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 March 31, 20182019

Commission File Number: 0-21683

hopTo Inc.

(Exact name of registrant as specified in its charter)

6 Loudon Road, Suite 200

Concord, NH 03301
(Address of principal executive offices)

Registrant’s telephone number:

(800) 472-7466

(408) 688-2674

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

Yes [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,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 May 15, 2018,2019, 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

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

hopTo Inc.

Condensed Consolidated Balance Sheets

See accompanying notes to unaudited condensed consolidated financial statements

hopTo Inc.

Condensed Consolidated Statements of Operations

See accompanying notes to unaudited condensed consolidated financial statements

hopTo Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)Deficit

See accompanying notes to unaudited condensed consolidated financial statements

hopTo Inc.

Condensed Consolidated Statements of Cash Flows

See accompanying notes to unaudited condensed consolidated financial statements

hopTo Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. BasisOrganization

hopTo Inc., through subsidiaries (collectively, “we”, “us,” “our” or the “Company”) are developers of Presentationapplication publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants.

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

2. Significant Accounting Policies

Basis of Presentation

The unaudited 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, 20172018 which was filed with the SEC on April 17, 1, 2019 (“2018 (“2017 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, 20182019 or any future period.

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

2. 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.

Liquidity

The Company has incurred significant net losses since inception. As of March 31, 2019, we had an accumulated deficit of $80,236,800 and a working capital deficit of $443,400, which includes deferred revenue of $1,331,500. Our ability to continue to generate net income and positive cash flows from operations is dependent on our ability to continue to generate revenue from our legacy GO-Global business, which in turn is subject to a variety of risks. The Company believes its current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet its working capital requirements for at least one year from the date of the issuance of the accompanying financial statements. The Company continues to control its cash expenses as a percentage of expected revenue on an annual basis and thus may use its cash balances in the short-term to invest in revenue growth. Based on current internal projections, the Company believes it has and/or will generate sufficient cash for its operational needs, for at least one year from the date of issuance of the accompanying financial statements. Management is focused on growing the Company’s existing product offering, as well as its customer base, to increase its revenues. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently experienced. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, management believes that the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying financial statements.

Revenue Recognition

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

Effective January 1, 2018,The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” Revenues under ASC 606 are recognized when the promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company adopted guidance ASC 606. For further details, see below “Recently Adopted Accounting Pronouncements”.expects to be entitled to in exchange for those goods or services.

For the year ended December 31, 2017 including interim periods therein,The following is a summary of how the Company recognizedrecognizes revenue under ASC 605. Under ASC 605 software license revenues were recognized when persuasive evidencefor its different products and services.

All of an arrangement exists, delivery has occurred, the priceour licenses are delivered to the customer is fixed or determinable, as typically evidenced in a signed non-cancellable contract, or a customer’s purchase order, and collectability is probable.electronically. The Company sends the license key to the customer to download the related software from Company portal. We recognize revenue upon delivery of these licenses. For additional detail on the Company’s revenue recognition policies in prior periods, please see Note 2 of Notes to Consolidated Financial Statements in the 2017 10-K Report.

The impact of the adoption of ASC 606 is the effect on revenue treatment of certainstocking resellers (“stocking resellers”) who purchase product licenses that they hold in inventory until they are resold to the ultimate end user (an “inventory stocking order”). At the time that a stocking reseller places anthrough inventory stocking order, no product licenses are shipped by usorders with the intent to resell to an end-user, revenue is recognized when the stocking reseller; rather, the stocking reseller’s inventory isresellers’ accounts have been credited, withat their discretion, for the number of licenses purchased and the stocking reseller can resell (issue) any number of licenses from their inventory at any time. Upon receipt of an order to issue a license(s) from a stocking reseller’s inventory (a “draw down order”), we will ship the license(s) in accordance with the draw down order’s instructions.purchased.

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

There are no rightsThe Company has maintenance contracts with certain of return granted to resellers or other purchasers of our software products.

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

All of our software licensesThe Company’s product sales by geographic area are denominatedpresented in U.S. dollars.Note 5.

