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, September 30, 2022

 

Commission File Number: 0-21683

 

hopTo Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 13-3899021
(State of incorporation) (IRS Employer Identification No.)

 

189 North Main St., Suite 102

Concord, NH 03301

(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 class Trading Symbol Name 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 ☒ 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 ☒ 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☒
 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 ☒

 

As of May13,November 15, 2022, there were issued and outstanding 18,850,67518,826,342 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 Risk1719
Item 4.Controls and Procedures1719
   
PART II.OTHER INFORMATION 
Item 1.Legal Proceedings1719
Item 1A.Risk Factors1719
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds1719
Item 3.Defaults Upon Senior Securities1719
Item 4.Mine Safety Disclosures1719
Item 5.Exhibits1819
 Signatures1920

 

2

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

hopTo Inc.

Consolidated Balance Sheets

(unaudited)

 

        
 March 31, December 31, 
 2022 2021  September 30, December 31, 
      2022 2021 
Assets                
                
Current assets                
Cash and cash equivalents $5,033,300  $4,755,300  $4,821,400  $4,755,300 
Marketable securities  362,000   417,600   314,200   417,600 
Accounts receivable, net  609,900   558,600   364,200   558,600 
Prepaid expenses and other current assets  80,000   52,700   309,100   52,700 
Total current assets  6,085,200   5,784,200   5,808,900   5,784,200 
                
Right-of-use asset  74,000   - 
Right-of-use assets  59,200   - 
Property and equipment, net  7,700   8,200   6,100   8,200 
Other assets  17,800   17,800   22,900   17,800 
Total assets $6,184,700  $5,810,200  $5,897,100  $5,810,200 
                
Liabilities and Stockholders Equity                
                
Current liabilities                
Accounts payable $229,800  $260,800  $246,200  $260,800 
Accrued expenses  62,500   64,200   81,000   64,200 
Accrued wages  121,300   108,900   137,700   108,900 
Lease liability - current  10,200   - 
Lease liabilities - current  10,200   - 
Deferred revenue - current  1,262,700   1,033,800   1,126,200   1,033,800 
Total current liabilities  1,686,500   1,467,700   1,601,300   1,467,700 
Long-term liabilities                
Lease liability  63,600   - 
Lease liabilities  48,600   - 
Deferred revenue  359,500   373,900   305,300   373,900 
Total liabilities  

2,109,600

   1,841,600   1,955,200   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 
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding as of September 30, 2022 or December 31, 2021  -   - 
Common stock, $0.0001 par value, 195,000,000 shares authorized, 18,826,342 and 18,850,675 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively  1,900   1,900 
Additional paid-in capital  82,155,200   82,155,200   82,145,100   82,155,200 
Accumulated deficit  (78,082,000)  (78,188,500)  (78,205,100)  (78,188,500)
Total stockholders’ equity  4,075,100   3,968,600   3,941,900   3,968,600 
Total liabilities and stockholders’ equity $6,184,700  $5,810,200  $5,897,100  $5,810,200 

 

See accompanying notes to unaudited consolidated financial statements

 

3

 

hopTo Inc.

Consolidated Statements of Operations

(unaudited)

 

         2022  2021  2022  2021 
 For the Three Months Ended  For the Three Months Ended  For the Nine Months Ended 
 March 31, March 31,  September 30, September 30, September 30, September 30, 
 2022  2021  2022  2021  2022  2021 
              
Revenues:                        
Software licenses $181,500  $199,400  $135,500  $167,600  $449,000  $541,800 
Software service fees  747,700   639,300   823,800   730,100   2,380,100   2,072,100 
Other  21,000   21,500   20,900   21,700   62,900   64,800 
Total revenue  950,200   860,200   980,200   919,400   2,892,000   2,678,700 
                        
Cost of revenue:                        
Software service costs  13,500   13,500   13,500   13,500   40,500   40,500 
Software product costs  63,900   30,700   36,300   22,600   135,500   85,300 
Total cost of revenue  77,400   44,200   49,800   36,100   176,000   125,800 
                        
