Forward-Looking Information
This report includes, in addition to historical information, "forward-looking statements". All statements other than statements of historical fact we make in this report are forward-looking statements. In particular, the statements regarding industry prospects and our expectations regarding future results of operations or financial position (including those described in this Management's Discussion and Analysis of Financial Condition and Results of Operations) are forward-looking statements. Such statements are based on management's current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ significantly from those described in the forward-looking statements. Factors that may cause such a difference include the following: ? the success of products depends on a number of factors including market acceptance and our ability to manage the risks associated with product introduction;
? local, regional, national and international economic conditions and events,
and the impact they may have on us and our customers;
? our revenue could be adversely impacted if any of our significant customers
reduces its order levels or fails to order during a reporting period; customer
demand is based on many factors out of our control;
? as a result of the new revenue recognition standards, if any significant end
user customer or reseller substantially changes its order level, or fails to
order during the reporting period, whether the order is placed directly with
us or through one of our non-stocking resellers, our software licenses revenue
could be materially impacted; and
? other factors, including, but not limited to, those set forth under Item 1A,
"Risk Factors" in our Annual Report on Form 10-K for the year ended December
31, 2019 which was filed with the
"SEC") on
Statements included in this report are based upon information known to us as of the date that this report is filed with theSEC , and we assume no obligation to update or alter our forward-looking statements made in this report, whether as a result of new information, future events or otherwise, except as otherwise required by applicable federal securities laws. Introduction We are developers of application publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants. Our application publishing software solutions are sold under the brand name GO-Global, which is our sole revenue source. GO-Global is an application access solution for use and/or resale by independent software vendors ("ISVs"), corporate enterprises, governmental and educational institutions, and others who wish to take advantage of cross-platform remote access and Web-enabled access to their existing software applications, as well as those who are deploying secure, private cloud environments.
Beginning in 2012, we developed and marketed several products in the field of software productivity for mobile devices such as tablets and smartphones under the hopTo brand. We ceased all our sales, marketing and development for the hopTo products in 2016. We have made investments in intellectual property ("IP") and filed many patents designed to protect the technologies embedded in the hopTo products. We are currently marketing for sale 49 patents and related source code developed from our hopTo development efforts. Critical Accounting Policies
We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as "critical" because these specific areas require us to make judgments and estimates about matters that are uncertain at the time we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 2019 10-K Report and Note 2 to our unaudited consolidated financial Statements included under Item 1 - Financial Statements in this Form 10-Q. 13
Results of Operations for the Three Months Ended
The following are the results of our operations for the three months ended
For the Three Months Ended June 30, June 30, 2020 2019 $ Change (Unaudited) (Unaudited) Revenues$ 1,066,100 $ 732,000 $ 334,100
Cost of revenues 37,400 39,600 (2,200 ) Gross profit 1,028,700
692,400 336,300
Operating expenses: Selling and marketing 151,500 110,600 40,900 General and administrative 239,500 199,600 39,900 Research and development 356,900
383,000 (26,100 )
Total operating expenses 747,900
693,200 54,700
Income (loss) from operations 280,800
(800 ) 281,600 Other income (expense): Other income (expense): 46,900 100 46,800
Income (loss) before provision for income taxes 327,700
(700 ) 328,400 Provision for income taxes 5,000 - 5,000 Net income (loss)$ 322,700 $ (700 ) $ 323,400 Revenues
Our software revenue is entirely related to our GO-Global product line, and historically has been primarily derived from product licensing fees and service fees from maintenance contracts. The majority of this revenue has been earned, and continues to be earned, from a limited number of significant customers, most of whom are resellers. Many of our resellers purchase software licenses that they hold in inventory until they are resold to the ultimate end user (a "stocking reseller"). When a software license is sold directly to an end user by us, or by one of our resellers who does not stock licenses into inventory, revenue is recognized immediately upon shipment, assuming all other criteria for revenue recognition are met. Consequently, if any significant end user customer substantially changes its order level, or fails to order during the reporting period, whether the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially impacted.
Almost all stocking resellers maintain inventories of our Windows products; few stocking resellers maintain inventories of our UNIX products.
