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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, 2022

 

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.)

 

189 North Main St., Suite 102

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   Name of each exchange on which registered
Common   HPTO   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.

 

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 15, 2022, there were issued and outstanding 18,826,342 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 19
Item 4. Controls and Procedures 19
     
PART II. OTHER INFORMATION  
Item 1. Legal Proceedings 19
Item 1A. Risk Factors 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Mine Safety Disclosures 19
Item 5. Exhibits 19
  Signatures 20

 

2

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

hopTo Inc.

Consolidated Balance Sheets

(unaudited)

 

   June 30,   December 31, 
   2022   2021 
         
Assets          
           
Current assets          
Cash and cash equivalents  $5,207,200   $4,755,300 
Marketable securities   332,100    417,600 
Accounts receivable, net   504,700    558,600 
Prepaid expenses and other current assets   99,200    52,700 
Total current assets   6,143,200    5,784,200 
           
Right-of-use assets   66,700    - 
Property and equipment, net   6,900    8,200 
Other assets   17,800    17,800 
Total assets  $6,234,600   $5,810,200 
           
Liabilities and Stockholders’ Equity          
           
Current liabilities          
Accounts payable  $240,000   $260,800 
Accrued expenses   98,700    64,200 
Accrued wages   121,700    108,900 
Lease liabilities - current   10,200    - 
Deferred revenue - current   1,298,000    1,033,800 
Total current liabilities   1,768,600    1,467,700 
Long-term liabilities          
Lease liabilities   56,100    - 
Deferred revenue   323,600    373,900 
Total liabilities   2,148,300    1,841,600 
           
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, 2022 or December 31, 2021   -    - 
Common stock, $0.0001 par value, 195,000,000 shares authorized, 18,826,342 and 18,850,675 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively   1,900    1,900 
Additional paid-in capital   82,145,100    82,155,200 
Accumulated deficit   (78,060,700)   (78,188,500)
Total stockholders’ equity   4,086,300    3,968,600 
Total liabilities and stockholders’ equity  $6,234,600   $5,810,200 

 

See accompanying notes to unaudited consolidated financial statements

 

3

 

 

hopTo Inc.

Consolidated Statements of Operations

(unaudited)

 

   2022   2021   2022   2021 
   For the Three Months Ended   For the Six Months Ended 
   June 30,   June 30,   June 30,   June 30, 
   2022   2021   2022   2021 
                 
Revenues:                    
Software licenses  $132,000   $174,800   $313,500   $374,200 
Software service fees   808,600    702,700    1,556,300    1,342,000 
Other   21,000    21,600    42,000    43,100 
Total revenue   961,600    899,100    1,911,800    1,759,300 
                     
Cost of revenue:                    
Software service costs   13,500    13,500    27,000    27,000 
Software product costs   35,300    32,100    99,200    62,800 
Total cost of revenue   48,800    45,600    126,200    89,800 
                     
Gross profit   912,800    853,500    1,785,600    1,669,500 
                     
Operating expenses:                    
Selling and marketing   315,900    153,100    439,000    296,100 
General and administrative   165,900    199,600    370,800    414,300 
Research and development   380,800    364,500    763,500    727,600 
Total operating expenses   862,600    717,200    1,573,300    1,438,000 
                     
Income from operations   50,200    136,300    212,300    231,500 
                     
Other income (loss):                    
Unrealized loss in marketable securities   (29,800)   12,400    (85,500)   26,600 
Interest and other income   900    -    1,000    269,800 
Other income (loss)   (28,900)   12,400    (84,500)   296,400 
Income before provision for income taxes   21,300    148,700    127,800    527,900 
Provision for income taxes   -    -    -    - 
Net income  $21,300   $148,700   $127,800   $527,900 
                     
Net income per share, basic  $0.00   $0.01   $0.01   $0.03 
Net income per share, diluted  $0.00   $0.01   $0.01   $0.03 
                     
Weighted average number of common shares outstanding                    
Basic   18,846,664    18,850,675    18,848,658    18,850,675 
Diluted   19,089,238    19,092,981    19,091,102    19,092,981 

 

See accompanying notes to unaudited consolidated financial statements

 

4

 

 

hopTo Inc.