Long-Lived AssetsCash and Cash Equivalents

Long-lived assets are assessed for possible impairment whenever eventsThe Company considers all highly liquid holdings with maturities of three months or changes in circumstances indicate thatless at the carrying amounts may not be recoverable, whenever we have committed to a plan to disposetime of the assets or, at a minimum, annually. Typically, for long-lived assetspurchase to be held and used, measurementcash equivalents. The Company had no cash equivalents as 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. No such impairment charge was recorded during either of the three-month periods ended March 31, 20182019 (unaudited) or 2017.December 31, 2018.

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 March 31, 20182019 and December 31, 20172018, the allowance for doubtful accounts totaled $3,400$18,600 and $7,800,$3,600, respectively.

Concentration of Credit Risk

For the three-month periodsthree months ended March 31, 2019, the Company had 3 customers comprising 24.9%, 14.6% and 11.0%, respectively, of total revenues. For the three months ended March 31, 2018, the Company had 2 customers comprising 14.8% and 2017,14.2%, respectively, we consideredof total revenues. A loss of one of these customers could potentially have a significant negative impact on the Company’s financial statements.

As of March 31, 2019, the Company has 2 customers listed incomprising 56.5% and 15.9%, respectively, of net accounts receivable. As of December 31, 2018, the following tableCompany has 3 customers comprising 32.1%, 15.4% and 10.8%, respectively, of net accounts receivable.

Basic and Diluted Earnings Per Share

In accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the net income (loss) available to be our most significant customers. The table sets forthcommon stockholders by the percentage of sales attributable to each customerweighted 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 (loss) per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Dilutive common share equivalents as of March 31, 2019, representing 511,801 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three months ended March 31, 2019 and 2018, the Company had total common stock equivalents of 106,077 and 2017.1,012,619, respectively, which were excluded from the computation of net income (loss) per share because they are anti-dilutive.

Fair Value of Financial Instruments

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

Recently Adopted Accounting Pronouncements

RevenueLeases

In May 2014,February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (ASC 606). This ASU is a comprehensive new revenue recognition model that2016-02, “Leases (Topic 842),” which requires a companylessees to recognize revenuea right-of-use asset and a lease liability for most leases on the balance sheet as well as other qualitative and quantitative disclosures. ASU 2016-02 is to depictbe applied using a modified retrospective method and was effective for the transfer of goods or services to a customer at an amount that reflectsCompany on January 1, 2019. In July 2018, the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, Revenue from Contracts2018-11, “Leases (Topic 842),” which provides an optional transition method allowing entities to recognize a cumulative-effect adjustment to the opening balance of stockholders’ equity in the period of adoption, with Customers (ASC 606): Deferralno restatement of the Effective Date, which deferred the effective date of ASU 2014-09 to reportingcomparative prior periods beginning after December 15, 2017, with early adoption permitted for reporting periods beginning after December 15, 2016. Subsequently, FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including: ASU 2016-08, Revenue from Contracts with Customers (ASC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations; ASU 2016-10, Revenue from Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing, which is intended to clarify two aspects of ASC 606: identifying performance obligations and the licensing implementation guidance; and ASU 2016-12, Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients, which contains certain practical expedients in response to identified implementation issues.required. The Company electedadopted the standard using this optional transition method. The Company also made an accounting policy to adopt ASC 606exclude leases with an initial term of 12 months or less from the balance sheet as permitted under Modified Retrospective approach. Under the Modified Retrospective approach, only contracts with customers for which there were remaining unsatisfied performance obligations (open contracts) at the beginning of initial year of adoption must be restated to apply retrospectively the guidance under ASC 606. Any resulting impact for such contracts prior to the beginning of the initial year of adoption are made as an adjustment to opening accumulated deficit for such year.

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

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

The Company recorded $1,391,900 to opening accumulated deficit asassessed the impact that the new lease recognition standard had on its consolidated financial statements. As of the adoption date of January 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to reversal of deferred license revenue associated with stocking orders placed in prior periods which had not been sold through to end users as of December 31, 2017.

