ITEM
1. Financial Statements
hopTo
Inc.
Condensed
Consolidated Balance Sheets
|
hopTo Inc.
|
|
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
December 31, 2016
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
554,800
|
|
|
$
|
546,200
|
|
|
Accounts receivable, net
|
|
|
447,000
|
|
|
|
355,300
|
|
|
Prepaid expenses
|
|
|
37,400
|
|
|
|
38,700
|
|
|
Total Current Assets
|
|
|
1,039,200
|
|
|
|
940,200
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
48,700
|
|
|
|
143,300
|
|
|
Other assets
|
|
|
109,000
|
|
|
|
109,000
|
|
|
Total Assets
|
|
$
|
1,196,900
|
|
|
$
|
1,192,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
940,900
|
|
|
$
|
975,800
|
|
|
Deferred rent
|
|
|
7,500
|
|
|
|
24,100
|
|
|
Capital lease
|
|
|
2,300
|
|
|
|
6,800
|
|
|
Deferred revenue
|
|
|
1,817,000
|
|
|
|
1,759,000
|
|
|
Other current liabilities
|
|
|
855,100
|
|
|
|
571,100
|
|
|
Total Current Liabilities
|
|
|
3,622,800
|
|
|
|
3,336,800
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit liability
|
|
|
93,500
|
|
|
|
81,400
|
|
|
Deferred revenue
|
|
|
1,551,200
|
|
|
|
1,694,600
|
|
|
Deferred rent
|
|
|
—
|
|
|
|
2,600
|
|
|
Total Liabilities
|
|
|
5,267,500
|
|
|
|
5,115,400
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit):
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $0.0001 par value, 195,000,000 shares authorized, 9,804,400 shares issued and outstanding at June 30, 2017 and December 31, 2016
|
|
|
14,700
|
|
|
|
14,700
|
|
|
Additional paid-in capital
|
|
|
78,530,700
|
|
|
|
78,512,200
|
|
|
Accumulated deficit
|
|
|
(82,616,000
|
)
|
|
|
(82,449,800
|
)
|
|
Total Stockholders’ Deficit
|
|
|
(4,070,600
|
)
|
|
|
(3,922,900
|
)
|
|
Total Liabilities and Stockholders’ Deficit
|
|
$
|
1,196,900
|
|
|
$
|
1,192,500
|
|
See
accompanying notes to unaudited condensed consolidated financial statements
hopTo
Inc.
Condensed
Consolidated Statements of Operations
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Revenue
|
|
$
|
924,800
|
|
|
$
|
958,600
|
|
|
$
|
1,907,300
|
|
|
$
|
1,965,900
|
|
|
Costs of revenue
|
|
|
18,300
|
|
|
|
67,400
|
|
|
|
37,100
|
|
|
|
121,200
|
|
|
Gross profit
|
|
|
906,500
|
|
|
|
891,200
|
|
|
|
1,870,200
|
|
|
|
1,844,700
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
82,100
|
|
|
|
253,600
|
|
|
|
172,000
|
|
|
|
570,700
|
|
|
General and administrative
|
|
|
421,100
|
|
|
|
614,900
|
|
|
|
1,062,200
|
|
|
|
1,293,000
|
|
|
Research and development
|
|
|
355,100
|
|
|
|
483,600
|
|
|
|
740,100
|
|
|
|
1,369,400
|
|
|
Total operating expenses
|
|
|
858,300
|
|
|
|
1,352,100
|
|
|
|
1,974,300
|
|
|
|
3,233,100
|
|
|
Income / (loss) from operations
|
|
|
48,200
|
|
|
|
(460,900
|
)
|
|
|
(104,100
|
)
|
|
|
(1,388,400
|
)
|
|
Other income (expense) - change in fair value of warrants liability
|
|
|
—
|
|
|
|
22,200
|
|
|
|
—
|
|
|
|
(25,100
|
)
|
|
Other income (expense), net
|
|
|
(59,600
|
)
|
|
|
2,000
|
|
|
|
(60,100
|
)
|
|
|
2,600
|
|
|
Loss before provision for income tax
|
|
|
(11,400
|
)
|
|
|
(436,700
|
)
|
|
|
(164,200
|
)
|
|
|
(1,410,900
|
)
|
|
Provision for income tax
|
|
|
1,100
|
|
|
|
900
|
|
|
|
2,000
|
|
|
|
1,600
|
|
|
Net Loss
|
|
$
|
(12,500
|
)
|
|
$
|
(437,600
|
)
|
|
$
|
(166,200
|
)
|
|
$
|
(1,412,500
|
)
|
|
Basic and diluted loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.14
|
)
|
|
Average weighted common shares outstanding – basic and diluted
|
|
|
9,804,400
|
|
|
|
9,752,821
|
|
|
|
9,804,400
|
|
|
|
9,752,417
|
|
See
accompanying notes to unaudited condensed consolidated financial statements
hopTo
Inc.
Condensed
Consolidated Statements of Stockholders’ Equity
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Preferred stock – shares outstanding
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
—
|
|
|
|
—
|
|
|
Ending balance
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock – shares outstanding
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
9,804,400
|
|
|
|
9,731,233
|
|
|
Vesting of restricted stock awards
|
|
|
—
|
|
|
|
30,549
|
|
|
Ending balance
|
|
|
9,804,400
|
|
|
|
9,761,782
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - amount
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
14,700
|
|
|
$
|
14,600
|
|
|
Ending balance
|
|
$
|
14,700
|
|
|
$
|
14,600
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
78,512,200
|
|
|
$
|
78,189,300
|
|
|
Stock-based compensation expense
|
|
|
18,500
|
|
|
|
229,700
|
|
|
Company payment of employee taxes for stock-based compensation
|
|
|
—
|
|
|
|
(1,600
|
)
|
|
Other Rounding
|
|
|
—
|
|
|
|
100
|
|
|
Ending balance
|
|
$
|
78,530,700
|
|
|
$
|
78,417,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(82,449,800
|
)
|
|
$
|
(80,596,900
|
)
|
|
Net loss
|
|
|
(166,200
|
)
|
|
|
(1,412,500
|
)
|
|
Ending balance
|
|
$
|
(82,616,000
|
)
|
|
$
|
(82,009,400
|
)
|
|
Total Stockholders’ (Deficit)
|
|
$
|
(4,070,600
|
)
|
|
$
|
(3,577,300
|
)
|
See
accompanying notes to unaudited condensed consolidated financial statements
hopTo
Inc.
