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HPTO hopTo

Filed: 16 Aug 21, 5:16pm

 

 

 

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 June 30, 2021

 

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.)

 

6 Loudon Road, Suite 200

Concord, NH 03301

(Address of principal executive offices)

 

Registrant’s telephone number:

(800) 472-7466

(408) 688-2674

 

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 filerAccelerated filer
 Non-accelerated filerSmaller 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 August 16, 2021, 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 Risk20
Item 4.Controls and Procedures20
   
PART II.OTHER INFORMATION 
Item 1.Legal Proceedings20
Item 1A.Risk Factors20
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds20
Item 3.Defaults Upon Senior Securities20
Item 4.Mine Safety Disclosures20
Item 5.Exhibits21
 Signatures22

 

 2

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

hopTo Inc.

Consolidated Balance Sheets

(Unaudited)

 

  June 30,  December 31, 
  2021  2020 
      
Assets      
Current assets        
Cash and cash equivalents $4,483,400  $4,375,300 
Marketable securities  317,200   - 
Accounts receivable, net  466,700   417,300 
Prepaid expenses and other current assets  

136,000

   48,500 
Total current assets  5,403,300   4,841,100 
         
Property and equipment, net  2,900   - 
Other assets  17,800   17,800 
Total assets $5,424,000  $4,858,900 
         
Liabilities and Stockholders’ Equity        
Current liabilities        
Accounts payable $248,600  $251,000 
Accrued expenses  64,400   82,000 
Accrued wages  143,500   141,600 
Deferred revenue  1,180,200   1,084,900 
Total current liabilities  1,636,700   1,559,500 
Long-term liabilities        
Deferred revenue  343,000   383,000 
Total liabilities  1,979,700   1,942,500 
         
Commitments and contingencies  -   - 
         
Stockholders’ equity        
Preferred stock, $0.01 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 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 June 30, 2021 and December 31, 2020  1,900   1,900 
Additional paid-in capital  82,155,200   82,155,200 
Accumulated deficit  (78,712,800)  (79,240,700)
Total stockholders’ equity  3,444,300   2,916,400 
Total liabilities and stockholders’ equity $5,424,000  $4,858,900 

 

See accompanying notes to unaudited consolidated financial statements

 

 3

 

 

hopTo Inc.

Consolidated Statements of Operations

(Unaudited)

 

  June 30,  June 30,  June 30,  June 30, 
  For the Three Months Ended  For the Six Months Ended 
  June 30,  June 30,  June 30,  June 30, 
  2021  2020  2021  2020 
         
             
Revenues:                
Software licenses $174,800  $175,500  $374,200  $451,800 
Software service fees  702,700   639,200   1,342,000   1,185,900 
Other  21,600   251,400   43,100   273,000 
Total revenue  899,100   1,066,100   1,759,300   1,910,700 
                 
Cost of revenue:                
Software service costs  13,500   13,100   27,000   26,300 
Software product costs  32,100   24,300   62,800   49,200 
Total cost of revenue  45,600   37,400   89,800   75,500 
Gross profit  853,500   1,028,700   1,669,500   1,835,200 
Operating expenses:                
Selling and marketing  153,100   151,500   296,100   255,900 
General and administrative  199,600   239,500   414,300   468,500 
Research and development  364,500   356,900   727,600   720,900 
Total operating expenses  717,200   747,900   1,438,000   1,445,300 
Income from operations  136,300   280,800   231,500   389,900 
Other income:                
Unrealized gain in marketable securities  12,400   -   26,600   - 
Other income  -   46,900   269,800   46,900 
Income before provision for income taxes  148,700   327,700   527,900   436,800 
Provision for income taxes  -   5,000   -   5,000 
Net income $148,700  $322,700  $527,900  $431,800 
                 
Net income per share, basic $0.01  $0.03  $0.03  $0.04 
Net income per share, diluted $0.01  $0.03  $0.03  $0.04 
                 
Weighted average number of common shares outstanding                
Basic  18,850,675   11,432,378   18,850,675   10,687,029 
Diluted  19,092,981   11,903,890   19,093,375   11,158,540 

 

See accompanying notes to unaudited consolidated financial statements

 

 4

 

 

hopTo Inc.

