What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-12 compared with 2020-05-13 · 53 added, 39 removed, 65 unchanged (59% of the section changed)

44 unchanged sentences

Our business continuity services provide automatic on-site and off-site backups, complete encryption, and automatic failure testing.

We also provide application hosting, IT consulting and managed network services.

We also provide cybersecurity, application hosting, IT consulting and managed network services.

Our focus in the network and managed services practice is to focus on industry verticals in order to demonstrate our ability to better understand our customers’ needs.

Results of Operations for the Three Months Ended March 31, 2020 and 2019 .

During the three months ended March 31, 2020 the Company continued to expand its customer base, which prior to Covid-19, we believed would provide a basis for future growth, as revenues increased 8.30% from the same three month period in the prior year.

Results of Operations for the Three and Six Months Ended June 30 , 2020 and 2019.

During the six months ended June 30, 2020 the Company continued to expand its customer base, which prior to Covid-19, we believed would provide a basis for future growth, as revenues increased 7% from the same six month period in the prior year.

The Company will continue to monitor the Covid 19 situation as it pertains to the disruption of our business and growth in future quarters and will take steps to establish mitigation strategies in order to try and minimize risk of any potential downturn for shareholders as well the health, safety and wellbeing of its employees and customers.

Revenues for the three months ended March 31, 2020 increased $772,210 (8.30%) to $10,079,524 as compared to $9,307,314 for the three months ended March 31, 2020.

The increase can be attributed to both the increase in software sales as well as an increase in consulting services.

Software sales increased $162,895 (10.14%) to $1,769,171 for the three months ended March 31, 2020 as compared to $1,606,276 for the three months ended March 31, 2019.

The increase is attributable to an increase in sales of cloud-based ERP solutions and third party solutions which add functionality to customer’s existing systems.

Service revenue increased by $609,315 (7.91%) to $8,310,353 for the three months ended March 31, 2020 from $7,701,038 for the same period in 2019.

This is due to an increase in consulting projects as a result of the 4th quarter 2019 sales.

Gross profit for the three months ended March 31, 2020 increased $89,586 (2.38%) to $3,852,210 as compared to $3,762,624 for the three months ended March 31, 2019.

The gross profit attributed to software sales decreased $70,048 to $639,779 for the three months ending March 31, 2020 from $709,827 in the three months ending March 31, 2019.

This decrease is attributed to the increased sales of software from third parties in which there is a lower margin.

The gross profit attributed to services increased $159,634 to $3,212,431 for the three months ending March 31, 2020 from $3,052,797 for the three months ending March 31, 2019 due to increased sales of hosting.

Revenues for the three months ended June 30, 2020 increased $553,527 (6.07%) to $9,672,945 as compared to $9,119,418 for the three months ended June 30, 2019.

Revenues for the six months ended June 30, 2020 increased $1,325,736 (7.19%) to $19,752,468 as compared to $18,426,732 for the six months ended June 30, 2019.The increase can be attributed to both the increase in software sales and consulting revenue, as well as an increase in subscription revenue.

Software sales increased $502,058 (35.24%) to $1,926,697 for the three months ended June 30, 2020 as compared to $1,424,639 for the three months ended June 30, 2019.

For the six months ended June 30, 2019 software sales increased $664,952 (21.94%) to $3,695,867 from $3,030,915 for the same period in 2019.

The increase is attributable to increased sales of third party solutions which add functionality to customer’s existing systems.

Service revenue increased by $51,469 to $7,746,248 for the three months ended June 30, 2020 from $7,694,779 for the same period in 2019, which represents an overall increase of 0.67%.

Service revenue increased by $660,784 to $16,056,601 for the six months ended June 30, 2020 from $15,395,817 for the same period in 2019, representing an overall increase of 4.29%.

This increase is attributed to the increase in both consulting and subscription revenue.

Gross profit for the three months ended June 30, 2020 increased $461,707 (13.28%) to $3,938,605 as compared to $3,476,898 for the three months ended June 30, 2019.

For the three month period ended June 30, 2020, the overall gross profit percentage was 40.72% as compared to 38.13% for the period ended June 30, 2019.

Gross profit for the six months ended June 30, 2020 increased $551,293 (7.62%) to $7,790,814 as compared to $7,239,521 for the six months ended June 30, 2019.

For the six month period ended June 30, 2020, the overall gross profit percentage was 39.44% as compared to 39.29% for the period ended June 30, 2019.

