UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 20212022

Commission File Number: 0-21683

hopTo Inc.

(Exact name of registrant as specified in its charter)

Delaware13-3899021
(State of incorporation)(IRS Employer Identification No.)

6 Loudon Road, 189 North Main St., Suite 200102

Concord, NH03301

(Address of principal executive offices)

Registrant’s telephone number:

(800) (800) 472-7466

(408) 688-2674

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classTrading SymbolName of each exchange on which registered
CommonHPTO

OTC Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer[  ]☐Accelerated filer[  ]☐
Non-accelerated filer[  ]☐Smaller reporting company[X]☒
Emerging growth company[  ]☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] ☐ No [X] ☒

As of May 17, 2021,May13, 2022, there were issued and outstanding 18,850,675 shares of the registrant’s common stock, par value $0.0001.

 

 

 

 

 

 

Table of Contents

PAGE
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements3
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations13
Item 3.Quantitative and Qualitative Disclosures About Market Risk17
Item 4.Controls and Procedures17
PART II.OTHER INFORMATION
Item 1.Legal Proceedings17
Item 1A.Risk Factors17
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds17
Item 3.Defaults Upon Senior Securities17
Item 4.Mine Safety Disclosures17
Item 5.Exhibits18
Signatures19

2

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

hopTo Inc.

Consolidated Balance Sheets

  March 31,  December 31, 
  2021  2020 
  (Unaudited)    
Assets        
         
Current assets        
Cash and cash equivalents $4,392,800  $4,375,300 
Marketable securities  256,800     
Accounts receivable, net  557,000   417,300 
Prepaid expenses and other current assets  70,800   48,500 
Total current assets  5,277,400   4,841,100 
         
Property and equipment, net  3,200   - 
Other assets  17,800   17,800 
Total assets $5,298,400  $4,858,900 
         
Liabilities and Stockholders Equity        
         
Current liabilities        
Accounts payable $242,500  $251,000 
Accrued expenses  68,900   82,000 
Accrued wages  145,500   141,600 
Deferred revenue  1,150,400   1,084,900 
Total current liabilities  1,607,300   1,559,500 
Long-term liabilities        
Deferred revenue  395,500   383,000 
Total liabilities  2,002,800   1,942,500 
         
Commitments and contingencies        
         
Stockholders’ equity        
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding as of March 31, 2021 or December 31, 2020  -   - 
Common stock, $0.0001 par value, 195,000,000 shares authorized, 18,850,675 shares issued and outstanding for both periods ending March 31, 2021 and December 31, 2020  1,900   1,900 
Additional paid-in capital  82,155,200   82,155,200 
Accumulated deficit  (78,861,500)  (79,240,700)
Total stockholders’ equity  3,295,600   2,916,400 
Total liabilities and stockholders’ equity $5,298,400  $4,858,900 

(unaudited)

         
  March 31,  December 31, 
  2022  2021 
       
Assets        
         
Current assets        
Cash and cash equivalents $5,033,300  $4,755,300 
Marketable securities  362,000   417,600 
Accounts receivable, net  609,900   558,600 
Prepaid expenses and other current assets  80,000   52,700 
Total current assets  6,085,200   5,784,200 
         
Right-of-use asset  74,000   - 
Property and equipment, net  7,700   8,200 
Other assets  17,800   17,800 
Total assets $6,184,700  $5,810,200 
         
Liabilities and Stockholders Equity        
         
Current liabilities        
Accounts payable $229,800  $260,800 
Accrued expenses  62,500   64,200 
Accrued wages  121,300   108,900 
Lease liability - current  10,200   - 
Deferred revenue - current  1,262,700   1,033,800 
Total current liabilities  1,686,500   1,467,700 
Long-term liabilities        
Lease liability  63,600   - 
Deferred revenue  359,500   373,900 
Total liabilities  

2,109,600

   1,841,600 
         
Commitments and contingencies  -   - 
         
Stockholders’ equity        
Preferred stock, $0.01 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2022 or December 31, 2021  -   - 
Common stock, $0.0001 par value, 195,000,000 shares authorized, 18,850,675 shares issued and outstanding for both periods ending March 31, 2022 and December 31, 2021  1,900   1,900 
Additional paid-in capital  82,155,200   82,155,200 
Accumulated deficit  (78,082,000)  (78,188,500)
Total stockholders’ equity  4,075,100   3,968,600 
Total liabilities and stockholders’ equity $6,184,700  $5,810,200 

See accompanying notes to unaudited consolidated financial statements

3

 

hopTo Inc.