Condensed
Consolidated Statements of Cash Flows
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Cash Flows Provided By (Used In) Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(166,200
|
)
|
|
$
|
(1,412,500
|
)
|
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
33,200
|
|
|
|
54,800
|
|
|
Write-down of capitalized purchased technology
|
|
|
—
|
|
|
|
15,500
|
|
|
Stock-based compensation expense
|
|
|
18,500
|
|
|
|
229,700
|
|
|
Company payment of employee taxes for stock-based compensation
|
|
|
—
|
|
|
|
(1,600
|
)
|
|
Change in fair value of derivative instruments – warrants
|
|
|
—
|
|
|
|
25,100
|
|
|
Accretion of warrants liability for consulting services
|
|
|
—
|
|
|
|
3,500
|
|
|
Changes in deferred rent
|
|
|
(19,200
|
)
|
|
|
28,300
|
|
|
Changes to allowance of doubtful accounts
|
|
|
7,600
|
|
|
|
(2,400
|
)
|
|
Revenue deferred to future periods
|
|
|
1,384,300
|
|
|
|
630,700
|
|
|
Recognition of deferred revenue
|
|
|
(1,469,700
|
)
|
|
|
(950,000
|
)
|
|
Changes in severance liability
|
|
|
—
|
|
|
|
(5,900
|
)
|
|
Loss / (gain) on disposal of fixed assets
|
|
|
60,400
|
|
|
|
(1,800
|
)
|
|
Interest accrued for capital lease
|
|
|
300
|
|
|
|
600
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(99,300
|
)
|
|
|
146,500
|
|
|
Prepaid expenses
|
|
|
1,300
|
|
|
|
59,300
|
|
|
Deposit liability
|
|
|
12,100
|
|
|
|
—
|
|
|
Accounts payable and accrued expenses
|
|
|
(34,900
|
)
|
|
|
66,300
|
|
|
Other current liabilities
|
|
|
284,000
|
|
|
|
—
|
|
|
Net Cash Provided By (Used In) Operating Activities
|
|
|
12,400
|
|
|
|
(1,113,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Used In Investing Activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of expensed equipment
|
|
|
900
|
|
|
|
4,500
|
|
|
Net Cash Provided By Investing Activities
|
|
|
900
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Provided By Financing Activities:
|
|
|
|
|
|
|
|
|
|
Payment for capital lease
|
|
|
(4,700
|
)
|
|
|
(4,700
|
)
|
|
Net Cash (Used In) Provided By Financing Activities
|
|
|
(4,700
|
)
|
|
|
(4,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash
|
|
|
8,600
|
|
|
|
(1,114,100
|
)
|
|
Cash - Beginning of Period
|
|
|
546,200
|
|
|
|
1,777,300
|
|
|
Cash - End of Period
|
|
$
|
554,800
|
|
|
$
|
663,200
|
|
See
accompanying notes to unaudited condensed consolidated financial statements
hopTo
Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
1.
Basis of Presentation
The
unaudited condensed consolidated financial statements include the accounts of hopTo Inc. and its subsidiaries (collectively, the
“Company”, “we”, “us” or “our”); significant intercompany accounts and transactions
are eliminated upon consolidation. The unaudited condensed consolidated financial statements included herein have been prepared
in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial
information and the rules and regulations promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly,
such unaudited condensed consolidated financial statements do not include all information and footnote disclosures required in
annual financial statements.
The
unaudited condensed consolidated financial statements included herein reflect all adjustments, which include only normal, recurring
adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report
on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on
Form 10-K for the year ended December 31, 2016, which was filed with the SEC on April 7, 2017 (“2016 10-K Report”).
The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the
full fiscal year ending December 31, 2017 or any future period.
2.
Going Concern and Management’s Liquidity Plans
The
accompanying condensed consolidated financial statements have been prepared in conformity with GAAP, assuming we will continue
as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
Accordingly, the condensed consolidated financial statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
We
have incurred significant net losses since our inception. For the three and six months ended June 30, 2017, the Company incurred
net losses of $12,500 and $166,200, respectively. At June 30, 2017, the Company had an accumulated deficit of $82,616,000 and
a working capital deficit of $2,583,600. Due to our inability to date to generate meaningful revenue from our hopTo Work business
and our most recent estimation that revenue from this product is unlikely in any reasonable time frame, our cash resources will
not be sufficient to fund our business for the next 12 months. The Company’s ability to continue as a going concern is dependent
on our ability to continue to generate revenue from our legacy GO-Global business and to raise additional capital through the
issuance of new equity, debt financing, or from the sale of certain assets to meet short and long-term operating requirements.
If
the Company raises additional funds through the issuance of equity or convertible debt securities, the percentage ownership of
our current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to the Company’s
common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available
or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities,
which could significantly and materially restrict our operations. We are continuing to pursue external financing alternatives
to improve our working capital position. If the Company is unable to obtain the necessary capital, the Company may have to cease
operations.
These
factors raise substantial doubt about our ability to continue as a going concern.
In
order to maintain operations, we previously implemented significant expense reductions, including a limited number of employee
layoffs, and continue to implement further costs and employment reductions. During the three month period ended September 30,
2016, our then current CEO and CFO voluntarily agreed with our board of directors to defer 50% of their salary beginning September
1, 2016 until such time as the Company can reasonably pay such compensation upon approval by the board of directors (see Note
12). Such deferrals were discontinued for the CFO during the three-month period ended June 30, 2017. No payments have yet been
made against this deferred compensation.
Although
maintaining our SEC filing status is a significant expense, we are considering all options to preserve value for shareholders,
including potentially suspending or terminating our filing status, however we have not made any decision to do so.
We
have worked extensively to explore additional sources of capital including the issuance of new shares, securing debt financing,
and the sale of assets including certain of our software products and patents. Although this process is ongoing and we are in
active discussions with multiple parties, there is no guarantee that they will result in transactions that are sufficient to provide
the Company with the required liquidity to remove the substantial doubt as to our ability to continue as a going concern. We are
also in discussions with some parties about the possibility of other strategic transactions although there is no guarantee that
these discussions will result in an actual transaction.
The
accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of the
uncertainties set forth above.
3.
Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period. These estimates include: the amount of stock-based
compensation expense; the allowance for doubtful accounts; the estimated lives, valuation, and amortization of intangible assets
(including capitalized software); depreciation of long-lived assets; valuation of warrants; post-employment benefits, and accruals
for liabilities. While we believe that such estimates are fair, actual results could differ materially from those estimates.
Revenue
Recognition
We
market and license our products indirectly through channel distributors, independent software vendors (“ISVs”), value-added
resellers (“VARs”) (collectively, “resellers”) and directly to corporate enterprises, governmental and
educational institutions and others. Our product licenses are perpetual. We also separately sell intellectual property licenses,
maintenance contracts, which are comprised of license updates and customer service access, as well as other products and services.
Software
license revenues are recognized when:
|
●
|
|
Persuasive
evidence of an arrangement exists, (i.e., when we sign a non-cancellable license agreement wherein the customer acknowledges
an unconditional obligation to pay, or upon receipt of the customer’s purchase order), and
|
|
|
|
|
|
●
|
|
Delivery
has occurred or services have been rendered and there are no uncertainties surrounding product acceptance (i.e., when title
and risk of loss have been transferred to the customer, which occurs when the media containing the licensed program(s) is
provided to a common carrier or, in the case of electronic delivery, when the customer is given access to the licensed program(s)),
and
|
|
|
|
|
|
●
|
|
The
price to the customer is fixed or determinable, as typically evidenced in a signed non-cancellable contract, or a customer’s
purchase order, and
|
|
|
|
|
|
●
|
|
Collectability
is probable. If collectability is not considered probable, revenue is recognized when the fee is collected.
|
Revenue
recognized on software arrangements involving multiple deliverables is allocated to each deliverable based on vendor-specific
objective evidence (“VSOE”) or third party evidence of the fair values of each deliverable; such deliverables include
licenses for software products, maintenance, private labeling fees, and customer training. We limit our assessment of VSOE for
each deliverable to either the price charged when the same deliverable is sold separately or the price established by management
having the relevant authority to do so, for a deliverable not yet sold separately.