The cumulative effect of the changes made to our condensed consolidated balance sheet as of January 1, 2018 under current assets, deferred revenue and accumulated deficit for the adoption ASU 2014-09, Revenue - Revenue from Contracts with Customers were as follows:

Income Taxes

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

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

The Act significantly changes how the U.S. taxes corporations. The Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Act, estimates in calculations, and preparation and analysis of information not previously relevant or regularly produced. As of March 31, 2018,2019, the Company has not completedonly one lease, which was for its office space it leases under a month-to-month arrangement for a monthly amount of $4,000, which can be cancelled at any time by either party with a six-month advance notice. As management has elected a policy to exclude leases with an initial term of 12 months of less from the accounting for allbalance sheet presentation required under Topic 842, the office lease has been excluded from balance sheet presentation as it has an original term of 12 months or less. The rent associated with the tax effects of the Act; however, preliminary calculationslease continues to be expensed as incurred. Rent expense for the two new aforementioned provisions of the Act, GILTIthree months ended March 31, 2019 and FDII, provide that the impact of the provisions are immaterial2018, amounted to the provision for income taxes.

As the Company completes its analysis of the Act, collects$12,000 and prepares necessary data, and interprets any additional guidance set forth by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may alter its assessment if it determines that the Act has a material impact on the provision for income taxes.$12,000, respectively.

3. Property and Equipment

Property and equipment was:consisted of the following.

Aggregate propertyDepreciation expense amounted to $100 and equipment depreciation and amortization expense was $9,000 and $18,100 duringfor the three-month periodsthree months ended March 31, 20182019 and 2017,2018, respectively.

4. Stockholders’ Equity

Stock-Based Compensation Plans

In November 2012, the Company’s 2012 Equity Incentive Plan (the “12 Plan”) was approved by the stockholders. Pursuant to the terms of the 12 Plan, stock options, stock appreciation rights, restricted stock and restricted stock units (sometimes referred to individually or collectively as “awards”) may be granted to officers and other employees, non-employee directors and independent consultants and advisors who render services to the Company. The Company is authorized to issue options to purchase up to 643,797 shares of common stock, stock appreciation rights, or restricted stock in accordance with the terms of the 12 Plan.

In the case of a restricted stock award, the entire number of shares subject to such award would be issued at the time of the grant and subject to vesting provisions based on time or other conditions specified by the Board or an authorized committee of the Board. For awards based on time, should the grantee’s service to the Company end before full vesting occurred, all unvested shares would be forfeited and returned to the Company. In the case of awards granted with vesting provisions based on specific performance conditions, if those conditions were not met, then all shares would be forfeited and returned to the Company. Until forfeited, all shares issued under a restricted stock award would be considered outstanding for dividend, voting and other purposes.

Under the 12 Plan, the exercise price of non-qualified stock options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted. The exercise price of incentive stock options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted provided, however, that if the recipient of the incentive stock option owns greater than 10% of the voting power of all shares of the Company’s capital stock then the exercise price will be no less than 110% of the fair market value of the Company’s common stock on the date the option is granted. The purchase price of the restricted stock issued under the 12 Plan shall also not be less than 100% of the fair market value of the Company’s common stock on the date the restricted stock is granted.

All options granted under the 12 Plan are immediately exercisable by the optionee; however, there is a vesting period for the options. The options (and the shares of common stock issuable upon exercise of such options) vest, ratably, over a 33-month period; however, no options (and the underlying shares of common stock) vest until after three months from the date of the option grant. The exercise price is immediately due upon exercise of the option. The maximum term of options issued under the 12 Plan is ten years. Shares issued upon exercise of options are subject to the Company’s repurchase, which right lapses as the shares vest. The 12 Plan will terminate no later than November 7, 2022. As of March 31, 2019, 411,593 shares of common stock remained available for issuance under the 12 Plan.

The following summarizes the stock option activity for the three months ended March 31, 2019.

The following table summarizes the stock-based compensation expense, netinformation about options outstanding and exercisable as of amounts capitalized, we recorded in our Unaudited Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2018 and 2017, respectively, by classification:2019.

5. Supplemental Disclosure of Cash Flow InformationWarrants

We disbursed $0 and $100 for the paymentAs of interest expense during the three-month periods ended March 31, 2019 and December 31, 2018, the Company had 511,801 and 2017,622,912 warrants outstanding, respectively. Such disbursement was for capital lease payments. We disbursed $800 and $700 for the payment of income taxes during the three-month period endedThe warrants outstanding at March 31, 20182019 are all exercisable at $0.01 and 2017, respectively. Such disbursements were made for the paymenthave an expiration date of foreign income taxes related to the operation of our Israeli subsidiary, GraphOn Research Labs, Ltd.May 20, 2023.

