Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2018 | May 15, 2018 | |
Document And Entity Information | ||
Entity Registrant Name | hopTo Inc. | |
Entity Central Index Key | 1,021,435 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 9,804,400 | |
Trading Symbol | HPTO | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,018 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Current Assets: | ||
Cash | $ 1,159,000 | $ 1,015,400 |
Accounts receivable, net | 236,000 | 426,800 |
Prepaid expenses | 135,200 | 112,900 |
Total Current Assets | 1,530,200 | 1,555,100 |
Property and equipment, net | 21,100 | 30,800 |
Other assets | 17,800 | 17,800 |
Total Assets | 1,569,100 | 1,603,700 |
Current Liabilities: | ||
Accounts payable and accrued expenses | 720,900 | 635,100 |
Deferred rent | 57,100 | 74,100 |
Deposit liability | 93,500 | 93,500 |
Deferred revenue | 1,231,200 | 1,845,100 |
Other current liabilities | 855,100 | 855,100 |
Total Current Liabilities | 2,957,800 | 3,502,900 |
Deferred revenue | 571,900 | 1,409,700 |
Total Liabilities | 3,529,700 | 4,912,600 |
Stockholders' Equity (Deficit): | ||
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding | ||
Common stock, $0.0001 par value, 195,000,000 shares authorized, 9,804,400 shares issued and outstanding at March 31, 2018 and December 31, 2017 | 14,700 | 14,700 |
Additional paid-in capital | 78,525,600 | 78,525,600 |
Accumulated deficit | (80,500,900) | (81,849,200) |
Total Stockholders' Equity (Deficit) | (1,960,600) | (3,308,900) |
Total Liabilities and Stockholders' Equity (Deficit) | $ 1,569,100 | $ 1,603,700 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Mar. 31, 2018 | Dec. 31, 2017 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | ||
Preferred stock, shares outstanding | ||
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 195,000,000 | 195,000,000 |
Common stock, shares issued | 9,804,400 | 9,804,400 |
Common stock, shares outstanding | 9,804,400 | 9,804,400 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Income Statement [Abstract] | ||
Net revenue | $ 822,300 | $ 982,500 |
Costs of revenue | 28,800 | 18,800 |
Gross profit | 793,500 | 963,700 |
Operating expenses: | ||
Selling and marketing | 101,600 | 89,900 |
General and administrative | 305,200 | 641,100 |
Research and development | 428,500 | 385,000 |
Total operating expenses | 835,300 | 1,116,000 |
Loss from operations | (41,800) | (152,300) |
Other income (expense): | ||
Other income (expense), net | (800) | (500) |
Loss before provision for tax | (42,600) | (152,800) |
Provision for tax | 1,000 | 900 |
Net loss | $ (43,600) | $ (153,700) |
Net loss per share - basic and diluted | $ 0 | $ (0.02) |
Weighted average common shares outstanding - basic and diluted | 9,804,400 | 9,804,400 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) - USD ($) | Preferred Stock [Member] | Common Stock [Member] | Additional Paid-In Capital [Member] | Accumulated Deficit [Member] | Total |
Beginning balance at Dec. 31, 2016 | $ 14,700 | $ 78,512,200 | $ (82,449,800) | $ (3,922,900) | |
Beginning balance, shares at Dec. 31, 2016 | 9,804,400 | ||||
Stock-based compensation expense | 15,300 | ||||
Cumulative effect from change of accounting principal | |||||
Net loss | (153,700) | (153,700) | |||
Ending balance at Mar. 31, 2017 | $ 14,700 | 78,527,500 | (82,603,500) | (4,061,300) | |
Ending balance, shares at Mar. 31, 2017 | 9,804,400 | ||||
Beginning balance at Dec. 31, 2017 | $ 14,700 | 78,525,600 | (81,849,200) | (3,308,900) | |
Beginning balance, shares at Dec. 31, 2017 | 9,804,400 | ||||
Stock-based compensation expense | |||||
Cumulative effect from change of accounting principal | 1,391,900 | ||||
Net loss | (43,600) | (43,600) | |||
Ending balance at Mar. 31, 2018 | $ 14,700 | $ 78,525,600 | $ (80,500,900) | $ (1,960,600) | |
Ending balance, shares at Mar. 31, 2018 | 9,804,400 |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Cash Flows Provided By and (Used In) Operating Activities: | ||
Net Loss | $ (43,600) | $ (153,700) |
Adjustments to reconcile net loss to net cash provided by and (used in) operating activities: | ||
Depreciation and amortization | 9,000 | 18,100 |
Stock-based compensation expense | 15,300 | |
Changes to allowance for doubtful accounts | (4,400) | (2,700) |
Changes in deferred rent | (17,000) | (5,800) |
Interest accrued for capital lease | 100 | |
Loss /(gain) on disposal of fixed assets | 700 | 600 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 195,200 | 174,200 |
Prepaid expenses | (22,300) | 3,300 |
Accounts payable and accrued expenses | 85,800 | 60,300 |
Revenue deferred to future periods | 535,300 | 558,000 |
Recognition of deferred revenue | (595,000) | (733,600) |
Other current liabilities | 195,100 | |
