ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report. The forward-looking statements included in this Quarterly Report are made only as of the date hereof.
Overview
Executive Summary —
a general description of our business and key highlights of the six months ended June 30, 2019.
Key Aspects and Trends of Our Operations
— a discussion of items and trends that may impact our business in the upcoming year.
Results of Operations —
an analysis of our results of operations in our consolidated financial statements.
Liquidity and Capital Resources —
an analysis of cash flows, sources and uses of cash, commitments and contingencies, seasonality in the results of our operations and quantitative and qualitative disclosures about market risk.
Critical Accounting Policies and Estimates
— a discussion of critical accounting policies requiring critical judgments and estimates.
Executive Summary
This overview provides a high-level discussion of our operating results and some of the trends that affect our business. We believe that an understanding of these trends is important to understand our financial results for the three and six months ended June 30, 2019 and 2018. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this report, and our audited consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K filed on March 26, 2019.
Tapinator develops and publishes category leading apps for mobile platforms, with a significant emphasis on social-casino games. Tapinator’s library includes over 300 titles that, collectively, have achieved over 470 million mobile downloads, including notable properties such as
Video Poker Classic
,
Crypto Trillionaire
and
Solitaire Dash
. Tapinator generates revenues through the sale of branded advertisements and via consumer transactions, including in-app purchases and subscriptions. Founded in 2013, Tapinator is headquartered in New York, with product development and marketing teams located in North America, Europe and Asia. Consumers can find high-quality mobile applications from Tapinator wherever they see the “T” character logo.
The Company currently publishes two types of mobile apps and games:
Category Leading Apps
Tapinator’s
Category Leading Apps
are unique products, primarily with the social-casino genre, with high production values and significant revenue potential, developed and published selectively based on both original and licensed IP. These titles require significant development investment and have, in the opinion of our management, the potential to become evergreen mobile franchises which can become market leaders within their respective categories. These apps are monetized primarily through consumer app store transactions and, to a lesser extent, through brand advertising. These apps are published primarily under the
Tapinator
brand.
We have an excellent track record of successfully getting our
Category Leading Apps
featured at launch by the major app stores, including within Apple’s “New Games We Love” category. Beyond initial product launch, we acquire customers for these products via paid acquisition channels for those applications in which we achieve player lifetime values (“LTV”) that, on average, exceed the cost per player install (“CPI”).
Rapid-Launch Games
Tapinator’s
Rapid-Launch Games
are legacy titles that were developed and published in significant quantity beginning in 2013. These are titles that were built economically and rapidly based on a series of internally developed game engines. These engines were developed within the following game genres: parking, driving, stunts, animal sims, career sims, shooters and fighting. These games are monetized primarily through the sale of branded advertisements and via paid downloads. Since our formation, we have compiled a significant library of over 300 such games and, while the Company is not currently developing new
Rapid-Launch Games,
we believe our existing portfolio will continue to produce a long-tail of revenues over the next several years. However, revenues from our
Rapid-Launch Games
have been declining over the past two years and we expect them to continue to decline during this revenue tail period. Tapinator’s
Rapid-Launch Games
are published primarily under the Company’s
Tap2Play
brand.
Strategy
In early 2017, we began a major strategic shift to focus more of our investment and management resources into our
Category Leading Apps
business and more specifically into the social-casino genre. We believe the potential size, quality and sustainability of revenues and earnings from this business is significantly greater than that of our legacy
Rapid-Launch Games
business. We completed this shift during the fourth quarter of 2018 and we are now focused on developing and operating these
Category Leading Apps,
primarily within the social-casino genre. In 2018, the revenue for the social casino market reached $5.2 billion, according to Eilers & Krejcik. The social casino market grew 10.9% year-on-year in the final quarter of 2018 according to the same report. The larger competitors in this market include SciPlay (Nasdaq: SCPL), Zynga (Nasdaq: ZNGA), Playtika (acquired by Giant Interactive for $4.4 billion in 2016) and Murka Entertainment (acquired by the Blackstone Group in 2019). These companies have achieved success by (1) focusing on the most well established social casino game types (e.g., slots, bingo and multiplayer poker) and (2) focusing on improving production values, running live ops, and adding content to their games rather than gameplay innovation. We believe this creates market opportunity for several winning strategies. First, with games such as
Video Poker Classic
, we have focused on niche casino game types that are not dominated by large competitors yet, nonetheless, have significant player followings. We believe similar niche opportunities continue to exist. Second, with the upcoming launch of
Castle Builder
, our new slots title, we believe that applying gameplay innovation to slots, an area that otherwise offers sparse differentiation between games, can result in a highly sustainable and successful product. Based on the previous success of indie developer Moon Active’s
Coin Master
, which, according to Think Gaming, has achieved $75 million in annual revenue, we are confident that the slots area is ripe for gameplay innovation.