The gross profit attributed to software sales increased $179,832, or 35%, to $693,532 for the three months ending June 30, 2020 versus $513,700 in the three months ending June 30, 2019, Gross profit attributed to software sales increased $109,784, or 8.97%, to $1,333,310 for the six months ending June 30, 2020 versus $1,223,526 in the six months ending June 30, 2019.

This increase is attributed to the increase in software sales for the period.

The gross profit attributed to services increased $281,875, or 9.51%, to $3,245,073 for the three months ending June 30, 2020 versus $2,963,198 for the three months ending June 30, 2019, while gross profit attributed to services increased $441,509, or 7.33%, to $6,457,504 for the six months ending June 30, 2020 versus $ 6,015,995 for the six months ending June 30, 2019.

This increase is attributed to the increase in subscription revenue for the period.

Operating Expenses

Selling and marketing expenses increased $198,874 (11.41%) to $1,941,324 for the three months ending March 31, 2020 from $1,742,450 in the three months ending March 31, 2019.

This is due to increased marketing expenses and increased sales personnel expense and commissions earned in the quarter.

General and administrative expenses increased $71,364 (3.47%) to $2,126,141 for the three months ending March 31, 2020 from $2,054,777 in the three months ending March 31, 2019.

This is primarily as a result of increases in professional development as well as an increase in travel and entertainment related to attendance at software publisher shows and user conferences.

Depreciation and amortization expense increased $2,308 for the three months ended March 31, 2020 to $176,536 as compared to $174,228 for the three months ended March 31, 2019.

Loss from Continuing operations

For the three months ended March 31, 2020, the Company had a loss from continuing operations of $292,115 as compared to loss from continuing operations of $232,024 for the three months ended March 31, 2019.

The increase is primarily due to the increased sales and marketing expense.

Selling and marketing expenses increased $167,506 (10.70%) to $1,733,472 for the three months ending June 30, 2020 from $1,565,966 in the three months ending June 30, 2019.

Selling and marketing expenses increased $366,379 (11.07%) to $3,674,795 for the six months ended June 30, 2020 compared to $3,308,416 for the six months ended June 30, 2019.

This is due to increased variable compensation as a result of increased sales.

General and administrative expenses decreased $96,347 (4.64%) to $1,981,248 for the three months ending June 30, 2020 from $2,077,595 in the three months ending June 30, 2019.

General and administrative expenses decreased $24,982 (0.60%) to $4,107,389 for the six months ended June 30, 2020 as compared to $4,132,371 for the six months ended June 30, 2019.

This is primarily as a result of decreases in travel expenses as a result of less employees traveling during the pandemic.

Depreciation and amortization expense decreased $13,526 for the three months ended June 30, 2020 to $173,044 as compared to $186,570 for the three months ended June 30, 2019.

Depreciation and amortization expense decreased $11,219 for the six months ended June 30, 2020 to $349,579 as compared to $360,798 for the six months ended June 30, 2019.

This decrease is due to some equipment being fully depreciated in 2020.

Income (l oss ) from Continuing operations

For the three months ended June 30, 2020, the Company had income from continuing operations of $33,514 as compared to loss from continuing operations of $300,802 for the three months ended June 30, 2019.

The increase is primarily due to increased revenue as well as less general and administrative expenses.

For the six months ended June 30, 2020, the Company had a loss from continuing operations of $258,601 as compared to loss from continuing operations of $484,101 for the six months ended June 30, 2019.

The decrease in loss is primarily due to increased revenue as well as less general and administrative expenses.

Liquidity and Capital Resources

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The negative impact on our business is impossible to determine at this point, although it is likely that we will suffer negative consequences as many of these companies go out of business or decrease their technology spending.

The current confusion in SBA guidance as to whether the Company, as a publicly-traded entity, is eligible to retain its PPP Loan, as well as the unavailability of other alternative sources of funding, means that we may need to rely on our own limited resources to weather the anticipated economic downturn., Our competitors, almost all of whom are privately-held, and able to avail themselves of the PPP program, will make it more difficult for the Company to compete in the marketplace if it is determined that the Company is not eligible to participate in the same program simply by virtue of being a publicly-traded entity.

The current confusion in SBA guidance as to whether the Company, as a publicly-traded entity, was eligible to retain its PPP Loan, as well as the unavailability of other alternative sources of funding, means that we may need to rely on our own limited resources to weather the anticipated economic downturn., Our competitors, almost all of whom are privately-held, and able to avail themselves of the PPP program, will make it more difficult for the Company to compete in the marketplace.

