10-Q

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, 2018

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 [X] No [  ]

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

Yes[X] No [  ]

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

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

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

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

As of August 10, 2018, there were 9,804,400 issued and outstanding shares of the registrant’s common stock, par value $0.0001.

hopTo Inc.

FORM 10-Q

Table of Contents

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017	3
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six-Month Periods Ended June 30, 2018 and 2017	4
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Six-Month Periods Ended June 30, 2018 and 2017	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2018 and 2017	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
PART II.	OTHER INFORMATION	22
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	22
	Signatures	23

2

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

hopTo Inc.

Condensed Consolidated Balance Sheets

	(Unaudited)
	June 30, 2018			December 31, 2017
Assets
Current Assets:
Cash	$	994,200		$	1,015,400
Accounts receivable, net		207,100			426,800
Prepaid expenses		148,400			112,900
Total Current Assets		1,349,700			1,555,100
Property and equipment, net		12,300			30,800
Other assets		17,800			17,800
Total Assets	$	1,379,800		$	1,603,700
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Accounts payable and accrued expenses	$	637,700		$	635,100
Deferred rent		58,300			74,100
Deposit liability		93,500			93,500
Deferred revenue		1,143,000			1,845,100
Other current liabilities		—			855,100
Total Current Liabilities		1,932,500			3,502,900
Deferred revenue		543,900			1,409,700
Total Liabilities		2,476,400			4,912,600
Commitments and contingencies		—			—
Stockholders’ Equity (Deficit):
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.0001 par value, 195,000,000 shares authorized, 9,804,400 shares issued and outstanding at June 30, 2018 and December 31, 2017		1,000			1,000
Additional paid-in capital		79,238,700			78,539,300
Accumulated deficit		(80,336,300	)		(81,849,200	)
Total Stockholders’ Equity (Deficit)		(1,096,600	)		(3,308,900	)
Total Liabilities and Stockholders’ Equity (Deficit)	$	1,379,800		$	1,603,700

See accompanying notes to unaudited condensed consolidated financial statements

3

hopTo Inc.

Condensed Consolidated Statements of Operations

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenue	$	866,000		$	924,800		$	1,688,300		$	1,907,300
Costs of revenue		37,700			18,300			66,500			37,100
Gross profit		828,300			906,500			1,621,800			1,870,200
Operating expenses:
Selling and marketing		108,500			82,100			210,100			172,000
General and administrative		327,800			421,100			633,000			1,062,200
Research and development		358,000			355,100			786,500			740,100
Total operating expenses		794,300			858,300			1,629,600			1,974,300
Income / (loss) from operations		34,000			48,200			(7,800	)		(104,100	)
Other income (expense), net		130,500			(59,600	)		129,700			(60,100	)
Income / (loss) before provision for income tax		164,500			(11,400	)		121,900			(164,200	)
Provision for income tax		(100	)		1,100			900			2,000
Net income / (loss)	$	164,600		$	(12,500	)	$	121,000		$	(166,200	)
Basic and diluted income (loss) per share	$	0.02		$	(0.00	)	$	0.01		$	(0.02	)
Average weighted common shares outstanding – basic		9,804,400			9,804,400			9,804,400			9,804,400
Average weighted common shares outstanding – diluted		10,368,956			9,804,400			10,368,956			9,804,400

See accompanying notes to unaudited condensed consolidated financial statements

4

hopTo Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

	Six Months Ended June 30,
	2018			2017
	(Unaudited)			(Unaudited)
Preferred stock – shares outstanding
Beginning balance		—			—
Ending balance		—			—
Common stock – shares outstanding
Beginning balance		9,804,400			9,804,400
Ending balance		9,804,400			9,804,400
Common stock - amount
Beginning balance	$	1,000		$	1,000
Ending balance	$	1,000		$	1,000
Additional paid-in capital
Beginning balance	$	78,539,300		$	78,525,900
Stock-based compensation expense		—			18,500
Issuance of new warrants and settlement of liquidated damage		699,400			—
Ending balance	$	79,238,700		$	78,544,400
Accumulated deficit
Beginning balance	$	(81,849,200	)	$	(82,449,800	)
Cumulative effect from change of accounting principal		1,391,900			—
Net income (loss)		121,000			(166,200	)
Ending balance	$	(80,336,300	)	$	(82,616,000	)
Total Stockholders’ Equity (Deficit)	$	(1,096,600	)	$	(4,070,600	)

See accompanying notes to unaudited condensed consolidated financial statements

5

hopTo Inc.

Condensed Consolidated Statements of Cash Flows

	Six Months Ended June 30,
	2018			2017
	(Unaudited)			(Unaudited)
Cash Flows Provided By (Used In) Operating Activities:
Net income (loss)	$	121,000		$	(166,200	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		17,800			33,200
Stock-based compensation expense		—			18,500
Changes in deferred rent		(15,800	)		(19,200	)
Changes to allowance for doubtful accounts		(3,700	)		7,600
Loss / (gain) on disposal of fixed assets		700			60,400
Interest accrued for capital lease		—			300
Changes in operating assets and liabilities:
Accounts receivable		223,400			(99,300	)
Prepaid expenses		(35,500	)		1,300
Deposit liability		—			12,100
Deferred revenue		(176,000	)		(85,400	)
Accounts payable and accrued expenses		2,600			(34,900	)
Other current liabilities		(155,700	)		284,000
Net Cash Provided By (Used In) Operating Activities		(21,200	)		12,400
Cash Flows Provided By Investing Activities:
Proceeds from sale of expensed equipment		—			900
Net Cash Provided By Investing Activities		—			900
Cash Flows Used In Financing Activities:
Payment for capital lease		—			(4,700	)
Net Cash Used In Financing Activities		—			(4,700	)
Net Increase (Decrease) in Cash		(21,200	)		8,600
Cash - Beginning of Period		1,015,400			546,200
Cash - End of Period	$	994,200		$	554,800

See accompanying notes to unaudited condensed consolidated financial statements

6

hopTo Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of hopTo Inc. and its subsidiaries (collectively, the “Company”, “we”, “us” or “our”); significant intercompany accounts and transactions are eliminated upon consolidation. The unaudited condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial information and the rules and regulations promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, such unaudited condensed consolidated financial statements do not include all information and footnote disclosures required in annual financial statements.

The unaudited condensed consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on April 17, 2018 (“2017 10-K Report”). The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2018 or any future period.

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

2. Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates include: the amount of stock-based compensation expense; the allowance for doubtful accounts; the estimated lives, valuation, and amortization of intangible assets (including capitalized software); depreciation of long-lived assets; valuation of warrants; post-employment benefits; and accruals for liabilities. While we believe that such estimates are fair, actual results could differ materially from those estimates.

Revenue Recognition

We market and license our products indirectly through channel distributors, independent software vendors (“ISVs”), value-added resellers (“VARs”) (collectively, “resellers”) and directly to hosting service providers, corporate enterprises, governmental and educational institutions and others. Our product licenses are perpetual. We also separately sell intellectual property licenses, maintenance contracts, which are comprised of license updates and customer service access, as well as other products and services.

Effective January 1, 2018, the Company adopted guidance ASC 606. For further details, see below “Recently Adopted Accounting Pronouncements”.

For the year ended December 31, 2017 including interim periods therein, the Company recognized revenue under ASC 605. Under ASC 605 software license revenues were recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price to the customer is fixed or determinable, as typically evidenced in a signed non-cancellable contract, or a customer’s purchase order, and collectability is probable. For additional detail on the Company’s revenue recognition policies in prior periods, please see Note 2 of Notes to Consolidated Financial Statements in the 2017 10-K Report.

7

The impact of the adoption of ASC 606 is the effect on revenue treatment of certain resellers (“stocking resellers”) who purchase product licenses that they hold in inventory until they are resold to the ultimate end user (an “inventory stocking order”). At the time that a stocking reseller places an inventory stocking order, no product licenses are shipped by us to the stocking reseller; rather, the stocking reseller’s inventory is credited with the number of licenses purchased and the stocking reseller can resell (issue) any number of licenses from their inventory at any time. Upon receipt of an order to issue a license(s) from a stocking reseller’s inventory (a “draw down order”), we will ship the license(s) in accordance with the draw down order’s instructions.

Under ASC 605, we would defer recognition of revenue from inventory stocking orders until the underlying licenses were sold and shipped to the end user, as evidenced by the receipt and fulfillment of the stocking reseller’s draw down order, assuming all other revenue recognition criteria have been met. Under ASC 606, we recognize revenue at the time that the stocking reseller places an inventory stocking order and their account is credited with available licenses because at that time control over the licenses has been transferred to the reseller and there are no remaining performance obligations for the Company other than the administrative task of electronic transfer of license keys.

There are no rights of return granted to resellers or other purchasers of our software products.

Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

All of our software licenses are denominated in U.S. dollars.

Long-Lived Assets

Long-lived assets are assessed for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable, whenever we have committed to a plan to dispose of the assets or, at a minimum, annually. Typically, for long-lived assets to be held and used, measurement of an impairment loss is based on the fair value of such assets, with fair value being determined based on appraisals, current market value, comparable sales value, and discounted future cash flows, among other variables, as appropriate. Assets to be held and used (which assets are affected by an impairment loss) are depreciated or amortized at their new carrying amount over their remaining estimated life; assets to be sold or otherwise disposed of are not subject to further depreciation or amortization. No such impairment charge was recorded during either of the three or six-month periods ended June 30, 2018 or 2017.