Gross profit  872,800   816,000   930,400   883,300   2,716,000   2,552,900 
                        
Operating expenses:                        
Selling and marketing  123,100   143,000   248,600   152,000   687,600   448,100 
General and administrative  204,900   214,700   429,900   162,400   800,700   576,800 
Research and development  382,700   363,100   379,000   354,300   1,142,500   1,081,900 
Total operating expenses  710,700   720,800   1,057,500   668,700   2,630,800   2,106,800 
                        
Income from operations  162,100   95,200   (127,100)  214,600   85,200  446,100 
                        
Other income (loss):                        
Unrealized loss in marketable securities  (55,600)  14,200 
Unrealized gain (loss) in marketable securities  (17,800)  146,800   (103,300)  173,400 
Interest and other income      269,800   500   -   1,500   269,800 
Other income (loss)  (55,600)  284,000   (17,300)  146,800   (101,800)  443,200 
        
Income before provision for income taxes  106,500   379,200   (144,400)  361,400   (16,600)  889,300 
Provision for income taxes  -   -   -   -   -   - 
Net income $106,500  $379,200 
Net income (loss) $(144,400) $361,400  $(16,600) $889,300 
                        
Net income per share, basic $0.01  $0.02 
Net income per share, diluted $0.01  $0.02 
Net income (loss) per share, basic $(0.01) $0.02  $(0.00) $0.05 
Net income (loss) per share, diluted $(0.01) $0.02  $(0.00) $0.05 
                        
Weighted average number of common shares outstanding                        
Basic  18,850,675   18,850,675   18,846,664   18,850,675   18,848,658   18,850,675 
Diluted  19,093,118   19,093,609   18,846,664   19,092,182   18,848,658   19,092,981 

 

See accompanying notes to unaudited consolidated financial statements

 

4

 

hopTo Inc.

Consolidated Statements of Stockholders’ Equity

(unaudited)

                                  
 Common Stock  Additional
Paid-In		  Accumulated     Common Stock  Additional Paid-In  Accumulated    
 Shares  Amount  Capital  Deficit  Total  Shares  Amount  Capital  Deficit  Total 
                      
Balance at December 31, 2020  18,850,675  $1,900  $82,155,200  $(79,240,700) $2,916,400   18,850,675  $1,900  $82,155,200  $(79,240,700) $2,916,400 
Net income  -   -   -   379,200   379,200   -   -   -   379,200   379,200 
Balance at March 31, 2021 (unaudited)  18,850,675  $1,900  $82,155,200  $(78,861,500) $3,295,600   18,850,675  $1,900  $82,155,200  $(78,861,500) $3,295,600 
Net income  -   -   -   148,700   148,700 
Balance at June 30, 2021 (unaudited)  18,850,675  $1,900  $82,155,200  $(78,712,800) $3,444,300 
Net income  -   -   -   361,400   361,400 
Balance at September 30, 2021 (unaudited)  18,850,675  $1,900  $82,155,200  $(78,351,400) $3,805,700 
                                        
Balance at December, 2021  18,850,675  $1,900  $82,155,200  $(78,188,500) $3,968,600   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   -   -   -   106,500   106,500 
Balance at March 31, 2022 (unaudited)  18,850,675  $1,900  $82,155,200  $(78,082,000) $4,075,100   18,850,675  $1,900  $82,155,200  $(78,082,000) $4,075,100 
Purchase of hopTo treasury stock  (24,333)  -   (10,100)  -   (10,100)
Net income  -   -   -   21,300   21,300 
Balance at June 30, 2022 (unaudited)  18,826,342  $1,900  $82,145,100  $(78,060,700) $4,086,300 
Beginning balance, value  18,826,342  $1,900  $82,145,100  $(78,060,700) $4,086,300 
Net loss  -   -   -   (144,400)  (144,400)
Balance at September 30, 2022 (unaudited)  18,826,342  $1,900  $82,145,100  $(78,205,100) $3,941,900 
Ending balance, value  18,850,675  $1,900  $82,155,200  $(78,082,000) $4,075,100   18,826,342  $1,900  $82,145,100  $(78,205,100) $3,941,900 

 

See accompanying notes to unaudited consolidated financial statements

 

5

 

hopTo Inc.

