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, 2021

 

Commission File Number: 0-21683

 

 

hopTo Inc.

(Exact name of registrant as specified in its charter)

 

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

 

6 Loudon Road, 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.

 

	Large accelerated filer	[  ]	Accelerated filer	[  ]
	Non-accelerated filer	[  ]	Smaller reporting company	[X]
	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 17, 2021, there were issued and outstanding 18,850,675 shares of the registrant’s common stock, par value $0.0001.

 

 

 

Table of Contents

 

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mine Safety Disclosures	17
Item 5.	Exhibits	18
	Signatures	19

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

hopTo Inc.

Consolidated Balance Sheets

 

		March 31,				December 31,
		2021				2020
		(Unaudited)
Assets
Current assets
Cash and cash equivalents		$	4,392,800			$	4,375,300
Marketable securities			256,800
Accounts receivable, net			557,000				417,300
Prepaid expenses and other current assets			70,800				48,500
Total current assets			5,277,400				4,841,100
Property and equipment, net			3,200				-
Other assets			17,800				17,800
Total assets		$	5,298,400			$	4,858,900
Liabilities and Stockholders Equity
Current liabilities
Accounts payable		$	242,500			$	251,000
Accrued expenses			68,900				82,000
Accrued wages			145,500				141,600
Deferred revenue			1,150,400				1,084,900
Total current liabilities			1,607,300				1,559,500
Long-term liabilities
Deferred revenue			395,500				383,000
Total liabilities			2,002,800				1,942,500
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding as of March 31, 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 March 31, 2021 and December 31, 2020			1,900				1,900
Additional paid-in capital			82,155,200				82,155,200
Accumulated deficit			(78,861,500	)			(79,240,700	)
Total stockholders’ equity			3,295,600				2,916,400
Total liabilities and stockholders’ equity		$	5,298,400			$	4,858,900

 

See accompanying notes to unaudited consolidated financial statements

 

 

hopTo Inc.

Consolidated Statements of Operations

 

		For the Three Months Ended
		March 31,				March 31,
		2021				2020
		(Unaudited)				(Unaudited)
Revenues:
Software licenses		$	199,400			$	276,300
Software service fees			639,300				546,700
Other			21,500				21,600
Total revenue			860,200				844,600
Cost of revenue:
Software service costs			13,500				13,200
Software product costs			30,700				24,900
Total cost of revenue			44,200				38,100
Gross profit			816,000				806,500
Operating expenses:
Selling and marketing			143,000				104,400
General and administrative			214,700				229,000
Research and development			363,100				364,000
Total operating expenses			720,800				697,400
Income from operations			95,200				109,100
Other income:
Unrealized gain on marketable securities			14,200				-
Other income			269,800				-
Total Other Income			284,000				-
Income before provision for income taxes			379,200				109,100
Provision for income taxes			-				-
Net income		$	379,200			$	109,100
Net income per share, basic		$	0.02			$	0.01
Net income per share, diluted		$	0.02			$	0.01
Weighted average number of common shares outstanding
Basic			18,850,675				9,927,990
Diluted			19,093,609				10,399,698

 

See accompanying notes to unaudited consolidated financial statements

 

 

hopTo Inc.

Consolidated Statements of Stockholders’ Equity (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
Contributed services			-				-				56,200				-				56,200
Net income			-				-				-				109,100				109,100
Balance at March 31, 2020			9,954,866			$	1,000			$	79,619,300			$	(79,825,300	)		$	(205,000	)
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			18,850,675			$	1,900			$	82,155,200			$	(78,861,500	)		$	3,295,600

 

See accompanying notes to unaudited consolidated financial statements

 

 

hopTo Inc.

Consolidated Statements of Cash Flows

 

		For the Three Months Ended
		March 31,				March 31,
		2021				2020
		(Unaudited)				(Unaudited)
Cash flows from operating activities
Net income		$	379,200			$	109,100
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation			200				-
Contributed services			-				56,200
Changes in allowance for doubtful accounts			5,900				5,600
Gain on sale of patents			(269,800	)			-
Unrealized gain from marketable securities			(14,200	)			-
Changes in operating assets and liabilities:
Accounts receivable			(145,600	)			(131,100	)
Prepaid expenses and other current assets			(22,300	)			(134,200	)
Accounts payable			(8,500	)			(11,500	)
Accrued expenses			(13,100	)			54,600
Accrued wages			3,900				8,100
Deferred revenue			78,000				(31,700	)
Net cash used in operating activities			(6,300	)			(74,900	)
Cash flows from investing activities
Purchase of marketable securities			(242,600	)			-
Proceeds from sale of patents			269,800				-
Purchase of property and equipment			(3,400	)			-
Net cash provided by investing activities			23,800				-
Net change in cash			17,500				(74,900	)
Cash, beginning of the period			4,375,300				1,541,900
Cash, end of the period		$	4,392,800			$	1,467,000
Supplemental disclosure of non-cash investing and financing information:
Non-cash activities: shares issued for settlement of accrued expenses		$	-			$	39,600

 

 

See accompanying notes to unaudited consolidated financial statements

 

 

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, 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, 2020 which was filed with the SEC on March 31, 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, 2021 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 allowance for doubtful accounts, depreciation of long-lived assets, and accruals of liabilities.

