UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State of incorporation) | (IRS Employer Identification No.) |
(Address of principal executive offices)
Registrant’s telephone number:
(408) 688-2674
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| OTC Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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).
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 | ☐ | |
| ☐ | 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 ☐
As of November 20, 2023, there were issued and outstanding 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 | 11 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 17 |
| Item 4. | Controls and Procedures | 17 |
| PART II. | OTHER INFORMATION | |
| Item 1. | Legal Proceedings | 17 |
| Item 1A. | Risk Factors | 17 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 17 |
| Item 3. | Defaults Upon Senior Securities | 17 |
| Item 4. | Mine Safety Disclosures | 17 |
| Item 5. | Exhibits | 17 |
| Signatures | 18 |
| 2 |
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
hopTo Inc.
Consolidated Balance Sheets
(unaudited)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Right-of-use assets | ||||||||
| Property and equipment, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholder’s Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued wages | ||||||||
| Lease liabilities | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Lease liabilities | ||||||||
| Deferred revenue | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding as of September 30, 2023 and December 31, 2022 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, respectively as of September 30, 2023 and December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues: | ||||||||||||||||
| Software licenses | $ | $ | $ | $ | ||||||||||||
| Software service fees | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of revenue: | ||||||||||||||||
| Software service costs | ||||||||||||||||
| Software product costs | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income from operations | ( | ) | ( | ) | ||||||||||||
| Other income (loss): | ||||||||||||||||
| Unrealized gain (loss) in marketable securities | ( | ) | ( | ) | ||||||||||||
| Interest and other income | ||||||||||||||||
| Other income (loss) | ( | ) | ( | ) | ||||||||||||
| Income (loss) before provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net income (loss)per share, basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net income(loss) per share, diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to unaudited consolidated financial statements
| 4 |
hopTo Inc.
Consolidated Statements of Stockholders’ Equity
(unaudited)
| Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital |
Deficit | Total | ||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance at March 31, 2022 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Purchase of hopTo treasury stock | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance at June 30, 2022 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income | - | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2022 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance at December, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance at March 31, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Warrant shares exercised | ||||||||||||||||||||
| Net income | - | ( | ) | ( | ) | |||||||||||||||
| Balance at Jun 30, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | - | |||||||||||||||||||
| Balance at September 30, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
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, | |||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by and used in operating activities: | ||||||||
| Depreciation | ||||||||
| Changes in allowance for doubtful accounts | ( | ) | ||||||
| Realized and unrealized (gain) loss from marketable securities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Lease liabilities | ( | ) | ||||||
| Deferred revenue | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities | ||||||||
| Purchase of hopTo common stock | ( | ) | ||||||
| Proceeds from sale of marketable securities | ||||||||
| Net cash provided (used) by investing activities | ( | ) | ||||||
| Net change in cash | ||||||||
| Cash and cash equivalents, beginning of the period | ||||||||
| Cash and cash equivalents, end of the period | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements
| 6 |
hopTo Inc.
Notes to Unaudited Consolidated Financial Statements
1. Organization
hopTo Inc., a Delaware corporation, through its wholly-owned subsidiary GraphOn Corporation (collectively, “we”, “us,” “our” or the “Company”) are developers of application publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants.
The Company sells a family of products under the brand name GO-Global, which is a software application publishing business and is the Company’s sole revenue source at this time. GO-Global is an application access solution for use and/or resale by independent software vendors, hosting service providers, corporate enterprises, governmental and educational institutions, and others, who wish to take advantage of cross-platform remote access and Web-enabled access to their existing software applications, as well as those who are deploying secure, private cloud environments.
2. Significant Accounting Policies
Basis of Presentation
The unaudited consolidated financial statements include the accounts of hopTo Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated upon consolidation. The unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial information and the rules and regulations promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, such unaudited consolidated financial statements do not include all information and footnote disclosures required in annual financial statements.
The unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on April 14, 2023 (“2022 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, 2023, or any future period.