Consolidated Statements of Operations

(unaudited)

        
 For the Three Months Ended  For the Three Months Ended 
 March 31, March 31,  March 31, March 31, 
 2021 2020  2022  2021 
 (Unaudited) (Unaudited)      
Revenues:             
Software licenses$199,400 $276,300  $181,500  $199,400 
Software service fees 639,300 546,700   747,700   639,300 
Other  21,500  21,600   21,000   21,500 
Total revenue 860,200 844,600   950,200   860,200 
             
Cost of revenue:             
Software service costs 13,500 13,200   13,500   13,500 
Software product costs  30,700  24,900   63,900   30,700 
Total cost of revenue 44,200 38,100   77,400   44,200 
               
Gross profit  816,000  806,500   872,800   816,000 
             
Operating expenses:             
Selling and marketing 143,000 104,400   123,100   143,000 
General and administrative 214,700 229,000   204,900   214,700 
Research and development  363,100  364,000   382,700   363,100 
Total operating expenses  720,800  697,400   710,700   720,800 
             
Income from operations  95,200  109,100   162,100   95,200 
             
Other income:     
Unrealized gain on marketable securities 14,200  -  
Other income  269,800  -  
Total Other Income 

284,000

 - 
Other income (loss):        
Unrealized loss in marketable securities  (55,600)  14,200 
Interest and other income      269,800 
Other income (loss)  (55,600)  284,000 
             
Income before provision for income taxes 379,200 109,100   106,500   379,200 
Provision for income taxes  -  -   -   - 
Net income $379,200 $109,100  $106,500  $379,200 
             
Net income per share, basic $0.02 $0.01  $0.01  $0.02 
Net income per share, diluted $0.02 $0.01  $0.01  $0.02 
             
Weighted average number of common shares outstanding             
Basic  18,850,675  9,927,990   18,850,675   18,850,675 
Diluted  19,093,609  10,399,698   19,093,118   19,093,609 

See accompanying notes to unaudited consolidated financial statements

4

 

hopTo Inc.

Consolidated Statements of Stockholders’ Equity (Unaudited)

  Common Stock  

Additional

Paid-In		  Accumulated    
  Shares  Amount  Capital  Deficit  Total 
                
Balance at December 31, 2019  9,834,866  $1,000  $79,523,500  $(79,934,400) $(409,900)
Shares issued for settlement of accrued expenses  120,000       39,600   -   39,600 
Contributed services  -   -   56,200   -   56,200 
Net income  -   -   -   109,100   109,100 
Balance at March 31, 2020  9,954,866  $1,000  $79,619,300  $(79,825,300) $(205,000)
                     
Balance at December 31, 2020  18,850,675  $1,900  $82,155,200  $(79,240,700) $2,916,400 
Net income  -   -   -   379,200   379,200 
Balance at March 31, 2021  18,850,675  $1,900  $82,155,200  $(78,861,500) $3,295,600 

(unaudited)

                    
  Common Stock  Additional
Paid-In		  Accumulated    
  Shares  Amount  Capital  Deficit  Total 
                
Balance at December 31, 2020  18,850,675  $1,900  $82,155,200  $(79,240,700) $2,916,400 
Net income  -   -   -   379,200   379,200 
Balance at March 31, 2021 (unaudited)  18,850,675  $1,900  $82,155,200  $(78,861,500) $3,295,600 
                     
Balance at December, 2021  18,850,675  $1,900  $82,155,200  $(78,188,500) $3,968,600 
Beginning balance, value  18,850,675  $1,900  $82,155,200  $(78,188,500) $3,968,600 
Net income  -   -   -   106,500   106,500 
Balance at March 31, 2022 (unaudited)  18,850,675  $1,900  $82,155,200  $(78,082,000) $4,075,100 
Ending balance, value  18,850,675  $1,900  $82,155,200  $(78,082,000) $4,075,100 

See accompanying notes to unaudited consolidated financial statements

5

 

hopTo Inc.

