UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 20172021
Commission File Number: 0-21683
hopTo Inc.
(Exact name of registrant as specified in its charter)
Delaware | 13-3899021 | |
(State of incorporation) | (IRS Employer | |
Identification No.) |
6 Loudon Road, 189 North Main Street, Suite 200102
Concord, NH03301
(Address of principal executive offices)
Registrant’s telephone number:
(800) (800) 472-7466
(408) 688-2674
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” ,”smallerfiler,” “smaller reporting company” and “emerging growth company’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 [X] ☒
As of November 14, 2017,15, 2021, there were issued and outstanding 9,804,400 shares of the registrant’s common stock, par value $0.0001.
hopTo Inc.
FORM 10-Q
Table of Contents
2 |
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 future results of operations or financial position 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.
hopTo Inc.
Condensed Consolidated Balance Sheets
(Unaudited) | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash | $ | 551,300 | $ | 546,200 | ||||
Accounts receivable, net | 353,300 | 355,300 | ||||||
Prepaid expenses | 26,800 | 38,700 | ||||||
Total Current Assets | 931,400 | 940,200 | ||||||
Property and equipment, net | 39,800 | 143,300 | ||||||
Other assets | 109,000 | 109,000 | ||||||
Total Assets | $ | 1,080,200 | $ | 1,192,500 | ||||
Liabilities and Stockholders’ Deficit | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 759,700 | $ | 975,800 | ||||
Deferred rent | 23,400 | 24,100 | ||||||
Capital lease | — | 6,800 | ||||||
Lease liability | 24,900 | — | ||||||
Deferred revenue | 1,579,500 | 1,759,000 | ||||||
Other current liabilities | 855,100 | 571,100 | ||||||
Total Current Liabilities | 3,242,600 | 3,336,800 | ||||||
Deposit liability | 93,500 | 81,400 | ||||||
Deferred revenue | 1,523,600 | 1,694,600 | ||||||
Deferred rent | 41,500 | 2,600 | ||||||
Total Liabilities | 4,901,200 | 5,115,400 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Deficit: | ||||||||
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding | — | — | ||||||
Common stock, $0.0001 par value, 195,000,000 shares authorized, 9,804,400 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 14,700 | 14,700 | ||||||
Additional paid-in capital | 78,526,700 | 78,512,200 | ||||||
Accumulated deficit | (82,362,400 | ) | (82,449,800 | ) | ||||
Total Stockholders’ Deficit | (3,821,000 | ) | (3,922,900 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 1,080,200 | $ | 1,192,500 |
(Unaudited)
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 4,560,000 | $ | 4,375,300 | ||||
Marketable securities | 463,900 | |||||||
Accounts receivable, net | 456,900 | 417,300 | ||||||
Prepaid expenses and other current assets | 47,300 | 48,500 | ||||||
Total current assets | 5,528,100 | 4,841,100 | ||||||
Property and equipment, net | 2,600 | - | ||||||
Other assets | 17,800 | 17,800 | ||||||
Total assets | $ | 5,548,500 | $ | 4,858,900 | ||||
Liabilities and Stockholders Equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 218,300 | $ | 251,000 | ||||
Accrued expenses | 59,900 | 82,000 | ||||||
Accrued wages | 135,900 | 141,600 | ||||||
Deferred revenue | 989,700 | 1,084,900 | ||||||
Total current liabilities | 1,403,800 | 1,559,500 | ||||||
Long-term liabilities | ||||||||
Deferred revenue | 339,000 | 383,000 | ||||||
Total liabilities | 1,742,800 | 1,942,500 | ||||||
Commitments and contingencies | - | - | ||||||
Stockholders’ equity | ||||||||
Preferred stock, $ | par value, shares authorized, shares issued and outstanding as of September 30, 2021 or December 31, 2020- | - | ||||||
Common stock, $ | par value, shares authorized, shares issued and outstanding for both periods ending September 30, 2021 and December 31, 20201,900 | 1,900 | ||||||
Additional paid-in capital | 82,155,200 | 82,155,200 | ||||||
Accumulated deficit | (78,351,400 | ) | (79,240,700 | ) | ||||
Total stockholders’ equity | 3,805,700 | 2,916,400 | ||||||
Total liabilities and stockholders’ equity | $ | 5,548,500 | $ | 4,858,900 |
See accompanying notes to unaudited condensed consolidated financial statements
3 |
hopTo Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenues: | ||||||||||||||||
Software licenses | $ | 167,600 | $ | 233,400 | $ | 541,800 | $ | 685,200 | ||||||||
Software service fees | 730,100 | 639,600 | 2,072,100 | 1,825,500 | ||||||||||||
Other | 21,700 | 21,600 | 64,800 | 294,600 | ||||||||||||
Total revenue | 919,400 | 894,600 | 2,678,700 | 2,805,300 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Software service costs | 13,500 | 13,200 | 40,500 | 39,500 | ||||||||||||
Software product costs | 22,600 | 29,300 | 85,300 | 78,500 | ||||||||||||
Total cost of revenue | 36,100 | 42,500 | 125,800 | 118,000 | ||||||||||||
Gross profit | 883,300 | 852,100 | 2,552,900 | 2,687,300 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and marketing | 152,000 | 140,300 | 448,100 | 396,200 | ||||||||||||
General and administrative | 162,400 | 196,100 | 576,800 | 664,600 | ||||||||||||
Research and development | 354,300 | 355,700 | 1,081,900 | 1,076,600 | ||||||||||||
Total operating expenses | 668,700 | 692,100 | 2,106,800 | 2,137,400 | ||||||||||||
Income from operations | 214,600 | 160,000 | 446,100 | 549,900 | ||||||||||||
Other income: | ||||||||||||||||
Unrealized gain in marketable securities | 146,800 | - | 173,400 | - | ||||||||||||
Other income | - | - | 269,800 | 46,900 | ||||||||||||
Income before provision for income taxes | 361,400 | 160,000 | 889,300 | 596,800 | ||||||||||||
Provision for income taxes | - | 2,500 | - | 7,500 | ||||||||||||
Net income | $ | 361,400 | $ | 157,500 | $ | 889,300 | $ | 589,300 | ||||||||
Net income per share, basic | $ | 0.02 | $ | 0.01 | $ | 0.05 | $ | 0.05 | ||||||||
Net income per share, diluted | $ | 0.02 | $ | 0.01 | $ | 0.05 | $ | 0.05 | ||||||||
Weighted average number of common shares outstanding | ||||||||||||||||
Basic | 18,850,675 | 15,242,128 | 18,850,675 | 12,216,478 | ||||||||||||
Diluted | 19,092,182 | 15,713,640 | 19,092,981 | 12,687,990 |
See accompanying notes to unaudited consolidated financial statements
4 |
hopTo Inc.
