Series A Preferred Stock, of which no assurance can be provided, 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 on Form 10-Q.~~months. Changes in our operating plans, lower than anticipated sales, increased expenses, impact of COVID-19 pandemic (as described in "Risk Factors" of our Annual Report on Form 10-K for the period ending December 31, 2020 filed with the SEC) or other events may cause us to seek additional equity or debt financing in future periods. There can be no guarantee that financing will continue to be available to us ~~under~~through the ~~Convertible Note Facilities~~sale of our Series A Preferred Stock or otherwise on acceptable terms or at all. Additional equity and convertible debt financing ~~could~~will 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.~~

stock.

Nonetheless, there are factors that can impact our ability to continue to fund our operating activities for the next twelve months. These include:

●

~~Our ability to expand revenue volume;~~

●

~~Our ability to maintain product pricing as expected, particularly in light of increased competition and its unknown effects on market dynamics;~~

●

~~Our continued need to reduce our cost structure while simultaneously expanding the breadth of our business, enhancing our technical capabilities, and pursing new business opportunities.~~

●	Our ability to expand revenue volume;

●	Our ability to maintain product pricing as expected, particularly in light of increased competition and its unknown effects on market dynamics;

●	Our continued need to reduce our cost structure while simultaneously expanding the breadth of our business, enhancing our technical capabilities, and pursing new business opportunities.

●	Our ability to predict and offset the extended impact COVID-19 will have to our primary market's financial outcome, and our business.

In addition, we have an outstanding Loan and Security Agreement (the "LSA") with Comerica Bank in the amount of $5 million, which matures in June of ~~2018~~2022 and is secured by an extended irrevocable letter of credit issued by UBS AG (Geneve, 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. If UBS were to elect to not renew the irrevocable letter of credit issued by it beyond May 31, 2018, the currently scheduled expiration date, then such non-renewal will result in an event of default under the LSA, at which time all amounts outstanding under the LSA of approximately $5 million will become due and payable. Currently, the letter of credit is automatically extended for one year periods, unless notice of non-renewal is given by UBS AG at least 45 days prior to the then current expiration date. As of the date of this report on Form 10Q, no such notice has been provided to us nor have we been provided with any indication that we are to receive notice of non-renewal of the letter of credit.

~~Additionally, all~~ ~~notes issued under the 2007 and 2014 NPAs mature on November 14, 2018 and Comerica LSA matures on June 6, 2018.~~

In July of 2017 the Company consolidated multiple notes issued to the same noteholders under 2007 NPA or 2014 NPA into single note to each such shareholder so as to consolidate quarterly interest payments. All of the other terms and conditions, including the maturity date, remain in effect. The consolidated notes will continue to pay quarterly interest on a calendar quarter basis. Due to transition of quarterly payments to a calendar basis, the Company's interest payments on the consolidated notes is expected to decrease by approximately $350,000 for the year ending December 31, 2017.

~~Uses of Cash~~

~~During the nine months ended September 30, 2017, we used in operating activities approximately $5.6 million, which was offset by $2.8 million in cash collected from our customers~~,~~nettingapproximately $2.8 million of net cash used in operating activities. A~~pproximately $2.3 million of this amount was used to pay interest payments on the convertible notes and bank debt; approximately $2.5 million for payroll, benefits and related costs; approximately $290,000 was used for non-payroll related sales and marketing efforts, such as tradeshows and marketing campaigns and approximately $565,000 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 nine months ended September 30, 2016, we used in operating activities approximately $5.6 million, which was offset by $1.7 million in cash collected from our customers, netting approximately $3.9 million of net cash used in operating activities. Approximately $2.4 million was used to pay interest payments on the convertible notes and bank debt; approximately $2.4 million was used for payroll, benefits and related costs; approximately $335,000 was used on non-payroll related sales and marketing efforts, such as tradeshows and marketing campaigns and approximately $450,000 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.

2022.

Capital Expenditures and Investing Activities

Our capital expenditures are limited to the purchase of new office equipment and new mobile devices that are used for testing. Cash used for investing activities was not significant and we do not plan any significant capital expenditures in the near future.

Going Concern

Our independent registered public accounting firm has issued an emphasis of matter paragraph in their report included in the Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020 in which they express substantial doubt as to our ability to continue as a going concern. The condensed ~~consolidated~~ financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should we be unable to continue as a going concern. Our continuation as a going concern depends on our ability to generate sufficient cash flows to meet our obligations on a timely basis, to obtain additional financing that is currently required, and ultimately to attain profitable operations and positive cash flows. There can be no assurance that our efforts to raise capital or increase revenue will be successful. If our efforts are unsuccessful, we may have to cease operations and liquidate our business.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not ~~applicable.~~

applicable for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures for the ~~nine~~three months ended ~~September~~June 30, ~~2017.~~2021. 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~~Company’s management, including its principal executive and principal financial officers, as appropriate to allow for timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September~~June 30, ~~2017,~~2021, our disclosure controls and procedures were effective at a reasonable ~~assurance level.~~

level of assurance.