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 estimates include the valuation of the allowances for doubtful accounts, depreciation of long-lived assets, timing of revenue recognized over time, allowances for deferred tax assets and accruals of liabilities.
| 7 |
Revenue Recognition
The Company markets and licenses its products indirectly through channel distributors, value-added resellers, independent software vendors (“ISVs”), hosting service providers, corporate enterprises, governmental and educational institutions and others. Our product licenses are perpetual. We also separately sell intellectual property licenses, maintenance contracts, which are comprised of license updates and customer service access, as well as other products and services.
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” Revenues under ASC 606 are recognized when the promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services.
Product Sales
All of our licenses are delivered to the customer electronically. The Company sends the license key to the customer to download the related software from the Company portal. We recognize revenue upon delivery of these licenses.
Services Revenue
The Company has maintenance contracts that entitle customers to support and certain updates to the product. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.
Subscription Revenue
The Company sells subscription licenses that provide the customer with the right to use the software, maintenance and support and certain updates to the product. Subscription licenses are delivered electronically by either the Company’s cloud licensing server or by sending a term license key to the customer to download the related software from the Company portal. Revenue from subscription licenses is recognized ratably over the related contract period, which generally ranges from one month to one year.
The Company’s product sales by geographic area are presented in Note 5.
Cash and Cash Equivalents
The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents.
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, 2023 and December 31, 2022, the allowance for doubtful accounts totaled $
| 8 |
Concentration of Credit Risk
For
the nine months ended September 30, 2023 and 2022, the Company had three resellers comprising
As
of September 30, 2023 and December 31, 2022, the Company had four resellers comprising
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.
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. The company had dilutive common share equivalents as of September 30, 2023, compared to of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method during September 30, 2022. During the three months ended September 30, 2023 and 2022, the Company had total common stock equivalents of and , 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.
3. Property and Equipment
Property and equipment consisted of the following.
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation
expense amounted to $
| 9 |
4. Stockholders’ Equity
Shares of Common Stock Issued
During the three and nine-month periods ending September 30, 2023, the Company issued and shares and for the same periods ending 2022, the Company did not issue any shares of common stock.
Warrants
As
of September 30, 2023 and December 31, 2022, the Company had
5. Sales by Geographical Location
Revenue by country for the three and nine months ended September 30, 2023 and 2022 was as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue by Country | ||||||||||||||||
| United States | $ | | ||||||||||||||
| Brazil | ||||||||||||||||
| Other Countries | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
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 nine months ended September 30, 2023 and 2022, the Company contributed a total of $
Contingencies
During the ordinary course of business, the Company is subject to various potential claims and litigation. Management is not aware of any outstanding litigation which would have a significant impact on the Company’s financial statements.
Lease
Supplemental balance sheet information related to leases as of September 30, 2023 is as follows:
| Future annual minimum lease payments: | ||||
| 2023 | ||||
| 2024 | ||||
| Total future minimum lease payments | $ | |||
| Less: Lease imputed interest | ||||
| Total | $ |
The
Company leases its’ headquarters office in Concord, New Hampshire under a thirty-six-month noncancelable operating lease agreement
which will expire on
| 10 |
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, 2022 which was filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2023, 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 2022 10-K Report and Note 2 to our unaudited consolidated financial Statements included under Item 1 – Financial Statements in this Form 10-Q.
| 11 |
Results of Operations for the Three-Month Periods Ended September 30, 2023 and 2022
The following are the results of our operations for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.
| For the Three Months Ended | ||||||||||||
| September 30, | September 30, | |||||||||||
| 2023 | 2022 | $ Change | ||||||||||
| (unaudited) | (unaudited) | |||||||||||
| Revenues | $ | 1,069,600 | $ | 980,200 | $ | 89,400 | ||||||
| Cost of revenues | 67,300 | 49,800 | 17,500 | |||||||||
| Gross profit | 1,002,300 | 930,400 | 71,900 | |||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing | 211,000 | 248,600 | (37,600 | ) | ||||||||
| General and administrative | 218,100 | 429,900 | (211,800 | ) | ||||||||
| Research and development | 450,400 | 379,000 | 71,400 | |||||||||
| Total operating expenses | 879,500 | 1,057,500 | (178,000 | ) | ||||||||
| Income from operations | 122,800 | (127,100 | ) | 249,900 | ||||||||
| Other income (loss): | ||||||||||||
| Unrealized gain on marketable securities | - | (17,800 | ) | 17,800 | ||||||||
| Interest and other income | 67,100 | 500 | 66,600 | |||||||||
| Other income (loss) | 67,100 | (17,300 | ) | 84,400 | ||||||||
| Income (loss) before provision for income taxes | 189,900 | (144,400 | ) | 334,300 | ||||||||
| Net income (loss) | $ | 189,900 | $ | (144,400 | ) | $ | 334,300 | |||||
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.
