See accompanying notes to unaudited condensed consolidated financial statements

hopTo Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation

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

The unaudited condensed consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2016,2017 which was filed with the SEC on April 7, 17, 2018 (“2017 (“2016 10-K Report”). The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 20172018 or any future period.

2. Going Concern and Management’s Liquidity PlansCertain prior year information has been reclassified to conform to current year presentation.

The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP, assuming we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Accordingly, the condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

Although for the three and nine months ended September 30, 2017, respectively, the Company generated net profits of $253,600 and $87,400, respectively, historically we have incurred significant net losses since our inception. At September 30, 2017, the Company had an accumulated deficit of $82,362,400 and a working capital deficit of $2,311,200. We were unable to generate meaningful revenue from our hopTo Work business and our most recent estimation is that revenue from this product is unlikely in any reasonable time frame. We have, however, recently improved our revenue and operating results from our legacy GO-Global business. If this trend continues, subject to our contingent liabilities, we believe we would have sufficient capital resources to fund our GO-Global business (which is our only active business) for at least the next 12 months. However, due to the uncertainty at the current time about this trend and the outcome of our contingent liabilities, we have determined that our cash resources may not be sufficient to fund our business for at least the next 12 months. The Company’s ability to continue as a going concern is dependent on our ability to continue to generate revenue from our legacy GO-Global business and to raise additional capital through the issuance of new equity, debt financing, or from the sale of certain assets to meet short and long-term operating requirements.

If the Company raises additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to the Company’s common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our operations. We are continuing to pursue external financing alternatives to improve our working capital position. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.

These factors raise substantial doubt about our ability to continue as a going concern.

In order to maintain operations, we previously implemented significant expense reductions, including a limited number of employee layoffs, and continue to implement further costs and employment reductions. During the three month period ended September 30, 2016, our CEO and CFO voluntarily agreed with our board of directors to defer 50% of their salary beginning September 1, 2016 until such time as the Company can reasonably pay such compensation upon approval by the board of directors. See Note 12 – Subsequent Events.

Although maintaining our SEC filing status is a significant expense, we currently intend to maintain such status; however, we consider all options to preserve value for shareholders, including potentially suspending or terminating our filing status.

We have worked extensively to explore additional sources of capital including the issuance of new shares, securing debt financing, and the sale of assets including certain software products and patents. Although this process is ongoing and we are in active discussions with multiple parties, there is no guarantee that they will result in transactions that are sufficient to provide the Company with the required liquidity to remove the substantial doubt as to our ability to continue as a going concern. See Note 12 – Subsequent Events. We are also in discussions with some parties about the possibility of other strategic transactions although there is no guarantee that these discussions will result in an actual transaction. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of the uncertainties set forth above.

3.2. Significant Accounting Policies

Use of Estimates

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

Revenue Recognition

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

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

For the year ended December 31, 2017 including interim periods therein, the Company recognized revenue under ASC 605. Under ASC 605 software license revenues arewere recognized when:

Revenue recognized on software arrangements involving multiple deliverables is allocated to each deliverable based on vendor-specific objective evidence (“VSOE”) or third partywhen persuasive evidence of the fair values of each deliverable; such deliverables include licenses for software products, maintenance, private labeling fees, and customer training. We limit our assessment of VSOE for each deliverable to eitheran arrangement exists, delivery has occurred, the price charged whento the same deliverablecustomer is sold separatelyfixed or determinable, as typically evidenced in a signed non-cancellable contract, or a customer’s purchase order, and collectability is probable. For additional detail on the price established by management havingCompany’s revenue recognition policies in prior periods, please see Note 2 of Notes to Consolidated Financial Statements in the relevant authority to do so, for a deliverable not yet sold separately.2017 10-K Report.

If sufficient VSOEThe impact of the fair value does not exist so as to permitadoption of ASC 606 is the allocationeffect on revenue treatment of revenue to the various elements of the arrangement, all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. If VSOE of the fair value does not exist, and the only undelivered element is maintenance, then we recognize revenue on a ratable basis. If VSOE of the fair value of all undelivered elements exists but does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue.

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

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

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

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

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

Deferred Rent

The leases for both of the Company’s subleased former offices in Campbell, California contain free rent and predetermined fixed escalations in our minimum rent payments. Rent expense related to these leases is recognized on a straight-line basis over the terms of the leases. Any difference between the straight-line rent amounts and amounts payable under the leases is recorded as part of deferred rent in current or long-term liabilities, as appropriate. The monthly rent payments due to the Company for the sublease of the office at 1919 S. Bascom Avenue fully offset the rent payments due under the Company’s lease for that space. The monthly rent payments due to the Company for the sublease of the office at 51 East Campbell Avenue will offset approximately 62% of the monthly rent payments due to the landlord under the Company’s lease for that space. During the three-month period ended September 30, 2017, the Company recorded a loss of $62,900 representing the total of the shortfall of monthly rent payments over the life of this sublease. As of September 30, 2017, $24,900 remains on the balance sheet as a lease liability to be amortized over the remaining 12 months of the sublease.