6. Earnings (Loss) Per Share

Earnings or loss per share is calculated5. Sales 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-month periods ended March 31, 2018 and 2017, 1,012,619 and 1,375,509 common stock equivalents, respectively, were excluded from the computation of dilutive loss per share since their effect would be anti-dilutive.

7. Segment InformationGeographical Location

Revenue by country for the three-month periodsthree months ended March 31, 20182019 and 20172018 was as follows:follows.

6. Commitments and Contingencies

8. Subsequent EventsProfit Sharing Plans

The Company has adopted a 401(k) plan to provide retirement benefits for employees under which the Company makes discretionary matching contributions. During the three months ended March 31, 2019 and 2018, the Company contributed a total of $12,200 and $13,400, respectively.

Contingencies

During the three month period ended September 30, 2016,ordinary course of business, the Company is subject to various potential claims and litigation. Management is not aware of any outstanding litigation which would have a significant impact on the Company’s former CEOfinancial statements.

7. Related Party Transactions

The Company’s Chief Executive Officer and CFO voluntarily agreed with the board of directorsInterim Chief Financial Officer has served in these executive roles providing management services to defer 50% of their salary beginning September 1, 2016 until such time as the Company could reasonably pay such compensation upon approval bysince September 2018, however, does not currently receive a salary or other forms of compensation. During the board of directors. On April 23, 2018, the board of directors ofthree months ended March 31, 2019, the Company determined thathas recorded an expense and contributed capital of $56,300 for contributed services based on the financial status of the Company had improved. Accordingly, the board of directors determined that it was reasonableestimated market rate for the Company to pay the remaining 50% of this deferred salary (the initial 50% of the deferred salary having been paid on October 30, 2017) and such payments were made to the CFO and former CEO on April 25, 2018.these services.

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

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

Forward-Looking Information

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

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

Update on hopTo Plans

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

Except for the sale of 7 patents sold to Salesforce.com during the fourth quarter of 2017, we own all hopTo-related intellectual property including source-code, related patents, and the relevant trademarks. We believe these assets have value and are continuously evaluating opportunities to maximize such potential benefits from these assets. For detailed information on the hopTo products and technologies, please refer to our previously filed Annual Reports on Form 10-K and other SEC filings which are available at www.sec.gov. Such filings are being noted for historical information only; unless expressly noted, they are not incorporated herein by reference.

There is no certainty as to timing or success of our efforts to extract value from our hopTo assets, and stockholders should not place any reliance on the outcome of such efforts unless and until definitive agreements are reached, which may include the sale of certain of our hopTo software products or additional sales of patents.

Introduction

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

SinceBeginning in 2012, we have developed and marketed several products in the field of software productivity for mobile devices such as tablets and smartphones under the hopTo brand. We ceased all our sales, marketing and development for the hopTo products in 2016.

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

Corporate Background

the hopTo products. We are a Delaware corporation, founded in May 1996. Our headquarters is located at 6 Loudon Road, Suite 200, Concord, NH 03301, our toll-free phone number is 1-800-472-7466,currently marketing for sale 49 patents and our phone number for local and international calls is 1-408-688-2674. We also have remote employees located in various states, as well as internationally in the United Kingdom. Our corporate Internet Website is http://www.hopto.com. The information on our website is not part of this quarterly report.

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed with or furnished to the SEC under sections 13(a) or 15(d) of the Securities Exchange Act of 1934 are made available free of charge on our corporate Internet Website www.hopto.com (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 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.

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 but are not currently pursuing additional patent applications.

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

ipCapital Group, Inc.

On October 11, 2011, we engaged ipCapital Group, Inc. (“ipCapital”), 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 extractrelated source code developed from our current intellectual property base new inventions, potential patent applications, and marketing and licensing opportunities.hopTo development efforts.

As a result of ipCapital’s work under the engagement agreement, as amended, as of May 15, 2018, 173 new patent applications have been filed. Of these 173 applications, 53 patents have been granted by the United States Patent and Trademark Office (“USPTO”). Due to financial constraints on our operations, we have suspended patent prosecution activity other than to pay issuance fees for patents already approved by USPTO. We do not expect to file more applications in 2018.

The GO-Global Software Products

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

Critical Accounting Policies

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas require us to make judgments and estimates about matters that are uncertain at the time we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 20172018 10-K Report and Note 2 to our Unaudited Condensed Consolidatedunaudited consolidated financial Statements included under Item 1 – Financial Statements.Statements in this Form 10-Q.

Results of Operations for the Three-Month Periods Ended March 31, 20182019 and 20172018

The following operatingare the results should be read in conjunction withof our critical accounting policies.

Revenue

Revenueoperations for the three-month periodsthree months ended March 31, 2018 and 2017 was:2019 as compared to the three months ended March 31, 2018.

Revenues

Our software revenue is entirely related to our GO-Global product line, and historically has been primarily derived from product licensing fees and service fees from maintenance contracts. The majority of this revenue has been earned, and continues to be earned, from a limited number of significant customers, most of whom are resellers. Many of our resellers (a “stocking reseller”) purchase software licenses that they hold in inventory until they are resold to the ultimate end user. During the three month period ended March 31, 2017, we deferred recognition of revenue from these sales (on our Condensed Consolidated Balance Sheet under the caption “Deferred Revenue”user (a “stocking reseller”) until the stocking reseller sells the underlying.

When a software licenses to the ultimate end user. As of January 1, 2018, we have adopted the new revenue recognition policies and guidance ASC 606 and as a result, during the three month period ended March 31, 2018, all software licenses eitherlicense is sold directly by us to an end user to a stocking reseller,by us, or to a resellerby one of our resellers who does not stock licenses into inventory, revenue is recognized immediately recognized upon shipment, (see Note 2 to the Financial Statements).

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

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

Software Licenses

The decrease in Windows software licenses revenue increased by $130,400 or 63.6% to $335,500 during the three months ended March 31, 2019, from $205,100 for the same period in 2018. The increase was primarily due to our adoptiona certain partner that purchased a large order of ASC 606 effective January 1, 2018. UnderWindow licenses from the old standard, Windows software license revenue forCompany during the three-month periodthree months ended March 31, 2018 would have been $303,300 which is $20,300 or 7.1% higher than the prior year period.2019.

Software licenses revenue from our UNIX/Linux products decreased by $4,700 or 25.7% to $13,600 for the three months ended March 31, 2019 from $18,300 for the same periods of 2018. The decrease was primarily due to the fact that during the prior year period we received a larger than typicallower revenue from lower stocking order from one of our U.S. government customers and to a lesser extent due to our adoption of the new revenue recognition standard.licenses.

Although weWe expect aggregate orders for software licenses during 2018 to approximate the levels of 2017, we expect that GO-Global total software license revenue in 2019 to be in-line with 2018 will be slightlylevels as we are observing a mix of both higher and lower than 2017 levels due to the impact of adoption of ASC 606.aggregate revenue from our various customers.

Software Service Fees

The increase in software serviceService fees revenue attributable to our Windows productsproduct service increased by $132,100 or 28.4% to $597,700 during the three-month periodthree months ended March 31, 2018, as compared to2019, from $465,600 for the same period of the prior year,in 2018. The increase was primarily due to the increaseda combination of large renewals of maintenance support from OEM partners and an increase of new license sales that we reported during fiscal year 2017.orders stated above.

The decrease in serviceService fees revenue attributable to our UNIX products fordecreased by $25,600 or 23.3% to $84,100 during the three-month periodthree months ended March 31, 2018, as compared with2019, from $109,700 for the same period of the prior yearin 2018. The decrease was primarily the result of the lower level of our UNIX product sales duringthroughout the prior yearsyear and a resultant decrease inan expiration of certain long-term maintenance contract renewals.contracts. The majority of this decrease was attributable to our European telecommunications customers.

We expect that software service fees for 2019 will approximate to those for 2018 as we have increase in new license orders for our Windows products will be slightly higher than for 2017 and that software service fees for our Unix products will be slightly lower than for 2017.the three-month periods ended March 31, 2019.