Condensed Consolidated Statements of OperationsStockholders’ Equity
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenue | $ | 1,025,900 | $ | 898,500 | $ | 2,933,200 | $ | 2,864,400 | ||||||||
Costs of revenue | 15,900 | 8,300 | 53,000 | 129,500 | ||||||||||||
Gross profit | 1,010,000 | 890,200 | 2,880,200 | 2,734,900 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and marketing | 87,400 | 93,900 | 259,400 | 664,600 | ||||||||||||
General and administrative | 206,700 | 821,600 | 1,268,900 | 2,114,600 | ||||||||||||
Research and development | 383,800 | 491,500 | 1,123,900 | 1,860,900 | ||||||||||||
Total operating expenses | 677,900 | 1,407,000 | 2,652,200 | 4,640,100 | ||||||||||||
Gain / (loss) from operations | 332,100 | (516,800 | ) | 228,000 | (1,905,200 | ) | ||||||||||
Other income (expense): | ||||||||||||||||
Change in fair value of warrants liability | — | 54,400 | — | 29,300 | ||||||||||||
Other income (expense), net | (63,700 | ) | 1,100 | (123,800 | ) | (3,700 | ) | |||||||||
Loss from operations before provision for income tax | 268,400 | (461,300 | ) | 104,200 | (1,872,200 | ) | ||||||||||
Provision for income tax | 14,800 | 700 | 16,800 | 2,300 | ||||||||||||
Net profit / (loss) | $ | 253,600 | $ | (462,000 | ) | $ | 87,400 | $ | (1,874,500 | ) | ||||||
Basic and diluted earnings / (loss) per share | $ | 0.03 | $ | (0.05 | ) | $ | 0.01 | $ | (0.19 | ) | ||||||
Average weighted common shares outstanding – basic and diluted | 9,804,400 | 9,784,163 | 9,804,400 | 9,763,111 |
For the Nine Months Ended September 30, 2021 and 2020
(Unaudited)
Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance at December 31, 2019 | 9,834,866 | $ | 1,000 | $ | 79,523,500 | $ | (79,934,400 | ) | $ | (409,900 | ) | |||||||||
Shares issued for settlement of accrued expenses | 120,000 | - | 39,600 | - | 39,600 | |||||||||||||||
Proceeds from rights offering | ||||||||||||||||||||
Proceeds from rights offering, shares | ||||||||||||||||||||
Issuance cost for rights offering | ||||||||||||||||||||
Contributed services | - | - | 56,200 | - | 56,200 | |||||||||||||||
Rounding | ||||||||||||||||||||
Net income | - | - | - | 109,100 | 109,100 | |||||||||||||||
Balance at March 31, 2020 (unaudited) | 9,954,866 | $ | 1,000 | $ | 79,619,300 | $ | (79,825,300 | ) | $ | (205,000 | ) | |||||||||
Proceeds from rights offering | 1,600,638 | 100 | 480,000 | - | 480,100 | |||||||||||||||
Issuance cost for rights offering | - | - | (119,400 | ) | - | (119,400 | ) | |||||||||||||
Contributed services | - | - | 56,200 | - | 56,200 | |||||||||||||||
Net income | - | - | - | 322,700 | 322,700 | |||||||||||||||
Balance at June 30, 2020 (unaudited) | 11,555,504 | $ | 1,100 | $ | 80,036,100 | $ | (79,502,600 | ) | $ | 534,600 | ||||||||||
Proceeds from rights offering | 7,066,030 | 800 | 2,119,100 | - | 2,119,900 | |||||||||||||||
Net income | - | - | - | 157,500 | 157,500 | |||||||||||||||
Balance at September 30, 2020 | 18,621,534 | $ | 1,900 | $ | 82,155,200 | $ | (79,345,100 | ) | $ | 2,812,000 | ||||||||||
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 | ||||||||||
Net income | - | - | - | 361,400 | 361,400 | |||||||||||||||
Balance at September 30, 2021 (unaudited) | 18,850,675 | $ | 1,900 | $ | 82,155,200 | $ | (78,351,400 | ) | $ | 3,805,700 |
See accompanying notes to unaudited condensed consolidated financial statements
5 |
hopTo Inc.
Condensed Consolidated Statements of Stockholders’ DeficitCash Flows
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(Unaudited) | (Unaudited) | |||||||
Preferred stock – shares outstanding | ||||||||
Beginning balance | — | — | ||||||
Ending balance | — | — | ||||||
— | — | |||||||
Common stock – shares outstanding | ||||||||
Beginning balance | 9,804,400 | 9,731,233 | ||||||
Employee stock option issuances | — | 1,800 | ||||||
Vesting of restricted stock awards | — | 71,429 | ||||||
Ending balance | 9,804,400 | 9,804,462 | ||||||
Common stock – amount | ||||||||
Beginning balance | $ | 14,700 | $ | 14,600 | ||||
Vesting of restricted stock awards | — | 100 | ||||||
Ending balance | 14,700 | $ | 14,700 | |||||
Additional paid-in capital | ||||||||
Beginning balance | $ | 78,512,200 | $ | 78,189,300 | ||||
Stock-based compensation expense | 14,500 | 303,400 | ||||||
Company payment of employee taxes for stock-based compensation | — | (2,700 | ) | |||||
Proceeds from exercise of employee stock options | — | 1,500 | ||||||
Other rounding | — | (200 | ) | |||||
Ending balance | $ | 78,526,700 | $ | 78,491,300 | ||||
Accumulated deficit | ||||||||
Beginning balance | $ | (82,449,800 | ) | $ | (80,596,900 | ) | ||
Net profit / (loss) | 87,400 | (1,874,500 | ) | |||||
Ending balance | $ | (82,362,400 | ) | $ | (82,471,400 | ) | ||
Total Stockholders’ Deficit | $ | (3,821,000 | ) | $ | (3,965,400 | ) |
For the Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2021 | 2020 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 889,300 | $ | 589,300 | ||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation | 800 | - | ||||||
Contributed services | - | 112,400 | ||||||
Changes in allowance for doubtful accounts | 5,400 | 1,600 | ||||||
Gain on sale of patents | (269,800 | ) | - | |||||
Unrealized gain from marketable securities | (173,400 | ) | - | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (45,000 | ) | (126,400 | ) | ||||
Prepaid expenses and other current assets | 1,200 | 11,400 | ||||||
Accounts payable and accrued expenses | (60,500 | ) | (7,800 | ) | ||||
Deferred revenue | (139,200 | ) | (354,500 | ) | ||||
Net cash provided by operating activities | 208,800 | 226,000 | ||||||
Cash flows from investing activities | ||||||||
Purchase of marketable securities | (290,500 | ) | - | |||||
Proceeds from sale of patents | 269,800 | - | ||||||
Purchase of property and equipment | (3,400 | ) | - | |||||
Net cash used by investing activities | (24,100 | ) | - | |||||
Cash flows from financing activities | ||||||||
Proceeds from rights offering | - | 2,599,800 | ||||||
Issuance cost for rights offering | - | (119,400 | ) | |||||
Net cash provided by financing activities | - | 2,480,400 | ||||||
Net change in cash | 184,700 | 2,706,400 | ||||||
Cash, beginning of the period | 4,375,300 | 1,541,900 | ||||||
Cash, end of the period | $ | 4,560,000 | $ | 4,248,300 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Income taxes paid | $ | - | $ | 7,500 | ||||
Supplemental disclosure of non-cash investing and financing information: | ||||||||
Non-cash financing activities: shares issued for settlement of accrued expenses | $ | - | $ | 39,600 |
See accompanying notes to unaudited condensed consolidated financial statements
6 |
hopTo Inc.
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash Flows Provided By (Used In) Operating Activities: | ||||||||
Net profit / (loss) | $ | 87,400 | $ | (1,874,500 | ) | |||
Adjustments to reconcile net profit / loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 42,200 | 76,200 | ||||||
Write-down of capitalized purchased technology | — | 15,500 | ||||||
Stock-based compensation expense | 14,500 | 303,400 | ||||||
Company payment of employee taxes for stock-based compensation | — | (2,700 | ) | |||||
Change in fair value of derivative instruments – warrants | — | (29,300 | ) | |||||
Accretion of warrants liability for consulting services | — | (2,300 | ) | |||||
Changes in severance liability | — | (5,900 | ) | |||||
Changes in deferred rent | — | 23,200 | ||||||
Changes to allowance for doubtful accounts | (3,300 | ) | (12,000 | ) | ||||
Revenue deferred to future periods | 1,828,500 | 1,955,700 | ||||||
Recognition of deferred revenue | (2,179,000 | ) | (2,478,800 | ) | ||||
Loss / (gain) on disposal of fixed assets | 60,400 | (3,200 | ) | |||||
Loss on sublease | 63,100 | — | ||||||
Interest accrued for capital lease | 200 | 800 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 5,300 | 296,400 | ||||||
Prepaid expenses | 11,900 | (40,900 | ) | |||||
Accounts payable and accrued expenses | (216,100 | ) | (127,300 | ) | ||||
Deposit liability | 12,100 | — | ||||||
Other liabilities | 284,000 | 392,900 | ||||||
Net Cash Provided By (Used In) Operating Activities | 11,200 | (1,431,000 | ) | |||||
Cash Flows Provided By (Used In) Investing Activities: | ||||||||
Proceeds from sale of equipment | 900 | 23,300 | ||||||
Cash Flows Provided By (Used In) Financing Activities: | ||||||||
Proceeds from exercise of employee stock options | — | 1,500 | ||||||
Payment for capital lease | (7,000 | ) | (7,000 | ) | ||||
Net Cash Provided By (Used In) Financing Activities | (7,000 | ) | (5,500 | ) | ||||
Net Increase (Decrease) in Cash | 5,100 | (1,413,200 | ) | |||||
Cash - Beginning of Period | 546,200 | 1,777,300 | ||||||
Cash - End of Period | $ | 551,300 | $ | 364,100 |
See accompanying notes to unaudited condensed consolidated financial statements
hopTo Inc.
Notes to Unaudited Condensed 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 condensed consolidated financial statements include the accounts of hopTo Inc. and its subsidiaries (collectively, “we”, “us”,”our” or the “Company”);wholly-owned subsidiaries. All 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, 2016,2020 which was filed with the SEC on April 7, 2017March 31, 2021 (“20162020 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, 20172021 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. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires usmanagement 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.reported periods. Amounts could materially change in the future. These significant estimates include:include the amountvaluation of stock-based compensation expense;expense, the allowance for doubtful accounts; the estimated lives, valuation, and amortization of intangible assets (including capitalized software);accounts, depreciation of long-lived assets; valuation of warrants; post-employment benefits,assets, and accruals forof liabilities. While we believe that such estimates are fair, actual results could differ materially from those estimates.
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Revenue Recognition
We marketThe Company markets and license ourlicenses its products indirectly through channel distributors, value-added resellers, independent software vendors (“ISVs”), value-added resellers (“VARs”) (collectively, “resellers”) and directly tohosting 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.
Software license revenues are recognized when:
Revenue recognized on software arrangements involving multiple deliverables is allocated to each deliverable based on vendor-specific objective evidence (“VSOE”) or third party 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 either the price charged when the same deliverable is sold separately or the price established by management having the relevant authority to do so, for a deliverable not yet sold separately.
If sufficient VSOE of the fair value does not exist so as to permit the allocation 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.
Certain resellers (“stocking resellers”) 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 Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” Revenues under ASC 606 are recognized when the draw down order’s instructions. We defer recognitionpromised 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 revenue from inventory stocking orders until the underlyingour licenses are sold and shippeddelivered to the end user, as evidenced bycustomer electronically. The Company sends the receiptlicense key to the customer to download the related software from Company portal. We recognize revenue upon delivery of these licenses.
Services Revenue
The Company has maintenance contracts that entitle customers to support and fulfillment ofcertain updates to the stocking reseller’s draw down order, assuming all other revenue recognition criteria have been met.
There are no rights of return granted to resellers or other purchasers of our software products.
product. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.
All of ourSubscription 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 denominated in U.S. dollars.
Deferred Rent
The leases for both ofdelivered electronically by either the Company’s subleased former offices in Campbell, California contain free rent and predetermined fixed escalations in our minimum rent payments. Rent expensecloud licensing server or by sending a term license key to the customer to download the related to these leasessoftware from the Company portal. Revenue from subscription licenses is recognized on a straight-line basisratably over the termsrelated 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 leases. Any difference between the straight-line rent amounts and amounts payable under the leases is recordedtime of purchase to be cash equivalents. The Company had cash equivalents of $463,900 primarily in marketable securities 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.2021 (unaudited) and had 0such cash equivalents at December 31, 2020.
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-month periods ended September 30, 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. As of September 30, 2021 and December 31, 2020, the allowance for doubtful accounts totaled $11,300 and $5,900, respectively.
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The following table sets forth
Concentration of Credit Risk
For the detailsthree months ended September 30, 2021, the Company had three resellers comprising 24.5%,14.6%, and 13.5% of total sales. For the Allowance for Doubtful Accounts for the three-monthsame periods ended September 30, 20172020, the Company had three resellers comprising 15.9%, 13.6%, and 2016:10.0% of total sales, and one direct customer representing 15.4% of total sales,
Beginning Balance | Charge Offs | Recoveries | Provision | Ending Balance | ||||||||||||||||
2017 | $ | 15,300 | $ | — | $ | — | $ | (10,900 | ) | $ | 4,400 | |||||||||
2016 | 14,900 | — | — | (9,600 | ) | 5,300 |
The following table sets forthFor the detailsnine months ended September 30, 2021, the Company had three resellers comprising 13.5%, 12.1%, and 10.2% of total sales. For the Allowance for Doubtful Accounts for the nine-monthsame periods ended September 30, 20172020, the Company had two resellers comprising 11.9% and 201610.3% of total sales
Beginning Balance | Charge Offs | Recoveries | Provision | Ending Balance | ||||||||||||||||
2017 | $ | 7,700 | $ | — | $ | — | $ | (3,300 | ) | $ | 4,400 | |||||||||
2016 | 17,300 | — | — | (12,000 | ) | 5,300 |
ConcentrationAs of Credit RiskSeptember 30, 2021 and December 31, 2020, the Company has four resellers comprising27.4%,18.2%, 12.8%, and 11.7%, and two resellers comprising 25.7% and 18.9%, respectively, of net accounts receivable.
For the threepurposes of this description, “sales” refers to the dollar value of orders received from these customers and nine-month periods ended September 30, 2017 and 2016 respectively, we considered the customers listedpartners in the following tablesperiod indicated. The sales values do not necessarily equal recognized revenue for these periods due to be our most significant customers.revenue recognition policies which require deferral of revenue associated with prepaid software service fees. The tables set forthloss of one of these resellers would not have a material impact as the percentage of sales attributableCompany could take over the end customer relationship.
In accordance with ASC 260, “Earnings Per Share,” the basic income per common share is computed by dividing the net income available to each customercommon stockholders by the weighted average common shares outstanding during the periods presented, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net,period. Diluted income 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 September 30, 20172021, representing of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three and 2016.nine months ended September 30, 2021 and 2020, the Company had total common stock equivalents of and , respectively, which were excluded from the computation of net income per share because they are anti-dilutive.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses. The carrying amount of these financial instruments approximates fair value due to the nature of the accounts and marketable securities.
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Three Months Ended September 30, 2017 | As of September 30, 2017 | Three Months Ended September 30, 2016 | As of September 30, 2016 | |||||||||||||
Customer | Sales | Accounts Receivable | Sales | Accounts Receivable | ||||||||||||
Centric | 9.5 | % | 14.3 | % | 2.0 | % | 3.8 | % | ||||||||
Elosoft | 13.6 | % | 26.5 | % | 10.8 | % | 10.4 | % | ||||||||
Uniface | 15.1 | % | 27.0 | % | 6.0 | % | 16.5 | % | ||||||||
Total | 38.2 | % | 67.8 | % | 18.8 | % | 30.7 | % |
Recently Adopted Accounting Pronouncements
The FASB issues ASUs to amend the authoritative literature in ASC. There have been several ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact our financial statements.