Incentives that we received upon entering into the S. Bascom Avenue lease agreement are recognized on a straight-line basis as a reduction to rent over the term of the lease. We record the unamortized portion of these incentives as a part of deferred rent in current or long-term liabilities, as appropriate.

Long-Lived Assets

Long-lived assets are assessed for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable, whenever we have committed to a plan to dispose of the assets or, at a minimum, annually. Typically, for long-lived assets to be held and used, measurement of an impairment loss is based on the fair value of such assets, with fair value being determined based on appraisals, current market value, comparable sales value, and discounted future cash flows, among other variables, as appropriate. Assets to be held and used (which assets are affected by an impairment loss) are depreciated or amortized at their new carrying amount over their remaining estimated life; assets to be sold or otherwise disposed of are not subject to further depreciation or amortization. During the three month and nine month period ended September 30, 2016 we determined that an impairment of $0 and $15,500, respectively, existed with certain capitalized software development costs associated with our hopTo Work product and recognized that cost as part of cost of revenue. No such impairment charge was recorded during either of the three or nine-monththree-month periods ended September 30,March 31, 2018 or 2017.

Allowance for Doubtful Accounts

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

The following table sets forth As of March 31, 2018 and December 31, 2017 the details of the Allowanceallowance for Doubtful Accounts for the three-month periods ended September 30, 2017doubtful accounts totaled $3,400 and 2016:

The following table sets forth the details of the Allowance for Doubtful Accounts for the nine-month periods ended September 30, 2017 and 2016

$7,800, respectively.

Concentration of Credit Risk

For the three and nine-monththree-month periods ended September 30,March 31, 2018 and 2017, and 2016 respectively, we considered the customers listed in the following tablestable to be our most significant customers. The tables settable sets forth the percentage of sales attributable to each customer during the periods presented, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net, as of September 30, 2017March 31, 2018 and 2016.

Fair Value of Financial Instruments

The fair value of our accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relative short maturities of these items.

The fair value of warrants at issuance and for those recorded as a liability at each reporting date are determined in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 820,“Fair Value Measurement,” which establishes a fair value hierarchy that prioritizes the assumptions (inputs) to valuation techniques used to price assets or liabilities that are measured at fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The guidance for fair value measurements requires that assets, liabilities and certain equity instruments measured at fair value be classified and disclosed in one of the following categories:2017.

RecentRecently Adopted Accounting Pronouncements

Revenue

In May 2014, FASBthe Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “RevenueRevenue from Contracts with Customers (Topic(ASC 606)” (“. This ASU 2014-09”). Subsequentlyis a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB has released several updates toissued ASU 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 including ASU 2016- 20, ASU 2016-12, ASU-2016-10, ASU-2016-08, and ASU-2015-14. The effective date for ASU 2014-09 will be the first quarter of fiscal year 2018to reporting periods beginning after December 15, 2017, with early adoption permitted for reporting periods beginning after December 15, 2016. Subsequently, FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including: ASU 2016-08, Revenue from Contracts with Customers (ASC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the first quarteroperability and understandability of fiscalthe implementation guidance on principal versus agent considerations; ASU 2016-10, Revenue from Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing, which is intended to clarify two aspects of ASC 606: identifying performance obligations and the licensing implementation guidance; and ASU 2016-12, Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients, which contains certain practical expedients in response to identified implementation issues. The Company elected to adopt ASC 606 under Modified Retrospective approach. Under the Modified Retrospective approach, only contracts with customers for which there were remaining unsatisfied performance obligations (open contracts) at the beginning of initial year 2017.of adoption must be restated to apply retrospectively the guidance under ASC 606. Any resulting impact for such contracts prior to the beginning of the initial year of adoption are made as an adjustment to opening accumulated deficit for such year.

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

The change to the current revenue policy is the timing of revenue recognition for software licenses purchased by stocking resellers. Under the guidance ASC 605, the Company recognized revenue upon the delivery of licenses to end users when they were purchased from the stocking reseller. Under the guidance ASC 606, license revenue is recognized upon placement of the stocking order by the stocking reseller. During the three-month period ended June 30, 2017,March 31, 2018, this change in revenue policy resulted in lower license revenue of $96,400. This lower license revenue had the same impact on gross profit, loss from operations and net loss.