Other

The increase in otherOther revenue was primarily due to an increase inconsists of private labeling fees resulting from changesand professional services. Other revenue decreased by $600 or 2% for the three months ended March 31, 2019, compared to our OEM partner programs that were implemented during 2017. Private labeling fees do not comprise a material portion of our revenue streams, but as a result of the new program we expect these fees to be slightly highersame period in 2018 than 2017.2018.

CostsCost of RevenueRevenues

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, and certain taxes that our Brazilian resellers arethe required to pay for importation of our software.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 wasfor the three months ended March 31, 2019 increased by $400, or 1.4%, to $29,200 for the three months ended March 31, 2019 from $28,800 for the same period in 2018. Cost of revenue represented 2.8% and 3.5% and 1.9% of total revenue for the three-month periodsthree months ended March 31, 20182019 and 2017,2018, respectively.

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

Software service costs decreased for the three-month period ending March 31, 2018, as compared with 2017 for the same period, as less time was required for customer service issues, primarily due to the mature state of our GO-Global products. We anticipate that customer service costs will decrease in 2018, as compared with 2017.

The increase in software product costs was almost entirely due to the software import tax payable to the Brazilian government. This tax was not in place during the three month period ended March 31, 2017. We expect 2018 costs2019 cost of revenue to be slightly higher than 2017 levels due to this tax.approximately the same as 2018 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 $15,400, or 15.2%, to $117,000 for the three-month periodthree months ended March 31, 2018 increased by $11,700 or 13.0%, to2019 from $101,600 from $89,900 for the same period of 2017,in 2018. Selling and marketing expenses represented approximately 11.1% and 12.4% of total revenue for the three months ended March 2019 and 9.2% of revenue during these periods,2018, respectively.

The increase in selling and marketing expenses was due to a combination of investment in an updated website for the GO-Global productsincreased consulting services and higher wages for our sales and marketing employees.benefit costs.

We expect to maintain our sales and marketing efforts in 20182019 for anticipated GO-Global releases with select targeted modest investments in promotional activity; accordingly, for this reason, we expect 20182019 sales and marketing expenses to be slightly higher than 20172018 levels.

General and Administrative Expenses

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

General and administrative expenses decreased by $335,900,$10,200, or 52.4 %,3.3%, to $305,200,$295,000 for the three-month periodthree months ended March 31, 2018,2019 from $641,100$305,200 for the same period of 2017,in 2018. General and administrative expenses represented approximately 28% and 37.1% of total revenue for the three months ended March 31, 2019 and 65.3% of revenue during these periods,2018, respectively.

The decrease in general and administrative expense was primarily due to a combinationlower legal costs, partially offset by higher accounting fees due to the timing of decreased executive compensation associated with the part-time arrangement for our CEO and CFO positions, decreased rent expense associated with lower net operating leases for the sublease of our Campbell office, and the elimination of accruals for potential liquidated damages resulting from delays in filing registration statements for shares of common stock and shares of common stock underlying warrants for certain of the private placements that the Company closed in prior periods.expenses.

In 2019, we anticipate a reduction in accounting fees and legal fees compared to 2018 we intendlevels due to continue to continue to control these costs.changes in service providers and improved cost controls by management. We therefore expect that our 20182019 general and administrative costs will be slightly lower than those for 2017.2018.

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 increaseddecreased by $43,500,$54,000, or 11.3%,12.6% to $428,500$374,500 for the three-month periodthree months ended March 31, 2018,2019 from $385,000$428,500 for the same period of 2017, andin 2018. This represented approximately 35.5% and 52.1% and 39.2% of total revenue for these periods,the three months ended March 31, 2019 and 2018, respectively.

The increasedecrease in research and development expense iswas primarily due to higher employee costsdecreases consulting fees associated with increased wages forcompleting the new releases of our research and development employees and certain contract labor associated with the GO-Global products.

In 2018,2019, we expect to maintain a level ofcontinue our investments in research and development resource consistentresources associated with the levels of 2017 with targeted investments in theour GO-Global products.products based on market feedback. We therefore expect 20182019 research and development expenses to be slightly higher than 20172018 levels.

Net Loss

Based on the foregoing, we reported net losses of $43,600 and $153,700 for the three-month periods ended March 31, 2018 and 2017, respectively.