The following is a summary of our revenues by category for the three months
ended
For the Three Months Ended June 30, June 30, 2020 2019 $ Change Revenue Software Licenses Windows$ 159,000 $ 152,800 $ 6,200 UNIX/Linux 16,500 2,400 14,100 Total 175,500 155,200 20,300 Software Service Fees Windows 582,500 484,300 98,200 UNIX/Linux 56,700 69,500 (12,800 ) Total 639,200 553,800 85,400 Other 251,400 23,000 228,400$ 1,066,100 $ 732,000 $ 334,100 Software Licenses Windows software licenses revenue increased by$6,200 or 4.1% to$159,000 during the three months endedJune 30, 2020 , from$152,800 for the same period in 2019. The increase was primarily due to higher revenue from standard and encryption licenses for three months endedJune 30, 2020 . 14
Software licenses revenue from our UNIX/Linux products increased by$14,100 or 587.5% to$16,500 for the three months endedJune 30, 2020 from$2,400 for the same period in 2019. The increase was primarily due to higher revenue from standard and encryption licenses for the three months endedJune 30, 2020 .
Software Service Fees Service fees attributable to our Windows product service increased by$98,200 or 20.3% to$582,500 during three months endedJune 30, 2020 , from$484,300 for the same period in 2019. The increase was primarily due to a higher of Windows subscription license revenue. Service fees revenue attributable to our UNIX products decreased by$12,800 or 18.4% to$56,700 during the three months endedJune 30, 2020 , from$69,500 for the same period in 2019. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of certain long-term maintenance contracts. The majority of this decrease was attributable to our European telecommunications customers. Other
Other revenue consists of private labeling fees, professional services, and other non-recurring revenues. Other revenue increased by$228,400 or 993.0% for the three months endedJune 30, 2020 , compared to the same period in 2019. The primary increase was related to revenue recognized from a one-time, non-recurring license agreement with an existing customer for the use of our software. Cost of Revenues Cost of revenue is comprised primarily of software service costs, which represent the costs of customer service. Also included in cost of revenue are software product costs, which is primarily the required import tax withholdings fromBrazil resellers. We incur no significant shipping or packaging costs as virtually all of our deliveries are made via electronic means over the Internet. Cost of revenue for the three months endedJune 30, 2020 decreased by$2,200 , or 5.6%, to$37,400 for the three months endedJune 30, 2020 from$39,600 for the same period in 2019. Cost of revenue represented 3.6% and 5.4% of total revenue for the three months endedJune 30, 2020 and 2019, respectively.
Selling and Marketing Expenses
Selling and marketing expenses primarily consisted of employee, outside services and travel and entertainment expenses.
Selling and marketing expenses increased by$40,900 , or 37.0%, to$151,500 for the three months endedJune 30, 2020 from$110,600 for the same period in 2019. Selling and marketing expenses represented approximately 14.6% and 15.1% of total revenue for the three months endedJune 30, 2020 and 2019, respectively. Selling and marketing expenses increased during three months period endedJune 30, 2020 due to the increase in marketing consulting services.
General and Administrative Expenses
General and administrative expenses primarily consist of employee costs, depreciation and amortization, legal, accounting, board of director fees, other professional services (including those related to our patents), rent, travel and entertainment and insurance. Certain costs associated with being a publicly held corporation are also included in general and administrative expenses, as well as bad debt expense. General and administrative expenses increased by$39,900 , or 20.0%, to$239,500 for the three months endedJune 30, 2020 from$199,600 for the same period in 2019. The increase in general and administrative expense was due to the increase in board of director fees, offset by decrease in accounting fees.