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

The cumulative effect of the Topic 606 standard relativechanges made to our condensed consolidated balance sheet as of January 1, 2018 under current assets, deferred revenue recognition policies and practice. That review is still in process andaccumulated deficit for the Company expects that it will be completed by November 30, 2017. However, the Company continues to believe that adoption of this standard will not have a material effect on either our historical financial results or future financial results.ASU 2014-09, Revenue - Revenue from Contracts with Customers were as follows:

Income Taxes

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

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

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

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

4.3. Property and Equipment

Property and equipment was:

Aggregate property and equipment depreciation and amortization expense was $8,900$9,000 and $42,200$18,100 during the three-month period and nine-month ended September 30, 2017, respectively, and $21,200 and $70,800 during the same periods ended September 30, 2016. During the nine-month periods ended September 30,March 31, 2018 and 2017, and 2016, we disposed of equipment and furniture with a combined net book value of $61,300 and $20,100, respectively.

5.4. Stock-Based Compensation

The following table summarizes the stock-based compensation expense, net of amounts capitalized, we recorded in our Unaudited Condensed Consolidated Statements of Operations for the three and nine-monththree-month periods ended September 30,March 31, 2018 and 2017, and 2016, respectively, by classification:

6. Revenue

Revenue for the three-month periods ended September 30, 2017 and 2016 was:

Revenue for the nine-month periods ended September 30, 2017 and 2016 was:

7. Cost of Revenue

Cost of revenue for the three-month periods ended September 30, 2017 and 2016 was:

Cost of revenue for the nine-month periods ended September 30, 2017 and 2016 was:

8. Commitments and Contingencies

On February 1, 2014, we relocated our corporate offices to a larger suite within our landlord’s office complex on South Bascom Avenue in Campbell, California. We are currently leasing 10,659 square feet under a five-year lease that, unless renewed, will expire in October 2018.

On August 11, 2015 we entered into a sublease agreement to sublease the entirety of the South Bascom Avenue office space to a third party. The term of the sublease extends from November 1, 2015 through the end of our office lease term for that space in October 2018. The monthly rent payments due to hopTo under this sublease fully offset the monthly rent payments due to the landlord under hopTo’s lease for that space.

On August 24, 2015, we entered into a new office lease for our corporate headquarters at 51 East Campbell Avenue in Campbell, California which was better suited to our California operations and resulted in significant monthly savings. The term of this lease is from October 1, 2015 through September 30, 2018.

On April 28, 2017 we entered into a sublease agreement to sublease the entirety of the leased space at 51 East Campbell Avenue to a third party. The term of the sublease began on June 1, 2017 and extends through the end of our office lease term for that space. The monthly rent payments due to hopTo will offset approximately 62% of the monthly rent payments due to the landlord under hopTo’s lease for that space. (See Deferred Rent section of Note 3.)

The following table sets forth the net minimum lease payments we will be required to make throughout the remainder of these leases:

During the three-month period ended September 30, 2016, our CEO and CFO voluntarily agreed with our board of directors to defer 50% of their salary beginning September 1, 2016 until such time as the Company can reasonably pay such compensation upon approval by the board of directors. The deferred salaries are recorded as a component of accounts payable and accrued expenses on the Condensed Consolidated Balance Sheet. See Note 12 – Subsequent Events.

During the three and nine-month periods ended September 30, 2017, respectively, we reported non-cash expense of $0 and $284,000, respectively, related to potential liquidated damages resulting from delays in filing registration statements for shares and shares underlying warrants for certain of the private placements that the Company closed in prior periods. There were no such expenses recorded in the comparable prior year period. We are in the process of seeking waivers from shareholders for such liquidated damages. The potential liquidated damages is reported as other current liabilities on the condensed consolidated balance sheet and as a component of general and administrative expense on the condensed consolidated statements of operations.

9.5. Supplemental Disclosure of Cash Flow Information

We disbursed $200$0 and $800$100 for the payment of interest expense during the nine-monththree-month periods ended September 30,March 31, 2018 and 2017, and 2016, respectively.

Such disbursement was for capital lease payments. We disbursed $2,800$800 and $2,300$700 for the payment of income taxes during the three-month period ended March 31, 2018 and 2017, respectively. Such disbursements were made for the payment of foreign income taxes associated withrelated to the operation of our Israeli subsidiary, during the nine-month periods ended September 30, 2017 and 2016, respectively.GraphOn Research Labs, Ltd.

10.6. Earnings (Loss) Per Share

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

For the three and nine-monththree-month periods ended September 30,March 31, 2018 and 2017, 1,012,619 and for the three and nine-month periods ended September 30, 2016, 1,375,509 and 1,412,507 shares of common stock equivalents, respectively, were excluded from the computation of dilutive loss per share since their effect would be anti-dilutive.

11.7. Segment Information

Revenue by country for the three-month and nine-month periods ended September 30,March 31, 2018 and 2017 and 2016 was as follows:

12.8. Subsequent Events

On October 10, 2017, the Company and salesforce.com entered into a Patent Purchase Agreement (effective as of October 5, 2017), pursuant to which the Company sold seven of its patents for an aggregate consideration of $400,000, and also received, subject to various terms, conditions and limitations, a license back of those patents. The patents sold were U.S. Patent numbers: 9395826, 9398111, 9419848, 8745280, 8892782, 8738814 and 8856907.