Consolidated Statements of Cash Flows

(unaudited)

 2022  2021 
         For the Nine Months Ended 
 For the Nine Months Ended  September 30, September 30, 
 March 31, March 31,  2022  2021 
 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:        
Net income (loss) $(16,600) $889,300 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation  500   200   2,100   800 
Gain on sale of patents  -   (269,800)
Changes in allowance for doubtful accounts  1,500   5,900   2,000   5,400 
Unrealized (gain) loss from marketable securities  55,600   (14,200)  103,400   (173,400)
Gain on sale of patents  -   (269,800)
                
Changes in operating assets and liabilities:                
Accounts receivable  (52,800)  (145,600)  192,400   (45,000)
Prepaid expenses and other current assets  (27,300)  (22,300)  (261,500)  1,200
Accounts payable and accrued expenses  (20,300)  (17,700)  31,000   (60,500)
Lease liabilities  (200)  -   (400)  - 
Deferred revenue  214,500   78,000   23,800   (139,200)
Net cash provided by operating activities  278,000   (6,300)  76,200   208,800 
                
Cash flows from investing activities                
Purchase of marketable securities     (242,600)  -   (290,500)
Purchase of hopTo common stock  (10,100)  - 
Proceeds from sale of patents     269,800   -   269,800 
Purchase of property and equipment     (3,400)  -   (3,400)
Net cash used by investing activities  -   23,800   (10,100)  (24,100)
                
        
Net change in cash  278,000   17,500   66,100   184,700 
Cash and cash equivalents, beginning of the period  4,755,300   4,375,300   4,755,300   4,375,300 
Cash and cash equivalents, end of the period $5,033,300  $4,392,800 
Cash and cash equivalents, end of the period $4,821,400  $4,560,000 

 

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, 2021, which was filed with the SEC on March 31, 2022 (“2021 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, 2022, 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 the allowances 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.

 

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 $362,000 and $417,600 primarily in money market account as of March 31, 2022 (unaudited) and at December 31, 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,September 30, 2022 and December 31, 2021, the allowance for doubtful accounts totaled $8,5009,000 and $7,000, respectively.

 

8

 

Concentration of Credit Risk

 

For the threenine months ended March 31,September 30, 2022, and March 31, 2021, the Company had two resellersone reseller comprising 20.6% and 10.813.4%, and two resellers each comprising 13.012.3% of total sales. For the same periods ended September 30, 2021, the Company had three resellers comprising 24.5%, 14.6% and 10.613.5%, respectively, of total sales.

 

As of March 31,September 30, 2022 and December 31, 2021, the Company has three resellers comprising 40.628.9%, 20.0% 25.7%, and 14.713.8%, and four resellers comprising 39.7%, 15.0%, 11.9%, and 11.7%, 27.8%, 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,September 30, 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,September 30, 2022 and 2021, the Company had total common stock equivalents of 3,867 3,200and 78,550 65,217respectively, 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

       
  September 30,
2022		  December 31,
2021		 
Operating lease:        
Operating lease right-of-use asset $59,200  $         - 
         
Operating lease liability, current portion $10,200  $- 
Operating lease liability, net of current portion  48,600   - 
Total operating lease liabilities $58,800  $- 
         
Weighted-average remaining lease term  1.9 years     
weighted-average discount rate  0.41%    

 

3.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,  September 30, December 31, 
 2022  2021  2022  2021 
            
Equipment $164,100  $164,100  $164,100  $164,100 
Furniture and fixtures  1,600   1,600   1,600   1,600 
                
Property and equipment gross  165,700   165,700   165,700   165,700 
                
Less: accumulated depreciation  (158,000)  (157,500)  (159,600)  (157,500)
                
Property and equipment net $7,700  $8,200  $6,100  $8,200 

 

Depreciation expense amounted to $5002,100 and $200800 for the threenine months ended March 31,September 30, 2022 and 2021, respectively.

