What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-10 compared with 2020-08-12 · 60 added, 44 removed, 74 unchanged (58% of the section changed)

46 unchanged sentences

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 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.

Results of Operations for the Three and Nine Months Ended September 30, 2020 and 2019.

During the nine months ended September 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 4.83% from the same nine 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 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.

Revenues for the three months ended September 30, 2020 increased $51,287 (0.51%) to $10,159,152 as compared to $10,107,865 for the three months ended September 30, 2019.

Revenues for the nine months ended September 30, 2020 increased $1,377,023 (4.83%) to $29,911,619 as compared to $28,534,596 for the nine months ended September 30, 2019.

The increase for the three months ended September 30, 2020, can be attributed to the increase in consulting revenue offset by a decrease in software revenue while the increase for the nine months ended September 2020 can be attributed to both an increase in software sales and consulting revenue.

Software sales decreased $228,726 (12.24%) to $1,639,245 for the three months ended September 30, 2020 as compared to $1,867,971 for the three months ended September 30, 2019 due to a decrease in timing for both software sales and third party software sales.

For the nine months ended September 30, 2020 software sales increased $436,226 (8.90%) to $5,335,112 from $4,898,886 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%.

Service revenue increased by $280,013 to $8,519,907 for the three months ended September 30, 2020 from $8,239,894 for the same period in 2019, which represents an overall increase of 3.40%.

Service revenue increased by $940,797 to $24,576,507 for the nine months ended September 30, 2020 from $23,635,710 for the same period in 2019, representing an overall increase of 3.98%.

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.

Gross profit for the three months ended September 30, 2020 increased $351,215 (9.49%) to $4,051,991 as compared to $3,700,776 for the three months ended September 30, 2019.

For the three month period ended September 30, 2020, the overall gross profit percentage was 39.89% as compared to 36.61% for the period ended September 30, 2019.

Gross profit for the nine months ended September 30, 2020 increased $887,459 (8.10%) to $11,842,804 as compared to $10,955,345 for the nine months ended September 30, 2019.

For the nine month period ended September 30, 2020, the overall gross profit percentage was 39.59% as compared to 38.39% for the period ended September 30, 2019.

The gross profit attributed to software sales increased $42,416, or 6.67%, to $677,941 for the three months ending September 30, 2020 as compared to $635,525 in the three months ending September 30, 2019.

This increase is due to sales of software with higher gross margins.

Gross profit attributed to software sales increased $152,201, or 8.19%, to $2,011,251 for the nine months ending September 30, 2020 as compared to $1,859,050 in the nine months ending September 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.

The gross profit attributed to services increased $308,799, or 10.07%, to $3,374,050 for the three months ending September 30, 2020 as compared to $3,065,251 for the three months ending September 30, 2019, while gross profit attributed to services increased $735,258, or 8.08%, to $9,831,553 for the nine months ending September 30, 2020 as compared to $9,096,295 for the nine months ending September 30, 2019.

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

Operating Expenses

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.

Selling and marketing expenses decreased $12,952 (0.73%) to $1,752,319 for the three months ending September 30, 2020 from $1,765,271 in the three months ending September 30, 2019.

Selling and marketing expenses increased $353,428 (6.97%) to $5,427,115 for the nine months ended September 30, 2020 compared to $5,073,687 for the nine months ended September 30, 2019.

This is due to both additional headcount as well as increased variable compensation as a result of increased sales.

General and administrative expenses decreased $441,038 (17.87%) to $2,026,477 for the three months ending September 30, 2020 from $2,467,515 in the three months ending September 30, 2019.

General and administrative expenses decreased $466,020 (7.06%) to $6,133,865 for the nine months ended September 30, 2020 as compared to $6,599,885 for the nine months ended September 30, 2019.

This is primarily as a result of decreases in travel expenses as a result of less employees traveling during the pandemic, reduced credit card expenses as well as department changes for various employees, thereby reducing salary and benefit expense.

Depreciation and amortization expense increased $948 for the three months ended September 30, 2020 to $179,057 as compared to $178,109 for the three months ended September 30, 2019.

