Delaware
|
13-3899021
|
(State of incorporation)
|
(IRS Employer
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Identification No.)
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Large accelerated filer
|
[ ]
|
Accelerated filer
|
[ ]
|
|
Non-accelerated filer
|
[ ]
|
Smaller reporting company
|
[X]
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PART I.
|
FINANCIAL INFORMATION
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PAGE
|
||
Item 1.
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Financial Statements
|
|||
Item 2.
|
||||
Item 3.
|
||||
Item 4.
|
||||
PART II.
|
OTHER INFORMATION
|
|||
Item 1.
|
||||
Item 1A.
|
||||
Item 2.
|
||||
Item 3.
|
||||
Item 4.
|
||||
Item 5.
|
||||
Item 6.
|
||||
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|
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GraphOn Corporation
|
||||||||
Condensed Consolidated Balance Sheets
|
||||||||
(Unaudited)
|
||||||||
Assets
|
September 30, 2011
|
December 31, 2010
|
||||||
Current Assets:
|
||||||||
Cash
|
$ | 7,847,500 | $ | 1,891,000 | ||||
Accounts receivable, net
|
755,000 | 1,015,900 | ||||||
Prepaid expenses
|
98,000 | 84,100 | ||||||
Total Current Assets
|
8,700,500 | 2,991,000 | ||||||
Capitalized software, net
|
345,300 | 237,700 | ||||||
Property and equipment, net
|
46,800 | 69,900 | ||||||
Patents, net
|
— | 39,300 | ||||||
Other assets
|
5,600 | 8,100 | ||||||
Total Assets
|
$ | 9,098,200 | $ | 3,346,000 | ||||
Liabilities and Stockholders’ Equity (Deficit)
|
||||||||
Current Liabilities:
|
||||||||
Accounts payable and accrued expenses
|
$ | 983,300 | $ | 669,000 | ||||
Deferred revenue
|
2,490,100 | 2,058,300 | ||||||
Total Current Liabilities
|
3,473,400 | 2,727,300 | ||||||
Deferred revenue
|
491,300 | 640,200 | ||||||
Warrants liability
|
4,727,200 | — | ||||||
Total Liabilities
|
8,691,900 | 3,367,500 | ||||||
Commitments and contingencies
|
||||||||
Stockholders' Equity (Deficit):
|
||||||||
Common stock, $0.0001 par value, 195,000,000 shares authorized, 81,706,625 and 45,981,625 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
|
8,200 | 4,600 | ||||||
Additional paid-in capital
|
61,207,400 | 58,902,000 | ||||||
Accumulated deficit
|
(60,809,300 | ) | (58,928,100 | ) | ||||
Total Stockholders' Equity (Deficit)
|
406,300 | (21,500 | ) | |||||
Total Liabilities and Stockholders' Equity (Deficit)
|
$ | 9,098,200 | $ | 3,346,000 |
Condensed Consolidated Statements of Operations
|
||||||||||||||||
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
Revenue
|
$ | 1,717,500 | $ | 1,771,900 | $ | 4,818,700 | $ | 5,777,900 | ||||||||
Costs of revenue
|
101,500 | 224,400 | 379,500 | 699,400 | ||||||||||||
Gross profit
|
1,616,000 | 1,547,500 | 4,439,200 | 5,078,500 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Selling and marketing
|
576,900 | 528,900 | 1,646,300 | 1,604,000 | ||||||||||||
General and administrative
|
788,700 | 762,200 | 2,139,300 | 2,287,600 | ||||||||||||
Research and development
|
628,500 | 533,800 | 1,707,100 | 1,807,100 | ||||||||||||
Total operating expenses
|
1,994,100 | 1,824,900 | 5,492,700 | 5,698,700 | ||||||||||||
Loss from operations
|
(378,100 | ) | (277,400 | ) | (1,053,500 | ) | (620,200 | ) | ||||||||
Other expense - change in fair value of warrants liability
|
(826,500 | ) | — | (826,500 | ) | — | ||||||||||
Other income, net
|
— | 1,100 | 300 | 2,400 | ||||||||||||
Loss before provision for income tax
|
(1,204,600 | ) | (276,300 | ) | (1,879,700 | ) | (617,800 | ) | ||||||||
Provision for income tax
|
700 | 700 | 1,500 | 2,600 | ||||||||||||
Net loss
|
$ | (1,205,300 | ) | $ | (277,000 | ) | $ | (1,881,200 | ) | $ | (620,400 | ) | ||||
Loss per share – basic and diluted
|
$ | (0.02 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.01 | ) | ||||
Average weighted common shares outstanding – basic and diluted
|
56,168,582 | 45,981,625 | 49,430,160 | 45,971,017 |
Condensed Consolidated Statements of Cash Flows
|
||||||||
Nine Months Ended September 30,
|
||||||||
2011
|
2010
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Cash Flows Provided By (Used In) Operating Activities:
|
||||||||
Net Loss
|
$ | (1,881,200 | ) | $ | (620,400 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
183,700 | 434,800 | ||||||
Stock-based compensation expense
|
71,400 | 66,400 | ||||||
Change in fair value of warrants liability
|
826,500 | — | ||||||
Changes to allowance for doubtful accounts
|
(6,000 | ) | (4,100 | ) | ||||
Revenue deferred to future periods
|
3,161,700 | 2,601,000 | ||||||
Recognition of deferred revenue
|
(2,878,800 | ) | (2,743,100 | ) | ||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
266,900 | 119,100 | ||||||
Prepaid expenses
|
(13,900 | ) | (11,700 | ) | ||||
Accounts payable and accrued expenses
|
119,300 | (282,000 | ) | |||||
Other long term assets
|
2,500 | 6,700 | ||||||
Net Cash Used In Operating Activities
|
(147,900 | ) | (433,300 | ) | ||||
Cash Flows Used In Investing Activities:
|
||||||||
Capitalized software development costs
|
(208,200 | ) | (274,000 | ) | ||||
Capital expenditures
|
(19,000 | ) | (25,300 | ) | ||||
Net Cash Used In Investing Activities
|
(227,200 | ) | (299,300 | ) | ||||
Cash Flows Provided By (Used In) Financing Activities:
|
||||||||
Proceeds from private placement of common stock and warrants, net of issuance costs
|
6,331,600 | — | ||||||
Proceeds from sale of common stock - employee stock purchase plan
|
— | 400 | ||||||
Proceeds from exercise of stock options
|
— | 5,000 | ||||||
Net Cash Provided By Financing Activities
|
6,331,600 | 5,400 | ||||||
Net Increase (Decrease) in Cash
|
5,956,500 | (727,200 | ) | |||||
Cash - Beginning of Period
|
1,891,000 | 2,852,900 | ||||||
Cash - End of Period
|
$ | 7,847,500 | $ | 2,125,700 |
|
|
|
|
Beginning Balance
|
Charge Offs
|
Recoveries
|
Provision
|
Ending Balance
|
||||||||||||||||
Three Months Ended September 30,
|
||||||||||||||||||||
2011
|
$ | 28,400 | $ | — | $ | — | $ | (1,600 | ) | $ | 26,800 | |||||||||
2010
|
27,900 | — | — | — | 27,900 | |||||||||||||||
Nine Months Ended September 30,
|
||||||||||||||||||||
2011
|
$ | 32,800 | $ | — | $ | — | $ | (6,000 | ) | $ | 26,800 | |||||||||
2010
|
32,000 | — | — | (4,100 | ) | 27,900 |
Estimated Volatility
|
Annualized Forfeiture Rate