Consolidated Statements of Cash Flows

(unaudited)

 

         
  For the Nine Months Ended 
  March 31,  March 31, 
  2022  2021 
Cash flows from operating activities        
Net income $

106,500

  $379,200 
Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation  500   200 
Gain on sale of patents  -   (269,800)
Changes in allowance for doubtful accounts  1,500   5,900 
Unrealized (gain) loss from marketable securities  55,600   (14,200)
         
Changes in operating assets and liabilities:        
Accounts receivable  (52,800)  (145,600)
Prepaid expenses and other current assets  (27,300)  (22,300)
Accounts payable and accrued expenses  (20,300)  (17,700)
Lease liabilities  (200)  - 
Deferred revenue  214,500   78,000 
Net cash provided by operating activities  278,000   (6,300)
         
Cash flows from investing activities        
Purchase of marketable securities     (242,600)
Proceeds from sale of patents     269,800 
Purchase of property and equipment     (3,400)
Net cash used by investing activities  -   23,800 
         
Net change in cash  278,000   17,500 
Cash and cash equivalents, beginning of the period  4,755,300   4,375,300 
Cash and cash equivalents, end of the period $5,033,300  $4,392,800 

  For the Three Months Ended 
  March 31,  March 31, 
  2021  2020 
  (Unaudited)  (Unaudited) 
Cash flows from operating activities        
Net income $379,200  $109,100 
Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation  200   - 
Contributed services  -   56,200 
Changes in allowance for doubtful accounts  5,900   5,600 
Gain on sale of patents  (269,800)  - 
Unrealized gain from marketable securities  (14,200)  - 
         
Changes in operating assets and liabilities:        
Accounts receivable  (145,600)  (131,100)
Prepaid expenses and other current assets  (22,300)  (134,200)
Accounts payable  (8,500)  (11,500)
Accrued expenses  (13,100)  54,600 
Accrued wages  3,900   8,100 
Deferred revenue  78,000   (31,700)
         
Net cash used in operating activities  (6,300)  (74,900)
         
Cash flows from investing activities        
Purchase of marketable securities  (242,600)  - 
Proceeds from sale of patents  269,800   - 
Purchase of property and equipment  (3,400)  - 
Net cash provided by investing activities  23,800   - 
         
Net change in cash  17,500   (74,900)
Cash, beginning of the period  4,375,300   1,541,900 
Cash, end of the period $4,392,800  $1,467,000 
         
Supplemental disclosure of non-cash investing and financing information:        
Non-cash activities: shares issued for settlement of accrued expenses $-  $39,600 

See accompanying notes to unaudited consolidated financial statements

6

 

hopTo Inc.

Notes to Unaudited Consolidated Financial Statements

1. Organization

hopTo Inc., a Delaware corporation, through its wholly-owned subsidiary GraphOn Corporation (collectively, “we”, “us,” “our” or the “Company”) 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.

The Company sells a family of products under the brand name GO-Global, which is a software application publishing business and is the Company’s sole revenue source at this time. GO-Global is an application access solution for use and/or resale by independent software vendors, hosting service providers, 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.

2. Significant Accounting Policies

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, 20202021, which was filed with the SEC on March 31, 2022 (“2021 (“2020 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, 20212022, or any future period.

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

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 significant estimates include the valuation of stock-based compensation expense, the allowanceallowances for doubtful accounts, depreciation of long-lived assets, allowances for deferred tax assets and accruals of liabilities.

7

 

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. 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.

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

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 cash equivalents of $257,500$362,000 and $417,600 primarily in money market account as of March 31, 20212022 (unaudited) and had no such cash equivalents at December 31, 2020.2021, respectively.

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, 20212022 and December 31, 2020,2021, the allowance for doubtful accounts totaled $11,800$8,500 and $5,900,$7,000, respectively.

8

 

Concentration of Credit Risk

For the three months ended March 31, 20212022 and three months ended March 31, 2020,2021, the Company had two resellers comprising 13.0%20.6% and 10.6%10.8%, and two resellers comprising 12.8%13.0% and 10.8%10.6%, respectively, of total sales.

As of March 31, 20212022 and December 31, 2020,2021, the Company has twothree resellers comprising 28.4% 40.6%, 20.0% and 22.3%14.7%, and twofour resellers comprising 25.7%39.7%, 15.0%, 11.9% and 18.9%11.7%, 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

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. Dilutive common share equivalents as of March 31, 2022 and December 31, 2021, representing 248,216of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three months ended March 31, 20212022 and 2020,2021, the Company had total common stock equivalents of 3,867 and 78,550 and 93,076, respectively, which were excluded from the computation of net income per share because they are anti-dilutive.