 

10

 

4. Stockholders’ Equity

 

Stock-Based Compensation Plans

 

The following summarizes the stock option activity for the threenine months ended March 31,September 30, 2022:

Schedule of Share-based Compensation, Stock Options, Activity

      Weighted-       Weighted- 
      Average       Average 
    Weighted- Remaining     Weighted- Remaining 
    Average Contractual     Average Contractual 
    Exercise Life     Exercise Life 
 Options  Price  (Years)  Options  Price  (Years) 
              
Outstanding at December 31, 2021  4,939  $3.86   1.59   4,939  $3.86   1.59 
Granted  -           -         
Forfeited/cancelled  (1,072)          (1,739)        
Outstanding at March 31, 2022  3,867  $3.97   1.75 
Outstanding at September 30, 2022  3,200  $4.27   1.60 
                        
Vested and expected to vest at March 31, 2022  3,867  $3.97   1.75 
Vested and expected to vest at September 30, 2022  3,200  $4.27   1.60 
                        
Exercisable at March 31, 2022  3,867  $3.97   1.75 
Exercisable at September 30, 2022  3,200  $4.27   1.60 

 

The following table summarizes information about options outstanding and exercisable as of March 31,September 30, 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   2,334   1.95  $2.20   2,334  $2.71 2.00 - 4.00   1,667   2.20  $2.06   1,667  $2.06 
4.20 - 6.68   1,533   1.44   6.68   1,533   6.68 4.20 - 6.68   1,533   0.94   6.68   1,533   6.68 
    3,867           3,867         3,200           3,200     

 

11

 

Shares of Common Stock Issued

 

During the three-month periodthree and nine-month periods ending March 31,September 30, 2022 and for the same periods ending 2021, the Company did 0tnot issue any shares of common stock.

 

Warrants

 

As of March 31,September 30, 2022 and December 31, 2021, the Company had 248,216 warrants outstanding. The warrants outstanding at March 31,September 30, 2022 are all exercisable at $0.01 and have an expiration date of May 20, 2023.

 

5.Sales by Geographical Location

 

Revenue by country for the three and nine months ended March 31,September 30, 2022 and 2021 was as follows:

 Schedule of Revenue by Country

        2022 2021 2022 2021 
 Three Months Ended  Three Months Ended  Nine Months Ended 
 2022 2021  2022 2021 2022 2021 
Revenue by Country                        
United States $390,600  $273,700  $388,900  $379,300  $1,180,000  $1,091,500 
Brazil  211,000   153,600   256,500   174,600   736,400   600,200 
Japan  109,000   124,500   53,000   115,800   162,300   298,700 
                
Other Countries  239,600   308,400   281,800   249,700   813,300   688,300  
Total $950,200  $860,200  $980,200  $919,400   2,892,000   2,678,700 

 

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,September 30, 2022 and 2021, the Company contributed a total of $10,900600 each of these same periods. During the nine months ended September 30, 2022 and 2021, the Company contributed a total of $16,000 and $12,20018,000, 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,September 30, 2022 is as follows:

 Schedule of operating leasesOperating Leases Future Minimum Lease Payments

Future minimum lease payments:      
2022 $30,400  $7,700 
2023  30,800   30,700 
2024  12,900   20,700 
Thereafter  - 
Total future minimum lease payments $74,100  $59,100 
Less: Lease imputed interest  300   300 
Total $73,800  $58,800 

 

 

12

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, 2021 which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 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 2021 10-K Report and Note 2 to our unaudited consolidated financial Statements included under Item 1 – Financial Statements in this Form 10-Q.