Management will continue to monitor developments, explore various cost-cutting measures, and explore other sources of funding, but there is no guarantee we will be successful in doing so.

On July 31, 2020, the Company acquired certain assets of Prairie Technology Solutions Group, LLC (“PT”) pursuant to an Asset Purchase Agreement.

In consideration for the acquired assets, the Company paid $185,000 in cash and three promissory notes, each in the principal of $103,333 (“PT Notes”) with an interest rate of 4% per annum.

The notes mature July 2021, July 2022 and July 2023 respectively.

The Company currently has no line of credit or other credit facility with any lender.

No investors or lenders have offered any alternative equity/debt financing packages to the Company.

As of March 31, 2020, the Company has $1,075,759 notes outstanding from acquisitions occurring between 2014 and through 2019.

As of June 30, 2020, the Company has $960,483 notes outstanding from acquisitions occurring between 2014 and 2019.

Future payments on these notes are as follows:

Remainder of 2020

During the three months ended March 31, 2020, the Company had a net decrease in cash of $2,177,218.

During the six months ended June 30, 2020, the Company had a net decrease in cash of $1,799,371.

The Company’s principal sources and uses of funds were as follows:

Cash provided by operating activities of continuing operations

Operating activities for the three months ended March 31, 2020 used cash of $296,665 as compared to $1,178,487 for the same period in 2019.

This increase in cash is primarily due an increase in deferred revenue.

Cash used in investing activities of continuing operations

Investing activities for the three months ended March 31, 2020 provided cash of $527,988 as compared to using cash of $138,403 for the same period in 2019.

This increase in cash is due to a decrease in the escrow account.

Cash provided by (used in) operating activities of continuing operations

Operating activities for the six months ended June 30, 2020 provided cash of $270,375 as compared to using cash of $1,364,291 for the same period in 2019.

This increase in cash is primarily due an increase in collections of accounts receivable as well as a decrease in accounts payable.

Cash provided by ( used in ) investing activities of continuing operations

Investing activities for the six months ended June 30, 2020 provided cash of $496,142 as compared to using cash of $164,227 for the same period in 2019.

This increase in cash is due to a decrease in software development costs as well as a decrease in acquisition of business costs as well as partial payment of the Escrow from the EDI sale in August 2019.

Cash used in financing activities of continuing operations

Financing activities for the three months ended March 31, 2020 used cash of $2,408,541 as compared to $389,468 for the same period in 2019.

Financing activities for the six months ended June 30, 2020 used cash of $2,565,888 as compared to $557,042 for the same period in 2019.

The use was due primarily to the payment of the cash dividend in January 2020.

Cash flows from discontinued operations

Operating activities for discontinued operations for the three months ended March 31, 2020 provided cash of $0 as compared to $520,820 for the same period in 2019.

This is due to the fact that the EDI practice was sold in August 2019, providing three months of operating activities in 2019.

Investing activities of discontinued operations for the three months ended March 31, 2020 used cash of $0 as compared to $62,203 for the same period in 2019.

Operating activities for discontinued operations for the six months ended June 30, 2020 provided cash of $0 as compared to $806,189 for the same period in 2019.

This is due to the fact that the EDI practice was sold in August 2019, providing six months of operating activities in 2019.

Investing activities of discontinued operations for the six months ended June 30, 2020 used cash of $0 as compared to $93,826 for the same period in 2019.

This was due to having no software being put into production in 2020 as a result of the EDI practice being sold in 2019.

However, the Company cannot currently quantify the uncertainty related to the recent pandemic and its effects on the business in the coming quarters, and the belief that it has sufficient liquidity may be incorrect as the impact of Covid-19 becomes clearer over the coming months and quarters.

There was no significant impact on the Company’s operations as a result of inflation for the three months ended March 31, 2020.

The Company believes that as a result of the growth in business, and the funds available from the sale of its Mapadoc division, it has adequate liquidity to fund its operating plans for at least the next twelve months, provided however, that the Company cannot currently quantify the uncertainty related to the recent pandemic and its effects on the business in the coming quarters.

The belief that the Company has sufficient liquidity may be incorrect as the impact of Covid-19 becomes clearer over the coming months and quarters.

There was no significant impact on the Company’s operations as a result of inflation for the six months ended June 30, 2020.

Off Balance Sheet Arrangements

During the three months ended March 31, 2020 or for fiscal 2019, we did not engage in any material off-balance sheet activities or have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

During the six months ended June 30, 2020 or for fiscal 2019, we did not engage in any material off-balance sheet activities or have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis