Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2023

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The unaudited consolidated financial statements include the accounts of hopTo Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated upon consolidation. The unaudited 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 consolidated financial statements do not include all information and footnote disclosures required in annual financial statements.

The unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on April 14, 2023 (“2022 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, 2023, or any future period.

Certain prior year information has been reclassified to conform to current year presentation.

Use of Estimates

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 reported periods. Amounts could materially change in the future. These estimates include the valuation of the allowances for doubtful accounts, depreciation of long-lived assets, timing of revenue recognized over time, allowances for deferred tax assets and accruals of liabilities.

Revenue Recognition

Revenue Recognition

The Company markets and licenses its products indirectly through channel distributors, value-added resellers, independent software vendors (“ISVs”), 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.

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.

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 the Company portal. We recognize revenue upon delivery of these licenses.

Services Revenue

The Company has maintenance contracts that entitle customers to support and certain updates to the product. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

Subscription Revenue

The Company sells subscription licenses that provide the customer with the right to use the software, maintenance and support and certain updates to the product. Subscription licenses are delivered electronically by either the Company’s cloud licensing server or by sending a term license key to the customer to download the related software from the Company portal. Revenue from subscription licenses is recognized ratably over the related contract period, which generally ranges from one month to one year.

The Company’s product sales by geographic area are presented in Note 5.

Cash and Cash Equivalents

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.

Allowance for Doubtful Accounts

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 June 30, 2023 and December 31, 2022, the allowance for doubtful accounts totaled $4,800 and $5,600, respectively.

Concentration of Credit Risk

Concentration of Credit Risk

For the six months ended June 30, 2023 and June 30, 2022, the Company had four resellers comprising 13.7%,13.6%, 12.2% and 11.4%, four resellers comprising 12.1%,11.8%, 10.6% and 10.1%, respectively, of total sales.

As of June 30, 2023 and December 31, 2022, the Company had three resellers comprising 23.0%, 21.3%, and 12.8%, four resellers comprising 18.5%, 18.3%, 17.4% and 16.0%, respectively, of net accounts receivable.

For the purposes of this description, “sales” refers to the dollar value of orders received from these customers and partners in the period indicated. The sales values do not necessarily equal recognized revenue for these periods due to our revenue recognition policies which require deferral of revenue associated with prepaid software service fees. The loss of one of these resellers would not have a material impact as the Company could take over the end customer relationship.

Basic and Diluted Earnings Per Share

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 reflects per share amounts that would have resulted if diluted potential common stock had been converted to common stock. The company had no dilutive common share equivalents as of June 30, 2023, compared to 248,216 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method during December 31,2022. During the three months ended June 30, 2023 and 2022, the Company had total common stock equivalents of 0 and 3,200, respectively, which were excluded from the computation of net income per share because they are anti-dilutive.

Fair Value of Financial Instruments

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.