3. Property and Equipment
Property and equipment consisted of the following.
Schedule of Property and Equipment
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
(Unaudited) | ||||||||
Equipment | $ | 157,700 | $ | 154,300 | ||||
Furniture and fixtures | 1,600 | 1,600 | ||||||
159,300 | 155,900 | |||||||
Less: accumulated depreciation | (156,700 | ) | (155,900 | ) | ||||
$ | 2,600 | $ | - |
Depreciation expense amounted to $800 and $0, respectively for the nine months ended September 30, 2021 and 2020.
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4. Stockholders’ Equity
Stock-Based Compensation Plans
Schedule of Share-based Compensation, Stock Options, Activity
Weighted- | ||||||||||||
Average | ||||||||||||
Weighted- | Remaining | |||||||||||
Average | Contractual | |||||||||||
Exercise | Life | |||||||||||
Options | Price | (Years) | ||||||||||
Outstanding at December 31, 2020 | 93,076 | $ | 3.03 | 0.74 | ||||||||
Granted | - | |||||||||||
Forfeited/cancelled | (27,859 | ) | ||||||||||
Outstanding at September 30, 2021 | 65,217 | $ | 3.29 | 0.16 | ||||||||
Vested and expected to vest at September 30, 2021 | 65,217 | $ | 3.29 | 0.16 | ||||||||
Exercisable at September 30, 2021 | 65,217 | $ | 3.29 | 0.16 |
Schedule of Share-based Compensation, Shares Authorized Under Stock Option Plans, by Exercise Price Range
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 | |||||||||||||||||
$ | - | 63,684 | $ | 2.71 | 63,684 | $ | 2.71 | |||||||||||||||
- | 1,533 | 6.68 | 1,533 | 6.68 | ||||||||||||||||||
65,217 | 65,217 |
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Nine Months Ended September 30, 2017 | As of September 30, 2017 | Nine Months Ended September 30, 2016 | As of September 30, 2016 | |||||||||||||
Customer | Sales | Accounts Receivable | Sales | Accounts Receivable | ||||||||||||
Centric | 6.9 | % | 14.3 | % | 5.4 | % | 3.8 | % | ||||||||
Elosoft | 13.8 | % | 26.5 | % | 8.9 | % | 10.4 | % | ||||||||
Uniface | 8.2 | % | 27.0 | % | 6.1 | % | 16.5 | % | ||||||||
Total | 28.9 | % | 67.8 | % | 20.4 | % | 30.7 | % |
Shares of Common Stock Issued
Fair Value
During the three and nine-month periods ending September 30, 2021, the Company did Financial Instruments issue any shares of
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:
Recent Accounting Pronouncements
In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). Subsequently FASB has released several updates to 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 2018 with early adoption permitted in the first quarter of fiscal year 2017.common stock. During the three-month period ended June 30, 2017,ending September 30,2020, the Company completedissued a detailed reviewtotal of shares of common stock. During the nine -month period ending September 30, 2020, the Company did issued a total of shares of common stock and shares of common stock were to two former members of our board of directors. The issuance of the Topic 606 standard relative to our revenue recognition policiesshares of common stock settles a total of $39,600 of accrued expenses that was included in the Company’s balance sheet.
Warrants
As of September 30, 2021 and practice. That review is still in process andDecember 31, 2020, the Company expects that it will be completedhad 248,216 warrants outstanding. The warrants outstanding at September 30, 2021 are all exercisable at $0.01 and have an expiration date of May 20, 2023.
5. Sales by NovemberGeographical Location
Revenue by country for the three and nine months ended September 30, 2017. However,2021 and 2020 was as follows.
Schedule of Revenue by Country
Three Months Ended | Nine Months Ended | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue by Country | ||||||||||||||||
United States | $ | 379,300 | $ | 261,000 | $ | 1,091,500 | $ | 875,500 | ||||||||
Brazil | 174,600 | 358,100 | 600,200 | 951,600 | ||||||||||||
Japan | 115,800 | 104,900 | 298,700 | 270,800 | ||||||||||||
Other Countries | 249,700 | 170,600 | 688,300 | 707,400 | ||||||||||||
Total | $ | 919,400 | $ | 894,600 | 2,678,700 | 2,805,300 |
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 continuesmakes discretionary matching contributions During the three months ended September 30, 2021 and 2020, the Company contributed a total of $600 and $2,200, respectively. During the nine months ended September 30, 2021 and 2020, the Company contributed a total of $18,000 and $17,800, respectively.
Contingencies
During the ordinary course of business, the Company is subject to believe that adoptionvarious potential claims and litigation. Management is not aware of this standard will notany outstanding litigation which would have a material effectsignificant impact on either our historicalthe Company’s financial results or future financial results.statements.
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4. Property and Equipment
Property and equipment was:
September 30, 2017 | December 31, 2016 | |||||||
Equipment | $ | 184,600 | $ | 258,700 | ||||
Furniture | 3,600 | 190,600 | ||||||
Leasehold improvements | 167,600 | 167,600 | ||||||
355,800 | 616,900 | |||||||
Less: accumulated depreciation and amortization | 316,000 | 473,600 | ||||||
$ | 39,800 | $ | 143,300 |
Aggregate property and equipment depreciation and amortization expense was $8,900 and $42,200 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, 2017 and 2016, we disposed of equipment and furniture with a combined net book value of $61,300 and $20,100, respectively.
