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, 20212022

 

Commission File Number: 0-21683

 

Z:\2021 OPERATIONS\2021 EDGAR\11 November\HOPTO INC\11-10-2021\Form 10-Q\Draft\Production

hopTo Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 13-3899021
(State of incorporation) (IRS Employer Identification No.)

 

189 North Main StreetSt., Suite 102

Concord, NH 03301

(Address of principal executive offices)

 

Registrant’s telephone number:

(800(800)) 472-7466

(408) 688-2674

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading SymbolName of each exchange on which registered
CommonHPTOOTC Market

 

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

 

Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 Large accelerated filer☐Accelerated filer☐
 Non-accelerated filer☐Smaller reporting company☒
 Emerging growth company☐  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of November 15, 2021,2022, there were issued and outstanding 18,850,67518,826,342 shares of the registrant’s common stock, par value $0.0001.

 

 

 

 

Table of Contents

 

  PAGE
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements3
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations13
Item 3.Quantitative and Qualitative Disclosures About Market Risk2019
Item 4.Controls and Procedures2019
   
PART II.OTHER INFORMATION
Item 1.Legal Proceedings2019
Item 1A.Risk Factors2019
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2019
Item 3.Defaults Upon Senior Securities2019
Item 4.Mine Safety Disclosures2019
Item 5.Other Information21
Item 6.5.Exhibits2119
 Signatures2220

 

2

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

hopTo Inc.

Consolidated Balance Sheets

(Unaudited)(unaudited)

 

 September 30, December 31, 
 2021 2020  September 30, December 31, 
     2022 2021 
Assets             
                
Current assets                
Cash and cash equivalents $4,560,000  $4,375,300  $4,821,400  $4,755,300 
Marketable securities  463,900       314,200   417,600 
Accounts receivable, net  456,900   417,300   364,200   558,600 
Prepaid expenses and other current assets  47,300   48,500   309,100   52,700 
Total current assets  5,528,100   4,841,100   5,808,900   5,784,200 
                
Right-of-use assets  59,200   - 
Property and equipment, net  2,600   -   6,100   8,200 
Other assets  17,800   17,800   22,900   17,800 
Total assets $5,548,500  $4,858,900  $5,897,100  $5,810,200 
                
Liabilities and Stockholders Equity                
                
Current liabilities                
Accounts payable $218,300  $251,000  $246,200  $260,800 
Accrued expenses  59,900   82,000   81,000   64,200 
Accrued wages  135,900   141,600   137,700   108,900 
Deferred revenue  989,700   1,084,900 
Lease liabilities - current  10,200   - 
Deferred revenue - current  1,126,200   1,033,800 
Total current liabilities  1,403,800   1,559,500   1,601,300   1,467,700 
Long-term liabilities                
Lease liabilities  48,600   - 
Deferred revenue  339,000   383,000   305,300   373,900 
Total liabilities  1,742,800   1,942,500   1,955,200   1,841,600 
                
Commitments and contingencies  -   -   -   - 
                
Stockholders’ equity                
Preferred stock, $0.01 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2021 or December 31, 2020  -   - 
Common stock, $0.0001 par value, 195,000,000 shares authorized, 18,850,675 shares issued and outstanding for both periods ending September 30, 2021 and December 31, 2020  1,900   1,900 
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding as of September 30, 2022 or December 31, 2021  -   - 
Common stock, $0.0001 par value, 195,000,000 shares authorized, 18,826,342 and 18,850,675 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively  1,900   1,900 
Additional paid-in capital  82,155,200   82,155,200   82,145,100   82,155,200 
Accumulated deficit  (78,351,400)  (79,240,700)  (78,205,100)  (78,188,500)
Total stockholders’ equity  3,805,700   2,916,400   3,941,900   3,968,600 
Total liabilities and stockholders’ equity $5,548,500  $4,858,900  $5,897,100  $5,810,200 

 

See accompanying notes to unaudited consolidated financial statements

 

3

 

hopTo Inc.