Net Cash Provided By Operating Activities | 143,600 | 129,200 |
Cash Flows Provided By and (Used In) Financing Activities: | ||
Payment of capital lease | (2,300) | |
Net Cash Used In Financing Activities | (2,300) | |
Net Increase in Cash | 143,600 | 126,900 |
Cash - Beginning of Period | 1,015,400 | 546,200 |
Cash - End of Period | $ 1,159,000 | $ 673,100 |
Basis of Presentation
Basis of Presentation | 3 Months Ended |
Mar. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | 1. Basis of Presentation The unaudited condensed consolidated financial statements include the accounts of hopTo Inc. and its subsidiaries (collectively, “we”, “us,” “our” or 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 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, 2017 which was filed with the SEC on April 17, 2018 (“2017 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, 2018 or any future period. Certain prior year information has been reclassified to conform to current year presentation. |
Significant Accounting Policies
Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2018 | |
Accounting Policies [Abstract] | |
Significant Accounting Policies | 2. Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with GAAP requires us 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; post-employment benefits, and accruals for liabilities. While we believe that such estimates are fair, actual results could differ materially from those estimates. Revenue Recognition We market and license our products indirectly through channel distributors, independent software vendors (“ISVs”), value-added resellers (“VARs”) (collectively, “resellers”) and directly to 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. Effective January 1, 2018, the Company adopted guidance ASC 606. For further details, see below “Recently Adopted Accounting Pronouncements”. For the year ended December 31, 2017 including interim periods therein, the Company recognized revenue under ASC 605. Under ASC 605 software license revenues were recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price to the customer is fixed or determinable, as typically evidenced in a signed non-cancellable contract, or a customer’s purchase order, and collectability is probable. For additional detail on the Company’s revenue recognition policies in prior periods, please see Note 2 of Notes to Consolidated Financial Statements in the 2017 10-K Report. The impact of the adoption of ASC 606 is the effect on revenue treatment of certain resellers (“stocking resellers”) who 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 us 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”), we will ship the license(s) in accordance with the draw down order’s instructions. Under ASC 605, we would defer recognition of revenue from inventory stocking orders until the underlying licenses were 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. Under ASC 606, we recognize revenue at the time that the stocking reseller places an inventory stocking order and their account is credited with available licenses because at that time control over the licenses has been transferred to the reseller and there are no remaining performance obligations for the Company other than the administrative task of electronic transfer of license keys. There are no rights of return granted to resellers or other purchasers of our software products. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years. All of our software licenses are denominated in U.S. dollars. 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 either of the three-month periods ended March 31, 2018 or 2017. 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 March 31, 2018 and December 31, 2017 the allowance for doubtful accounts totaled $3,400 and $7,800, respectively. Concentration of Credit Risk For the three-month periods ended March 31, 2018 and 2017, respectively, we considered the customers listed in the following table to be our most significant customers. The table sets forth the percentage of sales attributable to each customer during the periods presented, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net, as of March 31, 2018 and 2017. Three Months Ended March 31, 2018 As of March 31, 2018 Three Months Ended March 31, 2017 As of March 31, 2017 Customer Sales Accounts Receivable Sales Accounts Receivable Centric 14.2 % 21.8 % 7.2 % 26.2 % Elosoft 4.2 % 11.1 % 9.4 % 7.0 % IDS 14.8 % 0.0 % 9.8 % 0.0 % Uniface 1.8 % 1.0 % 4.6 % 14.5 % Raytheon 3.3 % 10.6 % 10.0 % 0.0 % Thermo Lab Systems 6.8 % 22.4 % 6.3 % 19.2 % Total 45.1 % 66.9 % 47.3 % 66.9 % Recently Adopted Accounting Pronouncements Revenue In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASC 606). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to reporting periods beginning after December 15, 2017, with early adoption permitted for reporting periods beginning after December 15, 2016. Subsequently, FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including: ASU 2016-08, Revenue from Contracts with Customers (ASC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations; ASU 2016-10, Revenue from Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing, which is intended to clarify two aspects of ASC 606: identifying performance obligations and the licensing implementation guidance; and ASU 2016-12, Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients, which contains certain practical expedients in response to identified implementation issues. The Company elected to adopt ASC 606 under Modified Retrospective approach. Under the Modified Retrospective approach, only contracts with customers for which there were remaining unsatisfied performance obligations (open contracts) at the beginning of initial year of adoption must be restated to apply retrospectively the guidance under ASC 606. Any resulting impact for such contracts prior to the beginning of the initial year of adoption are made as an adjustment to opening accumulated deficit for such year. On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. This method required retrospective application of the new accounting standard to those contracts which were not completed as of January 1, 2018. Results for the reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605. The change to the current revenue policy is the timing of revenue recognition for software licenses purchased by stocking resellers. Under the guidance ASC 605, the Company recognized revenue upon the delivery of licenses to end users when they were purchased from the stocking reseller. Under the guidance ASC 606, license revenue is recognized upon placement of the stocking order by the stocking reseller. During the three-month period ended March 31, 2018, this change in revenue policy resulted in lower license revenue of $96,400. This lower license revenue had the same impact on gross profit, loss from operations and net loss. The Company recorded $1,391,900 to opening accumulated deficit as of January 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to reversal of deferred license revenue associated with stocking orders placed in prior periods which had not been sold through to end users as of December 31, 2017. The cumulative effect of the changes made to our condensed consolidated balance sheet as of January 1, 2018 under current assets, deferred revenue and accumulated deficit for the adoption ASU 2014-09, Revenue - Revenue from Contracts with Customers were as follows: Balance Sheet Balance at December 31, 2017 Adjustments due to ASC 606 Balance at January 1, 2018 Current Assets Deferred COGS $ — $ 20,000 $ 20,000 Liabilities and Stockholders’ Equity Accumulated Deficit $ (81,849,200 ) $ 1,391,900 $ (80,457,300 ) Current Liabilities Deferred Revenue $ 1,845,100 $ (609,700 ) $ 1,235,400 Long Term Liabilities Deferred Revenue $ 1,409,700 $ (802,200 ) $ 607,500 Income Taxes The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Among these new taxes on certain foreign sourced earnings, the Act created a new category of income inclusion: the global intangible low-taxed income (“GILTI”). The objective of GILTI is to deter U.S. corporations from transferring intangible property to non-U.S. low-tax jurisdictions by subjecting the non-U.S. income to current U.S. taxation. The Act also adds a provision for a deduction to offset the GILTI inclusion for C corporations only, which is 50 percent (37.5 percent after 2025) of the GILTI inclusion. The GILTI deduction is subject to limitation based mainly on the taxpayer’s taxable income. In addition to GILTI, the Act also introduced the foreign-derived intangible income (“FDII”) category. FDII is eligible income derived in connection with property sold or services provided by the U.S. taxpayer to a non-U.S. person. The taxpayer must establish that the property is foreign use property, and, in the case of services, the taxpayer must provide that the services are rendered to a non-U.S. person who is located outside of the United States. C corporations receive a deduction equal to 37.5 percent (21.875 percent after 2025) of foreign-derived intangible income (FDII). Similar to the GILTI deduction, the FDII deduction is subject to limitation. The Act significantly changes how the U.S. taxes corporations. The Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Act, estimates in calculations, and preparation and analysis of information not previously relevant or regularly produced. As of March 31, 2018, the Company has not completed the accounting for all of the tax effects of the Act; however, preliminary calculations for the two new aforementioned provisions of the Act, GILTI and FDII, provide that the impact of the provisions are immaterial to the provision for income taxes. As the Company completes its analysis of the Act, collects and prepares necessary data, and interprets any additional guidance set forth by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may alter its assessment if it determines that the Act has a material impact on the provision for income taxes. |
Property and Equipment
Property and Equipment | 3 Months Ended |
Mar. 31, 2018 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | 3. Property and Equipment Property and equipment was: March 31, 2018 December 31, 2017 Equipment $ 179,900 $ 184,600 Furniture 1,600 3,600 Leasehold improvements 167,600 167,600 349,100 355,800 Less: accumulated depreciation and amortization 328,000 325,000 $ 21,100 $ 30,800 Aggregate property and equipment depreciation and amortization expense was $9,000 and $18,100 during the three-month periods ended March 31, 2018 and 2017, respectively. |
Stock-Based Compensation
Stock-Based Compensation | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | 4. Stock-Based Compensation The following table summarizes the stock-based compensation expense, net of amounts capitalized, we recorded in our Unaudited Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2018 and 2017, respectively, by classification: Three Months Ended March 31, Statement of Operations Classification 2018 2017 Costs of revenue $ — $ 100 Selling and marketing expense — 100 General and administrative expense — 15,100 Research and development expense — — $ — $ 15,300 |
Supplemental Disclosure of Cash
Supplemental Disclosure of Cash Flow Information | 3 Months Ended |
Mar. 31, 2018 | |
Supplemental Cash Flow Elements [Abstract] | |
Supplemental Disclosure of Cash Flow Information | 5. Supplemental Disclosure of Cash Flow Information We disbursed $0 and $100 for the payment of interest expense during the three-month periods ended March 31, 2018 and 2017, respectively. Such disbursement was for capital lease payments. We disbursed $800 and $700 for the payment of income taxes during the three-month period ended March 31, 2018 and 2017, respectively. Such disbursements were made for the payment of foreign income taxes related to the operation of our Israeli subsidiary, GraphOn Research Labs, Ltd. |
Earnings (Loss) Per Share
Earnings (Loss) Per Share | 3 Months Ended |
Mar. 31, 2018 | |
Earnings Per Share [Abstract] | |
Earnings (Loss) Per Share | 6. 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 such potential shares of common stock would have an anti-dilutive effect. During all periods presented in our Condensed Consolidated Statements of Operations, potentially dilutive securities included shares of common stock potentially issuable upon exercise of stock options, release of unvested restricted stock awards and exercise of warrants. Diluted EPS excludes the impact of potential issuance of shares of common stock related to our stock options in periods in which the exercise price of the stock option is greater than the average market price of our common stock during such periods. For the three-month periods ended March 31, 2018 and 2017, 1,012,619 and 1,375,509 common stock equivalents, respectively, were excluded from the computation of dilutive loss per share since their effect would be anti-dilutive. |
Segment Information
Segment Information | 3 Months Ended |
Mar. 31, 2018 | |
Segment Reporting [Abstract] | |
Segment Information | 7. Segment Information Revenue by country for the three-month periods ended March 31, 2018 and 2017 was as follows: Three Months Ended March 31, Revenue by Country 2018 2017 United States $ 309,200 $ 358,600 Japan 42,700 110,600 Brazil 171,800 128,400 Other Countries 298,600 384,900 Total $ 822,300 $ 982,500 |
Subsequent Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | 8. Subsequent Events During the three month period ended September 30, 2016, the Company’s former CEO and CFO voluntarily agreed with the board of directors to defer 50% of their salary beginning September 1, 2016 until such time as the Company could reasonably pay such compensation upon approval by the board of directors. On April 23, 2018, the board of directors of the Company determined that the financial status of the Company had improved. Accordingly, the board of directors determined that it was reasonable for the Company to pay the remaining 50% of this deferred salary (the initial 50% of the deferred salary having been paid on October 30, 2017) and such payments were made to the CFO and former CEO on April 25, 2018. On May 21, 2018 the Company completed a definitive agreement (the “Settlement”) to settle potential liquidated damages resulting from delays in filing registration statements for shares of our common stock and shares of our common stock underlying warrants for certain private placements that the Company closed in 2013 and 2015. The Settlement was completed on terms substantially similar to the "Proposed Settlement” which we disclosed as a recent development in our Form 10-K for the year ended December 31, 2017 which we filed with the SEC on April 17, 2018. Consistent with our previous disclosure, the Settlement involves no cash payments or cash commitments by the Company and includes the issuance of new common stock warrants with an exercise price of $0.01 per share and exercisable within five years, in exchange for existing warrants currently held by the affected shareholders. The Settlement does not result in an increase in the total number of warrants held by these shareholders or the total number of warrants outstanding. |
Significant Accounting Polici15
Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2018 | |
Accounting Policies [Abstract] | |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires us 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; post-employment benefits, and accruals for liabilities. While we believe that such estimates are fair, actual results could differ materially from those estimates. |
Revenue Recognition | Revenue Recognition We market and license our products indirectly through channel distributors, independent software vendors (“ISVs”), value-added resellers (“VARs”) (collectively, “resellers”) and directly to 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. Effective January 1, 2018, the Company adopted guidance ASC 606. For further details, see below “Recently Adopted Accounting Pronouncements”. For the year ended December 31, 2017 including interim periods therein, the Company recognized revenue under ASC 605. Under ASC 605 software license revenues were recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price to the customer is fixed or determinable, as typically evidenced in a signed non-cancellable contract, or a customer’s purchase order, and collectability is probable. For additional detail on the Company’s revenue recognition policies in prior periods, please see Note 2 of Notes to Consolidated Financial Statements in the 2017 10-K Report. The impact of the adoption of ASC 606 is the effect on revenue treatment of certain resellers (“stocking resellers”) who 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 us 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”), we will ship the license(s) in accordance with the draw down order’s instructions. Under ASC 605, we would defer recognition of revenue from inventory stocking orders until the underlying licenses were 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. Under ASC 606, we recognize revenue at the time that the stocking reseller places an inventory stocking order and their account is credited with available licenses because at that time control over the licenses has been transferred to the reseller and there are no remaining performance obligations for the Company other than the administrative task of electronic transfer of license keys. There are no rights of return granted to resellers or other purchasers of our software products. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years. All of our software licenses are denominated in U.S. dollars. |
Long-Lived Assets | 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 either of the three-month periods ended March 31, 2018 or 2017. |
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 March 31, 2018 and December 31, 2017 the allowance for doubtful accounts totaled $3,400 and $7,800, respectively. |
Concentration of Credit Risk | Concentration of Credit Risk For the three-month periods ended March 31, 2018 and 2017, respectively, we considered the customers listed in the following table to be our most significant customers. The table sets forth the percentage of sales attributable to each customer during the periods presented, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net, as of March 31, 2018 and 2017. Three Months Ended March 31, 2018 As of March 31, 2018 Three Months Ended March 31, 2017 As of March 31, 2017 Customer Sales Accounts Receivable Sales Accounts Receivable Centric 14.2 % 21.8 % 7.2 % 26.2 % Elosoft 4.2 % 11.1 % 9.4 % 7.0 % IDS 14.8 % 0.0 % 9.8 % 0.0 % Uniface 1.8 % 1.0 % 4.6 % 14.5 % Raytheon 3.3 % 10.6 % 10.0 % 0.0 % Thermo Lab Systems 6.8 % 22.4 % 6.3 % 19.2 % Total 45.1 % 66.9 % 47.3 % 66.9 % |
Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements Revenue In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASC 606). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to reporting periods beginning after December 15, 2017, with early adoption permitted for reporting periods beginning after December 15, 2016. Subsequently, FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including: ASU 2016-08, Revenue from Contracts with Customers (ASC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations; ASU 2016-10, Revenue from Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing, which is intended to clarify two aspects of ASC 606: identifying performance obligations and the licensing implementation guidance; and ASU 2016-12, Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients, which contains certain practical expedients in response to identified implementation issues. The Company elected to adopt ASC 606 under Modified Retrospective approach. Under the Modified Retrospective approach, only contracts with customers for which there were remaining unsatisfied performance obligations (open contracts) at the beginning of initial year of adoption must be restated to apply retrospectively the guidance under ASC 606. Any resulting impact for such contracts prior to the beginning of the initial year of adoption are made as an adjustment to opening accumulated deficit for such year. On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. This method required retrospective application of the new accounting standard to those contracts which were not completed as of January 1, 2018. Results for the reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605. The change to the current revenue policy is the timing of revenue recognition for software licenses purchased by stocking resellers. Under the guidance ASC 605, the Company recognized revenue upon the delivery of licenses to end users when they were purchased from the stocking reseller. Under the guidance ASC 606, license revenue is recognized upon placement of the stocking order by the stocking reseller. During the three-month period ended March 31, 2018, this change in revenue policy resulted in lower license revenue of $96,400. This lower license revenue had the same impact on gross profit, loss from operations and net loss. The Company recorded $1,391,900 to opening accumulated deficit as of January 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to reversal of deferred license revenue associated with stocking orders placed in prior periods which had not been sold through to end users as of December 31, 2017. The cumulative effect of the changes made to our condensed consolidated balance sheet as of January 1, 2018 under current assets, deferred revenue and accumulated deficit for the adoption ASU 2014-09, Revenue - Revenue from Contracts with Customers were as follows: Balance Sheet Balance at December 31, 2017 Adjustments due to ASC 606 Balance at January 1, 2018 Current Assets Deferred COGS $ — $ 20,000 $ 20,000 Liabilities and Stockholders’ Equity Accumulated Deficit $ (81,849,200 ) $ 1,391,900 $ (80,457,300 ) Current Liabilities Deferred Revenue $ 1,845,100 $ (609,700 ) $ 1,235,400 Long Term Liabilities Deferred Revenue $ 1,409,700 $ (802,200 ) $ 607,500 |
Income Taxes | Income Taxes The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Among these new taxes on certain foreign sourced earnings, the Act created a new category of income inclusion: the global intangible low-taxed income (“GILTI”). The objective of GILTI is to deter U.S. corporations from transferring intangible property to non-U.S. low-tax jurisdictions by subjecting the non-U.S. income to current U.S. taxation. The Act also adds a provision for a deduction to offset the GILTI inclusion for C corporations only, which is 50 percent (37.5 percent after 2025) of the GILTI inclusion. The GILTI deduction is subject to limitation based mainly on the taxpayer’s taxable income. In addition to GILTI, the Act also introduced the foreign-derived intangible income (“FDII”) category. FDII is eligible income derived in connection with property sold or services provided by the U.S. taxpayer to a non-U.S. person. The taxpayer must establish that the property is foreign use property, and, in the case of services, the taxpayer must provide that the services are rendered to a non-U.S. person who is located outside of the United States. C corporations receive a deduction equal to 37.5 percent (21.875 percent after 2025) of foreign-derived intangible income (FDII). Similar to the GILTI deduction, the FDII deduction is subject to limitation. The Act significantly changes how the U.S. taxes corporations. The Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Act, estimates in calculations, and preparation and analysis of information not previously relevant or regularly produced. As of March 31, 2018, the Company has not completed the accounting for all of the tax effects of the Act; however, preliminary calculations for the two new aforementioned provisions of the Act, GILTI and FDII, provide that the impact of the provisions are immaterial to the provision for income taxes. As the Company completes its analysis of the Act, collects and prepares necessary data, and interprets any additional guidance set forth by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may alter its assessment if it determines that the Act has a material impact on the provision for income taxes. |