Consolidated Statements of Stockholders’ Equity

(unaudited)

 

   Shares   Amount   Capital   Deficit   Total 
   Common Stock   Additional
Paid-In		   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
                     
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 
                          
Balance at December, 2021   18,850,675   $1,900   $82,155,200   $(78,188,500)  $3,968,600 
Net income   -    -    -    106,500    106,500 
Balance at March 31, 2022 (unaudited)   18,850,675   $1,900   $82,155,200   $(78,082,000)  $4,075,100 
Purchase of hopTo common stock   (24,333)   -    (10,100)   -    (10,100)
Net income   -    -    -    21,300    21,300 
Balance at June 30, 2022 (unaudited)   18,826,342   $1,900   $82,145,100   $(78,060,700)  $4,086,300 

 

See accompanying notes to unaudited consolidated financial statements

 

5

 

 

hopTo Inc.

Consolidated Statements of Cash Flows

(unaudited)

 

   2022   2021 
   For the Six Months Ended 
   June 30,   June 30, 
   2022   2021 
         
Cash flows from operating activities          
Net income  $127,800   $527,900 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   1,300    500 
Changes in allowance for doubtful accounts   1,100    5,600 
Unrealized (gain) loss from marketable securities   85,500    (26,600)
Gain on sale of patents   -    (269,800)
           
Changes in operating assets and liabilities:          
Accounts receivable   52,800    (55,000)
Prepaid expenses and other current assets   (46,500)   (87,500)
Accounts payable and accrued expenses   26,500    (18,100)
Lease liabilities   (400)   - 
Deferred revenue   213,900    55,300 
Net cash provided by operating activities   462,000    132,300 
           
Cash flows from investing activities          
Purchase of marketable securities   -    (290,600)
Purchase of hopTo common stock   (10,100)   - 
Proceeds from sale of patents   -    269,800 
Purchase of property and equipment   -    (3,400)
Net cash used by investing activities   (10,100)   (24,200)
           
Net change in cash   451,900    108,100 
Cash and cash equivalents, beginning of the period   4,755,300    4,375,300 
Cash and cash equivalents, end of the period  $5,207,200   $4,483,400 

 

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, 2021, which was filed with the SEC on March 31, 2022 (“2021 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, 2022, 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 the allowances for doubtful accounts, depreciation of long-lived assets, 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 June 30, 2022 and December 31, 2021, the allowance for doubtful accounts totaled $8,100 and $7,000, respectively.

 

8

 

 

Concentration of Credit Risk

 

For the six months ended June 30, 2022 and June 30, 2021, the Company had four resellers comprising 12.1%,11.8%, 10.6% and 10.1%, and two resellers comprising 11.2% and 10.2 %, respectively, of total sales.

 

As of June 30, 2022 and December 31, 2021, the Company has five resellers comprising 23.0%, 18.9%, 14.8%, 10.2% and 10.0%, and four reseller comprising 39.7%, 15.0%, 11.9%, and 11.7%, 27.8%, 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, 2022 and December 31, 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 months ended June 30, 2022 and 2021, the Company had total common stock equivalents of 3,200 and 78,550 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.

 

Right-of-use Assets (ROU) and Lease Liabilities

 

On January 1, 2022, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which establishes ASC 842 and supersedes the lease accounting guidance under ASC 840. The standard generally requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and provide enhanced disclosures on the amount, timing, and uncertainty of cash flows arising from lease arrangements. The Company adopted ASC 842 using the modified retrospective approach. The Company elected the package of practical expedients available for existing contracts, which allowed the Company to carry forward our historical assessments of lease identification, lease classification, and initial direct costs. The Company also elected a policy to not apply the recognition requirements of ASC 842 for short-term leases with a term of 12 months of less

 

As of January 1, 2022, the effective date, the Company identified one operating lease arrangement relating to the Company’s headquarters facility. The adoption of ASC 842 resulted in a recognition of an ROU asset and lease liability of $73,800 on the Company’s balance sheet relating to the leases as of January 1, 2022. The adoption of the standard did not have a material effect on the Company’s consolidated statements of operations and consolidated statements of cash flows.

 

   2022   2021 
   June 30,
2022		   December 31,
2021		 
Operating lease:          
Operating lease right-of-use asset  $66,700   $         - 
           
Operating lease liability, current portion  $10,200   $- 
Operating lease liability, net of current portion   56,100    - 
Total operating lease liabilities  $66,300   $- 
           
Weighted-average remaining lease term   2.2 years      
weighted-average discount rate   0.41%     

 

3. Property and Equipment

 

Property and equipment consisted of the following.