5. 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-month periods ended September 30, 2017 and 2016, respectively, by classification:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
Statement of Operations Classification | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Costs of revenue | $ | — | $ | 2,200 | $ | 100 | $ | 5,400 | ||||||||
Selling and marketing expense | — | 4,600 | 200 | 69,000 | ||||||||||||
General and administrative expense | (4,100 | ) | 40,500 | 14,100 | 135,500 | |||||||||||
Research and development expense | — | 26,400 | 100 | 93,500 | ||||||||||||
$ | (4,100 | ) | $ | 73,700 | $ | 14,500 | $ | 303,400 |
6. Revenue
Revenue for the three-month periods ended September 30, 2017 and 2016 was:
2017 Over (Under) 2016 | ||||||||||||||||
Revenue | 2017 | 2016 | Dollars | Percent | ||||||||||||
Software Licenses | ||||||||||||||||
Windows | $ | 360,300 | $ | 222,500 | $ | 137,800 | 61.9 | % | ||||||||
UNIX/Linux | 71,200 | 64,000 | 7,200 | 11.3 | % | |||||||||||
431,500 | 286,500 | 145,000 | 50.6 | % | ||||||||||||
Software Service Fees | ||||||||||||||||
Windows | 445,200 | 444,700 | 500 | 0.1 | % | |||||||||||
UNIX/Linux | 131,600 | 149,400 | (17,800 | ) | -11.9 | % | ||||||||||
576,800 | 594,100 | (17,300 | ) | -2.9 | % | |||||||||||
Other | 17,600 | 17,900 | (300 | ) | -1.7 | % | ||||||||||
Total Revenue | $ | 1,025,900 | $ | 898,500 | $ | 127,400 | 14.2 | % |
Revenue for the nine-month periods ended September 30, 2017 and 2016 was:
2017 Over (Under) 2016 | ||||||||||||||||
Revenue | 2017 | 2016 | Dollars | Percent | ||||||||||||
Software Licenses | ||||||||||||||||
Windows | $ | 939,800 | $ | 774,200 | $ | 165,600 | 21.4 | % | ||||||||
UNIX/Linux | 223,300 | 209,200 | 14,100 | 6.7 | % | |||||||||||
1,163,100 | 983,400 | 179,700 | 18.3 | % | ||||||||||||
Software Service Fees | ||||||||||||||||
Windows | 1,324,300 | 1,367,200 | (42,900 | ) | -3.1 | % | ||||||||||
UNIX/Linux | 403,400 | 473,700 | (70,300 | ) | -14.8 | % | ||||||||||
1,727,700 | 1,840,900 | (113,200 | ) | -6.1 | % | |||||||||||
Other | 42,400 | 40,100 | 2,300 | 5.7 | % | |||||||||||
Total Revenue | $ | 2,933,200 | $ | 2,864,400 | $ | 68,800 | 2.4 | % |
7. Cost of Revenue
Cost of revenue for the three-month periods ended September 30, 2017 and 2016 was:
2017 Over (Under) 2016 | ||||||||||||||||
2017 | 2016 | Dollars | Percent | |||||||||||||
Software service costs | $ | 13,000 | $ | 2,100 | $ | 10,900 | 519.0 | % | ||||||||
Software product costs | 2,900 | 6,200 | (3,300 | ) | -53.2 | % | ||||||||||
Total Cost of Revenue | $ | 15,900 | $ | 8,300 | $ | 7,600 | 91.6 | % |
Cost of revenue for the nine-month periods ended September 30, 2017 and 2016 was:
2017 Over (Under) 2016 | ||||||||||||||||
2017 | 2016 | Dollars | Percent | |||||||||||||
Software service costs | $ | 44,000 | $ | 78,100 | $ | (34,100 | ) | -43.7 | % | |||||||
Software product costs | 9,000 | 51,400 | (42,400 | ) | -82.5 | % | ||||||||||
Total Cost of Revenue | $ | 53,000 | $ | 129,500 | $ | (76,500 | ) | -59.1 | % |
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:
Lease Payments | Sublease Receipts | Total | ||||||||||
Remainder of 2017 | $ | 150,200 | $ | (179,900 | ) | $ | (29,700 | ) | ||||
2018 | 475,400 | (420,800 | ) | 54,600 | ||||||||
$ | 625,600 | $ | (600,700 | ) | $ | 24,900 |
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. Supplemental Disclosure of Cash Flow Information
We disbursed $200 and $800 for the payment of interest expense during the nine-month periods ended September 30, 2017 and 2016, respectively.
We disbursed $2,800 and $2,300 for the payment of foreign income taxes associated with the operation of our Israeli subsidiary during the nine-month periods ended September 30, 2017 and 2016, respectively.
10. 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-month periods ended September 30, 2017 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. Segment Information
Revenue by country for the three-month and nine-month periods ended September 30, 2017 and 2016 was as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
Revenue by Country | 2017 | 2016 | 2017 | 2016 | ||||||||||||
United States | $ | 292,100 | $ | 370,800 | $ | 922,300 | $ | 1,158,100 | ||||||||
Brazil | 220,200 | 122,900 | 582,600 | 418,100 | ||||||||||||
Other Countries | 513,600 | 404,800 | 1,428,200 | 1,288,200 | ||||||||||||
Total | $ | 1,025,900 | $ | 898,500 | $ | 2,933,100 | $ | 2,864,400 |
12. 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 during the three month period ended September 30, 2016, when the Company’s 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. Accordingly, the board of directors determined that it was reasonable for the Company to pay 50% of this deferred salary and such payments were made to the CFO and CEO on October 30, 2017.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
UpdateForward-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 HopTo Plans
Asmanagement’s current expectations and are subject to a number of Q4 2016, we have effectively ceased all of our sales, marketinguncertainties and development efforts for the hopTo products, and at this time we do not expect any meaningful revenuesrisks that could cause actual results to differ significantly from these productsthose described in the foreseeable future.forward-looking statements. Factors that may cause such a difference include the following:
We continue to actively operate our GO-Global business and 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 continue to believe that we may be able to extract value from these assets and are currently working to do so at this time. For detailed information on the hopTo products and technologies, please refer to our Annual Report on Form 10-K for the year ended December 31, 2016,
● | 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, our software licenses revenue could be materially impacted; and | |
● | other factors, including, but not limited to, those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021, and in other documents we have filed with the SEC. |
Statements included in this report are based upon information known to us as of the date that this report is filed with the SEC, on April 7, 2017and we assume no obligation to update or alter our forward-looking statements made in this report, whether as wella result of new information, future events or otherwise, except as our other SEC filings which are available at www.sec.gov.otherwise required by applicable federal securities laws.
Although thereIntroduction
hopTo, Inc., through its wholly owned subsidiary GraphOn Corporation (collectively, “we”, “us,” “our” or the “Company”), is no certainty as to timing or success of these efforts to extract value from these assets, and stockholders should not place any significant reliance on the outcome of such efforts unless and until definitive agreements are reached, this may include additional sale of certain of our hopTo software products, the sale 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.
Introduction
We are developersa 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 at this time.source. GO-Global is an application access solution for use and/or resale by independent software vendors (“ISVs”), 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.
Since 2012 we have also been developing 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 are located at 6 Loudon Road, Suite 200, Concord, New Hampshire, 03301 and our phone number is 1-800-472-7466. Our phone number for local and international calls is 408-688-2674. Additionally, we have remote employees located in various states, as well as internationally in the United Kingdom and Israel. 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:www.hopto.com,, our our home page, 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) 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.
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 file patent applications to protect innovations arising from our research, development and design.
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., 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, 173 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.
Our GO-Global Software Products
Our GO-Global product offerings, which currently are 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 when we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 20162020 Form 10-K Report Management’s Discussion ad Analysis of Operations and Note 32 to our Notes to Unaudited Condensed Consolidatedunaudited consolidated financial Statements included under Item 1 – Financial Statements.Statements in this Form 10-Q.
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Results of Operations for the Three and Nine-MonthThree-Month Periods Ended September 30, 20172021 and 20162020
The following operatingare the results should be read in conjunction withof our critical accounting policies. See Note 3 to our Notes to Unaudited Condensed Consolidated Financial Statements.
Revenue
Revenueoperations for the three-month periodsthree months ended September 30, 2017 and 2016 was:
2017 Over (Under) 2016 | ||||||||||||||||
Revenue | 2017 | 2016 | Dollars | Percent | ||||||||||||
Software Licenses | ||||||||||||||||
Windows | $ | 360,300 | $ | 222,500 | $ | 137,800 | 61.9 | % | ||||||||
UNIX/Linux | 71,200 | 64,000 | 7,200 | 11.3 | % | |||||||||||
431,500 | 286,500 | 145,000 | 50.6 | % | ||||||||||||
Software Service Fees | ||||||||||||||||
Windows | 445,200 | 444,700 | 500 | 0.1 | % | |||||||||||
UNIX/Linux | 131,600 | 149,400 | (17,800 | ) | -11.9 | % | ||||||||||
576,800 | 594,100 | (17,300 | ) | -2.9 | % | |||||||||||
Other | 17,600 | 17,900 | (300 | ) | -1.7 | % | ||||||||||
Total Revenue | $ | 1,025,900 | $ | 898,500 | $ | 127,400 | 14.2 | % |
Revenue for2021 as compared to the nine-month periodsthree months ended September 30, 2017 and 2016 was:2020.
