0001493152-20-021760.txt : 20201116 0001493152-20-021760.hdr.sgml : 20201116 20201116171522 ACCESSION NUMBER: 0001493152-20-021760 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 37 CONFORMED PERIOD OF REPORT: 20200930 FILED AS OF DATE: 20201116 DATE AS OF CHANGE: 20201116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: hopTo Inc. CENTRAL INDEX KEY: 0001021435 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 133899021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21683 FILM NUMBER: 201318335 BUSINESS ADDRESS: STREET 1: 1901 S. BASCOM AVENUE STREET 2: SUITE 660 CITY: CAMPBELL STATE: CA ZIP: 95008 BUSINESS PHONE: 8004727466 MAIL ADDRESS: STREET 1: 1901 S. BASCOM AVENUE STREET 2: SUITE 660 CITY: CAMPBELL STATE: CA ZIP: 95008 FORMER COMPANY: FORMER CONFORMED NAME: GRAPHON CORP/DE DATE OF NAME CHANGE: 19990727 FORMER COMPANY: FORMER CONFORMED NAME: UNITY FIRST ACQUISITION CORP DATE OF NAME CHANGE: 19960823 10-Q 1 form10-q.htm

 

 

 

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 September 30, 2020

 

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

 

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

 

Title of Each Class   Trading Symbol (s)   Name of Each Exchange on Which Registered
Common Stock   HPTO   OTC Markets

 

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 November 16, 2020, there were issued and outstanding 18,850,675 shares of the registrant’s common stock, par value $0.0001.

 

 

 

 
 

 

Table of Contents

 

    PAGE
PART I. FINANCIAL INFORMATION  
Item 1. Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
     
PART II. OTHER INFORMATION  
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 19
Item 4. Mine Safety Disclosures 19
Item 5. Other Information 19
Item 6. Exhibits 19
  Signatures 20

 

2
 

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

 

hopTo Inc.

Consolidated Balance Sheets

(Unaudited)

 

   September 30,   December 31, 
   2020   2019 
Assets          
           
Current assets          
Cash and cash equivalents  $4,248,300   $1,541,900 
Accounts receivable, net   396,000    271,200 
Prepaid expenses and other current assets   47,600    59,000 
Total current assets   4,691,900    1,872,100 
           
Property and equipment, net   -    - 
Other assets   17,800    17,800 
Total assets  $4,709,700   $1,889,900 
           
 Liabilities and Stockholders’ Equity (Deficit)          
           
Current liabilities          
Accounts payable  $224,200   $271,900 
Accrued expenses   98,000    106,000 
Accrued wages   144,500    136,400 
Deferred revenue   1,012,900    1,256,000 
Total current liabilities   1,479,600    1,770,300 
           
Deferred revenue   418,100    529,500 
Total liabilities   1,897,700    2,299,800 
           
Commitments and contingencies          
           
Stockholders’ equity (deficit)          
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding as of September 30, 2020 or December 31, 2019   -    - 
Common stock, $0.0001 par value, 195,000,000 shares authorized, 18,621,534 and 9,834,866 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively   1,900    1,000 
Additional paid-in capital   82,155,200    79,523,500 
Accumulated deficit   (79,345,100)   (79,934,400)

Total stockholders’ equity (deficit)

   2,812,000    (409,900)

Total liabilities and stockholders’ equity (deficit)

  $4,709,700   $1,889,900 

 

See accompanying notes to unaudited consolidated financial statements

 

3
 

 

hopTo Inc.

Consolidated Statements of Operations

(Unaudited)

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30,   September 30,   September 30, 
   2020   2019   2020   2019 
                 
Revenues  $894,600   $948,800   $2,805,300   $2,734,600 
Cost of revenues   42,500    38,100    118,000    106,900 
Gross profit   852,100    910,700    2,687,300    2,627,700 
                     
Operating expenses:                    
Selling and marketing   140,300    96,300    396,200    323,900 
General and administrative   196,100    166,100    664,600    660,700 
Research and development   355,700    361,300    1,076,600    1,118,800 
Total operating expenses   692,100    623,700    2,137,400    2,103,400 
                     
Income from operations   160,000    287,000    549,900    524,300 
                     
Other income:                    
Other income   -    200    46,900    14,100 
                     
Income before provision for income taxes   160,000    287,200    596,800    538,400 
Provision for income taxes   2,500    -    7,500    - 
Net income (loss)  $157,500   $287,200   $589,300   $538,400 
                     
                     
Net income per share, basic  $0.01   $0.03   $0.05   $0.05 
Net income per share, diluted  $0.01   $0.03   $0.05   $0.05 
                     
Weighted average number of common shares outstanding                    
Basic   15,242,128    9,834,866    12,216,478    9,816,564 
Diluted   15,713,640    10,302,577    12,687,990    10,278,646 

 

See accompanying notes to unaudited consolidated financial statements

 

4
 

 

hopTo Inc.

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

 

   Common Stock   Additional   Accumulated     
   Shares   Amount   Paid-In Capital   Deficit   Total 
                     
Balance at December 31, 2018   9,804,400   $1,000   $       79,298,200   $(80,488,700)  $(1,189,500)
Contributed services   -    -    56,300    -    56,300 
Net income   -    -    -    251,900    251,900 
Balance at March 31, 2019   9,804,400   $1,000   $79,354,500   $(80,236,800)  $(881,300)
Contributed services   -    -    56,200    -    56,200 
Exercise of warrants   30,466    -    300    -    300 
Net loss        -    -    (700)   (700)
Balance at June 30, 2019   9,834,866   $1,000   $79,411,000   $(80,237,500)  $(825,500)
Contributed services   -    -    56,300    -    56,300 
Other rounding   -    -    (100)   -    (100)
Net loss        -    -    287,200    287,200 
Balance at September 30, 2019   9,834,866   $1,000    79,467,200   $(79,950,300)  $(482,100)
                          
Balance at December 31, 2019   9,834,866   $1,000   $79,523,500   $(79,934,400)  $(409,900)
Shares issued for settlement of accrued expenses   120,000    -    39,600    -    39,600 
Contributed services   -    -    56,200    -    56,200 
Net income   -    -    -    109,100    109,100 
Balance at March 31, 2020   9,954,866   $1,000   $79,619,300   $(79,825,300)  $(205,000)
Proceeds from rights offering   1,600,638    100    480,000    -    480,100 
Issuance cost for rights offering   -    -    (119,400)   -    (119,400)
Contributed services   -    -    56,200    -    56,200 
Net income   -    -    -    322,700    322,700 
Balance at June 30, 2020   11,555,504   $1,100   $80,036,100   $(79,502,600)  $534,600 
Proceeds from rights offering   7,066,030    800    2,119,100    -    2,119,900 
Net income   -    -    -    157,500    157,500 
Balance at September 30, 2020   18,621,534   $1,900   $82,155,200   $(79,345,100)  $2,812,000 

 

See accompanying notes to unaudited consolidated financial statements

 

5
 

 

hopTo Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

   For the Nine Months Ended 
   September 30,   September 30, 
   2020   2019 
Cash flows from operating activities          
Net income  $589,300   $538,400 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   -    400 
Contributed services   112,400    168,800 
Changes in allowance for doubtful accounts   1,600    2,100 
Changes in operating assets and liabilities:          
Accounts receivable   (126,400)   (25,100)
Prepaid expenses and other current assets   11,400    9,200 
Accounts payable and accrued expenses   (7,800)   (127,400)
Deferred revenue   (354,500)   600 
Net cash provided by operating activities   226,000    567,000 
           
Cash flows from financing activities          
Proceeds from exercise of warrants   -    300 
Proceeds from rights offering   2,599,900    - 
Issuance cost for rights offering   (119,500)   - 
Net cash provided by financing activities   2,480,400    300 
           
Net change in cash   2,706,400    567,300 
Cash, beginning of the period   1,541,900    892,500 
Cash, end of the period  $4,248,300   $1,459,800 
           
Supplemental disclosure of cash flow information:          
Interest paid  $-   $- 
Income taxes paid  $7,500   $- 
           
Non-cash financing activities: shares issued for settlement of accrued expenses  $39,600   $- 
Issuance of cost for rights offering included in accounts payable and accrued expenses  $   $-

 

See accompanying notes to unaudited consolidated financial statements

 

6
 

 

hopTo Inc.

Notes to Unaudited Consolidated Financial Statements

 

1. Organization

 

hopTo Inc., through subsidiaries (collectively, “we”, “us,” “our” or the “Company”) are developers of application publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants.

 

The Company sells a family of products under the brand name GO-Global, which is a software application publishing business and is the Company’s sole revenue source at this time. GO-Global is an application access solution for use and/or resale by independent software vendors, corporate enterprises, governmental and educational institutions, and others, who wish to take advantage of cross-platform remote access and Web-enabled access to their existing software applications, as well as those who are deploying secure, private cloud environments.