Consolidated Statements of Operations

(Unaudited)(unaudited)

 

         
 For the Three Months Ended  For the Nine Months Ended  2022  2021  2022  2021 
 September 30, September 30, September 30, September 30,  For the Three Months Ended  For the Nine Months Ended 
 2021  2020  2021  2020  September 30, September 30, September 30, September 30, 
 (Unaudited) (Unaudited) (Unaudited) (Unaudited)  2022  2021  2022  2021 
                  
Revenues:                                
Software licenses $167,600  $233,400  $541,800  $685,200  $135,500  $167,600  $449,000  $541,800 
Software service fees  730,100   639,600   2,072,100   1,825,500   823,800   730,100   2,380,100   2,072,100 
Other  21,700   21,600   64,800   294,600   20,900   21,700   62,900   64,800 
Total revenue  919,400   894,600   2,678,700   2,805,300   980,200   919,400   2,892,000   2,678,700 
                                
Cost of revenue:                                
Software service costs  13,500   13,200   40,500   39,500   13,500   13,500   40,500   40,500 
Software product costs  22,600   29,300   85,300   78,500   36,300   22,600   135,500   85,300 
Total cost of revenue  36,100   42,500   125,800   118,000   49,800   36,100   176,000   125,800 
                                
Gross profit  883,300   852,100   2,552,900   2,687,300   930,400   883,300   2,716,000   2,552,900 
                                
Operating expenses:                                
Selling and marketing  152,000   140,300   448,100   396,200   248,600   152,000   687,600   448,100 
General and administrative  162,400   196,100   576,800   664,600   429,900   162,400   800,700   576,800 
Research and development  354,300   355,700   1,081,900   1,076,600   379,000   354,300   1,142,500   1,081,900 
Total operating expenses  668,700   692,100   2,106,800   2,137,400   1,057,500   668,700   2,630,800   2,106,800 
                                
Income from operations  214,600   160,000   446,100   549,900   (127,100)  214,600   85,200  446,100 
                                
Other income:                
Unrealized gain in marketable securities  146,800   -   173,400   - 
Other income  -   -   269,800   46,900 
                
Other income (loss):                
Unrealized gain (loss) in marketable securities  (17,800)  146,800   (103,300)  173,400 
Interest and other income  500   -   1,500   269,800 
Other income (loss)  (17,300)  146,800   (101,800)  443,200 
Income before provision for income taxes  361,400   160,000   889,300   596,800   (144,400)  361,400   (16,600)  889,300 
Provision for income taxes  -   2,500   -   7,500   -   -   -   - 
Net income $361,400  $157,500  $889,300  $589,300 
Net income (loss) $(144,400) $361,400  $(16,600) $889,300 
                                
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 
Net income (loss) per share, basic $(0.01) $0.02  $(0.00) $0.05 
Net income (loss) per share, diluted $(0.01) $0.02  $(0.00) $0.05 
                                
Weighted average number of common shares outstanding                                
Basic  18,850,675   15,242,128   18,850,675   12,216,478   18,846,664   18,850,675   18,848,658   18,850,675 
Diluted  19,092,182   15,713,640   19,092,981   12,687,990   18,846,664   19,092,182   18,848,658   19,092,981 

 

See accompanying notes to unaudited consolidated financial statements

 

4

 

hopTo Inc.

Consolidated Statements of Stockholders’ Equity

For the Nine Months Ended September 30, 2021 and 2020

(Unaudited)(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 
                
  Common Stock  Additional Paid-In  Accumulated    
  Shares  Amount  Capital  Deficit  Total 
                
Balance at December 31, 2020  18,850,675  $1,900  $82,155,200  $(79,240,700) $2,916,400 
Net income  -   -   -   379,200   379,200 
Balance at March 31, 2021 (unaudited)  18,850,675  $1,900  $82,155,200  $(78,861,500) $3,295,600 
Net income  -   -   -   148,700   148,700 
Balance at June 30, 2021 (unaudited)  18,850,675  $1,900  $82,155,200  $(78,712,800) $3,444,300 
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 
                     
Balance at December, 2021  18,850,675  $1,900  $82,155,200  $(78,188,500) $3,968,600 
Net income  -   -   -   106,500   106,500 
Balance at March 31, 2022 (unaudited)  18,850,675  $1,900  $82,155,200  $(78,082,000) $4,075,100 
Purchase of hopTo treasury stock  (24,333)  -   (10,100)  -   (10,100)
Net income  -   -   -   21,300   21,300 
Balance at June 30, 2022 (unaudited)  18,826,342  $1,900  $82,145,100  $(78,060,700) $4,086,300 
Beginning balance, value  18,826,342  $1,900  $82,145,100  $(78,060,700) $4,086,300 
Net loss  -   -   -   (144,400)  (144,400)
Balance at September 30, 2022 (unaudited)  18,826,342  $1,900  $82,145,100  $(78,205,100) $3,941,900 
Ending balance, value  18,826,342  $1,900  $82,145,100  $(78,205,100) $3,941,900 

 

See accompanying notes to unaudited consolidated financial statements

 

5

 

hopTo Inc.

