| New Accounting Standards |
3. New Accounting Standards
Revenue from Contracts with Customers.
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”), which creates a single source of revenue guidance under U.S. GAAP for all companies in all industries and replaces most existing revenue recognition guidance in U.S. GAAP. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.
Our transition to ASC 606 represents a change in accounting principle. ASC 606 eliminates industry-specific guidance and provides a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of ASC 606 is that a reporting entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the reporting entity expects to be entitled for the exchange of those goods or services.
The Company adopted the new standard in the first quarter of its fiscal 2018, using the modified retrospective method. The Company implemented internal controls and key system functionality to enable the preparation of financial information on adoption. The most significant impacts of the adoption of ASC 606 to the Company relate to the acceleration of revenue recognition for sales of custom products subject to a non-cancellable customer purchase orders.
The new standard will primarily impact the Company’s revenue recognition for software arrangements. In this area, the new standard will accelerate the recognition of revenue. The table below details both the current and expected revenue recognition timing in these areas:
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Software arrangements:
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Past revenue standard
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New ASC 606 revenue standard
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Perpetual software licenses
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Upfront
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Upfront
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Enterprise license agreements
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Ratable
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Upfront
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Software support
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Ratable
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Ratable
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SaaS
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Ratable
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Ratable
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The adoption of ASC 606 has an impact on the Company’s Consolidated Statements of Operations and Consolidated Balance Sheets but has no impact on cash provided by or used in operating, financing, or investing activities on the Consolidated Statements of Cash Flows.
Financial Statement Impact of Transition to ASC 606
As noted above, we transitioned to ASC 606 using the modified retrospective method on January 1, 2018. The cumulative effect of this transition to applicable contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to stockholders’ equity as of that date. As a result of applying the modified retrospective method to transition to ASC 606, the following adjustments were made to the consolidated balance sheet as of January 1, 2018:
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|
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December 31,
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Adjusted
|
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2017
|
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Adjustments
|
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January 1,
|
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As Reported
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due to ASC 606
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2018
|
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ASSETS
|
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|
|
|
|
|
|
|
|
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Current assets
|
|
|
|
|
|
|
|
|
|
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Cash
|
|
$
|
460,059
|
|
$
|
-
|
|
$
|
460,059
|
|
Accounts receivable, net of allowance for doubtful accounts of $2,280 and $2,280, respectively
|
|
|
885,743
|
|
|
544,599
|
|
|
1,430,342
|
|
Other current assets
|
|
|
209,536
|
|
|
-
|
|
|
209,536
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Total current assets
|
|
|
1,555,338
|
|
|
544,599
|
|
|
2,099,937
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Goodwill
|
|
|
803,118
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|
|
-
|
|
|
803,118
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Intangible assets, net
|
|
|
676,436
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|
|
-
|
|
|
676,436
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Accounts receivable, long term
|
|
|
-
|
|
|
424,023
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|
|
424,023
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Other assets
|
|
|
88,916
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|
|
-
|
|
|
88,916
|
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TOTAL ASSETS
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|
$
|
3,123,808
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|
$
|
968,622
|
|
$
|
4,092,430
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LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
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|
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Current liabilities
|
|
|
|
|
|
|
|
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|
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Accounts payable
|
|
$
|
1,096,003
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|
$
|
-
|
|
$
|
1,096,003
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Accrued interest
|
|
|
1,168
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|
|
-
|
|
|
1,168
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Accrued and deferred personnel compensation
|
|
|
590,500
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|
|
-
|
|
|
590,500
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Deferred revenue and customer deposits
|
|
|
1,429,266
