ITEM
1. Financial Statements
hopTo
Inc.
Consolidated
Balance Sheets
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,120,300
|
|
|
$
|
892,500
|
|
Accounts
receivable, net
|
|
|
161,500
|
|
|
|
210,800
|
|
Prepaid
expenses and other current assets
|
|
|
70,700
|
|
|
|
79,000
|
|
Total
current assets
|
|
|
1,352,500
|
|
|
|
1,182,300
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
-
|
|
|
|
400
|
|
Other
assets
|
|
|
17,800
|
|
|
|
17,800
|
|
Total
assets
|
|
$
|
1,370,300
|
|
|
$
|
1,200,500
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
257,600
|
|
|
$
|
318,700
|
|
Accrued
expenses
|
|
|
113,300
|
|
|
|
121,600
|
|
Accrued
wages
|
|
|
146,600
|
|
|
|
145,800
|
|
Deposit
liability
|
|
|
-
|
|
|
|
12,100
|
|
Deferred
revenue
|
|
|
1,260,300
|
|
|
|
1,300,300
|
|
Total
current liabilities
|
|
|
1,777,800
|
|
|
|
1,898,500
|
|
Long-term
liabilites
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
|
418,000
|
|
|
|
491,500
|
|
Total
liabilities
|
|
|
2,195,800
|
|
|
|
2,390,000
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding as of June 30, 2019 (unaudited) or December
31, 2018
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.0001 par value, 195,000,000 shares authorized, 9,834,866 and 9,804,400 shares issued and outstanding as of June
30, 2019 (unaudited) and December 31, 2018, respectively
|
|
|
1,000
|
|
|
|
1,000
|
|
Additional
paid-in capital
|
|
|
79,411,000
|
|
|
|
79,298,200
|
|
Accumulated
deficit
|
|
|
(80,237,500
|
)
|
|
|
(80,488,700
|
)
|
Total
stockholders’ deficit
|
|
|
(825,500
|
)
|
|
|
(1,189,500
|
)
|
Total
liabilities and stockholders’ deficit
|
|
$
|
1,370,300
|
|
|
$
|
1,200,500
|
|
See
accompanying notes to unaudited consolidated financial statements
hopTo
Inc.
Consolidated
Statements of Operations
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues
|
|
$
|
732,000
|
|
|
$
|
866,000
|
|
|
$
|
1,785,800
|
|
|
$
|
1,688,300
|
|
Cost of revenues
|
|
|
39,600
|
|
|
|
37,700
|
|
|
|
68,800
|
|
|
|
66,500
|
|
Gross profit
|
|
|
692,400
|
|
|
|
828,300
|
|
|
|
1,717,000
|
|
|
|
1,621,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
110,600
|
|
|
|
108,500
|
|
|
|
227,600
|
|
|
|
210,100
|
|
General and administrative
|
|
|
199,600
|
|
|
|
327,800
|
|
|
|
494,600
|
|
|
|
633,000
|
|
Research and development
|
|
|
383,000
|
|
|
|
358,000
|
|
|
|
757,500
|
|
|
|
786,500
|
|
Total operating expenses
|
|
|
693,200
|
|
|
|
794,300
|
|
|
|
1,479,700
|
|
|
|
1,629,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(800
|
)
|
|
|
34,000
|
|
|
|
237,300
|
|
|
|
(7,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
100
|
|
|
|
130,500
|
|
|
|
13,900
|
|
|
|
129,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(700
|
)
|
|
|
164,500
|
|
|
|
251,200
|
|
|
|
121,900
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
900
|
|
Net income (loss)
|
|
$
|
(700
|
)
|
|
$
|
164,600
|
|
|
$
|
251,200
|
|
|
$
|
121,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic
|
|
$
|
(0.00
|
)
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
Net income (loss) per share, diluted
|
|
$
|
(0.00
|
)
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,810,091
|
|
|
|
9,804,400
|
|
|
|
9,807,261
|
|
|
|
9,804,400
|
|
Diluted
|
|
|
10,276,841
|
|
|
|
10,368,956
|
|
|
|
10,274,011
|
|
|
|
10,368,956
|
|
See
accompanying notes to unaudited consolidated financial statements
hopTo
Inc.