|
Expected Option Term (Years)
|
Estimated Exercise Factor
|
Risk-Free Interest Rate
|
Dividends
|
|||||||||||||||||||
September 1, 2011
|
198 | % | — | 5.00 | 10 | 0.90 | % | — | ||||||||||||||||
September 30, 2011
|
198 | % | — | 4.92 | 10 | 0.96 | % | — |
September 1, 2011 fair value of the warrants liability at issuance
|
$ | 3,900,700 | ||
Change in fair value of warrant liability recorded in other expense
|
826,500 | |||
September 30, 2011 fair value of the warrants liability
|
$ | 4,727,200 |
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
Statement of Operations Classification
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Costs of revenue
|
$ | 300 | $ | 2,100 | $ | 2,300 | $ | 4,700 | ||||||||
Selling and marketing expense
|
(6,200 | ) | 5,600 | 2,700 | 21,500 | |||||||||||
General and administrative expense
|
28,700 | 4,500 | 46,300 | 21,900 | ||||||||||||
Research and development expense
|
14,000 | 7,900 | 20,100 | 18,300 | ||||||||||||
$ | 36,800 | $ | 20,100 | $ | 71,400 | $ | 66,400 |
Estimated Volatility
|
Annualized Forfeiture Rate
|
Expected Option Term (Years)
|
Estimated Exercise Factor
|
Risk-Free Interest Rate
|
Dividends
|
|
2011
|
180% - 185%
|
2% - 5%
|
7.5 – 10.0
|
15 - 20
|
2.41% - 3.24%
|
—
|
2010
|
175%
|
2%
|
10.0
|
20
|
3.72%
|
—
|
Number of Shares
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Terms (Years)
|
Aggregate Intrinsic Value
|
|||||||
For the Three Months Ended September 30, 2011
|
||||||||||
Outstanding – June 30, 2011
|
8,387,333 | $ | 0.23 | |||||||
Granted
|
2,000,000 | 0.25 | ||||||||
Exercised
|
(133,685 | ) | (0.06 | ) | ||||||
Forfeited or expired
|
(315,337 | ) | 0.07 | |||||||
Outstanding - September 30, 2011
|
9,938,311 | $ | 0.23 |
6.21
|
$ 520,200
|
For the Nine Months Ended September 30, 2011
|
||||||||||
Outstanding - December 31, 2010
|
7,322,933 | $ | 0.27 | |||||||
Granted
|
3,246,000 | 0.19 | ||||||||
Exercised
|
(133,685 | ) | 0.06 | |||||||
Forfeited or expired
|
(496,937 | ) | 0.32 | |||||||
Outstanding - September 30, 2011
|
9,938,311 | $ | 0.24 |
6.21
|
$ 520,200
|
Three Months Ended September 30,
|
2011 Over (Under) 2010
|
|||||||||||||||
Revenue
|
2011
|
2010
|
Dollars
|
Percent
|
||||||||||||
Software Licenses
|
||||||||||||||||
Windows
|
$ | 685,200 | $ | 621,100 | $ | 64,100 | 10.3 | % | ||||||||
Unix
|
243,300 | 321,200 | (77,900 | ) | -24.3 | % | ||||||||||
928,500 | 942,300 | (13,800 | ) | -1.5 | % | |||||||||||
Intellectual property licenses
|
— | 225,000 | (225,000 | ) | -100.0 | % | ||||||||||
Software Service Fees
|
||||||||||||||||
Windows
|
436,100 | 341,000 | 95,100 | 27.9 | % | |||||||||||
Unix
|
265,000 | 258,600 | 6,400 | 2.5 | % | |||||||||||
701,100 | 599,600 | 101,500 | 16.9 | % | ||||||||||||
Other
|
87,900 | 5,000 | 82,900 | 1,658.0 | % | |||||||||||
Total Revenue
|
$ | 1,717,500 | $ | 1,771,900 | $ | (54,400 | ) | -3.1 | % |
Nine Months Ended September 30,
|
2011 Over (Under) 2010
|
|||||||||||||||
Revenue
|
2011
|
2010
|
Dollars
|
Percent
|
||||||||||||
Software Licenses
|
||||||||||||||||
Windows
|
$ | 1,817,400 | $ | 1,932,500 | $ | (115,100 | ) | -6.0 | % | |||||||
Unix
|
831,700 | 1,117,800 | (286,100 | ) | -25.6 | % | ||||||||||
2,649,100 | 3,050,300 | (401,200 | ) | -13.2 | % | |||||||||||
Intellectual property licenses
|
— | 875,000 | (875,000 | ) | -100.0 | % | ||||||||||
Software Service Fees
|
||||||||||||||||
Windows
|
1,205,800 | 987,200 | 218,600 | 22.1 | % | |||||||||||
Unix
|
811,300 | 810,400 | 900 | 0.1 | % | |||||||||||
2,017,100 | 1,797,600 | 219,500 | 12.2 | % | ||||||||||||
Other
|
152,500 | 55,000 | 97,500 | 177.3 | % | |||||||||||
Total Revenue
|
$ | 4,818,700 | $ | 5,777,900 | $ | (959,200 | ) | -16.6 | % |
Three Months Ended September 30,
|
2011 Over (Under) 2010
|
|||||||||||||||
2011
|
2010
|
Dollars
|
Percent
|
|||||||||||||
Software service costs
|
$ | 33,200 | $ | 114,100 | $ | (80,900 | ) | -70.9 | % | |||||||
Software product costs
|
68,300 | 26,500 | 41,800 | 157.7 | % | |||||||||||
Intellectual property licenses - contingent legal fees
|
— | 83,800 | (83,800 | ) | -100.0 | % | ||||||||||
$ | 101,500 | $ | 224,400 | $ | (122,900 | ) | -54.8 | % |
Nine Months Ended September 30,
|
2011 Over (Under) 2010
|
|||||||||||||||
2011
|
2010
|
Dollars
|
Percent
|
|||||||||||||
Software service costs
|
$ | 222,100 | $ | 321,400 | $ | (99,300 | ) | -30.9 | % | |||||||
Software product costs
|
157,400 | 39,900 | 117,500 | 294.5 | % | |||||||||||
Intellectual property licenses - contingent legal fees
|
— | 338,100 | (338,100 | ) | -100.0 | % | ||||||||||
$ | 379,500 | $ | 699,400 | $ | (319,900 | ) | -45.7 | % |
September 30, 2011
|
December 31, 2010
|
|||||||
Software development costs
|
$ | 487,700 | $ | 277,800 | ||||
Accumulated amortization
|
(142,400 | ) | (40,100 | ) | ||||
$ | 345,300 | $ | 237,700 |
September 30, 2011
|
December 31, 2010
|
|||||||
Patents
|
$ | 2,839,000 | $ | 2,839,000 | ||||
Accumulated amortization
|
(2,839,000 | ) | (2,799,700 | ) | ||||
$ | — | $ | 39,300 |
Gross cash proceeds
|
$ | 7,100,000 | ||
Less:
|
||||
Gross proceeds allocated to warrants liability - investors
|
(2,999,700 | ) | ||
Gross proceeds allocated to additional paid-in capital and common stock
|
4,100,300 | |||
Cash issuance costs (Note 11)
|
||||
Placement Agent fee and expenses
|
(766,500 | ) | ||
Legal and accounting fees
|
(196,900 | ) | ||
Non-cash issuance costs
|
||||
Warrants liability – Placement Agent fees
|
(901,000 | ) | ||
Recorded in additional paid-in capital and common stock
|
$ | 2,235,900 |
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
Revenue
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Software
|
$ | 1,717,500 | $ | 1,546,900 | $ | 4,818,700 | $ | 4,902,900 | ||||||||
Intellectual Property
|
— | 225,000 | — | 875,000 | ||||||||||||
Consolidated Revenue
|
$ | 1,717,500 | $ | 1,771,900 | $ | 4,818,700 | $ | 5,777,900 |
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
Income (Loss) From Operations
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Software
|
$ | (258,500 | ) | $ | (120,500 | ) | $ | (625,500 | ) | $ | (352,700 | ) | ||||
Intellectual Property
|
(119,600 | ) | (156,900 | ) | (428,000 | ) | (267,500 | ) | ||||||||
Consolidated Revenue
|
$ | (378,100 | ) | $ | (277,400 | ) | $ | (1,053,500 | ) | $ | (620,200 | ) |