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|
|
-
|
|
|
1,429,266
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Notes payable, net - current maturities
|
|
|
2,236,224
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|
|
-
|
|
|
2,236,224
|
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Other current liabilities
|
|
|
226,355
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|
|
191,121
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|
|
417,476
|
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Total current liabilities
|
|
|
5,579,516
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|
|
191,121
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|
5,770,637
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|
|
|
|
|
|
|
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Non-current liabilities
|
|
|
|
|
|
|
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Notes payable, net - long term
|
|
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180,810
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-
|
|
|
180,810
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Other long term liabilities
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-
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150,477
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|
150,477
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Total non-current liabilities
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|
180,810
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|
150,477
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|
331,287
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Total liabilities
|
|
|
5,760,326
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|
|
341,598
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|
|
6,101,924
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Commitments and Contingencies (See Note 9)
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Stockholders' equity
|
|
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|
|
|
|
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Common stock, $0.001 par value; 100,000,000 shares authorized; 37,025,140 and 37,025,140, shares issued and outstanding
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37,025
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|
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-
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|
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37,025
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Equity payable
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|
|
100,862
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|
|
-
|
|
|
100,862
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Additional paid-in capital
|
|
|
77,910,842
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|
|
-
|
|
|
77,910,842
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Accumulated other comprehensive loss
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|
|
(65,764)
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|
|
-
|
|
|
(65,764)
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Accumulated deficit
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|
(80,619,483)
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|
627,024
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(79,992,459)
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Total stockholders' equity
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(2,636,518)
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|
627,024
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(2,009,494)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$
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3,123,808
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$
|
968,622
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$
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4,092,430
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The following tables reflect the impact of adoption of ASC 606 on our condensed consolidated statements of operations for the three and six months ended June 30, 2018 and our condensed consolidated balance sheet as of June 30, 2018 and the amounts as if the Previous Standards were in effect (“Amounts Under Previous Standards”):
Condensed Consolidated Statement of Operations
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Three Months Ended June 30, 2018
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Six Months Ended June 30, 2018
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As reported
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Total Adjustments Under ASC 606
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Amounts Under Previous Standards
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As reported
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Total Adjustments Under ASC 606
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Amounts Under Previous Standards
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Revenues
|
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Revenues
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$
|
1,366,239
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|
$
|
(206,115)
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|
$
|
1,572,354
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$
|
5,059,567
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$
|
1,442,616
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$
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3,616,951
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Cost of revenues
|
|
|
756,130
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|
-
|
|
|
756,130
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|
|
1,549,519
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|
|
-
|
|
|
1,549,519
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Gross profit
|
|
|
610,109
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|
(206,115)
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|
|
816,224
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|
|
3,510,048
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|
|
1,442,616
