| Significant Accounting Policies [Text Block] | 3.
Significant Accounting Policies Principles of Consolidation The accompanying condensed consolidated financial statements are prepared in conformity with GAAP. All intercompany accounts and transactions have been eliminated. Reclassification of Expenses We have revised the classification of certain of our operating expenses. To ensure comparability between periods, we revised the previous period financial statements presented to conform to the method of presentation in the current period financial statements. These reclassifications had no impact on the net income (loss) for the periods presented or total stockholders’ equity at June 30, 2018. Revenue Recognition Nature of Our Products and Services We earn revenue by delivering the following software products and services:
●
Perpetual software licenses under which customers install our products in their information systems environment on computers they manage and either own or otherwise procure from a cloud services provider, including deploying our products at a cloud services provider in a bring-your-own-license environment.
●
Cloud-based, hosted SaaS solutions that we sell on an ongoing subscription basis resulting in our earning recurring, monthly subscription and usage fees to access the service.
●
Maintenance and support services (“M&S”) that generally consist of telephone support and access to unspecified future software upgrades.
●
Professional services for product integration and configuration that generally do not significantly modify our software products. We earn the majority of our revenue from the sale of perpetual software licenses and associated contracts for M&S. We recognize revenue when we have satisfied a performance obligation by transferring control over a product or delivering a service to a customer. We measure revenue based upon the consideration set forth in an arrangement or contract with a customer. The revenue recognition criteria we apply to each of our software products and services are as follows:
●
Perpetual software licenses – These licenses grant a right to use our functional intellectual property. We recognize revenue at the point in time when we electronically deliver to our customer the software license key that provides the ability to access and use our product. If our customer is a reseller who will further transfer the ability to access and use our product to a third party under a separate arrangement that the reseller has with that third party, we recognize revenue at the time we deliver the software license key to the reseller since our contract is with the reseller.
●
Cloud-based, hosted SaaS solutions – These solutions grant a right to access our functional intellectual property. We recognize revenue over time on a monthly basis as we deliver the services to which our customers subscribe. This revenue can include basic monthly fees to access the software and usage fees based upon the volume of certain resources the customer consumes (such as volumes of storage or bandwidth). We are generally paid for these services on a month-to-month basis, but if a customer pays us in advance for services we will deliver in the future, we record as deferred revenue the amount of such payment related to services we have not yet delivered.
●
M&S – We provide these services to purchasers of perpetual software licenses under agreements with terms generally ranging from one to three years. We require up-front payment of our M&S fee in an amount that covers the entire term of the agreement. We record as deferred revenue amounts paid that relate to future periods during which we will provide the M&S service. We reduce deferred revenue and recognize revenue ratably in future periods as we deliver the M&S service.
●
Professional services – We recognize revenue from these services when the services are completed. If we are paid in advance for these services, we record such payment as deferred revenue until we complete the services. The delivery of our software products and services generally does not involve any variable consideration, financing components or consideration payable to a customer such as rebates or other incentives that reduce amounts owed us by customers. Deferred Revenue Classification and Activity Deferred revenue related to services we will deliver within one year is presented as a current liability. Deferred revenue related to services that we will deliver more than one year into the future is presented as a non-current liability. The activity in our deferred revenue balances has been as follows ($in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2018
2017
2018
2017
Deferred revenue, beginning of period $ 15,733 $ 16,322 $ 17,050 $ 17,445
Deferred revenue resulting from new contracts with customers 5,659 5,228 9,557 9,445
Deferred revenue at the beginning of the period that was amortized to revenue (4,827 ) (4,897 ) (9,614 ) (9,816 )