 

13

 

Results of Operations for the Three-Month Periods Ended March 31,September 30, 2022 and 2021

 

The following are the results of our operations for the three months ended March 31,September 30, 2022 as compared to the three months ended March 31,September 30, 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    
  September 30,  September 30,    
  2022  2021  $ Change 
  (unaudited)  (unaudited)    
          
Revenues $980,200  $919,400  $60,800
Cost of revenues  49,800   36,100   13,700 
Gross profit  930,400   883,300   47,100
             
Operating expenses:            
Selling and marketing  248,600   152,000   96,600 
General and administrative  429,900   162,400   267,500 
Research and development  379,000   354,300   24,700 
Total operating expenses  1,057,500   668,700   388,800 
             
Income from operations  (127,100)  214,600   (341,700)
             
Other income (loss):            
Unrealized gain on marketable securities  (17,800)  146,800   (164,600)
Interest and other income  500   -   500 
Other income (loss)  (17,300)  146,800   (164,100)
Income before provision for income taxes  (144,400)  361,400   (505,800)
Net income (loss) $(144,400) $361,400  $(505,800)

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.

 

14

The following is a summary of our revenues by category for the three months ended September 30, 2022 and 2021.

  For the Three Months Ended    
  September 30,  September 30,    
  2022  2021  $ Change 
Revenue            
Software Licenses            
Windows $134,000  $151,700  $(17,700)
UNIX/Linux  1,500   15,900   (14,400)
Total  135,500   167,600   (32,100)
             
Software Service Fees            
Windows  795,200   684,500   110,700 
UNIX/Linux  28,600   45,600   (17,000)
Total  823,800   730,100   93,700 
             
Other  20,900   21,700   (800)
  $980,200  $919,400  $60,800

Software Licenses

 

Windows software licenses revenue decreased by $4,800$17,000 or 2.6%11.7% to $177,100$134,000 during the three months ended March 31,September 30, 2022, from $181,900$151,700 for the same period in 2021. The decrease was primarily due to lower level of standard licenses orders sold for the three months ended September 30, 2022.

14

 

Software licenses revenue from our UNIX/Linux products decreased by $13,100$14,100 or 74.9%90.6% to $4,400$1,500 for the three months ended March 31,September 30, 2022 from $17,500$15,900 for the same periods of 2021. The decrease was primarily due to lower revenue from stocking order licenses and lower standard order licenses.license sale.

 

Software Service Fees

 

Service fees attributable to our Windows product service increased by $124,400$110,700 or 21.1%16.2% to $714,600$795,200 during three months ended March 31,September 30, 2022, from $590,200$684,500 for the same period in 2021. The increase was due to an increase in subscriptions and maintenance renewals from existing customers and higher subscription license orders.customers.

 

Service fees revenue attributable to our UNIX products decreased by $16,000$17,000 or 32.6%37.3% to $33,100$28,600 during the three months ended March 31,September 30, 2022, from $49,100$45,600 for the same period in 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,September 30, 2022 increased by $33,200,$13,700, or 75.1%38.0%, to $77,400$49,800 for the three months ended March 31,September 30, 2022 from $44,200$36,100 for the same period in 2021. Cost of revenue 8.1% and 5.1%5.6% of total revenue for the three months ended March 31,September 30, 2022 and 2021, respectively.for the same period in 2021. The increase was due to import tax withholdings associated with higher revenue from Brazil resellers for the three-month period ended March 31,September 30, 2022.

 

Selling and Marketing Expenses

 

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

 

Selling and marketing expenses decreaseincreased by $19,900,$96,600, or 13.9%63.3%, to $123,100 for$248,600for the three months ended March 31,September 30, 2022 from $143,000$152,000 for the same period in 2021. Selling and marketing expenses represented approximately 13.0%25.4% and 16.6%16.5% of total revenue for the three months ended MarchSeptember 30 2022 and 2021, respectively.