 

 

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 Company portal. We recognize revenue upon delivery of these licenses. For stocking resellers who purchase licenses through inventory stocking orders with the intent to resell to an end-user, revenue is recognized when the resellers’ accounts have been credited, at their discretion, for the number of licenses purchased.

 

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 $257,500 primarily in money market account as of March 31, 2021 (unaudited) and had no such 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 March 31, 2021 and December 31, 2020, the allowance for doubtful accounts totaled $11,800 and $5,900, respectively.

 

 

Concentration of Credit Risk

 

For the three months ended March 31, 2021 and three months ended March 31, 2020, the Company had two resellers comprising 13.0% and 10.6%, and two resellers comprising 12.8% and 10.8%, respectively, of total sales.

 

As of March 31, 2021 and December 31, 2020, the Company has two resellers comprising 28.4% and 22.3%, and two resellers comprising 25.7% and 18.9%, 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 March 31, 2021, representing 248,216 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three months ended March 31, 2021 and 2020, the Company had total common stock equivalents of 78,550 and 93,076, respectively, which were excluded from the computation of net income per share because they are anti-dilutive.

 

Fair Value of Financial Instruments

 

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

 

 

Recently Adopted Accounting Pronouncements

 

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

 

3. Property and Equipment

 

Property and equipment consisted of the following.

 

		March 31,				December 31,
		2021				2020
		(Unaudited)
Equipment		$	157,700			$	154,300
Furniture and fixtures			1,600				1,600
			159,300				155,900
Less: accumulated depreciation			(156,100	)			(155,900	)
		$	3,200			$	-

 

Depreciation expense amounted to $200 and $0 for the three months ended March 31, 2021 and 2020, respectively.

   

 

4. Stockholders’ Equity

 

Stock-Based Compensation Plans

 

The following summarizes the stock option activity for the three months ended March 31, 2021.

 

										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			(14,526	)
Outstanding at March 31, 2021 (Unaudited)			78,550			$	3.45				0.62
Vested and expected to vest
at March 31, 2021			78,550			$	3.45				0.62
Exercisable at March 31, 2021			78,550			$	3.45				0.62

 

The following table summarizes information about options outstanding and exercisable as of March 31, 2021.

 

				Options Outstanding												Options Exercisable
												Weighted-								Weighted-
Range of								Average				Average								Average
Exercise				Number				Remaining				Exercise				Number				Exercise
Price				of Shares				Life (Years)				Price				of Shares				Price
$	2.00 - 4.00				63,684				0.62			$	3.21				63,684			$	3.21
	4.20 - 6.68				14,866				0.65				4.46				14,866				4.46
					78,550												78,550

 

 

Shares of Common Stock Issued

 

During the three-month period ending March 31, 2021, the Company did not issue any shares of common stock. During the three-month period ending March 31, 2020, the Company issued a total of 120,000 shares of common stock to two former members of our board of directors that was previously committed to them and included in accrued expenses. 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 March 31, 2021 and December 31, 2020, the Company had 248,216 warrants outstanding. The warrants outstanding at March 31, 2021 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 months ended March 31, 2021 and 2020 was as follows.

 

		Three Months Ended
		2021				2020
Revenue by Country
United States		$	273,700			$	312,600
Brazil			153,600				164,900
Japan			124,500				70,300
Other Countries			308,400				296,800
Total		$	860,200			$	844,600

 

6. Commitments and Contingencies

 

Profit Sharing Plans

 

The Company has adopted a 401(k) plan to provide retirement benefits for employees under which the Company makes discretionary matching contributions. During the three months ended March 31, 2021 and 2020, the Company contributed a total of $12,200 and $9,500, 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.

 

 

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, 2020 which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021, and in other documents we have filed with the SEC.

 

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

 

Introduction

 

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

 

Critical Accounting Policies

 

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas require us to make judgments and estimates about matters that are uncertain at the time when we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 2020 10-K Report and Note 2 to our unaudited consolidated financial Statements included under Item 1 – Financial Statements in this Form 10-Q.