Long-Lived Assets
|
Cost Basis
|
Accumulated Depreciation /Amortization
|
Net, as Reported
|
|||||||||
Software
|
$ | 1,817,300 | $ | (1,425,200 | ) | $ | 392,100 | |||||
Intellectual Property
|
2,839,000 | (2,839,000 | ) | — | ||||||||
Unallocated
|
5,600 | — | 5,600 | |||||||||
$ | 4,661,900 | $ | (4,264,200 | ) | $ | 397,700 |
·
|
placement agent fees and expenses, excluding placement agent warrants, of approximately $766,500;
|
·
|
legal, accounting and miscellaneous filing fees paid or accrued of approximately $196,900.
|
·
|
GO-Global Host: Host products allow access to applications from remote locations and a variety of connections, including the Internet and dial-up connections. Such access allows applications to be run via a Web browser, over many types of data connections, regardless of the bandwidth or operating system. Web-enabling is achieved without modifying the underlying application’s code or requiring costly add-ons.
Host family products include GO-Global Windows Host 4 and all currently available versions of our legacy GO-Global products (GO-Global for Windows 3.2 and GO-Global for UNIX 2.2).
|
·
|
GO-Global Cloud: Cloud products offer a centralized management suite that gives users the ability to access and share applications, files and documents on Windows, UNIX and Linux computers via simple hyperlinks. They give administrators extensive control over user rights and privileges, and allow them to monitor and manage clusters of GO-Global Hosts that support thousands of users. GO-Global Cloud products give application developers the ability to integrate Windows, UNIX and Linux applications into their Web-based enterprise and workflow applications. GO-Global Cloud products include GO-Global Host capabilities. We released GO-Global Cloud for Windows in March 2011 and expect to release GO-Global Cloud for UNIX in the first half of 2012.
|
·
|
GO-Global Client: We plan to develop Client products for portable and mobile devices. We released GO-Global iPad Client, our first product within this product family, during June 2011.
|
2011 Over (Under) 2010
|
||||||||||||||||
Revenue
|
2011
|
2010
|
Dollars
|
Percent
|
||||||||||||
Software Licenses
|
||||||||||||||||
Windows
|
$ | 685,200 | $ | 621,100 | $ | 64,100 | 10.3 | % | ||||||||
Unix
|
243,300 | 321,200 | (77,900 | ) | -24.3 | % | ||||||||||
928,500 | 942,300 | (13,800 | ) | -1.5 | % | |||||||||||
Intellectual property licenses
|
— | 225,000 | (225,000 | ) | -100.0 | % | ||||||||||
Software Service Fees
|
||||||||||||||||
Windows
|
436,100 | 341,000 | 95,100 | 27.9 | % | |||||||||||
Unix
|
265,000 | 258,600 | 6,400 | 2.5 | % | |||||||||||
701,100 | 599,600 | 101,500 | 16.9 | % | ||||||||||||
Other
|
87,900 | 5,000 | 82,900 | 1,658.0 | % | |||||||||||
Total Revenue
|
$ | 1,717,500 | $ | 1,771,900 | $ | (54,400 | ) | -3.1 | % |
2011 Over (Under) 2010
|
||||||||||||||||
Revenue
|
2011
|
2010
|
Dollars
|
Percent
|
||||||||||||
Software Licenses
|
||||||||||||||||
Windows
|
$ | 1,817,400 | $ | 1,932,500 | $ | (115,100 | ) | -6.0 | % | |||||||
Unix
|
831,700 | 1,117,800 | (286,100 | ) | -25.6 | % | ||||||||||
2,649,100 | 3,050,300 | (401,200 | ) | -13.2 | % | |||||||||||
Intellectual property licenses
|
— | 875,000 | (875,000 | ) | -100.0 | % | ||||||||||
Software Service Fees
|
||||||||||||||||
Windows
|
1,205,800 | 987,200 | 218,600 | 22.1 | % | |||||||||||
Unix
|
811,300 | 810,400 | 900 | 0.1 | % | |||||||||||
2,017,100 | 1,797,600 | 219,500 | 12.2 | % | ||||||||||||
Other
|
152,500 | 55,000 | 97,500 | 177.3 | % | |||||||||||
Total Revenue
|
$ | 4,818,700 | $ | 5,777,900 | $ | (959,200 | ) | -16.6 | % |
2011 Over (Under) 2010
|
||||||||||||||||
Description
|
2011
|
2010
|
Dollars
|
Percent
|
||||||||||||
Software service costs
|
$ | 33,200 | $ | 114,100 | $ | (80,900 | ) | -70.9 | % | |||||||
Software product costs
|
68,300 | 26,500 | 41,800 | 157.7 | % | |||||||||||
$ | 101,500 | $ | 140,600 | $ | (39,100 | ) | -27.8 | % |
2011 Over (Under) 2010
|
||||||||||||||||
Description
|
2011
|
2010
|
Dollars
|
Percent
|
||||||||||||
Software service costs
|
$ | 222,100 | $ | 321,400 | $ | (99,300 | ) | -30.9 | % | |||||||
Software product costs
|
157,400 | 39,900 | 117,500 | 294.5 | % | |||||||||||
$ | 379,500 | $ | 361,300 | $ | 18,200 | 5.0 | % |
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
Income (Loss) From Operations
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Software
|
$ | (258,500 | ) | $ | (120,500 | ) | $ | (625,500 | ) | $ | (352,700 | ) | ||||
Intellectual Property
|
(119,600 | ) | (156,900 | ) | (428,000 | ) | (267,500 | ) | ||||||||
Consolidated Income (Loss) From Operations
|
$ | (378,100 | ) | $ | (277,400 | ) | $ | (1,053,500 | ) | $ | (620,200 | ) |
September 30, 2011
|
December 31, 2010
|
|||||||
Software Segment
|
$ | 1,817,300 | $ | 1,588,400 | ||||
Accumulated depreciation/amortization
|
(1,425,200 | ) | (1,280,800 | ) | ||||
392,100 | 307,600 | |||||||
Intellectual Property Segment
|
2,839,000 | 2,839,000 | ||||||
Accumulated depreciation/amortization
|
(2,839,000 | ) | (2,799,700 | ) | ||||
— | 39,300 | |||||||
Unallocated
|
5,600 | 8,100 | ||||||
Total Long-Lived, net
|
$ | 397,700 | $ | 355,000 |
·
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Engage additional technical resources to assist in the analysis of complex transactions or regulatory filings
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·
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Hire an additional skilled staff accountant in order to further spread the work load among company personnel
|
GraphOn Corporation
|
||||
(Registrant)
|
||||
Date:
|
November 14, 2011
|
Date:
|
November 14, 2011
|
|
By:
|
/s/ Robert Dilworth
|
By:
|
/s/ William Swain
|
|
Robert Dilworth
|
William Swain
|
|||
Chief Executive Officer and
|
Chief Financial Officer
|
|||
Chairman of the Board
|
(Principal Financial Officer and
|
|||
(Principal Executive Officer)
|
Principal Accounting Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of GraphOn Corporation (“registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or person performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Robert Dilworth
|
|
Robert Dilworth
|
|
Chief Executive Officer
|
|
Chairman of the Board
|
1.