Deferred revenue arising during the period that was amortized to revenue (552 ) (493 ) (980 ) (914 )
Deferred revenue, end of period $ 16,013 $ 16,160 $ 16,013 $ 16,160 Multi-Element Transactions At the time our customers purchase perpetual software licenses, they typically also purchase M&S although it is not mandatory that they do so to use the software. We do not sell separate M&S to subscribers to our SaaS solutions as M&S is provided as part of their SaaS subscription. Our customers may also purchase professional services at the time they purchase perpetual software licenses or a SaaS subscription. Each of the components of these multi-element transactions is a separately identifiable performance obligation. For multi-element transactions, we allocate the transaction price to each performance obligation on a relative stand-alone selling price basis. We determine that stand-alone selling price for each item at the inception of the transaction involving these multiple elements. We sell, as stand-alone transactions, renewals of pre-existing M&S contracts, professional services to customers seeking assistance with products they have previously purchased from us, or SaaS subscriptions to customers not requiring any of our other products or services. Accordingly, we are able to estimate the stand-alone selling price of these items based upon our observation of those transactions. Since most of our sales of perpetual software licenses are part of multi-element transactions that also involve M&S and/or professional services, and because the selling price of those licenses can vary significantly among customers, we use the residual approach under ASC 606 to estimate the selling price of perpetual software licenses in a multi-element transaction by reference to the total transaction price less the sum of the observable stand-alone selling prices of M&S and/or professional services. We allocate discounts proportionally to all of the components of a multi-element transaction. Sale s Tax We collect sales tax on many of our transactions with customers as required under applicable law. We do not include sales tax collected in our revenue. We record it as a liability payable to taxing authorities. Allowance for Sales Returns We provide an allowance for sales returns. We estimate this allowance based upon our historical experience and the nature of recent transactions with customers. This amount is included in accrued liabilities in our condensed consolidated balance sheet. Contract Assets We generally bill our customers for professional services when we have fully delivered the services specified in the contract with the customer. We may incur costs in delivering the services prior to that time. Such costs are generally not material. Accordingly, we do not record a contract asset for professional service engagements in process but not yet billed. Incremental Costs of Obtaining a Contract to Deliver Goods and Services We incur incremental costs in the form of sales commissions paid to our sales personnel and royalties on certain of our products paid to third parties. These are costs that we would not incur if we did not obtain a contract to deliver our goods and services. We account for these costs as follows:
●
If these costs are associated with products and services for which we recognize revenue at a fixed point in time (primarily sales of perpetual software licenses and professional services), we expense these costs in full at the time we recognize that revenue.
●
If these costs are associated with services for which we recognize revenue over time (primarily sales of M&S and SaaS subscriptions) for which we believe it is likely that the contract for those services will be renewed for additional terms in the future, provided we deem these costs to be recoverable, we record these costs as a deferred expense asset and amortize that cost to expense as follows:
o
For the portion of the cost that we determine benefits us primarily only over the term of the specific underlying contract currently in force (such as the term of an M&S contract), we recognize expense ratably each month over that term.
o
For the portion of the cost that we determine benefits us over an overall customer relationship that is likely to span a period of time that is longer than an initial contract term (for example, an M&S contract renewed for multiple terms in the future), we recognize expense ratably monthly over the estimated life of the customer relationship. Our activity in deferred costs of obtaining a contract to deliver goods and services has been as follows ($in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2018
2018
Deferred expense, beginning of period $ 1,184 $ 1,240
Deferred expense resulting from new contracts with customers 198 347
Deferred expense amortized to expense (210 ) (415 )