Consolidated
Statements of Stockholders’ Deficit
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at December 31, 2017
|
|
|
9,804,400
|
|
|
$
|
1,000
|
|
|
$
|
78,539,300
|
|
|
$
|
(81,849,200
|
)
|
|
$
|
(3,308,900
|
)
|
Cumulative effect from change of accounting principal
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,391,900
|
|
|
|
1,391,900
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(43,600
|
)
|
|
|
(43,600
|
)
|
Balance at March 31, 2018 (unaudited)
|
|
|
9,804,400
|
|
|
|
1,000
|
|
|
|
78,539,300
|
|
|
|
(80,500,900
|
)
|
|
$
|
(1,960,600
|
)
|
Issuance of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
699,400
|
|
|
|
-
|
|
|
|
699,400
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
164,600
|
|
|
|
164,600
|
|
Balance at June 30, 2018 (unaudited)
|
|
|
9,804,400
|
|
|
|
1,000
|
|
|
|
79,238,700
|
|
|
|
(80,336,300
|
)
|
|
|
(1,096,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
9,804,400
|
|
|
$
|
1,000
|
|
|
$
|
79,298,200
|
|
|
$
|
(80,488,700
|
)
|
|
$
|
(1,189,500
|
)
|
Contributed services
|
|
|
-
|
|
|
|
-
|
|
|
|
56,300
|
|
|
|
-
|
|
|
|
56,300
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
251,900
|
|
|
|
251,900
|
|
Balance at March 31, 2019 (unaudited)
|
|
|
9,804,400
|
|
|
$
|
1,000
|
|
|
$
|
79,354,500
|
|
|
$
|
(80,236,800
|
)
|
|
$
|
(881,300
|
)
|
Contributed services
|
|
|
-
|
|
|
|
-
|
|
|
|
56,200
|
|
|
|
-
|
|
|
|
56,200
|
|
Exercise of warrants
|
|
|
30,466
|
|
|
|
-
|
|
|
|
300
|
|
|
|
-
|
|
|
|
300
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(700
|
)
|
|
|
(700
|
)
|
Balance at June 30, 2019 (unaudited)
|
|
|
9,834,866
|
|
|
|
1,000
|
|
|
|
79,411,000
|
|
|
|
(80,237,500
|
)
|
|
|
(825,500
|
)
|
See
accompanying notes to unaudited consolidated financial statements
hopTo
Inc.
Consolidated
Statements of Cash Flows
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
251,200
|
|
|
$
|
121,000
|
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
400
|
|
|
|
17,800
|
|
Contributed services
|
|
|
112,500
|
|
|
|
-
|
|
Changes in allowance for doubtful accounts
|
|
|
3,200
|
|
|
|
(3,700
|
)
|
Loss on disposal of property and equipment
|
|
|
-
|
|
|
|
700
|
|
Changes in deferred rent
|
|
|
-
|
|
|
|
(15,800
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
46,100
|
|
|
|
223,400
|
|
Prepaid expenses and other current assets
|
|
|
8,300
|
|
|
|
(35,500
|
)
|
Accounts payable and accrued expenses
|
|
|
(80,700
|
)
|
|
|
(153,100
|
)
|
Deferred revenue
|
|
|
(113,500
|
)
|
|
|
(176,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
227,500
|
|
|
|
(21,200
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
|
300
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
300
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
227,800
|
|
|
|
(21,200
|
)
|
Cash, beginning of the period
|
|
|
892,500
|
|
|
|
1,015,400
|
|
Cash, end of the period
|
|
$
|
1,120,300
|
|
|
$
|
994,200
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to unaudited consolidated financial statements
hopTo
Inc.
Notes
to Unaudited Consolidated Financial Statements
1.
Organization
hopTo
Inc., through subsidiaries (collectively, “we”, “us,” “our” or the “Company”)
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.
The
Company sells a family of products under the brand name GO-Global, which is a software application publishing business and is
the Company’s sole revenue source at this time. GO-Global is an application access solution for use and/or resale by independent
software vendors, 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.
2.
Significant Accounting Policies
Basis
of Presentation
The
unaudited consolidated financial statements include the accounts of hopTo Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions are eliminated upon consolidation. The unaudited consolidated financial statements included
herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)
applicable to interim financial information and the rules and regulations promulgated by the Securities and Exchange Commission
(the “SEC”). Accordingly, such unaudited consolidated financial statements do not include all information and footnote
disclosures required in annual financial statements.
