ITEM
1. Financial Statements
hopTo
Inc.
Consolidated
Balance Sheets
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March
31,
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December
31,
|
|
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|
2020
|
|
|
2019
|
|
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|
|
(Unaudited)
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|
Assets
|
|
|
|
|
|
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|
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Current assets
|
|
|
|
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Cash
and cash equivalents
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|
$
|
1,467,000
|
|
|
$
|
1,541,900
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|
Accounts receivable,
net
|
|
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396,700
|
|
|
|
271,200
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|
Prepaid
expenses and other current assets
|
|
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193,200
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|
|
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59,000
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|
Total
current assets
|
|
|
2,056,900
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|
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|
1,872,100
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Property
and equipment, net
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-
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-
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Other
assets
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17,800
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|
|
|
17,800
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|
Total
assets
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|
$
|
2,074,700
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$
|
1,889,900
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Liabilities
and Stockholders’ Equity (Deficit)
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Current liabilities
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Accounts payable
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$
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260,400
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$
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271,900
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Accrued expenses
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121,000
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|
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106,000
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Accrued wages
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144,500
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136,400
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Deferred
revenue
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1,279,500
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1,256,000
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Total current
liabilities
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1,805,400
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|
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1,770,300
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Deferred
revenue
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474,300
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529,500
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Total liabilities
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2,279,700
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2,299,800
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Commitments and contingencies
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Stockholders’ equity (deficit)
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Preferred stock, $0.01 par value,
5,000,000 shares authorized, no shares issued and outstanding as of March 31, 2020 (unaudited) or December 31, 2019
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-
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-
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Common stock, $0.0001 par value,
195,000,000 shares authorized, 9,954,866 and 9,834,866 shares issued and outstanding as of March 31, 2020(unaudited) and December
31, 2019, respectively
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1,000
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|
1,000
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Additional paid-in
capital
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79,619,300
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79,523,500
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Accumulated
deficit
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(79,825,300
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)
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(79,934,400
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)
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Total
stockholders’ deficit
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(205,000
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)
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(409,900
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)
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Total
liabilities and stockholders’ deficit
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|
$
|
2,074,700
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$
|
1,889,900
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|
See
accompanying notes to unaudited consolidated financial statements
hopTo
Inc.
Consolidated
Statements of Operations
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For
the Three Months Ended
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March
31,
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March
31,
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2020
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2019
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(Unaudited)
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|
(Unaudited)
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|
|
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Revenues
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$
|
844,600
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|
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$
|
1,053,800
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Cost of revenues
|
|
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38,100
|
|
|
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29,200
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|
Gross profit
|
|
|
806,500
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1,024,600
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Operating expenses:
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Selling and marketing
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104,400
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117,000
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General and administrative
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229,000
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295,000
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Research and
development
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364,000
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374,500
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Total operating
expenses
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697,400
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786,500
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Income from
operations
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109,100
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238,100
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Other income (expense):
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Other income
(expense)
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-
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13,800
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|
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Income before provision for income
taxes
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109,100
|
|
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251,900
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|
Provision
for income taxes
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|
|
-
|
|
|
|
-
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Net income
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|
$
|
109,100
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|
|
$
|
251,900
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|
|
|
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Net income
per share, basic
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$
|
0.01
|
|
|
$
|
0.03
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Net income
per share, diluted
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$
|
0.01
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$
|
0.03
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Weighted average number of common shares outstanding
|
|
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Basic
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9,927,990
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9,804,400
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Diluted
|
|
|
9,937,617
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|
|
|
10,031,148
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|
See
accompanying notes to unaudited consolidated financial statements
hopTo
Inc.