Deferred expense, end of period $ 1,172 $ 1,172 At June 30, 2018, $628,000 was recorded in prepaid and current other assets and $544,000 was recorded in other assets in our condensed consolidated balance sheet. The following tables present our reported results under FASB Accounting Standards Codification Topic 606, or ASC 606 and a reconciliation to results using the historical accounting method:
Condensed Consolidated Balance Sheet
(in thousands)
As of June 30, 2018
(unaudited)
As Reported
Effect of ASC 606
ASC 605 Historical
Assets
Current assets:
Cash and cash equivalents $ 11,914 $ 11,914
Certificates of deposit, short term 4,311 4,311
Accounts receivable, net 4,246 (100 ) 4,146
Federal income tax receivable 979 16 995
Prepaid and other current assets 1,694 (625 ) 1,069
Total current assets 23,144 (709 ) 22,435
Certificates of deposit, long term 11,617 11,617
Capitalized software development costs, net 3,580 3,580
Goodwill 12,712 12,712
Deferred tax asset, net 379 249 628
Property and equipment, net 464 464
Other assets 616 (544 ) 72
Total assets $ 52,512 $ (1,004 ) $ 51,508
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable 2,192 2,192
Accrued expenses 1,571 (100 ) 1,471
Deferred revenue 13,022 13,022
Total current liabilities 16,785 (100 ) 16,685
Deferred revenue, non-current portion 2,991 2,991
Other long term liabilities 176 176
Stockholders' Equity:
Preferred stock - -
Common stock 22 22
Additional paid-in capital 24,655 24,655
Treasury stock (1,452 ) (1,452 )
Retained earnings 9,335 (904 ) 8,431
Total stockholders’ equity 32,560 (904 ) 31,656
Total liabilities and stockholders’ equity $ 52,512 $ (1,004 ) $ 51,508
Condensed Consolidated Statement of Operations and Comprehensive Income
(in thousands, except per share amounts)
For the Three Months Ended June 30, 2018
(unaudited)
As Reported
Effect of ASC 606
ASC 605 Historical
Operating revenues:
Software licenses $ 2,722 $ 2,722
Maintenance and support 5,285 5,285
Professional services 449 449
Total revenues 8,456 - 8,456
Costs of revenues
Software licenses 734 11 745
Maintenance and support 539 539
Professional services 292 292
Total costs of revenues 1,565 11 1,576
Gross Profit 6,891 (11 ) 6,880
Operating expenses
Sales and marketing 2,889 (23 ) 2,866
General and administrative 1,470 1,470
Legal and professional 1,046 1,046
Research and development 637 637
Total operating expenses 6,042 (23 ) 6,019
Income (loss) from operations 849 12 861
Interest income (expense), net 80 80
Income (loss) before income taxes 929 12 941
Income tax expense 336 4 340
Net income $ 593 $ 8 $ 601
Comprehensive income $ 593 $ 8 $ 601
Net income per common share - basic $ 0.03 $ 0.00 $ 0.03
Net income per common share - diluted $ 0.03 $ 0.00 $ 0.03
Condensed Consolidated Statement of Operations and Comprehensive Income (Loss)
(in thousands, except per share amounts)
For the Six Months Ended June 30, 2018
(unaudited)
As Reported
Effect of ASC 606
ASC 605 Historical
Operating revenues:
Software licenses $ 4,882 $ 4,882
Maintenance and support 10,385 10,385
Professional services 900 900
Total revenues 16,167 - 16,167
Costs of revenues
Software licenses 1,505 (14 ) 1,491
Maintenance and support 1,062 1,062
Professional services 616 616
Total costs of revenues 3,183 (14 ) 3,169
Gross Profit 12,984 14 12,998
Operating expenses
Sales and marketing 6,001 (54 ) 5,947
General and administrative 3,293 3,293
Legal and professional 2,725 2,725
Research and development 1,358 1,358
Total operating expenses 13,377 (54 ) 13,323
Income (loss) from operations (393 ) 68 (325 )
Interest income (expense), net 156 156
Income (loss) before income taxes (237 ) 68 (169 )
Income tax expense 105 16 121
Net income (loss) $ (342 ) $ 52 $ (290 )
Comprehensive income (loss) $ (342 ) $ 52 $ (290 )
Net income (loss) per common share - basic $ (0.02 ) $ 0.00 $ (0.01 )
Net income (loss) per common share - diluted $ (0.02 ) $ 0.00 $ (0.01 )
Condensed Consolidated Statements of Cash Flows
(in thousands)
For the Six Months Ended June 30, 2018
(unaudited)
As Reported
Effect of ASC 606
ASC 605 Historical
Operating Activities:
Net loss $ (342 ) 52 $ (290 )
Items not involving cash at the time they are recorded in the statement of operations:
Provision (recoveries) for doubtful accounts receivable (64 ) (64 )
Depreciation and amortization 1,120 1,120
Share-based compensation 862 862
Deferred taxes 12 12
Subtotal before changes in operating assets and liabilities 1,588 52 1,640
Changes in operating assets and liabilities:
Accounts receivable 1,743 (100 ) 1,643
Prepaid and other current assets (389 ) (68 ) (457 )
Deferred revenues (1,037 ) (1,037 )
Accounts payable 292 292
Accrued expenses (100 ) 100 -
Other assets 77 77
Accrued interest receivable (134 ) (134 )
Federal income tax receivable (157 ) 16 (141 )
Net cash provided by operating activities 1,883 - 1,883
Investing Activities:
Software development costs (793 ) (793 )
Purchase of property and equipment (104 ) (104 )
Net cash (used in) investing activities (897 ) - (897 )
Financing Activities:
Proceeds from exercise of stock options - -
Dividends paid (655 ) (655 )
Net cash (used in)financing activities (655 ) - (655 )