Consolidated Statements of Cash Flows

(unaudited)

       
  For the Nine Months Ended 
  September 30,  September 30, 
  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 

  2022  2021 
  For the Nine Months Ended 
  September 30,  September 30, 
  2022  2021 
       
Cash flows from operating activities        
Net income (loss) $(16,600) $889,300 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation  2,100   800 
Changes in allowance for doubtful accounts  2,000   5,400 
Unrealized (gain) loss from marketable securities  103,400   (173,400)
Gain on sale of patents  -   (269,800)
         
Changes in operating assets and liabilities:        
Accounts receivable  192,400   (45,000)
Prepaid expenses and other current assets  (261,500)  1,200
Accounts payable and accrued expenses  31,000   (60,500)
Lease liabilities  (400)  - 
Deferred revenue  23,800   (139,200)
Net cash provided by operating activities  76,200   208,800 
         
Cash flows from investing activities        
Purchase of marketable securities  -   (290,500)
Purchase of hopTo common stock  (10,100)  - 
Proceeds from sale of patents  -   269,800 
Purchase of property and equipment  -   (3,400)
Net cash used by investing activities  (10,100)  (24,100)
         
         
Net change in cash  66,100   184,700 
Cash and cash equivalents, beginning of the period  4,755,300   4,375,300 
Cash and cash equivalents, end of the period $4,821,400  $4,560,000 

 

See accompanying notes to unaudited consolidated financial statements

 

6

 

hopTo Inc.

Notes to Unaudited Consolidated Financial Statements

 

1. Organization

 

hopTo Inc., a Delaware corporation, through its wholly-owned subsidiary GraphOn Corporation (collectively, “we”, “us,” “our” or the “Company”) are developers of application publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants.

 

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

 

2.Significant Accounting Policies

 

Basis of Presentation

 

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

 

The unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 20202021, which was filed with the SEC on March 31, 2022 (“2021 (“2020 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, 20212022, or any future period.

 

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

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Amounts could materially change in the future. These significant estimates include the valuation of stock-based compensation expense, the allowanceallowances for doubtful accounts, depreciation of long-lived assets, allowances for deferred tax assets and accruals of liabilities.

 

7

 

Revenue Recognition

 

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

 

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” Revenues under ASC 606 are recognized when the promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services.

 

Product Sales

 

All of our licenses are delivered to the customer electronically. The Company sends the license key to the customer to download the related software from the Company portal. We recognize revenue upon delivery of these licenses.

 

Services Revenue

 

The Company has maintenance contracts that entitle customers to support and certain updates to the product. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

 

Subscription Revenue

 

The Company sells subscription licenses that provide the customer with the right to use the software, maintenance and support and certain updates to the product. Subscription licenses are delivered electronically by either the Company’s cloud licensing server or by sending a term license key to the customer to download the related software from the Company portal. Revenue from subscription licenses is recognized ratably over the related contract period, which generally ranges from one month to one year.

 

The Company’s product sales by geographic area are presented in Note 5.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. The Company had cash equivalents of $463,900 primarily in marketable securities as of September 30, 2021 (unaudited) and had 0such cash equivalents at December 31, 2020.

 

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, 20212022 and December 31, 2020,2021, the allowance for doubtful accounts totaled $11,3009,000 and $5,9007,000, respectively.

 

8

 

Concentration of Credit Risk

 

For the threenine months ended September 30, 2022, the Company had one reseller comprising 13.4%, and two resellers each comprising 12.3% of total sales. For the same periods ended September 30, 2021, the Company had three resellers comprising 24.5%,14.6%, and 13.5% of total sales. For the same periods ended September 30, 2020, the Company had three resellers comprising 15.9%, 13.6%, and 10.0% of total sales, and one direct customer representing 15.4% of total sales,

For the nine months ended September 30, 2021, the Company had three resellers comprising 13.5%, 12.1%, and 10.2% of total sales. For the same periods ended September 30, 2020, the Company had two resellers comprising 11.9% and 10.3% of total sales

 

As of September 30, 20212022 and December 31, 2020,2021, the Company has fourthree resellers comprising27.4%,18.228.9%, 12.825.7%, and 13.8% and four resellers comprising 11.739.7%, 15.0%, 11.9%, and two resellers comprising 25.711.7% and, 18.927.8%, respectively, of net accounts receivable.

 

For the purposes of this description, “sales” refers to the dollar value of orders received from these customers and partners in the period indicated. The sales values do not necessarily equal recognized revenue for these periods due to our revenue recognition policies which require deferral of revenue associated with prepaid software service fees. The loss of one of these resellers would not have a material impact as the Company could take over the end customer relationship.

 

Basic and Diluted Earnings Per Share

 

In accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted income (loss) per share reflects per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Dilutive common share equivalents as of September 30, 2022 and December 31, 2021, representing 242,306248,216 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three and nine months ended September 30, 20212022 and 2020,2021, the Company had total common stock equivalents of 65,2173,200 and 93,07665,217, 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.their short-term maturities.