Our goal for our
Category Leading Apps
business is to develop a small number of core franchise titles, primarily within the social-casino genre, that can achieve lifespans of at least five to ten years, and where we can grow these titles into sustainable market leaders within their respective product categories. In order to accomplish this, we are working to achieve customer LTVs that exceeds customer acquisition cost, at scale. To date, the Company has been able to achieve this, at certain customer volumes, for three products:
Video Poker Classic
,
Crypto Trillionaire
and
Solitaire Dash
. We seek to build a valuable portfolio of these core franchise titles which can represent repeatable, stackable and long term revenue streams for Tapinator.
Current Outlook
Our conviction regarding our social-casino focused,
Category Leading Apps
business has strengthened during 2019. We delivered year-over-year bookings growth in excess of 100% within this business during the first two quarters of this year. Based on the strength of this performance, we are now targeting company-wide bookings growth for 2019 in the range of 8%-12%, and
Category Leading Apps
bookings growth in excess of 50%. This growth is expected to be derived from our seasoned franchises such as
Video Poker Classic
and
Solitaire Dash
, combined with recently launched titles such as
Crypto Trillionaire
and
My Horoscope
, and from
Castle
Builder
,
our new social-casino title that we plan to launch globally during the fourth quarter of 2019.
Castle
B
uilder
features a slot mechanic, with innovative metagame systems that have proven their success in the world of real money gaming. The title is made possible through Tapinator’s recent licensing deal with a major European real-money slots developer. The real-money version of the product is currently a top performing slot game across over 200 online casinos in a number of European countries. Looking forward to later this year and into 2020, we are actively seeking to add to our growing portfolio of social-casino titles through both organic product development and via selective publishing or acquisition opportunities.
Key Metrics
We regularly review a number of metrics, including the following key operating and financial metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.
Key Operating Metrics
We manage our business by tracking various non-financial operating metrics that give us insight into user behavior in our games. The two metrics that we use most frequently are Daily Active Users (“DAUs”) and Average Bookings Per User (“ABPU”).
Daily Active Users – DAUs. We define DAUs as the number of individuals who played a particular smartphone game on a particular day. An individual who plays two different games on the same day is counted as two active users for that day when we aggregate DAU across games. In addition, an individual who plays the same game on two different devices during the same day (e.g., an iPhone and an iPad) is also counted as two active users for each such day when we average or aggregate DAU over time. Average DAU for a particular period is the average of the DAUs for each day during that period. We use DAU as a measure of player engagement with the titles that our players have downloaded.
Average Bookings Per User – ABPUs. We define ABPU as our total bookings in a given period, divided by the number of days in that period, divided by, the average DAUs during the period. We believe that ABPU provides useful information to investors and others in understanding and evaluating our results in the same manner as our management and board of directors. We use ABPU as a measure of overall monetization across all of our players through the sale of virtual goods and advertising.
Key Financial Metrics
Bookings.
Bookings is a non-GAAP financial measure that is equal to revenue recognized during the period plus or minus the change in deferred revenue during the period and amounts billed, but uncollected, pursuant to contractual license agreements. We record the sale of virtual goods as deferred revenue and then recognize that revenue over the estimated average life of the purchased virtual goods or as the virtual goods are consumed. Bookings is a fundamental top-line metric we use to manage our business, as we believe it is a useful indicator of the sales activity in a given period. Over the long term, the factors impacting our bookings and revenue are the same. However, in the short term, there are factors that may cause revenue to exceed or be less than bookings in any period.
We use bookings to evaluate the results of our operations, generate future operating plans and assess the performance of our company. While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for revenue recognized in accordance with U.S. GAAP. In addition, other companies, including companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as a comparative measure.
Trends in Key Operating Metrics
|
|
Three Months Ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
All Apps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average DAUs
|
|
|
173
|
|
|
|
509
|
|
|
|
201
|
|
|
|
585
|
|
ABPU
|
|
|
.05
|
|
|
|
.02
|
|
|
|
.05
|
|
|
|
.02
|
|
The decrease in average DAU for the three and six months ended June, 2019 as compared to the three and six months ended June 30, 2018 was primarily related to the continued decline in new player installs of our
Rapid-Launch Games
that began in Q4 2016 and that has continued through Q2 2019.