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.

9

 

Recently Adopted Accounting Pronouncements

The FASB issues ASUs to amend the authoritative literature in ASC. There have been several ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact our financial statements.

Right-of-use Assets (ROU) and Lease Liabilities

On January 1, 2022, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which establishes ASC 842 and supersedes the lease accounting guidance under ASC 840. The standard generally requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and provide enhanced disclosures on the amount, timing, and uncertainty of cash flows arising from lease arrangements. The Company adopted ASC 842 using the modified retrospective approach. The Company elected the package of practical expedients available for existing contracts, which allowed the Company to carry forward our historical assessments of lease identification, lease classification, and initial direct costs. The Company also elected a policy to not apply the recognition requirements of ASC 842 for short-term leases with a term of 12 months of less

As of January 1, 2022, the effective date, the Company identified one operating lease arrangement relating to the Company’s headquarters facility. The adoption of ASC 842 resulted in a recognition of an ROU asset and lease liability of $73,800 on the Company’s balance sheet relating to the leases as of January 1, 2022. The adoption of the standard did not have a material effect on the Company’s consolidated statements of operations and consolidated statements of cash flows.

Schedule of operating lease

  March 31, 2022  December 31, 2021 
Operating lease:        
Operating lease right-of-use asset $74,000  $                             - 
         
Operating lease liability, current portion $10,200  $- 
Operating lease liability, net of current portion  63,600   - 
Total operating lease liabilities $73,800  $- 
         
Weighted-average remaining lease term  2.5 years     
weighted-average discount rate  0.41%    

3. Property and Equipment

Property and equipment consisted of the following.

Schedule of Property and Equipment

 March 31, December 31,         
 2021  2020  March 31, December 31, 
 (Unaudited)     2022  2021 
            
Equipment $157,700  $154,300  $164,100  $164,100 
Furniture and fixtures  1,600   1,600   1,600   1,600 
                
  159,300   155,900 
Property and equipment gross  165,700   165,700 
                
Less: accumulated depreciation  (156,100)  (155,900)  (158,000)  (157,500)
                
 $3,200  $- 
Property and equipment net $7,700  $8,200 

Depreciation expense amounted to $200$500 and $0$200 for the three months ended March 31, 2022 and 2021, and 2020, respectively.

10

 

4. Stockholders’ Equity

Stock-Based Compensation Plans

The following summarizes the stock option activity for the three months ended March 31, 2021.2022:

Schedule of Share-based Compensation, Stock Options, Activity

      Weighted-
      Average
    Weighted- Remaining
    Average Contractual
    Exercise Life
  Options Price (Years)
       
Outstanding at December 31, 2020  93,076  $3.03   0.74 
Granted  

-

         
Forfeited/cancelled  (14,526)        
Outstanding at March 31, 2021 (Unaudited)  78,550  $3.45   0.62 
             
Vested and expected to vest            
  at March 31, 2021  78,550  $3.45   0.62 
             
Exercisable at March 31, 2021  78,550  $3.45   0.62 
        Weighted- 
        Average 
     Weighted-  Remaining 
     Average  Contractual 
     Exercise  Life 
  Options  Price  (Years) 
          
Outstanding at December 31, 2021  4,939  $3.86   1.59 
Granted  -         
Forfeited/cancelled  (1,072)        
Outstanding at March 31, 2022  3,867  $3.97   1.75 
             
Vested and expected to vest at March 31, 2022  3,867  $3.97   1.75 
             
Exercisable at March 31, 2022  3,867  $3.97   1.75 

The following table summarizes information about options outstanding and exercisable as of March 31, 2021.2022:

Schedule of Share-based Compensation, Shares Authorized Under Stock Option Plans, by Exercise Price Range

  Options Outstanding  Options Exercisable    Options Outstanding Options Exercisable 
      Weighted-     Weighted-        Weighted-     Weighted- 
Range ofRange of     Average Average     Average Range of     Average Average     Average 
ExerciseExercise Number Remaining Exercise Number Exercise Exercise Number Remaining Exercise Number Exercise 
PricePrice of Shares Life (Years) Price of Shares Price Price of Shares Life (Years) Price of Shares Price 
                       