2017 Over (Under) 2016 | ||||||||||||||||
Revenue | 2017 | 2016 | Dollars | Percent | ||||||||||||
Software Licenses | ||||||||||||||||
Windows | $ | 939,800 | $ | 774,200 | $ | 165,600 | 21.4 | % | ||||||||
UNIX/Linux | 223,300 | 209,200 | 14,100 | 6.7 | % | |||||||||||
1,163,100 | 983,400 | 179,700 | 18.3 | % | ||||||||||||
Software Service Fees | ||||||||||||||||
Windows | 1,324,300 | 1,367,200 | (42,900 | ) | -3.1 | % | ||||||||||
UNIX/Linux | 403,400 | 473,700 | (70,300 | ) | -14.8 | % | ||||||||||
1,727,700 | 1,840,900 | (113,200 | ) | -6.1 | % | |||||||||||
Other | 42,400 | 40,100 | 2,300 | 5.7 | % | |||||||||||
Total Revenue | $ | 2,933,200 | $ | 2,864,400 | $ | 68,800 | 2.4 | % |
For the Three Months Ended | ||||||||||||
September 30, | September 30, | |||||||||||
2021 | 2020 | $ Change | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
Revenues | $ | 919,400 | $ | 894,600 | $ | 24,800 | ||||||
Cost of revenues | 36,100 | 42,500 | (6,400 | ) | ||||||||
Gross profit | 883,300 | 852,100 | 31,200 | |||||||||
Operating expenses: | ||||||||||||
Selling and marketing | 152,000 | 140,300 | 11,700 | |||||||||
General and administrative | 162,400 | 196,100 | (33,700 | ) | ||||||||
Research and development | 354,300 | 355,700 | (1,400 | ) | ||||||||
Total operating expenses | 668,700 | 692,100 | (23,400 | ) | ||||||||
Income from operations | 214,600 | 160,000 | 54,600 | |||||||||
Other income: | ||||||||||||
Unrealized gain on marketable securities | 146,800 | - | 146,800 | |||||||||
Other income | - | - | - | |||||||||
146,800 | - | 146,800 | ||||||||||
Income before provision for income taxes | 361,400 | 160,000 | 201,400 | |||||||||
Provision for income taxes | - | 2,500 | (2,500 | ) | ||||||||
Net income | $ | 361,400 | $ | 157,500 | $ | 203,900 |
Revenues
Our software revenue is entirely related to our GO-Global product line, and historically has been primarily derived from product licensing fees and service fees from maintenance contracts. The majority of this revenue has been earned, and continues to be earned, from a limited number of significantdirect customers mostand through a limited number 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 defer 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 any of our significant stocking resellers materially change the rate at which they resell our software licenses to the ultimate end user, our software licenses revenue could be materially impacted.
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,delivery of the license key, 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 inventoriesThe following is a summary of our Windows products; few stocking resellers maintain inventories of our UNIX products.
Software Licenses
Software license revenue from our Windows products increasedrevenues by category for the three and nine-month periodsmonths ended September 30, 2017, as compared with the same periods of the prior year primarily due2021 and 2020.
For the Three Months Ended | ||||||||||||
September 30, | September 30, | |||||||||||
2021 | 2020 | $ Change | ||||||||||
Revenue | ||||||||||||
Software Licenses | ||||||||||||
Windows | $ | 151,700 | $ | 188,800 | $ | (37,100 | ) | |||||
UNIX/Linux | 15,900 | 44,600 | (28,700 | ) | ||||||||
Total | 167,600 | 233,400 | (65,800 | ) | ||||||||
Software Service Fees | ||||||||||||
Windows | 684,500 | 586,000 | 98,500 | |||||||||
UNIX/Linux | 45,600 | 53,600 | (8,000 | ) | ||||||||
Total | 730,100 | 639,600 | 90,500 | |||||||||
Other | 21,700 | 21,600 | 100 | |||||||||
$ | 919,400 | $ | 894,600 | $ | 24,800 |
Software Licenses
Windows software licenses revenue decreased by $37,100 or 19.7% to higher license purchases from certain of our OEM partners and stocking resellers.
Software license revenue from our UNIX/Linux products increased$151,700 during the three-month periodthree months ended September 30, 2017, as compared with2021, from $188,800 for the same period of the prior year, primarilyin 2020. The decrease was due to higherlower revenue from certain of our telecommunications customers. standard order licenses in the period.
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Software licenses revenue from our UNIX/Linux products increased duringdecreased by $28,700 or 64.3% to $15,900 for the nine-month periodthree months ended September 30, 2017, as compared with2021 from $44,600 for the same periods of 2020. The decrease was primarily due to lower revenue standard order licenses.
Software Service Fees
Service fees attributable to our Windows product service increased by $98,500 or 16.8% to $684,500 during three months ended September 30, 2021, from $586,000 for the same period of the prior year,in 2020. The increase was primarily due to higher revenues from subscription license orders and an increase in revenue recognized from certain U.S. government customers.deferred maintenance.
We expect aggregate GO-Global software license revenue for both Windows and UNIX in 2017 to be approximately the same as the license revenue levels for 2016.
Software Service Fees
The decrease in software service fees revenue attributable to our Windows products, during the nine-month period ended September 30, 2017, as compared to the same period of the prior year, was primarily due to the timing of customer renewals of maintenance contacts.
The decrease in service fees revenue attributable to our UNIX products fordecreased by $8,000 or 14.9% to $45,600 during the three and nine-month periodsmonths ended September 30, 2017, as compared with2021, from $53,600 for the same period of the prior year,in 2020. The decrease was primarily the result of the lower levelexpiration of our UNIX product sales during prior yearsa long-term maintenance contract.
Other
Other revenue consists of private labeling fees, professional services, 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 we expect that software service fees for 2017 will be modestly lower than those for 2016.
Other
The increase in other non-recurring revenues. Other revenue increased by $100 or 0.5% for the three and nine-month periodsmonths ended September 30, 2017, as2021, compared withto the same period in 2020.
Cost of the prior year was primarily due to increase in professional services and private labeling fees.Revenues
Costs of Revenue
CostsCost of revenue areis comprised primarily of software service costs, which represent the costs of customer service, andservice. 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 forto third party software included in our product offerings.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.
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 costCost of revenue (software product costs) overfor the shorter of three years or the remaining estimated life of the product. During the three-month and nine-month periodsmonths ended September 30, 2017 we did not capitalize2021 decreased by $6,400, or impair any software development costs. During15.1%, to $36,100 for the three-month and nine-month periodsthree months ended September 30, 2016, we capitalized $0 software development costs and impaired $15,000 associated with2021 from $42,500 for the hopTo Work product during the three-monthsame 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.
in 2020. Cost of revenue was 1.5%3.9% and 0.9%4.8% of total revenue for the three months ended September 30, 20172021 and 2016, respectively, and 1.8% and 4.5% of total2020, respectively. The decrease was due to import tax withholdings associated with lower revenue for the nine months ended September 30, 2017 and 2016, respectively.
Cost of revenue for the three-month periods ended September 30, 2017 and 2016 was:
2017 Over (Under) 2016 | ||||||||||||||||
2017 | 2016 | Dollars | Percent | |||||||||||||
Software service costs | $ | 13,000 | $ | 2,100 | $ | 10,900 | 519.0 | % | ||||||||
Software product costs | 2,900 | 6,200 | (3,300 | ) | -53.2 | % | ||||||||||
$ | 15,900 | $ | 8,300 | $ | 7,600 | 91.6 | % |
Cost of revenue for the nine-month periods ended September 30, 2017 and 2016 was:
2017 Over (Under) 2016 | ||||||||||||||||
2017 | 2016 | Dollars | Percent | |||||||||||||
Software service costs | $ | 44,000 | $ | 78,100 | $ | (34,100 | ) | -43.7 | % | |||||||
Software product costs | 9,000 | 51,400 | (42,400 | ) | -82.5 | % | ||||||||||
$ | 53,000 | $ | 129,500 | $ | (76,500 | ) | -59.1 | % |
The increase in software service costsfrom Brazil resellers 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.2021.