 

2. Significant Accounting Policies

 

Basis of Presentation

 

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

 

The unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 which was filed with the SEC on April 14, 2020 (“2019 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, 2020 or any future period.

 

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

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Amounts could materially change in the future. These significant estimates include the valuation of stock-based compensation expense, the allowance for doubtful accounts, and accruals of liabilities.

 

7
 

 

Revenue Recognition

 

The Company markets and licenses its 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.

 

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” Revenues under ASC 606 are recognized when the promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services.

 

The following is a summary of how the Company recognizes revenue for its different products and services.

 

  Product Sales

 

All of our licenses are delivered to the customer electronically. The Company sends the license key to the customer to download the related software from Company portal. We recognize revenue upon delivery of these licenses. For stocking resellers who purchase licenses through inventory stocking orders with the intent to resell to an end-user, revenue is recognized when the resellers’ accounts have been credited, at their discretion, for the number of licenses purchased.

 

  Service Revenue

 

The Company has maintenance contracts with certain of its customers. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

 

The Company’s product sales by geographic area are presented in Note 4.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. The Company had no cash equivalents as of September 30, 2020 (unaudited) or December 31, 2019.

 

Allowance for Doubtful Accounts

 

We maintain an allowance for doubtful accounts that reflects our best estimate of potentially uncollectible trade receivables. The allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts receivable. We regularly review the adequacy of our allowance for doubtful accounts by considering such factors as historical experience, credit worthiness, and current economic conditions that may affect a customer’s ability to pay. We specifically reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance for doubtful accounts based on our review of the aging and size of our accounts receivable. As of September 30, 2020 and December 31, 2019, the allowance for doubtful accounts totaled $8,900 and $7,300, respectively.

 

8
 

 

Concentration of Credit Risk

 

For the three and nine-month ended September 30, 2020 and 2019, we currently consider the following to be our most significant customers and partners. For the purposes of this presentation, “Sales” refers to the dollar value of orders received from these customers and partners in the period indicated. These Sales values do not necessarily equal recognized revenue for these periods due to our revenue recognition policies which require deferral of revenue associated with prepaid software service fees.

 

For the three months ended September 30, 2020, the Company had four customers comprising 15.9%, 15.4%, 13.6%, and 10.0%, respectively, of total sales. For the three months ended September 30, 2019, the Company had three customers comprising 29.7%, 11.9%, and 11.5%, respectively, of total sales.

 

For the nine months ended September 30, 2020, the Company had two customers comprising 11.9% and 10.3% of total sales. For the nine months ended September 30, 2019, the Company had two customers comprising 17.3% and 15.5% of total sales.

 

A loss of one of these customers could potentially have a significant negative impact on the Company’s financial statements.

 

As of September 30, 2020, the Company has three customers comprising 22.8%, 15.4%, and 14.7%, respectively, of net accounts receivable. As of December 31, 2019, the Company has 1 customer comprising 17.9% of net accounts receivable.

 

Basic and Diluted Earnings Per Share

 

In accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted income (loss) per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Dilutive common share equivalents as of September 30, 2020, representing 481,335 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three months ended September 30, 2020 and 2019, the Company had total common stock equivalents of 93,076 and 106,077, respectively, which were excluded from the computation of net income (loss) per share because they are out of the money and thus anti-dilutive.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses. The carrying amount of these financial instruments approximates fair value due to the nature of the accounts and their short-term maturities.

 

Recently Adopted Accounting Pronouncements

 

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

 

3. Stockholders’ Equity

 

Stock-Based Compensation Plans

 

In November 2012, the Company’s 2012 Equity Incentive Plan (the “12 Plan”) was approved by the stockholders. Pursuant to the terms of the 12 Plan, stock options, stock appreciation rights, restricted stock and restricted stock units (sometimes referred to individually or collectively as “awards”) may be granted to officers and other employees, non-employee directors and independent consultants and advisors who render services to the Company. The Company is authorized to issue options to purchase up to 643,797 shares of common stock, stock appreciation rights, or restricted stock in accordance with the terms of the 12 Plan.

 

9
 

 

In the case of a restricted stock award, the entire number of shares subject to such award would be issued at the time of the grant and subject to vesting provisions based on time or other conditions specified by the Board or an authorized committee of the Board. For awards based on time, should the grantee’s service to the Company end before full vesting occurred, all unvested shares would be forfeited and returned to the Company. In the case of awards granted with vesting provisions based on specific performance conditions, if those conditions were not met, then all shares would be forfeited and returned to the Company. Until forfeited, all shares issued under a restricted stock award would be considered outstanding for dividend, voting and other purposes.

 

Under the 12 Plan, the exercise price of non-qualified stock options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted. The exercise price of incentive stock options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted provided, however, that if the recipient of the incentive stock option owns greater than 10% of the voting power of all shares of the Company’s capital stock then the exercise price will be no less than 110% of the fair market value of the Company’s common stock on the date the option is granted. The purchase price of the restricted stock issued under the 12 Plan shall also not be less than 100% of the fair market value of the Company’s common stock on the date the restricted stock is granted.

 

All options granted under the 12 Plan are immediately exercisable by the optionee; however, there is a vesting period for the options. The options (and the shares of common stock issuable upon exercise of such options) vest, ratably, over a 33-month period; however, no options (and the underlying shares of common stock) vest until after three months from the date of the option grant. The exercise price is immediately due upon exercise of the option. The maximum term of options issued under the 12 Plan is ten years. Shares issued upon exercise of options are subject to the Company’s repurchase, which right lapses as the shares vest. The 12 Plan will terminate no later than November 7, 2022. As of September 30, 2020, 424,594 shares of common stock remained available for issuance under the 12 Plan.

 

The following summarizes the stock option activity for the nine months ended September 30, 2020.

 

           Weighted- 
           Average 
       Weighted-   Remaining 
       Average   Contractual 
       Exercise   Life 
   Options   Price   (Years) 
             
Outstanding at December 31, 2019   106,077   $2.77    1.53 
Granted   -           
Forfeited/cancelled   (13,001)          
Exercised   -           
Outstanding at September 30, 2020 (unaudited)   93,076   $3.03    0.99 
               
Vested and expected to vest at September 30, 2020 (unaudited)   93,076   $3.03    0.99 
                
Exercisable at September 30, 2020 (unaudited)   93,076   $3.03    0.99 

 

The following table summarizes information about options outstanding and exercisable as of September 30, 2020.

 

     Options Outstanding  Options Exercisable
           Weighted    Weighted         Weighted 
  Range of        Average    Average         Average 
  Exercise   Number    Remaining    Exercise    Number    Exercise 
  Price   of Shares    Life (Years)    Price    of Shares    Price 
                            
$  0.75 - 1.00   14,526    0.28   $0.75    14,526   $0.75 
   2.00 - 4.00   63,684    1.12    3.21    63,684    3.21 
   4.20 - 6.68   14,866    1.15    4.46    14,866    4.46 
      93,076              93,076      

 

10
 

 

Shares of Common Stock Issued

 

During the three-month period ending September 30, 2020, the Company issued a total of 7,066,030 shares of common stock to shareholders for the rights offering at $0.30 per share. The proceeds for these shares were received in September 2020. During the nine-month period, the Company issued total of 8,786,667 shares of common stock, of which 8,666,667 shares for rights offering and 120,000 shares of common stock were to two former members of our board of directors that was previously committed to them and included in accrued expenses. The issuance of the 120,000 shares of common stock settles a total of $39,600 of accrued expenses that was included in the Company’s balance sheet.

 

Warrants

 

As of September 30, 2020 and December 31, 2019, the Company had 481,335 warrants outstanding. The warrants outstanding at September 30, 2020 are all exercisable at $0.01 and have an expiration date of May 20, 2023.

 

4. Sales by Geographical Location

 

Revenue by country for the three and nine months ended September 30, 2020 and 2019 was as follows.

 

   Three Months Ended   Nine Months Ended 
   September 30, 2020   September 30, 2019   September 30, 2020   September 30, 2019 
Revenue by Country                    
United States  $261,000   $344,000   $875,500   $1,006,400 
Brazil   358,100    160,000    951,600    431,400 
Japan   104,900    162,800    270,800    268,300 
The Netherlands   61,800    46,900    217,400    357,100 
Other Countries   108,800    235,100    490,000    671,400 
Total  $894,600   $948,800   $2,805,300   $2,734,600 

 

5. Commitments and Contingencies

 

Profit Sharing Plans

 

The Company has adopted a 401(k) plan to provide retirement benefits for employees under which the Company makes discretionary matching contributions. During the three months ended September 30, 2020 and 2019, the Company contributed a total of $2,200 and $0, respectively. During the nine months ended September 30, 2020 and 2019, the Company contributed a total of $17,800 and $14,100, respectively.