If
sufficient VSOE of the fair value does not exist so as to permit the allocation of revenue to the various elements of the arrangement,
all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. If VSOE of the fair
value does not exist, and the only undelivered element is maintenance, then we recognize revenue on a ratable basis. If VSOE of
the fair value of all undelivered elements exists but does not exist for one or more delivered elements, then revenue is recognized
using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining
portion of the arrangement fee is recognized as revenue.
Certain
resellers (“stocking resellers”) purchase product licenses that they hold in inventory until they are resold to the
ultimate end user (an “inventory stocking order”). At the time that a stocking reseller places an inventory stocking
order, no product licenses are shipped by us to the stocking reseller; rather, the stocking reseller’s inventory is credited
with the number of licenses purchased and the stocking reseller can resell (issue) any number of licenses from their inventory
at any time. Upon receipt of an order to issue a license(s) from a stocking reseller’s inventory (a “draw down order”),
we will ship the license(s) in accordance with the draw down order’s instructions. We defer recognition of revenue from
inventory stocking orders until the underlying licenses are sold and shipped to the end user, as evidenced by the receipt and
fulfillment of the stocking reseller’s draw down order, assuming all other revenue recognition criteria have been met.
There
are no rights of return granted to resellers or other purchasers of our software products.
Revenue
from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.
All
of our software licenses are denominated in U.S. dollars.
Deferred
Rent
The
leases for both the Company’s subleased former offices in Campbell, California contain free rent and predetermined fixed
escalations in our minimum rent payments. Rent expense related to these leases is recognized on a straight-line basis over the
terms of the leases. Any difference between the straight-line rent amounts and amounts payable under the leases is recorded as
part of deferred rent in current or long-term liabilities, as appropriate. The monthly rent payments due to the Company for the
sublease of the office at 1919 S. Bascom Avenue fully offsets the rent payments due under the Company’s lease for that space.
The monthly rent payments due to the Company for the sublease of the office at 51 East Campbell Avenue will offset approximately
62% of the monthly rent payments due to the landlord under the Company’s lease for that space. The Company has vacated this
facility but has determined the accrual of the difference between the lease and sublease payments to be immaterial.
Incentives
received upon entering into the lease agreement are recognized on a straight-line basis as a reduction to rent over the term of
the lease. The unamortized portion of these incentives are recorded as a part of deferred rent in current or long-term liabilities,
as appropriate.
Long-Lived
Assets
Long-lived
assets are assessed for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may
not be recoverable, whenever we have committed to a plan to dispose of the assets or, at a minimum, annually. Typically, for long-lived
assets to be held and used, measurement of an impairment loss is based on the fair value of such assets, with fair value being
determined based on appraisals, current market value, comparable sales value, and discounted future cash flows, among other variables,
as appropriate. Assets to be held and used (which assets are affected by an impairment loss) are depreciated or amortized at their
new carrying amount over their remaining estimated life; assets to be sold or otherwise disposed of are not subject to further
depreciation or amortization. During the three month period ended June 30, 2016, we determined that an impairment of $15,500 existed
with certain capitalized software development costs associated with our hopTo Work product and recognized that cost as part of
cost of revenue. No such impairment charge was recorded during either of the three or six-month periods ended June 30, 2017.
Allowance
for Doubtful Accounts
We
maintain an allowance for doubtful accounts that reflects our best estimate of potentially uncollectible trade receivables. The
allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts
receivable. We regularly review the adequacy of our allowance for doubtful accounts by considering such factors as historical
experience, credit worthiness, and current economic conditions that may affect a customer’s ability to pay. We specifically
reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance for doubtful accounts based
on our review of the aging and size of our accounts receivable.
The
following table sets forth the details of the Allowance for Doubtful Accounts for the three-month periods ended June 30, 2017
and 2016:
|
|
|
Beginning
Balance
|
|
|
Charge Offs
|
|
|
Recoveries
|
|
|
Provision
|
|
|
Ending Balance
|
|
|
2017
|
|
$
|
5,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,300
|
|
|
$
|
15,300
|
|
|
2016
|
|
|
14,800
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
|
|
|
14,900
|
|
The
following table sets forth the details of the Allowance for Doubtful Accounts for the six-month periods ended June 30, 2017 and
2016:
|
|
|
Beginning Balance
|
|
|
Charge Offs
|
|
|
Recoveries
|
|
|
Provision
|
|
|
Ending Balance
|
|
|
2017
|
|
$
|
7,700
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,600
|
|
|
$
|
15,300
|
|
|
2016
|
|
|
17,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,400
|
)
|
|
|
14,900
|
|
Concentration
of Credit Risk
For
the three and six-month periods ended June 30, 2017 and 2016, respectively, we considered the customers listed in the following
tables to be our most significant customers. The tables set forth the percentage of sales attributable to each customer during
the periods presented, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts
receivable, net, as of June 30, 2017 and 2016.
|
|
|
Three Months
Ended
June 30, 2017
|
|
|
As of
June 30, 2017
|
|
|
Three
Months Ended
June 30, 2016
|
|
|
Customer
|
|
Sales
|
|
|
Accounts Receivable
|
|
|
Sales
|
|
|
Accounts Receivable
|
|
|
Alcatel-Lucent
|
|
|
9.1
|
%
|
|
|
16.2
|
%
|
|
|
5.3
|
%
|
|
|
0.7
|
%
|
|
Centric
|
|
|
4.9
|
%
|
|
|
5.4
|
%
|
|
|
7.3
|
%
|
|
|
16.2
|
%
|
|
Condulent
|
|
|
9.2
|
%
|
|
|
2.9
|
%
|
|
|
6.4
|
%
|
|
|
0.1
|
%
|
|
Elosoft
|
|
|
17.3
|
%
|
|
|
12.8
|
%
|
|
|
8.1
|
%
|
|
|
5.4
|
%
|
|
Total
|
|
|
40.5
|
%
|
|
|
54.5
|
%
|
|
|
27.1
|
%
|
|
|
22.4
|
%
|
|
|
|
Six Months Ended
June 30, 2017
|
|
|
As of June 30, 2017
|
|
|
Six Months Ended
June 30, 2016
|
|
|
Customer
|
|
Sales
|
|
|
Accounts Receivable
|
|
|
Sales
|
|
|
Accounts Receivable
|
|
|
Alcatel-Lucent
|
|
|
5.5
|
%
|
|
|
20.0
|
%
|
|
|
5.7
|
%
|
|
|
0.7
|
%
|
|
Centric
|
|
|
4.9
|
%
|
|
|
10.1
|
%
|
|
|
6.8
|
%
|
|
|
16.2
|
%
|
|
Condulent
|
|
|
5.1
|
%
|
|
|
20.2
|
%
|
|
|
4.1
|
%
|
|
|
0.1
|
%
|
|
Elosoft
|
|
|
13.8
|
%
|
|
|
4.2
|
%
|
|
|
8.1
|
%
|
|
|
5.4
|
%
|
|
Total
|
|
|
29.3
|
%
|
|
|
54.5
|
%
|
|
|
24.7
|
%
|
|
|
22.4
|
%
|
Fair
Value of Financial Instruments
The
fair value of our accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the
relative short maturities of these items.