The
unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments,
that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q
should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for
the year ended December 31, 2018 which was filed with the SEC on April 1, 2019 (“2018 10-K Report”). The interim results
presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending
December 31, 2019 or any future period.
Certain
prior year information has been reclassified to conform to current year presentation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reported periods. Amounts could materially change in
the future. These significant estimates include the allowance for doubtful accounts and accruals of liabilities.
Liquidity
The
Company has incurred significant net losses since inception. As of June 30, 2019, we had an accumulated deficit of $80,237,500
and a working capital deficit of $425,300, which includes deferred revenue of $1,260,300. Our ability to continue to generate
net income and positive cash flows from operations is dependent on our ability to continue to generate revenue from our legacy
GO-Global business, which in turn is subject to a variety of risks. The Company believes its current cash balances coupled with
anticipated cash flow from operating activities will be sufficient to meet its working capital requirements for at least one year
from the date of the issuance of the accompanying financial statements. The Company continues to control its cash expenses as
a percentage of expected revenue on an annual basis and thus may use its cash balances in the short-term to invest in revenue
growth. Based on current internal projections, the Company believes it has and/or will generate sufficient cash for its operational
needs, for at least one year from the date of issuance of the accompanying financial statements. Management is focused on growing
the Company’s existing product offering, as well as its customer base, to increase its revenues. The Company cannot give
assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for
its planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently
experienced. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be
able to raise additional capital on acceptable terms, or at all.
Revenue
Recognition
The
Company markets and licenses its products indirectly through channel distributors, independent software vendors (“ISVs”),
value-added resellers (“VARs”) (collectively, “resellers”) and directly to hosting service providers,
corporate enterprises, governmental and educational institutions and others. Our product licenses are perpetual. We also separately
sell intellectual property licenses, maintenance contracts, which are comprised of license updates and customer service access,
as well as other products and services.
The
Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts
with Customers.” Revenues under ASC 606 are recognized when the promised goods or services are transferred to customers
in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services.
The
following is a summary of how the Company recognizes revenue for its different products and services.
All
of our licenses are delivered to the customer electronically. The Company sends the license key to the customer to download the
related software from Company portal. We recognize revenue upon delivery of these licenses. For stocking resellers who purchase
licenses through inventory stocking orders with the intent to resell to an end-user, revenue is recognized when the resellers’
accounts have been credited, at their discretion, for the number of licenses purchased.
The
Company has maintenance contracts with certain of its customers. Revenue from maintenance contracts is recognized ratably over
the related contract period, which generally ranges from one to five years.
The
Company’s product sales by geographic area are presented in Note 5.
Cash
and Cash Equivalents
The
Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents.
The Company had no cash equivalents as of June 30, 2019 (unaudited) or December 31, 2018.
Allowance
for Doubtful Accounts
We
maintain an allowance for doubtful accounts that reflects our best estimate of potentially uncollectible trade receivables. The
allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts
receivable. We regularly review the adequacy of our allowance for doubtful accounts by considering such factors as historical
experience, credit worthiness, and current economic conditions that may affect a customer’s ability to pay. We specifically
reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance for doubtful accounts based
on our review of the aging and size of our accounts receivable. As of June 30, 2019 and December 31, 2018, the allowance for doubtful
accounts totaled $6,800 and $3,600, respectively.
Long-Lived
Assets
Long-lived
assets are assessed for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may
not be recoverable, whenever we have committed to a plan to dispose of the assets or, at a minimum, annually. Typically, for long-lived
assets to be held and used, measurement of an impairment loss is based on the fair value of such assets, with fair value being
determined based on appraisals, current market value, comparable sales value, and discounted future cash flows, among other variables,
as appropriate. Assets to be held and used (which assets are affected by an impairment loss) are depreciated or amortized at their
new carrying amount over their remaining estimated life; assets to be sold or otherwise disposed of are not subject to further
depreciation or amortization. No such impairment charge was recorded during the three or six months ended June 30, 2019 or 2018.
Property
and Equipment
Property
and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated useful lives ranging
from three to seven years.
Concentration
of Credit Risk
For
the three months ended June 30, 2019, the Company had one customer and two customers comprising 14.5%, and 10.3%, respectively,
of total revenues. For the three months ended June 30, 2018, the Company had one customer comprising 17.1% of total revenues.