 

Contingencies

 

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

 

6. Related Party Transactions

 

On September 30, 2020, the Company entered into an executive employment agreement with Jonathon R. Skeels, the Company’s Chief Executive Officer and Interim Chief Financial Officer, effective as of July 1, 2020.

 

Pursuant to the Agreement, Mr. Skeels is entitled to receive a base salary of $200,000 per year and other compensation to be determined from time to time by the Company in its sole discretion. The Agreement also entitles Mr. Skeels to participate in the Company’s employee benefit plans and be reimbursed for expenses incurred in connection with his service to the Company. If Mr. Skeels’ employment is terminated without cause (as defined in the Agreement) the Company will, against the receipt of a mutual release, pay Mr. Skeels an amount equal to 12 months of his annual base salary and pay the premiums for continuation of Mr. Skeels and his family’s health insurance for up to 12 months following his termination.

 

Mr. Skeels has served as the Company’s Chief Executive Officer and Interim Chief Financial Officer since September 2018, however, previously did not receive a salary or other forms of compensation. During the nine months ended September 30, 2020 and 2019, the Company recorded an expense and contributed capital of approximately $112,400, and $168,700, respectively for contributed services based on the estimated market rate for these services.

 

On January 31, 2020, we entered into the Backstop Agreement (the “Backstop Agreement”) with a consortium of accredited investors, including all of our directors and led by Novelty Capital Partners LP, pursuant to which such investors agreed to purchase in a private placement, at $0.30 per share, up to 2.41 million of shares of our common stock. The consummation of the investment pursuant to the Backstop Agreement was conditioned on the closing of our subscription rights offering to all of our stockholders (the “Rights Offering”). The Rights Offering expired on March 31, 2020, and we consummated the Backstop Agreement transactions on August 13, 2020.

 

At closing of the Rights Offering, we received net proceeds of $480,200 in exchange for 1.6 million shares of common stock. Pursuant to the Backstop Agreement, we received gross proceeds of $2.12 million in exchange for the issuance of 7.0 million restricted shares of common stock.

 

11
 

 

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, 2019 which was filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2020, 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. 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.

 

Beginning in 2012, we developed and marketed several products in the field of software productivity for mobile devices such as tablets and smartphones under the hopTo brand. We ceased all our sales, marketing and development for the hopTo products in 2016.

 

We have made investments in intellectual property (“IP”) and filed many patents designed to protect the technologies embedded in the hopTo products. We are currently marketing for sale 49 patents and related source code developed from our hopTo development efforts.

 

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 2019 10-K Report and Note 2 to our unaudited consolidated financial Statements included under Item 1 – Financial Statements in this Form 10-Q.

 

12
 

 

Results of Operations for the Three Months Ended September 30, 2020 and 2019

 

The following are the results of our operations for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

 

   For the Three Months Ended     
   September 30,   September 30,     
   2020   2019   $ Change 
   (Unaudited)   (Unaudited)     
             
Revenues  $894,600   $948,800   $(54,200)
Cost of revenues   42,500    38,100    4,400 
Gross profit   852,100    910,700    (58,600)
                
Operating expenses:               
Selling and marketing   140,300    96,300    44,000 
General and administrative   196,100    166,100    30,000 
Research and development   355,700    361,300    (5,600)
Total operating expenses   692,100    623,700    68,400 
                
Income from operations   160,000    287,000    (127,000)
                
Other income (expense):               
Other income (expense):   -    200    (200)
                
Income before provision for income taxes   160,000    287,200    (127,200)
Provision for income taxes   2,500    -    2,500 
Net income   $157,500   $287,200   $(129,700)

 

Revenues

 

Our software revenue is entirely related to our GO-Global product line, and historically has been primarily derived from product licensing fees and service fees from maintenance contracts. The majority of this revenue has been earned, and continues to be earned, from a limited number of significant customers, most of whom are resellers. Many of our resellers purchase software licenses that they hold in inventory until they are resold to the ultimate end user (a “stocking reseller”).

 

When a software license is sold directly to an end user by us, or by one of our resellers who does not stock licenses into inventory, revenue is recognized immediately upon shipment, assuming all other criteria for revenue recognition are met. Consequently, if any significant end user customer substantially changes its order level, or fails to order during the reporting period, whether the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially impacted.

 

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

 

The following is a summary of our revenues by category for the three months ended September 30, 2020 and 2019.

 

   For the Three Months Ended     
   September 30,   September 30,     
   2020   2019   $ Change 
Revenue            
Software Licenses               
Windows  $188,800   $302,000   $(113,200)
UNIX/Linux   44,600    20,100    24,500 
Total   233,400    322,100    (88,700)
                
Software Service Fees               
Windows   586,000    535,700    50,300 
UNIX/Linux   53,600    68,000    (14,400)
Total   639,600    603,700    35,900 
                
Other   21,600    23,000    (1,400)
   $894,600   $948,800   $(54,200)

 

Software Licenses

 

Windows software licenses revenue decreased by $113,200 or 37.5% to $188,800 during the three months ended September30, 2020, from $302,000 for the same period in 2019. The decrease was primarily due to a certain Japanese reseller that purchased a large order of Windows licenses from the Company during the three months ended September 30,2019 but not reoccur for the three months ended September 30, 2020.

 

13
 

 

Software licenses revenue from our UNIX/Linux products increased by $24,500 or 121.9% to $44,600 for the three months ended September 30, 2020 from $20,100 for the same period in 2019. The increase was primarily due to higher revenue from stocking order and standard order of Unix licenses for the three months ended September 30, 2020.

 

Software Service Fees

 

Service fees attributable to our Windows product service increased by $50,300 or 9.4% to $586,000 during three months ended September 30, 2020, from $535,700 for the same period in 2019. The increase was primarily due to increased Windows subscription license revenue, offset by royalty fees and lower Windows software maintenance support revenue.

 

Service fees revenue attributable to our UNIX products decreased by $14,400 or 21.2% to $53,600 during the three months ended September 30, 2020, from $68,000 for the same period in 2019. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of certain long-term maintenance contracts. The majority of this decrease was attributable to our European telecommunications customers.

 

Other

 

Other revenue consists of private labeling fees and professional services. Other revenue decreased by $1,400 or 6.1% for the three months ended September 30, 2020, compared to the same period in 2019. The primary decrease was related to lower private labeling fee revenue.

 

Cost of Revenues

 

Cost of revenue is comprised primarily of software service costs, which represent the costs of customer service. Also included in cost of revenue are software product costs, which is primarily the required import tax withholdings from Brazil resellers. We incur no significant shipping or packaging costs as virtually all of our deliveries are made via electronic means over the Internet.

 

Cost of revenue for the three months ended September 30, 2020 increase by $4,400, or 11.5%, to $42,500 for the three months ended September 30, 2020 from $38,100 for the same period in 2019. Cost of revenue represented 4.8% and 4.0% of total revenue for the three months ended September 30, 2020 and 2019, respectively. The primarily increase was due to increase import tax withholdings associated with higher revenue from Brazil resellers for the three-month period ended September 30, 2020.

 

Selling and Marketing Expenses

 

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

 

Selling and marketing expenses increased by $44,000, or 45.7%, to $140,300 for the three months ended September 30, 2020 from $96,300 for the same period in 2019. Selling and marketing expenses represented approximately 15.7% and 10.1% of total revenue for the three months ended September 30, 2020 and 2019, respectively. Selling and marketing expenses increased during three months period ended September 30, 2020 due to the increase in marketing spend.

 

General and Administrative Expenses

 

General and administrative expenses primarily consist of employee costs, depreciation and amortization, legal, accounting, board of director fees, other professional services (including those related to our patents), rent, travel and entertainment and insurance. Certain costs associated with being a publicly held corporation are also included in general and administrative expenses, as well as bad debt expense.

 

General and administrative expenses increased by $30,000, or 18.1%, to $196,100 for the three months ended September 30, 2020 from $166,100 for the same period in 2019.General and administrative expenses represented approximately 21.9% and 17.5% of total revenue for the three months ended September 30, 2020 and 2019, respectively. The increase in general and administrative expense was due to fees paid to the board of directors for their service since September 2018 offset by decrease in accounting fees.

 

Research and Development Expenses

 

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

 

Research and development expenses decreased by $5,600, or 1.5% to $355,700 for the three months ended September 30, 2020 from $361,300 for the same period in 2019. Research and development expenses represented approximately 39.8% and 38.1% of total revenue for the three months ended September 30, 2020 and 2019, respectively. The research and development decrease was due lower consulting fees as a result of completion of research and development expenses during the second quarter of 2019.

 

Other Income

 

Other income decreased by $100 for the three months ended September 30, 2020, compare to the same periods in 2019.

 

14
 

 

Results of Operations for the Nine-Month Periods Ended September 30, 2020 and 2019

 

The following are the results of our operations for the nine months ended September 30, 2020 as compared to the six months ended September 30, 2019.

 

   For the Nine Months Ended     
   September 30,   September 30,     
   2020   2019   $ Change 
   (Unaudited)   (Unaudited)     
             
Revenues  $2,805,300   $2,734,600   $70,700 
Cost of revenues   118,000    106,900    11,100 
Gross profit   2,687,300    2,627,700    59,600 
                
Operating expenses:               
Selling and marketing   396,200    323,900    72,300 
General and administrative   664,600    660,700    3,900 
Research and development   1,076,600    1,118,800    (42,200)
Total operating expenses   2,137,400    2,103,400    34,000 
                
Income from operations   549,900    524,300    25,600 
                
Other income (expense):               
Other income (expense)   46,900    14,100    32,800 
                
Income before provision for income taxes   596,800    538,400    58,400 
Provision for income taxes   7,500    -    7,500 
Net income  $589,300   $538,400   $50,900 

 

Revenues

 

Our software revenue is entirely related to our GO-Global product line, and historically has been primarily derived from product licensing fees and service fees from maintenance contracts. The majority of this revenue has been earned, and continues to be earned, from a limited number of significant customers, most of whom are resellers. Many of our resellers purchase software licenses that they hold in inventory until they are resold to the ultimate end user (a “stocking reseller”).

 

When a software license is sold directly to an end user by us, or by one of our resellers who does not stock licenses into inventory, revenue is recognized immediately upon shipment, assuming all other criteria for revenue recognition are met. Consequently, if any significant end user customer substantially changes its order level, or fails to order during the reporting period, whether the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially impacted.

 

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

 

The following is a summary of our revenues by category for the nine months ended September 30, 2020 and 2019.

 

   For the Nine Months Ended     
   September 30,   September 30,     
   2020   2019   $ Change 
Revenue            
Software Licenses               
Windows  $585,700   $774,100   $(188,400)
UNIX/Linux   99,500    36,100    63,400 
Total   685,200    810,200    (125,000)
                
Software Service Fees               
Windows   1,650,100    1,633,900    16,200 
UNIX/Linux   175,400    221,500    (46,100)
Total   1,825,500    1,855,400    (29,900)
                
Other   294,600    69,000    225,600 
   $2,805,300   $2,734,600   $70,700 

 

Software Licenses

 

Windows software licenses revenue decreased by $188,400 or 24.3% to $585,700 during the nine months ended September 30, 2020, from $774,100 for the same period in 2019. The decrease was entirely due to a certain partner that purchased a large order of Windows licenses from the Company during the three months ended March 31, 2019 and the three months ended September 30,2019 that did not recur during same periods of 2020.

 

15
 

 

Software licenses revenue from our UNIX/Linux products increased by $63,400 or 175.6% to $99,500 for the nine months ended September 30, 2020 from $36,100 for the same periods of 2019. The increase was primarily due to higher revenue from higher stocking and standard order licenses.

 

We expect aggregate GO-Global total software license revenue in 2020 to be in-line with 2019 levels as we are observing a mix of both higher and lower aggregate revenue from our various customers.

 

Software Service Fees

 

Service fees attributable to our Windows product service increased by $16,200 or 1.0% to $1,650,100 during the nine months ended September 30, 2020, from $1,633,900 for the same period in 2019. The small increase was primarily due higher Windows subscription revenue offset by the timing of revenue recognition for maintenance support fees.

 

Service fees revenue attributable to our UNIX products decreased by $46,100 or 20.8% to $175,400 during the nine months ended September 30, 2020, from $221,500 for the same period in 2019. The decrease was primarily the result of lower level of UNIX product sales throughout the prior year and an expiration of certain long-term maintenance contracts.

 

We expect that software service fees for 2020 will approximate to those for 2019.

 

Other

 

Other revenue consists of private labeling fees, professional services, and other non-recurring revenues. Other revenue increased by $225,600 or 327.0% for the nine months ended September 30, 2020, compared to the same period in 2019.The primary increase was related to revenue recognized from a one-time, non-recurring a license agreement with an existing customer for the use of our license.

 

Cost of Revenues

 

Cost of revenue is comprised primarily of software service costs, which represent the costs of customer service. Also included in cost of revenue are software product costs, which are primarily comprised of the amortization of capitalized software development costs and costs associated with licenses to third party software included in our product offerings, and the required import tax withholdings from Brazil resellers. We incur no significant shipping or packaging costs as virtually all of our deliveries are made via electronic means over the Internet.

 

Cost of revenue for the nine months ended September 30, 2020 increased by $11,100, or 16.5%, to $118,000 for the nine months ended September 30, 2020 from $106,900 for the same period in 2019. Cost of revenue represented 4.2% and 3.9% of total revenue for the nine months ended September 30, 2020 and 2019, respectively. The primarily increase was due to increase import tax withholdings associated with higher revenue from Brazil resellers for the nine-month period ended September 30, 2020.

 

We expect 2020 cost of revenue to be slightly higher than 2019 for the above reason.

 

Selling and Marketing Expenses

 

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

 

Selling and marketing expenses increased by $72,300, or 22.3%, to $396,200 for the nine months ended September 30, 2020 from $323,900 for the same period in 2019. Selling and marketing expenses represented approximately 14.1% and 11.8% of total revenue for the nine months ended September 2020 and 2019, respectively. The increase in selling and marketing expenses was due to an increase in marketing spend offset by lower employee benefit costs.

 

We expect to maintain our sales and marketing efforts in 2020 for anticipated GO-Global releases with select targeted modest investments in promotional activity; accordingly, for this reason, we expect 2020 sales and marketing expenses to be slightly higher than 2019 levels.

 

16
 

 

General and Administrative Expenses

 

General and administrative expenses primarily consist of employee costs, legal, accounting, board fees, other professional services (including those related to our patents), rent, travel and entertainment and insurance. Certain costs associated with being a publicly held corporation are also included in general and administrative expenses, as well as bad debt expense.

 

General and administrative expenses slightly increased by $3,900, or 0.6%, to $664,600 for the nine months ended September 30, 2020 from $660,700 for the same period in 2019. General and administrative expenses represented approximately 23.7% and 24.2% of total revenue for the nine months ended September 30, 2020 and 2019, respectively.

 

The slight increase general and administrative expense was due to fees paid to the board of directors for their service since September 2018.

 

In 2020, we anticipate the fees paid to board of directors will be partially offset by a reduction in accounting fees and employee benefit costs compared to 2019 levels due to changes in service providers and improved cost controls by management. We therefore expect that our 2020 general and administrative costs will be slightly higher compared to those for 2019.

 

Research and Development Expenses

 

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

 

Research and development expenses decreased by $42,200, or 3.8% to $1,076,600 for the nine months ended September 30, 2020 from $1,118,800 for the same period in 2019. This represented approximately 38.42% and 40.9% of total revenue for the nine months ended September 30, 2020 and 2019, respectively.

 

The decrease in research and development expense was primarily due to a decrease in benefit cost and consulting fees associated with completing the new releases of our GO-Global products.

 

In 2020, we expect to continue our investments in research and development resources associated with our GO-Global products based on market feedback. We therefore expect 2020 research and development expenses to be slightly higher than 2019 levels.

 

Other Income

 

Other income increased by $32,800 for the nine months ended September 30, 2020, compare to the same periods in 2019 was primarily related to penalty fees from a one-time, non-recurring a license agreement with an existing customer for the use of our license.

 

Liquidity and Capital Resources

 

As of September 30, 2020, we had cash of $4,248,300 and a working capital position of $3,212,300 as compared to cash of $1,541,900 and a working capital position of $101,800 at December 31, 2019. The increase in cash as of September 30, 2020 was primarily the result of cash provided in operating and financing activities during the period. We expect our results from operations and capital resources will be sufficient to fund our operations for at least the next 12 months from the date of the filing of this quarterly report on Form 10-Q.

 

The following is a summary of our cash flows from operating, investing and financing activities for the three months ended September 30, 2020 and 2019.

 

   For the Nine Months Ended 
   September 30,   September 30, 
   2020   2019 
Cash flows provided by operating activities  $226,000   $567,000 
Cash flows provided by investing activities  $-   $- 
Cash flows provided by financing activities  $2,480,400   $300 

 

Net cash flows provided by operating activities for the nine months ended September 30, 2020 amounted to $226,000, compared to cash flows provided by operating activities of $567,000 for the nine months ended September 30, 2019. The decrease in cash flows provided by operating activities is primarily the result of decreases in changes in working capital during the period driven by lower deferred revenues.

 

17
 

 

Net cash provided by financing activities for the nine months ended September 30, 2020 amounted to $2,480,400. We received gross proceeds of $480,100 from the Rights Offering and paid $119,400 of issuance cost for the nine months ended September 30, 2020. For the three months ended September 30, 2020, we received $2.12 million from the closing of the investment pursuant to the Backstop Agreement. We intend to use the proceeds from the Rights Offering and the Backstop Agreement for general corporate purposes, which may include acquisitions (although we do not currently have any plans with respect to any acquisition).

 

We had no significant financing activity for the nine months ended September 30, 2019.

 

We had no cash flow activity relating to investing for the nine months ended September 30, 2020 or 2019.

 

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 September 30, 2020.

 

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 September 30 , 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

Not applicable

 

ITEM 1A. Risk Factors

 

There have been no material changes in our risk factors from those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission on April 14, 2020.

 

The coronavirus pandemic could adversely affect our results of operations.

 

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

 

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

 

On January 31, 2020, we entered into the Backstop Agreement with a consortium of accredited investors, including all of our directors and led by Novelty Capital Partners LP, pursuant to which such investors agreed to purchase in a private placement, at $0.30 per share, up to $2.41 million of shares of our common stock. The consummation of the investment pursuant to the Backstop Agreement was conditioned on the closing of the Rights Offering. The Rights Offering expired on March 31, 2020, and we consummated the Backstop Agreement transactions on August 13, 2020.

 

At the closing of the Rights Offering, we received gross proceeds of $480,191 in exchange for 1.6 million shares of common stock. Pursuant to the Backstop Agreement, we received proceeds of $2.12 million in exchange for the issuance of 7.0 million restricted shares of common stock. We intend to use the proceeds from the Rights Offering and the Backstop Agreement for general corporate purposes, which may include acquisitions (although we do not currently have any plans with respect to any acquisition). The shares were issued to the Backstop Agreement investors pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.

 

18
 

 

ITEM 3. Defaults Upon Senior Securities

 

Not applicable

 

ITEM 4. Mine Safety Disclosures

 

Not applicable

 

 

ITEM 5. Other Information

 

On March 31, 2020, our previously announced Rights Offering expired and in April 2020 we subsequently received $480,191 in exchange for 1.6 million shares of our common stock. Pursuant to the Backstop Agreement we received proceeds of $2.12 million in exchange for the issuance of 7.0 million restricted shares of common stock.

 

ITEM 6. Exhibits

 

Exhibit Number   Exhibit Description
31   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32   Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
101.DEF   XBRL Taxonomy Extension Definition Linkbase
101.LAB   XBRL Taxonomy Extension Label Linkbase
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

19
 

 

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: November 16, 2020
     
  By: /s/ Jonathon R. Skeels
    Jonathon R. Skeels
    Chief Executive Officer (Principal Executive Officer) and
    Interim Chief Financial Officer
    (Principal Financial Officer and
    Principal Accounting Officer)

 

20

EX-31 2 ex31.htm

 

EXHIBIT 31

 

CERTIFICATIONS

 

I, Jonathon R. Skeels, 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 the 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 persons 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.

 

Dated: November 16, 2020

 

By: /s/ Jonathon R. Skeels  
  Jonathon R. Skeels  
  Chief Executive Officer and Interim Chief Financial Officer  

 

 
EX-32 3 ex32.htm

 

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 on Form 10-Q of hopTo Inc. (the “Company”) for the quarter ending September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Jonathon R. Skeels, Chief Executive Officer and Interim Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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.

 

Dated: November 16, 2020 By: /s/ Jonathon R. Skeels
    Jonathon R. Skeels
    Chief Executive Officer, Interim Chief Financial Officer

 

 

 

 

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Property and equipment, net
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Gross profit 852,100 910,700 2,687,300 2,627,700
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General and administrative 196,100 166,100 664,600 660,700
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Total operating expenses 692,100 623,700 2,137,400 2,103,400
Income from operations 160,000 287,000 549,900 524,300
Other income:        
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Income before provision for income taxes 160,000 287,200 596,800 538,400
Provision for income taxes 2,500 7,500
Net income (loss) $ 157,500 $ 287,200 $ 589,300 $ 538,400
Net income per share, basic $ 0.01 $ 0.03 $ 0.05 $ 0.05
Net income per share, diluted $ 0.01 $ 0.03 $ 0.05 $ 0.05
Weighted average number of common shares outstanding        
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Beginning balance, shares at Dec. 31, 2018 9,804,400      
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Beginning balance at Dec. 31, 2018 $ 1,000 79,298,200 (80,488,700) (1,189,500)
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Contributed services       168,700
Net Income (loss)       538,400
Ending balance at Sep. 30, 2019 $ 1,000 79,467,200 (79,950,300) (482,100)
Ending balance, shares at Sep. 30, 2019 9,834,866      
Beginning balance at Mar. 31, 2019 $ 1,000 79,354,500 (80,236,800) (881,300)
Beginning balance, shares at Mar. 31, 2019 9,804,400      
Contributed services 56,200 56,200
Exercise of warrants 300 300
Exercise of warrants, shares 30,466      
Net Income (loss) (700) (700)
Ending balance at Jun. 30, 2019 $ 1,000 79,411,000 (80,237,500) (825,500)
Ending balance, shares at Jun. 30, 2019 9,834,866      
Contributed services 56,300 56,300
Other rounding (100) (100)
Net Income (loss) 287,200 287,200
Ending balance at Sep. 30, 2019 $ 1,000 79,467,200 (79,950,300) (482,100)
Ending balance, shares at Sep. 30, 2019 9,834,866      
Beginning balance at Dec. 31, 2019 $ 1,000 79,523,500 (79,934,400) (409,900)
Beginning balance, shares at Dec. 31, 2019 9,834,866      
Contributed services 56,200 56,200
Shares issued for settlement of accrued expenses 39,600 39,600
Shares issued for settlement of accrued expenses, shares 120,000      
Net Income (loss) 109,100 109,100
Ending balance at Mar. 31, 2020 $ 1,000 79,619,300 (79,825,300) (205,000)
Ending balance, shares at Mar. 31, 2020 9,954,866      
Beginning balance at Dec. 31, 2019 $ 1,000 79,523,500 (79,934,400) (409,900)
Beginning balance, shares at Dec. 31, 2019 9,834,866      
Contributed services       112,400
Net Income (loss)       589,300
Ending balance at Sep. 30, 2020 $ 1,900 82,155,200 (79,345,100) 2,812,000
Ending balance, shares at Sep. 30, 2020 18,621,534      
Beginning balance at Mar. 31, 2020 $ 1,000 79,619,300 (79,825,300) (205,000)
Beginning balance, shares at Mar. 31, 2020 9,954,866      
Contributed services 56,200 56,200
Proceeds from rights offering $ 100 480,000 480,100
Proceeds from rights offering, shares 1,600,638      
Issuance cost for rights offering (119,400) (119,400)
Net Income (loss) 322,700 322,700
Ending balance at Jun. 30, 2020 $ 1,100 80,036,100 (79,502,600) 534,600
Ending balance, shares at Jun. 30, 2020 11,555,504      
Proceeds from rights offering $ 800 2,119,100 2,119,900
Proceeds from rights offering, shares 7,066,030      
Net Income (loss) 157,500 157,500
Ending balance at Sep. 30, 2020 $ 1,900 $ 82,155,200 $ (79,345,100) $ 2,812,000
Ending balance, shares at Sep. 30, 2020 18,621,534      
XML 16 R6.htm IDEA: XBRL DOCUMENT v3.20.2
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash flows from operating activities    
Net income $ 589,300 $ 538,400
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 400
Contributed services 112,400 168,800
Changes in allowance for doubtful accounts 1,600 2,100
Changes in operating assets and liabilities:    
Accounts receivable (126,400) (25,100)
Prepaid expenses and other current assets 11,400 9,200
Accounts payable and accrued expenses (7,800) (127,400)
Deferred revenue (354,500) 600
Net cash provided by operating activities 226,000 567,000
Cash flows from financing activities    
Proceeds from exercise of warrants 300
Proceeds from rights offering 2,599,900
Issuance cost for rights offering (119,500)
Net cash provided by financing activities 2,480,400 300
Net change in cash 2,706,400 567,300
Cash, beginning of the period 1,541,900 892,500
Cash, end of the period 4,248,300 1,459,800
Supplemental disclosure of cash flow information:    
Interest paid
Income taxes paid 7,500
Non-cash financing activities: shares issued for settlement of accrued expenses 39,600
Issuance of cost for rights offering included in accounts payable and accrued expenses
XML 17 R7.htm IDEA: XBRL DOCUMENT v3.20.2
Organization
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization

1. Organization

 

hopTo Inc., through subsidiaries (collectively, “we”, “us,” “our” or the “Company”) are developers of application publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants.

 

The Company sells a family of products under the brand name GO-Global, which is a software application publishing business and is the Company’s sole revenue source at this time. GO-Global is an application access solution for use and/or resale by independent software vendors, corporate enterprises, governmental and educational institutions, and others, who wish to take advantage of cross-platform remote access and Web-enabled access to their existing software applications, as well as those who are deploying secure, private cloud environments.

XML 18 R8.htm IDEA: XBRL DOCUMENT v3.20.2
Significant Accounting Policies
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Significant Accounting Policies

2. Significant Accounting Policies

 

Basis of Presentation

 

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

 

The unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 which was filed with the SEC on April 14, 2020 (“2019 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, 2020 or any future period.

 

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

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Amounts could materially change in the future. These significant estimates include the valuation of stock-based compensation expense, the allowance for doubtful accounts, and accruals of liabilities.

 

Revenue Recognition

 

The Company markets and licenses its 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.

 

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” Revenues under ASC 606 are recognized when the promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services.

 

The following is a summary of how the Company recognizes revenue for its different products and services.

 

  Product Sales

 

All of our licenses are delivered to the customer electronically. The Company sends the license key to the customer to download the related software from Company portal. We recognize revenue upon delivery of these licenses. For stocking resellers who purchase licenses through inventory stocking orders with the intent to resell to an end-user, revenue is recognized when the resellers’ accounts have been credited, at their discretion, for the number of licenses purchased.

 

  Service Revenue

 

The Company has maintenance contracts with certain of its customers. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

 

The Company’s product sales by geographic area are presented in Note 4.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. The Company had no cash equivalents as of September 30, 2020 (unaudited) or December 31, 2019.

 

Allowance for Doubtful Accounts

 

We maintain an allowance for doubtful accounts that reflects our best estimate of potentially uncollectible trade receivables. The allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts receivable. We regularly review the adequacy of our allowance for doubtful accounts by considering such factors as historical experience, credit worthiness, and current economic conditions that may affect a customer’s ability to pay. We specifically reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance for doubtful accounts based on our review of the aging and size of our accounts receivable. As of September 30, 2020 and December 31, 2019, the allowance for doubtful accounts totaled $8,900 and $7,300, respectively.

 

Concentration of Credit Risk

 

For the three and nine-month ended September 30, 2020 and 2019, we currently consider the following to be our most significant customers and partners. For the purposes of this presentation, “Sales” refers to the dollar value of orders received from these customers and partners in the period indicated. These Sales values do not necessarily equal recognized revenue for these periods due to our revenue recognition policies which require deferral of revenue associated with prepaid software service fees.

 

For the three months ended September 30, 2020, the Company had four customers comprising 15.9%, 15.4%, 13.6%, and 10.0%, respectively, of total sales. For the three months ended September 30, 2019, the Company had three customers comprising 29.7%, 11.9%, and 11.5%, respectively, of total sales.

 

For the nine months ended September 30, 2020, the Company had two customers comprising 11.9% and 10.3% of total sales. For the nine months ended September 30, 2019, the Company had two customers comprising 17.3% and 15.5% of total sales.

 

A loss of one of these customers could potentially have a significant negative impact on the Company’s financial statements.

 

As of September 30, 2020, the Company has three customers comprising 22.8%, 15.4%, and 14.7%, respectively, of net accounts receivable. As of December 31, 2019, the Company has 1 customer comprising 17.9% of net accounts receivable.

 

Basic and Diluted Earnings Per Share

 

In accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted income (loss) per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Dilutive common share equivalents as of September 30, 2020, representing 481,335 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three months ended September 30, 2020 and 2019, the Company had total common stock equivalents of 93,076 and 106,077, respectively, which were excluded from the computation of net income (loss) per share because they are out of the money and thus anti-dilutive.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses. The carrying amount of these financial instruments approximates fair value due to the nature of the accounts and their short-term maturities.

 

Recently Adopted Accounting Pronouncements

 

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

XML 19 R9.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' Equity
9 Months Ended
Sep. 30, 2020
Equity [Abstract]  
Stockholders' Equity

3. Stockholders’ Equity

 

Stock-Based Compensation Plans

 

In November 2012, the Company’s 2012 Equity Incentive Plan (the “12 Plan”) was approved by the stockholders. Pursuant to the terms of the 12 Plan, stock options, stock appreciation rights, restricted stock and restricted stock units (sometimes referred to individually or collectively as “awards”) may be granted to officers and other employees, non-employee directors and independent consultants and advisors who render services to the Company. The Company is authorized to issue options to purchase up to 643,797 shares of common stock, stock appreciation rights, or restricted stock in accordance with the terms of the 12 Plan.

 

In the case of a restricted stock award, the entire number of shares subject to such award would be issued at the time of the grant and subject to vesting provisions based on time or other conditions specified by the Board or an authorized committee of the Board. For awards based on time, should the grantee’s service to the Company end before full vesting occurred, all unvested shares would be forfeited and returned to the Company. In the case of awards granted with vesting provisions based on specific performance conditions, if those conditions were not met, then all shares would be forfeited and returned to the Company. Until forfeited, all shares issued under a restricted stock award would be considered outstanding for dividend, voting and other purposes.

 

Under the 12 Plan, the exercise price of non-qualified stock options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted. The exercise price of incentive stock options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted provided, however, that if the recipient of the incentive stock option owns greater than 10% of the voting power of all shares of the Company’s capital stock then the exercise price will be no less than 110% of the fair market value of the Company’s common stock on the date the option is granted. The purchase price of the restricted stock issued under the 12 Plan shall also not be less than 100% of the fair market value of the Company’s common stock on the date the restricted stock is granted.

 

All options granted under the 12 Plan are immediately exercisable by the optionee; however, there is a vesting period for the options. The options (and the shares of common stock issuable upon exercise of such options) vest, ratably, over a 33-month period; however, no options (and the underlying shares of common stock) vest until after three months from the date of the option grant. The exercise price is immediately due upon exercise of the option. The maximum term of options issued under the 12 Plan is ten years. Shares issued upon exercise of options are subject to the Company’s repurchase, which right lapses as the shares vest. The 12 Plan will terminate no later than November 7, 2022. As of September 30, 2020, 424,594 shares of common stock remained available for issuance under the 12 Plan.

 

The following summarizes the stock option activity for the nine months ended September 30, 2020.

 

                Weighted-  
                Average  
          Weighted-     Remaining  
          Average     Contractual  
          Exercise     Life  
    Options     Price     (Years)  
                   
Outstanding at December 31, 2019     106,077     $ 2.77       1.53  
Granted     -                  
Forfeited/cancelled     (13,001 )                
Exercised     -                  
Outstanding at September 30, 2020 (unaudited)     93,076     $ 3.03       0.99  
                         
Vested and expected to vest at September 30, 2020 (unaudited)     93,076     $ 3.03       0.99  
                         
Exercisable at September 30, 2020 (unaudited)     93,076     $ 3.03       0.99  

 

The following table summarizes information about options outstanding and exercisable as of September 30, 2020.

 

      Options Outstanding   Options Exercisable
                Weighted       Weighted               Weighted  
  Range of             Average       Average               Average  
  Exercise     Number       Remaining       Exercise       Number       Exercise  
  Price     of Shares       Life (Years)       Price       of Shares       Price  
                                           
$  0.75 - 1.00     14,526       0.28     $ 0.75       14,526     $ 0.75  
   2.00 - 4.00     63,684       1.12       3.21       63,684       3.21  
   4.20 - 6.68     14,866       1.15       4.46       14,866       4.46  
        93,076                       93,076          

 

Shares of Common Stock Issued

 

During the three-month period ending September 30, 2020, the Company issued a total of 7,066,030 shares of common stock to shareholders for the rights offering at $0.30 per share. The proceeds for these shares were received in September 2020. During the nine-month period, the Company issued total of 8,786,667 shares of common stock, of which 8,666,667 shares for rights offering and 120,000 shares of common stock were to two former members of our board of directors that was previously committed to them and included in accrued expenses. The issuance of the 120,000 shares of common stock settles a total of $39,600 of accrued expenses that was included in the Company’s balance sheet.

 

Warrants

 

As of September 30, 2020 and December 31, 2019, the Company had 481,335 warrants outstanding. The warrants outstanding at September 30, 2020 are all exercisable at $0.01 and have an expiration date of May 20, 2023.

XML 20 R10.htm IDEA: XBRL DOCUMENT v3.20.2
Sales by Geographical Location
9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
Sales by Geographical Location

4. Sales by Geographical Location

 

Revenue by country for the three and nine months ended September 30, 2020 and 2019 was as follows.

 

    Three Months Ended     Nine Months Ended  
    September 30, 2020     September 30, 2019     September 30, 2020     September 30, 2019  
Revenue by Country                                
United States   $ 261,000     $ 344,000     $ 875,500     $ 1,006,400  
Brazil     358,100       160,000       951,600       431,400  
Japan     104,900       162,800       270,800       268,300  
The Netherlands     61,800       46,900       217,400       357,100  
Other Countries     108,800       235,100       490,000       671,400  
Total   $ 894,600     $ 948,800     $ 2,805,300     $ 2,734,600  
XML 21 R11.htm IDEA: XBRL DOCUMENT v3.20.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

5. Commitments and Contingencies

 

Profit Sharing Plans

 

The Company has adopted a 401(k) plan to provide retirement benefits for employees under which the Company makes discretionary matching contributions. During the three months ended September 30, 2020 and 2019, the Company contributed a total of $2,200 and $0, respectively. During the nine months ended September 30, 2020 and 2019, the Company contributed a total of $17,800 and $14,100, respectively.

 

Contingencies

 

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

XML 22 R12.htm IDEA: XBRL DOCUMENT v3.20.2
Related Party Transactions
9 Months Ended
Sep. 30, 2020
Related Party Transactions [Abstract]  
Related Party Transactions

6. Related Party Transactions

 

On September 30, 2020, the Company entered into an executive employment agreement with Jonathon R. Skeels, the Company’s Chief Executive Officer and Interim Chief Financial Officer, effective as of July 1, 2020.

 

Pursuant to the Agreement, Mr. Skeels is entitled to receive a base salary of $200,000 per year and other compensation to be determined from time to time by the Company in its sole discretion. The Agreement also entitles Mr. Skeels to participate in the Company’s employee benefit plans and be reimbursed for expenses incurred in connection with his service to the Company. If Mr. Skeels’ employment is terminated without cause (as defined in the Agreement) the Company will, against the receipt of a mutual release, pay Mr. Skeels an amount equal to 12 months of his annual base salary and pay the premiums for continuation of Mr. Skeels and his family’s health insurance for up to 12 months following his termination.

 

Mr. Skeels has served as the Company’s Chief Executive Officer and Interim Chief Financial Officer since September 2018, however, previously did not receive a salary or other forms of compensation. During the nine months ended September 30, 2020 and 2019, the Company recorded an expense and contributed capital of approximately $112,400, and $168,700, respectively for contributed services based on the estimated market rate for these services.

 

On January 31, 2020, we entered into the Backstop Agreement (the “Backstop Agreement”) with a consortium of accredited investors, including all of our directors and led by Novelty Capital Partners LP, pursuant to which such investors agreed to purchase in a private placement, at $0.30 per share, up to 2.41 million of shares of our common stock. The consummation of the investment pursuant to the Backstop Agreement was conditioned on the closing of our subscription rights offering to all of our stockholders (the “Rights Offering”). The Rights Offering expired on March 31, 2020, and we consummated the Backstop Agreement transactions on August 13, 2020.

 

At closing of the Rights Offering, we received net proceeds of $480,200 in exchange for 1.6 million shares of common stock. Pursuant to the Backstop Agreement, we received gross proceeds of $2.12 million in exchange for the issuance of 7.0 million restricted shares of common stock.

XML 23 R13.htm IDEA: XBRL DOCUMENT v3.20.2
Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

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

 

The unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 which was filed with the SEC on April 14, 2020 (“2019 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, 2020 or any future period.

 

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

Use of Estimates

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Amounts could materially change in the future. These significant estimates include the valuation of stock-based compensation expense, the allowance for doubtful accounts, and accruals of liabilities.

Revenue Recognition

Revenue Recognition

 

The Company markets and licenses its 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.

 

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” Revenues under ASC 606 are recognized when the promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services.

 

The following is a summary of how the Company recognizes revenue for its different products and services.

 

  Product Sales

 

All of our licenses are delivered to the customer electronically. The Company sends the license key to the customer to download the related software from Company portal. We recognize revenue upon delivery of these licenses. For stocking resellers who purchase licenses through inventory stocking orders with the intent to resell to an end-user, revenue is recognized when the resellers’ accounts have been credited, at their discretion, for the number of licenses purchased.

 

  Service Revenue

 

The Company has maintenance contracts with certain of its customers. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

 

The Company’s product sales by geographic area are presented in Note 4.

Cash and Cash equivalents

Cash and Cash Equivalents

 

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. The Company had no cash equivalents as of September 30, 2020 (unaudited) or December 31, 2019.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

 

We maintain an allowance for doubtful accounts that reflects our best estimate of potentially uncollectible trade receivables. The allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts receivable. We regularly review the adequacy of our allowance for doubtful accounts by considering such factors as historical experience, credit worthiness, and current economic conditions that may affect a customer’s ability to pay. We specifically reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance for doubtful accounts based on our review of the aging and size of our accounts receivable. As of September 30, 2020 and December 31, 2019, the allowance for doubtful accounts totaled $8,900 and $7,300, respectively.

Concentration of Credit Risk

Concentration of Credit Risk

 

For the three and nine-month ended September 30, 2020 and 2019, we currently consider the following to be our most significant customers and partners. For the purposes of this presentation, “Sales” refers to the dollar value of orders received from these customers and partners in the period indicated. These Sales values do not necessarily equal recognized revenue for these periods due to our revenue recognition policies which require deferral of revenue associated with prepaid software service fees.

 

For the three months ended September 30, 2020, the Company had four customers comprising 15.9%, 15.4%, 13.6%, and 10.0%, respectively, of total sales. For the three months ended September 30, 2019, the Company had three customers comprising 29.7%, 11.9%, and 11.5%, respectively, of total sales.

 

For the nine months ended September 30, 2020, the Company had two customers comprising 11.9% and 10.3% of total sales. For the nine months ended September 30, 2019, the Company had two customers comprising 17.3% and 15.5% of total sales.

 

A loss of one of these customers could potentially have a significant negative impact on the Company’s financial statements.

 

As of September 30, 2020, the Company has three customers comprising 22.8%, 15.4%, and 14.7%, respectively, of net accounts receivable. As of December 31, 2019, the Company has 1 customer comprising 17.9% of net accounts receivable.

Basic and Diluted Earnings Per Share

Basic and Diluted Earnings Per Share

 

In accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted income (loss) per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Dilutive common share equivalents as of September 30, 2020, representing 481,335 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three months ended September 30, 2020 and 2019, the Company had total common stock equivalents of 93,076 and 106,077, respectively, which were excluded from the computation of net income (loss) per share because they are out of the money and thus anti-dilutive.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses. The carrying amount of these financial instruments approximates fair value due to the nature of the accounts and their short-term maturities.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

 

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

XML 24 R14.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' Equity (Tables)
9 Months Ended
Sep. 30, 2020
Equity [Abstract]  
Schedule of Share-based Compensation, Stock Options, Activity

The following summarizes the stock option activity for the nine months ended September 30, 2020.

 

                Weighted-  
                Average  
          Weighted-     Remaining  
          Average     Contractual  
          Exercise     Life  
    Options     Price     (Years)  
                   
Outstanding at December 31, 2019     106,077     $ 2.77       1.53  
Granted     -                  
Forfeited/cancelled     (13,001 )                
Exercised     -                  
Outstanding at September 30, 2020 (unaudited)     93,076     $ 3.03       0.99  
                         
Vested and expected to vest at September 30, 2020 (unaudited)     93,076     $ 3.03       0.99  
                         
Exercisable at September 30, 2020 (unaudited)     93,076     $ 3.03       0.99  
Schedule of Share-based Compensation, Shares Authorized Under Stock Option Plans, by Exercise Price Range

The following table summarizes information about options outstanding and exercisable as of September 30, 2020.

 

      Options Outstanding   Options Exercisable
                Weighted       Weighted               Weighted  
  Range of             Average       Average               Average  
  Exercise     Number       Remaining       Exercise       Number       Exercise  
  Price     of Shares       Life (Years)       Price       of Shares       Price  
                                           
$  0.75 - 1.00     14,526       0.28     $ 0.75       14,526     $ 0.75  
   2.00 - 4.00     63,684       1.12       3.21       63,684       3.21  
   4.20 - 6.68     14,866       1.15       4.46       14,866       4.46  
        93,076                       93,076          
XML 25 R15.htm IDEA: XBRL DOCUMENT v3.20.2
Sales by Geographical Location (Tables)
9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
Schedule of Revenue by Country

Revenue by country for the three and nine months ended September 30, 2020 and 2019 was as follows.

