UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2021

Commission File Number: 0-21683

 

hopTo Inc.

(Exact name of registrant as specified in its charter)

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

6 Loudon Road, Suite 200

Concord, NH 03301

(Address of principal executive offices)

Registrant’s telephone number:

(800) 472-7466

(408) 688-2674

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

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

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

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

As of August 16, 2021, there were issued and outstanding 18,850,675 shares of the registrant’s common stock, par value $0.0001.

Table of Contents

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Mine Safety Disclosures	20
Item 5.	Exhibits	21
	Signatures	22

 2

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

hopTo Inc.

Consolidated Balance Sheets

(Unaudited)

	June 30,			December 31,
	2021			2020
Assets
Current assets
Cash and cash equivalents	$	4,483,400		$	4,375,300
Marketable securities		317,200			-
Accounts receivable, net		466,700			417,300
Prepaid expenses and other current assets		136,000			48,500
Total current assets		5,403,300			4,841,100
Property and equipment, net		2,900			-
Other assets		17,800			17,800
Total assets	$	5,424,000		$	4,858,900
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	248,600		$	251,000
Accrued expenses		64,400			82,000
Accrued wages		143,500			141,600
Deferred revenue		1,180,200			1,084,900
Total current liabilities		1,636,700			1,559,500
Long-term liabilities
Deferred revenue		343,000			383,000
Total liabilities		1,979,700			1,942,500
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding as of June 30, 2021 or December 31, 2020		-			-
Common stock, $0.0001 par value, 195,000,000 shares authorized, 18,850,675 shares issued and outstanding for both periods ending June 30, 2021 and December 31, 2020		1,900			1,900
Additional paid-in capital		82,155,200			82,155,200
Accumulated deficit		(78,712,800	)		(79,240,700	)
Total stockholders’ equity		3,444,300			2,916,400
Total liabilities and stockholders’ equity	$	5,424,000		$	4,858,900

See accompanying notes to unaudited consolidated financial statements

 3

hopTo Inc.

Consolidated Statements of Operations

(Unaudited)

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

See accompanying notes to unaudited consolidated financial statements

 4

hopTo Inc.

Consolidated Statements of Stockholders’ Equity

For the Six Months Ended June 30, 2021 and 2020

(Unaudited)

	Common Stock				Additional Paid-In			Accumulated
	Shares		Amount		Capital			Deficit			Total
Balance at December 31, 2019		9,834,866	$	1,000	$	79,523,500		$	(79,934,400	)	$	(409,900	)
Shares issued for settlement of accrued expenses		120,000		-		39,600			-			39,600
Contributed services		-		-		56,200			-			56,200
Net income		-		-		-			109,100			109,100
Balance at March 31, 2020 (unaudited)		9,954,866	$	1,000	$	79,619,300		$	(79,825,300	)	$	(205,000	)
Proceeds from rights offering		1,600,638		100		480,000			-			480,100
Issuance cost for rights offering		-		-		(119,400	)		-			(119,400	)
Contributed services		-		-		56,200			-			56,200
Net income		-		-		-			322,700			322,700
Balance at June 30, 2020 (unaudited)		11,555,504	$	1,100	$	80,036,100		$	(79,502,600	)	$	534,600
Balance at December 31, 2020		18,850,675	$	1,900	$	82,155,200		$	(79,240,700	)	$	2,916,400
Net income		-		-		-			379,200			379,200
Balance at March 31, 2021 (unaudited)		18,850,675	$	1,900	$	82,155,200		$	(78,861,500	)	$	3,295,600
Net income		-		-		-			148,700			148,700
Balance at June 30, 2021 (unaudited)		18,850,675	$	1,900	$	82,155,200		$	(78,712,800	)	$	3,444,300

See accompanying notes to unaudited consolidated financial statements

 5

hopTo Inc.

Consolidated Statements of Cash Flows

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

See accompanying notes to unaudited consolidated financial statements

 6

hopTo Inc.

Notes to Unaudited Consolidated Financial Statements

1. Organization

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

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

2. Significant Accounting Policies

Basis of Presentation

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

The unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 which was filed with the SEC on March 31, 2021 (“2020 10-K Report”). The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2021 or any future period.