For
the six months ended June 30, 2019, the Company had one customer comprising 20.9%, respectively, of total revenues. For the six
months ended June 30, 2018, the Company had one customer comprising 15.7% of total revenues.
As
of June 30, 2019, the Company has five customers comprising 23.6%, 18.5%, 14.9%, 11.4%, and 11.3%, respectively, of net accounts
receivable. As of December 31, 2018, the Company has three customers comprising 32.18%, 15.4% and 10.8%, respectively, of net
accounts receivable.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC 740, “Income Taxes,” using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
Basic
and Diluted Earnings Per Share
In
accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the
net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted
income (loss) per share reflect per share amounts that would have resulted if diluted potential common stock had been converted
to common stock. Dilutive common share equivalents as of June 30, 2019, representing 511,801 of outstanding in-the-money warrants,
were included in the computation of diluted net income (loss) per share using the Treasury Stock Method. During the six months
ended June 30, 2019 and 2018, the Company had total common stock equivalents of 106,077 and 432,594, respectively, which excluded
from the computation of net income per share because they are anti-dilutive.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and accrued
expenses. The carrying amount of these financial instruments approximates fair value due to the nature of the accounts and their
short-term maturities.
Recently
Adopted Accounting Pronouncements
Leases
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-02, “Leases (Topic 842),” which requires lessees to recognize a right-of-use asset and a lease liability for
most leases on the balance sheet as well as other qualitative and quantitative disclosures. ASU 2016-02 is to be applied using
a modified retrospective method and was effective for the Company on January 1, 2019. In July 2018, the FASB issued ASU 2018-11,
“Leases (Topic 842),” which provides an optional transition method allowing entities to recognize a cumulative-effect
adjustment to the opening balance of stockholders’ equity in the period of adoption, with no restatement of comparative
prior periods required. The Company adopted the standard using this optional transition method. The Company also made an accounting
policy to exclude leases with an initial term of 12 months or less from the balance sheet as permitted under the new guidance.
The
Company assessed the impact that the new lease recognition standard had on its consolidated financial statements. As of the adoption
date of January 1, 2019, the Company has only one lease, which was for its office space it leases under a month-to-month arrangement
for a monthly amount of $4,000, which can be cancelled at any time by either party with a six-month advance notice. As management
has elected a policy to exclude leases with an initial term of 12 months of less from the balance sheet presentation required
under Topic 842, the office lease has been excluded from balance sheet presentation as it has an original term of 12 months or
less. The rent associated with the lease continues to be expensed as incurred. Rent expense for the three months ended June 30,
2019 and 2018, amounted to $12,000 and $12,000, respectively. Rent expense for the six months ended June 30, 2019 and 2018, amounted
to $24,000 and $24,000, respectively.
3.
Property and Equipment
Property
and equipment consisted of the following.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
|
|
Equipment
|
|
$
|
154,300
|
|
|
$
|
154,300
|
|
Furniture and fixtures
|
|
|
1,600
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,900
|
|
|
|
155,900
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(155,900
|
)
|
|
|
(155,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
400
|
|
Depreciation
expense amounted to $300 and $8,800 for the three months ended June 30, 2019 and 2018, respectively. Depreciation expense amounted
to $400 and $17,800 for the six months ended June 30, 2019 and 2018, respectively.
4.
Stockholders’ Equity
Stock-Based
Compensation Plans
In
November 2012, the Company’s 2012 Equity Incentive Plan (the “12 Plan”) was approved by the stockholders. Pursuant
to the terms of the 12 Plan, stock options, stock appreciation rights, restricted stock and restricted stock units (sometimes
referred to individually or collectively as “awards”) may be granted to officers and other employees, non-employee
directors and independent consultants and advisors who render services to the Company. The Company is authorized to issue options
to purchase up to 643,797 shares of common stock, stock appreciation rights, or restricted stock in accordance with the terms
of the 12 Plan.
In
the case of a restricted stock award, the entire number of shares subject to such award would be issued at the time of the grant
and subject to vesting provisions based on time or other conditions specified by the Board or an authorized committee of the Board.
For awards based on time, should the grantee’s service to the Company end before full vesting occurred, all unvested shares
would be forfeited and returned to the Company. In the case of awards granted with vesting provisions based on specific performance
conditions, if those conditions were not met, then all shares would be forfeited and returned to the Company. Until forfeited,
all shares issued under a restricted stock award would be considered outstanding for dividend, voting and other purposes.
Under
the 12 Plan, the exercise price of non-qualified stock options granted is to be no less than 100% of the fair market value of
the Company’s common stock on the date the option is granted. The exercise price of incentive stock options granted is to
be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted provided,
however, that if the recipient of the incentive stock option owns greater than 10% of the voting power of all shares of the Company’s
capital stock then the exercise price will be no less than 110% of the fair market value of the Company’s common stock on
the date the option is granted. The purchase price of the restricted stock issued under the 12 Plan shall also not be less than
100% of the fair market value of the Company’s common stock on the date the restricted stock is granted.
All
options granted under the 12 Plan are immediately exercisable by the optionee; however, there is a vesting period for the options.
The options (and the shares of common stock issuable upon exercise of such options) vest, ratably, over a 33-month period; however,
no options (and the underlying shares of common stock) vest until after three months from the date of the option grant. The exercise
price is immediately due upon exercise of the option. The maximum term of options issued under the 12 Plan is ten years. Shares
issued upon exercise of options are subject to the Company’s repurchase, which right lapses as the shares vest. The 12 Plan
will terminate no later than November 7, 2022. As of June 30, 2019, 411,593 shares of common stock remained available for issuance
under the 12 Plan.
The
following summarizes the stock option activity for the six months ended June 30, 2019.
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
|
|
|
|
Exercise
|
|
|
Life
|
|
|
|
Options
|
|
|
Price
|
|
|
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
117,675
|
|
|
$
|
2.57
|
|
|
|
2.28
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled
|
|
|
(11,598
|
)
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2019 (unaudited)
|
|
|
106,077
|
|
|
$
|
2.77
|
|
|
|
2.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at June 30, 2019 (unaudited)
|
|
|
106,077
|
|
|
$
|
2.77
|
|
|
|
2.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2019 (unaudited)
|
|
|
106,077
|
|
|
$
|
2.77
|
|
|
|
2.04
|
|
The
following table summarizes information about options outstanding and exercisable as of June 30, 2019.
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Range of
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise
|
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Price
|
|
|
of Shares
|
|
|
Life (Years)
|
|
|
Price
|
|
|
of Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.75 - 1.00
|
|
|
|
27,527
|
|
|
|
1.06
|
|
|
$
|
0.82
|
|
|
|
27,527
|
|
|
$
|
0.82
|
|
|
2.00 - 4.00
|
|
|
|
63,684
|
|
|
|
2.37
|
|
|
|
3.21
|
|
|
|
63,684
|
|
|
|
3.21
|
|
|
4.20 - 6.68
|
|
|
|
14,866
|
|
|
|
2.40
|
|
|
|
4.46
|
|
|
|
14,866
|
|
|
|
4.46
|
|
|
|
|
|
|
106,077
|
|
|
|
|
|
|
|
|
|
|
|
106,077
|
|
|
|
|
|
Warrants
During
the six months ended June 30, 2019, the Company issued 30,466 shares of common stock for the exercise of warrants. As of June
30, 2019, and December 31, 2018, the Company had 481,335 and 622,912 warrants outstanding, respectively. The warrants outstanding
at June 30, 2019 are all exercisable at $0.01 and have an expiration date of May 20, 2023.
5.
Sales by Geographical Location
Revenue
by country for the three and six months ended June 30, 2019 and 2018 was as follows.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
Revenue by Country
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
327,700
|
|
|
$
|
288,300
|
|
|
$
|
662,400
|
|
|
$
|
597,500
|
|
Brazil
|
|
|
125,400
|
|
|
|
186,100
|
|
|
|
271,400
|
|
|
|
357,900
|
|
Japan
|
|
|
47,600
|
|
|
|
68,300
|
|
|
|
105,500
|
|
|
|
111,000
|
|
The Netherlands
|
|
|
54,800
|
|
|
|
39,200
|
|
|
|
313,800
|
|
|
|
70,900
|
|
Other Countries
|
|
|
176,500
|
|
|
|
284,100
|
|
|
|
432,700
|
|
|
|
551,000
|
|
Total
|
|
|
732,000
|
|
|
|
866,000
|
|
|
|
1,785,800
|
|
|
|
1,688,300
|
|
6.
Commitments and Contingencies
Profit
Sharing Plans
The
Company has adopted a 401(k) plan to provide retirement benefits for employees under which the Company makes discretionary matching
contributions. During the three months ended June 30, 2019 and 2018, the Company contributed a total of $1,900 in each year in
the same period. During the six months ended June 30, 2019 and 2018, the Company contributed a total of $14,100 and $15,300, respectively.
Contingencies
During
the ordinary course of business, the Company is subject to various potential claims and litigation. Management is not aware of
any outstanding litigation which would have a significant impact on the Company’s financial statements.
7.
Related Party Transactions
The
Company’s Chief Executive Officer and Interim Chief Financial Officer has served in these executive roles providing management
services to the Company since September 2018, however, does not currently receive a salary or other forms of compensation. During
the three and six months ended June 30, 2019, the Company has recorded an expense and contributed capital of $56,200 and $112,200,
respectively, for contributed services based on the estimated market rate for these services.
ITEM
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2018 which was filed with the Securities and Exchange Commission (the “SEC”)
on April 1, 2019, and in other documents we have filed with the SEC.
|
Statements
included in this report are based upon information known to us as of the date that this report is filed with the SEC, 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 2018 10-K Report and Note 2 to our unaudited consolidated financial statements included
under Item 1 – Financial Statements in this Form 10-Q.
Results
of Operations for the Three Months Ended June 30, 2019 and 2018
The
following are the results of our operations for the three months ended June 30, 2019 as compared to the three months ended June
30, 2018.
|
|
For the Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
$ Change
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
Revenues
|
|
$
|
732,000
|
|
|
$
|
866,000
|
|
|
$
|
(134,000
|
)
|
Cost of revenues
|
|
|
39,600
|
|
|
|
37,700
|
|
|
|
1,900
|
|
Gross profit
|
|
|
692,400
|
|
|
|
828,300
|
|
|
|
(135,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
110,600
|
|
|
|
108,500
|
|
|
|
2,100
|
|
General and administrative
|
|
|
199,600
|
|
|
|
327,800
|
|
|
|
(128,200
|
)
|
Research and development
|
|
|
383,000
|
|
|
|
358,000
|
|
|
|
25,000
|
|
Total operating expenses
|
|
|
693,200
|
|
|
|
794,300
|
|
|
|
(101,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(800
|
)
|
|
|
34,000
|
|
|
|
(34,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
100
|
|
|
|
130,500
|
|
|
|
(130,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(700
|
)
|
|
|
164,500
|
|
|
|
(165,200
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
(100
|
)
|
|
|
100
|
|
Net income (loss)
|
|
$
|
(700
|
)
|
|
$
|
164,600
|
|
|
$
|
(165,300
|
)
|
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 June 30, 2019 and 2018.
|
|
For the Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
$ Change
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Software Licenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows
|
|
$
|
152,800
|
|
|
$
|
182,100
|
|
|
$
|
(29,300
|
)
|
UNIX/Linux
|
|
|
2,400
|
|
|
|
50,400
|
|
|
|
(48,000
|
)
|
Total
|
|
|
155,200
|
|
|
|
232,500
|
|
|
|
(77,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software Service Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows
|
|
|
484,300
|
|
|
|
503,600
|
|
|
|
(19,300
|
)
|
UNIX/Linux
|
|
|
69,500
|
|
|
|
100,700
|
|
|
|
(31,200
|
)
|
Total
|
|
|
553,800
|
|
|
|
604,300
|
|
|
|
(50,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
23,000
|
|
|
|
29,200
|
|
|
|
(6,200
|
)
|
|
|
$
|
732,000
|
|
|
$
|
866,000
|
|
|
$
|
(134,000
|
)
|
Software
Licenses
Windows
software licenses revenue decreased by $29,300 or 16.1% to $152,800 during the three months ended June 30, 2019, from $182,100
for the same period in 2018. The decrease was primarily due to lower purchase in stocking orders licenses from a certain Brazil
reseller for three months ended June 30, 2019.
Software
licenses revenue from our UNIX/Linux products decreased by $48,000 or 95.2% to $2,400 for the three months ended June 30, 2019
from $50,400 for the same period in 2018. The decrease was primarily due to lower revenue from lower stocking order licenses.
Software
Service Fees
Service
fees attributable to our Windows product service decreased by $19,300 or 3.8% to $484,300 during three months ended June 30, 2019,
from $503,600 for the same period in 2018. The decrease was primarily due to a lower of license orders stated above, offset by
higher of Windows subscription licenses.
Service
fees revenue attributable to our UNIX products decreased by $31,200 or 31.0% to $69,500 during the three months ended June 30,
2019, from $100,700 for the same period in 2018. 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 and professional services. Other revenue decreased by $6,200 or 21.2% for the three
months ended June 30, 2019, compared to the same period in 2018.
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 from Brazil 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 ended June 30, 2019 increased by $1,900, or 5.0%, to $39,600 for the three months ended June 30,
2019 from $37,700 for the same period in 2018. Cost of revenue represented 5.4% and 4.4% of total revenue for the three months
ended June 30, 2019 and 2018, 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 $2,100, or 1.9%, to $110,600 for the three months ended June 30, 2019 from $108,500 for the
same period in 2018. Selling and marketing expenses represented approximately 15.1% and 12.5% of total revenue for the three months
ended June 30, 2019 and 2018, respectively. Selling and marketing expenses increased slightly during 2019 due to consulting services
and benefit costs and represented a higher percentage of overall total revenue due to the decrease in revenue in the same period.
General
and Administrative Expenses
General
and administrative expenses primarily consist of employee costs, depreciation and amortization, legal, accounting, 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 $128,200, or 39.1%, to $199,600 for the three months ended June 30, 2019 from $327,800
for the same period in 2018. The decrease in general and administrative expense was due to lower legal and accounting costs.
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 $29,000, or 3.7% to $757,500 for the three months ended June 30, 2019 from $786,500 for
the same period in 2018. The research and development costs overall remained consistent, although we had an increase in research
and development expenses during the second quarter of 2019 from higher consulting fees associated with completing the new releases
of our GO-Global products, which was offset by lower expenses in the first quarter of 2019.
Other
Income
Other
income for the three months ended June 30, 2018 primarily related to the settlement and reversal of an accrual for potential liquidated
damages that resulted in other income of $155,700, offset by other expenses. There was no such activity in 2019.
Results
of Operations for the Six Months Ended June 30, 2019 and 2018
The
following are the results of our operations for the six months ended June 30, 2019 as compared to the six months ended June 30,
2018.
|
|
For the Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
$ Change
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
Revenues
|
|
$
|
1,785,800
|
|
|
$
|
1,688,300
|
|
|
$
|
97,500
|
|
Cost of revenues
|
|
|
68,800
|
|
|
|
66,500
|
|
|
|
2,300
|
|
Gross profit
|
|
|
1,717,000
|
|
|
|
1,621,800
|
|
|
|
95,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
227,600
|
|
|
|
210,100
|
|
|
|
17,500
|
|
General and administrative
|
|
|
494,600
|
|
|
|
633,000
|
|
|
|
(138,400
|
)
|
Research and development
|
|
|
757,500
|
|
|
|
786,500
|
|
|
|
(29,000
|
)
|
Total operating expenses
|
|
|
1,479,700
|
|
|
|
1,629,600
|
|
|
|
(149,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
237,300
|
|
|
|
(7,800
|
)
|
|
|
245,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
13,900
|
|
|
|
129,700
|
|
|
|
(115,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
251,200
|
|
|
|
121,900
|
|
|
|
129,300
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
900
|
|
|
|
(900
|
)
|
Net income
|
|
$
|
251,200
|
|
|
$
|
121,000
|
|
|
$
|
130,200
|
|
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 June 30, 2019 and 2018.
|
|
For the Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
$ Change
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Software Licenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows
|
|
$
|
472,100
|
|
|
$
|
387,200
|
|
|
$
|
84,900
|
|
UNIX/Linux
|
|
|
16,000
|
|
|
|
68,700
|
|
|
|
(52,700
|
)
|
Total
|
|
|
488,100
|
|
|
|
455,900
|
|
|
|
32,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software Service Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows
|
|
|
1,098,200
|
|
|
|
969,200
|
|
|
|
129,000
|
|
UNIX/Linux
|
|
|
153,500
|
|
|
|
210,400
|
|
|
|
(56,900
|
)
|
Total
|
|
|
1,251,700
|
|
|
|
1,179,600
|
|
|
|
72,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
46,000
|
|
|
|
52,800
|
|
|
|
(6,800
|
)
|
|
|
$
|
1,785,800
|
|
|
$
|
1,688,300
|
|
|
$
|
97,500
|
|
Software
Licenses
Windows
software licenses revenue increased by $84,900 or 21.9% to $472,100 during the six months ended June 30, 2019, from $387,200 for
the same period in 2018. The increase was primarily due to a certain partner that purchased a large order of Window licenses from
the Company during the first quarter of 2019,
Software
licenses revenue from our UNIX/Linux products decreased by $52,700 or 76.7% to $16,000 for the six months ended June 30, 2019
from $68,700 for the same period in 2018. The decrease was primarily due to lower revenue from lower stocking order licenses.