 

9

 

Recently Adopted Accounting Pronouncements

 

The FASB issues ASUs to amend the authoritative literature in ASC. There have been several ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact our financial statements.

 

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

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

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

Schedule of Operating Lease

       
  September 30,
2022		  December 31,
2021		 
Operating lease:        
Operating lease right-of-use asset $59,200  $         - 
         
Operating lease liability, current portion $10,200  $- 
Operating lease liability, net of current portion  48,600   - 
Total operating lease liabilities $58,800  $- 
         
Weighted-average remaining lease term  1.9 years     
weighted-average discount rate  0.41%    

3.Property and Equipment

 

Property and equipment consisted of the following.

Schedule of Property and Equipment

 September 30, December 31,         
 2021  2020  September 30, December 31, 
 (Unaudited)     2022  2021 
              
Equipment $157,700  $154,300  $164,100  $164,100 
Furniture and fixtures  1,600   1,600   1,600   1,600 
                
  159,300   155,900 
Property and equipment gross  165,700   165,700 
                
Less: accumulated depreciation  (156,700)  (155,900)  (159,600)  (157,500)
                
 $2,600  $- 
Property and equipment net $6,100  $8,200 

 

Depreciation expense amounted to $8002,100 and $0800, respectively for the nine months ended September 30, 2022 and 2021, and 2020.respectively.

 

10

 

4. Stockholders’ Equity

 

Stock-Based Compensation Plans

 

The following summarizes the stock option activity for the nine months ended September 30, 2021.2022:

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 
        Weighted- 
        Average 
     Weighted-  Remaining 
     Average  Contractual 
     Exercise  Life 
  Options  Price  (Years) 
          
Outstanding at December 31, 2021  4,939  $3.86   1.59 
Granted  -         
Forfeited/cancelled  (1,739)        
Outstanding at September 30, 2022  3,200  $4.27   1.60 
             
Vested and expected to vest at September 30, 2022  3,200  $4.27   1.60 
             
Exercisable at September 30, 2022  3,200  $4.27   1.60 

 

The following table summarizes information about options outstanding and exercisable as of September 30, 2021.2022:

Schedule of Share-based Compensation, Shares Authorized Under Stock Option Plans, by Exercise Price Range

  Options Outstanding Options Exercisable    Options Outstanding  Options Exercisable 
      Weighted-     Weighted-        Weighted-     Weighted- 
Range ofRange of     Average Average     Average Range of     Average Average     Average 
ExerciseExercise Number Remaining Exercise Number Exercise Exercise Number Remaining Exercise Number Exercise 
PricePrice of Shares Life (Years) Price of Shares Price Price  of Shares  Life (Years)  Price  of Shares  Price 
                       
$2.00 - 4.00   63,684   0.12  $2.71   63,684  $2.71 2.00 - 4.00   1,667   2.20  $2.06   1,667  $2.06 
4.20 - 6.68   1,533   1.94   6.68   1,533   6.68 4.20 - 6.68   1,533   0.94   6.68   1,533   6.68 
    65,217           65,217         3,200           3,200     

 

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Shares of Common Stock Issued

 

During the three and nine-month periods ending September 30, 2022 and for the same periods ending 2021, the Company did not issue any shares of common stock. During the three-month period ending September 30,2020, the Company issued a total of 7,066,030 shares of common stock. During the nine -month period ending September 30, 2020, the Company did issued a total of 8,786,667 shares of common stock and 120,000 shares of common stock were to two former members of our board of directors. The issuance of the 120,000 shares 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, 20212022 and December 31, 2020,2021, the Company had 248,216 warrants outstanding. The warrants outstanding at September 30, 20212022 are all exercisable at $0.01 and have an expiration date of May 20, 2023.

 

5.Sales by Geographical Location

 

Revenue by country for the three and nine months ended September 30, 20212022 and 20202021 was as follows.follows:

 Schedule of Revenue by Country

 2022 2021 2022 2021 
 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
 2021 2020 2021 2020  2022 2021 2022 2021 
Revenue by Country                                
United States $379,300  $261,000  $1,091,500  $875,500  $388,900  $379,300  $1,180,000  $1,091,500 
Brazil  174,600   358,100   600,200   951,600   256,500   174,600   736,400   600,200 
Japan  115,800   104,900   298,700   270,800   53,000   115,800   162,300   298,700 
                
Other Countries  249,700   170,600   688,300   707,400   281,800   249,700   813,300   688,300  
Total $919,400  $894,600   2,678,700   2,805,300  $980,200  $919,400   2,892,000   2,678,700 

 

6.Commitments and Contingencies

 

Profit Sharing Plans

 

The Company has adopted a 401(k) plan to provide retirement benefits for employees under which the Company makes discretionary matching contributionscontributions. During the three months ended September 30, 20212022 and 2020,2021, the Company contributed a total of $600 and $2,200, respectively. each of these same periods. During the nine months ended September 30, 20212022 and 2020,2021, the Company contributed a total of $18,00016,000 and $17,80018,000, respectively.