 

    Three Months Ended     Nine Months Ended  
    September 30, 2020     September 30, 2019     September 30, 2020     September 30, 2019  
Revenue by Country                                
United States   $ 261,000     $ 344,000     $ 875,500     $ 1,006,400  
Brazil     358,100       160,000       951,600       431,400  
Japan     104,900       162,800       270,800       268,300  
The Netherlands     61,800       46,900       217,400       357,100  
Other Countries     108,800       235,100       490,000       671,400  
Total   $ 894,600     $ 948,800     $ 2,805,300     $ 2,734,600  
XML 26 R16.htm IDEA: XBRL DOCUMENT v3.20.2
Significant Accounting Policies (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Allowance for doubtful accounts $ 8,900   $ 8,900   $ 7,300
Number of common shares equivalents of outstanding in money warrants     481,335    
Shares of common stock equivalents excluded from computation of diluted earnings per share 93,076 106,077      
Sales [Member] | Customer One [Member]          
Concentration of credit risk percentage 15.90% 29.70% 11.90% 17.30%  
Sales [Member] | Customer Two [Member]          
Concentration of credit risk percentage 15.40% 11.90% 10.30% 15.50%  
Sales [Member] | Customer Three [Member]          
Concentration of credit risk percentage 13.60% 11.50%      
Sales [Member] | Customer Four [Member]          
Concentration of credit risk percentage 10.00%        
Accounts Receivable [Member] | Customer One [Member]          
Concentration of credit risk percentage     22.80%   17.90%
Accounts Receivable [Member] | Customer Two [Member]          
Concentration of credit risk percentage     15.40%    
Accounts Receivable [Member] | Customer Three [Member]          
Concentration of credit risk percentage     14.70%    
XML 27 R17.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' Equity (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2020
Dec. 31, 2019
Note 9 - Stockholders' Equity (Details) [Line Items]      
Accrued expenses $ 98,000 $ 98,000 $ 106,000
Warrants outstanding 481,335 481,335 481,335
Warrants outstanding exercisable price $ 0.01 $ 0.01  
Warrants expiration date May 20, 2023 May 20, 2023  
Rights Offering [Member]      
Note 9 - Stockholders' Equity (Details) [Line Items]      
Number of common stock shares issued   8,666,667  
Shareholders [Member]      
Note 9 - Stockholders' Equity (Details) [Line Items]      
Number of common stock shares issued 7,066,030    
Shareholders rights offering per shares $ 0.30 $ 0.30  
Two Former Members [Member]      
Note 9 - Stockholders' Equity (Details) [Line Items]      
Number of common stock shares issued   120,000  
Accrued expenses $ 39,600 $ 39,600  
2012 Equity Incentive Plan [Member]      
Note 9 - Stockholders' Equity (Details) [Line Items]      
Share-based compensation arrangement by share-based payment award, number of shares authorized 643,797 643,797  
Plan terminate term   The 12 Plan will terminate no later than November 7, 2022.  
Share-based compensation arrangement by share-based payment award, number of shares available for grant 424,594 424,594  
2012 Equity Incentive Plan [Member] | Non Qualified Stock Options [Member] | Minimum [Member]      
Note 9 - Stockholders' Equity (Details) [Line Items]      
Share-based compensation arrangement by share-based payment award, purchase price of common stock, percent   100.00%  
2012 Equity Incentive Plan [Member] | Incentive Stock Options [Member] | Minimum [Member]      
Note 9 - Stockholders' Equity (Details) [Line Items]      
Share-based compensation arrangement by share-based payment award, purchase price of common stock, percent   10.00%  
2012 Equity Incentive Plan [Member] | Incentive Stock Options [Member] | Minimum [Member] | If Recipient Owns Greater Than Ten Percent Voting Power [Member]      
Note 9 - Stockholders' Equity (Details) [Line Items]      
Share-based compensation arrangement by share-based payment award, purchase price of common stock, percent   110.00%  
2012 Equity Incentive Plan [Member] | Restricted Stock [Member] | Minimum [Member]      
Note 9 - Stockholders' Equity (Details) [Line Items]      
Share-based compensation arrangement by share-based payment award, purchase price of common stock, percent   100.00%  
XML 28 R18.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' Equity - Schedule of Share-based Compensation, Stock Options, Activity (Details)
9 Months Ended
Sep. 30, 2020
$ / shares
shares
Equity [Abstract]  
Options Outstanding, Beginning Balance | shares 106,077
Options Outstanding, Granted | shares
Options Outstanding, Forfeited/cancelled | shares (13,001)
Options Outstanding, Exercised | shares
Options Outstanding, Ending Balance | shares 93,076
Options Outstanding, Vested and expected to vest at June 30, 2020 | shares 93,076
Options Exercisable at June 30, 2020 | shares 93,076
Weighted Average Exercise Price, Outstanding Beginning Balance | $ / shares $ 2.77
Weighted Average Exercise Price, Granted | $ / shares
Weighted Average Exercise Price, Forfeited/cancelled | $ / shares
Weighted Average Exercise Price, Exercised | $ / shares
Weighted Average Exercise Price, Outstanding Ending Balance | $ / shares 3.03
Weighted Average Exercise Price, Vested and expected to vest at June 30, 2020 | $ / shares 3.03
Weighted Average Exercise Price, Exercisable at June 30, 2020 | $ / shares $ 3.03
Weighted Average Remaining Contractual Life (Years) Outstanding, Beginning Balance 1 year 6 months 10 days
Weighted Average Remaining Contractual Life (Years) Outstanding, Ending Balance 11 months 26 days
Weighted Average Remaining Contractual Life (Years), Vested and expected to vest at June 30, 2020 11 months 26 days
Weighted Average Remaining Contractual Life (Years) Exercisable at June 30, 2020 11 months 26 days
XML 29 R19.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' Equity - Schedule of Share-based Compensation, Shares Authorized Under Stock Option Plans, by Exercise Price Range (Details)
9 Months Ended
Sep. 30, 2020
$ / shares
shares
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Options Outstanding, Number of shares | shares 93,076
Options Exercisable, Number of shares | shares 93,076
Exercise Price Range 1 [Member]  
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price Range, Lower Range Limit $ 0.75
Exercise Price Range, Upper Range Limit $ 1.00
Options Outstanding, Number of shares | shares 14,526
Options Outstanding, Weighted Average Remaining Life (Years) 3 months 11 days
Options Outstanding, Weighted Average Exercise Price $ 0.75
Options Exercisable, Number of shares | shares 14,526
Options Exercisable, Weighted Average Exercise Price $ 0.75
Exercise Price Range 2 [Member]  
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price Range, Lower Range Limit 2.00
Exercise Price Range, Upper Range Limit $ 4.00
Options Outstanding, Number of shares | shares 63,684
Options Outstanding, Weighted Average Remaining Life (Years) 1 year 1 month 13 days
Options Outstanding, Weighted Average Exercise Price $ 3.21
Options Exercisable, Number of shares | shares 63,684
Options Exercisable, Weighted Average Exercise Price $ 3.21
Exercise Price Range 3 [Member]  
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price Range, Lower Range Limit 4.20
Exercise Price Range, Upper Range Limit $ 6.68
Options Outstanding, Number of shares | shares 14,866
Options Outstanding, Weighted Average Remaining Life (Years) 1 year 1 month 24 days
Options Outstanding, Weighted Average Exercise Price $ 4.46
Options Exercisable, Number of shares | shares 14,866
Options Exercisable, Weighted Average Exercise Price $ 4.46
XML 30 R20.htm IDEA: XBRL DOCUMENT v3.20.2
Sales by Geographical Location - Schedule of Revenue by Country (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenue by country $ 894,600 $ 948,800 $ 2,805,300 $ 2,734,600
United States [Member]        
Revenue by country 261,000 344,000 875,500 1,006,400
Brazil [Member]        
Revenue by country 358,100 160,000 951,600 431,400
Japan [Member]        
Revenue by country 104,900 162,800 270,800 268,300
The Netherlands [Member]        
Revenue by country 61,800 46,900 217,400 357,100
Other Countries [Member]        
Revenue by country $ 108,800 $ 235,100 $ 490,000 $ 671,400
XML 31 R21.htm IDEA: XBRL DOCUMENT v3.20.2
Commitments and Contingencies (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]        
Profit sharing plans $ 2,200 $ 0 $ 17,800 $ 14,100
XML 32 R22.htm IDEA: XBRL DOCUMENT v3.20.2
Related Party Transactions (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Jan. 31, 2020
Jun. 30, 2020
Mar. 31, 2020
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Sep. 30, 2020
Sep. 30, 2019
Contributed services     $ 56,200 $ 56,200 $ 56,300 $ 56,200 $ 56,300 $ 112,400 $ 168,700
Proceeds from offering               2,599,900
Jonathon R. Skeels [Member]                  
Base salary $ 200,000                
Backstop Agreement [Member]                  
Number of restricted shares of common stock, value               $ 2,120,000  
Number of restricted shares of common stock               7,000,000  
Backstop Agreement [Member] | Accredited Investors [Member] | Novelty Capital Partners LP [Member]                  
Shares issued purchase price, per share   $ 0.30              
Backstop Agreement [Member] | Accredited Investors [Member] | Novelty Capital Partners LP [Member] | Maximum [Member]                  
Number of shares issued in private placement   2,410,000              
Backstop Agreement [Member] | Rights Offering [Member] | Novelty Capital Partners LP [Member]                  
Debt instrument maturity date   Mar. 31, 2020              
Rights Offering [Member]                  
Number of shares issued in private placement               1,600,000  
Proceeds from offering               $ 480,200  
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