The
fair value of warrants at issuance and for those recorded as a liability at each reporting date are determined in accordance with
the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 820,
“Fair Value Measurement,”
which establishes a fair value hierarchy that prioritizes the assumptions (inputs)
to valuation techniques used to price assets or liabilities that are measured at fair value. The hierarchy, as defined below,
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority
to unobservable inputs. The guidance for fair value measurements requires that assets, liabilities and certain equity instruments
measured at fair value be classified and disclosed in one of the following categories:
|
●
|
Level
1: Defined as observable inputs, such as quoted (unadjusted) prices in active markets for identical assets or liabilities.
|
|
|
|
|
●
|
Level
2: Defined as observable inputs other than quoted prices included in Level 1. This includes quoted prices for similar assets
or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active,
or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the
assets or liabilities.
|
|
|
|
|
●
|
Level
3: Defined as unobservable inputs to the valuation methodology that are supported by little or no market activity and that
are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include
those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation
techniques, as well as significant management judgment or estimation.
|
Recent
Accounting Pronouncements
In May 2014, FASB issued Accounting Standards
Update (“ASU”) No. 2014-09 “
Revenue from Contracts with Customers (Topic 606)”
(“ASU 2014-09”).
Subsequently FASB has released several updates to ASU 2014-09 including ASU 2016-20, ASU 2016-12, ASU-2016-10, ASU-2016-08, and
ASU-2015-14. The effective date for ASU 2014-09 will be the first quarter of fiscal year 2018 with early adoption permitted in
the first quarter of fiscal year 2017. During the three-month period ended June 30, 2017, the Company completed a detailed review
of the Topic 606 standard relative to our revenue recognition policies and practice. From this review we have developed a plan
for extensive further review which we intend to complete by September 30, 2017. However, at this time we believe that adoption
of this standard will not have a material effect on either our historical financial results or future financial results.
4.
Property and Equipment
Property
and equipment was:
|
|
|
June 30, 2017
|
|
|
December 31,2016
|
|
|
Equipment
|
|
$
|
184,600
|
|
|
$
|
258,700
|
|
|
Furniture
|
|
|
3,600
|
|
|
|
190,600
|
|
|
Leasehold improvements
|
|
|
167,600
|
|
|
|
167,600
|
|
|
|
|
|
355,800
|
|
|
|
616,900
|
|
|
Less: accumulated depreciation and amortization
|
|
|
307,100
|
|
|
|
473,600
|
|
|
|
|
$
|
48,700
|
|
|
$
|
143,300
|
|
Aggregate
property and equipment depreciation and amortization expense was $15,100 during the three-month period ended June 30, 2017, and
$33,200 during the six-month period ended June 30, 2017. During the six month period ended June 30, 2017, we disposed equipment
and furniture with a combined net book value of $61,300.
5.
Stock-Based Compensation
The
following table summarizes the stock-based compensation expense, for the three and six-month periods ended June 30, 2017 and 2016,
respectively, by classification:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
Statement of Operations Classification
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Costs of revenue
|
|
$
|
-
|
|
|
$
|
100
|
|
|
$
|
-
|
|
|
$
|
3,200
|
|
|
Selling and marketing expense
|
|
|
100
|
|
|
|
50,300
|
|
|
|
200
|
|
|
|
64,400
|
|
|
General and administrative expense
|
|
|
3,100
|
|
|
|
41,900
|
|
|
|
18,100
|
|
|
|
95,000
|
|
|
Research and development expense
|
|
|
100
|
|
|
|
51,200
|
|
|
|
200
|
|
|
|
67,100
|
|
|
|
|
$
|
3,300
|
|
|
$
|
143,500
|
|
|
$
|
18,500
|
|
|
$
|
229,700
|
|
6.
Revenue
Revenue
for the three-month periods ended June 30, 2017 and 2016 was:
|
|
|
|
|
|
2017 Over (Under) 2016
|
|
|
Revenue
|
|
|
2017
|
|
|
|
2016
|
|
|
|
Dollars
|
|
|
|
Percent
|
|
|
Software Licenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows
|
|
$
|
296,500
|
|
|
$
|
261,600
|
|
|
$
|
34,900
|
|
|
|
13.3
|
%
|
|
UNIX/Linux
|
|
|
44,100
|
|
|
|
60,800
|
|
|
|
(16,700
|
)
|
|
|
-27.5
|
%
|
|
|
|
|
340,600
|
|
|
|
322,400
|
|
|
|
18,200
|
|
|
|
5.6
|
%
|
|
Software Service Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows
|
|
|
434,900
|
|
|
|
470,500
|
|
|
|
(35,600
|
)
|
|
|
-7.6
|
%
|
|
UNIX/Linux
|
|
|
135,000
|
|
|
|
155,000
|
|
|
|
(20,000
|
)
|
|
|
-12.9
|
%
|
|
|
|
|
569,900
|
|
|
|
625,500
|
|
|
|
(55,600
|
)
|
|
|
-8.9
|
%
|
|
Other
|
|
|
14,300
|
|
|
|
10,700
|
|
|
|
3,600
|
|
|
|
33.6
|
%
|
|
Total Revenue
|
|
$
|
924,800
|
|
|
$
|
958,600
|
|
|
$
|
(33,800
|
)
|
|
|
-3.5
|
%
|
Revenue
for the six-month periods ended June 30, 2017 and 2016 was:
|
|
|
|
|
|
2017
Over (Under) 2016
|
|
|
Revenue
|
|
2017
|
|
|
2016
|
|
|
Dollars
|
|
|
Percent
|
|
|
Software
Licenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows
|
|
$
|
579,500
|
|
|
$
|
551,700
|
|
|
$
|
27,800
|
|
|
|
5.0
|
%
|
|
UNIX/Linux
|
|
|
152,100
|
|
|
|
145,200
|
|
|
|
6,900
|
|
|
|
4.8
|
%
|
|
|
|
|
731,600
|
|
|
|
696,900
|
|
|
|
34,700
|
|
|
|
5.0
|
%
|
|
Software
Service Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows
|
|
|
879,100
|
|
|
|
922,500
|
|
|
|
(43,400
|
)
|
|
|
-4.7
|
%
|
|
UNIX/Linux
|
|
|
271,800
|
|
|
|
324,300
|
|
|
|
(52,500
|
)
|
|
|
-16.2
|
%
|
|
|
|
|
1,150,900
|
|
|
|
1,246,800
|
|
|
|
(95,900
|
)
|
|
|
-7.7
|
%
|
|
Other
|
|
|
24,800
|
|
|
|
22,200
|
|
|
|
2,600
|
|
|
|
11.7
|
%
|
|
Total
Revenue
|
|
$
|
1,907,300
|
|
|
$
|
1,965,900
|
|
|
$
|
(58,600
|
)
|
|
|
-3.0
|
%
|
7.