$ 2.00 - 4.00   63,684   0.62  $3.21   63,684  $3.21 2.00 - 4.00   2,334   1.95  $2.20   2,334  $2.71 
 4.20 - 6.68   14,866   0.65   4.46   14,866   4.46 4.20 - 6.68   1,533   1.44   6.68   1,533   6.68 
    78,550           78,550         3,867           3,867     

11

 

Shares of Common Stock Issued

During the three-month period ending March 31, 2022 and 2021, the Company did not0t issue any shares of common stock. During the three-month period ending March 31, 2020, the Company issued a total of 120,000 shares of common stock to two former members of our board of directors that was previously committed to them and included in accrued expenses. The issuance of the 120,000 shares of common stock settles a total of $39,600 of accrued expenses that was included in the Company’s balance sheet.

Warrants

As of March 31, 20212022 and December 31, 2020,2021, the Company had 248,216 warrants outstanding. The warrants outstanding at March 31, 20212022 are all exercisable at $0.01$0.01 and have an expiration date of May 20, 2023.2023.

5. Sales by Geographical Location

Revenue by country for the three months ended March 31, 20212022 and 20202021 was as follows.follows:

Schedule of Revenue by Country

       
 Three Months Ended  Three Months Ended 
 2021 2020  2022 2021 
Revenue by Country                
United States $273,700  $312,600  $390,600  $273,700 
Brazil  153,600   164,900   211,000   153,600 
Japan  124,500   70,300   109,000   124,500 
Other Countries  308,400   296,800   239,600   308,400 
Total $860,200  $844,600  $950,200  $860,200 

6. Commitments and Contingencies

Profit Sharing Plans

The Company has adopted a 401(k) plan to provide retirement benefits for employees under which the Company makes discretionary matching contributions. During the three months ended March 31, 20212022 and 2020,2021, the Company contributed a total of $12,200$10,900 and $9,500,$12,200, respectively.

Contingencies

During the ordinary course of business, the Company is subject to various potential claims and litigation. Management is not aware of any outstanding litigation which would have a significant impact on the Company’s financial statements.

Lease

The Company leases its’ headquarters office in Concord, New Hampshire under a thirty-six-month noncancelable operating lease agreement which will expire on August 31, 2024. The terms of certain lease agreement provide for increasing rental payments at fixed twelve-month intervals.

Supplemental balance sheet information related to leases as of March 31, 2022 is as follows:

Schedule of operating leases Future Minimum Lease Payments

Future minimum lease payments:    
2022 $30,400 
2023  30,800 
2024  12,900 
Thereafter  - 
Total future minimum lease payments $74,100 
Less: Lease imputed interest  300 
Total $73,800 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

This report includes, in addition to historical information, “forward-looking statements”. All statements other than statements of historical fact we make in this report are forward-looking statements. In particular, the statements regarding industry prospects and our expectations regarding future results of operations or financial position (including those described in this Management’s Discussion and Analysis of Financial Condition and Results of Operations) are forward-looking statements. Such statements are based on management’s current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ significantly from those described in the forward-looking statements. Factors that may cause such a difference include the following:

●the success of products depends on a number of factors including market acceptance and our ability to manage the risks associated with product introduction;
●local, regional, national and international economic conditions and events, and the impact they may have on us and our customers;
●our revenue could be adversely impacted if any of our significant customers reduces its order levels or fails to order during a reporting period; customer demand is based on many factors out of our control;
●as a result of the new revenue recognition standards, if any significant end user customer or reseller 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; and
●other factors, including, but not limited to, those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20202021 which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021,2022, and in other documents we have filed with the SEC.

Statements included in this report are based upon information known to us as of the date that this report is filed with the SEC, and we assume no obligation to update or alter our forward-looking statements made in this report, whether as a result of new information, future events or otherwise, except as otherwise required by applicable federal securities laws.

Introduction

hopTo, Inc., through its wholly owned subsidiary GraphOn Corporation (collectively, “we”, “us,” “our” or the “Company”), is a developer 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. GO-Global is an application access solution for use 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.

Critical Accounting Policies

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas require us to make judgments and estimates about matters that are uncertain at the time when we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 20202021 10-K Report and Note 2 to our unaudited consolidated financial Statements included under Item 1 – Financial Statements in this Form 10-Q.

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Results of Operations for the Three-Month Periods Ended March 31, 20212022 and 20202021

The following are the results of our operations for the three months ended March 31, 20212022 as compared to the three months ended March 31, 2020.2021.