Significant Accounting Polici16
Significant Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Accounting Policies [Abstract] | |
Schedule of Concentration of Risk, by Risk Factor | The table sets forth the percentage of sales attributable to each customer during the periods presented, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net, as of March 31, 2018 and 2017. Three Months Ended March 31, 2018 As of March 31, 2018 Three Months Ended March 31, 2017 As of March 31, 2017 Customer Sales Accounts Receivable Sales Accounts Receivable Centric 14.2 % 21.8 % 7.2 % 26.2 % Elosoft 4.2 % 11.1 % 9.4 % 7.0 % IDS 14.8 % 0.0 % 9.8 % 0.0 % Uniface 1.8 % 1.0 % 4.6 % 14.5 % Raytheon 3.3 % 10.6 % 10.0 % 0.0 % Thermo Lab Systems 6.8 % 22.4 % 6.3 % 19.2 % Total 45.1 % 66.9 % 47.3 % 66.9 % |
Schedule of Revenue | The cumulative effect of the changes made to our condensed consolidated balance sheet as of January 1, 2018 under current assets, deferred revenue and accumulated deficit for the adoption ASU 2014-09, Revenue - Revenue from Contracts with Customers were as follows: Balance Sheet Balance at December 31, 2017 Adjustments due to ASC 606 Balance at January 1, 2018 Current Assets Deferred COGS $ — $ 20,000 $ 20,000 Liabilities and Stockholders’ Equity Accumulated Deficit $ (81,849,200 ) $ 1,391,900 $ (80,457,300 ) Current Liabilities Deferred Revenue $ 1,845,100 $ (609,700 ) $ 1,235,400 Long Term Liabilities Deferred Revenue $ 1,409,700 $ (802,200 ) $ 607,500 |
Property and Equipment (Tables)
Property and Equipment (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property and Equipment | Property and equipment was: March 31, 2018 December 31, 2017 Equipment $ 179,900 $ 184,600 Furniture 1,600 3,600 Leasehold improvements 167,600 167,600 349,100 355,800 Less: accumulated depreciation and amortization 328,000 325,000 $ 21,100 $ 30,800 |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Schedule of Stock-Based Compensation Expenses | The following table summarizes the stock-based compensation expense, net of amounts capitalized, we recorded in our Unaudited Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2018 and 2017, respectively, by classification: Three Months Ended March 31, Statement of Operations Classification 2018 2017 Costs of revenue $ — $ 100 Selling and marketing expense — 100 General and administrative expense — 15,100 Research and development expense — — $ — $ 15,300 |
Segment Information (Tables)
Segment Information (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Segment Reporting [Abstract] | |
Schedule of Revenue by Country | Revenue by country for the three-month periods ended March 31, 2018 and 2017 was as follows: Three Months Ended March 31, Revenue by Country 2018 2017 United States $ 309,200 $ 358,600 Japan 42,700 110,600 Brazil 171,800 128,400 Other Countries 298,600 384,900 Total $ 822,300 $ 982,500 |
Significant Accounting Polici20
Significant Accounting Policies (Details Narrative) - USD ($) | Dec. 22, 2017 | Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 |
Impairment charges of long-lived assets | ||||
Allowance for doubtful accounts | 3,400 | $ 7,800 | ||
License revenue | 96,400 | |||
Accumulated deficit | $ 80,500,900 | 81,849,200 | ||
Income tax description | The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. | |||
Income tax percentage | 21.00% | |||
Global Intangible Low-taxed Income [Member] | ||||
Income tax description | The Act also adds a provision for a deduction to offset the GILTI inclusion for C corporations only, which is 50 percent (37.5 percent after 2025) of the GILTI inclusion. | |||
Foreign-derived Intangible Income [Member] | ||||
Income tax description | C corporations receive a deduction equal to 37.5 percent (21.875 percent after 2025) of foreign-derived intangible income (FDII). | |||
January 1, 2018 [Member] | ||||
Accumulated deficit | $ 80,457,300 | $ 1,391,900 |
Significant Accounting Polici21
Significant Accounting Policies - Schedule of Concentration of Risk, by Risk Factor (Details) - Customer Concentration Risk [Member] | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Sales Revenue, Net [Member] | ||
Concentration of Credit Risk | 45.10% | 47.30% |
Sales Revenue, Net [Member] | Centric Systems [Member] | ||