Software
Service Fees
Service
fees attributable to our Windows product service increased by $129,000 or 13.3% to $1,098,200 during the six months ended June
30, 2019, from $969,200 for the same period in 2018. The increase was primarily due to a combination of large renewals of maintenance
support from OEM partners and an increase of new license orders stated above.
Service
fees revenue attributable to our UNIX products decreased by $56,900 or 27.0% to $153,500 during the six months ended June 30,
2019, from $210,400 for the same period in 2018. 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 and professional services. Other revenue decreased by $6,800 or 12.9% to $46,000 for
the six months ended June 30, 2019, from $52,800compared to the same period in 2018.
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
from Brazil 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 30, 2019 increased by $2,300, or 3.5%, to $68,800 for the six months ended June 30, 2019
from $66,500 for the same period in 2018. Cost of revenue represented 3.9% for both the six months ended June 30, 2019 and 2018.
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 $17,500, or 8.3%, to $227,600 for the six months ended June 30, 2019 from $210,100 for the
same period in 2018. Selling and marketing expenses represented approximately 12.7% and 12.4% of total revenue for the six months
ended June 30, 2019 and 2018, respectively. Selling and marketing expenses increased during 2019 due to consulting services and
benefit costs.
General
and Administrative Expenses
General
and administrative expenses primarily consist of employee costs, depreciation and amortization, legal, accounting, 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 $138,400, or 21.9%, to $494,600 for the six months ended June 30, 2019 from $633,000
for the same period in 2018. The decrease in general and administrative expense was due to lower legal and accounting costs.
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 $29,000, or 3.7% to $757,500 for the six months ended June 30, 2019 from $786,500 for the
same period in 2018. The increase in research and development expense was primarily due to increased consulting fees associated
with completing the new releases of our GO-Global products.
Other
Income
Other
income for the six months ended June 30, 2018 primarily related to the settlement and reversal of an accrual for potential liquidated
damages that resulted in other income of $155,700, offset by other expenses. There was no such activity in 2019.
Liquidity
and Capital Resources
As
of June 30, 2019, we had cash of $1,120,300 and a working capital deficit of $425,300 as compared to cash of $892,500 and a working
capital deficit of $716,200 at December 31, 2018. The increase in cash as of June 30, 2019 was primarily the result of cash provided
by operations during the period due to increased profitability. 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 six months ended June 30,
2019 and 2018.
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows provided by (used in) operating activities
|
|
$
|
227,500
|
|
|
$
|
(21,200
|
)
|
Cash flows provided by investing activities
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash flows provided by financing activities
|
|
$
|
300
|
|
|
$
|
-
|
|
Net
cash flows provided by operating activities for the six months ended June 30, 2019 amounted to $227,500, compared to cash flows
used in operating activities of $21,200 for the six months ended June 30, 2018. During the six months ended June 30, 2019, our
operating cash flow used of $227,500 was primarily the result of our net income for the period of $251,200, offset by a decrease
in cash resulting from a decrease in accounts payable and accrued expenses of $80,700 and a decrease in deferred revenue of $113,500,
offset by non-cash expenses of $112,500 for contributed services. During the six months ended June 30, 2018, our cash flows used
in operations of $21,200 was primarily the result of a decrease in cash resulting from a decrease in accounts payable and accrued
expenses of $153,100 and a decrease in deferred revenue of $176,000, offset by net income for the period of $121,000.
We
had no cash flow activity relating to investing activities for the six months ended June 30, 2019 or 2018. Our cash flows provided
by financing activities amounted to $300 during the six months ended June 30, 2019 due to proceeds from the exercise of warrants.
There was no cash flow activity related to financing activities during the six months ended June 30, 2018.