  For the Three Months Ended    
  March 31,  March 31,    
  2022  2021  $ Change 
  (unaudited)  (unaudited)    
          
Revenues $950,200  $860,200  $90,000 
Cost of revenues  77,400   44,200   33,200 
Gross profit  872,800   816,000   56,800 
             
Operating expenses:            
Selling and marketing  123,100   143,000   (19,900)
General and administrative  204,900   214,700   (9,800)
Research and development  382,700   363,100   19,600 
Total operating expenses  710,700   720,800   (10,100)
             
Income from operations  162,100   95,200   

66,900

 
             
Other income (loss):            
Unrealized gain on marketable securities  (55,600)  14,200   (69,800)
Interest and other income  -   269,800   (269,800)
Other income (loss)  (55,600)  284,000   (339,600)
Income before provision for income taxes  106,500   379,200   (272,700)
Net income $106,500  $379,200  $(272,700)

  For the Three Months Ended    
  March 31,  March 31,    
  2021  2020  $ Change 
  (Unaudited)  (Unaudited)    
          
Revenues $860,200  $844,600  $15,600 
Cost of revenues  44,200   38,100   6,100 
Gross profit  816,000   806,500   9,500 
             
Operating expenses:            
Selling and marketing  143,000   104,400   38,600 
General and administrative  214,700   229,000   (14,300)
Research and development  363,100   364,000   (900)
Total operating expenses  720,800   697,400   23,400 
             
Income from operations  95,200   109,100   (13,900)
             
Other income:            
Unrealized gain on marketable securities  14,200   -   14,200 
Other income  269,800   -   269,800 
Total other income  284,000   -   284,000 
             
Income before provision for income taxes  379,200   109,100   270,100 
Provision for income taxes  -   -   - 
Net income $379,200  $109,100  $270,100 

Revenues

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. Many 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.

Almost all stocking resellers maintain inventories of our Windows products; few stocking resellers maintain inventories of our UNIX products.

Software Licenses

Windows software licenses revenue decreased by $56,000$4,800 or 23.5%2.6% to $181,900$177,100 during the three months ended March 31, 2021,2022, from $237,900$181,900 for the same period in 2020. The decrease was due to lower license orders following elevated license order activity in the prior year period related to the onset of the COVID-19 pandemic.2021.

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Software licenses revenue from our UNIX/Linux products decreased by $20,900$13,100 or 54.4%74.9% to $17,500$4,400 for the three months ended March 31, 20212022 from $38,400$17,500 for the same periods of 2020.2021. The decrease was primarily due to lower revenue from stocking and standard order licenses.

Software Service Fees

Service fees attributable to our Windows product service increased by $108,600$124,400 or 22.5%21.1% to $590,200$714,600 during three months ended March 31, 2021,2022, from $481,600$590,200 for the same period in 2020.2021. The increase was due to an increase in maintenance renewals from existing customers and higher subscription license orders.

Service fees revenue attributable to our UNIX products decreased by $16,000 or 24.6%32.6% to $49,100$33,100 during the three months ended March 31, 2021,2022, from $65,100$49,100 for the same period in 2020.2021. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of a long-term maintenance contract.

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 Brazil resellers. We incur no significant shipping or packaging costs as virtually all of our deliveries are made via electronic means over the Internet.

Cost of revenue for the three months ended March 31, 20212022 increased by $6,100,$33,200, or 16.0%75.1%, to $44,200$77,400 for the three months ended March 31, 20212022 from $38,100$44,200 for the same period in 2020.2021. Cost of revenue 5.1%8.1% and 4.5%5.1% of total revenue for the three months ended March 31, 20212022 and 2020,2021, respectively. The increase was due to import tax withholdings associated with higher revenue from Brazil resellers for the three-month period ended March 31, 2021.2022.

Selling and Marketing Expenses

Selling and marketing expenses primarily consisted of employee, outside services and travel and entertainment expenses.

Selling and marketing expenses increaseddecrease by $38,600,$19,900, or 37.0%13.9%, to $143,000$123,100 for the three months ended March 31, 20212022 from $104,400$143,000 for the same period in 2020.2021. Selling and marketing expenses represented approximately 16.6%13.0% and 12.4%16.6% of total revenue for the three months ended March 20212022 and 2020,2021, respectively. The increasedecrease in selling and marketing expenses was due to higher consulting services.lower payroll expenses due to changes in personnel during the first three months of March 31, 2022.