 

   June 30,   December 31, 
   2022   2021 
         
Equipment  $164,100   $164,100 
Furniture and fixtures   1,600    1,600 
           
Property and equipment gross   165,700    165,700 
           
Less: accumulated depreciation   (158,800)   (157,500)
           
Property and equipment net  $6,900   $8,200 

 

Depreciation expense amounted to $1,300 and $500 for the six months ended June 30, 2022 and 2021, respectively.

 

10

 

 

4. Stockholders’ Equity

 

Stock-Based Compensation Plans

 

The following summarizes the stock option activity for the six months ended June 30, 2022:

 

           Weighted- 
           Average 
       Weighted-   Remaining 
       Average   Contractual 
       Exercise   Life 
   Options   Price   (Years) 
             
Outstanding at December 31, 2021   4,939   $3.86    1.59 
Granted   -           
Forfeited/cancelled   (1,739)          
Outstanding at June 30, 2022   3,200   $4.27    1.85 
                
Vested and expected to vest at June 30, 2022   3,200   $4.27    1.85 
                
Exercisable at June 30, 2022   3,200   $4.27    1.85 

 

The following table summarizes information about options outstanding and exercisable as of June 30, 2022:

 

   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   1,667    2.45   $2.06    1,667   $2.06 
  4.20 - 6.68   1,533    1.19    6.68    1,533    6.68 
      3,200              3,200      

 

11

 

 

Shares of Common Stock Issued

 

During the three and six-month periods ending June 30, 2022 and for the same periods ending 2021, the Company did not issue any shares of common stock.

 

Warrants

 

As of June 30, 2022 and December 31, 2021, the Company had 248,216 warrants outstanding. The warrants outstanding at June 30, 2022 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, 2022 and 2021 was as follows:

 

 

   2022   2021   2022   2021 
   Three Months Ended   Six Months Ended 
   2022   2021   2022   2021 
Revenue by Country                    
United States  $388,900   $364,700   $779,500   $712,200 
Brazil   256,500    174,600    467,500    348,600 
Japan   53,000    115,800    125,900    232,200 
The Netherland   84,100    48,200    148,200    94,800 
Other Countries   179,100    195,800    390,700    371,500 
Total  $961,600   $899,100    1,911,800    1,759,300 

 

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, 2022 and 2021, the Company contributed a total of $3,500 and $3,200, respectively. During the six months ended June 30, 2022 and 2021, the Company contributed a total of $15,400 each of these same periods.

 

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

 

The Company leases its’ headquarters office in Concord, New Hampshire under a thirty-six-month noncancelable operating lease agreement which will expire on August 31, 2024. The terms of certain lease agreement provide for increasing rental payments at fixed twelve-month intervals.

 

Supplemental balance sheet information related to leases as of June 30, 2022 is as follows: 

 

Future minimum lease payments:    
2022  $15,200 
2023   30,700 
2024   20,700 
Total future minimum lease payments  $66,600 
Less: Lease imputed interest   300 
Total  $66,300 

 

12

 

 

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

 

Forward-Looking Information

 

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

 

  ● the success of products depends on a number of factors including market acceptance and our ability to manage the risks associated with product introduction;
  ● local, regional, national and international economic conditions and events, and the impact they may have on us and our customers;
  ● our revenue could be adversely impacted if any of our significant customers reduces its order levels or fails to order during a reporting period; customer demand is based on many factors out of our control;
  ● as a result of the new revenue recognition standards, if any significant end user customer or reseller substantially changes its order level, or fails to order during the reporting period, whether the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially impacted; and
  ● other factors, including, but not limited to, those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022, 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 2021 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, 2022 and 2021

 

The following are the results of our operations for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

 

   For the Three Months Ended     
   June 30,   June 30,     
   2022   2021   $ Change 
   (unaudited)   (unaudited)     
Revenues  $961,700   $899,100   $62,500 
Cost of revenues   48,800    45,600    3,200 
Gross profit   912,900    853,500    59,300 
                
Operating expenses:               
Selling and marketing   315,900    153,100    162,800 
General and administrative   165,900    199,600    (33,700)
Research and development   380,800    364,500    16,300 
Total operating expenses   862,600    717,200    145,400 
                
Income from operations   50,300    136,300    (86,100)
                
Other income (loss):               
Unrealized gain on marketable securities   (29,900)   12,400    (42,200)
Interest and other income   900    -    900 
Other income (loss)   (29,000)   12,400    (41,300)
Income before provision for income taxes   21,300    148,700    (127,400)
Net income  $21,300   $148,700   $(127,400)

 

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.