| 12 |
The following is a summary of our revenues by category for the three months ended September 30, 2023 and 2022.
| For the Three Months Ended | ||||||||||||
| September 30, | September 30, | |||||||||||
| 2023 | 2022 | $ Change | ||||||||||
| Revenue | ||||||||||||
| Software Licenses | ||||||||||||
| Windows | $ | 87,100 | $ | 134,000 | $ | (46,900 | ) | |||||
| UNIX/Linux | 11,300 | 1,500 | 9,800 | |||||||||
| Total | 98,400 | 135,500 | (37,100 | ) | ||||||||
| Software Service Fees | ||||||||||||
| Windows | 922,900 | 795,200 | 127,700 | |||||||||
| UNIX/Linux | 27,400 | 28,600 | (1,200 | ) | ||||||||
| Total | 950,300 | 823,800 | 126,500 | |||||||||
| Other | 20,900 | 20,900 | - | |||||||||
| $ | 1,069,600 | $ | 980,200 | $ | 89,400 | |||||||
Software Licenses
Windows software licenses revenue decreased by $46,900 or 35.0% to $87,100 during the three months ended September 30, 2023, from $134,000 for the same period in 2022. The decrease was primarily due to lower level of new standard Window licenses orders sold for the three months ended September 30,2023.
Software licenses revenue from our UNIX/Linux products increased by $9,800 or 653.3% to $11,300 for the three months ended Septembere 30, 2023 from $1,500 for the same periods of 2022. The increase was primarily due to higher revenue from standard licenses during the three months ended September 30, 2023
Software Service Fees
Service fees attributable to our Windows product service increased by $127,700 or 16.1% to $922,900 during three months ended September 30, 2023, from $795,200 for the same period in 2022. The increase was due to an increase in maintenance renewals from existing customers and higher subscription license orders.
Service fees revenue attributable to our UNIX products had no significant change for the three months ended September 30, 2023, compared to the same periods in 2022.
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 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 September 30, 2023 increased by $17,500, or 35.1%, to $67,300 for the three months ended September 30, 2023 from $49,800 for the same period in 2022. Cost of revenue represented 6.3% of total revenue for the three months ended September 30, 2023 and 5.1% for the same period in 2022. The increase was due to some increase in personnel costs and combined with import tax withholdings associated with higher revenue from Brazil resellers for the three-month period ended September 30, 2023.
Selling and Marketing Expenses
Selling and marketing expenses primarily consisted of employee, outside services and travel and entertainment expenses.
Selling and marketing expenses decreased by $37,600, or 15.1%, to $211,000 for the three months ended September 30, 2023 from $248,600 for the same period in 2022. Selling and marketing expenses represented approximately 19.7% and 25.4% of total revenue for the three months ended Septembere 30 2023 and 2022, respectively. The decrease in selling and marketing expenses was due to decrease in consulting services for the three months ended September 30, 2023.
| 13 |
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 $211,800, or 49.3%, to $218,100 for the three months ended September 30, 2023 from $429,900 for the same period in 2022. General and administrative expenses represented approximately 20.4% and 43.9% of total revenue for the three months ended September 30, 2023 and 2022, respectively.
The decrease in general and administrative expense was primarily due to employee related expenses during the three months ended September 30, 2023.
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 $71,400, or 18.8% to $450,400 for the three months ended September 30, 2023 from $379,000 for the same period in 2022. This represented approximately 42.1% and 38.7% of total revenue for the three months ended September 30, 2023 and 2022, respectively.