Consolidated
Statements of Stockholders’ Deficit
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Common Stock
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Additional Paid-In
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Accumulated
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Shares
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Amount
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Capital
|
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Deficit
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Total
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Balance at December 31, 2018
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|
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9,804,400
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|
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$
|
1,000
|
|
|
$
|
79,298,200
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|
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$
|
(80,488,700
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)
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$
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(1,189,500
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)
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Contributed services
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|
|
-
|
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|
-
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|
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56,300
|
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|
|
-
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56,300
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Net income
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|
-
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|
-
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-
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251,900
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|
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251,900
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Balance at March 31, 2019 (unaudited)
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|
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9,804,400
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|
|
$
|
1,000
|
|
|
$
|
79,354,500
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|
|
$
|
(80,236,800
|
)
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$
|
(881,300
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)
|
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|
|
|
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|
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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
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|
|
|
-
|
|
|
|
39,600
|
|
|
|
-
|
|
|
|
39,600
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Contributed services
|
|
|
-
|
|
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|
-
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|
|
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56,200
|
|
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-
|
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56,200
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|
Net income
|
|
|
-
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|
-
|
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-
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109,100
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|
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109,100
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|
Balance at March 31, 2020 (unaudited)
|
|
|
9,954,866
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|
|
$
|
1,000
|
|
|
$
|
79,619,300
|
|
|
$
|
(79,825,300
|
)
|
|
$
|
(205,000
|
)
|
See
accompanying notes to unaudited consolidated financial statements
hopTo
Inc.
Consolidated
Statements of Cash Flows
|
|
For
the Three Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
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(Unaudited)
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|
(Unaudited)
|
|
Cash flows from
operating activities
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Net
income
|
|
$
|
109,100
|
|
|
$
|
251,900
|
|
Adjustments to
reconcile net income to net cash provided by (used in) operating activities:
|
|
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Depreciation
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-
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|
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|
100
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|
Contributed services
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|
56,200
|
|
|
|
56,300
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|
Changes in allowance
for doubtful accounts
|
|
|
5,600
|
|
|
|
15,000
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|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(131,100
|
)
|
|
|
(199,500
|
)
|
Prepaid expenses
and other current assets
|
|
|
(134,200
|
)
|
|
|
9,900
|
|
Accounts payable
and accrued expenses
|
|
|
51,200
|
|
|
|
(7,100
|
)
|
Deposit liability
|
|
|
-
|
|
|
|
(12,100
|
)
|
Deferred
revenue
|
|
|
(31,700
|
)
|
|
|
(4,300
|
)
|
Net cash provided
(used) by operating activities
|
|
|
(74,900
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)
|
|
|
110,200
|
|
|
|
|
|
|
|
|
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Net change in cash
|
|
|
(74,900
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)
|
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|
110,200
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|
Cash, beginning of the period
|
|
|
1,541,900
|
|
|
|
892,500
|
|
Cash, end
of the period
|
|
$
|
1,467,000
|
|
|
$
|
1,002,700
|
|
|
|
|
|
|
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|
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|
Supplemental disclosure
of cash flow information:
|
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|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes
paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activites: 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., through subsidiaries (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, 2019 which was filed with the SEC on April 14, 2020 (“2019 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, 2020 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, independent software vendors (“ISVs”),
value-added resellers (“VARs”) (collectively, “resellers”) and directly to hosting service providers,
corporate enterprises, governmental and educational institutions and others. Our product licenses are perpetual. We also separately
sell intellectual property licenses, maintenance contracts, which are comprised of license updates and customer service access,
as well as other products and services.
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.
The
following is a summary of how the Company recognizes revenue for its different products and services.
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.
The
Company has maintenance contracts with certain of its customers. Revenue from maintenance contracts is recognized ratably over
the related contract period, which generally ranges from one to five years.
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 no cash equivalents as of March 31, 2020 (unaudited) or December 31, 2019.
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 31,2020 and December 31, 2019, the allowance for doubtful
accounts totaled $12,900 and $7,300, respectively.
Concentration
of Credit Risk
For
the three-month ended March 31, 2020 and 2019, we currently consider the following to be our most significant customers and partners.