On October 25, 2017, the board of directors of the Company determined that the financial status of the Company had improved from the financial status of the Company duringDuring the three month period ended September 30, 2016, when the Company’s former CEO and CFO voluntarily agreed with the board of directors to defer 50% of their salary beginning September 1, 2016 until such time as the Company could reasonably pay such compensation upon approval by the board of directors. On April 23, 2018, the board of directors of the Company determined that the financial status of the Company had improved. Accordingly, the board of directors determined that it was reasonable for the Company to pay the remaining 50% of this deferred salary (the initial 50% of the deferred salary having been paid on October 30, 2017) and such payments were made to the CFO and former CEO on October 30, 2017.April 25, 2018.

On May 21, 2018 the Company completed a definitive agreement (the “Settlement”) to settle potential liquidated damages resulting from delays in filing registration statements for shares of our common stock and shares of our common stock underlying warrants for certain private placements that the Company closed in 2013 and 2015. The Settlement was completed on terms substantially similar to the "Proposed Settlement” which we disclosed as a recent development in our Form 10-K for the year ended December 31, 2017 which we filed with the SEC on April 17, 2018.  Consistent with our previous disclosure, the Settlement involves no cash payments or cash commitments by the Company and includes the issuance of new common stock warrants with an exercise price of $0.01 per share and exercisable within five years, in exchange for existing warrants currently held by the affected shareholders. The Settlement does not result in an increase in the total number of warrants held by these shareholders or the total number of warrants outstanding.

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:

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.

Update on HopTohopTo Plans

As ofDuring Q4 2016, we have effectively ceased all of our sales, marketing and development efforts for the hopTo products, and at this time we currently do not expect any meaningful revenues from these products in the foreseeable future. Our sole revenues are from our GO-Global business.

We continueExcept for the sale of 7 patents sold to actively operate our GO-Global business andSalesforce.com during the fourth quarter of 2017, we are currently evaluating ways to enhance its performance.

Other than recent sales of selected patents (see Note 12 to our Notes to Unaudited Condensed Consolidated Financial Statements), we continue to own all hopTo-related and GO-Global related intellectual property including source-code, related patents, and the relevant trademarks. We continuebelieve these assets have value and are continuously evaluating opportunities to believe that we may be able to extract valuemaximize such potential benefits from these assets and are currently working to do so at this time.assets. For detailed information on the hopTo products and technologies, please refer to our previously filed Annual ReportReports on Form 10-K for the year ended December 31, 2016, which was filed with the SEC on April 7, 2017 as well as ourand other SEC filings which are available at www.sec.gov. Such filings are being noted for historical information only; unless expressly noted, they are not incorporated herein by reference.

Although thereThere is no certainty as to timing or success of theseour efforts to extract value from theseour hopTo assets, and stockholders should not place any significant reliance on the outcome of such efforts unless and until definitive agreements are reached, thiswhich may include additionalthe sale of certain of our hopTo software products the saleor additional sales of patents, and the monetization of the GO-Global business or some combinations of these transactions. (See Notes 2 and 12 to our Notes to Unaudited Condensed Consolidated Financial Statements).

The following description of our business and business opportunities is expressly qualified by the preceding statement and the going concern disclosure in Note 2 to our Unaudited Condensed Consolidated Financial Statements.patents.

Introduction

We are developers of application publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants. Our application publishing software solutions are sold under the brand name GO-Global, which is our sole revenue source at this time.source. GO-Global is an application access solution for use and/or resale by independent software vendors (“ISVs”), corporate enterprises, governmental and educational institutions, and others who wish to take advantage of cross-platform remote access and Web-enabled access to their existing software applications, as well as those who are deploying secure, private cloud environments.

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

The hopTo products were originally marketed to consumers and were later also marketed to small and medium sized businesses and enterprise level customers under the name hopTo Work. hopTo Work allows customers to instantly transform their legacy applications to become touch friendly on modern mobile devices. During 2015 and 2016 we also worked to integrate hopTo Work with certain software products offered by Citrix Systems.

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

Corporate Background

We are a Delaware corporation, founded in May 1996. Our headquarters areis located at 6 Loudon Road, Suite 200, Concord, New Hampshire,NH 03301, and our toll-free phone number is 1-800-472-7466. Our1-800-472-7466, and our phone number for local and international calls is 408-688-2674. Additionally, we1-408-688-2674. We also have remote employees located in various states, as well as internationally in the United Kingdom and Israel.Kingdom. Our corporate Internet Website is http://www.hopto.com. The information on our website is not part of this quarterly report.