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 capitalized software development costs. We expect that software costs of revenue for 2017 will be lower than 2016 levels.
Selling and Marketing Expenses
Selling and marketing expenses primarily consistconsisted of employee, costs, outside services advertising, public relations and travel and entertainment expense.expenses.
Selling and marketing expenses increased by $11,700, or 8.3%, to $152,000 for the three-month periodthree months ended September 30, 2017 decreased by $6,500, or 6.9%, to $87,400,2021 from $93,900 for the same period of 2016, which represented approximately 8.5% and 10.5% 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$140,300 for the same period in 2016, which2020. Selling and marketing expenses represented approximately 8.8%16.5% and 23.2%15.7% of total revenue during those periods,for the three months ended September 30, 2021 and 2020, respectively.
The decreasesincrease in selling and marketing expenses was due to a combination of lower headcount and a decrease in headcount and promotional costs associated with hopTo Work as we have suspended allincreased spending on sales and marketing activity for that product.related initiatives.
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We expect to maintain our sales and marketing efforts in 2017 for anticipated GO-Global releases at a level consistent with the second half of 2016; accordingly, we expect 2017 sales and marketing expenses to be lower than 2016.
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 debtsdebt expense.
General and administrative expenses decreased by $614,900,$33,700, or 74.8%17.2%, to $206,700,$162,400 for the three-month periodthree months ended September 30, 2017,2021 from $821,600$196,100 for the same period of 2016, which represented approximately 20.1% and 91.4% of revenue during these periods, respectively.
in 2020. General and administrative expenses decreased by $845,700, or 40%, to $1,268,900represented approximately 17.7% and 21.9% of total revenue for the nine-month periodthree months ended September 30, 2017, from $2,114,600 for the same period of 2016, which represented approximately 43.3%2021 and 73.8% of revenue during these periods,2020, 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 salary expense associated with part-time status of our Chief Financial Officer effective April 1, 2017legal fees 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 to 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 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.patent maintenance fees.
In 2017, we intend to continue cost controls and therefore expect that our 2017 general and administrative costs will be lower than those for 2016.
Research and Development Expenses
Research and development expenses consist primarily of employee costs, payments to contract programmers, software subscriptions, travel and entertainment for all our engineers, and all rent for our leased engineering facilities.
Research and development expenses decreased by $107,700,$1,400, or 21.9%,0.4% to $383,800, for$354,300for the three-month periodthree months ended September 30, 2017,2021 from $491,500$355,700 for the same period of 2016, whichin 2020. This represented approximately 37.4%38.5% and 54.7%39.8% of total revenue for the three months ended September 30, 2021 and 2020, respectively.
Other Income
Other income increased by $146,800 for the three months ended September 30, 2021, compared to the same periods in 2020. The increase was primarily related the unrealized gain from marketable securities for the three months ended September 30,2021.
Results of Operations for the Nine-Month Periods Ended September 30, 2021 and 2020
For the Nine Months Ended | ||||||||||||
September 30, | September 30, | |||||||||||
2021 | 2020 | $ Change | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
Revenues | $ | 2,678,700 | $ | 2,805,300 | $ | (126,600 | ) | |||||
Cost of revenues | 125,800 | 118,000 | 7,800 | |||||||||
Gross profit | 2,552,900 | 2,687,300 | (134,400 | ) | ||||||||
Operating expenses: | ||||||||||||
Selling and marketing | 448,100 | 396,200 | 51,900 | |||||||||
General and administrative | 576,800 | 664,600 | (87,800 | ) | ||||||||
Research and development | 1,081,900 | 1,076,600 | 5,300 | |||||||||
Total operating expenses | 2,106,800 | 2,137,400 | (30,600 | ) | ||||||||
Income from operations | 446,100 | 549,900 | (103,800 | ) | ||||||||
Other income: | ||||||||||||
Unrealized gain on marketable securities | 173,400 | - | 173,400 | |||||||||
Other income | 269,800 | 46,900 | 222,900 | |||||||||
443,200 | 46,900 | 396,300 | ||||||||||
Income before provision for income taxes | 889,300 | 596,800 | 292,500 | |||||||||
Provision for income taxes | - | 7,500 | (7,500 | ) | ||||||||
Net income | $ | 889,300 | $ | 589,300 | $ | 300,000 |
Revenues
The following is a summary of our revenues by category for the nine months ended September 30, 2021 and 2020.
For the Nine Months Ended | ||||||||||||
September 30, | September 30, | |||||||||||
2021 | 2020 | $ Change | ||||||||||
Revenue | ||||||||||||
Software Licenses | ||||||||||||
Windows | $ | 502,900 | $ | 585,700 | $ | (82,800 | ) | |||||
UNIX/Linux | 38,900 | 99,500 | (60,600 | ) | ||||||||
Total | 541,800 | 685,200 | (143,400 | ) | ||||||||
Software Service Fees | ||||||||||||
Windows | 1,932,400 | 1,650,100 | 282,300 | |||||||||
UNIX/Linux | 139,700 | 175,400 | (35,700 | ) | ||||||||
Total | 2,072,100 | 1,825,500 | 246,600 | |||||||||
Other | 64,800 | 294,600 | (229,800 | ) | ||||||||
$ | 2,678,700 | $ | 2,805,300 | $ | (126,600 | ) |
Software Licenses
Windows software licenses revenue decreased by $82,800 or 14.1% to $502,900 during the nine months ended September 30, 2021, from $585,700 for the same period in 2020. The decrease for the nine months ended September 30,2021 was due to lower revenue from standard license orders following elevated license order activity in the prior year period related to the onset of the COVID-19 pandemic.
16 |
Software licenses revenue from our UNIX/Linux products decreased by $60,600 or 60.9% to $38,900 for the nine months ended September 30, 2021 from $99,500 for the same periods of 2020. The decrease was primarily due to lower revenue from standard order licenses as we continue to focus primarily on our Windows products.
Software Service Fees
Service fees attributable to our Windows product service increased by $282,300 or 17.1% to $1,932,400 during the nine months ended September 30, 2021, from $1,650,100 for the same period in 2020. The increase was primarily due to higher revenue in Windows subscription license orders and higher revenue recognized deferred maintenance.
Service fees revenue attributable to our UNIX products decreased by $35,700 or 20.4% to $139,700 during the nine months ended September 30, 2021, from $175,400 for the same period in 2020. The decrease was primarily the result of an expiration of certain long-term maintenance contracts.
Other
Other revenue consists of private labeling fees, professional services, and other non-recurring revenues. Other revenue decreased by $229,800 or 78.0% for the nine months ended September 30, 2021, compared to the same period in 2020. The primary decrease was related to revenue recognized from a one-time, non-recurring a license agreement with an existing customer for the use of our license.
Cost of Revenues
Cost of revenue is comprised primarily of software service costs, which represent the costs of customer service. Also included in cost of revenue are software product costs, which are primarily comprised of the amortization of capitalized software development costs and costs associated with licenses to third party software included in our product offerings, and the required import tax withholdings from Brazil resellers. We incur no significant shipping or packaging costs as virtually all of our deliveries are made via electronic means over the Internet.
Cost of revenue for these periods, respectively.
Research and development expenses decreasedthe nine months ended September 30, 2021 increased by $737,000,$7,800, or 39.6%6.6%, to $1,123,900,$125,800 for the nine months ended September 30, 2021 from $118,000 for the same period in 2020. Cost of revenue represented 4.7% and 4.2% of total revenue for the nine months ended September 30, 2021 and 2020, respectively. The primarily increase was due to increase import tax withholdings associated with higher revenue from Brazil resellers for the nine-month period ended September 30, 2017, from $1,860,900 which represented approximately 38.3%2021.