For the purposes of this presentation, “Sales” refers to the dollar value of orders received from these customers
and partners in the period indicated. These 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.
For
the three months ended March 31, 2020, the Company had 2 customers comprising 10.8% and 12.8%, respectively, of total sales.
For the three months ended March 31, 2019, the Company had 3 customers comprising 24.9%, 14.6%, and 11.0%, respectively, of
total sales. A loss of one of these customers could potentially have a significant negative impact on the Company’s
financial statements.
As
of March 31, 2020, the Company has 4 customers comprising 27.4%,14.3%, 12.9%, and 12.0%, respectively, of net accounts receivable.
As of December 31, 2019, the Company has 1 customer comprising 17.9% of net accounts receivable.
Basic
and Diluted Earnings Per Share
In
accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the
net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted
income (loss) per share reflect per share amounts that would have resulted if diluted potential common stock had been converted
to common stock. Dilutive common share equivalents as of March 31, 2020, representing 481,335 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, 2020 and 2019, the Company had total common stock equivalents of 93,076 and 106,077, respectively, which were excluded
from the computation of net income (loss) per share because they are anti-dilutive.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and accrued
expenses. The carrying amount of these financial instruments approximates fair value due to the nature of the accounts and their
short-term maturities.
Recently
Adopted Accounting Pronouncements
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,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
154,300
|
|
|
$
|
154,300
|
|
Furniture and
fixtures
|
|
|
1,600
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,900
|
|
|
|
155,900
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated
depreciation
|
|
|
(155,900
|
)
|
|
|
(155,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Depreciation
expense amounted to $0 and $100 for the three months ended March 31, 2020 and 2019, respectively.
4.
Stockholders’ Equity
Stock-Based
Compensation Plans
In
November 2012, the Company’s 2012 Equity Incentive Plan (the “12 Plan”) was approved by the stockholders. Pursuant
to the terms of the 12 Plan, stock options, stock appreciation rights, restricted stock and restricted stock units (sometimes
referred to individually or collectively as “awards”) may be granted to officers and other employees, non-employee
directors and independent consultants and advisors who render services to the Company. The Company is authorized to issue options
to purchase up to 643,797 shares of common stock, stock appreciation rights, or restricted stock in accordance with the terms
of the 12 Plan.
In
the case of a restricted stock award, the entire number of shares subject to such award would be issued at the time of the grant
and subject to vesting provisions based on time or other conditions specified by the Board or an authorized committee of the Board.
For awards based on time, should the grantee’s service to the Company end before full vesting occurred, all unvested shares
would be forfeited and returned to the Company. In the case of awards granted with vesting provisions based on specific performance
conditions, if those conditions were not met, then all shares would be forfeited and returned to the Company. Until forfeited,
all shares issued under a restricted stock award would be considered outstanding for dividend, voting and other purposes.
Under
the 12 Plan, the exercise price of non-qualified stock options granted is to be no less than 100% of the fair market value of
the Company’s common stock on the date the option is granted. The exercise price of incentive stock options granted is to
be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted provided,
however, that if the recipient of the incentive stock option owns greater than 10% of the voting power of all shares of the Company’s
capital stock then the exercise price will be no less than 110% of the fair market value of the Company’s common stock on
the date the option is granted. The purchase price of the restricted stock issued under the 12 Plan shall also not be less than
100% of the fair market value of the Company’s common stock on the date the restricted stock is granted.
All
options granted under the 12 Plan are immediately exercisable by the optionee; however, there is a vesting period for the options.
The options (and the shares of common stock issuable upon exercise of such options) vest, ratably, over a 33-month period; however,
no options (and the underlying shares of common stock) vest until after three months from the date of the option grant. The exercise
price is immediately due upon exercise of the option. The maximum term of options issued under the 12 Plan is ten years. Shares
issued upon exercise of options are subject to the Company’s repurchase, which right lapses as the shares vest. The 12 Plan
will terminate no later than November 7, 2022. As of March 31, 2020, 424,594 shares of common stock remained available for issuance
under the 12 Plan.