Consolidated Statements of Stockholders’ Equity

For the Six Months Ended June 30, 2021 and 2020

(Unaudited)

 

    Amount  Capital  Deficit  Total 
  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 
Proceeds from rights offering  -             
Issuance cost for rights offering             
Contributed services  -   -   56,200   -   56,200 
Net income  -   -   -   109,100   109,100 
Balance at March 31, 2020 (unaudited)  9,954,866  $1,000  $79,619,300  $(79,825,300) $(205,000)
Proceeds from rights offering  1,600,638   100   480,000   -   480,100 
Issuance cost for rights offering  -   -   (119,400)  -   (119,400)
Contributed services  -   -   56,200   -   56,200 
Net income  -   -   -   322,700   322,700 
Balance at June 30, 2020 (unaudited)  11,555,504  $1,100  $80,036,100  $(79,502,600) $534,600 
                     
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 
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 

 

See accompanying notes to unaudited consolidated financial statements

 

 5

 

 

hopTo Inc.

Consolidated Statements of Cash Flows

 

  June 30,  June 30, 
  For the Six Months Ended 
  June 30,  June 30, 
  2021  2020 
  (Unaudited)  (Unaudited) 
Cash flows from operating activities        
Net income $527,900  $431,800 
Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation  500   - 
Contributed services  -   112,400 
Changes in allowance for doubtful accounts  5,600   (2,900)
Gain on sale of patents  (269,800)  - 
Unrealized gain from marketable securities  (26,600)  - 
Changes in operating assets and liabilities:        
Accounts receivable  (55,000)  (43,200)
Prepaid expenses and other current assets  (87,500)  (168,700)
Accounts payable  (2,400)  (27,600)
Accrued expenses  (17,600)  270,300 
Accrued wages  1,900   16,200 
Deferred revenue  55,300   (174,500)
Net cash provided by operating activities  132,300   413,800 
Cash flows from investing activities        
Purchase of marketable securities  (290,600)  - 
Proceeds from sale of patents  269,800   - 
Purchase of property and equipment  (3,400)  - 
Net cash used by investing activities  (24,200)  - 
         
Cash flows from financing activities        
Proceeds from rights offering  -   480,100 
Issuance cost for rights offering  -   (63,100)
Net cash provided by financing activities  -   417,000 
         
Net change in cash  108,100   830,800 
Cash, beginning of the period  4,375,300   1,541,900 
Cash, end of the period $4,483,400  $2,372,700 
Supplemental disclosure of cash flow information:        
Income taxes paid $-  $5,000 
         
Supplemental disclosure of non-cash investing and financing information:        
Non-cash financing activities: shares issued for settlement of accrued expenses $-  $39,600 
Issuance of cost for rights offering included in accounts payable and accrued expenses $-  $56,300 

 

 

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, 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, 2020 which was filed with the SEC on March 31, 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, 2021 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 allowance for doubtful accounts, depreciation of long-lived 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 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 $317,200 primarily in money market account as of June 30, 2021 (unaudited) and had 0 such cash equivalents at December 31, 2020.

 

Allowance for Doubtful Accounts

 

We maintain an allowance for doubtful accounts that reflects our best estimate of potentially uncollectible trade receivables. The allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts receivable. We regularly review the adequacy of our allowance for doubtful accounts by considering such factors as historical experience, credit worthiness, and current economic conditions that may affect a customer’s ability to pay. We specifically reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance for doubtful accounts based on our review of the aging and size of our accounts receivable. As of June 30, 2021 and December 31, 2020, the allowance for doubtful accounts totaled $11,500 and $5,900, respectively.

 

 8

 

 

Concentration of Credit Risk

 

For the six months ended June 30, 2021, the Company had two resellers comprising 11.2% and 10.2% of total sales. For the six months ended June 30, 2020, the Company had one reseller comprising 11.1% of total sales.

 

As of June 30, 2021 and December 31, 2020, the Company has two resellers comprising 24.9% and 18.0%, and two resellers comprising 25.7% and 18.9%, 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 June 30, 2021, representing 248,216 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three and six months ended June 30, 2021 and 2020, the Company had total common stock equivalents of 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.

 

3. Property and Equipment

 

Property and equipment consisted of the following.

 Schedule of Property and Equipment

  June 31,  December 31, 
  2021  2020 
  (Unaudited)    
       
Equipment $157,700  $154,300 
Furniture and fixtures  1,600   1,600 
         
   159,300   155,900 
         
Less: accumulated depreciation  (156,400)  (155,900)
         
  $2,900  $- 

 

Depreciation expense amounted to $500 and $0, respectively for the six months ended June 30, 2021 and 2020.

 

 10

 

 

4. Stockholders’ Equity

 

Stock-Based Compensation Plans

 

The following summarizes the stock option activity for the six months ended June 30, 2021.

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 June 30, 2021  78,550  $3.45   0.38 
             
Vested and expected to vest at June 30, 2021  78,550  $3.45   0.38 
             
Exercisable at June 30, 2021  78,550  $3.45   0.38 

 

The following table summarizes information about options outstanding and exercisable as of June 30, 2021.

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

   Options Outstanding  Options Exercisable 
         Weighted-     Weighted- 
Range of     Average  Average     Average 
Exercise  Number  Remaining  Exercise  Number  Exercise 
Price  of Shares  Life (Years)  Price  of Shares  Price 
                 
$ 2.00 - 4.00   63,684   0.37  $3.21   63,684  $3.21 
4.20 - 6.68   14,866   0.40   4.46   14,866   4.46 
    78,550           78,550     

 

 11

 

 

Shares of Common Stock Issued

 

During the three and six-month periods ending June 30, 2021, the Company did 0t issue any shares of common stock. During the three and six -month period ending June 30, 2020, respectively, the Company issued a 0 and 120,000 shares of common stocks. The issuance of the common stock was for the 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 June 30, 2021 and December 31, 2020, the Company had 248,216 warrants outstanding. The warrants outstanding at June 30, 2021 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 six months ended June 30, 2021 and 2020 was as follows.

Schedule of Revenue by Country 

  Three Months Ended  Six Months Ended 
  June 30, 2021  June 30, 2020  June 30, 2021  June 30, 2020 
Revenue by Country                
United States $364,700  $301,600  $712,200  $614,200 
Brazil  174,600   417,800   348,600   583,400 
Japan  115,800   95,600   232,200   165,900 
Other Countries  244,000   251,100   466,300   547,200 
Total  899,100   1,066,100   1,759,300   1,910,700 

 

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 June 30, 2021 and 2020, the Company contributed a total of $3,200 and $6,100, respectively. During the six months ended June 30, 2021 and 2020, the Company contributed a total of $15,400 and $15,600, 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.

 

 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, 2020 which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021, 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 2020 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 June 30, 2021 and 2020

 

The following are the results of our operations for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

 

  For the Three Months Ended    
  June 30,  June 30,    
  2021  2020  $ Change 
  (Unaudited)  (Unaudited)    
          
Revenues $899,100  $1,066,100  $(167,000)
Cost of revenues  45,600   37,400   8,200 
Gross profit  853,500   1,028,700   (175,200)
             
Operating expenses:            
Selling and marketing  153,100   151,500   1,600 
General and administrative  199,600   239,500   (39,900)
Research and development  364,500   356,900   7,600 
Total operating expenses  717,200   747,900   (30,700)
             
Income from operations  136,300   280,800   (144,500)
             
Other income:            
Unrealized gain on marketable securities  12,400   -   12,400 
Other income  -   46,900   (46,900)
   12,400   46,900   (34,500)
Income before provision for income taxes  148,700   327,700   (179,000)
Provision for income taxes  -   5,000   (5,000)
Net income $148,700  $322,700  $(174,000)

 

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.

 

The following is a summary of our revenues by category for the three months ended June 30, 2021 and 2020.

 

  For the Three Months Ended
  June 30,  June 30,    
  2021  2020  $ Change 
Revenue         
Software Licenses            
Windows $169,300  $159,000  $10,300 
UNIX/Linux  5,500   16,500   (11,000)
Total  174,800   175,500   (700)
             
Software Service Fees            
Windows  657,700   582,500   75,200 
UNIX/Linux  45,000   56,700   (11,700)
Total  702,700   639,200   63,500 
             
Other  21,600   251,400   (229,800)
  $899,100  $1,066,100  $(167,000)

 

Software Licenses

 

Windows software licenses revenue increased by $10,300 or 6.5% to $169,300 during the three months ended June 30, 2021, from $159,000 for the same period in 2020. The increase was due to higher standard order licenses in the period.

 

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Software licenses revenue from our UNIX/Linux products decreased by $11,000 or 66.7% to $5,500 for the three months ended June 30, 2021 from $16,500 for the same periods of 2020. The decrease was primarily due to lower revenue standard order licenses.

 

Software Service Fees

 

Service fees attributable to our Windows product service increased by $75,200 or 12.9% to $657,700 during three months ended June 30, 2021, from $582,500 for the same period in 2020. The increase was primarily due to higher subscription license orders.

 

Service fees revenue attributable to our UNIX products decreased by $11,700 or 20.6% to $45,000 during the three months ended June 30, 2021, from $56,700 for the same period in 2020. The decrease was primarily the result of the 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 $229,800 or 91.4% for the three months ended June 30, 2021, compared to the same period in 2020. The primary decrease was related to revenue recognized from a one-time, non-recurring a license agreement with an existing customer for the use of our license.

 

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 June 30, 2021 increased by $8,200, or 21.9%, to $45,600 for the three months ended June 30, 2021 from $37,400 for the same period in 2020. Cost of revenue 5.1% and 3.5% of total revenue for the three months ended June 30, 2021 and 2020, respectively. The increase was due to import tax withholdings associated with higher revenue from Brazil resellers for the three-month period ended June 30, 2021.

 

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 $1,600, or 1.1%, to $153,100 for the three months ended June 30, 2021 from $151,500 for the same period in 2020. Selling and marketing expenses represented approximately 17.0% and 14.2% of total revenue for the three months ended June 30, 2021 and 2020, respectively. The increase in selling and marketing expenses was due to higher consulting services as we continue to expand our sales and marketing initiatives.

 

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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 $39,900, or 16.7%, to $199,600 for the three months ended June 30, 2021 from $239,500 for the same period in 2020. General and administrative expenses represented approximately 22.2% and 22.5% of total revenue for the three months ended June 30, 2021 and 2020, respectively.

 

The decrease in general and administrative expense was due to no board member service fees being incurred versus the prior year, partially offset by higher legal fees and payroll related 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 increase by $7,600, or 2.1% to $364,500 for the three months ended June 30, 2021 from $356,900 for the same period in 2020. This represented approximately 40.5% and 33.5% of total revenue for the three months ended June 30, 2021 and 2020, respectively.

 

Other Income

 

Other income decreased by $34,500 for the three months ended June 30, 2021, compare to the same periods in 2020. The decrease was primarily related to one-time, non-recurring license agreement with an existing customer for the use of our license for the prior year period, partially offset by the gain from marketable securities for the three months ended June 30,2021.

 

Results of Operations for the Six-Month Periods Ended June 30, 2021 and 2020

 

  For the Six Months Ended    
  June 30,  June 30,    
  2021  2020  $ Change 
  (Unaudited)  (Unaudited)    
          
Revenues $1,759,300  $1,910,700  $(151,400)
Cost of revenues  89,800   75,500   14,300 
Gross profit  1,669,500   1,835,200   (165,700)
             
Operating expenses:            
Selling and marketing  296,100   255,900   40,200 
General and administrative  414,300   468,500   (54,200)
Research and development  727,600   720,900   6,700 
Total operating expenses  1,438,000   1,445,300   (7,300)
             
Income from operations  231,500   389,900   (158,400)
             
Other income:            
Unrealized gain on marketable securities  26,600   -   26,600 
Other income  269,800   46,900   222,900 
   296,400   46,900   249,500 
Income before provision for income taxes  527,900   436,800   91,100 
Provision for income taxes  -   5,000   (5,000)
Net income $527,900  $431,800  $96,100 

 

Revenues

 

The following is a summary of our revenues by category for the six months ended June 30, 2021 and 2020.

 

  For the Six Months Ended    
  June 30,  June 30,    
  2021  2020  $ Change 
Revenue         
Software Licenses            
Windows $351,200  $396,900  $(45,700)
UNIX/Linux  23,000   54,900   (31,900)
Total  374,200   451,800   (77,600)
             
Software Service Fees            
Windows  1,247,900   1,064,100   183,800 
UNIX/Linux  94,100   121,800   (27,700)
Total  1,342,000   1,185,900   156,100 
             
Other  43,100   273,000   (229,900)
  $1,759,300  $1,910,700  $(151,400)

 

Software Licenses

 

Windows software licenses revenue decreased by $45,700 or 11.5% to $351,200 during the six months ended June 30, 2021, from $396,900 for the same period in 2020. The decrease for the six months ended June 30,2021 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.

 

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Software licenses revenue from our UNIX/Linux products decreased by $31,900 or 58.1% to $23,000 for the six months ended June 30, 2021 from $54,900 for the same periods of 2020. The decrease was primarily due to lower revenue from lower stocking and standard order licenses.