The ABPU increased for the three and six months ended June 30, 2019 as compared to the three and six months ended June 30, 2018 because a larger percentage of our overall player base was derived from our better monetizing
Category Leading Apps
and the successful launch of
Crypto Trillionaire
in Q1 2019.
We expect further comparative decreases in DAU in 2019 as our
Rapid-Launch Games
continue to decline and the Company continues to focus its efforts on its better monetizing, but lower volume
Category Leading Apps
.
|
|
Three Months Ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Category Leading Apps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average DAUs
|
|
|
32
|
|
|
|
32
|
|
|
|
36
|
|
|
|
30
|
|
ABPU
|
|
|
0.20
|
|
|
|
0.10
|
|
|
|
0.19
|
|
|
|
0.10
|
|
The average DAU within our
Category Leading Apps
remained unchanged for the three months ended June 30, 2019 as compared to the three ended June 30, 2018. This resulted from the successful launch of
Crypto Trillionaire
in Q1 2019 and audience gains in
Video Poker Classic
, both of which were offset by declines in
Fusion Heroes
and
Dice Mage 2
, games that the Company has not promoted since 2018.
The average DAU within our
Category Leading Apps
increased for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018. This resulted from the successful launch of
Crypto Trillionaire
in Q1 2019 and audience gains in
Video Poker Classic
, both of which were partially offset by declines in
Fusion Heroes
and
Dice Mage 2
, games that the Company has not promoted since 2018.
The increase in our
Category Leading Apps
’ ABPU for the three and six months ended June 30, 2019 as compared to the three and six months ended June 30, 2018 was primarily related to the successful launch of
Crypto Trillionaire
in Q1 2019 and monetization improvements in
Video Poker Classic
in 2019.
|
|
Three Months Ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Rapid-Launch Games
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average DAUs
|
|
|
141
|
|
|
|
477
|
|
|
|
165
|
|
|
|
555
|
|
ABPU
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.02
|
|
|
|
0.01
|
|
The decrease in average DAU within our
Rapid-Launch Games
for the three and six months ended June 30, 2019 as compared to the three and six months ended June 30, 2018 was primarily related to the continued weakening in new player installs stemming from our suspension of new Rapid-Launch Game development at the end of 2018.
The increase in average ABPU within our
Rapid-Launch Games
for the three and six months ended June 30, 2019 as compared to the three and six months ended June 30, 2018, was driven by increases in advertising prices (“CPM’s” or “Cost Per Thousand Impressions”) and player engagement (specifically impressions per DAU) during the relative periods.
Results of Operations
The following sections discuss and analyze the changes in the significant line items in our statements of operations for the comparison periods identified.
Comparison of the Three Months ended
June 30
, 2019 and 2018
Revenue
|
|
Three months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Revenue by Type
|
|
|
|
|
|
|
|
|
Consumer App Store Transactions
|
|
$
|
1,169
|
|
|
$
|
427
|
|
Advertising / Other
|
|
|
177
|
|
|
|
307
|
|
Total
|
|
$
|
1,346
|
|
|
$
|
734
|
|
Our revenue increased $612 thousand, or 83%, to $1,346 thousand for the three months ended June 30, 2019 from $734 thousand for the three months ended June 30, 2018. The increase in revenue was attributable primarily to an increase in consumer app store transactions from within our
Category Leading Apps
and due to the shortening of our statistical estimates for the average user life of paying players within our casino and card games, pursuant to our revenue recognition policy. This change in estimates resulted in a one-time reduction in deferred revenue and a corresponding increase in revenue during the period in the amount of $521 thousand. Our revenue increases were partially offset by a decrease in advertising related bookings stemming from the continued decrease in DAUs across our
Rapid-Launch Games
portfolio.
|
|
Three months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Revenue by App Type
|
|
|
|
|
|
|
|
|
Category Leading Apps
|
|
$
|
1,126
|
|
|
$
|
295
|
|
Rapid-Launch Games
|
|
|
220
|
|
|
|
439
|
|
Total
|
|
$
|
1,346
|
|
|
$
|
734
|
|
Our
Category Leading Apps
revenue increased $831 thousand, or 282%, to $1,126 thousand for the three months ended June 30, 2019 from $295 thousand for the three months ended June 30, 2018. The increase in our
Category Leading Apps
revenue was attributable primarily to an increase in both consumer app store transactions and advertising related bookings resulting from strong user growth and monetization improvements in
Video Poker Classic
during the most recent period, the successful launch of
Crypto Trillionaire
during Q1 2019, and due to the shortening of our statistical estimates for the average user life of paying players within our casino and card games, pursuant to our revenue recognition policy. This change in estimates resulted in a one-time reduction in deferred revenue and a corresponding increase in revenue during the period.
