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 endedDecember 31, 2019 which was filed with theSecurities and Exchange Commission (the "SEC") onApril 14, 2020 , and in other documents we have filed with theSEC .
Statements included in this report are based upon information known to us as of
the date that this report is filed with the
Introduction
We are developers of application publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants. Our application publishing software solutions are sold under the brand name GO-Global, which is our sole revenue source. GO-Global is an application access solution for use and/or resale by independent software vendors ("ISVs"), corporate enterprises, governmental and educational institutions, and others who wish to take advantage of cross-platform remote access and Web-enabled access to their existing software applications, as well as those who are deploying secure, private cloud environments.
Beginning in 2012, we developed and marketed several products in the field of software productivity for mobile devices such as tablets and smartphones under the hopTo brand. We ceased all our sales, marketing and development for the hopTo products in 2016.
We have made investments in intellectual property ("IP") and filed many patents designed to protect the technologies embedded in the hopTo products. We are currently marketing for sale 49 patents and related source code developed from our hopTo development efforts.
Critical Accounting Policies
We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as "critical" because these specific areas require us to make judgments and estimates about matters that are uncertain at the time we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 2019 10-K Report and Note 2 to our unaudited consolidated financial Statements included under Item 1 - Financial Statements in this Form 10-Q.
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Results of Operations for the Three Months Ended
The following are the results of our operations for the three months ended
For the Three Months Ended September 30, September 30, 2020 2019 $ Change (Unaudited) (Unaudited) Revenues$ 894,600 $ 948,800 $ (54,200 ) Cost of revenues 42,500 38,100 4,400 Gross profit 852,100 910,700 (58,600 ) Operating expenses: Selling and marketing 140,300 96,300 44,000 General and administrative 196,100 166,100 30,000 Research and development 355,700 361,300 (5,600 ) Total operating expenses 692,100 623,700 68,400 Income from operations 160,000 287,000 (127,000 ) Other income (expense): Other income (expense): - 200 (200 ) Income before provision for income taxes 160,000 287,200 (127,200 ) Provision for income taxes 2,500 - 2,500 Net income$ 157,500 $ 287,200 $ (129,700 ) Revenues
Our software revenue is entirely related to our GO-Global product line, and historically has been primarily derived from product licensing fees and service fees from maintenance contracts. The majority of this revenue has been earned, and continues to be earned, from a limited number of significant customers, most of whom are resellers. Many of our resellers purchase software licenses that they hold in inventory until they are resold to the ultimate end user (a "stocking reseller").
When a software license is sold directly to an end user by us, or by one of our resellers who does not stock licenses into inventory, revenue is recognized immediately upon shipment, assuming all other criteria for revenue recognition are met. Consequently, if any significant end user customer substantially changes its order level, or fails to order during the reporting period, whether the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially impacted.
Almost all stocking resellers maintain inventories of our Windows products; few stocking resellers maintain inventories of our UNIX products.
The following is a summary of our revenues by category for the three months
ended
For the Three Months Ended September 30, September 30, 2020 2019 $ Change Revenue Software Licenses Windows$ 188,800 $ 302,000 $ (113,200 ) UNIX/Linux 44,600 20,100 24,500 Total 233,400 322,100 (88,700 ) Software Service Fees Windows 586,000 535,700 50,300 UNIX/Linux 53,600 68,000 (14,400 ) Total 639,600 603,700 35,900 Other 21,600 23,000 (1,400 )$ 894,600 $ 948,800 $ (54,200 ) Software Licenses
Windows software licenses revenue decreased by
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Software licenses revenue from our UNIX/Linux products increased by
Software Service Fees
Service fees attributable to our Windows product service increased by
Service fees revenue attributable to our UNIX products decreased by
Other
Other revenue consists of private labeling fees and professional services. Other
revenue decreased by
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
Cost of revenue for the three months ended
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
General and Administrative Expenses
General and administrative expenses primarily consist of employee costs, depreciation and amortization, legal, accounting, board of director fees, other professional services (including those related to our patents), rent, travel and entertainment and insurance. Certain costs associated with being a publicly held corporation are also included in general and administrative expenses, as well as bad debt expense.