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

Use of Estimates

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

 7

Revenue Recognition

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

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

Product Sales

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

Services Revenue

The Company has maintenance contracts that entitle customers to support and certain updates to the product. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

Subscription Revenue

The Company sells subscription licenses that provide the customer with the right to use the software, maintenance and support and certain updates to the product. Subscription licenses are delivered electronically by either the Company’s cloud licensing server or by sending a term license key to the customer to download the related software from the Company portal. Revenue from subscription licenses is recognized ratably over the related contract period, which generally ranges from one month to one year.

The Company’s product sales by geographic area are presented in Note 5.

Cash and Cash Equivalents

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. The Company had cash equivalents of $317,200 primarily in money market account as of June 30, 2021 (unaudited) and had no such cash equivalents at December 31, 2020.

Allowance for Doubtful Accounts

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

 8

Concentration of Credit Risk

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

As of June 30, 2021 and December 31, 2020, the Company has two resellers comprising 24.9% and 18.0%, and two resellers comprising 25.7% and 18.9%, respectively, of net accounts receivable.

For the purposes of this description, “sales” refers to the dollar value of orders received from these customers and partners in the period indicated. The sales values do not necessarily equal recognized revenue for these periods due to our revenue recognition policies which require deferral of revenue associated with prepaid software service fees. The loss of one of these resellers would not have a material impact as the Company could take over the end customer relationship.

Basic and Diluted Earnings Per Share

In accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted income (loss) per share reflects per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Dilutive common share equivalents as of June 30, 2021, representing 248,216 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three and six months ended June 30, 2021 and 2020, the Company had total common stock equivalents of 78,550 and 93,076, respectively, which were excluded from the computation of net income per share because they are anti-dilutive.

Fair Value of Financial Instruments

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

 9

Recently Adopted Accounting Pronouncements

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

3. Property and Equipment

Property and equipment consisted of the following.

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

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

 10

4. Stockholders’ Equity

Stock-Based Compensation Plans

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

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual
				Exercise		Life
	Options			Price		(Years)
Outstanding at December 31, 2020		93,076		$	3.03		0.74
Granted		-
Forfeited/cancelled		(14,526	)
Outstanding at June 30, 2021		78,550		$	3.45		0.38
Vested and expected to vest at June 30, 2021		78,550		$	3.45		0.38
Exercisable at June 30, 2021		78,550		$	3.45		0.38

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

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

 11

Shares of Common Stock Issued

During the three and six-month periods ending June 30, 2021, the Company did not issue any shares of common stock. During the three and six -month period ending June 30, 2020, respectively, the Company issued a 0 and 120,000 shares of common stocks. The issuance of the common stock was for the two former members of our board of directors that was previously committed to them and included in accrued expenses. The issuance of the 120,000 shares of common stock settles a total of $39,600 of accrued expenses that was included in the Company’s balance sheet.

Warrants

As of June 30, 2021 and December 31, 2020, the Company had 248,216 warrants outstanding. The warrants outstanding at June 30, 2021 are all exercisable at $0.01 and have an expiration date of May 20, 2023.

5. Sales by Geographical Location

Revenue by country for the three and six months ended June 30, 2021 and 2020 was as follows.

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

6. Commitments and Contingencies

Profit Sharing Plans

The Company has adopted a 401(k) plan to provide retirement benefits for employees under which the Company makes discretionary matching contributions During the three months ended June 30, 2021 and 2020, the Company contributed a total of $3,200 and $6,100, respectively. During the six months ended June 30, 2021 and 2020, the Company contributed a total of $15,400 and $15,600, respectively.

Contingencies

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

 12

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

Forward-Looking Information

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

● the success of products depends on a number of factors including market acceptance and our ability to manage the risks associated with product introduction;

● local, regional, national and international economic conditions and events, and the impact they may have on us and our customers;

● our revenue could be adversely impacted if any of our significant customers reduces its order levels or fails to order during a reporting period; customer demand is based on many factors out of our control;

● as a result of the new revenue recognition standards, if any significant end user customer or reseller substantially changes its order level, or fails to order during the reporting period, whether the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially impacted; and

● other factors, including, but not limited to, those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021, and in other documents we have filed with the SEC.