The increase in research and development expense was primarily due to an increase personnel and consulting services during the three months ended September 30, 2023.
Other Income
Other income increased by $84,400 for the three months ended September 30, 2023, compared to the same periods in 2022. The increase primarily due to interest earned for the three months ended September 30,2023, compared to an unrealized loss from a marketable securities account during the same periods in 2022.
Results of Operations for the Nine-Month Periods Ended September 30, 2023 and 2022
| For the Nine Months Ended | ||||||||||||
| September 30, | September 30, | |||||||||||
| 2023 | 2022 | $ Change | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Revenues | $ | 3,171,100 | $ | 2,892,000 | $ | 279,100 | ||||||
| Cost of revenues | 221,900 | 176,000 | 45,900 | |||||||||
| Gross profit | 2,949,200 | 2,716,000 | 233,200 | |||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing | 879,400 | 687,600 | 191,800 | |||||||||
| General and administrative | 845,600 | 800,700 | 44,900 | |||||||||
| Research and development | 1,263,300 | 1,142,500 | 120,800 | |||||||||
| Total operating expenses | 2,988,300 | 2,630,800 | 357,500 | |||||||||
| Income from operations | (39,100 | ) | 85,200 | (124,300 | ) | |||||||
| Other income: | ||||||||||||
| Realized gain on marketable securities | 17,700 | (103,300 | ) | 121,000 | ||||||||
| Interest and other income | 111,300 | 1,500 | 109,800 | |||||||||
| 129,000 | (101,800 | ) | 230,800 | |||||||||
| Income (loss) before provision for income taxes | 89,900 | (16,600 | ) | 106,500 | ||||||||
| Provision for income taxes | - | - | - | |||||||||
| Net income (loss) | $ | 89,900 | $ | (16,600 | ) | $ | 106,500 | |||||
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Revenues
The following is a summary of our revenues by category for the nine months ended September 30, 2023 and 2022.
| For the Nine Months Ended | ||||||||||||
| September 30, | September 30, | |||||||||||
| 2023 | 2022 | $ Change | ||||||||||
| Revenue | ||||||||||||
| Software Licenses | ||||||||||||
| Windows | $ | 309,800 | $ | 433,500 | $ | (123,700 | ) | |||||
| UNIX/Linux | 25,200 | 15,500 | 9,700 | |||||||||
| Total | 335,000 | 449,000 | (114,000 | ) | ||||||||
| Software Service Fees | ||||||||||||
| Windows | 2,683,000 | 2,286,400 | 396,600 | |||||||||
| UNIX/Linux | 81,300 | 93,700 | (12,400 | ) | ||||||||
| Total | 2,764,300 | 2,380,100 | 384,200 | |||||||||
| Other | 71,800 | 62,900 | 8,900 | |||||||||
| $ | 3,171,100 | $ | 2,892,000 | $ | 279,100 | |||||||
Software Licenses
Windows software licenses revenue decreased by $123,700 or 28.5% to $309,800 during the nine months ended September 30, 2023, from $433,500 for the same period in 2022. The decrease for the nine months ended September 30,2023 was due to lower license orders from standard licenses.
Software licenses revenue from our UNIX/Linux products increased by $9,700 or 62.6% to $25,200 for the nine months ended September 30, 2023 from $15,500 for the same period of 2022. The increase was primarily higher revenue from higher standard license revenue.
Software Service Fees
Service fees attributable to our Windows product service increased by $396,600 or 17.3% to $2,683,000 during the nine months ended September 30, 2023, from $2,286,400 for the same period in 2022. The increase was due to an increase in maintenance renewals from existing customers and higher subscription license orders.
Service fees revenue attributable to our UNIX products decreased by $12,400 or 13.2% to $81,300 during the nine months ended September 30, 2023, from $93,700 for the same period in 2022. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of a long-term maintenance contract.