Allowance for Doubtful Accounts

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

The following table sets forth the details of the Allowance for Doubtful Accounts for the three-month periods ended June 30, 2018 and 2017:

	Beginning Balance		Charge Offs		Recoveries		Provision		Ending Balance
2018	$	3,400	$	—	$	—	$	700	$	4,100
2017		5,000		—		—		10,300		15,300

8

The following table sets forth the details of the Allowance for Doubtful Accounts for the six-month periods ended June 30, 2018 and 2017:

	Beginning Balance		Charge Offs		Recoveries		Provision			Ending Balance
2018	$	7,800	$	—	$	—	$	(3,700	)	$	4,100
2017		7,700		—		—		7,600			15,300

Concentration of Credit Risk

For the three and six-month periods ended June 30, 2018 and 2017, respectively, we considered the customers listed in the following tables to be our most significant customers. The tables set forth the percentage of sales attributable to each customer during the periods presented, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net, as of June 30, 2018 and 2017.

	Three Months Ended June 30, 2018			As of June 30, 2018			Three Months Ended June 30, 2017			As of June 30, 2017
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Alcatel-Lucent		1.3	%		5.9	%		9.1	%		20.0	%
Centric		17.1	%		20.8	%		4.9	%		10.1	%
ESO Solutions		6.3	%		2.3	%		9.2	%		20.2	%
Elosoft		7.6	%		20.2	%		17.3	%		4.2	%
Siae microelettronica		3.8	%		13.6	%		2.8	%		6.2	%
Total		36.1	%		62.8	%		43.3	%		60.7	%

	Six Months Ended June 30, 2018			As of June 30, 2018			Six Months Ended  June 30, 2017			As of June 30, 2017
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Alcatel-Lucent		0.8	%		5.9	%		5.5	%		20.0	%
Centric		15.7	%		20.8	%		4.9	%		10.1	%
ESO Solutions		4.5	%		2.3	%		5.1	%		20.2	%
Elosoft		5.9	%		20.2	%		13.8	%		4.2	%
Siae microelettronica		1.9	%		13.6	%		1.6	%		6.2	%
Total		28.8	%		62.8	%		30.9	%		60.7	%

Reclassification

Certain reclassifications have been made to the 2017 financial statements to conform to the 2018 presentation.

9

Recently Adopted Accounting Pronouncements

Revenue

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASC 606). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to reporting periods beginning after December 15, 2017, with early adoption permitted for reporting periods beginning after December 15, 2016. Subsequently, FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including: ASU 2016-08, Revenue from Contracts with Customers (ASC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations; ASU 2016-10, Revenue from Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing, which is intended to clarify two aspects of ASC 606: identifying performance obligations and the licensing implementation guidance; and ASU 2016-12, Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients, which contains certain practical expedients in response to identified implementation issues. The Company elected to adopt ASC 606 under the Modified Retrospective approach. Under the Modified Retrospective approach, only contracts with customers for which there were remaining unsatisfied performance obligations (open contracts) at the beginning of initial year of adoption must be restated to apply retrospectively the guidance under ASC 606. Any resulting impact for such contracts prior to the beginning of the initial year of adoption are made as an adjustment to opening accumulated deficit for such year.

On January 1, 2018, the Company adopted ASC 606 using the Modified Retrospective method. This method required retrospective application of the new accounting standard to those contracts which were not completed as of January 1, 2018. Results for the reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

The change to the current revenue policy is the timing of revenue recognition for software licenses purchased by stocking resellers. Under the guidance ASC 605, the Company recognized revenue upon the delivery of licenses to end users when they were purchased from the stocking reseller. Under the guidance ASC 606, license revenue is recognized upon placement of the stocking order by the stocking reseller. During the three-month and six-month periods ended June 30, 2018, this change in revenue policy resulted in lower license revenue of $96,400. This lower license revenue had the same impact on gross profit, loss from operations and net income.

The Company recorded $1,391,900 to opening accumulated deficit as of January 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to reversal of deferred license revenue associated with stocking orders placed in prior periods which had not been sold through to end users as of December 31, 2017.

The cumulative effect of the changes made to our condensed consolidated balance sheet as of January 1, 2018 under current assets, deferred revenue and accumulated deficit for the adoption ASU 2014-09, Revenue - Revenue from Contracts with Customers were as follows:

Balance Sheet	Balance at December 31, 2017			Adjustments due to ASC 606			Balance at January 1, 2018
Current Assets
Deferred COGS	$	—		$	20,000		$	20,000
Liabilities and Stockholders’ Equity
Accumulated Deficit	$	(81,849,200	)	$	1,391,900		$	(80,457,300	)
Current Liabilities
Deferred Revenue	$	1,845,100		$	(609,700	)	$	1,235,400
Long Term Liabilities
Deferred Revenue	$	1,409,700		$	(802,200	)	$	607,500

10

Income Taxes

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Among these new taxes on certain foreign sourced earnings, the Act created a new category of income inclusion: the global intangible low-taxed income (“GILTI”). The objective of GILTI is to deter U.S. corporations from transferring intangible property to non-U.S. low-tax jurisdictions by subjecting the non-U.S. income to current U.S. taxation. The Act also adds a provision for a deduction to offset the GILTI inclusion for C corporations only, which is 50 percent (37.5 percent after 2025) of the GILTI inclusion. The GILTI deduction is subject to limitation based mainly on the taxpayer’s taxable income.

In addition to GILTI, the Act also introduced the foreign-derived intangible income (“FDII”) category. FDII is eligible income derived in connection with property sold or services provided by the U.S. taxpayer to a non-U.S. person. The taxpayer must establish that the property is foreign use property, and, in the case of services, the taxpayer must provide that the services are rendered to a non-U.S. person who is located outside of the United States. C corporations receive a deduction equal to 37.5 percent (21.875 percent after 2025) of foreign-derived intangible income (FDII). Similar to the GILTI deduction, the FDII deduction is subject to limitation.

The Act significantly changes how the U.S. taxes corporations. The Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Act, estimates in calculations, and preparation and analysis of information not previously relevant or regularly produced. As of June 30, 2018, the Company has not completed the accounting for all of the tax effects of the Act; however, preliminary calculations for the two new aforementioned provisions of the Act, GILTI and FDII, provide that the impact of the provisions are immaterial to the provision for income taxes.

As the Company completes its analysis of the Act, collects and prepares necessary data, and interprets any additional guidance set forth by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may alter its assessment if it determines that the Act has a material impact on the provision for income taxes.

3. Property and Equipment

Property and equipment was:

	June 30, 2018		December 31,2017
Equipment	$	179,900	$	184,600
Furniture		1,600		3,600
Leasehold improvements		167,600		167,600
		349,100		355,800
Less: accumulated depreciation and amortization		336,800		325,000
	$	12,300	$	30,800

Aggregate property and equipment depreciation and amortization expense was $8,800 during the three-month period ended June 30, 2018, and $17,800 during the six-month period ended June 30, 2018. During the six-month period ended June 30, 2018, we had disposed of equipment and furniture with a combined net book value of $700.

4. Stock-Based Compensation

The following table summarizes the stock-based compensation expense, for the three and six-month periods ended June 30, 2018 and 2017, respectively, by classification:

	Three Months Ended June 30,				Six Months Ended June 30,
Statement of Operations Classification	2018		2017		2018		2017
Selling and marketing expense		—		100		—		200
General and administrative expense		—		3,100		—		18,100
Research and development expense		—		100		—		200
	$	—	$	3,300	$	—	$	18,500

11

5. Supplemental Disclosure of Cash Flow Information

During the three-month period ended June 30, 2018, we reversed an accrual for potential liquidated damages of $855,100, crediting APIC for $699,400 and other income for $155,700 pursuant to an agreement to issue warrants to purchase 564,556 shares of the Company’s Common stock as disclosed in the Current Report on Form 8-K, which was filed with the SEC on May 30, 2018.

We disbursed $0 and $300 for the payment of interest expense during the six-month periods ended June 30, 2018 and 2017, respectively.

We disbursed $800 and $1,300 for the payment of income taxes during the six-month periods ended June 30, 2018 and 2017, respectively. Such disbursement was made for the payment of foreign income taxes related to the operation of our Israeli subsidiary, GraphOn Research Labs, Ltd.

6. Earnings (Loss) Per Share

Earnings or loss per share is calculated by dividing the net income or loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings or loss per share (“Diluted EPS”) is calculated by dividing the net income or loss for the period by the total of the weighted average number of shares of common stock outstanding during the period plus the effects of any dilutive securities. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of such potential shares of common stock would have an anti-dilutive effect. During all periods presented in our Condensed Consolidated Statements of Operations, potentially dilutive securities included shares of common stock potentially issuable upon exercise of stock options, release of unvested restricted stock awards and exercise of warrants. Diluted EPS excludes the impact of potential issuance of shares of common stock related to our stock options in periods in which the exercise price of the stock option is greater than the average market price of our common stock during such periods.

For the three and six-month period ended June 30, 2018, we included 564,556 shares of common stock equivalents in the computation of dilutive earnings per share. Additionally, 432,594 shares of common stock equivalents were excluded from the computation of dilutive loss per share for the current three and six-month period because their effect would be anti-dilutive. For the three and six-month period ended June 30, 2017, 1,375,509 shares of common stock equivalents were excluded from the computation of dilutive loss per share since their effect would be anti-dilutive.

7. Segment Information

Revenue by country for the three-month and six-month periods ended June 30, 2018 and 2017 was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
United States	$	288,300	$	275,100	$	597,500	$	624,900
Brazil		186,100		234,000		357,900		362,400
Other countries		391,600		415,700		732,900		920,000
	$	866,000	$	924,800	$	1,688,300	$	1,907,300

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, 2017 which was filed with the Securities and Exchange Commission (the “SEC”) on April 17, 2018, 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

We 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. Our application publishing software solutions are sold under the brand name GO-Global, which is our sole revenue source at this time. GO-Global is an application access solution for use and/or resale 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.

Since 2012 we have also been developing several products in the field of software productivity for mobile devices such as tablets and smartphones, which have been marketed under the hopTo brand.

Over the years, we have also made significant investments in intellectual property (“IP”). We have filed many patents designed to protect the new technologies embedded in hopTo.

Update on hopTo Plans

During Q4 2016, we have ceased all of our sales, marketing and development efforts for the hopTo products, and at this time we do not expect any meaningful revenues from these products in the foreseeable future.

13

Except for the sale of 7 patents sold to Salesforce.com during the fourth quarter of 2017, we own all hopTo-related intellectual property including source-code, related patents, and the relevant trademarks. We believe these assets have value and are continuously evaluating opportunities to maximize such potential benefits from these assets. For detailed information on the hopTo products and technologies, please refer to our previously filed Annual Reports on Form 10-K and other SEC filings which are available at www.sec.gov. Such filings are being noted for historical information only; unless expressly noted, they are not incorporated herein by reference.

There is no certainty as to timing or success of our efforts to extract value from our hopTo assets, and stockholders should not place any reliance on the outcome of such efforts unless and until definitive agreements are reached, which may include the sale of certain of our hopTo software products or additional sales of patents.

Corporate Background

We are a Delaware corporation, founded in May 1996. Our headquarters are located at 6 Loudon Road, Suite 200, Concord, New Hampshire, 03301, our toll-free phone number is 1-800-472-7466, and our phone number for local and international calls is 408-688-2674. We have remote employees located in various states, as well as internationally in the United Kingdom. Our corporate Internet Website is http://www.hopto.com. The information on our website is not part of this quarterly report.

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed with or furnished to the SEC under sections 13(a) or 15(d) of the Securities Exchange Act of 1934 are made available free of charge on our corporate Internet Website at www.hopto.com (click on “SEC Reporting”) as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.

Our Intellectual Property

We believe that IP is a business tool that potentially maximizes our competitive advantages and product differentiation, grows revenue opportunities, encourages collaboration with key business partners, and protects our long-term growth opportunities. Strategic IP development is therefore a critical component of our overall business strategy. It is a business function that consistently interacts with our research and development, product development, and marketing initiatives to generate further value from those operations.

We rely primarily on patents, trade secret protection, copyright law, confidentiality, and proprietary information agreements to protect our proprietary technology and registered trademarks. Despite our precautions, it may be possible for unauthorized third parties to copy portions of our products, or to obtain information we regard as proprietary. The loss of any material trade secret, trademark, trade name or copyright could have a material adverse effect on our results of operations and financial condition. We intend to defend our proprietary technology rights; however, we cannot give any assurance that our efforts to protect our proprietary technology rights will be successful.

We also currently hold rights to patents but are not currently pursuing additional patent applications.

We do not believe our products infringe on the rights of any third parties, but we can give no assurance that third parties will not assert infringement claims against us in the future, or that any such assertion will not result in costly litigation or require us to obtain a license to proprietary technology rights of such parties.

ipCapital Group, Inc.

On October 11, 2011, we engaged ipCapital Group, Inc., (“ipCapital”) an affiliate of John Cronin, who is one of our directors, to assist us in the execution of our strategic decision to significantly strengthen, grow and commercially exploit our intellectual property assets. Our engagement agreement with ipCapital, which has been amended three times, affords us the right to request ipCapital to perform a number of diverse services, employing its proprietary processes and methodologies, to facilitate our ability to identify and extract from our current intellectual property base new inventions, potential patent applications, and marketing and licensing opportunities.

14

As a result of ipCapital’s work under the engagement agreement, as amended, as of August 14, 2018, 173 new patent applications have been filed. Of these 173 applications, 53 patents have been granted by the United States Patent and Trademark Office (“USPTO”). Due to financial constraints on our operations, we have suspended patent prosecution activity other than to pay issuance fees for patents already approved by USPTO. We do not expect to file more applications in 2018.

The GO-Global Software Products

Our GO-Global product offerings, which currently are our only revenue source, can be categorized into product families as follows:

● GO-Global for Windows: Allows access to Windows-based applications from remote locations and a variety of connections, including the Internet connections. The Windows applications run on a central computer server along with GO-Global Windows Host software. This allows the applications to be accessed remotely via GO-Global Client software, or a Web browser, over many types of data connections, regardless of the bandwidth or operating system. Web-enabling is achieved without modifying the underlying application’s code or requiring costly add-ons.

● GO-Global for UNIX: Allows access to UNIX and Linux-based applications from remote locations and a variety of connections, including the Internet connections. The UNIX/Linux applications run on a central computer server along with the GO-Global for UNIX Host software. This allows the applications to be accessed and run remotely via GO-Global Client software or a Web browser without having to modify the application’s code or requiring costly add-ons.

● GO-Global Client: We offer a range of GO-Global Client software that allows remote application access from a wide variety of local, remote and mobile platforms, including Windows, Linux, UNIX, Apple OS X and iOS, and Google Android. We plan to continue to develop GO-Global Client software for new portable and mobile devices.

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 we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 2017 10-K Report and Note 2 to our Notes to Unaudited Condensed Consolidated Financial Statements.

Results of Operations for the Three and Six-Month Periods Ended June 30, 2018 and 2017

The following operating results should be read in conjunction with our critical accounting policies.

Revenue

Revenue for the three-month periods ended June 30, 2018 and 2017 was:

					2018 Over (Under) 2017
Revenue	2018		2017		Dollars			Percent
Software Licenses
Windows	$	182,100	$	296,500	$	(114,400	)		-38.6	%
UNIX/Linux		50,400		44,100		6,300			14.3	%
		232,500		340,600		(108,100	)		-31.7	%
Software Service Fees
Windows		503,600		434,900		68,700			15.8	%
UNIX/Linux		100,700		135,000		(34,300	)		-25.4	%
		604,300		569,900		34,400			6.0	%
Other		29,200		14,300		14,900			104.2	%
Total Revenue	$	866,000	$	924,800	$	(58,800	)		-6.4	%

15

Revenue for the six-month periods ended June 30, 2018 and 2017 was:

					2018 Over (Under) 2017
Revenue	2018		2017		Dollars			Percent
Software Licenses
Windows	$	387,200	$	579,500	$	(192,300	)		-33.2	%
UNIX/Linux		68,700		152,100		(83,400	)		-54.8	%
		455,900		731,600		(275,700	)		-37.7	%
Software Service Fees
Windows		969,200		879,100		90,100			10.2	%
UNIX/Linux		210,400		271,800		(61,400	)		-22.6	%
		1,179,600		1,150,900		28,700			2.5	%
Other		52,800		24,800		28,000			112.9	%
Total Revenue	$	1,688,300	$	1,907,300	$	(219,000	)		-11.5	%

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 (a “stocking reseller”) purchase software licenses that they hold in inventory until they are resold to the ultimate end user. During the three and six-month periods ended June 30, 2017, we deferred recognition of revenue from these sales (on our Condensed Consolidated Balance Sheet under the caption “Deferred Revenue”) until the stocking reseller sells the underlying software licenses to the ultimate end user. As of January 1, 2018, we have adopted the new revenue recognition policies and guidance ASC 606 and as a result, during the three and six-month periods ended June 30, 2018, all software licenses either sold directly by us to an end user, to a stocking reseller, or to a reseller who does not stock licenses is immediately recognized upon shipment (see Note 2 to the Financial Statements).

Consequently, 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.

Software Licenses

The decrease in Windows software licenses revenue for both the three and six-month periods ended June 30, 2018 was primarily due to our adoption of ASC 606 effective January 1, 2018. Under the old standard, Windows software license revenue for the three and six-month periods ended June 30, 2018 would have been $244,700 and $548,000 respectively, which is $51,800 or 17.5% lower than the prior year three-month period and $31,800 or 5.5% lower than the prior year six-month period.

Software licenses revenue from our UNIX/Linux products increased slightly in the three-month period ended June 30, 2018 primarily due to our adoption of the new revenue recognition standard. For the six-month period ended June 30, 2018, UNIX/Linux software license revenue is lower primarily due to the fact that during the prior year period we received a larger than typical order from one of our U.S. government customers.

Although we expect aggregate orders for software licenses during 2018 to approximate the levels of 2017, we expect that GO-Global software license revenue in 2018 will be slightly lower than 2017 levels due to the impact of adoption of ASC 606.

16

Software Service Fees

The increase in software service fees revenue attributable to our Windows products during the three-month and six-month period ended June 30, 2018, as compared to the same periods of the prior year, was primarily due to the increased license sales that we reported during fiscal year 2017.

The decrease in service fees revenue attributable to our UNIX products for the three-month and six-month period ended June 30, 2018, as compared with the same periods of the prior year, was primarily the result of the low level of our UNIX product sales throughout the current and prior year and a resultant decrease in maintenance contract renewals. The majority of this decrease was attributable to our European telecommunications customers.

We expect that software service fees for 2018 for our Windows products will be modestly higher than those for 2017 and software service fees for our UNIX products will be lower than those for 2017.

Other

The increase in other revenue during the three-month and six-month periods ended June 30, 2018, as compared to the same periods in the prior year was primarily due to an increase in private labeling fees resulting from changes to our OEM partner programs that were implemented during 2017. Private labeling fees do not comprise a material portion of our revenue streams, but as a result of the new program we expect these fees to be slightly higher in 2018 than in 2017.

Costs of Revenue

Costs of revenue are comprised primarily of software service costs, which represent the costs of customer service, and software product costs, which are primarily costs associated with licenses for third party software included in our product offerings and certain taxes that our Brazilian resellers are required to pay for importation of our software. We incur no shipping or packaging costs as all of our deliveries are made via electronic means over the Internet.

Costs of revenue were 4.4% and 2.0% of total revenue for the three-month periods ended June 30, 2018 and 2017, respectively, and 3.9% and 1.9% of total revenue for the six-month periods ended June 30, 2018 and 2017, respectively.

Costs of revenue for the three-month periods ended June 30, 2018 and 2017 were:

					2018 Over (Under) 2017
	2018		2017		Dollars			Percent
Software service costs	$	12,900	$	15,500	$	(2,600	)		-16.8	%
Software product costs		24,800		2,800		22,000			785.7	%
	$	37,700	$	18,300	$	19,400			106.0	%

Costs of revenue for the six-month periods ended June 30, 2018 and 2017 were:

					2018 Over (Under) 2017
	2018		2017		Dollars			Percent
Software service costs	$	25,900	$	31,000	$	(5,100	)		-16.5	%
Software product costs		40,600		6,100		34,500			565.6	%
	$	66,500	$	37,100	$	29,400			79.2	%

17

The decrease in software service costs for the three and six-month periods ended June 30, 2018, as compared with the same periods of the prior year, was primarily due to less time being required for customer service issues. We expect software service costs for 2018 to be lower than those for 2017.

The increases in software product costs for the three-month and six-month periods ended June 30, 2018, as compared with the same periods of the prior year, was almost entirely due certain taxes that our Brazilian resellers are required to pay for importation of our software.

We expect that software costs of revenue for 2018 will be slightly higher than 2017.

Selling and Marketing Expenses

Selling and marketing expenses primarily consist of employee costs, outside services, advertising, public relations and travel and entertainment expense.

Selling and marketing expenses for the three-month period ended June 30, 2018 increased by $26,400, or 32.2%, to $108,500, from $82,100 for the same period of 2017, and represented approximately 12.5% and 8.9% of revenue during these periods, respectively. Selling and marketing expenses for the six-month period ended June 30, 2018 increased by $38,100, or 22.2%, to $210,000, from $172,000 for the same period of 2017, and represented approximately 12.4% and 9.0% of revenue during these periods, respectively.

The increase in selling and marketing expenses was due to combination of investment in an updated website for the GO-Global products and higher wages for our sales and marketing employees.

We expect to maintain our sales and marketing efforts in 2018 for anticipated GO-Global releases with select targeted modest investments in promotional activity; accordingly, we expect 2018 sales and marketing expenses to be slightly higher than 2017 levels.

General and Administrative Expenses

General and administrative expenses primarily consist of employee costs, depreciation and amortization, 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 debts expense.

General and administrative expenses decreased by 93,300, or 22.2%, to $327,800 for the three-month period ended June 30, 2018, from $421,100 for the same period of 2017, and represented approximately 37.9% and 45.5% of revenue during these periods, respectively. General and administrative expenses decreased by $429,200, or 40.4%, to $633,000 for the six-month period ended June 30, 2018, from $1,062,200 for the same period of 2017, and represented approximately 37.5% and 55.7% of revenue during these periods, respectively.

The decrease in general and administrative expense was primarily due to a combination of decreased executive compensation associated with the part-time arrangement for our CEO and CFO positions, decreased rent expense associated with lower net operating leases for the sublease of our Campbell office, and the elimination of accruals for potential liquidated damages resulting from delays in filing registration statements for shares of common stock and shares of common stock underlying warrants for certain of the private placements that the Company closed in prior periods.

In 2018, we intend to continue these cost controls. We therefore expect that our 2018 general and administrative costs will be lower than those for 2017.

Research and Development Expenses

Research and development expenses consist primarily of employee costs, payments to contract programmers, travel and entertainment for all our engineers, and all rent for our leased engineering facilities.

18

Research and development expenses increased by $2,900 or 0.8%, to $358,000 for the three-month period ended June 30, 2018, from $355,100 for the same period of 2017, and represented approximately 41.3% and 38.4% of revenue for these periods, respectively. Research and development expenses increased by $46,400, or 6.3%, to $786,500, for the six-month period ended June 30, 2018, from $740,100 for the same period of 2017, and represented approximately 46.6% and 38.8% of revenue for these periods, respectively.

The increase in research and development expense is primarily due to higher employee costs associated with increased wages for our research and development employees and certain contract labor associated with the GO-Global products.

In 2018, we expect to maintain a level of research and development resource consistent with the levels of 2017 with targeted investments in the GO-Global products. We therefore expect 2018 research and development expenses to be slightly higher than 2017 levels.

Other Income

During the three-month and six-month periods ended June 30, 2018, we reversed an accrual for potential liquidated damages of $855,100, crediting APIC for $699,400 and other income for $155,700 pursuant to an agreement to issue warrants to purchase 564,556 shares of the Company’s Common stock as disclosed in the Current Report on Form 8-K, which was filed with the SEC on May 30, 2018.

Net Income / Loss

Based on the foregoing, we reported net income of $164,600 for the three-month period ended June 30, 2018 and a net loss of $12,500 for the three-month period ended June 30, 2017. Additionally, we reported net income of $121,000 for the six-month period ended June 30, 2018 and a net loss of $166,200 for the six-month period ended June 30, 2017.

Liquidity and Capital Resources

Our reported net income for the six-month period ended June 30, 2018 of $121,000 included three non-cash items: changes in deferred rent liability of $15,800 and allowance for doubtful accounts of $3,700, and depreciation and amortization of $17,800, which was primarily comprised of depreciation of fixed assets.

Except for the year ended December 31, 2017 and the three and six-month periods ended June 30, 2018, we have incurred significant net losses since our inception. At June 30, 2018, the Company had an accumulated deficit of $80,336,300 and a working capital deficit of $582,800.

During fiscal 2017: (1) we reduced our operating expense from approximately $1.3 million per quarter to an average of $0.8 million per quarter; (2) we have improved the operating results from our GO-Global business and have reasonable confidence in its ability to generate cash for at least the next 12 months; (3) sold several patents for cash; and (4) we increased our cash position from a low of $300 thousand in August of 2016 to $1.0 million at December 31, 2017. During fiscal 2018 we have continued to carefully manage our operating expense.

In addition, for the reasons described above, 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 however, we do not expect these funds and resources to be sufficient for material new investments in our GO-Global business.

In order to achieve the expense controls in the past fiscal year, we implemented significant expense reductions, including (1) a limited number of employee layoffs primarily related to the hopTo product; (2) during the three month period ended September 30, 2016, our former CEO and CFO voluntarily agreed with our board of directors to defer 50% of their salary beginning September 1, 2016 until such time as the Company can reasonably pay such compensation upon approval by the board of directors (such amounts have been paid as of April 25, 2018; see Note 8, Subsequent Events, in the Notes to Financial Statements in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, which was filed with the SEC on May 21, 2018) and (3) undertook other expense reduction initiatives related to related to patent maintenance, real estate and use of professionals.

We no longer are considering potentially suspending or terminating our SEC filing status, although we reserve the right to do so subject to applicable law.

19

We have had, and as a regular part of our business from time to time continue to have, discussions with various parties about the possibility of strategic transactions.

Cash

As of June 30, 2018, our cash balance was $994,200, as compared with $1,015,400 as of December 31, 2017, a decrease of $21,200, or 2.1%. The slight decrease primarily resulted from our continued cash management efforts.

Accounts Receivable, net

At June 30, 2018 and December 31, 2017, we reported accounts receivable, net, of $207,100 and $426,800, respectively. Such amounts were reported net of the allowance for doubtful accounts, which allowances totaled $4,100 and $7,800 at June 30, 2018 and December 31, 2017, respectively. The decrease in accounts receivable, net, was mainly due to lower sales during the three and six-month period ended June 30, 2018, as compared to the same periods ended December 31, 2017. We collect the significant majority of our quarter-end accounts receivable during the subsequent quarter; accordingly, increases or decreases in accounts receivable from one period to the next tends to be indicative of the trend in our sales from one period to the next. From time to time, we could have individually significant accounts receivable balances due us from one or more of our significant customers. If the financial condition of any of these significant customers should deteriorate, our operating results could be materially affected.

Working Capital

As of June 30, 2018, we had current assets of $1,349,700 and current liabilities of $1,932,500, which netted to a working capital deficit of $582,800. Included in current liabilities was the current portion of deferred revenue of $1,143,000.

20

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, 2018.

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, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

21

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, 2017, which was filed with the Securities and Exchange Commission on April 17, 2018.

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

Except as disclosed in the Current Report on Form 8-K, which was filed with the SEC on May 30, 2018, we did not sell any unregistered securities during the quarter ended June 30, 2018.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

Exhibit Number	Exhibit Description
4.1	Form of Warrant (1)
4.2	Registration Rights Agreement, dated May 21, 2018, by and among hopTo Inc. and the holders named therein (1)
10.1	Exchange Agreement, dated May 21, 2018, by and among hopTo Inc. and the holders named therein (1)
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*	The following financial information from hopTo Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017, (ii) Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017, (iii) Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Six Months Ended June 30, 2018 and 2017 (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017, (v) Notes to Unaudited Condensed Consolidated Financial Statements.

* Furnished, not filed

(1) Filed on May 30, 2018 as an exhibit to the Registrant’s Current Report on Form 8-K and incorporated herein by reference. (File number 000-21683)

22

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 14, 2018
By:	/s/ Jean-Louis Casabonne
	Jean-Louis Casabonne
	Interim Chief Executive Officer (Principal Executive Officer)
	Chief Financial Officer
	(Principal Financial Officer and
	Principal Accounting Officer)

23

EX-31

Exhibit 31

Certification Pursuant to Rule 13a-14 or 15d-14(a) of the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jean-Louis Casabonne, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of hopTo Inc. (“registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or person performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2018
	/s/ Jean-Louis Casabonne
	Jean-Louis Casabonne
	Interim Chief Executive Officer and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of hopTo Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jean-Louis Casabonne, Interim Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jean-Louis Casabonne

Jean-Louis Casabonne

Interim Chief Executive Officer and

Chief Financial Officer

August 14, 2018

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 10, 2018
Document And Entity Information
Entity Registrant Name	hopTo Inc.
Entity Central Index Key	0001021435
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		9,804,400
Trading Symbol	HPTO
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2018

XML

Condensed Consolidated Balance Sheets - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Current Assets:
Cash	$ 994,200	$ 1,015,400
Accounts receivable, net	207,100	426,800
Prepaid expenses	148,400	112,900
Total Current Assets	1,349,700	1,555,100
Property and equipment, net	12,300	30,800
Other assets	17,800	17,800
Total Assets	1,379,800	1,603,700
Current Liabilities:
Accounts payable and accrued expenses	637,700	635,100
Deferred rent	58,300	74,100
Deposit liability	93,500	93,500
Deferred revenue	1,143,000	1,845,100
Other current liabilities		855,100
Total Current Liabilities	1,932,500	3,502,900
Deferred revenue	543,900	1,409,700
Total Liabilities	2,476,400	4,912,600
Stockholders' Equity (Deficit):
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding
Common stock, $0.0001 par value, 195,000,000 shares authorized, 9,804,400 shares issued and outstanding at June 30, 2018 and December 31, 2017	14,700	14,700
Additional paid-in capital	79,225,700	78,525,600
Accumulated deficit	(80,336,300)	(81,849,200)
Total Stockholders' Deficit	(1,096,600)	(3,308,900)
Total Liabilities and Stockholders' Deficit	$ 1,379,800	$ 1,603,700

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	195,000,000	195,000,000
Common stock, shares issued	9,804,400	9,804,400
Common stock, shares outstanding	9,804,400	9,804,400

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Income Statement [Abstract]
Revenue	$ 866,000	$ 924,800	$ 1,688,300	$ 1,907,300
Costs of revenue	37,700	18,300	66,500	37,100
Gross profit	828,300	906,500	1,621,800	1,870,200
Operating expenses:
Selling and marketing	108,500	82,100	210,100	172,000
General and administrative	327,800	421,100	633,000	1,062,200
Research and development	358,000	355,100	788,500	740,100
Total operating expenses	794,300	858,300	1,629,600	1,974,300
Income / (loss) from operations	34,000	48,200	(7,800)	(104,100)
Other income (expense), net	130,500	(59,600)	129,700	(60,100)
Income / (loss) before provision for income tax	164,500	(11,400)	121,900	(164,200)
Provision for income tax	(100)	1,100	900	2,000
Net Income / (loss)	$ 164,500	$ (12,500)	$ 121,000	$ (166,200)
Basic and diluted loss per share	$ 0.02	$ (0.00)	$ 0.01	$ (0.02)
Average weighted common shares outstanding – basic and diluted	10,368,956	9,804,400	10,368,956	9,804,400

XML

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Deficit [Member]	Total
Beginning balance at Dec. 31, 2016		$ 14,700	$ 78,512,200	$ (82,449,800)	$ (3,922,900)
Beginning balance, shares at Dec. 31, 2016		9,804,400
Vesting of restricted stock awards
Stock-based compensation expense			18,500		18,500
Net loss				(166,200)	(166,200)
Ending balance at Jun. 30, 2017		$ 14,700	78,417,500	(82,616,000)	(4,070,600)
Ending balance, shares at Jun. 30, 2017		9,804,400
Beginning balance at Dec. 31, 2017		$ 14,700	78,525,600	(81,849,200)	(3,308,900)
Beginning balance, shares at Dec. 31, 2017		9,804,400
Vesting of restricted stock awards
Stock-based compensation expense
Issuance of new warrants			699,400		699,400
Cumulative effect from change of accounting principal				1,391,900	1,391,900
Net loss				121,000	121,000
Ending balance at Jun. 30, 2018		$ 14,700	$ 79,225,000	$ (80,336,300)	$ (1,096,600)
Ending balance, shares at Jun. 30, 2018		9,804,400

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash Flows Provided By (Used In) Operating Activities:
Net Income (Loss)	$ 121,000	$ (166,200)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	17,800	33,200
Stock-based compensation expense		18,500
Changes in deferred rent	(15,800)	(19,200)
Changes to allowance of doubtful accounts	(3,700)	7,600
Revenue deferred to future periods	1,009,700	1,384,300
Recognition of deferred revenue	(1,185,700)	(1,469,700)
Loss / (gain) on disposal of fixed assets	700	60,400
Interest accrued for capital lease		300
Changes in operating assets and liabilities:
Accounts receivable	223,400	(99,300)
Prepaid expenses	(35,500)	1,300
Deposit liability		12,100
Accounts payable and accrued expenses	2,600	(34,900)
Other current liabilities		284,000
Net Cash Provided By (Used In) Operating Activities	(21,200)	12,400
Cash Flows Used In Investing Activities:
Proceeds from sale of expensed equipment		900
Net Cash Provided By Investing Activities		900
Cash Flows Provided By Financing Activities:
Payment for capital lease	(4,700)	(4,700)
Net Cash (Used In) Provided By Financing Activities	(4,700)	(4,700)
Net Increase (Decrease) in Cash	(21,200)	8,600
Cash - Beginning of Period	1,015,400	546,200
Cash - End of Period	$ 994,200	$ 554,800

XML

Basis of Presentation

6 Months Ended

Jun. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

1. Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of hopTo Inc. and its subsidiaries (collectively, the “Company”, “we”, “us” or “our”); significant intercompany accounts and transactions are eliminated upon consolidation. The unaudited condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial information and the rules and regulations promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, such unaudited condensed consolidated financial statements do not include all information and footnote disclosures required in annual financial statements.

The unaudited condensed consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on April 17, 2018 (“2016 10-K Report”). The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2018 or any future period.

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

XML

Significant Accounting Policies

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Significant Accounting Policies

2. Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates include: the amount of stock-based compensation expense; the allowance for doubtful accounts; the estimated lives, valuation, and amortization of intangible assets (including capitalized software); depreciation of long-lived assets; valuation of warrants; post-employment benefits, and accruals for liabilities. While we believe that such estimates are fair, actual results could differ materially from those estimates.

Revenue Recognition

We market and license our products indirectly through channel distributors, independent software vendors (“ISVs”), value-added resellers (“VARs”) (collectively, “resellers”) and directly to hosting service providers, corporate enterprises, governmental and educational institutions and others. Our product licenses are perpetual. We also separately sell intellectual property licenses, maintenance contracts, which are comprised of license updates and customer service access, as well as other products and services.

Effective January 1, 2018, the Company adopted guidance ASC 606. For further details, see below “Recently Adopted Accounting Pronouncements”.

For the year ended December 31, 2017 including interim periods therein, the Company recognized revenue under ASC 605. Under ASC 605 software license revenues were recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price to the customer is fixed or determinable, as typically evidenced in a signed non-cancellable contract, or a customer’s purchase order, and collectability is probable. For additional detail on the Company’s revenue recognition policies in prior periods, please see Note 2 of Notes to Consolidated Financial Statements in the 2017 10-K Report.

The impact of the adoption of ASC 606 is the effect on revenue treatment of certain resellers (“stocking resellers”) who purchase product licenses that they hold in inventory until they are resold to the ultimate end user (an “inventory stocking order”). At the time that a stocking reseller places an inventory stocking order, no product licenses are shipped by us to the stocking reseller; rather, the stocking reseller’s inventory is credited with the number of licenses purchased and the stocking reseller can resell (issue) any number of licenses from their inventory at any time. Upon receipt of an order to issue a license(s) from a stocking reseller’s inventory (a “draw down order”), we will ship the license(s) in accordance with the draw down order’s instructions.

Under ASC 605, we would defer recognition of revenue from inventory stocking orders until the underlying licenses were sold and shipped to the end user, as evidenced by the receipt and fulfillment of the stocking reseller’s draw down order, assuming all other revenue recognition criteria have been met. Under ASC 606, we recognize revenue at the time that the stocking reseller places an inventory stocking order and their account is credited with available licenses because at that time control over the licenses has been transferred to the reseller and there are no remaining performance obligations for the Company other than the administrative task of electronic transfer of license keys.

There are no rights of return granted to resellers or other purchasers of our software products.

Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

All of our software licenses are denominated in U.S. dollars.

Long-Lived Assets

Long-lived assets are assessed for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable, whenever we have committed to a plan to dispose of the assets or, at a minimum, annually. Typically, for long-lived assets to be held and used, measurement of an impairment loss is based on the fair value of such assets, with fair value being determined based on appraisals, current market value, comparable sales value, and discounted future cash flows, among other variables, as appropriate. Assets to be held and used (which assets are affected by an impairment loss) are depreciated or amortized at their new carrying amount over their remaining estimated life; assets to be sold or otherwise disposed of are not subject to further depreciation or amortization. No such impairment charge was recorded during either of the three or six-month periods ended June 30, 2018 or 2017.

Allowance for Doubtful Accounts

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

The following table sets forth the details of the Allowance for Doubtful Accounts for the three-month periods ended June 30, 2018 and 2017:

	Beginning Balance		Charge Offs		Recoveries		Provision		Ending Balance
2018	$	3,400	$	—	$	—	$	700	$	4,100
2017		5,000		—		—		10,300		15,300

The following table sets forth the details of the Allowance for Doubtful Accounts for the six-month periods ended June 30, 2018 and 2017:

	Beginning Balance		Charge Offs		Recoveries		Provision			Ending Balance
2018	$	7,800	$	—	$	—	$	(3,700	)	$	4,100
2017		7,700		—		—		7,600			15,300

Concentration of Credit Risk

For the three and six-month periods ended June 30, 2018 and 2017, respectively, we considered the customers listed in the following tables to be our most significant customers. The tables set forth the percentage of sales attributable to each customer during the periods presented, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net, as of June 30, 2018 and 2017.

	Three Months Ended June 30, 2018			As of June 30, 2018			Three Months Ended June 30, 2017
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Alcatel-Lucent		1.3	%		5.9	%		9.1	%		20.0	%
Centric		17.1	%		20.8	%		4.9	%		10.1	%
ESO Solutions		6.3	%		2.3	%		9.2	%		20.2	%
Elosoft		7.6	%		20.2	%		17.3	%		4.2	%
Siae microelettronica		3.8	%		13.6	%		2.8	%		6.2	%
Total		36.1	%		62.8	%		43.3	%		60.7	%

	Six Months Ended June 30, 2018			As of June 30, 2018			Six Months Ended  June 30, 2017
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Alcatel-Lucent		0.8	%		5.9	%		5.5	%		20.0	%
Centric		15.7	%		20.8	%		4.9	%		10.1	%
ESO Solutions		4.5	%		2.3	%		5.1	%		20.2	%
Elosoft		5.9	%		20.2	%		13.8	%		4.2	%
Siae microelettronica		1.9	%		13.6	%		1.6	%		6.2	%
Total		28.8	%		62.8	%		30.9	%		60.7	%

Recently Adopted Accounting Pronouncements

Revenue

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASC 606). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to reporting periods beginning after December 15, 2017, with early adoption permitted for reporting periods beginning after December 15, 2016. Subsequently, FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including: ASU 2016-08, Revenue from Contracts with Customers (ASC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations; ASU 2016-10, Revenue from Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing, which is intended to clarify two aspects of ASC 606: identifying performance obligations and the licensing implementation guidance; and ASU 2016-12, Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients, which contains certain practical expedients in response to identified implementation issues. The Company elected to adopt ASC 606 under Modified Retrospective approach. Under the Modified Retrospective approach, only contracts with customers for which there were remaining unsatisfied performance obligations (open contracts) at the beginning of initial year of adoption must be restated to apply retrospectively the guidance under ASC 606. Any resulting impact for such contracts prior to the beginning of the initial year of adoption are made as an adjustment to opening accumulated deficit for such year.

On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. This method required retrospective application of the new accounting standard to those contracts which were not completed as of January 1, 2018. Results for the reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

The change to the current revenue policy is the timing of revenue recognition for software licenses purchased by stocking resellers. Under the guidance ASC 605, the Company recognized revenue upon the delivery of licenses to end users when they were purchased from the stocking reseller. Under the guidance ASC 606, license revenue is recognized upon placement of the stocking order by the stocking reseller. During the three-month period ended March 31, 2018, this change in revenue policy resulted in lower license revenue of $96,400. This lower license revenue had the same impact on gross profit, loss from operations and net loss.

The Company recorded $1,391,900 to opening accumulated deficit as of January 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to reversal of deferred license revenue associated with stocking orders placed in prior periods which had not been sold through to end users as of December 31, 2017.

The cumulative effect of the changes made to our condensed consolidated balance sheet as of January 1, 2018 under current assets, deferred revenue and accumulated deficit for the adoption ASU 2014-09, Revenue - Revenue from Contracts with Customers were as follows:

Balance Sheet	Balance at December 31, 2017			Adjustments due to ASC 606			Balance at January 1, 2018
Current Assets
Deferred COGS	$	—		$	20,000		$	20,000
Liabilities and Stockholders’ Equity
Accumulated Deficit	$	(81,849,200	)	$	1,391,900		$	(80,457,300	)
Current Liabilities
Deferred Revenue	$	1,845,100		$	(609,700	)	$	1,235,400
Long Term Liabilities
Deferred Revenue	$	1,409,700		$	(802,200	)	$	607,500

Income Taxes

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Among these new taxes on certain foreign sourced earnings, the Act created a new category of income inclusion: the global intangible low-taxed income (“GILTI”). The objective of GILTI is to deter U.S. corporations from transferring intangible property to non-U.S. low-tax jurisdictions by subjecting the non-U.S. income to current U.S. taxation. The Act also adds a provision for a deduction to offset the GILTI inclusion for C corporations only, which is 50 percent (37.5 percent after 2025) of the GILTI inclusion. The GILTI deduction is subject to limitation based mainly on the taxpayer’s taxable income.

In addition to GILTI, the Act also introduced the foreign-derived intangible income (“FDII”) category. FDII is eligible income derived in connection with property sold or services provided by the U.S. taxpayer to a non-U.S. person. The taxpayer must establish that the property is foreign use property, and, in the case of services, the taxpayer must provide that the services are rendered to a non-U.S. person who is located outside of the United States. C corporations receive a deduction equal to 37.5 percent (21.875 percent after 2025) of foreign-derived intangible income (FDII). Similar to the GILTI deduction, the FDII deduction is subject to limitation.

The Act significantly changes how the U.S. taxes corporations. The Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Act, estimates in calculations, and preparation and analysis of information not previously relevant or regularly produced. As of March 31, 2018, the Company has not completed the accounting for all of the tax effects of the Act; however, preliminary calculations for the two new aforementioned provisions of the Act, GILTI and FDII, provide that the impact of the provisions are immaterial to the provision for income taxes.

As the Company completes its analysis of the Act, collects and prepares necessary data, and interprets any additional guidance set forth by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may alter its assessment if it determines that the Act has a material impact on the provision for income taxes.

XML

Property and Equipment

6 Months Ended

Jun. 30, 2018

Property, Plant and Equipment [Abstract]

Property and Equipment

3. Property and Equipment

Property and equipment was:

	June 30, 2018		December 31,2017
Equipment	$	179,900	$	258,700
Furniture		1,600		190,600
Leasehold improvements		167,600		167,600
		349,100		355,800
Less: accumulated depreciation and amortization		336,800		325,000
	$	12,300	$	30,800

Aggregate property and equipment depreciation and amortization expense was $8,900 during the three-month period ended June 30, 2018, and $17,800 during the six-month period ended June 30, 2018. During the six month period ended June 30, 2017, we disposed equipment and furniture with a combined net book value of $700.

XML

Stock-Based Compensation

6 Months Ended

Jun. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

4. Stock-Based Compensation

The following table summarizes the stock-based compensation expense, for the three and six-month periods ended June 30, 2018 and 2017, respectively, by classification:

	Three Months Ended June 30,				Six Months Ended June 30,
Statement of Operations Classification	2018		2017		2018		2017
Costs of revenue	$		$	-	$		$	-
Selling and marketing expense		—		100		—		200
General and administrative expense		—		3,100		—		18,100
Research and development expense		—		100		—		200
	$	—	$	3,300	$	—	$	18,500

XML

Supplemental Disclosure of Cash Flow Information

6 Months Ended

Jun. 30, 2018

Supplemental Cash Flow Elements [Abstract]

Supplemental Disclosure of Cash Flow Information

5. Supplemental Disclosure of Cash Flow Information

We disbursed $0 and $200 for the payment of interest expense during the six-month periods ended June 30, 2018 and 2017, respectively.

We disbursed $800 and $1,300 for the payment of income taxes during the six-month periods ended June 30, 2018 and 2017, respectively. Such disbursement was made for the payment of foreign income taxes related to the operation of our Israeli subsidiary, GraphOn Research Labs, Ltd.

XML

Earnings (Loss) Per Share

6 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

Earnings (Loss) Per Share

6. Earnings (Loss) Per Share

Earnings or loss per share is calculated by dividing the net income or loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings or loss per share (“Diluted EPS”) is calculated by dividing the net income or loss for the period by the total of the weighted average number of shares of common stock outstanding during the period plus the effects of any dilutive securities. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of such potential shares of common stock would have an anti-dilutive effect. During all periods presented in our Condensed Consolidated Statements of Operations, potentially dilutive securities included shares of common stock potentially issuable upon exercise of stock options, release of unvested restricted stock awards and exercise of warrants. Diluted EPS excludes the impact of potential issuance of shares of common stock related to our stock options in periods in which the exercise price of the stock option is greater than the average market price of our common stock during such periods.

For the three and six-month period ended June 30, 2018 we included 564,556 shares of common stock equivalents in the computation of dilutive earnings per share. Additionally, 432,594 shares of common stock equivalents were excluded from the computation of dilutive loss per share for the current three and six-month period because their effect would be anti-dilutive. For the three and six-month period ended June 30, 2017, 1,375,509 shares of common stock equivalents, were excluded from the computation of dilutive loss per share since their effect would be anti-dilutive.

XML

Segment Information

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Segment Information

7. Segment Information

Revenue by country for the three-month and six-month periods ended June 30, 2018 and 2017 was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
United States	$	288,300	$	275,100	$	597,500	$	624,900
Brazil		186,100		234,000		357,900		362,400
Other countries		391,500		415,700		732,900		920,000
	$	865,900	$	924,800	$	1,688,300	$	1,907,300

XML

Subsequent Events

6 Months Ended

Jun. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

8. Subsequent Events

TBD

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates include: the amount of stock-based compensation expense; the allowance for doubtful accounts; the estimated lives, valuation, and amortization of intangible assets (including capitalized software); depreciation of long-lived assets; valuation of warrants; post-employment benefits, and accruals for liabilities. While we believe that such estimates are fair, actual results could differ materially from those estimates.

Revenue Recognition

Revenue Recognition

We market and license our products indirectly through channel distributors, independent software vendors (“ISVs”), value-added resellers (“VARs”) (collectively, “resellers”) and directly to hosting service providers, corporate enterprises, governmental and educational institutions and others. Our product licenses are perpetual. We also separately sell intellectual property licenses, maintenance contracts, which are comprised of license updates and customer service access, as well as other products and services.

Effective January 1, 2018, the Company adopted guidance ASC 606. For further details, see below “Recently Adopted Accounting Pronouncements”.

For the year ended December 31, 2017 including interim periods therein, the Company recognized revenue under ASC 605. Under ASC 605 software license revenues were recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price to the customer is fixed or determinable, as typically evidenced in a signed non-cancellable contract, or a customer’s purchase order, and collectability is probable. For additional detail on the Company’s revenue recognition policies in prior periods, please see Note 2 of Notes to Consolidated Financial Statements in the 2017 10-K Report.

The impact of the adoption of ASC 606 is the effect on revenue treatment of certain resellers (“stocking resellers”) who purchase product licenses that they hold in inventory until they are resold to the ultimate end user (an “inventory stocking order”). At the time that a stocking reseller places an inventory stocking order, no product licenses are shipped by us to the stocking reseller; rather, the stocking reseller’s inventory is credited with the number of licenses purchased and the stocking reseller can resell (issue) any number of licenses from their inventory at any time. Upon receipt of an order to issue a license(s) from a stocking reseller’s inventory (a “draw down order”), we will ship the license(s) in accordance with the draw down order’s instructions.

Under ASC 605, we would defer recognition of revenue from inventory stocking orders until the underlying licenses were sold and shipped to the end user, as evidenced by the receipt and fulfillment of the stocking reseller’s draw down order, assuming all other revenue recognition criteria have been met. Under ASC 606, we recognize revenue at the time that the stocking reseller places an inventory stocking order and their account is credited with available licenses because at that time control over the licenses has been transferred to the reseller and there are no remaining performance obligations for the Company other than the administrative task of electronic transfer of license keys.

There are no rights of return granted to resellers or other purchasers of our software products.

Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

All of our software licenses are denominated in U.S. dollars.

Long-Lived Assets

Long-Lived Assets

Long-lived assets are assessed for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable, whenever we have committed to a plan to dispose of the assets or, at a minimum, annually. Typically, for long-lived assets to be held and used, measurement of an impairment loss is based on the fair value of such assets, with fair value being determined based on appraisals, current market value, comparable sales value, and discounted future cash flows, among other variables, as appropriate. Assets to be held and used (which assets are affected by an impairment loss) are depreciated or amortized at their new carrying amount over their remaining estimated life; assets to be sold or otherwise disposed of are not subject to further depreciation or amortization. No such impairment charge was recorded during either of the three or six-month periods ended June 30, 2018 or 2017.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

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

The following table sets forth the details of the Allowance for Doubtful Accounts for the three-month periods ended June 30, 2018 and 2017:

	Beginning Balance		Charge Offs		Recoveries		Provision		Ending Balance
2018	$	3,400	$	—	$	—	$	700	$	4,100
2017		5,000		—		—		10,300		15,300

The following table sets forth the details of the Allowance for Doubtful Accounts for the six-month periods ended June 30, 2018 and 2017:

	Beginning Balance		Charge Offs		Recoveries		Provision			Ending Balance
2018	$	7,800	$	—	$	—	$	(3,700	)	$	4,100
2017		7,700		—		—		7,600			15,300

Concentration of Credit Risk

Concentration of Credit Risk

For the three and six-month periods ended June 30, 2018 and 2017, respectively, we considered the customers listed in the following tables to be our most significant customers. The tables set forth the percentage of sales attributable to each customer during the periods presented, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net, as of June 30, 2018 and 2017.

	Three Months Ended June 30, 2018			As of June 30, 2018			Three Months Ended June 30, 2017
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Alcatel-Lucent		1.3	%		5.9	%		9.1	%		20.0	%
Centric		17.1	%		20.8	%		4.9	%		10.1	%
ESO Solutions		6.3	%		2.3	%		9.2	%		20.2	%
Elosoft		7.6	%		20.2	%		17.3	%		4.2	%
Siae microelettronica		3.8	%		13.6	%		2.8	%		6.2	%
Total		36.1	%		62.8	%		43.3	%		60.7	%

	Six Months Ended June 30, 2018			As of June 30, 2018			Six Months Ended  June 30, 2017
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Alcatel-Lucent		0.8	%		5.9	%		5.5	%		20.0	%
Centric		15.7	%		20.8	%		4.9	%		10.1	%
ESO Solutions		4.5	%		2.3	%		5.1	%		20.2	%
Elosoft		5.9	%		20.2	%		13.8	%		4.2	%
Siae microelettronica		1.9	%		13.6	%		1.6	%		6.2	%
Total		28.8	%		62.8	%		30.9	%		60.7	%

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Revenue

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASC 606). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to reporting periods beginning after December 15, 2017, with early adoption permitted for reporting periods beginning after December 15, 2016. Subsequently, FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including: ASU 2016-08, Revenue from Contracts with Customers (ASC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations; ASU 2016-10, Revenue from Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing, which is intended to clarify two aspects of ASC 606: identifying performance obligations and the licensing implementation guidance; and ASU 2016-12, Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients, which contains certain practical expedients in response to identified implementation issues. The Company elected to adopt ASC 606 under Modified Retrospective approach. Under the Modified Retrospective approach, only contracts with customers for which there were remaining unsatisfied performance obligations (open contracts) at the beginning of initial year of adoption must be restated to apply retrospectively the guidance under ASC 606. Any resulting impact for such contracts prior to the beginning of the initial year of adoption are made as an adjustment to opening accumulated deficit for such year.

On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. This method required retrospective application of the new accounting standard to those contracts which were not completed as of January 1, 2018. Results for the reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

The change to the current revenue policy is the timing of revenue recognition for software licenses purchased by stocking resellers. Under the guidance ASC 605, the Company recognized revenue upon the delivery of licenses to end users when they were purchased from the stocking reseller. Under the guidance ASC 606, license revenue is recognized upon placement of the stocking order by the stocking reseller. During the three-month period ended March 31, 2018, this change in revenue policy resulted in lower license revenue of $96,400. This lower license revenue had the same impact on gross profit, loss from operations and net loss.

The Company recorded $1,391,900 to opening accumulated deficit as of January 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to reversal of deferred license revenue associated with stocking orders placed in prior periods which had not been sold through to end users as of December 31, 2017.

The cumulative effect of the changes made to our condensed consolidated balance sheet as of January 1, 2018 under current assets, deferred revenue and accumulated deficit for the adoption ASU 2014-09, Revenue - Revenue from Contracts with Customers were as follows:

Balance Sheet	Balance at December 31, 2017			Adjustments due to ASC 606			Balance at January 1, 2018
Current Assets
Deferred COGS	$	—		$	20,000		$	20,000
Liabilities and Stockholders’ Equity
Accumulated Deficit	$	(81,849,200	)	$	1,391,900		$	(80,457,300	)
Current Liabilities
Deferred Revenue	$	1,845,100		$	(609,700	)	$	1,235,400
Long Term Liabilities
Deferred Revenue	$	1,409,700		$	(802,200	)	$	607,500

Income Taxes

Income Taxes

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Among these new taxes on certain foreign sourced earnings, the Act created a new category of income inclusion: the global intangible low-taxed income (“GILTI”). The objective of GILTI is to deter U.S. corporations from transferring intangible property to non-U.S. low-tax jurisdictions by subjecting the non-U.S. income to current U.S. taxation. The Act also adds a provision for a deduction to offset the GILTI inclusion for C corporations only, which is 50 percent (37.5 percent after 2025) of the GILTI inclusion. The GILTI deduction is subject to limitation based mainly on the taxpayer’s taxable income.

In addition to GILTI, the Act also introduced the foreign-derived intangible income (“FDII”) category. FDII is eligible income derived in connection with property sold or services provided by the U.S. taxpayer to a non-U.S. person. The taxpayer must establish that the property is foreign use property, and, in the case of services, the taxpayer must provide that the services are rendered to a non-U.S. person who is located outside of the United States. C corporations receive a deduction equal to 37.5 percent (21.875 percent after 2025) of foreign-derived intangible income (FDII). Similar to the GILTI deduction, the FDII deduction is subject to limitation.

The Act significantly changes how the U.S. taxes corporations. The Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Act, estimates in calculations, and preparation and analysis of information not previously relevant or regularly produced. As of March 31, 2018, the Company has not completed the accounting for all of the tax effects of the Act; however, preliminary calculations for the two new aforementioned provisions of the Act, GILTI and FDII, provide that the impact of the provisions are immaterial to the provision for income taxes.

As the Company completes its analysis of the Act, collects and prepares necessary data, and interprets any additional guidance set forth by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may alter its assessment if it determines that the Act has a material impact on the provision for income taxes.

XML

Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Schedule of Allowance for Doubtful Accounts

The following table sets forth the details of the Allowance for Doubtful Accounts for the three-month periods ended June 30, 2018 and 2017:

	Beginning Balance		Charge Offs		Recoveries		Provision		Ending Balance
2018	$	3,400	$	—	$	—	$	700	$	4,100
2017		5,000		—		—		10,300		15,300

The following table sets forth the details of the Allowance for Doubtful Accounts for the six-month periods ended June 30, 2018 and 2017:

	Beginning Balance		Charge Offs		Recoveries		Provision			Ending Balance
2018	$	7,800	$	—	$	—	$	(3,700	)	$	4,100
2017		7,700		—		—		7,600			15,300

Schedule of Concentration of Risk, by Risk Factor

The tables set forth the percentage of sales attributable to each customer during the periods presented, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net, as of June 30, 2018 and 2017.