|
I have reviewed this quarterly report on Form 10-Q of GraphOn Corporation (“registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or person performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ William Swain
|
|
William Swain
|
|
Chief Financial Officer
|
I>&+5+33M9\2WOVK4[ZS
M=FN98P@6*W#=%VY
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Stockholders' Equity (Deficit): | ||
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized (in shares) | 195,000,000 | 195,000,000 |
Common stock, shares issued (in shares) | 81,706,625 | 45,981,625 |
Common stock, shares outstanding (in shares) | 81,706,625 | 45,981,625 |
Condensed Consolidated Statements of Operations (Unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Condensed Consolidated Statements of Operations (Unaudited) [Abstract] | ||||
Revenue | $ 1,717,500 | $ 1,771,900 | $ 4,818,700 | $ 5,777,900 |
Costs of revenue | 101,500 | 224,400 | 379,500 | 699,400 |
Gross profit | 1,616,000 | 1,547,500 | 4,439,200 | 5,078,500 |
Operating expenses: | ||||
Selling and marketing | 576,900 | 528,900 | 1,646,300 | 1,604,000 |
General and administrative | 788,700 | 762,200 | 2,139,300 | 2,287,600 |
Research and development | 628,500 | 533,800 | 1,707,100 | 1,807,100 |
Total operating expenses | 1,994,100 | 1,824,900 | 5,492,700 | 5,698,700 |
Loss from operations | (378,100) | (277,400) | (1,053,500) | (620,200) |
Other expense - change in fair value of warrants liability | (826,500) | 0 | (826,500) | 0 |
Other income, net | 0 | 1,100 | 300 | 2,400 |
Loss before provision for income tax | (1,204,600) | (276,300) | (1,879,700) | (617,800) |
Provision for income tax | 700 | 700 | 1,500 | 2,600 |
Net loss | $ (1,205,300) | $ (277,000) | $ (1,881,200) | $ (620,400) |
Loss per share - basic and diluted (in dollars per share) | $ (0.02) | $ (0.01) | $ (0.04) | $ (0.01) |
Average weighted common shares outstanding - basic and diluted (in shares) | 56,168,582 | 45,981,625 | 49,430,160 | 45,971,017 |
Document And Entity Information (USD $) | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | Aug. 10, 2011 | Jun. 30, 2010 | |
Entity Registrant Name | GRAPHON CORP/DE | ||
Entity Central Index Key | 0001021435 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 1,860,800 | ||
Entity Common Stock, Shares Outstanding | 81,840,310 | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | Q3 | ||
Document Type | 10-Q | ||
Amendment Flag | false | ||
Document Period End Date | Sep. 30, 2011 |
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Capitalized Software | 9 Months Ended | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||
Capitalized Software [Abstract] | |||||||||||||||||||||||||||||||||||||
Capitalized Software | 7. Capitalized Software Capitalized software consisted of the following:
Amortization of capitalized software development costs is a component of costs of revenue. Capitalized software development costs amortization aggregated $40,300 and $102,300 during the three and nine-month periods ended September 30, 2011, respectively. The Company recorded $8,800 of capitalized software development costs during the three-month period ended September 30, 2011, and $209,900 and $277,800 of capitalized software development costs during the nine-month periods ended September 30, 2011 and 2010, respectively. Such costs capitalized during 2011 were incurred in the development of GO-Global Cloud for Windows and GO-Global iPad Client. |
Earnings (Loss) Per Share | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Earnings (Loss) Per Share [Abstract] | |
Earnings (Loss) Per Share | 12. Earnings (Loss) Per Share Earnings or loss per share is calculated by dividing the net income or loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings or loss per share (“Diluted EPS”) is calculated by dividing the net income or loss for the period by the total of the weighted average number of shares of common stock outstanding during the period plus the effects of any dilutive securities. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential shares of common stock would have an anti-dilutive effect. During all periods presented in the Company's Condensed Consolidated Statements of Operations, potentially dilutive securities included shares of common stock potentially issuable upon exercise of stock options. During the three and nine-month periods ended September 30, 2011, potentially dilutive securities also includes common stock potentially issuable upon exercise of warrants. Diluted EPS excludes the impact of potential issuance of shares of common stock related to the Company's stock options in periods in which the exercise price of the stock option is greater than the average market price of the Company's common stock during such periods. For the nine-month periods ended September 30, 2011 and 2010, 33,013,311 and 6,199,417 shares of common stock equivalents, respectively, were excluded from the computation of dilutive loss per share since their effect would be antidilutive. For the three-month periods ended September 30, 2011 and 2010, 33,013,311 and 5,992,226 shares of common stock equivalents, respectively, were excluded from the computation of dilutive loss per share since their effect would be antidilutive. |
Warrants Liability | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants Liability [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants Liability | 3. Warrants Liability The exercise price of the warrants issued by the Company in conjunction with the private placement of its common stock (the “2011 private placement”) could, in certain circumstances, be reset to below-market value. Accordingly, the Company has concluded that such warrants are not indexed to the Company's common stock; therefore, the fair value of the warrants was recorded as a liability upon their issuance and the changes in fair value of the warrants liability is recognized in other expense in the condensed consolidated statement of operations (See Note 9). The Company used a binomial pricing model to determine the fair value of its warrants as of September 1, 2011, their issuance date, and September 30, 2011, the balance sheet date, using the following assumptions:
The following table is a reconciliation of the warrants liability measured at fair value using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2011:
The Company had no outstanding warrants during the year ended December 31, 2010. Accounting Standards Codification 820, “Fair Value Measurement” establishes a fair value hierarchy that prioritizes the assumptions (inputs) to valuation techniques used to price assets or liabilities that are measured at fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The guidance for fair value measurements requires that assets and liabilities measured at fair value be classified and disclosed in one of the following categories:
As of September 30, 2011, all of the Company's $4,727,200 Warrants Liability reported at fair value was categorized as Level 3 inputs. |
Stockholders Equity | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders Equity | 9. Stockholders' Equity 2011 Private Placement During the three-month period ended September 30, 2011, the Company issued to accredited investors 35,500,000 shares of its common stock and five-year warrants to purchase an additional 17,750,000 shares of common stock at an exercise price of $0.26 per share in the 2011 private placement that resulted in gross proceeds of $7,100,000, which was recorded in the financial statements as follows:
MDB Capital Group, LLC acted as the placement agent in connection with the 2011 private placement, for which it received (i) warrants to acquire 3,550,000 shares of common stock at an exercise price of $0.20 per share, (ii) warrants to acquire 1,775,000 shares of common stock at an exercise price of $0.26 per share, (iii) a $710,000 placement agent fee, and (iv) reimbursement of accountable expenses of approximately $56,500. Such warrants issued to MDB had an estimated fair value of $901,000 upon issuance. In conjunction with the warrants issued in the 2011 private placement, the Company recorded a Warrants Liability of $3,900,700 as of September 1, 2011 on its Balance Sheet. (Note 3) All of the warrants issued in respect to the 2011 private placement will expire on September 1, 2016. The exercise price of the warrants could, in certain circumstances, be reset to below-market value. Additionally, all of the warrants contain a cashless exercise provision (net settlement provision) that, under certain circumstances, allows the warrant holder the right to exercise their warrants without making a payment to the Company. In such circumstances, the warrant holder would receive fewer shares of common stock than they otherwise would have been entitled to had they paid the exercise price in cash (a net settlement). Stock Repurchase Program During each of the three and nine-month periods ended September 30, 2011 and 2010, the Company did not repurchase any of its common stock under the terms of its Board-approved $1,000,000 stock repurchase program (“stock repurchase program”). As of September 30, 2011, approximately $782,600 remained available for future purchases under this program. The Company is not obligated to repurchase any specific number of shares and the stock repurchase program may be suspended or terminated at the Company's discretion. |
New Accounting Pronouncements | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
New Accounting Pronouncements [Abstract] | |
New Accounting Pronouncements | 14. New Accounting Pronouncements In July 2010, FASB issued guidance related to disclosures that facilitate financial statements users' evaluations of the nature of credit risk inherent in the entity's portfolio of financing receivables, including trade receivables; analysis and assessments used in arriving at allowances against such risks, including an entity's allowance for doubtful accounts; and the changes and reasons for such changes in the allowances against the credit risks. For disclosures required as of the end of a reporting period, the guidance is effective for interim and annual reporting periods ending on or after December 15, 2010. For disclosures related to activity that occurs during a reporting period, the guidance is effective for activity that occurs during a reporting period beginning on or after December 15, 2010. Adoption of this guidance did not have a material impact on the Company's results of operations, cash flows, or financial position. In January 2010, FASB issued guidance related to new disclosures about fair value measurements, as well as clarification on certain existing disclosure requirements. This guidance requires new disclosures on significant transfers in and out of specified categories of assets and liabilities classified as Level 1, Level 2 and Level 3, respectively, as well as Level 3 fair value measurements. Further, this guidance amends prior guidance to clarify existing disclosures in regards to the level of disaggregation of fair value measurement disclosures for each such category of assets and liabilities, as well as providing disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. There was no material impact on the Company's results of operations, cash flows, or financial position resulting from the adoption of this guidance. |
Commitments and Contingencies | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Commitments and Contingencies [Abstract] | |
Commitments and Contingencies | 10. Commitments and Contingencies Pursuant to the terms of a Registration Rights Agreement entered into with the investors in the 2011 private placement, the Company has agreed to prepare and file with the Securities and Exchange Commission a registration statement covering the resale of shares of the Company's common stock and common stock issuable upon the exercise of the warrants issued to the investors in the 2011 private placement. In accordance with the Registration Rights Agreement, the Company is obligated to use commercially reasonable efforts to cause the Registration Statement to become effective and to maintain its continuous effectiveness over a certain time period. Failing to do so, the Company would be required to pay certain liquidating damages to the investors. The Company filed a Registration Statement on Form S-1 with the Securities and Exchange Commission on September 29, 2011. The Registration Statement has not been declared effective as of November 14, 2011. The Company has successfully complied with similar registration rights requirements associated with private placements previously undertaken in 2004 and 2005 and believes that it will successfully comply with the obligations of the Registration Rights Agreement associated with the 2011 private placement. Accordingly, the Company has not recognized a contingent liquidating damages liability in its financial statements. During April 2011, the Company signed a one-year extension on the lease for its Santa Cruz, California corporate headquarters facility. Under such extension, which lease will commence in August 2011 upon the expiration of the current lease, the monthly rent for the facility will be approximately $4,100. During June 2011, the Company received notice from the County of Santa Cruz (the “County”) that it intends to purchase the corporate office complex from the Company's landlord. Under certain statutes that enable the County to make the purchase, the Company could be required to vacate its office space within 90 days of receiving notice from the County that it will be terminating the Company's lease. Such notice could occur at any time prior to expiration of the extension. Additionally, under certain statutes, the Company would be eligible for relocation assistance. The Company has made no provision for potential relocation costs as of September 30, 2011 as notice has yet to be received from the County that it intends to terminate the Company's lease. The Company does not anticipate any difficulty in finding sufficient office space at comparable pricing upon the vacating of its current Santa Cruz premises. The Company is currently involved in various legal proceedings pertaining to its intellectual property. In all such proceedings the Company has retained the services of various outside counsel under contingency fee arrangements that require the Company to only pay for certain non-contingent costs, such as services for expert consultants and travel, prior to a final verdict or settlement of the respective underlying proceeding. As of November 14, 2011, with the exception of the items discussed below, there have been no material developments in its legal proceedings as described in the Company's 2010 10-K Report. GraphOn Corporation v. Juniper Networks, Inc. Patent and Trademark Office Action – Reexamination of U.S. Patent No. 5,826,014 (the “'014” patent) On July 25, 2008, the United States Patent and Trademark Office (the “PTO”) ordered the reexamination of the ‘014 patent as a result of a reexamination petition filed by Juniper. The ‘014 patent is the sole patent remaining in the Company's lawsuit against Juniper and it is the original patent in the Company's firewall/proxy access family of patents. On September 24, 2009, the PTO issued a final rejection of the ‘014 patent. The Company appealed this rejection to the PTO's Board of Patents and Interferences. On March 19, 2010, the Company filed an appeal brief with the PTO. On June 2, 2010, the PTO dismissed the appeal and terminated the reexamination. On July 21, 2010, the Company filed a petition to revive the reexamination in which, among other matters, the Company presented new claims to the ‘014 patent that it believes, if confirmed, will result in a stronger patent in its lawsuit against Juniper. On February 11, 2011, the PTO granted the Company's petition, and accepted its appeal brief. The Company received an Examiner's Appeals Brief (the Examiner's answer/response) to its appeal brief from the PTO