General and administrative expenses increased by
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
Other Income
Other income decreased by
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Results of Operations for the Nine-Month Periods Ended
The following are the results of our operations for the nine months ended
For the Nine Months Ended September 30, September 30, 2020 2019 $ Change (Unaudited) (Unaudited) Revenues$ 2,805,300 $ 2,734,600 $ 70,700 Cost of revenues 118,000 106,900 11,100 Gross profit 2,687,300 2,627,700 59,600 Operating expenses: Selling and marketing 396,200 323,900 72,300 General and administrative 664,600 660,700 3,900 Research and development 1,076,600 1,118,800 (42,200 ) Total operating expenses 2,137,400 2,103,400 34,000 Income from operations 549,900 524,300 25,600 Other income (expense): Other income (expense) 46,900 14,100 32,800 Income before provision for income taxes 596,800 538,400 58,400 Provision for income taxes 7,500 - 7,500 Net income$ 589,300 $ 538,400 $ 50,900 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 nine months ended
For the Nine Months Ended September 30, September 30, 2020 2019 $ Change Revenue Software Licenses Windows$ 585,700 $ 774,100 $ (188,400 ) UNIX/Linux 99,500 36,100 63,400 Total 685,200 810,200 (125,000 ) Software Service Fees Windows 1,650,100 1,633,900 16,200 UNIX/Linux 175,400 221,500 (46,100 ) Total 1,825,500 1,855,400 (29,900 ) Other 294,600 69,000 225,600$ 2,805,300 $ 2,734,600 $ 70,700 Software Licenses
Windows software licenses revenue decreased by
15
Software licenses revenue from our UNIX/Linux products increased by
We expect aggregate GO-Global total software license revenue in 2020 to be in-line with 2019 levels as we are observing a mix of both higher and lower aggregate revenue from our various customers.
Software Service Fees
Service fees attributable to our Windows product service increased by
Service fees revenue attributable to our UNIX products decreased by
We expect that software service fees for 2020 will approximate to those for 2019.
Other
Other revenue consists of private labeling fees, professional services, and
other non-recurring revenues. Other revenue increased by
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
Cost of revenue for the nine months ended
We expect 2020 cost of revenue to be slightly higher than 2019 for the above reason.
Selling and Marketing Expenses
Selling and marketing expenses primarily consisted of employee, outside services and travel and entertainment expenses.
Selling and marketing expenses increased by
We expect to maintain our sales and marketing efforts in 2020 for anticipated GO-Global releases with select targeted modest investments in promotional activity; accordingly, for this reason, we expect 2020 sales and marketing expenses to be slightly higher than 2019 levels.
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General and Administrative Expenses
General and administrative expenses primarily consist of employee costs, legal, accounting, board fees, other professional services (including those related to our patents), rent, travel and entertainment and insurance. Certain costs associated with being a publicly held corporation are also included in general and administrative expenses, as well as bad debt expense.
General and administrative expenses slightly increased by
The slight increase general and administrative expense was due to fees paid to
the board of directors for their service since
In 2020, we anticipate the fees paid to board of directors will be partially offset by a reduction in accounting fees and employee benefit costs compared to 2019 levels due to changes in service providers and improved cost controls by management. We therefore expect that our 2020 general and administrative costs will be slightly higher compared to those for 2019.
Research and Development Expenses
Research and development expenses consist primarily of employee costs, payments to contract programmers, software subscriptions, travel and entertainment for our engineers, and all rent for our leased engineering facilities.
Research and development expenses decreased by
The decrease in research and development expense was primarily due to a decrease in benefit cost and consulting fees associated with completing the new releases of our GO-Global products.
In 2020, we expect to continue our investments in research and development resources associated with our GO-Global products based on market feedback. We therefore expect 2020 research and development expenses to be slightly higher than 2019 levels.
Other Income
Other income increased by
Liquidity and Capital Resources
As of
The following is a summary of our cash flows from operating, investing and
financing activities for the three months ended
For the Nine Months Ended September 30, September 30, 2020 2019 Cash flows provided by operating activities$ 226,000 $ 567,000 Cash flows provided by investing activities $ - $ - Cash flows provided by financing activities$ 2,480,400 $ 300
Net cash flows provided by operating activities for the nine months ended
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Net cash provided by financing activities for the nine months ended
We had no significant financing activity for the nine months ended
We had no cash flow activity relating to investing for the nine months ended
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