Depreciation and amortization expense decreased $10,271 for the nine months ended September 30, 2020 to $528,636 as compared to $538,907 for the nine months ended September 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.

Income (loss) from Continuing operations

For the three months ended September 30, 2020, the Company had income from continuing operations of $55,205 as compared to loss from continuing operations of $949,873 for the three months ended September 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.

For the nine months ended September 30, 2020, the Company had a loss from continuing operations of $203,396 as compared to loss from continuing operations of $1,547,609 for the nine months ended September 30, 2019.

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

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The negative impact of Covid-19 on the economy creates tremendous uncertainty for the Company in the coming months and quarters.

Recent government reports indicate that there are currently about 17 million people unemployed in the U.S., many of whom work at our customer’s businesses or businesses similar to our customers.

Recent government reports indicate that there are currently over 10 million people unemployed in the U.S., many of whom work at our customer’s businesses or businesses similar to our customers.

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, 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.

The current confusion in SBA guidance as to whether the Company, as a publicly-traded entity, was eligible to retain its PPP Loan 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.

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

In consideration for the acquired assets, the Company paid $185,000 in cash and issued three promissory notes to Prairie Tech (“Prairie Tech Note 1”, “Prairie Tech Note 2” and “Prairie Tech Note 3”), each in the principal aggregate amount of $103,333 (collectively the “Prairie Tech Notes”).

The Prairie Tech Notes bear interest at a rate of 4% per annum.

Prairie Tech Note 1 has a term of one (1) year and is subject to downward adjustment based on whether certain revenue milestones are achieved.

Prairie Tech Note 2 has a term of two (2) years and is also subject to downward adjustment based on whether certain revenue milestones are achieved.

Prairie Tech Note 3 has a term of three (3) years and is not subject to a downward adjustment.

On October 1, 2020, the Company acquired certain assets of Computer Management Services, LLC (“CMS”) pursuant to an Asset Purchase Agreement.

In consideration for the acquired assets, the Company paid $470 in cash and issued a promissory note to CMS in the principal aggregate amount of $170,000.

The CMS Note is due in 36 months from the closing date and bears interest at a rate of two (2%) percent per annum.

Monthly payments including interest are $4,869.

On October 1, 2020, the Company entered into an At Market Issuance Sales Agreement (the “2020 At Market Agreement”) with a sales agent (the “Sales Agent”) under which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $3,489,499 from time to time through the Sales Agent.

Sales of the Company’s common stock through the Sales Agent, if any, will be made by any method that is deemed an “at the market” offering as defined by the U.S.

Securities and Exchange Commission.

The Company will pay to the Sales Agent a commission rate equal to 3.0% of the gross proceeds from the sale of any shares of common stock sold through the Sales Agent under the 2020 At Market Agreement.

The Company has not issued any common stock pursuant to the 2020 At Market Agreement.

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

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

As of September 30, 2020, the Company has $1,175,900 notes outstanding from acquisitions occurring between 2014 and 2020.

Future payments on these notes are as follows:

Remainder of 2020

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

During the nine months ended September 30, 2020, the Company had a net decrease in cash of $1,585,806.

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

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.

Operating activities for the nine months ended September 30, 2020 provided cash of $247,135 as compared to using cash of $1,201,035 for the same period in 2019.

This increase in cash is primarily due to a decrease in the net loss for the period.

Cash provided by investing activities of continuing operations

Investing activities for the nine months ended September 30, 2020 provided cash of $867,005 as compared to $9,965,623 for the same period in 2019.

This decrease in cash is due to proceeds received from the sale of the EDI practice in August 2019.

Cash used in financing activities of continuing operations

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.

Financing activities for the nine months ended September 30, 2020 used cash of $2,699,946 as compared to $715,675 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 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.

Operating activities for discontinued operations for the nine months ended September 30, 2020 provided cash of $0 as compared to $899,537 for the same period in 2019.

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

Investing activities of discontinued operations for the nine months ended September 30, 2020 used cash of $0 as compared to $127,678 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.

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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.

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

Off Balance Sheet Arrangements

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.

During the nine months ended September 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