 

Contingencies

 

During the ordinary course of business, the Company is subject to various potential claims and litigation. Management is not aware of any outstanding litigation which would have a significant impact on the Company’s financial statements.

 

Lease

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

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

Schedule of Operating Leases Future Minimum Lease Payments

Future minimum lease payments:   
2022 $7,700 
2023  30,700 
2024  20,700 
Total future minimum lease payments $59,100 
Less: Lease imputed interest  300 
Total $58,800 

12

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

 

Forward-Looking Information

 

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

 

 ●the success of products depends on a number of factors including market acceptance and our ability to manage the risks associated with product introduction;
 ●local, regional, national and international economic conditions and events, and the impact they may have on us and our customers;
 ●our revenue could be adversely impacted if any of our significant customers reduces its order levels or fails to order during a reporting period; customer demand is based on many factors out of our control;
 ●as a result of the new revenue recognition standards, if any significant end user customer or reseller substantially changes its order level, or fails to order during the reporting period, whether the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially impacted; and
 ●other factors, including, but not limited to, those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20202021 which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021,2022, and in other documents we have filed with the SEC.

 

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

 

Introduction

 

hopTo, Inc., through its wholly owned subsidiary GraphOn Corporation (collectively, “we”, “us,” “our” or the “Company”), is a developer of application publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants. Our application publishing software solutions are sold under the brand name GO-Global, which is our sole revenue source. GO-Global is an application access solution for use by independent software vendors (“ISVs”), 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.

 

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 2020 Form2021 10-K Report Management’s Discussion ad Analysis of Operations and Note 2 to our unaudited consolidated financial Statements included under Item 1 – Financial Statements in this Form 10-Q.

 

13

 

Results of Operations for the Three-Month Periods Ended September 30, 20212022 and 20202021

 

The following are the results of our operations for the three months ended September 30, 20212022 as compared to the three months ended September 30, 2020.2021.

 

  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 

 

  For the Three Months Ended    
  September 30,  September 30,    
  2022  2021  $ Change 
  (unaudited)  (unaudited)    
          
Revenues $980,200  $919,400  $60,800
Cost of revenues  49,800   36,100   13,700 
Gross profit  930,400   883,300   47,100
             
Operating expenses:            
Selling and marketing  248,600   152,000   96,600 
General and administrative  429,900   162,400   267,500 
Research and development  379,000   354,300   24,700 
Total operating expenses  1,057,500   668,700   388,800 
             
Income from operations  (127,100)  214,600   (341,700)
             
Other income (loss):            
Unrealized gain on marketable securities  (17,800)  146,800   (164,600)
Interest and other income  500   -   500 
Other income (loss)  (17,300)  146,800   (164,100)
Income before provision for income taxes  (144,400)  361,400   (505,800)
Net income (loss) $(144,400) $361,400  $(505,800)

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 directsignificant customers, and through a limited numbermost of whom are resellers. Many of our resellers purchase software licenses that they hold in inventory until they are resold to the ultimate end user (a “stocking reseller”).

 

When a software license is sold directly to an end user by us, or by one of our resellers who does not stock licenses into inventory, revenue is recognized immediately upon delivery of the license key,shipment, assuming all other criteria for revenue recognition are met. Consequently, if any significant end user customer substantially changes its order level, or fails to order during the reporting period, whether the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially impacted.

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

14

 

The following is a summary of our revenues by category for the three months ended September 30, 20212022 and 2020.2021.

 

  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 

  For the Three Months Ended    
  September 30,  September 30,    
  2022  2021  $ Change 
Revenue            
Software Licenses            
Windows $134,000  $151,700  $(17,700)
UNIX/Linux  1,500   15,900   (14,400)
Total  135,500   167,600   (32,100)
             
Software Service Fees            
Windows  795,200   684,500   110,700 
UNIX/Linux  28,600   45,600   (17,000)
Total  823,800   730,100   93,700 
             
Other  20,900   21,700   (800)
  $980,200  $919,400  $60,800

 

Software Licenses

 

Windows software licenses revenue decreased by $37,100$17,000 or 19.7%11.7% to $151,700$134,000 during the three months ended September 30, 2021,2022, from $188,800$151,700 for the same period in 2020.2021. The decrease was primarily due to lower revenue fromlevel of standard order licenses inorders sold for the period.three months ended September 30, 2022.