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General and Administrative Expenses

General and administrative expenses primarily consist of employee costs, legal, accounting, other professional services (including those related to our patents), 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 decreased by $14,300,$9,800, or 6.2%4.6%, to $214,700$204,900 for the three months ended March 31, 20212022 from $104,400$214,700 for the same period in 2020.2021. General and administrative expenses represented approximately 25.0%21.6% and 27.1%25.0% of total revenue for the three months ended March 31, 2022 and 2021, and 2020, respectively.

The decrease in general and administrative expense was primarily due to a reduction in accounting fees and consulting relatedof legal patent fees.

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 decreasedincreased by $900,$19,600, or 0.2%5.2% to $363,100$382,700 for the three months ended March 31, 20212022 from $364,000$363,100 for the same period in 2020.2021. This represented approximately 42.2%40.3% and 43.1%42.2% of total revenue for the three months ended March 31, 2022 and 2021, and 2020, respectively.

Liquidity and Capital Resources

As of March 31, 2021, we had cash of $4,392,800$5,033,300 and a working capital position of $3,670,100$4,398,700 as compared to cash of $4,375,300$4,755,300 and a working capital position of 3,281,600$4,316,500 at December 31, 2020.2021. The increase in cash as of March 31, 20212022 was primarily the result of cash provided by operations during the period. We expect our results from operations and capital resources will be sufficient to fund our operations for at least the next 12 months.

The following is a summary of our cash flows from operating, investing and financing activities for the three months ended March 31, 20212022 and 2020.2021.

  For the Three Months Ended 
  March 31,  March 31, 
  2021  2020 
Cash flows used in operating activities $(6,300) $(74,900)
Cash flows provided by investing activities $23,800  $- 
Cash flows provided by financing activities $-  $- 
  For the Three Months Ended 
  March 31,  March 31, 
  2022  2021 
Cash flows provided by operating activities $278,000  $(6,300)
Cash flows used by investing activities $-  $23,800 
Cash flows provided by financing activities $-  $- 

Net cash flows usedprovided by operating activities for the three months ended March 31, 2021 and2022 was $278,000 while net cash flows used for the same periodsthree months ended March 31,2020 amounted to $6,300 and $74,900, respectively.31,2021 was $6,300. The increase in cash flows provided by operating activities is primarily the result of a decrease in prepaid expenses andan increase in deferred revenue offset by elimination of contributed services compared to the prior year period.

Net cash flows provided by investing activities for the three months ended March 31, 2021 amount to $23,800 due to net cash receipt from sale of patents, offset by purchase of marketable securities investments and property equipment. The Company had no cash related to investing activities for the same periods of prior year. The Company had no cash flows related to financing activities for the three months ended March 31, 2021 or 2020.2022, while the Company had net cash flows of $23,800 provided by investing activities for the same periods ended March 31, 2021.

 

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2021.2022.

There has not been any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 20212022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Not applicable

ITEM 1A. Risk Factors

There have been no material changes in our risk factors from those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, which was filed with the Securities and Exchange Commission on March 31, 2021.2022.

The coronavirus pandemic could adversely affect our results of operations.

The recent coronavirus pandemic throughout the United States and the world has resulted in the United States and other countries halting or sharply curtailing the movement of people, goods and services. All of this has caused extended shutdowns of businesses and the prolonged economic impact remains uncertain. At this point, we believe the conditions will have a material adverse effect on our business but given the rapidly changing developments we cannot accurately predict what effects these conditions will have on our business, which will depend on, among other factors, the ultimate geographic spread of the virus, the duration of the outbreak and travel restrictions and business closures imposed by the United States and various other governments.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Mine Safety Disclosures

Not applicable

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ITEM 5. Exhibits

Exhibit NumberExhibit Description
31Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema
101.CALInline XBRL Taxonomy Extension Calculation Linkbase
101.DEFInline XBRL Taxonomy Extension Definition Linkbase
101.LABInline XBRL Taxonomy Extension Label Linkbase
101.PREInline XBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

hopTo Inc.
(Registrant)
Date:May 17, 202116, 2022
By:/s/ Jonathon R. Skeels
Jonathon R. Skeels
Chief Executive Officer (Principal Executive Officer) and
Interim Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

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