The decreaseincrease in selling and marketing expenses was primarily due to lower payroll expenses duean increase in consulting services as we continue to changes in personnel duringexpand our sales and marketing initiatives for the first three months of March 31,ended September 30, 2022.

 

15

 

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 $9,800,$267,500, or 4.6%164.7%, to $204,900$429,900 for the three months ended March 31,September 30, 2022 from $214,700$162,400 for the same period in 2021. General and administrative expenses represented approximately 21.6%43.9% and 25.0%17.7% of total revenue for the three months ended March 31,September 30, 2022 and 2021, respectively.

 

The decreaseincrease in general and administrative expense was primarily due to reductionincrease in employee related expenses and board of legal patent fees.director fees granted during the three months ended September 30, 2022, that were not paid in the prior year period.

 

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 increased by $19,600,$24,700, or 5.2%7.0% to $382,700$379,000 for the three months ended March 31,September 30, 2022 from $363,100$354,300 for the same period in 2021. This represented approximately 40.3%38.7% and 42.2%38.5% of total revenue for the three months ended March 31,September 30, 2022 and 2021, respectively.

The increase in research and development expense was primarily due to an increase in wages and software subscriptions during the three months ended September 30, 2022.

Other Income

Other income decreased by $164,100 for the three months ended September 30, 2022, compared to the same periods in 2021. The decrease primarily due to a decline in the value of marketable securities relative to the three months ended September 30,2021.

Results of Operations for the Nine-Month Periods Ended September 30, 2022 and 2021

  For the Nine Months Ended    
  September 30,  September 30,    
  2022  2021  $ Change 
  (Unaudited)  (Unaudited)    
          
Revenues $2,892,000  $2,678,700  $213,300 
Cost of revenues  176,000   125,800   50,200 
Gross profit  2,716,000   2,552,900   163,100 
             
Operating expenses:            
Selling and marketing  687,600   448,100   239,500 
General and administrative  800,700   576,800   223,900 
Research and development  1,142,500   1,081,900   60,600 
Total operating expenses  2,630,800   2,106,800   524,000 
             
Income from operations  85,200  446,100   (360,900)
             
Other income:            
Unrealized gain on marketable securities  (103,300)  173,400   (276,700)
Interest and other income  1,500   269,800   (268,300)
   (101,800)  443,200   (545,000)
Income before provision for income taxes  (16,600)  889,300   (905,900)
Provision for income taxes  -   -   - 
Net income (loss) $(16,600) $889,300  $(905,900)

16

Revenues

The following is a summary of our revenues by category for the nine months ended September 30, 2022 and 2021.

  For the Nine Months Ended    
  September 30,  September 30,    
  2022  2021  $ Change 
Revenue         
Software Licenses            
Windows $433,500  $502,900  $(69,400)
UNIX/Linux  15,500   38,900   (23,400)
Total  449,000   541,800   (92,800)
             
Software Service Fees            
Windows  2,286,400   1,932,300   354,100 
UNIX/Linux  93,700   139,700   (46,000)
Total  2,380,100   2,072,000   308,100 
             
Other  62,900   64,900   (2,000)
  $2,892,000  $2,678,700  $213,300 

Software Licenses

Windows software licenses revenue decreased by $69,400 or 13.8% to $433,500 during the nine months ended September 30, 2022, from $502,900 for the same period in 2021. The decrease for the nine months ended September 30,2022 was due to lower license orders from standard licenses, offset by increase of stocking orders.

Software licenses revenue from our UNIX/Linux products decreased by $23,400 or 60.2% to $15,500 for the nine months ended September 30, 2022 from $38,900 for the same period of 2021. The decrease was primarily due to lower revenue from standard order licenses during the nine months ended September 30,2022.

Software Service Fees

Service fees attributable to our Windows product service increased by $354,100 or 18.3% to $2,286,400 during the nine months ended September 30, 2022, from $1,932,300 for the same period in 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 $46,000 or 32.9% to $93,700 during the nine months ended September 30, 2022, from $139,700 for the same period in 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.