Costs of Revenue
Costs
of revenue for the three-month periods ended June 30, 2017 and 2016 were:
|
|
|
|
|
|
2017
Over (Under) 2016
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Dollars
|
|
|
Percent
|
|
|
Software
service costs
|
|
$
|
15,500
|
|
|
$
|
36,600
|
|
|
$
|
(21,100
|
)
|
|
|
-57.7
|
%
|
|
Software
product costs
|
|
|
2,800
|
|
|
|
30,800
|
|
|
|
(28,000
|
)
|
|
|
-90.9
|
%
|
|
|
|
$
|
18,300
|
|
|
$
|
67,400
|
|
|
$
|
(49,100
|
)
|
|
|
-72.8
|
%
|
Costs
of revenue for the six-month periods ended June 30, 2017 and 2016 were:
|
|
|
|
|
|
2017
Over (Under) 2016
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Dollars
|
|
|
Percent
|
|
|
Software
service costs
|
|
$
|
31,000
|
|
|
$
|
76,000
|
|
|
$
|
(45,000
|
)
|
|
|
-59.2
|
%
|
|
Software
product costs
|
|
|
6,100
|
|
|
|
45,200
|
|
|
|
(39,100
|
)
|
|
|
-86.5
|
%
|
|
|
|
$
|
37,100
|
|
|
$
|
121,200
|
|
|
$
|
(84,100
|
)
|
|
|
-69.4
|
%
|
8.
Commitments and Contingencies
On
February 1, 2014, we had previously relocated our corporate offices to a larger suite within our landlord’s office complex
in Campbell, California. We are currently leasing 10,659 square feet under a five-year lease that, unless renewed, will expire
in October 2018.
On
August 11, 2015 we entered into a sublease agreement to sublease the entirety of the South Bascom office space to a third party.
The term of the sublease extends from November 1, 2015 through the end of our office lease term for that space in October, 2018.
The monthly rent payments due to hopTo under this sublease fully offset the monthly rent payments due to the landlord under hopTo’s
lease for that space.
On
August 24, 2015, we entered into a new office lease for our corporate headquarters in Campbell, California which became effective
on October 1, 2015, is better suited to our California operations and results in significant monthly savings. The term of this
lease is from October 1, 2015 through September 30, 2018.
On April 28, 2017, we entered into a sublease
agreement to sublease the entirety of the leased space at 51 East Campbell Avenue to a third party. The term of the sublease began
on June 1, 2017 and extends through the end of our office lease term for that space. The monthly rent payments due to hopTo will
offset approximately 62% of the monthly rent payments due to the landlord under hopTo’s lease for that space. During
the three-month period ended June 30, 2017, we relocated our headquarters to our Concord, New Hampshire, offices where the GO-Global
team operates under a longstanding lease agreement.
The
following table sets forth the minimum lease payments we will be required to make throughout the remainder of the lease:
|
|
|
Lease
Payments
|
|
|
Sublease Receipts
|
|
|
Total
|
|
|
Remainder of 2017
|
|
$
|
297,200
|
|
|
$
|
(275,800
|
)
|
|
$
|
21,400
|
|
|
2018
|
|
|
475,400
|
|
|
|
(461,500
|
)
|
|
|
14,000
|
|
|
|
|
$
|
772,600
|
|
|
$
|
737,300
|
)
|
|
$
|
35,400
|
|
9.
Supplemental Disclosure of Cash Flow Information
We
disbursed $300 and $600 for the payment of interest expense during the six-month periods ended June 30, 2017 and 2016, respectively.
We
disbursed $1,300 and $800 for the payment of income taxes during the six-month periods ended June 30, 2017 and 2016, respectively.
Such disbursement was made for the payment of foreign income taxes related to the operation of our Israeli subsidiary, GraphOn
Research Labs, Ltd.
10.
Earnings (Loss) Per Share
Earnings
or loss per share is calculated by dividing the net income or loss for the period by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings or loss per share (“Diluted EPS”) is calculated by dividing
the net income or loss for the period by the total of the weighted average number of shares of common stock outstanding during
the period plus the effects of any dilutive securities. Diluted EPS considers the impact of potentially dilutive securities except
in periods in which there is a loss because the inclusion of such potential shares of common stock would have an anti-dilutive
effect. During all periods presented in our Condensed Consolidated Statements of Operations, potentially dilutive securities included
shares of common stock potentially issuable upon exercise of stock options, release of unvested restricted stock awards and exercise
of warrants. Diluted EPS excludes the impact of potential issuance of shares of common stock related to our stock options in periods
in which the exercise price of the stock option is greater than the average market price of our common stock during such periods.
For
the three-month periods ended June 30, 2017 and 2016, 1,375,509 and 2,214,709 shares of common stock equivalents, respectively,
were excluded from the computation of dilutive loss per share since their effect would be anti-dilutive.
For
the six-month periods ended June 30, 2017 and 2016, 1,375,509 and 2,214,709 shares of common stock equivalents, respectively,
were excluded from the computation of dilutive loss per share since their effect would be anti-dilutive.
11.
Segment Information
Revenue
by country for the three-month and six-month periods ended June 30, 2017 and 2016 was as follows:
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
United
States
|
$
|
275,100
|
|
|
$
|
365,600
|
|
|
$
|
624,900
|
|
|
$
|
787,200
|
|
Brazil
|
|
234,000
|
|
|
|
155,300
|
|
|
|
362,400
|
|
|
|
295,200
|
|
Other
countries
|
|
415,700
|
|
|
|
437,700
|
|
|
|
920,000
|
|
|
|
883,500
|
|
|
$
|
924,800
|
|
|
$
|
958,600
|
|
|
$
|
1,907,300
|
|
|
$
|
1,965,900
|
12.
Subsequent Events
Eldad
Eilam, President, CEO, and Director of the Company resigned as President and CEO effective July 28, 2017. Mr. Eilam will continue
to serve on the board of directors of the Company. On June 30, 2017, the board appointed Jean-Louis Casabonne, the CFO and Secretary
of the Company, to serve as the Company’s interim CEO, in addition to his current duties, effective as of the date of Mr.
Eilam’s resignation. On August 4, 2017, Jean-Louis Casabonne agreed with the Company to remain in his current office, based
on a significantly reduced time commitment, on a month to month basis, at his current compensation rate under his existing employment
agreement, but pro-rated for the reduction in his time commitment to the Company. The board is currently in the process of conducting
a search for a new CEO and a new CFO.
On
August 2, 2017, Sam M. Auriemma, Ashfaq Munshi, and Jeremy Verba, each a director of the Company, resigned from the board of directors
of the Company effective immediately. The resignations were not because of a disagreement with the Company, known to an executive
officer of the Company, on any matter relating to the Company’s operations, policies or practices. The Company’s reduced
operations do not, in the Company’s judgment, require a six member board of directors. The remaining directors on the Company’s
board are John Cronin, Michael Brochu and Eldad Eilam. On August 4, 2017, the board elected Mr. Cronin to be the Chairman of the
board effective immediately.
ITEM 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Update on hopTo Plans
As of Q4 2016, we have
effectively ceased all of our sales, marketing and development efforts for the hopTo products, and at this time we do not expect
any meaningful revenues from these products in the foreseeable future.
We continue to own all
hopTo-related intellectual property including source-code, related patents, and the relevant trademarks. We continue to believe
that we may be able to extract value from these assets and are currently working to do so at this time. For detailed information
on the hopTo products and technologies, please refer to our Annual Report on Form 10-K for the year ended December 31, 2016, which
was filed with the SEC on April 7, 2017 as well as our other SEC filings which are available at www.sec.gov.
Although there is no
certainty as to timing or success of these efforts to extract value from these assets, and stockholders should not place any significant
reliance on the outcome of such efforts unless and until definitive agreements are reached, this may include the sale of certain
of our hopTo software products, the sale of patents, and the monetization of the GO-Global business or some combinations of these
transactions. (See Note 2 to our Notes to Unaudited Consolidated Financial Statements).