Concentration of Credit Risk | 14.20% | 7.20% |
Sales Revenue, Net [Member] | Elosoft [Member] | ||
Concentration of Credit Risk | 4.20% | 9.40% |
Sales Revenue, Net [Member] | IDS [Member] | ||
Concentration of Credit Risk | 14.80% | 9.80% |
Sales Revenue, Net [Member] | Uniface [Member] | ||
Concentration of Credit Risk | 1.80% | 4.60% |
Sales Revenue, Net [Member] | Raytheon [Member] | ||
Concentration of Credit Risk | 3.30% | 10.00% |
Sales Revenue, Net [Member] | Thermo Lab Systems [Member] | ||
Concentration of Credit Risk | 6.80% | 6.30% |
Accounts Receivable [Member] | ||
Concentration of Credit Risk | 66.90% | 66.90% |
Accounts Receivable [Member] | Centric Systems [Member] | ||
Concentration of Credit Risk | 21.80% | 26.20% |
Accounts Receivable [Member] | Elosoft [Member] | ||
Concentration of Credit Risk | 11.10% | 7.00% |
Accounts Receivable [Member] | IDS [Member] | ||
Concentration of Credit Risk | 0.00% | 0.00% |
Accounts Receivable [Member] | Uniface [Member] | ||
Concentration of Credit Risk | 1.00% | 14.50% |
Accounts Receivable [Member] | Raytheon [Member] | ||
Concentration of Credit Risk | 10.60% | 0.00% |
Accounts Receivable [Member] | Thermo Lab Systems [Member] | ||
Concentration of Credit Risk | 22.40% | 19.20% |
Significant Accounting Polici22
Significant Accounting Policies - Schedule of Revenue (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Current Assets: Deferred COGS | ||
Liabilities and Stockholders' Equity: Accumulated Deficit | $ (80,500,900) | (81,849,200) |
Current Liabilities: Deferred Revenue | 1,231,200 | 1,845,100 |
Long Term Liabilities: Deferred Revenue | 571,900 | 1,409,700 |
Adjustments due to ASC 606 [Member] | ||
Current Assets: Deferred COGS | 20,000 | |
Liabilities and Stockholders' Equity: Accumulated Deficit | 1,391,900 | |
Current Liabilities: Deferred Revenue | (609,700) | |
Long Term Liabilities: Deferred Revenue | (802,200) | |
January 1, 2018 [Member] | ||
Current Assets: Deferred COGS | 20,000 | |
Liabilities and Stockholders' Equity: Accumulated Deficit | (80,457,300) | $ (1,391,900) |
Current Liabilities: Deferred Revenue | 1,235,400 | |
Long Term Liabilities: Deferred Revenue | $ 607,500 |
Property and Equipment (Details
Property and Equipment (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation | $ 9,000 | $ 18,100 |
Property and Equipment - Schedu
Property and Equipment - Schedule of Property and Equipment (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Property and equipment gross | $ 349,100 | $ 355,800 |
Less: accumulated depreciation and amortization | 328,000 | 325,000 |
Property and equipment net | 21,100 | 30,800 |
Equipment [Member] | ||
Property and equipment gross | 179,900 | 184,600 |
Furniture [Member] | ||
Property and equipment gross | 1,600 | 3,600 |
Leasehold Improvements [Member] | ||
Property and equipment gross | $ 167,600 | $ 167,600 |
Stock-Based Compensation - Sche
Stock-Based Compensation - Schedule of Stock-Based Compensation Expenses (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Stock based compensation expense | $ 15,300 | |
Cost of Revenue [Member] | ||
Stock based compensation expense | 100 | |
Selling and Marketing Expense [Member] | ||
Stock based compensation expense | 100 | |
General and Administrative Expense [Member] | ||
Stock based compensation expense | 15,100 | |
Research and Development Expense [Member] | ||
Stock based compensation expense |
Supplemental Disclosure of Ca26
Supplemental Disclosure of Cash Flow Information (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Supplemental Cash Flow Elements [Abstract] | ||
Payment of interest expense | $ 0 | $ 100 |
Payment of income taxes | $ 800 | $ 700 |
Earnings (Loss) Per Share (Deta
Earnings (Loss) Per Share (Details Narrative) - shares | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Earnings Per Share [Abstract] | ||
Dilutive loss per share | 1,012,619 | 1,375,509 |
Segment Information - Schedule
Segment Information - Schedule of Revenue by Country (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Revenue by country | $ 822,300 | $ 982,500 |
United States [Member] | ||
Revenue by country | 309,200 | 358,600 |
Japan [Member] | ||
Revenue by country | 42,700 | 110,600 |
Brazil [Member] | ||
Revenue by country | 171,800 | 128,400 |
Other Countries [Member] | ||
Revenue by country | $ 298,600 | $ 384,900 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - $ / shares | May 21, 2018 | Apr. 25, 2018 | Oct. 30, 2017 |
Payment of deferred salary percentage | 50.00% | ||
Subsequent Event [Member] | |||
Exercise price of warrants | $ 0.01 | ||
Warrants exercisable term | 5 years | ||
Subsequent Event [Member] | CFO And Former CEO [Member] | |||
Payment of deferred salary percentage | 50.00% |