Other

Other revenue consists of private labeling fees, professional services, and other non-recurring revenues. Other revenue decreased by $2,000 or 3.1% for the nine months ended September 30, 2022, compared to the same period in 2021.

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 nine months ended September 30, 2022 increased by $50,200, or 39.9%, to $176,000 for the nine months ended September 30, 2022 from $125,800 for the same period in 2021. Cost of revenue represented 6.3% and 4.7% of total revenue for the nine months ended September 30, 2022 and 2021, respectively. The primarily increase was due to increase import tax withholdings associated with higher revenue from Brazil resellers for the nine-month period ended September 30, 2022.

17

Selling and Marketing Expenses

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

Selling and marketing expenses increased by $239,500, or 53.4%, to $687,600 for the nine months ended September 30, 2022 from $448,100 for the same period in 2021. Selling and marketing expenses represented approximately 23.8% and 16.7% of total revenue for the nine months ended September 2022 and 2021, respectively. The increase in selling and marketing expenses was due to an increase in employee related expenses and consulting services as we continue to expand our sales and marketing initiatives.

General and Administrative Expenses

General and administrative expenses primarily consist of employee costs, legal, accounting, board fees, 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 increased by $223,900, or 38.8%, to $800,700 for the nine months ended September 30, 2022 from $576,800 for the same period in 2021. General and administrative expenses represented approximately 27.7% and 21.5% of total revenue for the nine months ended September 30, 2022 and 2021, respectively.

The increase in general and administrative expense was primarily due to increase of employee related fees and board of director fees paid that were not paid in the prior year period.

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 increased by $60,600, or 5.6% to $1,142,500 for the nine months ended September 30, 2022 from $1,081,900 for the same period in 2021. This represented approximately 39.5% and 40.4% of total revenue for the nine months ended September 30, 2022 and 2021, respectively.

The increase in research and development expense was primarily due to increase in wages and software subscriptions.

Other Income (Expense)

Other income decreased by $545,000 for the nine months ended September 30, 2022, compare to the same periods in 2021 was primarily related to income from the sale of certain patents and unrealized gain of marketable securities during the prior year.

 

Liquidity and Capital Resources

 

As of March 31, 2021,September 30, 2022, we had cash of $5,033,300$4,821,400 and a working capital position of $4,398,700$4,207,600 as compared to cash of $4,755,300 and a working capital position of $4,316,500 at December 31, 2021. The increase in cash as of March 31,September 30, 2022 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 threenine months ended March 31,September 30, 2022 and 2021.

 

 For the Three Months Ended  For the Nine Months Ended 
 March 31, March 31,  September 30, September 30, 
 2022 2021  2022  2021 
Cash flows provided by operating activities $278,000  $(6,300) $76,200  $208,800 
Cash flows used by investing activities $-  $23,800 
Cash flows used in investing activities $(10,100) $(24,100)
Cash flows provided by financing activities $-  $-  $-  $- 

 

Net cash flows provided by operating activities for the threenine months ended March 31,September 30, 2022 was $278,000$76,200 while net cash flows usedprovided for the threenine months ended March 31,2021September 30,2021 was $6,300.$208,800. The increasedecrease in cash flows provided byused in operating activities is primarily the result of an increase in accounts receivable and deferred revenue and offset by decrease in prepaid assets and change in value in marketable securities compared to the prior year period.

 

The Company had nonet cash related toflows of $10,100 used in investing activities for the threenine months ended March 31,September 30, 2022, while the Company had net cash flows of $23,800 provided by investing activities$24,100 for the same periods ended March 31,September 30, 2021. The Company expended $10,100 on the repurchase of 24,333 shares of treasury stock during the nine months ended September 30,2022.

1618

 

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,September 30, 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,September 30, 2022 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, 2021, which was filed with the Securities and Exchange Commission on March 31, 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

17

 

ITEM 5. Exhibits

 

Exhibit Number Exhibit Description
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

1819

 

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 16,November 14, 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)

 

1920