 

14

 

 

The following is a summary of our revenues by category for the three months ended June 30, 2022 and 2021.

 

   For the Three Months Ended     
   June 30,   June 30,     
   2022   2021   $ Change 
Revenue               
Software Licenses               
Windows  $122,400   $169,300   $(46,900)
UNIX/Linux   9,600    5,500    4,100 
Total   132,000    174,800    (42,800)
                
Software Service Fees               
Windows   776,600    657,700    118,900 
UNIX/Linux   32,000    45,000    (13,000)
Total   808,600    702,700    105,900 
                
Other   21,000    21,600    (600)
   $961,600   $899,100   $62,500 

 

Software Licenses

 

Windows software licenses revenue decreased by $46,900 or 27.7% to $122,400 during the three months ended June 30, 2022, from $169,300 for the same period in 2021. The decrease was primarily due to lower level of stocking orders and standard licenses orders sold for the three months ended June 30,2022.

 

Software licenses revenue from our UNIX/Linux products increased by $4,100 or 74.5% to $9,600 for the three months ended June 30, 2022 from $5,500 for the same periods of 2021. The increase was primarily due to higher revenue from stocking order licenses, offset by lower level of standard license sale.

 

Software Service Fees

 

Service fees attributable to our Windows product service increased by $118,900 or 18.1% to $776,600 during three months ended June 30, 2022, from $657,700 for the same period in 2021. 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 $13,000 or 28.9% to $32,000 during the three months ended June 30, 2022, from $45,000 for the same period in 2021. 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.

 

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, 2022 increased by $3,200, or 7.0%, to $48,800 for the three months ended June 30, 2022 from $45,600 for the same period in 2021. Cost of revenue 5.1% of total revenue for the three months ended June 30, 2022 and for the same period in 2021. The increase was due to import tax withholdings associated with higher revenue from Brazil resellers for the three-month period ended June 30, 2022.

 

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 $162,800, or 106.3%, to $315,900 for the three months ended June 30, 2022 from $153,100 for the same period in 2021. Selling and marketing expenses represented approximately 32.9% and 22.2% of total revenue for the three months ended June 30 2022 and 2021, 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 for the three months ended June 30, 2022.

 

15

 

 

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 $33,700, or 16.9%, to $165,900 for the three months ended June 30, 2022 from $199,600 for the same period in 2021. General and administrative expenses represented approximately 17.3% and 22.2% of total revenue for the three months ended June 30, 2022 and 2021, respectively.

 

The decrease in general and administrative expense was primarily due to reduction in outside service fees and employee related expenses during the three months ended June 30, 2022.

 

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 $16,300, or 4.5% to $380,800 for the three months ended June 30, 2022 from $364,500 for the same period in 2021. This represented approximately 39.6% and 40.5% of total revenue for the three months ended June 30, 2022 and 2021, respectively.

 

The increase in research and development expense was primarily due to an increase in wages and software subscriptions during the three months ended June 30, 2022.

 

Other Income

 

Other income decreased by $127,400 for the three months ended June 30, 2022, compared to the same periods in 2021. The decrease primarily due to a decline in the value of marketable securities relative to the three months ended June 30,2021.

 

Results of Operations for the Six-Month Periods Ended June 30, 2022 and 2021

 

   For the Six Months Ended     
   June 30,   June 30,     
   2022   2021   $ Change 
   (Unaudited)   (Unaudited)     
Revenues  $1,911,800   $1,759,300   $152,500 
Cost of revenues   126,200    89,800    36,400 
Gross profit   1,785,600    1,669,500    116,100 
                
Operating expenses:               
Selling and marketing   439,000    296,100    142,900 
General and administrative   370,800    414,300    (43,500)
Research and development   763,500    727,600    35,900 
Total operating expenses   1,573,300    1,438,000    135,300 
                
Income from operations   212,300    231,500    (19,200)
                
Other income:               
Unrealized gain on marketable securities   (85,500)   26,600    (112,100)
Other income   1,000    269,800    (268,800)
    (84,500)   296,400    (380,900)
Income before provision for income taxes   127,800    527,900    (400,100)
Provision for income taxes   -    -    - 
Net income  $127,800   $527,900   $(400,100)

 

16

 

 

Revenues

 

The following is a summary of our revenues by category for the six months ended June 30, 2022 and 2021.