Research and Development Expenses
Research and development expenses consist primarily of employee costs, payments to contract programmers, software subscriptions, travel and entertainment for our engineers, and all rent for our leased engineering facilities. Research and development expenses decreased by$26,100 , or 6.8% to$356,900 for the three months endedJune 30, 2020 from$383,000 for the same period in 2019. The research and development decrease due lower consulting fees as a result of completion of research and development expenses during the second quarter of 2019. Other Income
Other income increased by$46,800 for the three months endedJune 30, 2020 , compare to the same periods in 2019 was primarily related to penalty fees from a one-time, non-recurring license agreement with an existing customer for the
use of our license. 15
Results of Operations for the Six-Month Periods Ended
The following are the results of our operations for the six months ended
For the Six Months Ended June 30, 2020 June 30, 2019 Revenues$ 1,910,700 $ 1,785,800 Cost of revenues 75,500 68,800 Gross profit 1,835,200 1,717,000 Operating expenses: Selling and marketing 255,900 227,600 General and administrative 468,500 494,600 Research and development 720,900 757,500 Total operating expenses 1,445,300 1,479,700 Income from operations 389,900 237,300 Other income: Other income 46,900 13,900
Income before provision for income taxes 436,800
251,200 Provision for income taxes 5,000 - Net income (loss)$ 431,800 $ 251,200 Net income per share, basic $ 0.04 $ 0.03 Net income per share, diluted $ 0.04 $ 0.02 Weighted average number of common shares outstanding Basic 10,673,340 9,807,261 Diluted 10,683,163 10,274,011 Revenues
Our software revenue is entirely related to our GO-Global product line, and historically has been primarily derived from product licensing fees and service fees from maintenance contracts. The majority of this revenue has been earned, and continues to be earned, from a limited number of significant customers, most of whom are resellers. Many of our resellers purchase software licenses that they hold in inventory until they are resold to the ultimate end user (a "stocking reseller"). When a software license is sold directly to an end user by us, or by one of our resellers who does not stock licenses into inventory, revenue is recognized immediately upon shipment, assuming all other criteria for revenue recognition are met. Consequently, if any significant end user customer substantially changes its order level, or fails to order during the reporting period, whether the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially impacted.
Almost all stocking resellers maintain inventories of our Windows products; few stocking resellers maintain inventories of our UNIX products.
The following is a summary of our revenues by category for the six months ended
For the Six Months Ended June 30, June 30, 2020 2019 $ Change Revenue Software Licenses Windows$ 396,900 $ 472,100 $ (75,200 ) UNIX/Linux 54,900 16,000 38,900 Total 451,800 488,100 (36,300 ) Software Service Fees Windows 1,064,100 1,098,200 (34,100 ) UNIX/Linux 121,800 153,500 (31,700 ) Total 1,185,900 1,251,700 (65,800 ) Other 273,000 46,000 227,000$ 1,910,700 $ 1,785,800 $ 124,900 Software Licenses
Windows software licenses revenue decreased by$75,200 or 15.9% to$396,900 during the six months endedJune 30, 2020 , from$472,100 for the same period in 2019. The decrease was entirely due to a certain partner that purchased a large order of Windows licenses from the Company during the three months endedMarch 31, 2019 that did not recur during the three months endedMarch 31, 2020 . 16
Software licenses revenue from our UNIX/Linux products increased by$38,900 or 243.1% to$54,900 for the six months endedJune 30, 2020 from$16,000 for the same periods of 2019. The increase was primarily due to higher revenue from higher stocking and standard order licenses.
We expect aggregate GO-Global total software license revenue in 2020 to be in-line with 2019 levels as we are observing a mix of both higher and lower aggregate revenue from our various customers.
Software Service Fees Service fees attributable to our Windows product service decreased by$34,100 or 3.1% to$1,064,100 during the six months endedJune 30, 2020 , from$1,098,200 for the same period in 2019. The decrease was primarily due to timing of revenue recognition for maintenance support fees along with a decrease in maintenance support for a large OEM partner and the expiration of a long-term maintenance contract for a European customer. These were partially offset by an increase in maintenance support fees due to an increase in Windows product sales from other customers throughout the prior year. Service fees revenue attributable to our UNIX products decreased by$31,700 or 20.7% to$121,800 during the six months endedJune 30, 2020 , from$153,500 for the same period in 2019. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of certain long-term maintenance contracts.
We expect that software service fees for 2020 will approximate to those for 2019.
Other Other revenue consists of private labeling fees, professional services, and other non-recurring revenues. Other revenue increased by$227,000 or 493.5% for the six months endedJune 30, 2020 , compared to the same period in 2019.The primary increase was related to revenue recognized from a one-time, non-recurring a license agreement with an existing customer for the use of
our license. Cost of Revenues Cost of revenue is comprised primarily of software service costs, which represent the costs of customer service. Also included in cost of revenue are software product costs, which are primarily comprised of the amortization of capitalized software development costs and costs associated with licenses to third party software included in our product offerings, and the required import tax withholdings fromBrazil resellers. We incur no significant shipping or packaging costs as virtually all of our deliveries are made via electronic
means over the Internet.
Cost of revenue for the six months ended June, 2020 increased by$6,700 , or 9.7%, to$75,500 for the six months ended June, 2020 from$68,800 for the same period in 2019. Cost of revenue represented 4.0% and 3.9% of total revenue for the six months endedJune 30, 2020 and 2019, respectively. The primarily increase was due to increase import tax withholdings associated with higher revenue fromBrazil resellers for the six-month period endedJune 30, 2020 .