 

 

Results of Operations for the Three-Month Periods Ended March 31, 2021 and 2020

 

The following are the results of our operations for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

 

		For the Three Months Ended
		March 31,				March 31,
		2021				2020				$ Change
		(Unaudited)				(Unaudited)
Revenues		$	860,200			$	844,600			$	15,600
Cost of revenues			44,200				38,100				6,100
Gross profit			816,000				806,500				9,500
Operating expenses:
Selling and marketing			143,000				104,400				38,600
General and administrative			214,700				229,000				(14,300	)
Research and development			363,100				364,000				(900	)
Total operating expenses			720,800				697,400				23,400
Income from operations			95,200				109,100				(13,900	)
Other income:
Unrealized gain on marketable securities			14,200				-				14,200
Other income			269,800				-				269,800
Total other income			284,000				-				284,000
Income before provision for income taxes			379,200				109,100				270,100
Provision for income taxes			-				-				-
Net income		$	379,200			$	109,100			$	270,100

 

Revenues

 

Our software revenue is entirely related to our GO-Global product line, and historically has been primarily derived from product licensing fees and service fees from maintenance contracts. The majority of this revenue has been earned, and continues to be earned, from a limited number of significant customers, most of whom are resellers. Many of our resellers purchase software licenses that they hold in inventory until they are resold to the ultimate end user (a “stocking reseller”).

 

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

 

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

 

Software Licenses

 

Windows software licenses revenue decreased by $56,000 or 23.5% to $181,900 during the three months ended March 31, 2021, from $237,900 for the same period in 2020. The decrease was due to lower license orders following elevated license order activity in the prior year period related to the onset of the COVID-19 pandemic.

 

 

Software licenses revenue from our UNIX/Linux products decreased by $20,900 or 54.4% to $17,500 for the three months ended March 31, 2021 from $38,400 for the same periods of 2020. The decrease was primarily due to lower revenue from stocking and standard order licenses.

 

Software Service Fees

 

Service fees attributable to our Windows product service increased by $108,600 or 22.5% to $590,200 during three months ended March 31, 2021, from $481,600 for the same period in 2020. The increase was due to an increase in maintenance renewals from existing customers and higher subscription license orders.

 

Service fees revenue attributable to our UNIX products decreased by $16,000 or 24.6% to $49,100 during the three months ended March 31, 2021, from $65,100 for the same period in 2020. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of a long-term maintenance contract.

 

Cost of Revenues

 

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

 

Cost of revenue for the three months ended March 31, 2021 increased by $6,100, or 16.0%, to $44,200 for the three months ended March 31, 2021 from $38,100 for the same period in 2020. Cost of revenue 5.1% and 4.5% of total revenue for the three months ended March 31, 2021 and 2020, respectively. The increase was due to import tax withholdings associated with higher revenue from Brazil resellers for the three-month period ended March 31, 2021.

 

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 $38,600, or 37.0%, to $143,000 for the three months ended March 31, 2021 from $104,400 for the same period in 2020. Selling and marketing expenses represented approximately 16.6% and 12.4% of total revenue for the three months ended March 2021 and 2020, respectively. The increase in selling and marketing expenses was due to higher consulting services.

 

 

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 $14,300, or 6.2%, to $214,700 for the three months ended March 31, 2021 from $104,400 for the same period in 2020. General and administrative expenses represented approximately 25.0% and 27.1% of total revenue for the three months ended March 31, 2021 and 2020, respectively.

 

The decrease in general and administrative expense was due to a reduction in accounting fees and consulting related fees.

 

Research and Development Expenses

 

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

 

Research and development expenses decreased by $900, or 0.2% to $363,100 for the three months ended March 31, 2021 from $364,000 for the same period in 2020. This represented approximately 42.2% and 43.1% of total revenue for the three months ended March 31, 2021 and 2020, respectively.

  

Liquidity and Capital Resources

 

As of March 31, 2021, we had cash of $4,392,800 and a working capital position of $3,670,100 as compared to cash of $4,375,300 and a working capital position of 3,281,600 at December 31, 2020. The increase in cash as of March 31, 2021 was primarily the result of cash provided by operations during the period.

 

The following is a summary of our cash flows from operating, investing and financing activities for the three months ended March 31, 2021 and 2020.

 

		For the Three Months Ended
		March 31,				March 31,
		2021				2020
Cash flows used in operating activities		$	(6,300	)		$	(74,900	)
Cash flows provided by investing activities		$	23,800			$	-
Cash flows provided by financing activities		$	-			$	-

 

Net cash flows used by operating activities for the three months ended March 31, 2021 and for the same periods ended March 31,2020 amounted to $6,300 and $74,900, respectively. The increase in cash flows provided by operating activities is primarily the result of a decrease in prepaid expenses and increase in deferred revenue offset by elimination of contributed services compared to the prior year period.

 

Net cash flows provided by investing activities for the three months ended March 31, 2021 amount to $23,800 due to net cash receipt from sale of patents, offset by purchase of marketable securities investments and property equipment. The Company had no cash related to investing activities for the same periods of prior year. The Company had no cash flows related to financing activities for the three months ended March 31, 2021 or 2020.

 

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

ITEM 4. Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2021.

 

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

 

The coronavirus pandemic could adversely affect our results of operations.

 

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

 

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

 

None.

 

ITEM 3. Defaults Upon Senior Securities

 

Not applicable

 

ITEM 4. Mine Safety Disclosures

 

Not applicable

 

 

ITEM 5. Exhibits

 

Exhibit Number		Exhibit Description
31		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

 

 

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:	May 17, 2021
	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)