Our
Rapid-Launch Games
’ revenue decreased $219 thousand, or 50%, to $220 thousand for the three months ended June 30, 2019 from $439 thousand for the three months ended June 30, 2018. The decrease in revenue was attributable to a decrease in both consumer app store transactions and advertising related bookings resulting from the continued decrease in DAUs and new player downloads across our
Rapid-Launch Games
portfolio.
Cost of Revenue
|
|
Three months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Platform Fees
|
|
$
|
397
|
|
|
$
|
219
|
|
Licensing + Royalties
|
|
|
28
|
|
|
|
28
|
|
Hosting
|
|
|
4
|
|
|
|
3
|
|
Total Cost of Revenue
|
|
$
|
429
|
|
|
$
|
250
|
|
Revenue
|
|
|
1,346
|
|
|
|
734
|
|
Gross Margin
|
|
|
68
|
%
|
|
|
66
|
%
|
Our cost of revenue increased $179 thousand, or 72%, to $429 thousand in the three months ended June 30, 2019 from $250 thousand in the three months ended June 30, 2018. Our gross margin increased to 68% during the three months ended June 30, 2019 compared to 66% during the three months ended June 30, 2018. The increase in our cost of revenue was primarily due to an increase in platform fees corresponding to our higher Q2 Revenue and due to the shortening of our statistical estimates for the average user life of paying players within our casino and card games, pursuant to our revenue recognition policy. This change in estimates resulted in a one-time reduction in deferred platform fees and a corresponding increase in our cost of revenue during the period.
Research and Development Expenses
|
|
Three months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Research and development
|
|
$
|
36
|
|
|
$
|
79
|
|
Percentage of revenue
|
|
|
3
|
%
|
|
|
11
|
%
|
Our research and development expenses decreased $43 thousand, or 54%, to $36 thousand in the three months ended June 30, 2019 from $79 thousand in the three months ended June 30, 2018. The decrease in research and development costs was primarily due to a decrease in revenue share associated with our
Rapid-Launch Games
portfolios.
Marketing Expenses
|
|
Three months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Marketing and public relations
|
|
$
|
235
|
|
|
$
|
110
|
|
Percentage of revenue
|
|
|
17
|
%
|
|
|
15
|
%
|
Our marketing expenses increased $125 thousand, or 114%, to $235 thousand in the three months ended June 30, 2019 from $110 thousand in the three months ended June 30, 2018. The increase in 2019 was primarily due to an increase in marketing expenditures for both our
Category Leading Apps
and corporate marketing.
General and Administrative Expenses
|
|
Three months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
General and administrative
|
|
$
|
757
|
|
|
$
|
704
|
|
Percentage of revenue
|
|
|
56
|
%
|
|
|
96
|
%
|
Our general and administrative expenses increased $53 thousand, or 7%, to $757 thousand in the three months ended June 30, 2019 from $704 thousand in the three months ended June 30, 2018. The increase in general and administrative expenses was primarily due to an increase in cash compensation related to Company personnel primarily associated with expanded game marketing initiatives.
Amortization
of Capitalized Software Development Costs
|
|
Three months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Amortization of capitalized software development
|
|
$
|
156
|
|
|
$
|
142
|
|
Percentage of revenue
|
|
|
12
|
%
|
|
|
19
|
%
|
Our amortization of capitalized software development increased $14 thousand or 10% to $156 thousand in the three months ended June 30, 2019 from $142 thousand in the three months ended June 30, 2018. The increase resulted from the commercial launch of
My Horoscope
during Q1 2019 and the initiation of the amortization period for this software product, combined with increased amortization attributable to
Video Poker Classic
software development costs that were incurred and capitalized in Q1 2019.