The following description
of our business and business opportunities is expressly qualified by the preceding statement and the going concern disclosure in
Note 2 to our Unaudited Condensed Consolidated Financial Statements.
Introduction
We are developers of
application publishing software which includes application virtualization software and cloud computing software for multiple computer
operating systems including Windows, UNIX and several Linux-based variants. Our application publishing software solutions are sold
under the brand name GO-Global, which is our sole revenue source at this time. GO-Global is an application access solution for
use and/or resale by independent software vendors (“ISVs”), corporate enterprises, governmental and educational institutions,
and others who wish to take advantage of cross-platform remote access and Web-enabled access to their existing software applications,
as well as those who are deploying secure, private cloud environments.
Since 2012 we have also
been developing several products in the field of software productivity for mobile devices such as tablets and smartphones, which
have been marketed under the hopTo brand.
The hopTo products were
originally marketed to consumers and were later also marketed to small and medium sized businesses and enterprise level customers
under the name hopTo Work. hopTo Work allows customers to instantly transform their legacy applications to become touch friendly
on modern mobile devices. During 2015 and 2016 we also worked to integrate hopTo Work with certain software products offered by
Citrix Systems.
Over the years, we have
also made significant investments in intellectual property (“IP”). We have filed many patents designed to protect the
new technologies embedded in hopTo.
Corporate Background
We are a Delaware corporation,
founded in May 1996. Our headquarters are located at 6 Loudon Road, Suite 200, Concord, New Hampshire, 03301, our toll-free phone
number is 1-800-472-7466, and our phone number for local and international calls is 408-688-2674. We have remote employees located
in various states, as well as internationally in the United Kingdom and Israel. Our corporate Internet Website is http://www.hopto.com.
The information on our website is not part of this quarterly report.
Our Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed with or furnished
to the SEC under sections 13(a) or 15(d) of the Securities Exchange Act of 1934 are made available free of charge on our corporate
Internet Website at
www.hopto.com
(click on “Financial Reporting”) as soon as reasonably practicable after such
reports are electronically filed with or furnished to the SEC.
Our Intellectual Property
We believe that IP is
a business tool that potentially maximizes our competitive advantages and product differentiation, grows revenue opportunities,
encourages collaboration with key business partners, and protects our long-term growth opportunities. Strategic IP development
is therefore a critical component of our overall business strategy. It is a business function that consistently interacts with
our research and development, product development, and marketing initiatives to generate further value from those operations.
We rely primarily on
patents, trade secret protection, copyright law, confidentiality, and proprietary information agreements to protect our proprietary
technology and registered trademarks. Despite our precautions, it may be possible for unauthorized third parties to copy portions
of our products, or to obtain information we regard as proprietary. The loss of any material trade secret, trademark, trade name
or copyright could have a material adverse effect on our results of operations and financial condition. We intend to defend our
proprietary technology rights; however, we cannot give any assurance that our efforts to protect our proprietary technology rights
will be successful.
We also currently hold
rights to patents but are not currently pursuing additional patent applications.
We do not believe our
products infringe on the rights of any third parties, but we can give no assurance that third parties will not assert infringement
claims against us in the future, or that any such assertion will not result in costly litigation or require us to obtain a license
to proprietary technology rights of such parties.
ipCapital
Group, Inc.
On October 11, 2011,
we engaged ipCapital Group, Inc., (“ipCapital”) an affiliate of John Cronin, who is one of our directors, to assist
us in the execution of our strategic decision to significantly strengthen, grow and commercially exploit our intellectual property
assets. Our engagement agreement with ipCapital, which has been amended three times, affords us the right to request ipCapital
to perform a number of diverse services, employing its proprietary processes and methodologies, to facilitate our ability to identify
and extract from our current intellectual property base new inventions, potential patent applications, and marketing and licensing
opportunities.
As a result of ipCapital’s
work under the engagement agreement, as amended, as of August 14, 2017, 173 new patent applications have been filed. Of these 173
applications, 53 patents have been granted by the United States Patent and Trademark Office (“USPTO”). Due to financial
constraints on our operations, we have suspended patent prosecution activity other than to pay issuance fees for patents already
approved by USPTO. As of August 14, 2017 there is 1 patent application that remain pending with the USPTO. We do not expect to
file more applications in 2017.
Our GO-Global Software
Products
Our GO-Global product
offerings, which currently are our only revenue source, can be categorized into product families as follows:
|
|
●
|
GO-Global for Windows:
Allows access to Windows-based applications from remote locations and a variety of connections, including the Internet and dial-up connections. The Windows applications run on a central computer server along with GO-Global Windows Host software. This allows the applications to be accessed remotely via GO-Global Client software, or a Web browser, over many types of data connections, regardless of the bandwidth or operating system. Web-enabling is achieved without modifying the underlying application’s code or requiring costly add-ons.
|
|
|
|
|
|
|
●
|
GO-Global for UNIX:
Allows access to UNIX and Linux-based applications from remote locations and a variety of connections, including the Internet and dial-up connections. The UNIX/Linux applications run on a central computer server along with the GO-Global for UNIX Host software. This allows the applications to be accessed and run remotely via GO-Global Client software or a Web browser without having to modify the application’s code or requiring costly add-ons.
|
|
|
|
|
|
|
●
|
GO-Global Client:
We offer a range of GO-Global Client software that allows remote application access from a wide variety of local, remote and mobile platforms, including Windows, Linux, UNIX, Apple OS X and iOS, and Google Android. We plan to continue to develop GO-Global Client software for new portable and mobile devices.
|
We intend to continue
to operate Go-Global, as it remains a viable stand-alone business.
Critical Accounting Policies
We believe that several
accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical”
because these specific areas require us to make judgments and estimates about matters that are uncertain at the time we make the
estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our
2016 10-K Report and Note 3 to our Notes to Unaudited Condensed Consolidated Financial Statements.
Results of Operations for the Three and
Six-Month Periods Ended June 30, 2017 and 2016
The following operating
results should be read in conjunction with our critical accounting policies. See Note 2 and Note 3 to our Notes to Unaudited Condensed
Consolidated Financial Statements.
Revenue
Revenue for the three-month
periods ended June 30, 2017 and 2016 was:
|
|
|
|
|
|
2017 Over (Under) 2016
|
|
|
Revenue
|
|
2017
|
|
|
2016
|
|
|
Dollars
|
|
|
Percent
|
|
|
Software Licenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows
|
|
$
|
296,500
|
|
|
$
|
261,600
|
|
|
$
|
34,900
|
|
|
|
13.3
|
%
|
|
UNIX/Linux
|
|
|
44,100
|
|
|
|
60,800
|
|
|
|
(16,700
|
)
|
|
|
-27.5
|
%
|
|
|
|
|
340,600
|
|
|
|
322,400
|
|
|
|
18,200
|
|
|
|
5.6
|
%
|
|
Software Service Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows
|
|
|
434,900
|
|
|
|
470,500
|
|
|
|
(35,600
|
)
|
|
|
-7.6
|
%
|
|
UNIX/Linux
|
|
|
135,000
|
|
|
|
155,000
|
|
|
|
(20,000
|
)
|
|
|
-12.9
|
%
|
|
|
|
|
569,900
|
|
|
|
625,500
|
|
|
|
(55,600
|
)
|
|
|
-8.9
|
%
|
|
Other
|
|
|
14,300
|
|
|
|
10,700
|
|
|
|
3,600
|
|
|
|
33.6
|
%
|
|
Total Revenue
|
|
$
|
924,800
|
|
|
$
|
958,600
|
|
|
$
|
(33,800
|
)
|
|
|
-3.5
|
%
|
Revenue for the six-month periods ended June
30, 2017 and 2016 was:
|
|
|
|
|
|
2017 Over (Under) 2016
|
|
|
Revenue
|
|
2017
|
|
|
2016
|
|
|
Dollars
|
|
|
Percent
|
|
|
Software Licenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows
|
|
$
|
579,500
|
|
|
$
|
551,700
|
|
|
$
|
27,800
|
|
|
|
5.0
|
%
|
|
UNIX/Linux
|
|
|
152,100
|
|
|
|
145,200
|
|
|
|
6,900
|
|
|
|
4.8
|
%
|
|
|
|
|
731,600
|
|
|
|
696,900
|
|
|
|
34,700
|
|
|
|
5.0
|
%
|
|
Software Service Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows
|
|
|
879,100
|
|
|
|
922,500
|
|
|
|
(43,400
|
)
|
|
|
-4.7
|
%
|
|
UNIX/Linux
|
|
|
271,800
|
|
|
|
324,300
|
|
|
|
(52,500
|
)
|
|
|
-16.2
|
%
|
|
|
|
|
1,150,900
|
|
|
|
1,246,800
|
|
|
|
(95,900
|
)
|
|
|
-7.7
|
%
|
|
Other
|
|
|
24,800
|
|
|
|
22,200
|
|
|
|
2,600
|
|
|
|
11.7
|
%
|
|
Total Revenue
|
|
$
|
1,907,300
|
|
|
$
|
1,965,900
|
|
|
$
|
(58,600
|
)
|
|
|
-3.0
|
%
|
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 (each a “stocking reseller”) purchase
software licenses that they hold in inventory until they are resold to the ultimate end user. We defer recognition of revenue from
these sales (on our Condensed Consolidated Balance Sheet under the caption “Deferred Revenue”) until the stocking reseller
sells the underlying software licenses to the ultimate end user. Consequently, if any of our significant stocking resellers materially
change the rate at which they resell our software licenses to the ultimate end user, our software licenses revenue could be materially
impacted.
When a software license
is sold directly to an end user by us, or by one of our resellers who does not stock licenses into inventory, revenue is recognized
immediately upon shipment, 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
Software license revenue
from Windows products increased in both three-month periods and six-month periods ended June 30, 2017, as compared with the same
periods of the prior year, primarily due to higher license purchases from certain of our OEM partners during the three and six
month period June 30, 2017.
Software licenses revenue
from our UNIX/Linux products decreased during three month and slightly increased during six-month periods ended June 30, 2017,
as compared with the same periods of the prior year, primarily due to timing differences in revenue from certain of our U.S. government
customers.
We expect aggregate GO-Global
software license revenue in 2017 to be modestly lower than 2016 levels due to lower aggregate revenue from our stocking resellers
and our European telecommunications customers.
Software Service Fees
The decrease in software
service fees revenue attributable to our Windows products during the three-month and six-month period ended June 30, 2017, as compared
to the same period of the prior year, was primarily due to the timing of customer renewals of maintenance contacts.
The decrease in service
fees revenue attributable to our UNIX products for the three-month and six-month period ended June 30, 2017, as compared with the
same period of the prior year, was primarily the result of the low level of our UNIX product sales throughout the current and prior
year and a resultant decrease in maintenance contract renewals. The majority of this decrease was attributable to our European
telecommunications customers.
We expect that software
service fees for 2017 will be modestly lower than those for 2016.
Other
The increase in other
revenue during the three-month and six-month periods ended June 30, 2017, as compared to the same period in the prior year was
primarily due to higher sales of private labeling fees.
Costs of Revenue
Costs of revenue are
comprised primarily of software service costs, which represent the costs of customer service, and software product costs, which
are primarily comprised of the amortization of capitalized software development costs, and costs associated with licenses for third
party software included in our product offerings. We incur no shipping or packaging costs as all of our deliveries are made via
electronic means over the Internet.
Under GAAP, development
costs for new product development, after technological feasibility is established, are recorded as “capitalized software”
on our Condensed Consolidated Balance Sheet. Such capitalized costs are subsequently amortized as cost of revenue (software product
costs) over the shorter of three years or the remaining estimated life of the product. During the three-month and six-month periods
ended June 30, 2017 and 2016, we did not capitalize any software development costs. Amortization of capitalized software development
costs was $0 and $2,600 during the three-month periods ended June 30, 2017 and 2016, respectively, and $0 and $5,100 during the
six-month periods ended June 30, 2017 and 2016, respectively. In addition, during the three-month period ended June 30, 2016, we
determined that an impairment existed for certain capitalized development cost of $15,500 associated with the hopTo Work product.
No such impairment charge was recorded during either of the three or six-month periods ended June 30, 2017.
Costs of revenue were
2.0% and 7.0% of total revenue for the three-month periods ended June 30, 2017 and 2016, respectively, and 1.9% and 6.2% of total
revenue for the six-month periods ended June 30, 2017 and 2016, respectively.
Costs of revenue for
the three-month periods ended June 30, 2017 and 2016 were:
|
|
|
|
|
|
2017 Over (Under) 2016
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Dollars
|
|
|
Percent
|
|
|
Software service costs
|
|
$
|
15,500
|
|
|
$
|
36,600
|
|
|
$
|
(21,100
|
)
|
|
|
-57.7
|
%
|
|
Software product costs
|
|
|
2,800
|
|
|
|
30,800
|
|
|
|
(28,000
|
)
|
|
|
-90.9
|
%
|
|
|
|
$
|
18,300
|
|
|
$
|
67,400
|
|
|
$
|
(49,100
|
)
|
|
|
-72.8
|
%
|
Costs of revenue for the six-month periods
ended June 30, 2017 and 2016 were:
|
|
|
|
|
|
2017 Over (Under) 2016
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Dollars
|
|
|
Percent
|
|
|
Software service costs
|
|
$
|
31,000
|
|
|
$
|
76,000
|
|
|
$
|
(45,000
|
)
|
|
|
-59.2
|
%
|
|
Software product costs
|
|
|
6,100
|
|
|
|
45,200
|
|
|
|
(39,100
|
)
|
|
|
-86.5
|
%
|
|
|
|
$
|
37,100
|
|
|
$
|
121,200
|
|
|
$
|
(84,100
|
)
|
|
|
-69.4
|
%
|
The decrease in software
service costs for the three and six-month periods ended June 30, 2017, as compared with the same periods of the prior year, was
primarily due to less time being required for customer service issues. We expect software service costs for 2017 to be lower than
those for 2016.
The decreases in software
product costs for the three-month and six-month periods ended June 30, 2017, as compared with the same periods of the prior year,
was almost entirely due to decreased amortization of capitalized software development cost in GO-Global.
We expect that software
costs of revenue for 2017 will be lower than 2016.
Selling and Marketing
Expenses
Selling and marketing
expenses primarily consist of employee costs, outside services, advertising, public relations and travel and entertainment expense.