on May 18, 2011. The Examiner's Appeal Brief outlines their position on the Company's appeal brief for the reexamination, which was filed on July 21, 2010. The Company filed a Reply to the Examiner's Appeals Brief on July 18, 2011 in which the Company responded to the points/issues raised by the Examiner in their Appeals Brief. The appeal is currently pending in the PTO and no hearing date has been set, although the PTO typically responds with a notice setting a hearing date within one year from the reply date (July 18, 2011). At the eventual hearing, the Company will request that the PTO reverse the examiner's final rejection of all of the claims in the ‘014 patent. If necessary, and to the extent that resources allow, the Company intends to pursue the confirmation of the ‘014 patent through all channels of appeal including the courts, if the final action in the PTO is unfavorable. The Company believes that the ultimate resolution of this proceeding will not have a material negative impact on its results of operations, cash flows or financial position. Juniper Networks, Inc. v. GraphOn Corporation et al On March 16, 2009, Juniper initiated a proceeding against the Company and one of its resellers in the United States District Court in the Eastern District of Virginia alleging infringement of one of their patents - U.S. Patent No. 6,243,752 (the “'752 Patent”) - which protects Juniper's unique method of transmitting data between a host computer and a terminal computer. On November 24, 2009, the court dismissed the case based on a motion filed by Juniper. On May 1, 2009, the Company asserted a counterclaim against Juniper, alleging infringement of four of its patents - U.S. Patent Nos. 7,249,378, 7,269,847, 7,383,573, and 7,424,737 (the “'378,” “'847,” “'573” and “'737” patents). On February 25, 2010, the court transferred the case to the United States District Court for the Northern District of California. On September 28, 2010, the court entered an order stipulated to by the Company and Juniper removing the ‘573 patent from the case. The court subsequently stayed the case pending the outcome of the reexaminations of the remaining asserted patents by the PTO. On October 4, 2011, the Company received an Action Closing Prosecution regarding the ‘847 patent to which a response was filed on November 4, 2011. An Action Closing Prosecution is a non-final advisory action taken by the Examiner wherein the Examiner comments on the responses received from the patent owner and the third party requestor (Juniper) during earlier phases of the reexamination proceeding. Juniper will have until December 4, 2011 to respond to the Examiner with comments to the Company's November 4, 2011 response. After receiving Juniper's response, the Examiner will issue a Right of Appeal Notice (“RAN”) to each party, which is the final administrative action in a reexamination proceeding. The RAN will set forth the Examiner's final comments and the administrative action taken by the Examiner in the reexamination proceeding. Depending on the Examiner's findings, one or both parties may appeal the RAN to the Board of Patent Appeals and Interferences. No date has been set yet for the issuance of the RAN. The Company believes that the ultimate resolution of this proceeding will not have a material negative impact on its results of operations, cash flows or financial position. As of November 14, 2011 there have been no material developments in the other commitments and contingencies as described in the Company's 2010 10-K Report not discussed above. |
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Patents | 9 Months Ended | ||||||||||||||||||||||||||||||||||||
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Patents [Abstract] | |||||||||||||||||||||||||||||||||||||
Patents | 8. Patents Patents consisted of the following:
Patent amortization, which aggregated $0 and $118,100 during the three-month periods ended September 30, 2011 and 2010, respectively, and $39,300 and $354,300 during the nine-month periods ended September 30, 2011 and 2010, respectively, is a component of general and administrative expenses. |
Basis of Presentation | 9 Months Ended |
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Sep. 30, 2011 | |
Basis of Presentation [Abstract] | |
Basis of Presentation | 1. Basis of Presentation The unaudited condensed consolidated financial statements include the accounts of GraphOn Corporation and its subsidiaries (collectively, the “Company”); significant intercompany accounts and transactions are eliminated upon consolidation. The unaudited condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial information and the rules and regulations promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, such unaudited condensed consolidated financial statements do not include all information and footnote disclosures required in annual financial statements. The unaudited condensed consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in the opinion of management, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2010, which was filed with the SEC on March 31, 2011 (“2010 10-K Report”). The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2011 or any future period. |
Stock-Based Compensation | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Stock-Based Compensation [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | 4. Stock-Based Compensation The following table summarizes the stock-based compensation expense, net of amounts capitalized, recorded by the Company in its Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2011 and 2010, respectively, by classification:
As noted in the table above, during the three-month period ended September 30, 2011, the Company recaptured stock-based compensation costs previously charged to selling and marketing expense as a result of the forfeiture of unvested stock options by an employee who resigned during such period. The Company estimated the fair value of each stock-based award granted during the three and nine-month periods ended September 30, 2011 and 2010 as of the respective dates of grant, using a binomial model with the assumptions set forth in the following table:
Stock-based compensation expense has historically included costs associated with shares of common stock purchased under the Company's Employee Stock Purchase Plan (“ESPP”). The last shares purchased through the ESPP were purchased effective January 31, 2010, the date the ESPP expired. For shares purchased on such date, the Company applied the same variables as noted in the table above for 2010 to the calculation of such costs, except that the expected term was 0.5 years and the risk-free interest rate was 0.19%. The time span from the date of grant of ESPP shares to the date of purchase was six months. Expected volatility is based on the historical volatility of the Company's common stock over the expected option term period ended on the last business day of each respective quarterly reporting period. The estimated annualized forfeiture rate was based on an analysis of historical data and considered the impact of events such as work force reductions the Company carried out in previous years. The expected term of the Company's stock-based option awards was based on historical award holder exercise patterns and considered the market performance of the Company's common stock and other items. The estimated exercise factor was based on an analysis of historical data; historical exercise patterns; and a comparison of historical and current share prices. The approximate risk free interest rate was based on the implied yield available on U.S. Treasury issues with remaining terms equivalent to the Company's expected term on its stock-based awards. The Company does not anticipate paying dividends on its common stock for the foreseeable future. The following tables present summaries of the status and activity of the Company's stock option awards for the three and nine-month periods ended September 30, 2011.