Other (income) expenses
|
|
Three months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Other (income) expenses
|
|
$
|
(4
|
)
|
|
$
|
(1
|
)
|
Percentage of revenue
|
|
|
0
|
%
|
|
|
0
|
%
|
Our other income increased $3 thousand to $4 thousand in the three months ended June 30, 2019 from $1 thousand in the three months ended June 30, 2018. The increase in other income was due to higher interest income related to greater cash balances held during the most recent periods.
Comparison of the Six Months Ended June 30, 2019 and 2018
Revenue
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Revenue by Type
|
|
|
|
|
|
|
|
|
Consumer App Store Transactions
|
|
$
|
1,711
|
|
|
$
|
1,000
|
|
Advertising / Other
|
|
|
448
|
|
|
|
622
|
|
Total
|
|
$
|
2,159
|
|
|
$
|
1,622
|
|
Our revenue increased $537 thousand, or 33%, to $2,159 thousand for the six months ended June 30, 2019 from $1,622 thousand for the six months ended June 30, 2018. The increase in revenue was attributable primarily to an increase in consumer app store transactions from within our
Category Leading Apps
and due to the shortening of our statistical estimates for the average user life of paying players within our casino and card games, pursuant to our revenue recognition policy. This change in estimates resulted in a one-time reduction in deferred revenue and a corresponding increase in revenue during the period in the amount of $521 thousand. These increases were partially offset by a decrease in advertising related bookings stemming from the continued decrease in DAUs across our
Rapid-Launch Games
portfolio.
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Revenue by App Type
|
|
|
|
|
|
|
|
|
Category Leading Apps
|
|
$
|
1,616
|
|
|
$
|
570
|
|
Rapid-Launch Games
|
|
|
543
|
|
|
|
1,052
|
|
Total
|
|
$
|
2,159
|
|
|
$
|
1,622
|
|
Our
Category Leading Apps
revenue increased $1,046 thousand, or 184%, to $1,616 thousand for the six months ended June 30, 2019 from $570 thousand for the six months ended June 30, 2018. The increase in our
Category Leading Apps
revenue was attributable primarily to an increase in both consumer app store transactions and advertising related bookings resulting from strong user growth and monetization improvements in
Video Poker Classic
during the most recent period, the successful launch of
Crypto Trillionaire
during Q1 2019, and due to the shortening of our statistical estimates for the average user life of paying players within our casino and card games, pursuant to our revenue recognition policy. This change in estimates resulted in a one-time reduction in deferred revenue and a corresponding increase in revenue during the period in the amount of $521 thousand.
Our
Rapid-Launch Games’
revenue decreased $509 thousand, or 48%, to $543 thousand for the six months ended June 30, 2019 from $1,052 thousand for the six months ended June 30, 2018. The decrease in revenue was attributable to a decrease in both consumer app store transactions and advertising related bookings resulting from the continued decrease in DAUs and new player downloads across our
Rapid-Launch Games
portfolio.
Cost of Revenue
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Platform Fees
|
|
$
|
635
|
|
|
$
|
486
|
|
Licensing + Royalties
|
|
|
85
|
|
|
|
52
|
|
Hosting
|
|
|
9
|
|
|
|
6
|
|
Total Cost of Revenue
|
|
$
|
729
|
|
|
$
|
544
|
|
Revenue
|
|
|
2,159
|
|
|
|
1,622
|
|
Gross Margin
|
|
|
66
|
%
|
|
|
66
|
%
|
Our cost of revenue increased $185 thousand, or 34%, to $729 thousand in the six months ended June 30, 2019 from $544 thousand in the six months ended June 30, 2018. Our Gross Margin remained unchanged during the six months ended June 30, 2019 from 66% during the six months ended June 30, 2018. Our Gross Margin remained unchanged primarily due to the ongoing licensing fee payout related to the 2019 release of
Crypto Trillionaire
, and due to the shortening of our statistical estimates for the average user life of paying players within our casino and card games, pursuant to our revenue recognition policy. This change in estimates resulted in a one-time reduction in deferred platform fees and a corresponding increase in our cost of revenue during the period. These increases in our cost of revenue were was partially offset by a decrease in revenue that was subject to platform fees.
Research and Development Expenses
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Research and development
|
|
$
|
80
|
|
|
$
|
155
|
|
Percentage of revenue
|
|
|
4
|
%
|
|
|
10
|
%
|
Our research and development expenses decreased $75 thousand, or 48.3%, to $80 thousand in the six months ended June 30, 2019 from $155 thousand in the six months ended June 30, 2018. The decrease in research and development costs was primarily due to a decrease in revenue share associated with our
Rapid-Launch Games
portfolios.