Net increase in cash 331 331
Cash at beginning of period 11,583 - 11,583
Cash at end of period $ 11,914 $ - $ 11,914
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ - $ -
Income tax payments $ 213 $ 213 Cash and cash equivalents Cash and cash equivalents includes all cash and highly liquid investments with original maturities of three months or less. Property and Equipment Property and equipment is comprised of furniture and fixtures, software, computer equipment and leasehold improvements which are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Furniture, fixtures and equipment have a useful life of five to seven years, computer equipment and software have a useful life of three years and leasehold improvements have a useful life that is the shorter of the term of the lease under which the improvements were made or the estimated useful life of the asset. Expenditures for maintenance and repairs are expensed as incurred. Goodwill Goodwill is not amortized. On at least an annual basis, we test goodwill for impairment at the reporting unit level using December 31 as the measurement date. We operate as a single reporting unit. When testing goodwill, we first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of our reporting unit is less than its carrying amount, including goodwill. In performing this qualitative assessment, we assess events and circumstances relevant to us including, but not limited to:
•
Macroeconomic conditions.
•
Industry and market considerations.
•
Cost factors and trends for labor and other expenses of operating our business.
•
Our overall financial performance and outlook for the future.
•
Trends in the quoted market value and trading of our common stock. In considering these and other factors, we consider the extent to which any adverse events and circumstances identified could affect the comparison of our reporting unit’s fair value with its carrying amount. We place more weight on events and circumstances that most affect our reporting unit’s fair value or the carrying amount of our net assets. We consider positive and mitigating events and circumstances that may affect our determination of whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. We evaluate, on the basis of the weight of the evidence, the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If, after assessing the totality of these qualitative events and circumstances, we determine it is not more likely than not that the fair value of our reporting unit is less than its carrying amount, we conclude there is no impairment of goodwill and perform no further testing, in accordance with GAAP. If we conclude otherwise, we proceed with performing the first step, and if necessary, the second step, of the two-step goodwill impairment test prescribed by GAAP. As of December 31, 2017, after assessing the totality of the relevant events and circumstances, we determined it not more likely than not that the fair value of our reporting unit was less than its carrying amount. Accordingly, we concluded there was no impairment of goodwill as of that date. There have been no material events or changes in circumstances since that time indicating that the carrying amount of goodwill may exceed its fair market value and that interim testing needed to be performed. Capitalized Software Development Costs When we complete research and development for a software product and have in place a program plan and a detailed program design or a working model of that software product, we capitalize production costs incurred for that software product from that point forward until it is ready for general release to the public. Thereafter, we amortize capitalized software production costs to expense using the straight-line method over the estimated useful life of that product, which is generally three years. We periodically assess the carrying value of capitalized software development costs and our method of amortizing them relative to our estimates of realizability through sales of products in the marketplace. Research and Development We expense research and development costs as incurred. Advertising Expense We expense advertising costs as incurred as a component of our sales and marketing expenses. Advertising expense was approximately $254,000 and $608,000 in the 2018 quarter and the 2017 quarter, respectively, and $577,000 and $1,028,000 in the 2018 six months and 2017 six months, respectively. Share-Based Compensation We measure the cost of share-based payment transactions at the grant date based on the calculated fair value of the award. We recognize this cost as an expense ratably over the recipient’s requisite service period during which that award vests or becomes unrestricted. For stock option awards, we estimate their fair value at the grant date using the Black-Scholes option-pricing model considering the following factors:
•
We estimate expected volatility based on historical volatility of our common stock.