 

   For the Six Months Ended     
   June 30,   June 30,     
   2022   2021   $ Change 
Revenue               
Software Licenses               
Windows  $299,500   $351,200   $(51,700)
UNIX/Linux   14,000    23,000    (9,000)
Total   313,500    374,200    (60,700)
                
Software Service Fees               
Windows   1,491,200    1,247,900    243,300 
UNIX/Linux   65,100    94,100    (29,000)
Total   1,556,300    1,342,000    214,300 
                
Other   42,000    43,100    (1,100)
   $1,911,800   $1,759,300   $152,500 

 

Software Licenses

 

Windows software licenses revenue decreased by $51,700 or 14.7% to $299,500 during the six months ended June 30, 2022, from $351,200 for the same period in 2021. The decrease for the six months ended June 30,2022 was due to lower license orders from standard licenses, offset by increase of stocking orders.

 

Software licenses revenue from our UNIX/Linux products decreased by $9,000 or 39.1% to $14,000 for the six months ended June 30, 2022 from $54,900 for the same period of 2021. The decrease was primarily due to lower revenue from standard order licenses offset by higher stocking order licenses during the six months ended June 30,2022.

 

Software Service Fees

 

Service fees attributable to our Windows product service increased by $243,300 or 19.5% to $1,491,200 during the six months ended June 30, 2022, from $1,247,900 for the same period in 2021. 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 $29,000 or 30.8% to $65,100 during the six months ended June 30, 2022, from $94,100 for the same period in 2021. 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 decreased by $1,100 or 2.62% for the six months ended June 30, 2022, compared to the same period in 2021.

 

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, 2022 increased by $36,400, or 40.5%, to $126,200 for the six months ended June 30, 2022 from $89,800 for the same period in 2021. Cost of revenue represented 6.6% and 5.1% of total revenue for the six months ended June 30, 2022 and 2021, 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, 2022.

 

17

 

 

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 $142,900, or 48.3%, to $439,000 for the six months ended June 30, 2022 from $296,100 for the same period in 2020. Selling and marketing expenses represented approximately 19.4% and 23.5% of total revenue for the six months ended June 2022 and 2021, 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.

 

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 $43,500, or 10.5%, to $370,800 for the six months ended June 30, 2022 from $414,300 for the same period in 2021. General and administrative expenses represented approximately 19.4% and 23.5% of total revenue for the six months ended June 30, 2022 and 2021, respectively.

 

The decrease in general and administrative expense was primarily due to reduction of employee related fees, outside service fees and patent legal 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 $35,900, or 4.9% to $763,500 for the six months ended June 30, 2022 from $727,600 for the same period in 2021. This represented approximately 39.9% and 41.4% of total revenue for the six months ended June 30, 2022 and 2021, respectively.

 

The increase in research and development expense was primarily due to increase in wages and software subscriptions.

 

Other Income

 

Other income decreased by $380,900 for the six months ended June 30, 2022, compare to the same periods in 2021 was primarily related to income from the sale of certain patents and unrealized gain of marketable securities during the prior year.

 

 

Liquidity and Capital Resources

 

As of June 30, 2022, we had cash of $5,207,200 and a working capital position of $4,374,600 as compared to cash of $4,755,300 and a working capital position of $4,316,500 at December 31, 2021. The increase in cash as of June 30, 2022 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.

 

The following is a summary of our cash flows from operating, investing and financing activities for the six months ended June 30, 2022 and 2021.

 

   For the Six Months Ended 
   June 30,   June 30, 
   2022   2021 
Cash flows provided by operating activities  $462,200   $132,300 
Cash flows used in investing activities  $(10,100)  $(24,200)
Cash flows provided by financing activities  $-   $- 

 

Net cash flows provided by operating activities for the three months ended June 30, 2022 was $462,000 while net cash flows provided for the three months ended June 30,2021 was $132,300. The increase in cash flows provided by operating activities is the result of an increase in deferred revenue and change in value in marketable securities compared to the prior year period.

 

The Company had net cash flows of $10,100 used in investing activities for the six months ended June 30, 2022, while the Company had net cash flows of $24,200 for the same periods ended June 30, 2021. The Company expended $10,100 on the repurchase of 24,333 shares of treasury stock during the six months ended June 30,2022.

 

18

 

 

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, 2022.

 

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, 2022 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, 2021, which was filed with the Securities and Exchange Commission on March 31, 2022.

 

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

 

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)

 

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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 15, 2022
     
  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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