Marketing Expenses
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Marketing and public relations
|
|
$
|
421
|
|
|
$
|
174
|
|
Percentage of revenue
|
|
|
19
|
%
|
|
|
11
|
%
|
Our marketing expenses increased $247 thousand, or 142%, to $421 thousand in the six months ended June 30, 2019 from $174 thousand in the six months ended June 30, 2018. The increase in 2019 was primarily due to an increase in marketing expenditures for both our
Category Leading Apps
and corporate marketing.
General and Administrative Expenses
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
General and administrative
|
|
$
|
1,512
|
|
|
$
|
1,620
|
|
Percentage of revenue
|
|
|
70
|
%
|
|
|
100
|
%
|
Our general and administrative expenses decreased $108 thousand, or 7%, to $1,512 thousand in the six months ended June 30, 2019 from $1,620 thousand in the six months ended June 30, 2018. The decrease in general and administrative expenses was primarily due to a non-recurring, non-cash, stock-based professional fee related to certain investment banking services provided to the Company in Q1 2018, partially offset by an increase in non-cash, stock-based compensation expenses related to certain RSU incentive grants made in the first quarter of 2018 to our employees and an increase in cash compensation related to Company personnel primarily associated with expanded game marketing initiatives.
Amortization
of Capitalized Software Development Costs
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Amortization of capitalized software development
|
|
$
|
341
|
|
|
$
|
271
|
|
Percentage of revenue
|
|
|
16
|
%
|
|
|
17
|
%
|
Our amortization of capitalized software development increased $70 thousand or 26% to $341 thousand in the six months ended June 30, 2019 from $271 thousand in the six months ended June 30, 2018. The increase resulted from the commercial launch of
My Horoscope
during Q1 2019 and the initiation of the amortization period for this software product, combined with increased amortization attributable to
Video Poker Classic
software development costs that were incurred and capitalized in Q1 2019.
Other (income) expenses
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Other (income) expenses
|
|
$
|
(2
|
)
|
|
$
|
323
|
|
Percentage of revenue
|
|
|
0
|
%
|
|
|
20
|
%
|
Our other (income) expenses decreased $325 thousand or 101% to $(2) thousand of other income in the six months ended June 30, 2019 from $323 thousand of other expenses in the six months ended June 30, 2018. The decrease in other expenses was primarily attributable to a decrease in debt discount of $188 thousand to $0 from $188 thousand, a decrease in interest expense, net, from $135 thousand in the six months ended June 30, 2018, to interest income of $2 thousand in the six months ended June 30, 2019 that was attributable to the repayment of the Senior Convertible Debenture in Q1 2018.
Liquidity and Capital Resources
General
As of June 30, 2019, the Company had cash and cash equivalents of $510 thousand, working capital surplus of $339 thousand and a net loss of $925 thousand for the six months ended June 30, 2019. While the Company does not currently anticipate that additional financing will be required within the next twelve months, the Company may choose to seek additional financing in order to achieve its growth objectives. In the event the Company chooses to seek additional financing, there is no guaranty we will be successful or, if successful, that the terms of such financing will be favorable to the Company.
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(86
|
)
|
|
$
|
141
|
|
Investing activities
|
|
|
(275
|
)
|
|
|
(449
|
)
|
Financing activities
|
|
|
-
|
|
|
|
1,402
|
|
Increase (Decrease) in cash and cash equivalents
|
|
$
|
(361
|
)
|
|
$
|
1,094
|
|
Operating Activities
Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and changes in operating assets and liabilities.
In the six months ended June 30, 2019, net cash used in operating activities was $86 thousand, which was primarily due to a $93 thousand decrease in prepaid expenses, $38 thousand increase in accounts payable and accrued expenses and adjustments for non-cash items, including stock-based compensation expense of $809 thousand, amortization of software development costs of $341 thousand, and depreciation and amortization of other assets of $3 thousand. These amounts were offset by a $925 thousand net loss, an increase of $104 thousand of accounts receivable, a $2 thousand change in lease liability, net, to a $206 thousand decrease in deferred revenue, and a $134 thousand decrease in due to related parties.