Other
Other revenue consists of private labeling fees, professional services, and other non-recurring revenues. Other revenue increased by $8,900 or 14.1.% for the nine months ended September 30, 2023, compared to the same period in 2022. The increase was primarily due to an increase in professional service 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 are primarily comprised of the amortization of costs associated with licenses to third party software included in our product offerings, and the required import tax withholdings from Brazil resellers. We incur no significant shipping or packaging costs as virtually all of our deliveries are made via electronic means over the Internet.
Cost of revenue for the nine months ended September 30, 2022 increased by $45,900, or 26.1%, to $221,900 for the nine months ended September 30, 2023 from $176,000 for the same period in 2022. Cost of revenue represented 7.0% and 6.1% of total revenue for the nine months ended September 30, 2023 and 2022, respectively. The primarily increase was due increase in personnel expense and import tax withholdings associated with higher revenue from Brazil resellers for the six-month period ended September30, 2023.
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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 $191,800, or 27.9%, to $879,400 for the nine months ended September 30, 2023 from $687,600 for the same period in 2022. Selling and marketing expenses represented approximately 27.7% and 23.8% of total revenue for the nine months ended September 30, 2023 and 2022, respectively. The increase in selling and marketing expenses was due to an increase in personnel related expenses and consulting services as we continue to expand our sales and marketing initiatives.
General and Administrative Expenses
General and administrative expenses primarily consist of employee costs, legal, accounting, board fees, other professional services (including those related to our patents), rent, travel and entertainment and insurance. Certain costs associated with being a publicly held corporation are also included in general and administrative expenses, as well as bad debt expense.
General and administrative expenses increased by $44,900, or 5.6%, to $845,600 for the nine months ended September 30, 2023 from $800,700 for the same period in 2022. General and administrative expenses represented approximately 26.7% and 27.7% of total revenue for the nine months ended September 30, 2023 and 2022, respectively.
The increase in general and administrative expense was primarily due to increase in personnel related expenses and patent maintenance 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 $120,800 or 10.6% to $1,263,300 for the nine months ended September 30, 2023 from $1,142,500 for the same period in 2022. This represented approximately 39.8% and 39.5% of total revenue for the nine months ended September 30, 2023 and 2022, respectively.
The increase in research and development expense was primarily due to increase in personnel related expenses, consulting services and software subscriptions.
Other Income
Other income increased by $230,800 for the nine months ended September 30, 2023, compare to the same periods in 2022 was primarily related to income earned for the nine months ended September 30,2023 while during prior year for the same periods, the Company had unrealized losses from a marketable securities account.
Liquidity and Capital Resources
As of September 30, 2023, we had cash of $5,605,400 and a working capital position of $4,280,500 as compared to cash of $5,037,300 and a working capital position of $4,307,400 at December 31, 2022. The increase in cash as of September 30, 2023 was the result of cash provided by operations and cash provided by investing activities. We expect our results from operations and capital resources will be sufficient to fund our operations for at least the next 12 months.
The following is a summary of our cash flows from operating, investing and financing activities for the nine months ended September 30, 2023 and 2022.
| For the Nine Months Ended | ||||||||
| September 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Cash flows provided by operating activities | $ | 231,700 | $ | 76,200 | ||||
| Cash flows provided (used) by investing activities | $ | 336,400 | $ | (10,100 | ) | |||
| Cash flows provided by financing activities | $ | - | $ | - | ||||
Net cash flows provided by operating activities for the nine months ended September 30, 2023 was $231,700 while net cash flows provided for the same periods ended September 30,2022 was $76,200. The increase in cash flows provided by operating activities is the result of net income, increase in accrued expenses and accounts receivable and change in value in marketable securities compared to the prior year period.
The Company had net cash flows of $336,400 provided by investing activities from the proceeds of the sale of marketable securities for the nine months ended September 30, 2023, while the Company had net cash outflows of $10,100 used in marketable securities for the same periods ended September 30, 2022.
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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 September 30, 2023.
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, 2023 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, 2022, which was filed with the Securities and Exchange Commission on April 14, 2023.
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
ITEM 5. Exhibits
| Exhibit Number | Exhibit Description | |
| 31 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 17 |
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 20, 2023 | |
| 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) | ||
| 18 |