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|
|
2,067,432
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|
|
|
|
|
|
|
|
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|
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|
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Operating expenses
|
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|
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|
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General and administrative
|
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770,591
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(10,275)
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|
780,866
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|
|
2,018,934
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|
|
83,241
|
|
|
1,935,693
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|
Sales and marketing
|
|
|
792,263
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|
|
-
|
|
|
792,263
|
|
|
2,253,843
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|
|
-
|
|
|
2,253,843
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Engineering, research, and development
|
|
|
422,660
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|
|
(92,478)
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|
|
515,138
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|
|
1,954,258
|
|
|
749,169
|
|
|
1,205,089
|
|
Depreciation and amortization
|
|
|
98,728
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|
|
-
|
|
|
98,728
|
|
|
195,698
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|
|
-
|
|
|
195,698
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Total operating expenses
|
|
|
2,084,242
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|
|
(102,753)
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|
|
2,186,995
|
|
|
6,422,733
|
|
|
832,410
|
|
|
5,590,323
|
|
Gain (loss) from operations
|
|
|
(1,474,133)
|
|
|
(103,362)
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|
|
(1,370,771)
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|
|
(2,912,685)
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|
|
610,206
|
|
|
(3,522,891)
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|
Other income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
146
|
|
|
-
|
|
|
146
|
|
|
602
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|
|
-
|
|
|
602
|
|
Interest expense
|
|
|
(109,635)
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|
|
-
|
|
|
(109,635)
|
|
|
(167,124)
|
|
|
-
|
|
|
(167,124)
|
|
Gain on sale of fixed assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,722)
|
|
|
-
|
|
|
(8,722)
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|
Foreign currency (loss) gain
|
|
|
(1,290)
|
|
|
-
|
|
|
(1,290)
|
|
|
(1,620)
|
|
|
-
|
|
|
(1,620)
|
|
Total other income/(expense)
|
|
|
(110,779)
|
|
|
-
|
|
|
(110,779)
|
|
|
(176,864)
|
|
|
-
|
|
|
(176,864)
|
|
Loss before income taxes
|
|
|
(1,584,912)
|
|
|
(103,362)
|
|
|
(1,481,550)
|
|
|
(3,089,549)
|
|
|
610,206
|
|
|
(3,699,755)
|
|
Income tax expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net loss
|
|
|
(1,584,912)
|
|
|
(103,362)
|
|
|
(1,481,550)
|
|
|
(3,089,549)
|
|
|
610,206
|
|
|
(3,699,755)
|
|
Other comprehensive loss, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
69,710
|
|
|
-
|
|
|
69,710
|
|
|
57,097
|
|
|
-
|
|
|
57,097
|
|
Comprehensive loss
|
|
$
|
(1,515,202)
|
|
$
|
(103,362)
|
|
$
|
(1,411,840)
|
|
$
|
(3,032,452)
|
|
$
|
610,206
|
|
$
|
(3,642,658)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.04)
|
|
$
|
-
|
|
$
|
(0.04)
|
|
$
|
(0.08)
|
|
$
|
0.02
|
|
$
|
(0.10)
|
|
Weighted average number of shares
during the period - basic and diluted
|
|
|
38,018,733
|
|
|
38,018,733
|
|
|
38,018,733
|
|
|
37,952,427
|
|
|
37,952,427
|
|
|
37,952,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018 As Reported
|
|
Total Adjustments Under ASC 606
|
|
Amounts Under Previous Standards
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|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,242,884
|
|
$
|
-
|
|
$
|
4,242,884
|
|
Accounts receivable, net of allowance for doubtful accounts of $6,966
|
|
|
1,485,850
|
|
|
(742,500)
|
|
|
743,350
|
|
Other current assets
|
|
|
221,535
|
|
|
-
|
|
|
221,535
|
|
Total current assets
|
|
|
5,950,269
|
|
|
(742,500)
|
|
|
5,207,769
|
|
Goodwill
|
|
|
803,118
|
|
|
-
|
|
|
803,118
|
|
Intangible assets, net
|
|
|
670,636
|
|
|
-
|
|
|
670,636
|
|
Accounts receivable, long term
|
|
|
618,157
|
|
|
(618,157)
|
|
|
-
|
|
Other assets
|
|
|
89,532
|
|
|
-
|
|
|
89,532
|
|
TOTAL ASSETS
|
|
$
|
8,131,712
|
|
$
|
(1,360,657)
|
|
$
|
6,771,055
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
950,490
|
|
$
|
-
|
|
$
|
950,490
|
|
Accrued interest
|
|
|
54,967
|
|
|
-
|
|
|
54,967
|
|
Accrued and deferred personnel compensation
|
|
|
713,695
|
|
|
-
|
|
|
713,695
|
|
Deferred revenue and customer deposits
|
|
|
2,248,449
|
|
|
-
|
|
|
2,248,449
|
|
Notes payable, net - current maturities
|
|
|
1,140,133
|
|
|
-
|
|
|
1,140,133
|
|
Other current liabilities
|
|
|
344,331
|
|
|
(329,052)
|
|
|
15,279
|
|
Total current liabilities
|
|
|
5,452,065
|
|
|
(329,052)
|
|
|
5,123,013
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
Notes payable, net - long term
|
|
|
214,260
|
|
|
-
|
|
|
214,260
|
|
Other long term liabilities
|
|
|
473,684
|
|
|
(421,399)
|
|
|
52,285
|
|
Total non-current liabilities
|
|
|
687,944
|
|
|
(421,399)
|
|
|
266,545
|
|
Total liabilities
|
|
|
6,140,009
|
|
|
(750,451)
|
|
|
5,389,558
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (See Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 100,000,000 shares authorized; 44,105,156 and 44,105,156, shares issued and outstanding
|
|
|
44,105
|
|
|
-
|
|
|
44,105
|
|
Equity payable
|
|
|
100,862
|
|
|
-
|
|
|
100,862
|
|
Additional paid-in capital
|
|
|
85,564,435
|
|
|
-
|
|
|
85,564,435
|
|
Accumulated other comprehensive loss
|
|
|
(8,667)
|
|
|
-
|
|
|
(8,667)
|
|
Accumulated deficit
|
|
|
(83,709,032)
|
|
|
(610,206)
|
|
|
(84,319,238)
|
|
Total stockholders' equity
|
|
|
1,991,703
|
|
|
(610,206)
|
|
|
1,381,497
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
8,131,712
|
|
$
|
(1,360,657)
|
|
$
|
6,771,055
|
|