Selling and marketing
expenses for the three-month period ended June 30, 2017 decreased by $171,500, or 67.6%, to $82,100, from $253,600 for the same
period of 2016, and represented approximately 8.9% and 26.5% of revenue during these periods, respectively. Selling and marketing
expenses for the six-month period ended June 30, 2017 decreased by $398,700, or 69.9%, to $172,000, from $570,700 for the same
period of 2016, and represented approximately 9.0% and 29.0% of revenue during these periods, respectively.
The decrease in selling
and marketing expenses was due to a combination of lower headcount and promotional costs associated with hopTo Work as we have
suspended all sales and marketing activity for that product.
We expect to maintain
our sales and marketing efforts in 2017 for anticipated GO-Global releases at a level consistent with the second half of 2016;
accordingly, we expect 2017 sales and marketing expenses to be lower than 2016 levels.
General and Administrative
Expenses
General and administrative
expenses primarily consist of employee costs, depreciation and amortization, legal, accounting, other professional services (including
those related to our patents), rent, travel and entertainment and insurance. Certain costs associated with being a publicly held
corporation are also included in general and administrative expenses, as well as bad debts expense.
General and administrative
expenses decreased by 193,800, or 31.5%, to $421,100 for the three-month period ended June 30, 2017, from $614,900 for the same
period of 2016, and represented approximately 45.5% and 64.1% of revenue during these periods, respectively. General and administrative
expenses decreased by $230,800, or 17.8%, to $1,062,200 for the six-month period ended June 30, 2017, from $1,293,000 for the same
period of 2016, and represented approximately 55.7% and 65.8% of revenue during these periods, respectively.
The decrease in general
and administrative expense was primarily due to a combination of decreased headcount, lower legal expenses associated with activity
related to our patents and other lower costs associated with investor relations.
In 2017, we intend to
continue these cost controls. We therefore expect that our 2017 general and administrative costs will be slightly lower than those
for 2016.
Research and Development
Expenses
Research and development
expenses consist primarily of employee costs, payments to contract programmers, travel and entertainment for all our engineers,
and all rent for our leased engineering facilities.
Research and development
expenses decreased by $128,500 or 26.6%, to $355,100 for the three-month period ended June 30, 2017, from $483,600 for the same
period of 2016, and represented approximately 38.4% and 50.4% of revenue for these periods, respectively. Research and development
expenses decreased by $629,300, or 46.0%, to $740,100, for the six-month period ended June 30, 2017, from $1,369,400 for the same
period of 2016, and represented approximately 38.8% and 69.7% of revenue for these periods, respectively.
The decrease in research
and development expense is primarily due to lower employee costs associated with lower headcount, lower payments to contract programmers
resulting from the suspension of our development efforts on the hopTo Work product.
In 2017, we expect to
maintain a level of research and development resource consistent with the levels of the second half of 2016. We therefore expect
2017 research and development expenses to be lower than 2016 levels.
Change in Fair Value
of Warrants Liability
During the three and
six-month periods ended June 30, 2017, we reported no income or expense due to the change in fair value of our warrants liability
as the applicable warrants expired during September and October of 2016. During the same periods of the prior year, we reported
non-cash income and loss of $22,000 and $(25,100), respectively. Such changes resulted from our liability warrants which expired
in the fourth quarter of 2016.
Net Loss
Based on the foregoing,
we reported a net loss of $12,500 and $437,600 for the three-month period ended June 30, 2017 and 2016, respectively. Additionally,
we reported net losses of $166,200 and $1,412,500 for the six-month periods ended June 30, 2017 and 2016, respectively.
Liquidity and Capital
Resources
Our reported net loss
for the six-month period ended June 30, 2017 of $166,200 included two non-cash items: depreciation and amortization of $33,200,
which was primarily comprised of depreciation of fixed assets and stock-based compensation expense of $18,500.
We disposed some capitalized
equipment at a loss with net book value of $61,300. We sold some non-capitalized equipment for $900.
See the Update on hopTo
Plans at the beginning of this section for a discussion of our plans.
We have incurred significant
net losses since our inception. For the three and six-months ended June 30, 2017, the Company incurred net losses of $12,600 and
$166,300, respectively. At June 30, 2017, the Company had an accumulated deficit of $82,616,100 and a working capital deficit of
$2,583,700. Due to our inability to date to generate meaningful revenue from our hopTo Work business and our continued estimation
that revenue from this product is unlikely in any reasonable time frame, we have suspended all development and sales activity associated
with the hopTo products. The Company’s ability to continue as a going concern is dependent on our ability to continue to
generate revenue from our legacy GO-Global business, which continued to operate profitably throughout 2016 and in the three and
six-month period ended June 30, 2017, and to raise additional capital through the issuance of new equity, debt financing, or from
the sale of certain assets to meet short and long-term operating requirements.
If the Company raises
additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our current shareholders
could be reduced, and such securities might have rights, preferences or privileges senior to the Company’s common stock.
Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available
on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could
significantly and materially restrict our operations. We are continuing to pursue external financing alternatives to improve our
working capital position. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.
These factors raise substantial
doubt about our ability to continue as a going concern. (See Note 2 to our Notes to Unaudited Consolidated Financial Statements).
In order to maintain
operations, we previously implemented significant expense reductions, including a limited number of employee layoffs primarily
related to the hopTo product. During the three month period ended September 30, 2016, our then current CEO and CFO voluntarily
agreed with our board of directors to defer 50% of their salary beginning September 1, 2016 until such time as the Company can
reasonably pay such compensation upon approval by the board of directors (See Note 12). Such deferrals were discontinued for our
CFO during the three-month period ended June 30, 2017. No payments have yet been made against this deferred compensation.
Although maintaining
our SEC filing status is a significant expense, we are considering all options to preserve value for shareholders, including potentially
suspending or terminating our filing status, however we have not made any decision to do so.
We have worked extensively
to explore additional sources of capital including the issuance of new shares, securing debt financing, and the sale of assets
including certain of our software products and patents. Although this process is ongoing and we are in active discussions with
multiple parties, there is no guarantee that they will result in transactions that are sufficient to provide the Company with the
required liquidity to remove the substantial doubt as to our ability to continue as a going concern. We are also in discussions
with some parties about the possibility of other strategic transactions although there is no guarantee that these discussions will
result in an actual transaction.
Cash
As of June 30, 2017,
our cash balance was $554,800, as compared with $546,200 as of December 31, 2016, an increase of $8,600, or 1.6%. The increase
primarily resulted from our continued cash management efforts.
Accounts Receivable,
net
At June 30, 2017 and
December 31, 2016, we reported accounts receivable, net, of $447,000 and $355,300, respectively. Such amounts were reported net
of the allowance for doubtful accounts, which allowances totaled $15,300 and $7,700 at June 30, 2017 and December 31, 2016, respectively.
The increase in accounts receivable, net, was mainly due to higher sales during the three and six-month period ended June 30, 2017,
as compared same periods ended December 31, 2016. We collect the significant majority of our quarter-end accounts receivable during
the subsequent quarter; accordingly, increases or decreases in accounts receivable from one period to the next tends to be indicative
of the trend in our sales from one period to the next. From time to time, we could have individually significant accounts receivable
balances due us from one or more of our significant customers. If the financial condition of any of these significant customers
should deteriorate, our operating results could be materially affected.
Working Capital
As of June 30, 2017,
we had current assets of $1,039,000 and current liabilities of $3,622,800, which netted to working capital deficit of $2,583,600.
Included in current liabilities was the current portion of deferred revenue of $1,817,000.