 

Software Service Fees

 

Service fees attributable to our Windows product service increased by $183,800 or 17.3% to $1,247,900 during the six months ended June 30, 2021, from $1,064,100 for the same period in 2020. The increase was primarily due to revenue in Windows subscription license orders.

 

Service fees revenue attributable to our UNIX products decreased by $27,700 or 22.7% to $94,100 during the six months ended June 30, 2021, from $121,800 for the same period in 2020. The decrease was primarily the result of an expiration of certain long-term maintenance contracts.

 

Other

 

Other revenue consists of private labeling fees, professional services, and other non-recurring revenues. Other revenue decreased by $229,900 or 84.2% for the six months ended June 30, 2021, compared to the same period in 2020. The primary decrease was related to revenue recognized from a one-time, non-recurring a license agreement with an existing customer for the use of our license.

 

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 six months ended June 30, 2021 increased by $14,300, or 18.9%, to $89,800 for the six months ended June 30, 2021 from $75,500 for the same period in 2021. Cost of revenue represented 5.1% and 4.0% of total revenue for the six months ended June 30, 2021 and 2020, respectively. The primarily increase was due to increase import tax withholdings associated with higher revenue from Brazil resellers for the six-month period ended June 30, 2021.

 

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 $40,200, or 15.7%, to $296,100 for the six months ended June 30, 2021 from $255,900 for the same period in 2020. Selling and marketing expenses represented approximately 16.8% and 13.4% of total revenue for the six months ended June 2021 and 2020, respectively. The increase in selling and marketing expenses was due to an increase in consulting services as we continue to expand our sales and marketing initiatives.

 

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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 decreased by $54,200, or 11.6%, to $414,300 for the six months ended June 30, 2021 from $468,500 for the same period in 2020. General and administrative expenses represented approximately 23.5% and 24.5% of total revenue for the six months ended June 30, 2021 and 2020, respectively.

 

The decrease in general and administrative expense was due to no board member service fees being incurred versus the prior year, partially offset by higher legal and payroll related 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 increased by $6,700, or 0.9% to $727,600 for the six months ended June 30, 2021 from $720,900 for the same period in 2020. This represented approximately 41.4% and 37.7% of total revenue for the six months ended June 30, 2021 and 2020, respectively.

 

The increase in research and development expense was primarily due to an increase in benefit costs and consulting fees associated with a new release of our GO-Global product.

 

Other Income

 

Other income increased by $249,500 for the six months ended June 30, 2021, compare to the same periods in 2020 was primarily related the sale of certain patents and unrealized gain of marketable securities.

 

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Liquidity and Capital Resources

 

As of June 30, 2021, we had cash of $4,403,300 and a working capital position of $3,766,600 as compared to cash of $4,375,300 and a working capital position of 3,281,600 at December 31, 2020. The increase in cash as of June 30, 2021 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 from the date of the filing of this quarterly report on Form 10-Q.

 

The following is a summary of our cash flows from operating, investing and financing activities for the six months ended June 30, 2021 and 2020.

 

  For the Six Months Ended 
  June 30,  June 30, 
  2021  2020 
Cash flows used in operating activities $132,300  $413,800 
Cash flows used by investing activities $(24,200) $- 
Cash flows provided by financing activities $-  $417,000 

 

Net cash flows provided by operating activities for the six months ended June 30, 2021 amounted to $132,300, compared to cash flows provided by operating activities of $431,800 for the six months ended June 30, 2020. The decrease in cash flows provided by operating activities is primarily due the elimination of contributed services and gain on sale of patents, offset by to the result of higher net income related to a one-time settlement income from a particular during the prior year for the same periods.

 

Net cash flows used by investing activities for the six months ended June 30, 2021 amount to $24,200 due to net, purchase of marketable securities investments and property equipment, offset by cash receipt from sale of patents. The Company had no cash related to investing activities for the same periods of prior year.

 

We did not have cash flow from financing activities for the six months ended June 30,2021. Net cash provided by financing activities for the six months ended June 30, 2020 amounted to $417,000. We received gross proceeds of $480,100 from the Rights Offering and paid $63,100 of issuance cost for the six months ended June 30, 2020.

 

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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 June 30, 2021.

 

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 June 30, 2021 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, which was filed with the Securities and Exchange Commission on March 31, 2021.

 

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 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 XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase

 

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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:August 16, 2021
   
 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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