In the six months ended June 30, 2018, net cash provided by operating activities was $141 thousand, which was primarily due to a $1,473 thousand net loss, $25 thousand decrease in accounts payable and accrued expenses, $22 thousand decrease in deferred revenue, and a $42 thousand decrease in due to related parties. These amounts were offset by a $100 thousand decrease in accounts receivable, $16 thousand decrease in prepaid expenses, and adjustments for non-cash items, including stock-based compensation expense of $1,040 thousand, amortization of software development costs of $271 thousand, amortization of original issue discount of $51 thousand, depreciation and amortization of other assets of $6 thousand and amortization of debt discount of $188 thousand.
Investing Activities
Cash used in investing activities in the six months ended June 30, 2019 was $275 thousand, which was due to capitalized software development costs related to the development of our mobile apps and games.
Cash used in investing activities in the six months ended June 30, 2018 was $449 thousand, which was due to capitalized software development costs related to the development of our mobile games.
Financing Activities
There were no financing activities in the six months ended June 30, 2019.
Cash provided by financing activities in the six months ended June 30, 2018 was $1,402 thousand, which was primarily due to $2,582 thousand in net proceeds received from the issuance of common stock and $120 thousand proceeds from exercised warrants, which were offset by a $1,143 thousand principal repayment of our Senior Secured Convertible Debenture, $57 thousand of early payment penalty fee related to the repayment of our Senior Secured Convertible Debenture and $100 thousand in cash used to buy back the non-controlling interest in our Revolution Blockchain subsidiary.
Contractual Obligations and Other Commercial Commitments
Smaller reporting companies are not required to provide the information required by this item.
Off-Balance Sheet Arrangements
For the six months ended June 30, 2019 and 2018 we did not have any “off-balance sheet arrangements,” as defined in relevant Securities and Exchange Commission regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Trends in Key Non-GAAP Financial Metrics
We have provided in this report the non-GAAP financial measures of Bookings and adjusted EBITDA, as a supplement to the unaudited condensed consolidated financial statements, which are prepared in accordance with United States generally accepted accounting principles ("GAAP"). Management uses Bookings and adjusted EBITDA internally in analyzing our financial results to assess operational performance and liquidity. The presentation of Bookings and adjusted EBITDA is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP. We believe that both management and investors benefit from referring to Bookings and adjusted EBITDA in assessing our performance and when planning, forecasting and analyzing future periods. We believe Bookings and adjusted EBITDA is useful to investors because it allows for greater transparency with respect to key financial metrics we use in making operating decisions and because our investors and analysts use them to help assess the health of our business. We have provided reconciliations between our historical Bookings and adjusted EBITDA to the most directly comparable GAAP financial measures below.
Bookings Results
Bookings increased $68 thousand, or 9%, to $785 thousand for the three months ended June 30, 2019 from $717 thousand for the three months ended June 30, 2018.
Bookings increased $153 thousand, or 10%, to $1,753 thousand for the six months ended June 30, 2019 from $1,600 thousand for the six months ended June 30, 2018.
The increase in bookings in both comparative periods was attributable primarily to the continued strengthening of our
Category Leading Apps
, resulting from strong user growth and monetization improvements in
Video Poker Classic
and the successful launch of
Crypto Trillionaire
during Q1 2019, which was partially offset by the continued weakening of our
Rapid-Launch Games
, driven primarily by DAU declines from within our Rapid-Launch Game portfolio.
|
|
Three Months Ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Bookings by Game Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category Leading Apps
|
|
$
|
566
|
|
|
$
|
281
|
|
|
$
|
1,211
|
|
|
$
|
550
|
|
Rapid-Launch
|
|
|
219
|
|
|
|
436
|
|
|
|
542
|
|
|
|
1,050
|
|
Total
|
|
$
|
785
|
|
|
$
|
717
|
|
|
$
|
1,753
|
|
|
$
|
1,600
|
|
Our
Category Leading Apps
bookings increased $285 thousand, or 101%, to $566 thousand for the three months ended June 30, 2019, from $281 thousand for the three months ended June 30, 2018.
Our
Category Leading Apps
bookings increased $661 thousand, or 120%, to $1,211 thousand for the six months ended June 30, 2019, from $550 thousand for the six months ended June 30, 2018.
The increase in our
Category Leading Apps
bookings in both comparative periods was due to an increase in both consumer app store transactions and advertising related bookings resulting primarily from strong user growth and monetization improvements in
Video Poker Classic
, combined with the successful launch of
Crypto Trillionaire
during Q1 2019.