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

Our Intellectual Property

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

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

We also currently hold rights to patents. We occasionally filepatents but are not currently pursuing additional patent applications to protect innovations arising from our research, development and design.applications.

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

ipCapital Group, Inc.

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

As a result of ipCapital’s work under the engagement agreement, as amended, as of November 14, 2017,May 15, 2018, 173 new patent applications have been filed. Of these 173 applications, 53 patents have been granted by the United States Patent and Trademark Office (“USPTO”). Due to financial constraints on our operations, we have suspended patent prosecution activity other than to pay issuance fees for patents already approved by USPTO. As of November 14, 2017 there are no patent applications that remain pending with the USPTO. We do not expect to file more applications in 2017.

2018.

OurThe GO-Global Software Products

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

We intend to continue to operate Go-Global, as it remains a viable stand-alone business and our sole revenue source at this time.

Critical Accounting Policies

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas require us to make judgments and estimates about matters that are uncertain at the time we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 20162017 10-K Report and Note 32 to our Notes to Unaudited Condensed Consolidated Financial Statements.

Results of Operations for the Three and Nine-MonthThree-Month Periods Ended September 30,March 31, 2018 and 2017 and 2016

The following operating results should be read in conjunction with our critical accounting policies. See Note 3 to our Notes to Unaudited Condensed Consolidated Financial Statements.

Revenue

Revenue for the three-month periods ended September 30,March 31, 2018 and 2017 and 2016 was:

Revenue for the nine-month periods ended September 30, 2017 and 2016 was:

Our software revenue is entirely related to our GO-Global product line, and historically has been primarily derived from product licensing fees and service fees from maintenance contracts. The majority of this revenue has been earned, and continues to be earned, from a limited number of significant customers, most of whom are resellers. Many of our resellers (a “stocking reseller”) purchase software licenses that they hold in inventory until they are resold to the ultimate end user. We deferDuring the three month period ended March 31, 2017, we deferred recognition of revenue from these sales (on our Condensed Consolidated Balance Sheet under the caption “Deferred Revenue”) until the stocking reseller sells the underlying software licenses to the ultimate end user. Consequently, if anyAs of our significant stocking resellers materially changeJanuary 1, 2018, we have adopted the rate at which they resell ournew revenue recognition policies and guidance ASC 606 and as a result, during the three month period ended March 31, 2018, all software licenses to the ultimate end user, our software licenses revenue could be materially impacted.

When a software license iseither sold directly by us to an end user, by us,to a stocking reseller, or by one of our resellersto a reseller who does not stock licenses into inventory, revenue is immediately recognized immediately upon shipment assuming all other criteria for revenue recognition are met. (see Note 2 to the Financial Statements).

Consequently, if any significant end user customer or reseller substantially changes its order level, or fails to order during the reporting period, whether the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially impacted.

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

Software Licenses

Software license

The decrease in Windows software licenses revenue from our Windows products increased for the three and nine-month periods ended September 30, 2017, as compared with the same periods of the prior yearwas primarily due to higher license purchases from certainour adoption of our OEM partners and stocking resellers.

SoftwareASC 606 effective January 1, 2018. Under the old standard, Windows software license revenue from our UNIX/Linux products increased duringfor the three-month period ended September 30, 2017, as compared with the same period ofMarch 31, 2018 would have been $303,300 which is $20,300 or 7.1% higher than the prior year primarily due to higher revenue from certain of our telecommunications customers. period.

Software licenses revenue from our UNIX/Linux products increaseddecreased primarily due to the fact that during the nine-month period ended September 30, 2017, as compared with the same period of the prior year primarilyperiod we received a larger than typical order from one of our U.S. government customers and to a lesser extent due to higherour adoption of the new revenue from certain U.S. government customers.recognition standard.

WeAlthough we expect aggregate orders for software licenses during 2018 to approximate the levels of 2017, we expect that GO-Global software license revenue for both Windows and UNIX in 2018 will be slightly lower than 2017 levels due to be approximately the same as the license revenue levels for 2016.

impact of adoption of ASC 606.

Software Service Fees

The decreaseincrease in software service fees revenue attributable to our Windows products during the nine-monththree-month period ended September 30, 2017,March 31, 2018, as compared to the same period of the prior year, was primarily due to the timing of customer renewals of maintenance contacts.increased license sales that we reported during fiscal year 2017.

The decrease in service fees revenue attributable to our UNIX products for the three and nine-month periodsthree-month period ended September 30, 2017,March 31, 2018, as compared with the same period of the prior year was primarily the result of the lower level of our UNIX product sales during prior years and a resultant decrease in maintenance contract renewals. The majority of this decrease was attributable to our European telecommunications customers.

Due to the trends mentioned above weWe expect that software service fees for 20172018 for our Windows products will be modestlyslightly higher than for 2017 and that software service fees for our Unix products will be slightly lower than those for 2016.2017.