	Three Months Ended June 30, 2018			As of June 30, 2018			Three Months Ended June 30, 2017
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Alcatel-Lucent		1.3	%		5.9	%		9.1	%		20.0	%
Centric		17.1	%		20.8	%		4.9	%		10.1	%
ESO Solutions		6.3	%		2.3	%		9.2	%		20.2	%
Elosoft		7.6	%		20.2	%		17.3	%		4.2	%
Siae microelettronica		3.8	%		13.6	%		2.8	%		6.2	%
Total		36.1	%		62.8	%		43.3	%		60.7	%

	Six Months Ended June 30, 2018			As of June 30, 2018			Six Months Ended  June 30, 2017
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Alcatel-Lucent		0.8	%		5.9	%		5.5	%		20.0	%
Centric		15.7	%		20.8	%		4.9	%		10.1	%
ESO Solutions		4.5	%		2.3	%		5.1	%		20.2	%
Elosoft		5.9	%		20.2	%		13.8	%		4.2	%
Siae microelettronica		1.9	%		13.6	%		1.6	%		6.2	%
Total		28.8	%		62.8	%		30.9	%		60.7	%

Schedule of Revenue

The cumulative effect of the changes made to our condensed consolidated balance sheet as of January 1, 2018 under current assets, deferred revenue and accumulated deficit for the adoption ASU 2014-09, Revenue - Revenue from Contracts with Customers were as follows:

Balance Sheet	Balance at December 31, 2017			Adjustments due to ASC 606			Balance at January 1, 2018
Current Assets
Deferred COGS	$	—		$	20,000		$	20,000
Liabilities and Stockholders’ Equity
Accumulated Deficit	$	(81,849,200	)	$	1,391,900		$	(80,457,300	)
Current Liabilities
Deferred Revenue	$	1,845,100		$	(609,700	)	$	1,235,400
Long Term Liabilities
Deferred Revenue	$	1,409,700		$	(802,200	)	$	607,500

XML

Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2018

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

Equipment	$	179,900	$	258,700
Furniture		1,600		190,600
Leasehold improvements		167,600		167,600
		349,100		355,800
Less: accumulated depreciation and amortization		336,800		325,000
	$	12,300	$	30,800

XML

Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Stock-Based Compensation Expenses

The following table summarizes the stock-based compensation expense, for the three and six-month periods ended June 30, 2018 and 2017, respectively, by classification:

	Three Months Ended June 30,				Six Months Ended June 30,
Statement of Operations Classification	2018		2017		2018		2017
Costs of revenue	$		$	-	$		$	-
Selling and marketing expense		—		100		—		200
General and administrative expense		—		3,100		—		18,100
Research and development expense		—		100		—		200
	$	—	$	3,300	$	—	$	18,500

XML

Segment Information (Tables)

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Schedule of Revenue by Country

The following table summarizes the stock-based compensation expense, for the three and six-month periods ended June 30, 2018 and 2017, respectively, by classification:

	Three Months Ended June 30,				Six Months Ended June 30,
Statement of Operations Classification	2018		2017		2018		2017
Costs of revenue	$		$	-	$		$	-
Selling and marketing expense		—		100		—		200
General and administrative expense		—		3,100		—		18,100
Research and development expense		—		100		—		200
	$	—	$	3,300	$	—	$	18,500

XML

Significant Accounting Policies (Details Narrative) - USD ($)		3 Months Ended		6 Months Ended
	Dec. 22, 2017	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Impairment charges of long-lived assets
License revenue		$ 866,000	$ 924,800	1,688,300	$ 1,907,300
Accumulated deficit		80,336,300		$ 80,336,300		$ 81,849,200
Income tax description				The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Among these new taxes on certain foreign sourced earnings
Income tax percentage	21.00%
Global Intangible Low-taxed Income [Member]
Income tax description				The Act also adds a provision for a deduction to offset the GILTI inclusion for C corporations only, which is 50 percent (37.5 percent after 2025) of the GILTI inclusion.
Foreign-derived Intangible Income [Member]
Income tax description				C corporations receive a deduction equal to 37.5 percent (21.875 percent after 2025) of foreign-derived intangible income (FDII). Similar to the GILTI deduction, the FDII deduction is subject to limitation.
January 1, 2018 [Member]
Accumulated deficit		$ 80,457,300		$ 80,457,300		$ 1,391,900
License and Service [Member]
License revenue				$ 96,400

XML

Significant Accounting Policies - Schedule of Allowance for Doubtful Accounts (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Accounting Policies [Abstract]
Beginning balance	$ 3,400	$ 5,000	$ 7,800	$ 7,700
Charge offs
Recoveries
Provision	700	10,300	(3,700)	7,600
Ending balance	$ 4,100	$ 15,300	$ 4,100	$ 15,300

XML

Significant Accounting Policies - Schedule of Concentration of Risk, by Risk Factor (Details) - Customer Concentration Risk [Member]	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Sales Revenue, Net [Member]
Concentration of Credit Risk	36.10%	43.30%	28.80%	30.90%
Sales Revenue, Net [Member] | Alcatel-Lucent [Member]
Concentration of Credit Risk	1.30%	9.10%	0.80%	5.50%
Sales Revenue, Net [Member] | Centric Systems [Member]
Concentration of Credit Risk	17.10%	4.90%	15.70%	4.90%
Sales Revenue, Net [Member] | ESO Solution [Member]
Concentration of Credit Risk	6.30%	9.20%	4.50%	5.10%
Sales Revenue, Net [Member] | Elosoft [Member]
Concentration of Credit Risk	7.60%	17.30%	5.90%	13.80%
Sales Revenue, Net [Member] | Siae Microelettronica [Member]
Concentration of Credit Risk	3.80%	2.80%	1.90%	1.60%
Accounts Receivable [Member]
Concentration of Credit Risk	62.80%	60.70%	62.80%	60.70%
Accounts Receivable [Member] | Alcatel-Lucent [Member]
Concentration of Credit Risk	5.90%	20.00%	5.90%	20.00%
Accounts Receivable [Member] | Centric Systems [Member]
Concentration of Credit Risk	20.80%	10.10%	20.80%	10.10%
Accounts Receivable [Member] | ESO Solution [Member]
Concentration of Credit Risk	2.30%	20.20%	2.30%	20.20%
Accounts Receivable [Member] | Elosoft [Member]
Concentration of Credit Risk	20.20%	4.20%	20.20%	4.20%
Accounts Receivable [Member] | Siae Microelettronica [Member]
Concentration of Credit Risk	13.60%	6.20%	13.60%	6.20%

XML

Significant Accounting Policies - Schedule of Revenue (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Current Assets: Deferred COGS
Liabilities and Stockholders' Equity: Accumulated Deficit	$ (80,336,300)	(81,849,200)
Current Liabilities: Deferred Revenue	1,143,000	1,845,100
Long Term Liabilities: Deferred Revenue	543,900	1,409,700
Adjustments due to ASC 606 [Member]
Current Assets: Deferred COGS	20,000
Liabilities and Stockholders' Equity: Accumulated Deficit	1,391,900
Current Liabilities: Deferred Revenue	(609,700)
Long Term Liabilities: Deferred Revenue	(802,200)
January 1, 2018 [Member]
Current Assets: Deferred COGS	20,000
Liabilities and Stockholders' Equity: Accumulated Deficit	(80,457,300)	$ (1,391,900)
Current Liabilities: Deferred Revenue	1,235,400
Long Term Liabilities: Deferred Revenue	$ 607,500

XML

Property and Equipment (Details Narrative) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2018	Jun. 30, 2017
Property, Plant and Equipment [Abstract]
Depreciation	$ 8,900	$ 17,800
Disposed of equipment			$ 700

XML

Property and Equipment - Schedule of Property and Equipment (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Property and equipment gross	$ 349,100	$ 355,800
Less: accumulated depreciation and amortization	336,800	325,000
Property and equipment net	12,300	30,800
Equipment [Member]
Property and equipment gross	179,900	258,700
Furniture [Member]
Property and equipment gross	1,600	190,600
Leasehold Improvements [Member]
Property and equipment gross	$ 167,600	$ 167,600

XML

Stock-Based Compensation - Schedule of Stock-Based Compensation Expenses (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Stock based compensation expense		$ 3,300		$ 18,500
Cost of Revenue [Member]
Stock based compensation expense
Selling and Marketing Expense [Member]
Stock based compensation expense		100		200
General and Administrative Expense [Member]
Stock based compensation expense		3,100		18,100
Research and Development Expense [Member]
Stock based compensation expense		$ 100		$ 200

XML

Supplemental Disclosure of Cash Flow Information (Details Narrative) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Supplemental Cash Flow Elements [Abstract]
Payment of interest expense	$ 0	$ 200
Payment of income taxes	$ 800	$ 1,300

XML

Earnings (Loss) Per Share (Details Narrative) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Earnings Per Share [Abstract]
Computaion of dilutive shares included in stock equivalent	564,556		564,556
Dilutive loss per share	432,594	1,375,509	432,594	1,375,509

XML

Segment Information - Schedule of Revenue by Country (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenue by country	$ 866,000	$ 924,800	$ 1,688,300	$ 1,907,300
United States [Member]
Revenue by country	288,300	275,100	597,500	624,900
Brazil [Member]
Revenue by country	186,100	234,000	357,900	362,400
Other Countries [Member]
Revenue by country	$ 391,500	$ 415,700	$ 732,900	$ 920,000