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

Introduction

hopTo, Inc., through its wholly owned subsidiary GraphOn Corporation (collectively, “we”, “us,” “our” or the “Company”), is a developer of application publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants. Our application publishing software solutions are sold under the brand name GO-Global, which is our sole revenue source. GO-Global is an application access solution for use by independent software vendors (“ISVs”), corporate enterprises, governmental and educational institutions, and others who wish to take advantage of cross-platform remote access and Web-enabled access to their existing software applications, as well as those who are deploying secure, private cloud environments.

Critical Accounting Policies

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas require us to make judgments and estimates about matters that are uncertain at the time when we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 2020 10-K Report and Note 2 to our unaudited consolidated financial Statements included under Item 1 – Financial Statements in this Form 10-Q.

 13

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

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

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

Revenues

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

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

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

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

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

Software Licenses

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

 14

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

Software Service Fees

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

Service fees revenue attributable to our UNIX products decreased by $11,700 or 20.6% to $45,000 during the three months ended June 30, 2021, from $56,700 for the same period in 2020. The decrease was primarily the result of the expiration of a long-term maintenance contract.

Other

Other revenue consists of private labeling fees, professional services, and other non-recurring revenues. Other revenue decreased by $229,800 or 91.4% for the three months ended June 30, 2021, compared to the same period in 2020. The primary decrease was related to revenue recognized from a one-time, non-recurring a license agreement with an existing customer for the use of our license.

Cost of Revenues

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

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

Selling and Marketing Expenses

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

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

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General and Administrative Expenses

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

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

The decrease in general and administrative expense was due to no board member service fees being incurred versus the prior year, partially offset by higher legal fees and payroll related fees.

Research and Development Expenses

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

Research and development expenses increase by $7,600, or 2.1% to $364,500 for the three months ended June 30, 2021 from $356,900 for the same period in 2020. This represented approximately 40.5% and 33.5% of total revenue for the three months ended June 30, 2021 and 2020, respectively.

Other Income

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

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

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

Revenues

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

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

Software Licenses

Windows software licenses revenue decreased by $45,700 or 11.5% to $351,200 during the six months ended June 30, 2021, from $396,900 for the same period in 2020. The decrease for the six months ended June 30,2021 was due to lower license orders following elevated license order activity in the prior year period related to the onset of the COVID-19 pandemic.

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

Software Service Fees

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

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

Other

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

Cost of Revenues

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

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

Selling and Marketing Expenses

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

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

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General and Administrative Expenses

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

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

The decrease in general and administrative expense was due to no board member service fees being incurred versus the prior year, partially offset by higher legal and payroll related fees.

Research and Development Expenses

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

Research and development expenses increased by $6,700, or 0.9% to $727,600 for the six months ended June 30, 2021 from $720,900 for the same period in 2020. This represented approximately 41.4% and 37.7% of total revenue for the six months ended June 30, 2021 and 2020, respectively.

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

Other Income

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

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Liquidity and Capital Resources

As of June 30, 2021, we had cash of $4,403,300 and a working capital position of $3,766,600 as compared to cash of $4,375,300 and a working capital position of 3,281,600 at December 31, 2020. The increase in cash as of June 30, 2021 was primarily the result of cash provided by operations during the period.

We expect our results from operations and capital resources will be sufficient to fund our operations for at least the next 12 months from the date of the filing of this quarterly report on Form 10-Q.

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

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

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

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

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

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.

There has not been any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Not applicable

ITEM 1A. Risk Factors

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

The coronavirus pandemic could adversely affect our results of operations.

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

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

None.

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Mine Safety Disclosures

Not applicable

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ITEM 5. Exhibits

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

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SIGNATURES

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

hopTo Inc.
(Registrant)
Date:	August 16, 2021
By:	/s/ Jonathon R. Skeels
	Jonathon R. Skeels
	Chief Executive Officer (Principal Executive Officer) and
	Interim Chief Financial Officer
	(Principal Financial Officer and
	Principal Accounting Officer)

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