Other

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

Costs of Revenue

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

Under GAAP, development costs for new product development, after technological feasibility is established, are recorded as “capitalized software” on our Condensed Consolidated Balance Sheet. Such capitalized costs are subsequently amortized as cost of revenue (software product costs) over the shorter of three years or the remaining estimated life of the product. During the three-month and nine-month periods ended September 30, 2017 we did not capitalize or impair any software development costs. During the three-month and nine-month periods ended September 30, 2016, we capitalized $0 software development costs and impaired $15,000 associated with the hopTo Work product during the three-month period ended June 30, 2016.

Amortization of capitalized software development costs was $0 and $200 during the three-month periods ended September 30, 2017 and 2016, respectively, and $0 and $5,300 during the nine-month periods ended September 30, 2017 and 2016, respectively.

Cost of revenue was 1.5%3.5% and 0.9%1.9% of total revenue for the three monthsthree-month periods ended September 30,March 31, 2018 and 2017, and 2016, respectively, and 1.8% and 4.5% of total revenue for the nine months ended September 30, 2017 and 2016, respectively.

Cost of revenue for the three-month periods ended September 30,March 31, 2018 and 2017 and 2016 was:

Cost of revenueSoftware service costs decreased for the nine-month periods ended September 30,three-month period ending March 31, 2018, as compared with 2017 and 2016 was:

for the same period, as less time was required for customer service issues, primarily due to the mature state of our GO-Global products. We anticipate that customer service costs will decrease in 2018, as compared with 2017.

The increase in software service costs for the three-month period ended September 30, 2017 was due to a reclassification of $15,500 of customer supports costs that was allocated from Selling and Marketing expense to software service costs until three-month period ended December 31, 2016, partially offset by a decrease of $4,600 from lower customer support costs, as compared to the same periods of the prior year. The decrease in software service costs in the nine-month period ended September 30, 2017, as compared with the same periods of the prior year was primarily due to lower customer support costs associated with GoGlobal. Upon release of the commercial versions of hopTo and hopTo Work, we began charging costs associated with supporting the products to costs of revenue. We expect software service costs for 2017 to be lower than those for 2016 as we have been able to reduce headcount costs in this area due to a lower level of effort required.

The decreases in software product costs for the three-month and nine-month periods ended September 30, 2017, as compared with the same periods of the prior year, was almost entirely due to decreased amortization of capitalizedthe software development costs.import tax payable to the Brazilian government. This tax was not in place during the three month period ended March 31, 2017. We expect that software2018 costs of revenue forto be slightly higher than 2017 will be lower than 2016 levels.levels due to this tax.

Selling and Marketing Expenses

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

Selling and marketing expenses for the three-month period ended September 30, 2017 decreasedMarch 31, 2018 increased by $6,500,$11,700 or 6.9%13.0%, to $87,400,$101,600, from $93,900$89,900 for the same period of 2016, which2017, and represented approximately 8.5%12.4% and 10.5%9.2% of revenue during these periods, respectively. Selling and marketing expenses for the nine-month period ended September 30, 2017 decreased by $405,200 or 61.0% to $259,400 from $664,600 for the same period in 2016, which represented approximately 8.8% and 23.2% of revenue during those periods, respectively.

The decreasesincrease in selling and marketing expenses was due to a combination of lower headcountinvestment in an updated website for the GO-Global products and a decrease in headcount and promotional costs associated with hopTo Work as we have suspended allhigher wages for our sales and marketing activity for that product.employees.

We expect to maintain our sales and marketing efforts in 20172018 for anticipated GO-Global releases at a level consistent with the second half of 2016;select targeted investments in promotional activity; accordingly, we expect 20172018 sales and marketing expenses to be lowerslightly higher than 2016.2017 levels.

General and Administrative Expenses

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

General and administrative expenses decreased by $614,900, or 74.8%, to $206,700, for the three-month period ended September 30, 2017, from $821,600 for the same period of 2016, which represented approximately 20.1% and 91.4% of revenue during these periods, respectively.

General and administrative expenses decreased by $845,700,$335,900, or 40%,52.4 %, to $1,268,900$305,200, for the nine-monththree-month period ended September 30, 2017,March 31, 2018, from $2,114,600$641,100 for the same period of 2016, which2017, and represented approximately 43.3%37.1% and 73.8%65.3% of revenue during these periods, respectively.