The
following summarizes the stock option activity for the three months ended March 31, 2020.
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
|
|
|
|
Exercise
|
|
|
Life
|
|
|
|
Options
|
|
|
Price
|
|
|
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
106,077
|
|
|
$
|
2.77
|
|
|
|
1.53
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled
|
|
|
(13,001
|
)
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2020 (unaudited)
|
|
|
93,076
|
|
|
$
|
3.03
|
|
|
|
1.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
|
|
|
|
|
|
|
|
|
|
at March 31, 2020 (unaudited)
|
|
|
93,076
|
|
|
$
|
3.03
|
|
|
|
1.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020 (unaudited)
|
|
|
93,076
|
|
|
$
|
3.03
|
|
|
|
1.49
|
|
The
following table summarizes information about options outstanding and exercisable as of March 31, 2020.
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Range
of
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise
|
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Price
|
|
|
of
Shares
|
|
|
Life
(Years)
|
|
|
Price
|
|
|
of
Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.75
- 1.00
|
|
|
|
14,533
|
|
|
|
0.78
|
|
|
$
|
0.78
|
|
|
|
14,533
|
|
|
$
|
0.78
|
|
|
2.00
- 4.00
|
|
|
|
63,677
|
|
|
|
1.62
|
|
|
|
3.21
|
|
|
|
63,677
|
|
|
|
3.21
|
|
|
4.20
- 6.68
|
|
|
|
14,866
|
|
|
|
1.65
|
|
|
|
4.46
|
|
|
|
14,866
|
|
|
|
4.46
|
|
|
|
|
|
|
93,076
|
|
|
|
|
|
|
|
|
|
|
|
93,076
|
|
|
|
|
|
Shares
of Common Stock Issued
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 31,2020 and December 31, 2019, the Company had 481,335 warrants outstanding. The warrants outstanding at March 31, 2020
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, 2020 and 2019 was as follows.
|
|
Three
Months Ended
|
|
|
|
2020
|
|
|
2019
|
|
Revenue by Country
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
312,600
|
|
|
$
|
334,700
|
|
Brazil
|
|
|
164,900
|
|
|
|
146,000
|
|
The Netherland
|
|
|
81,800
|
|
|
|
262,900
|
|
Other Countries
|
|
|
285,300
|
|
|
|
310,200
|
|
Total
|
|
$
|
844,600
|
|
|
$
|
1,053,800
|
|
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, 2020 and 2019, the Company contributed a total of $9,500 and $12,200, 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.
7.
Related Party Transactions
The
Company’s Chief Executive Officer and Interim Chief Financial Officer has served in these executive roles providing management
services to the Company since September 2018, however, does not currently receive a salary or other forms of compensation. During
the three months ended March 31, 2020 and 2019, the Company recorded an expense and contributed capital of $56,200 for
contributed services based on the estimated market rate for these services.
On
January 31, 2020, we entered into the Backstop Agreement (the “Backstop Agreement”) with a consortium of accredited
investors, including all of our directors and led by Novelty Capital Partners LP, pursuant to which such investors agreed to purchase
in a private placement, at $0.30 per share, up to $2.41 million of shares of our common stock. The consummation of the investment
pursuant to the Backstop Agreement was conditioned on the closing of our subscription rights offering to all of our stockholders
(the “Rights Offering”). While upon the closing of the Rights Offering, we anticipated that the Backstop Agreement
would close in April 2020, as of the filing of this Quarterly Report on Form 10-Q the Backstop Agreement has not closed and we
now expect to consummate the Backstop Agreement transactions by the end of May 2020.
Subsequent
to the expiration of the Rights Offering, we received gross
proceeds of $480,191 in exchange for 1.6 million shares of common stock. Pursuant to the Backstop Agreement, we expect to receive
proceeds of $2.12 million in exchange for the issuance of 7.0 million restricted shares of common stock.