Liquidity and Capital Resources

Our reported net loss for the three-month period endedAs of March 31, 20182019, we had cash of $43,600 included non-cash item of depreciation and amortization of $9,000, which was primarily comprised of depreciation of fixed assets.

Except for the year ended December 31, 2017, we have incurred significant net losses since our inception. At March 31, 2018, the Company had an accumulated deficit of $80,500,900$1,002,700 and a working capital deficit of $1,427,600.

During fiscal 2017: (1) we reduced our operating expense from approximately $1.3 million per quarter$443,400 as compared to an averagecash of $0.8 million per quarter; (2) we have improved the operating results from our GO-Global business$892,500 and have reasonable confidence in its ability to generate cash for at least the next 12 months; (3) sold several patents for cash; and (4) we increased our cash position from a lowworking capital deficit of $300 thousand in August of 2016 to $1.0 million$716,200 at December 31, 2017.

In addition, for2018. The increase in cash as of March 31, 2019 was primarily the reasons described above, weresult of cash provided by operations during the period due to increased profitability. We expect our results from operations and capital resources will be sufficient to fund our operations for at least the next 12 months from the date of the filing of this quarterly report on Form 10-Q however, we do not expect these funds and resources to be sufficient for material new investments in our GO-Global business.10-Q.

In order to achieve the expense controls in the past fiscal year, we implemented significant expense reductions, including (1)The following is a limited numbersummary of employee layoffs primarily related to the hopTo product; (2) duringour cash flows from operating, investing and financing activities for the three month periodmonths ended September 30, 2016, our former CEOMarch 31, 2019 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 (such amounts have been paid as of April 25,2018; see Note 8, Subsequent Events, in the Notes to Financial Statements in this Quarterly Report) and (3) undertook other expense reduction initiatives related to related to patent maintenance, real estate and use of professionals.2018.

We no longer are considering potentially suspending or terminating our SEC filing status, although we reserve the right to do so subject to applicable law.

We have had, and as a regular partNet cash flows provided by operating activities for the three months ended March 31, 2019 amounted to $110,200, compared to cash flows used in operating activities of $143,600 for the three months ended March 31, 2018. During the three months ended March 31, 2019, our operating cash flow of $110,200 was primarily the result of our businessnet income for the period of $251,900, offset by a decrease in cash resulting from time to time continue to have, discussions with various parties aboutan increase in accounts receivables of $199,500. During the possibility of strategic transactions.

Cash

As ofthree months ended March 31, 2018, our cash balance was $1,159,000, as compared with $1,015,400 as of December 31, 2017, an increaseflow from operations of $143,600 or 14.1%. The increasewas primarily resulted from collections from orders placedthe result of a decrease in December of 2017.

Accounts Receivable, net

At March 31, 2018 and December 31, 2017, we reported accounts receivable, net, of $236,000 and $426,800, respectively. Such amounts were reported net of the allowance for doubtful accounts, which allowances totaled $3,400 and $7,800 at March 31, 2018 and December 31, 2017, respectively. 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 toof $195,200, offset by a net loss for the next tends to be indicativeperiod of the trend in our sales from one period to the next. During the three-month period ended March 31, 2018, we received a significant amount of orders during January, resulting in more cash collected during the three-month period and a lower accounts receivable balance at the end of the period. From time to time, we could have individually significant accounts receivable balances due us from one or more of our significant customers. If the financial condition of any of these significant customers should deteriorate, our operating results could be materially affected.$43,600.

Working Capital

As ofWe had no cash flow activity relating to investing or financing activities for the three months ended March 31, 2018, we had current assets of $1,530,200 and current liabilities of $2,957,800, which netted to a working capital deficit of $1,427,600. Included in current liabilities was the current portion of deferred revenue of $1,231,200 and an accrual for liquidated damages of $855,100.2019 or 2018.

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 March 31, 2018.2019.

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 March 31, 20182019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Not applicable

ITEM 1A. Risk Factors

There have been no material changes in our risk factors from those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017,2018, which was filed with the Securities and Exchange Commission on April 17, 2018.1, 2019.

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

We did not sell any unregistered securities during the quarter ended March 31, 2018.2019.

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Mine Safety Disclosures

Not applicable

ITEM 5. Other Information

Not applicable

ITEM 6. Exhibits

* Furnished, not filed

SIGNATURES

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