The weighted average fair value of options granted during the three and nine-month periods ended September 30, 2011 was $0.22 and $0.17, respectively. Of the options outstanding as of September 30, 2011, 6,526,970 were vested, 3,319,993 were estimated to vest in future periods and 91,348 were estimated to be forfeited prior to their vesting. All options are exercisable immediately upon grant. Options vest, generally, ratably over a 33-month period commencing in the fourth month after the grant date. The Company has the right to repurchase common stock issued upon the exercise of an option upon an optionee's termination of service to the Company prior to full vesting at the option's exercise price. As of September 30, 2011, there was approximately $374,900 of total unrecognized compensation cost, net of estimated forfeitures, related to stock-based compensation. That cost is expected to be recognized over a weighted-average period of approximately seventeen months. See Note 15 for additional stock-based compensation expense expected to be recognized in future periods. |
Revenue | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Revenue [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | 5. Revenue Revenue for the three-month periods ended September 30, 2011 and 2010 was comprised as follows:
Revenue for the nine-month periods ended September 30, 2011 and 2010 was comprised as follows:
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Segment Information | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | 13. Segment Information FASB has established guidance for reporting information about operating segments that require segmentation based on the Company's internal organization and reporting of revenue and operating income, based on internal accounting methods. The Company's financial reporting systems present various data for management to operate the business prepared in methods consistent with such guidance. The Company's segments were defined in order to allocate resources internally. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or the decision making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker is its Chief Executive Officer. The Company has determined that it operates its business in two segments: software and intellectual property. Segment revenue for the three and nine-month periods ended September 30, 2011 and 2010 was as follows:
The Company does not analyze revenue based on the geographical location of its customers as to do so would be impractical. Segment income (loss) from operations for the three and nine-month periods ended September 30, 2011 and 2010 was as follows:
The Company does not allocate interest and other income, interest and other expense or income tax to its segments. As of September 30, 2011, segment long-lived assets were as follows:
The Company does not allocate certain other long-lived assets, primarily cash deposits, to its segments. Products and services provided by the software segment include all currently available versions of GO-Global Host, GO-Global Cloud, GO-Global Client, including iPad Client, OEM private labeling kits, software developer's kits, maintenance contracts and product training and support. The intellectual property segment provides licenses to the Company's intellectual property. The Company's two segments do not engage in cross-segment transactions. |
Cost of Revenue | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Cost of Revenue | 6. Cost of Revenue Cost of revenue for the three-month periods ended September 30, 2011 and 2010 was comprised as follows:
Cost of revenue for the nine-month periods ended September 30, 2011 and 2010 was comprised as follows:
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Significant Accounting Policies | 2. Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates include: the amount of stock-based compensation expense; the allowance for doubtful accounts; the estimated lives, valuation, and amortization of intangible assets (including capitalized software); depreciation of long-lived assets; valuation of warrants; and accruals for liabilities. While the Company believes that such estimates are fair, actual results could differ materially from those estimates. Revenue Recognition The Company markets and licenses its products indirectly through channel distributors, independent software vendors (“ISVs”), value-added resellers (“VARs”) (collectively “resellers”) and directly to corporate enterprises, governmental and educational institutions and others. Its product licenses are generally perpetual. The Company also separately sells intellectual property licenses, maintenance contracts, which are comprised of license updates and customer service access, as well as other products and services. Generally, software license revenues are recognized when:
Revenue recognized on software arrangements involving multiple deliverables is allocated to each deliverable based on vendor-specific objective evidence (“VSOE”) or third party evidence of the fair values of each deliverable; such deliverables include licenses for software products, maintenance, private labeling fees, and customer training. The Company limits its assessment of VSOE for each deliverable to either the price charged when the same deliverable is sold separately or the price established by management having the relevant authority to do so, for a deliverable not yet sold separately. If sufficient VSOE of fair value does not exist so as to permit the allocation of revenue to the various elements of the arrangement, all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. If evidence of VSOE of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. Certain resellers (“stocking resellers”) purchase product licenses that they hold in inventory until they are resold to the ultimate end user (an “inventory stocking order”). At the time that a stocking reseller places an inventory stocking order, no product licenses are shipped by the Company to the stocking reseller, rather, the stocking reseller's inventory is credited with the number of licenses purchased and the stocking reseller can resell (issue) any number of licenses from their inventory at any time. Upon receipt of an order to issue a license(s) from a stocking reseller's inventory (a “draw down order”), the Company will ship the license(s) in accordance with the draw down order's instructions. The Company defers recognition of revenue from inventory stocking orders until the underlying licenses are sold and shipped to the end user, as evidenced by the receipt and fulfillment of the stocking reseller's draw down order, assuming all other revenue recognition criteria have been met. There are no rights of return granted to resellers or other purchasers of the Company's software products. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years. Intellectual property license agreements provide for the payment of a fully paid licensing fee in consideration for the grant of a one-time, non-exclusive license to manufacture and/or sell products covered by patented technologies owned by the Company. Generally, the execution of these license agreements also provides for the release of the licensee from certain past and future claims, and the dismissal of any pending litigation between the Company and the licensee. Pursuant to the terms of these license agreements, the Company has no further obligation with respect to the grant of the license, including no express or implied obligation to maintain or upgrade the patented technologies, or provide future support or services to the licensee. As such, the earnings process is complete upon the execution of the license agreement, and revenue is recognized upon execution of the agreement, and the determination that collectability is probable. All of the Company's software and intellectual property licenses are denominated in U.S. dollars. Software Development Costs The Company capitalizes software development costs incurred from the time technological feasibility of the software is established until the software is available for general release in accordance with GAAP. Research and development costs and other computer software maintenance costs related to the software development are expensed as incurred. Upon the establishment of technological feasibility, related software development costs are capitalized. The Company estimates the useful life of its capitalized software and amortizes its value over its estimated life. If the actual useful life is shorter than the estimated useful life, the Company will amortize the remaining book value over the remaining estimated useful life or the asset may be deemed to be impaired and, accordingly, a write-down of the value of the asset may be required. Long-Lived Assets Long-lived assets, which consist primarily of capitalized software development costs, are assessed for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable, whenever the Company has committed to a plan to dispose of the assets or, at a minimum, annually. Typically, for long-lived assets to be held and used measurement of an impairment loss is based on the fair value of such assets, with fair value being determined based on appraisals, current market value, comparable sales value, and discounted future cash flows, among other variables, as appropriate. Assets to be held and used (which assets are affected by an impairment loss) are depreciated or amortized at their new carrying amount over their remaining estimated life; assets to be sold or otherwise disposed of are not subject to further depreciation or amortization. No such impairment charge was recorded during either of the three or nine-month periods ended September 30, 2011 or 2010. Patents Patents are amortized over their estimated economic lives under the straight-line method, and are reviewed for potential impairment at least annually. Costs associated with filing, documenting or writing method patents are expensed as incurred. Contingent legal fees paid in connection with patent litigation, or settlements thereof, are charged to costs of revenue. All other non-contingent legal fees and costs incurred in connection with a patent lawsuit, or settlements thereof, are charged to general and administrative expense as incurred. Allowance for Doubtful Accounts The Company maintains an allowance for doubtful accounts that reflects its best estimate of potentially uncollectible trade receivables. The allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts receivable. The Company regularly reviews the adequacy of its allowance for doubtful accounts by considering such factors as historical experience, credit worthiness, and current economic conditions that may affect a customer's ability to pay. The Company specifically reserves for those accounts deemed uncollectible. The Company also establishes, and adjusts, a general allowance for doubtful accounts based on its review of the aging and size of its accounts receivable. The following table sets forth the details of the Allowance for Doubtful Accounts for the three and nine-month periods ended September 30, 2011 and 2010:
Derivative Financial Instruments The Company currently does not have a material exposure to either commodity prices or interest rates; accordingly, it does not currently use derivative instruments to manage such risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. All derivative financial instruments are recognized in the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge accounting. Financial Statement Presentation – Condensed Consolidated Statement of Cash Flows Two reclassifications to the prior period statement have been made to conform to the current year's presentation. First, the change in deferred revenue has been reclassified into its component pieces, namely; the amount of revenue deferred to future periods and the recognition of deferred revenue. Such reclassification had no effect on total cash flow from operations, investing or financing activities. Secondly, the change in other long term assets has been reclassified as an operating activity from an investing activity to conform to the current period's presentation. Such reclassification did not have a significant impact on total cash flow from operations or investing activities. |
Supplemental Disclosure of Cash Flow Information | 9 Months Ended |
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Sep. 30, 2011 | |
Supplemental Disclosure of Cash Flow Information [Abstract] | |
Supplemental Disclosure of Cash Flow Information | 11. Supplemental Disclosure of Cash Flow Information The Company disbursed $0 and $2,200 of cash for the payment of interest expense during the nine-month periods ended September 30, 2011 and 2010, respectively. The Company disbursed $2,000 and $3,100 for the payment of income taxes during the nine-month periods ended September, 2011 and 2010, respectively. All such disbursements were for the payment of foreign income taxes related to the operation of the Company's Israeli subsidiary, GraphOn Research Labs Ltd. During the nine-month periods ended September 30, 2011 and 2010, the Company capitalized $1,700 and $3,800, respectively, of stock-based compensation expense, for which no cash was disbursed, as a component of capitalized software development costs. During the nine-month period ended September 30, 2011, the Company recorded $119,500 and $75,500 to accounts payable and accrued expenses, respectively, of legal fees incurred in connection with the 2011 private placement for which no cash was disbursed, and such amounts were recorded as costs of the 2011 private placement and off-set against proceeds. |
Subsequent Events | 9 Months Ended |
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Sep. 30, 2011 | |
Subsequent Events [Abstract] | |
Subsequent Events | 15. Subsequent Events Tender Offer On September 14, 2011 the Company offered its employees and directors an opportunity to voluntarily exchange certain options to purchase shares of the Company's common stock having an exercise price greater than $0.20 per share that were granted prior to August 31, 2011, upon the terms and subject to the conditions described in the Offer to Exchange and the related Election Form filed with the Securities and Exchange Commission as Exhibits (a)(1) and (a)(3) to a Schedule TO. Upon expiration of the offer, which occurred on October 12, 2011, participants tendered, and the Company accepted for exchange, 3,447,500 eligible options, representing approximately 84.0% of the total number of eligible options. Pursuant to the terms and conditions of the Offer to Exchange, the Company cancelled all tendered options and, in exchange for such tendered options, immediately thereafter granted an aggregate 3,447,500 new options. The exercise price of the new options is $0.202 per share, which was the closing price of the Company's common stock on October 12, 2011, as reported by the Over-the-Counter Bulletin Board. The weighted average fair value of the options granted was approximately $0.17 per share and was determined using a binomial pricing model with the following assumptions: estimated volatility - 182%, annualized forfeiture rate - 2.44%, expected option term - 10 years, estimated exercise factor – 5, risk free interest rate – 2.98% and no dividends. The options vest ratably over the next two years; accordingly, the Company expects to recognize approximately $586,700 of stock-based compensation expense, net of estimated forfeitures, over the next two years, of which approximately $190,800 will be recognized during the three-month period ended December 31, 2011. Related Party Transaction - ipCapital Group, Inc. On October 11, 2011, the Company engaged ipCapital Group, Inc., an affiliate of John Cronin, who is one of the Company's directors, to provide assistance in the execution of the Company's strategic decision to significantly strengthen, grow and commercially exploit its intellectual property assets. The engagement agreement with ipCapital affords the Company the right to request ipCapital to perform up to eleven diverse services, employing its proprietary software and other processes and methodologies, to facilitate the Company's ability to identify and extract from its current intellectual property base new inventions, potential patent applications, and marketing and licensing techniques, among other opportunities. The Company will decide in its sole discretion how many of these services, whose cost will range from $10,000 to $60,000 per service, to request. Should the Company request ipCapital to perform all of these services, the cost will aggregate $370,000, which the Company expects would be expended over a continuous period of seven to nine months. Two additional services will be made available to the Company should we request their performance at no additional cost. In addition to the fees the Company agreed to pay ipCapital for its services, the Company issued ipCapital a five-year warrant to purchase up to 400,000 shares of its common stock at an initial price of $0.26 per share. The warrant will become exercisable to the extent of 200,000 of these shares in three equal annual installments commencing on October 11, 2012, and to the extent of the remaining 200,000 shares, upon the completion to the Company's satisfaction of all services that it has requested ipCapital to perform on its behalf under the engagement agreement. The Company believes that these fees, together with the issuance of the warrant, constitute no greater compensation than would be required to pay to an unaffiliated person for substantially similar services. The exercise price of the warrant issued to ipCapital could be reset to below-market value. Consequently, the Company has concluded that such warrants are not indexed to the Company's common and will record $84,700, the fair value of the warrants as of their issuance date, as a liability. In accordance with the liability method of accounting, the Company will remeasure the fair value of the then-outstanding warrants at each future balance sheet date and recognize the change in fair value as general and administrative compensation expense. The Company used a binomial pricing model to determine the fair value of the warrants as of October 11, 2011, their issuance date, using the following assumptions: estimated volatility – 199%, annualized forfeiture rate – 0; expected option term – 5 years; estimated exercise factor – 10, risk free interest rate – 1.14% and no dividends. Stock Option Grants On October 5, 2011, stock options to purchase an aggregate 1,510,000 shares of common stock, at an exercise price of $0.23, were granted to certain non-executive employees and stock options to purchase an aggregate 200,000 shares of common stock, at an exercise price of $0.23, were granted to certain non-employee directors. Also on October 5, 2011, performance-based stock options to purchase 1,000,000, 672,500 and 150,000 shares of common stock, at an exercise price of $0.23, were granted to the Company's Chief Technology Officer, Chief Executive Officer and Director of Engineering, respectively. Such performance-based stock options will vest and become exercisable only upon successful completion of each optionee's individual performance criteria. The weighted average fair value of the options granted was approximately $0.21 per share and was determined using a binomial pricing model with the following assumptions: estimated volatility - 182%, annualized forfeiture rate – 3.29%, expected option term - 10 years, estimated exercise factor – 5, risk free interest rate – 3.0% and no dividends. Assuming that all performance criteria are met, all of the options will vest within the next three years; accordingly, the Company expects to recognize approximately $715,500 of stock-based compensation expense, net of estimated forfeitures, over the next three years, of which approximately $119,200 will be recognized in the three-month period ended December 31, 2011. Director Severance Plan and Key Employee Severance Plan During October 2011, the Company's board of directors extended the termination dates of the Company's Director Severance Plan and Key Employee Severance Plan, each of which were previously adopted by the board of directors during May 2008. Director Severance Plan: This agreement provides for accelerated vesting of a director's stock options in the event of any transaction or series of transactions that constitute a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company, as defined in regulations promulgated under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the termination of the director. Key Employee Severance Plan: This agreement provides for 12-month salary continuation for key employees (24 months for certain senior management), accelerated vesting of key employees' stock options, the payment of bonuses that key employees would have been entitled to under the Company's incentive bonus plan and provides key employees with certain health plan and other benefits in the event of Involuntary Termination or Constructive Termination (as both terms are defined in the Key Employee Severance Plan) upon any transaction or series of transactions that constitute a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company, as defined in the Code. The Company has the right to amend or terminate each of the above listed severance plans; however, the plans may not be amended or terminated following the occurrence of a change in control, or in the case of the Key Employee Severance Plan, a relocation, as outlined above. In any event, each of the above listed plans, as extended, will terminate no later than December 31, 2013. |