Selling and 65.0%Marketing Expenses
Selling and marketing expenses primarily consisted of revenueemployee, outside services and travel and entertainment expenses.
Selling and marketing expenses increased by $51,900, or 13.1%, to $448,100 for these periods, respectively.
The decrease in research and development expense is primarily due to lower employee costs associated with lower headcount primarily due to the suspension of efforts on our hopTo Work products, lower payments to contract programmers, and lower operating rent expense.
In 2017, we expect to maintain a level of research and development resource lower than the second half of 2016. We therefore expect 2017 research and development expenses, net of capitalized software developments costs, to be lower than 2016 levels.
Change in Fair Value of Warrants Liability
During the three-month periods and nine-months periodnine months ended September 30, 2017, we reported no income or expense2021 from $396,200 for the same period in 2020. Selling and marketing expenses represented approximately 16.7% and 14.1% of total revenue for the nine months ended September 2021 and 2020, respectively. The increase in selling and marketing expenses was due to the change in fair value of our warrants liability as the applicable warrants expired during Septemberan increase spend on sales 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.marketing initiatives.
Net Profit / (Loss)
Based on the foregoing, we reported net profit of $253,600 and a net loss of $462,000 for the three-month periods ended September 30, 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 profit for the nine-month period ended September 30, 2017 of $87,400 included the following non-cash items: depreciation and amortization of $42,200 which was primarily related to 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.
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.
General and Administrative Expenses
For the nine-month period ended September 30,2017, we subleased
General and administrative expenses primarily consist of employee costs, legal, accounting, board fees, other professional services (including those related to our East Campbell office atpatents), rent, travel and entertainment and insurance. Certain costs associated with being a loss of $62,900 with the remaining $46,800 lease amount duepublicly held corporation are also included in general and administrative expenses, as well as bad debt expense.
General and administrative expenses decreased by $87,800, or 13.2%, 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.
Although$576,800 for the three and nine months ended September 30, 2017, respectively,2021 from $664,600 for the Company generated net profitssame period in 2020. General and administrative expenses represented approximately 21.5% and 23.7% of $253,400 and $87,400, respectively, historically we have incurred significant net losses since our inception. Attotal revenue for the nine months ended September 30, 2017, the Company had an accumulated deficit of $82,362,4002021 and a working capital deficit of $2,311,200. We were unable to generate meaningful revenue from our hopTo Work business2020, respectively. The decrease in general 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,administrative expense was due to no board member service fees being incurred versus the uncertainty atprior year and lower patent maintenance fees, partially offset by higher corporate legal and payroll related fees.
Research and Development Expenses
Research and development expenses consist primarily of employee costs, payments to contract programmers, software subscriptions, travel and entertainment for our engineers, and all rent for our leased engineering facilities.
Research and development expenses increased by $5,300, or 0.5% to $1,081,900 for the current time about this trendnine months ended September 30, 2021 from $1,076,600 for the same period in 2020. This represented approximately 40.4% and 38.4% of total revenue for the outcome of our contingent liabilities, we have determined that our cash resources may not be sufficientnine months ended September 30, 2021 and 2020, respectively.
Other Income
Other income increased by $396,300 for the nine months ended September 30, 2021, compare 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 fromsame periods in 2020 was primarily related the sale of certain assets to meet shortpatents and long-term operating requirements.unrealized gain of marketable securities.
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. (See Note 2 to our Notes to Unaudited Condensed Consolidated Financial Statements).
In order to maintain operations, we previously implemented significant expense reductions, including a limited number of employee layoffs, and have decided to implement further cost cuts 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 to our Notes to Unaudited Condensed Consolidated Financial Statements).
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 of our 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.
Cash
As of September 30, 2017, our cash balance was $551,300, as compared with $546,200 as of December 31, 2016, an increase of $5,100, or 0.9%. The slight increase primarily resulted from the collection of accounts receivable partially offset by the cash used in our operations.
Liquidity and Capital Resources
Accounts Receivable, net
At September 30, 2017 and December 31, 2016, we reported accounts receivable, net, of $353,300 and $355,300, respectively. Such amounts were reported net of the allowance for doubtful accounts, which allowances totaled $4,400 and $7,700 at September 30, 2017 and December 31, 2016, 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. 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, 2017,2021, we had current assetscash of $931,400$4,560,000 and current liabilities of $3,242,600, which netted toa working capital deficitposition of $2,311,200. Included$4,124,300 as compared to cash of $4,375,300 and a working capital position of 3,281,600 at December 31, 2020. The increase in current liabilitiescash as of September 30, 2021 was primarily the current portionresult of cash provided by operations during the period.
The following is a summary of our cash flows from operating, investing and financing activities for the six months ended September 30, 2021 and 2020.
For the Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2021 | 2020 | |||||||
Cash flows provided by operating activities | $ | 208,800 | $ | 226,000 | ||||
Cash flows used by investing activities | $ | (24,100 | ) | $ | - | |||
Cash flows provided by financing activities | $ | - | $ | 2,480,400 |
Net cash flows provided by operating activities for the nine months ended September 30, 2021 amounted to $208,800, compared to cash flows provided by operating activities of $226,000 for the nine months ended September 30, 2020. The decrease in cash flows provided by operating activities is primarily due the elimination of contributed services and gain on sale of patents and unrealized gain from marketable securities, lower in deferred revenue recognition, offset by to the result of $1,579,500higher net income related to a one-time settlement income from a particular during the prior year for the same periods.
Net cash flows used by investing activities for the nine months ended September 30, 2021 amount to $24,100 due to net, purchase of marketable securities investments and property equipment, offset by cash receipt from sale of patents. The Company had no cash related to investing activities for the same periods of prior year.
We did not have cash flow from financing activities for the nine months ended September 30,2021. Net cash provided by financing activities for the nine months ended September 30, 2020 amounted to $2,480,400. We received gross proceeds of $2,599,800 from the Rights Offering and paid $119,400 of issuance costs for the nine months ended September 30, 2020.
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, 2017.2021.
There has not been any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 20172021 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.
Not Applicableapplicable
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, 2016,2020, which was filed with the Securities and Exchange Commission on April 7, 2017.March 31, 2021.
The coronavirus pandemic could adversely affect our results of operations.
The recent coronavirus pandemic throughout the United States and the world has resulted in the United States and other countries halting or sharply curtailing the movement of people, goods and services. All of this has caused extended shutdowns of businesses and the prolonged economic impact remains uncertain. At this point, we believe the conditions will have a material adverse effect on our business but given the rapidly changing developments we cannot accurately predict what effects these conditions will have on our business, which will depend on, among other factors, the ultimate geographic spread of the virus, the duration of the outbreak and travel restrictions and business closures imposed by the United States and various other governments.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell any unregistered securities during the quarter ended September 30, 2017.None.
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Mine Safety Disclosures
Not applicable
20 |
Not applicable
Not applicable.The Company anticipates it will undertake a 1-for-20 reverse stock split effective November 16, 2021. The financial statements and other sections included in this Form 10-Q have not been retrospectively adjusted to reflect for the reverse stock split.
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.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 |
* 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)
hopTo Inc. | ||
(Registrant) | ||
Date: | November 15, 2021 | |
By: | /s/ | |
Jonathon R. Skeels | ||
| Chief Executive Officer (Principal Executive Officer) and | |
Interim Chief Financial Officer | ||
(Principal Financial Officer and | ||
Principal Accounting Officer) | ||