14

 

Software licenses revenue from our UNIX/Linux products decreased by $28,700$14,100 or 64.3%90.6% to $15,900$1,500 for the three months ended September 30, 20212022 from $44,600$15,900 for the same periods of 2020.2021. The decrease was primarily due to lower revenue from stocking order licenses and lower standard order licenses.license sale.

 

Software Service Fees

 

Service fees attributable to our Windows product service increased by $98,500$110,700 or 16.8%16.2% to $684,500$795,200 during three months ended September 30, 2021,2022, from $586,000$684,500 for the same period in 2020.2021. The increase was primarily due to higher revenues from subscription license orders and an increase in revenue recognizedsubscriptions and maintenance renewals from deferred maintenance.existing customers.

 

Service fees revenue attributable to our UNIX products decreased by $8,000$17,000 or 14.9%37.3% to $45,600$28,600 during the three months ended September 30, 2021,2022, from $53,600$45,600 for the same period in 2020.2021. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of a long-term maintenance contract.

Other

Other revenue consists of private labeling fees, professional services, and other non-recurring revenues. Other revenue increased by $100 or 0.5% for the three months ended September 30, 2021, compared to the same period in 2020.

 

Cost of Revenues

 

Cost of revenue is comprised primarily of software service costs, which represent the costs of customer service. Also included in cost of revenue are software product costs, which are primarily comprised of the amortization of capitalized software development costs and costs associated with licenses to third party software included in our product offerings, and the required import tax withholdings from Brazil resellers. We incur no significant shipping or packaging costs as virtually all of our deliveries are made via electronic means over the Internet.

 

Cost of revenue for the three months ended September 30, 2021 decreased2022 increased by $6,400,$13,700, or 15.1%38.0%, to $36,100$49,800 for the three months ended September 30, 20212022 from $42,500$36,100 for the same period in 2020.2021. Cost of revenue was 3.9% and 4.8%5.6% of total revenue for the three months ended September 30, 20212022 and 2020, respectively.for the same period in 2021. The decreaseincrease was due to import tax withholdings associated with lowerhigher revenue from Brazil resellers for the three-month period ended September 30, 2021.2022.

 

Selling and Marketing Expenses

 

Selling and marketing expenses primarily consisted of employee, outside services and travel and entertainment expenses.

 

Selling and marketing expenses increased by $11,700,$96,600, or 8.3%63.3%, to $152,000 for$248,600for the three months ended September 30, 20212022 from $140,300$152,000 for the same period in 2020.2021. Selling and marketing expenses represented approximately 16.5%25.4% and 15.7%16.5% of total revenue for the three months ended September 30 2022 and 2021, and 2020, respectively.

The increase in selling and marketing expenses was primarily due to increased spending onan increase in consulting services as we continue to expand our sales and marketing related initiatives.initiatives for the three months ended September 30, 2022.

 

15

 

General and Administrative Expenses

 

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

 

General and administrative expenses decreased by $33,700,$267,500, or 17.2%164.7%, to $162,400$429,900 for the three months ended September 30, 20212022 from $196,100$162,400 for the same period in 2020.2021. General and administrative expenses represented approximately 17.7%43.9% and 21.9%17.7% of total revenue for the three months ended September 30, 2022 and 2021, and 2020, respectively.

The decreaseincrease in general and administrative expense was primarily due to lower legalincrease in employee related expenses and board of director fees and patent maintenance fees.granted during the three months ended September 30, 2022, that were not paid in the prior year period.

 

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 decreasedincreased by $1,400,$24,700, or 0.4%7.0% to $354,300for$379,000 for the three months ended September 30, 20212022 from $355,700$354,300 for the same period in 2020.2021. This represented approximately 38.5%38.7% and 39.8%38.5% of total revenue for the three months ended September 30, 2022 and 2021, respectively.

The increase in research and 2020, respectively.development expense was primarily due to an increase in wages and software subscriptions during the three months ended September 30, 2022.

 

Other Income

 

Other income increaseddecreased by $146,800$164,100 for the three months ended September 30, 2021,2022, compared to the same periods in 2020.2021. The increase wasdecrease primarily relateddue to a decline in the unrealized gain fromvalue of marketable securities forrelative to the three months ended September 30,2021.