•
We use primarily the simplified method to derive an expected term which represents an estimate of the time options are expected to remain outstanding. We use this method because our options are plain-vanilla options, and we believe our historical option exercise experience is not adequately indicative of our future expectations.
•
We base the risk-free rate for periods within the contractual life of the option on the U.S. treasury yield curve in effect at the time of grant.
•
We estimate a dividend yield based on our historical and expected future dividend payments. For restricted stock awards, we use the quoted price of our common stock on the grant date as the fair value of the award. Income Taxes We account for income taxes using the asset and liability method. We record deferred tax assets and liabilities based on the difference between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes, as measured by the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets and liabilities are carried on the balance sheet with the presumption that they will be realizable in future periods in which we generate taxable income. We assess the likelihood that deferred tax assets will be realized from future taxable income. Based on this assessment, we provide any necessary valuation allowance on our balance sheet with a corresponding increase in the tax provision on our statement of operations. Any valuation allowances we establish are determined based upon a number of assumptions, judgments, and estimates, including forecasted earnings, future taxable income, and the relative proportions of revenue and income before taxes in the various domestic jurisdictions in which we operate. We account for uncertainty in income taxes using a two-step process to determine the amount of tax benefit to be recognized. First, we evaluate the tax position to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, we assess the tax position to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit we recognize is the largest amount that we believe has a greater than 50 percent likelihood of being realized upon ultimate settlement. Unrecognized tax benefits represent tax positions for which reserves have been established. Earnings Per Share We compute basic earnings per share using the weighted-average number of common shares outstanding during the periods. We compute diluted earnings per share using the weighted-average number of common shares outstanding plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding. Awards of non-vested restricted stock and options are considered potentially dilutive common shares for the purpose of computing earnings per common share. We apply the treasury stock method to non-vested options under which the assumed proceeds include the amount the employee must pay to exercise the option plus the amount of unrecognized cost attributable to future periods less any expected tax benefits. Recent accounting pronouncements The Financial Accounting Standards Board, or FASB, has issued the Accounting Standard Updates (ASU) described below that we believe may be relevant to our business and to the preparation of our financial statements. ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (issued September 2017) ASU 2017-04, Intangibles – Goodwill and Other (issued January 2017) - ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (issued June 2016) - ASU 2016-13, Financial Instruments – Credit Losses (issued June 2016) ASU 2016-02, Leases (issued February 2016) - ASU 2014-09, Revenue from Contracts with Customers (issued May 2014) ● If these costs are associated with products and services for which we recognize revenue at a point in time (primarily sales of perpetual software licenses and professional services), we expense these costs in full at the time we recognize that revenue. ● If these costs are associated with services for which we recognize revenue over time (primarily sales of M&S and SaaS subscriptions) for which we believe it is likely that the contract for those services will be renewed for additional terms in the future, provided we deem these costs to be recoverable, we record these costs as deferred expense asset and amortize that cost to expense as follows: o For the portion of the cost that we determine benefits us primarily only over the term of the specific underlying contract currently in force (such as the term of an M&S contract), we will recognize expense ratably each month over that term. o For the portion of the cost that we determine benefits us over an overall customer relationship that is likely to span a period of time that is longer than an initial contract term (for example, an M&S contract renewed for multiple terms in the future), we will recognize expense ratably monthly over the estimated life of the customer relationship. |