Changes in Internal Control over Financial Reporting

During the quarter ended ~~September~~June 30, ~~2017,~~2021, there were no changes made in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following paragraph sets forth certain information with respect to all securities sold by us during the three months ended ~~September~~June 30, ~~2017~~2021 without registration under the Securities ~~Act:~~

Act of 1933, as amended (the "Securities Act"):

Between ~~July~~April 1, ~~2017~~2021 and ~~September~~June 30, ~~2017,~~2021, we issued to ~~one~~an accredited investor ~~$1,500,000 in principal amount of our convertible notes under the 2014 Note Purchase Agreement. The note is convertible into~~23,310 shares of our ~~Common~~Series A Preferred Stock ~~at a per share conversion rate~~for an aggregate purchase price of ~~$1.43. All notes issued under this facility are scheduled~~$1,000,000. The proceeds were used to ~~mature on November 14, 2018.~~

finance shortfalls in working capital.

All of the securities issued in the transactions described above were issued without registration under the Securities Act in reliance upon the exemptions provided in Section 4(2) of the Securities Act. The recipient of securities in such transaction acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof. Appropriate legends were affixed to the share certificates issued in all of the above transactions. The recipient represented that it was an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act, or had such knowledge and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in its common stock. The recipient had adequate access, through their relationships with the Company and its officers and directors, to information about the Company. None of the transactions described above involved general solicitation or advertising.

ITEM ~~6. EXHIBITS~~

3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

~~Exhibit No.~~	~~Description~~

~~31.1~~ 19

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ITEM 6. EXHIBITS

Exhibit No.		Description

31.1		Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) (Filed herewith)

31.2		Certification of Principal Financial and Accounting Officer Pursuant to Rule 13a-14(a) (Filed herewith)

32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 (Furnished herewith)

32.2		Certification of Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350 (Furnished herewith)

101.1		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2021, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed ~~Consolidated~~ Balance Sheets, (ii) the Condensed ~~Consolidated~~ Statements of Operations, (iii) the Condensed ~~Consolidated~~ Statements of Cash Flows, (iv) the Condensed ~~Consolidated~~ Statement of Stockholders’ Deficit and (v) related notes to these condensed ~~consolidated~~ financial statements, tagged as blocks of text and in detail (Filed herewith).


	20

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MOBILESMITH, INC.

~~November 13, 2017~~ August 10, 2021	By:	/s/ ~~Bob Dieterle~~ Jerry Lepore
		~~Bob Dieterle~~ Jerry Lepore
		Chief Executive Officer (Principal Executive Officer)

August 10, 2021	By:	/s/ Gleb Mikhailov
~~November 13, 2017~~	~~By:~~	~~/s/~~ Gleb Mikhailov
		~~Gleb Mikhailov~~
		Chief Financial Officer (Principal Financial and Accounting Officer)

ASSETS
	September 30,	December 31,
	2017	2016
	(unaudited)
Current Assets
Cash and Cash Equivalents	$1,443,262	$548,146
Restricted Cash	61,713	116,577
Trade Accounts Receivable, Less Allowance for Doubtful Accounts of $12,500 and $0, Respectively	267,939	273,091
Prepaid Expenses and Other Current Assets	49,549	64,642
Total Current Assets	1,822,463	1,002,456

Property and Equipment, Net	81,647	104,129
Capitalized Software, Net	195,903	274,833
Intangible Assets, Net	24,469	37,593
Total Other Assets	302,019	416,555
Total Assets	$2,124,482	$1,419,011

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Trade Accounts Payable	$84,059	$43,518
Accrued Expenses	178,673	193,836
Accrued Interest	881,242	455,269
Capital Lease Obligations	36,624	36,950
Deferred Revenue	1,239,165	1,404,951
Bank Loan	5,000,000	-
Total Current Liabilities	7,419,763	2,134,524

Long-Term Liabilities
Bank Loan	-	5,000,000
Convertible Notes Payable, Related Parties, Net of Discount	43,788,609	39,655,579
Convertible Notes Payable, Net of Discount	680,640	680,640
Capital Lease Obligations	36,733	63,834
Deferred Rent	30,839	42,189
Total Long-Term Liabilities	44,536,821	45,442,242
Total Liabilities	51,956,584	47,576,766

Commitments and Contingencies (Note 3)
Stockholders' Deficit
Preferred Stock, $0.001 Par Value, 5,000,000 Shares Authorized, No Shares Issued and Outstanding at September 30, 2017 and December 31, 2016	-	-
Common Stock, $0.001 Par Value, 100,000,000 Shares Authorized At September 30, 2017 and December 31, 2016; 19,827,542 Shares Issued and Outstanding at September 30, 2017 and December 31, 2016	19,828	19,828
Additional Paid-in Capital	98,650,709	98,245,063
Accumulated Deficit	(148,502,639)	(144,422,646)
Total Stockholders' Deficit	(49,832,102)	(46,157,755)
Total Liabilities and Stockholders' Deficit	$2,124,482	$1,419,011