Our
Rapid-Launch Games
’ bookings decreased $217 thousand, or 50%, to $219 thousand for the three months ended June 30, 2019, from $436 thousand for the three months ended June 30, 2018.
Our
Rapid-Launch Games
’ bookings decreased $508 thousand, or 48%, to $542 thousand for the six months ended June 30, 2019, from $1,050 thousand for the six months ended June 30, 2018.
The decrease in these bookings in both comparative periods was attributable primarily to a decrease in both consumer app store transactions and advertising related bookings resulting from the continued decrease in DAUs and new player downloads across our
Rapid-Launch Games
portfolio.
The following table presents a reconciliation of bookings to revenue for each of the periods presented (in thousands):
|
|
Three Months Ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
(In thousands)
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Bookings
|
|
$
|
768
|
|
|
$
|
717
|
|
|
$
|
1,752
|
|
|
$
|
1,600
|
|
Change in deferred revenue
|
|
|
578
|
|
|
|
17
|
|
|
|
407
|
|
|
|
22
|
|
Revenue
|
|
$
|
1,346
|
|
|
$
|
734
|
|
|
$
|
2,159
|
|
|
$
|
1,622
|
|
Limitations of Bookings
|
●
|
Bookings do not reflect that we defer and recognize certain mobile game revenue over the estimated life of durable virtual goods; and
|
|
●
|
other companies, including companies in our industry, may calculate bookings differently or not at all, which reduces their usefulness as a comparative measure.
|
Because of these limitations, you should consider bookings along with other financial performance measures, including revenue, net income (loss) and our other financial results presented in accordance with U.S. GAAP.
Adjusted EBITDA Results
Our Adjusted EBITDA increased $282 thousand to $292 thousand for the three months ended June 30, 2019 from $10 thousand for the three months ended June 30, 2018. The increase in adjusted EBITDA is due to decreases in net loss, income taxes, depreciation and amortization of other assets, and stock-based compensation expense, and increases in interest income and amortization of capitalized software development during the comparative periods.
Our Adjusted EBITDA increased $56 thousand to $226 thousand for the six months ended June 30, 2019 from $170 thousand for the six months ended June 30, 2018. The increase in adjusted EBITDA is due to decreases in net loss, interest expense, income taxes, depreciation and amortization of other assets, amortization of debt discount and stock-based compensation expense and an increase in amortization of capitalized software development during the comparative periods.
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June
30,
2019
|
|
|
June
30,
2018
|
|
|
June
30,
2019
|
|
|
June
30,
2018
|
|
Reconciliation of Net Loss to Adjusted EBITDA: (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(265
|
)
|
|
$
|
(557
|
)
|
|
$
|
(925
|
)
|
|
$
|
(1,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income) expense, net
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
135
|
|
Income taxes
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
4
|
|
Amortization of capitalized software development
|
|
|
156
|
|
|
|
142
|
|
|
|
341
|
|
|
|
271
|
|
Depreciation and amortization of other assets
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
5
|
|
Amortization of debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
188
|
|
Stock-based compensation expense
|
|
|
405
|
|
|
|
420
|
|
|
|
809
|
|
|
|
1,040
|
|
Adjusted EBITDA
|
|
$
|
293
|
|
|
$
|
10
|
|
|
$
|
226
|
|
|
$
|
170
|
|
Limitations of Adjusted EBITDA
|
●
|
Adjusted EBITDA does not include the impact of stock-based compensation expense, impairment of intangible assets previously acquired, acquisition-related transaction expenses, contingent consideration fair value adjustments and restructuring expense;
|
|
|
|
|
●
|
Adjusted EBITDA does not reflect income tax expense;
|
|
●
|
Adjusted EBITDA does not include other income or expense, which includes interest income or expense;
|
|
●
|
Adjusted EBITDA excludes depreciation and amortization of intangible assets and impairment of capitalized software. Although depreciation and amortization and impairment of capitalized software are non-cash charges, the assets being depreciated and amortized or impaired may have to be replaced in the future; and
|
|
●
|
Other companies, including companies in our industry, may calculate adjusted EBITDA differently or not at all, which will reduce their usefulness as a comparative measure.
|
Because of these limitations, you should consider adjusted EBITDA along with other financial performance measures, including revenue, net income (loss), diluted net income (loss) per share, cash flow from operations, GAAP operating expense, GAAP operating margin and our other financial results presented in accordance with GAAP.