We expect 2020 cost of revenue to be slightly higher than 2019 for the above reason.
Selling and Marketing Expenses
Selling and marketing expenses primarily consisted of employee, outside services and travel and entertainment expenses.
Selling and marketing expenses increased by$28,300 , or 12.4%, to$255,900 for the six months endedJune 30, 2020 from$227,600 for the same period in 2019. Selling and marketing expenses represented approximately 13.6% and 12.7% of total revenue for the six months endedJune 2020 and 2019, respectively. The increase in selling and marketing expenses was due to an increase in consulting services offset by lower employee benefit costs.
We expect to maintain our sales and marketing efforts in 2020 for anticipated GO-Global releases with select targeted modest investments in promotional activity; accordingly, for this reason, we expect 2020 sales and marketing expenses to be slightly higher than 2019 levels.
17
General and Administrative Expenses
General and administrative expenses primarily consist of employee costs, legal, accounting, board fees, other professional services (including those related to our patents), rent, travel and entertainment and insurance. Certain costs associated with being a publicly held corporation are also included in general and administrative expenses, as well as bad debt expense. General and administrative expenses decreased by$26,100 , or 5.3%, to$468,500 for the six months endedJune 30, 2020 from$494,600 for the same period in 2019. General and administrative expenses represented approximately 24.8% and 27.7% of total revenue for the six months endedJune 30, 2020 and 2019, respectively.
The decrease in general and administrative expense was due to lower accounting fees and employee benefit costs, offset by higher board member service fees.
In 2020, we anticipate a reduction in accounting fees and employee benefit costs compared to 2019 levels due to changes in service providers and improved cost controls by management. We therefore expect that our 2020 general and administrative costs will be slightly lower than those for 2019.
Research and Development Expenses
Research and development expenses consist primarily of employee costs, payments to contract programmers, software subscriptions, travel and entertainment for our engineers, and all rent for our leased engineering facilities. Research and development expenses decreased by$36,600 , or 4.8% to$720,900 for the six months endedJune 30, 2020 from$757,500 for the same period in 2019. This represented approximately 38.2% and 42.4% of total revenue for the six months endedJune 30, 2020 and 2019, respectively. The decrease in research and development expense was primarily due to a decrease in benefit cost and consulting fees associated with completing the new releases of our GO-Global products.
In 2020, we expect to continue our investments in research and development resources associated with our GO-Global products based on market feedback. We therefore expect 2020 research and development expenses to be slightly higher than 2019 levels. Other Income
Other income increased by
Liquidity and Capital Resources
As ofJune 30, 2020 , we had cash of$2,372,700 and a working capital position of$964,500 as compared to cash of$1,541,900 and a working capital position of$101,800 atDecember 31, 2019 . The increase in cash as ofJune 30, 2020 was primarily the result of cash provided in operating and financing activities during the period. We expect our results from operations and capital resources will be sufficient to fund our operations for at least the next 12 months from the date of the filing of this quarterly report on Form 10-Q.
The following is a summary of our cash flows from operating, investing and
financing activities for the three months ended
For the Six Months EndedJune 30 ,June 30, 2020 2019
Cash flows provided by operating activities
Cash flows provided by investing activities $ - $
-
Cash flows provided by financing activities
300 Net cash flows provided by operating activities for the six months endedJune 30, 2020 amounted to$413,800 , compared to cash flows provided by operating activities of$227,500 for the six months endedJune 30, 2019 . The increase in cash flows provided by operating activities is primarily the result of higher net income due to a one-time settlement income from a particular customer compared to the prior year period. 18
Net cash provided by financing activities for the six months endedJune 30, 2020 amounted to$417,000 . We received gross proceeds of$480,100 from the Rights Offering and paid$63,100 of issuance cost for the six months endedJune 30, 2020 . Subsequent toJune 30, 2020 , we received$2.12 million from the closing of the investment pursuant to the Backstop Agreement. We intend to use the proceeds from the Rights Offering and the Backstop Agreement for general corporate purposes, which may include acquisitions (although we do not currently have any plans with respect to any acquisition).
We had no significant financing activity for the six months ended
We had no cash flow activity relating to investing for the six months ended
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