 

Results of Operations for the Nine-Month Periods Ended September 30, 20212022 and 20202021

 

  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 

  For the Nine Months Ended    
  September 30,  September 30,    
  2022  2021  $ Change 
  (Unaudited)  (Unaudited)    
          
Revenues $2,892,000  $2,678,700  $213,300 
Cost of revenues  176,000   125,800   50,200 
Gross profit  2,716,000   2,552,900   163,100 
             
Operating expenses:            
Selling and marketing  687,600   448,100   239,500 
General and administrative  800,700   576,800   223,900 
Research and development  1,142,500   1,081,900   60,600 
Total operating expenses  2,630,800   2,106,800   524,000 
             
Income from operations  85,200  446,100   (360,900)
             
Other income:            
Unrealized gain on marketable securities  (103,300)  173,400   (276,700)
Interest and other income  1,500   269,800   (268,300)
   (101,800)  443,200   (545,000)
Income before provision for income taxes  (16,600)  889,300   (905,900)
Provision for income taxes  -   -   - 
Net income (loss) $(16,600) $889,300  $(905,900)

16

 

Revenues

 

The following is a summary of our revenues by category for the nine months ended September 30, 20212022 and 2020.2021.

 

  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)

 

  For the Nine Months Ended    
  September 30,  September 30,    
  2022  2021  $ Change 
Revenue         
Software Licenses            
Windows $433,500  $502,900  $(69,400)
UNIX/Linux  15,500   38,900   (23,400)
Total  449,000   541,800   (92,800)
             
Software Service Fees            
Windows  2,286,400   1,932,300   354,100 
UNIX/Linux  93,700   139,700   (46,000)
Total  2,380,100   2,072,000   308,100 
             
Other  62,900   64,900   (2,000)
  $2,892,000  $2,678,700  $213,300 

Software Licenses

 

Windows software licenses revenue decreased by $82,800$69,400 or 14.1%13.8% to $502,900$433,500 during the nine months ended September 30, 2021,2022, from $585,700$502,900 for the same period in 2020.2021. The decrease for the nine months ended September 30,202130,2022 was due to lower revenuelicense orders from standard license orders following elevated license order activity in the prior year period related to the onsetlicenses, offset by increase of the COVID-19 pandemic.stocking orders.

16

 

Software licenses revenue from our UNIX/Linux products decreased by $60,600$23,400 or 60.9%60.2% to $38,900$15,500 for the nine months ended September 30, 20212022 from $99,500$38,900 for the same periodsperiod of 2020.2021. The decrease was primarily due to lower revenue from standard order licenses as we continue to focus primarily on our Windows products.during the nine months ended September 30,2022.

 

Software Service Fees

 

Service fees attributable to our Windows product service increased by $282,300$354,100 or 17.1%18.3% to $1,932,400$2,286,400 during the nine months ended September 30, 2021,2022, from $1,650,100$1,932,300 for the same period in 2020.2021. The increase was primarily due to higher revenuean increase in Windowsmaintenance renewals from existing customers and higher subscription license orders and higher revenue recognized deferred maintenance.orders.

 

Service fees revenue attributable to our UNIX products decreased by $35,700$46,000 or 20.4%32.9% to $139,700$93,700 during the nine months ended September 30, 2021,2022, from $175,400$139,700 for the same period in 2020.2021. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of certaina long-term maintenance contracts.contract.

Other

 

Other revenue consists of private labeling fees, professional services, and other non-recurring revenues. Other revenue decreased by $229,800$2,000 or 78.0%3.1% for the nine months ended September 30, 2021,2022, 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.2021.

 

Cost of Revenues

 

Cost of revenue is comprised primarily of software service costs, which represent the costs of customer service. Also included in cost of revenue are software product costs, which are primarily comprised of the amortization of capitalized software development costs and costs associated with licenses to third party software included in our product offerings, and the required import tax withholdings from Brazil resellers. We incur no significant shipping or packaging costs as virtually all of our deliveries are made via electronic means over the Internet.

 

Cost of revenue for the nine months ended September 30, 20212022 increased by $7,800,$50,200, or 6.6%39.9%, to $125,800$176,000 for the nine months ended September 30, 20212022 from $118,000$125,800 for the same period in 2020.2021. Cost of revenue represented 4.7%6.3% and 4.2%4.7% of total revenue for the nine months ended September 30, 20212022 and 2020,2021, 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, 2021.2022.

 

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Selling and Marketing Expenses

 

Selling and marketing expenses primarily consisted of employee, outside services and travel and entertainment expenses.

 

Selling and marketing expenses increased by $51,900,$239,500, or 13.1%53.4%, to $448,100$687,600 for the nine months ended September 30, 20212022 from $396,200$448,100 for the same period in 2020.2021. Selling and marketing expenses represented approximately 16.7%23.8% and 14.1%16.7% of total revenue for the nine months ended September 20212022 and 2020,2021, respectively. The increase in selling and marketing expenses was due to an increase spend onin employee related expenses and consulting services as we continue to expand our sales and marketing initiatives.