	Three Months Ended		Nine Months Ended
	September 30,	September 30,	September 30,	September 30,
	2017	2016	2017	2016
REVENUES:
Subscription and Support	$1,886,344	$415,166	$2,932,687	$1,380,465
Professional Services and Other	-	-	-	4,154
Total Revenue	1,886,344	415,166	2,932,687	1,384,619
COST OF REVENUES:
Subscription and Support	147,535	138,175	431,457	346,544
Professional Services and Other	-	11,418	29,304	67,660
Total Cost of Revenue	147,535	149,593	460,761	414,204

GROSS PROFIT	1,738,809	265,573	2,471,926	970,415
OPERATING EXPENSES:
Sales and Marketing	299,559	288,129	865,181	849,303
Research and Development	406,113	446,490	1,295,647	1,253,889
General and Administrative	367,342	257,615	1,165,708	1,009,976
Total Operating Expenses	1,073,014	992,234	3,326,536	3,113,168
INCOME (LOSS) FROM OPERATIONS	665,795	(726,661)	(854,610)	(2,142,753)

OTHER INCOME (EXPENSE):
Other Income	365	153,918	1,549	165,486
Interest Expense, Net	(1,104,318)	(997,730)	(3,226,932)	(3,701,073)
Total Other Expense	(1,103,953)	(843,812)	(3,225,383)	(3,535,587)

NET LOSS	$(438,158)	$(1,570,473)	$(4,079,993)	$(5,678,340)

NET LOSS PER COMMON SHARE:
Basic and Fully Diluted	$(0.02)	$(0.08)	$(0.21)	$(0.29)
WEIGHTED-AVERAGE NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE:
Basic and Fully Diluted	19,827,542	19,827,542	19,827,542	19,827,542

	Common Stock		Additional Paid-In Capital	Accumulated Deficit	Totals
		$0.001
	Shares	Par Value
BALANCES, DECEMBER 31, 2016	19,827,542	$19,828	$98,245,063	$(144,422,646)	$(46,157,755)

Equity-Based Compensation	-	-	327,149	-	327,149
Beneficial Conversion Feature Recorded as a Result of Issuance of Convertible Debt	-	-	78,497	-	78,497
Net Loss	-	-	-	(4,079,993)	(4,079,993)
BALANCES, SEPTEMBER 30, 2017	19,827,542	$19,828	$98,650,709	$(148,502,639)	$(49,832,102)

Debt Description	September 30,	December 31,
	2017	2016	Maturity	Rate

Comerica Bank Loan and Security Agreement	$5,000,000	$5,000,000	June 2018	4.85%
Capital lease obligations - Noteholder lease	51,583	69,717	August 2019	8.00%
Capital lease obligations - office furniture and other equipment	7,248	14,044	August 2018	9.80%
Capital lease obligations - vehicle	14,526	17,023	July 2021	5.59%
Convertible notes - related parties, net of discount of $760,622 and $1,168,652, respectively	43,788,609	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	49,542,606	45,437,003

Less: current portion of long term debt
Capital lease obligations	36,624	36,950
Comerica Bank Loan and Security Agreement	5,000,000	-
Total current portion of long term debt	5,036,624	36,950

Debt - long term	$44,505,982	$45,400,053

Year:
2017	$10,869
2018	38,345
2019	23,631
2020	4,219
Thereafter	2,461
	79,525
Less amount representing interest	(6,168)
Capital lease obligations	$73,357

	Number of Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value

Outstanding, December 31, 2016	2,184,160	$1.48
Cancelled	(185,894)	1.52
Issued	338,146	1.40
Outstanding, September 30, 2017	2,336,412	$1.47	4.10	$90,445
Vested and exercisable, September 30, 2017	834,527	$1.50	3.25	$52,146

	Three Months Ended September 30,		Increase (Decrease)
	2017	2016	$	%
Revenue	1,886,344	415,166	1,471,178	354%
Cost of Revenue	147,535	149,593	(2,058)	(1%)
Gross Profit	1,738,809	265,573	1,473,236	555%

Sales and Marketing	299,559	288,129	11,430	4%
Research and Development	406,113	446,490	(40,377)	(9%)
General and Administrative	367,342	257,615	109,727	43%

Interest Expense	1,104,318	997,730	106,588	11%

	Nine Months Ended September 30,		Increase (Decrease)
	2017	2016	$	%
Revenue	2,932,687	1,384,619	1,548,068	112%
Cost of Revenue	460,761	414,204	46,557	11%
Gross Profit	2,471,926	970,415	1,501,511	155%

Sales and Marketing	865,181	849,303	15,878	2%
Research and Development	1,295,647	1,253,889	41,758	3%
General and Administrative	1,165,708	1,009,976	155,732	15%

Interest Expense	3,226,932	3,701,073	(474,141)	(13%)