The decreasesdecrease in general and administrative expense in the three-month and nine-month period ended September 30, 2017, as compared with the same periods of the prior year, werewas primarily due to a combination of lower administrative salarydecreased executive compensation associated with the part-time arrangement for our CEO and CFO positions, decreased rent expense associated with part-time statuslower net operating leases for the sublease of our Chief Financial Officer effective April 1, 2017Campbell office, and the resignation of our Chief Executive Officer in August 2017, combined with the elimination of accruals for potential liquidated damages that had been made in the prior year periods due toresulting from delays in filing registration statements for shares of common stock and shares of common stock underlying warrants for certain of the private placements that the Company closed in prior periods. There were no such liquidated damages accruals recorded in the comparable current year periods as the Company filed the necessary registration statement in May 2017 eliminating the further need for such accruals. These lower expenses were also due to a combination of decreased rent expense associated with lower net operating leases, decreased legal expenses associated with activity related to our patents, lower stock compensation expense associated with the termination of headcount and other lower costs associated with investor relations, and decreased outside services expense.

In 2017,2018, we intend to continue cost controls andto continue to control these costs. We therefore expect that our 20172018 general and administrative costs will be lower than those for 2016.2017.

Research and Development Expenses

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

Research and development expenses decreasedincreased by $107,700,$43,500, or 21.9%11.3%, to $383,800,$428,500 for the three-month period ended September 30, 2017,March 31, 2018, from $491,500$385,000 for the same period of 2016, which2017, and represented approximately 37.4%52.1% and 54.7% of revenue for these periods, respectively.

Research and development expenses decreased by $737,000, or 39.6%, to $1,123,900, for the nine-month period ended September 30, 2017, from $1,860,900 which represented approximately 38.3% and 65.0%39.2% of revenue for these periods, respectively.

The decreaseincrease in research and development expense is primarily due to lowerhigher employee costs associated with lower headcount primarily due toincreased wages for our research and development employees and certain contract labor associated with the suspension of efforts on our hopTo Work products, lower payments to contract programmers, and lower operating rent expense.GO-Global products.

In 2017,2018, we expect to maintain a level of research and development resource lower thanconsistent with the second halflevels of 2016.2017 with targeted investments in the GO-Global products. We therefore expect 20172018 research and development expenses net of capitalized software developments costs, to be lowerslightly higher than 20162017 levels.

Change in Fair Value of Warrants Liability

During the three-month periods and nine-months period ended September 30, 2017, we reported no income or expense due to the change in fair value of our warrants liability as the applicable warrants expired during September and October of 2016. During the same periods of the prior year, we reported non-cash income of $54,400 and $29,300, respectively. Such changes resulted from our liability warrants which expired in the fourth quarter of 2016.

Net Profit / (Loss)Loss

Based on the foregoing, we reported net profitlosses of $253,600$43,600 and a net loss of $462,000$153,700 for the three-month periods ended September 30,March 31, 2018 and 2017, and 2016 respectively. Additionally, we reported net profit of $87,400 and a net loss of $1,874,500 for the nine-month periods ended September 30, 2017 and 2016, respectively.

Liquidity and Capital Resources

Our reported net profitloss for the nine-monththree-month period ended September 30, 2017March 31, 2018 of $87,400$43,600 included the following non-cash items:item of depreciation and amortization of $42,200$9,000, which was primarily related tocomprised of depreciation of fixed assets; loss of $60,400 from disposal of fixed assets; loss of $62,900 from sublease; stock-based compensation expense of $14,500; interest expense of $200 from capital lease equipment.assets.

For the nine-month period ended September 30, 2017, we disposed of some capitalized equipment at a loss of $60,400 which had net book value of $61,300. We sold some non-capitalized equipment for $900.

For the nine-month period ended September 30,2017, we subleased our East Campbell office at a loss of $62,900 with the remaining $46,800 lease amount due to the landlord.

See the Update on HopTo Plans at the beginning of this section for a discussion of our future plans and option we are considering.

AlthoughExcept for the three and nine monthsyear ended September 30,December 31, 2017, respectively, the Company generated net profits of $253,400 and $87,400, respectively, historically we have incurred significant net losses since our inception. At September 30, 2017,March 31, 2018, the Company had an accumulated deficit of $82,362,400$80,500,900 and a working capital deficit of $2,311,200. We were unable$1,427,600.

During fiscal 2017: (1) we reduced our operating expense from approximately $1.3 million per quarter to generate meaningful revenue from our hopTo Work business and our most recent estimation is that revenue from this product is unlikely in any reasonable time frame. Wean average of $0.8 million per quarter; (2) we have however, recently improved our revenue andthe operating results from our legacy GO-Global business. If this trend continues, subject to our contingent liabilities, we believe we would have sufficient capital resources to fund our GO-Global business (which is our only active business)and have reasonable confidence in its ability to generate cash for at least the next 12 months. However, due to the uncertainty at the current time about this trendmonths; (3) sold several patents for cash; and the outcome of our contingent liabilities,(4) we have determined thatincreased our cash position from a low of $300 thousand in August of 2016 to $1.0 million at December 31, 2017.

