HOPTO INC. Introduction
We are developers of application publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants. Our application publishing software solutions are sold under the brand name GO-Global, which is our sole revenue source at this time. GO-Global is an application access solution for use and/or resale by independent software vendors ("ISVs"), corporate enterprises, governmental and educational institutions, and others who wish to take advantage of cross-platform remote access and Web-enabled access to their existing software applications, as well as those who are deploying secure, private cloud environments.
The following discussion should be read in conjunction with the consolidated financial statements and related notes provided in Item 8 "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.
Critical Accounting Policies
Basis of Presentation and Use of Estimates
The consolidated financial statements include the accounts of hopTo Inc. and its
subsidiaries (collectively, "we", "us", "our", or "Company"); significant
intercompany accounts and transactions are eliminated upon consolidation. The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in
15 Revenue Recognition
The Company markets and licenses its products indirectly through channel distributors, independent software vendors ("ISVs"), value-added resellers, hosting service providers, corporate enterprises, governmental and educational institutions and others. Our product licenses are perpetual. We also separately sell intellectual property licenses, maintenance contracts, which are comprised of license updates and customer service access, as well as other products and services.
There are no rights of return granted to purchasers of the Company's software products.
The Company recognizes revenue in accordance with Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers." Revenues under ASC 606 are recognized when the promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services.
For the years ended
? identifying the contract, or contracts, with a customer;
? identifying the performance obligations in each contract;
? determine the transaction price;
? allocating the transaction price to the performance obligations in each
contract; and
? recognizing revenue when, or as, we satisfy performance obligations by
transferring the promised goods or services
When control of the promised products and services are transferred to our customers, we recognize revenue in the amount that reflects the consideration we expect to receive in exchange for these products and services.
Product Sales
All of our licenses are delivered to the customer electronically. The Company sends the license key to the customer to download the related software from Company portal. We recognize revenue upon delivery of these licenses. For stocking resellers who purchase licenses through inventory stocking orders with the intent to resell to an end-user, revenue is recognized when the resellers' accounts have been credited, at their discretion, for the number of licenses purchased.
Maintenance revenue is also recognized from service contracts ratably over the related contract period.
16 Cash and Cash Equivalents
The Company considers all highly liquid holdings with maturities of three months
or less at the time of purchase to be cash equivalents. The Company had no cash
equivalents as of
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts that reflects our 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. We regularly review the adequacy of
our 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. We specifically reserve for those accounts deemed
uncollectible. We also establish, and adjust, a general allowance for doubtful
accounts based on our review of the aging and size of our accounts receivable.
As of
Software Development Costs
Under the criteria set forth in
17 Long-Lived Assets
Long-lived assets are assessed for possible impairment whenever events or
changes in circumstances indicate that the carrying amounts may not be
recoverable, whenever we have 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 the year ended
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist principally of cash and trade receivables. The Company
places its cash with high quality financial institutions. As of
For the year ended
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, "Income Taxes," using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Basic and Diluted Earnings Per Share
In accordance with ASC 260, "Earnings Per Share," the basic income (loss) per
common share is computed by dividing the net income (loss) available to common
stockholders by the weighted average common shares outstanding during the
period. Diluted income (loss) per share reflect per share amounts that would
have resulted if diluted potential common stock had been converted to common
stock. Dilutive common share equivalents as of
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses. The carrying amount of these financial instruments approximates fair value due to the nature of the accounts and their short-term maturities.
18
Results of Operations for the Year Ended
The following is a comparison of the results of our operations for the years
ended
For the Year Ended
December 31, 2020 December 31, 2019
Revenues:
Software licenses 853,300 952,600
Software service fees 2,474,500 2,483,600
Other 316,200 93,900
Total Revenue 3,644,000 3,530,100
Cost of Revenue:
Software service costs 52,700 52,700
Software product costs 102,300 97,100
Total cost of revenue 155,000 149,800
Gross profit $ 3,489,000 $ 3,380,300
Operating expenses:
Selling and marketing 509,300 442,400
General and administrative 900,500 864,700
Research and development 1,430,100 1,533,000
Total operating expenses 2,839,900 2,840,100
Income from operations 649,100 540,200
Other income:
Other income 44,600 14,100
Income before provision for income taxes 693,700 554,300
Provision for income taxes - -
Net income $ 693,700 $ 554,300
Net income per share, basic $ 0.05 $ 0.06
Net income per share, diluted $ 0.05 $ 0.05
Weighted average number of common shares outstanding
Basic 13,874,699 9,821,177
Diluted 14,117,850 10,287,183
See accompanying notes to consolidated financial statements
19
Revenues
Our software revenue is entirely related to our GO-Global product line, and historically has been primarily derived from product licensing fees and service fees from maintenance contracts. The majority of this revenue has been earned, and continues to be earned, from a limited number of significant customers, most of whom are resellers. some of our resellers purchase software licenses that they hold in inventory until they are resold to the ultimate end user (a "stocking reseller").
When a software license is sold directly to an end user by us, or by one of our resellers who does not stock licenses into inventory, revenue is recognized immediately upon shipment, assuming all other criteria for revenue recognition are met. Consequently, if any significant end user customer substantially changes its order level, or fails to order during the reporting period, whether the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially impacted.
The following is a summary of our revenues by category for the year ended
For the Year Ended
December 31, December 31,
2020 2019 $ Change % Change
Revenue
Software Licenses
Windows $ 732,100 $ 906,300 $ (174,200 ) -19.2 %
UNIX/Linux 121,200 46,300 74,900 161.8 %
Total 853,300 952,600 (99,300 ) -10.4 %
Software Service Fees
Windows 2,255,200 2,192,100 63,100 2.9 %
UNIX/Linux 219,300 291,500 (72,200 ) -24.8 %
Total 2,474,500 2,483,600 (9,100 ) -0.4 %
Other 316,200 93,900 222,300 236.7 %
$ 3,644,000 $ 3,530,100 $ 113,900 3.2 %
Software Licenses
Windows software licenses revenue decreased by
Software licenses revenue from our UNIX/Linux products increased by
Software Service Fees
Service fees attributable to our Windows product service increased by
Service fees revenue attributable to our UNIX products decreased by
Other
Other revenue consists of private labeling fees, professional services, and
non-recurring revenues. Other revenue increased by
20 Cost of Revenues
Cost of revenue is comprised primarily of software service costs, which
represent the costs of customer service. Also included in cost of revenue are
software product costs, which are primarily comprised of the amortization of
capitalized software development costs and costs associated with licenses to
third party software included in our product offerings, and the required import
tax withholdings from
Cost of revenue for the year ended
Selling and Marketing Expenses
Selling and marketing expenses primarily consisted of employee, outside services and travel and entertainment expenses.
Selling and marketing expenses increased by
General and Administrative Expenses
General and administrative expenses primarily consist of employee costs, depreciation and amortization, legal, accounting, other professional services, rent, travel and entertainment and insurance. Certain costs associated with being a publicly held corporation are also included in general and administrative expenses, as well as bad debt expense.
General and administrative expenses increased by
Research and Development Expenses
Research and development expenses consist primarily of employee costs, payments to contract programmers, software subscriptions, travel and entertainment for our engineers, and all rent for our leased engineering facilities.
Research and development expenses decreased by
Other Income
Other income increased by
Liquidity and Capital Resources
As of
21
The following is a summary of our cash flows from operating, investing and
financing activities for the year ended
For the Year Ended
December 31 , December 31,
2020 2019
Cash flows provided by operating activities
- $ -
Cash flows provided by financing activities
During the year ended
We had no cash flow activity relating to investing activities for the year ended
In 2020, we received net proceeds of
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