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General and Administrative Expenses

 

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

 

General and administrative expenses decreasedincreased by $87,800,$223,900, or 13.2%38.8%, to $576,800$800,700 for the nine months ended September 30, 20212022 from $664,600$576,800 for the same period in 2020.2021. General and administrative expenses represented approximately 21.5%27.7% and 23.7%21.5% of total revenue for the nine months ended September 30, 2022 and 2021, and 2020, respectively.

The decreaseincrease in general and administrative expense was primarily due to noincrease of employee related fees and board member serviceof director fees being incurred versuspaid that were not paid in the prior year and lower patent maintenance fees, partially offset by higher corporate legal and payroll related fees.period.

 

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,$60,600, or 0.5%5.6% to $1,081,900$1,142,500 for the nine months ended September 30, 20212022 from $1,076,600$1,081,900 for the same period in 2020.2021. This represented approximately 40.4%39.5% and 38.4%40.4% of total revenue for the nine months ended September 30, 2022 and 2021, respectively.

The increase in research and 2020, respectively.development expense was primarily due to increase in wages and software subscriptions.

 

Other Income (Expense)

 

Other income increaseddecreased by $396,300$545,000 for the nine months ended September 30, 2021,2022, compare to the same periods in 20202021 was primarily related to income from the sale of certain patents and unrealized gain of marketable securities.securities during the prior year.

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Liquidity and Capital Resources

 

As of September 30, 2021,2022, we had cash of $4,560,000$4,821,400 and a working capital position of $4,124,300$4,207,600 as compared to cash of $4,375,300$4,755,300 and a working capital position of 3,281,600$4,316,500 at December 31, 2020.2021. The increase in cash as of September 30, 20212022 was primarily the result of cash provided by operations during the period. We expect our results from operations and capital resources will be sufficient to fund our operations for at least the next 12 months.

 

The following is a summary of our cash flows from operating, investing and financing activities for the sixnine months ended September 30, 20212022 and 2020.2021.

 

 For the Nine Months Ended  For the Nine Months Ended 
 September 30, September 30,  September 30, September 30, 
 2021  2020  2022  2021 
Cash flows provided by operating activities $208,800  $226,000  $76,200  $208,800 
Cash flows used by investing activities $(24,100) $- 
Cash flows used in investing activities $(10,100) $(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 to2022 was $76,200 while net cash flows provided by operating activities of $226,000 for the nine months ended September 30, 2020.30,2021 was $208,800. The decrease in cash flows provided byused in 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 higher net income relatedan increase in accounts receivable and deferred revenue and offset by decrease in prepaid assets and change in value in marketable securities compared to a one-time settlement income from a particular during the prior year for the same periods.period.

 

NetThe Company had net cash flows of $10,100 used byin 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. The2022, while the Company had nonet cash related to investing activitiesflows of $24,100 for the same periods ended September 30, 2021. The Company expended $10,100 on the repurchase of prior year.

We did not have cash flow from financing activities for24,333 shares of treasury stock during 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, 2020.30,2022.

 

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

ITEM 4. Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2021.2022.

 

There has not been any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 20212022 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, 2020,2021, which was filed with the Securities and Exchange Commission on March 31, 2021.2022.

 

The coronavirus pandemic could adversely affect our results of operations.

 

The recent coronavirus pandemic throughout the United States and the world has resulted in the United States and other countries halting or sharply curtailing the movement of people, goods and services. All of this has caused extended shutdowns of businesses and the prolonged economic impact remains uncertain. At this point, we believe the conditions will have a material adverse effect on our business but given the rapidly changing developments we cannot accurately predict what effects these conditions will have on our business, which will depend on, among other factors, the ultimate geographic spread of the virus, the duration of the outbreak and travel restrictions and business closures imposed by the United States and various other governments.

 

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

 

None.

 

ITEM 3. Defaults Upon Senior Securities

 

Not applicable

 

ITEM 4. Mine Safety Disclosures

 

Not applicable

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ITEM 5. Other Information

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.

 

ITEM 6.5. Exhibits

 

Exhibit Number Exhibit Description
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

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SIGNATURES

 

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

 

 hopTo Inc.
 (Registrant)
   
 Date:November 15, 202114, 2022
   
 By:/s/ Jonathon R. Skeels
  Jonathon R. Skeels
  Chief Executive Officer (Principal Executive Officer) and
  Interim Chief Financial Officer
  (Principal Financial Officer and
  Principal Accounting Officer)

 

2220