In addition, for the reasons described above, we expect our results from operations and capital resources may notwill be sufficient to fund our businessoperations for at least the next 12 months. The Company’s ability to continue as a going concern is dependent on our ability to continue to generate revenue from our legacy GO-Global business and to raise additional capital through the issuance of new equity, debt financing, ormonths from the saledate of certain assetsthe filing of this quarterly report on Form 10-Q however, we do not expect these funds and resources to meet short and long-term operating requirements.

If the Company raises additional funds through the issuance of equity or convertible debt securities, the percentage ownership ofbe sufficient for material new investments in our current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to the Company’s common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our operations. We are continuing to pursue external financing alternatives to improve our working capital position. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.

These factors raise substantial doubt about our ability to continue as a going concern. (See Note 2 to our Notes to Unaudited Condensed Consolidated Financial Statements).GO-Global business.

In order to maintain operations,achieve the expense controls in the past fiscal year, we previously implemented significant expense reductions, including (1) a limited number of employee layoffs and have decidedprimarily related to implement further cost cuts and employment reductions. Duringthe hopTo product; (2) during the three month period ended September 30, 2016, our former CEO and CFO voluntarily agreed with our board of directors to defer 50% of their salary beginning September 1, 2016 until such time as the Company can reasonably pay such compensation upon approval by the board of directors. (Seedirectors (such amounts have been paid as of April 25,2018; see Note 12 to our8, Subsequent Events, in the Notes to Unaudited Condensed Consolidated Financial Statements).Statements in this Quarterly Report) and (3) undertook other expense reduction initiatives related to related to patent maintenance, real estate and use of professionals.

Although maintaining our SEC filing status is a significant expense, we currently intend to maintain such status; however, we consider all options to preserve value for shareholders, includingWe no longer are considering potentially suspending or terminating our SEC filing status.status, although we reserve the right to do so subject to applicable law.

We have worked extensively to explore additional sources of capital including the issuance of new shares, securing debt financing,had, and the sale of assets including certainas a regular part of our software products and patents. Although this process is ongoing and we are in activebusiness from time to time continue to have, discussions with multiple parties, there is no guarantee that they will result in transactions that are sufficient to provide the Company with the required liquidity to remove the substantial doubt as to our ability to continue as a going concern. See Note 12 – Subsequent Events. We are also in discussions with somevarious parties about the possibility of other strategic transactions although there is no guarantee that these discussions will result in an actual transaction.transactions.

Cash

As of September 30, 2017,March 31, 2018, our cash balance was $551,300,$1,159,000, as compared with $546,200$1,015,400 as of December 31, 2016,2017, an increase of $5,100,$143,600, or 0.9%14.1%. The slight increase primarily resulted from the collectioncollections from orders placed in December of accounts receivable partially offset by the cash used in our operations.

2017.

Accounts Receivable, net

At September 30, 2017March 31, 2018 and December 31, 2016,2017, we reported accounts receivable, net, of $353,300$236,000 and $355,300,$426,800, respectively. Such amounts were reported net of the allowance for doubtful accounts, which allowances totaled $4,400$3,400 and $7,700$7,800 at September 30, 2017March 31, 2018 and December 31, 2016,2017, respectively. The slight decrease in accounts receivable, net, was mainly due to timing of sales and collections during the three-month period ended September 30, 2017, as compared with the three-month period ended December 31, 2016. We collect the significant majority of our quarter-end accounts receivable during the subsequent quarter; accordingly, increases or decreases in accounts receivable from one period to the next tends to be indicative of the trend in our sales from one period to the next. During the three-month period ended March 31, 2018, we received a significant amount of orders during January, resulting in more cash collected during the three-month period and a lower accounts receivable balance at the end of the period. From time to time, we could have individually significant accounts receivable balances due us from one or more of our significant customers. If the financial condition of any of these significant customers should deteriorate, our operating results could be materially affected.

Working Capital

As of September 30, 2017,March 31, 2018, we had current assets of $931,400$1,530,200 and current liabilities of $3,242,600,$2,957,800, which netted to a working capital deficit of $2,311,200.$1,427,600. Included in current liabilities was the current portion of deferred revenue of $1,579,500$1,231,200 and an accrual for liquidated damages of $855,100.

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, 2017.March 31, 2018.

There has not been any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2017March 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. As disclosed in a Form 8-K filed with the SEC on August 7, 2017, Mr. Casabonne has agreed to remain as interim CEO and CFO on a part-time month-to-month basis. Should Mr. Casabonne decide to resign these positions the board would need to replace him for these roles.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Not Applicableapplicable

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, 2016,2017, which was filed with the Securities and Exchange Commission on April 7, 2017.17, 2018.

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

We did not sell any unregistered securities during the quarter ended September 30, 2017.March 31, 2018.

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Mine Safety Disclosures

Not applicable

ITEM 5. Other Information

Not applicable.applicable

ITEM 6. Exhibits

* Furnished, not filed

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)