8.
Subsequent Events
See
Note 7 above regarding the Rights Offering and Backstop Agreement.
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, 2019 which was filed with the Securities and Exchange Commission (the “SEC”)
on April 14, 2020, 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
We
are developers of application publishing software which includes application virtualization software and cloud computing software
for multiple computer operating systems including Windows, UNIX and several Linux-based variants. Our application publishing software
solutions are sold under the brand name GO-Global, which is our sole revenue source. GO-Global is an application access solution
for use and/or resale by independent software vendors (“ISVs”), corporate enterprises, governmental and educational
institutions, and others who wish to take advantage of cross-platform remote access and Web-enabled access to their existing software
applications, as well as those who are deploying secure, private cloud environments.
Beginning
in 2012, we developed and marketed several products in the field of software productivity for mobile devices such as tablets and
smartphones under the hopTo brand. We ceased all our sales, marketing and development for the hopTo products in 2016.
We
have made investments in intellectual property (“IP”) and filed many patents designed to protect the technologies
embedded in the hopTo products. We are currently marketing for sale 49 patents and related source code developed from our hopTo
development efforts.
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 2019 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, 2020 and 2019
The
following are the results of our operations for the three months ended March 31, 2020 as compared to the three months ended March
31, 2019.
|
|
For
the Three Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
844,600
|
|
|
$
|
1,053,800
|
|
Cost
of revenues
|
|
|
38,100
|
|
|
|
29,200
|
|
Gross
profit
|
|
|
806,500
|
|
|
|
1,024,600
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
104,400
|
|
|
|
117,000
|
|
General
and administrative
|
|
|
229,000
|
|
|
|
295,000
|
|
Research
and development
|
|
|
364,000
|
|
|
|
374,500
|
|
Total
operating expenses
|
|
|
697,400
|
|
|
|
786,500
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
109,100
|
|
|
|
238,100
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
-
|
|
|
|
13,800
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
109,100
|
|
|
|
251,900
|
|
Provision
for income taxes
|
|
|
-
|
|
|
|
-
|
|
Net
income
|
|
$
|
109,100
|
|
|
$
|
251,900
|
|
|
|
|
|
|
|
|
|
|
Net
income per share, basic
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
Net
income per share, diluted
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,927,990
|
|
|
|
9,804,400
|
|
Diluted
|
|
|
9,938,226
|
|
|
|
10,031,148
|
|
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 $97,600 or 29.1% to $237,900 during the three months ended March 31, 2020,
from $335,500 for the same period in 2019. The decrease was entirely due to a certain partner that purchased a large order
of Windows licenses from the Company during the three months ended March 31, 2019 that did not recur during the three months ended
March 31, 2020. The decrease was partially offset by an increase in purchase activity related to demand for remote access software
due to the coronavirus pandemic.
Software
licenses revenue from our UNIX/Linux products increased by $24,800 or 182.4% to $38,400 for the three months ended March 31, 2020
from $13,600 for the same periods of 2019. The increase was primarily due to higher revenue from higher stocking and standard
order licenses.
We
expect aggregate GO-Global total software license revenue in 2020 to be in-line with 2019 levels as we are observing a mix of
both higher and lower aggregate revenue from our various customers.
Software
Service Fees
Service
fees attributable to our Windows product service decreased by $116,100 or 19.4% to $481,600 during three months
ended March 31, 2020, from $597,700 for the same period in 2019. The decrease was primarily due to timing of revenue recognition
for maintenance support fees along with a decrease in maintenance support for a large OEM partner and the expiration of a long-term
maintenance contract for a European customer. These were partially offset by an increase in maintenance support fees due to an
increase in Windows product sales from other customers throughout the prior year.
Service
fees revenue attributable to our UNIX products decreased by $19,000 or 22.6% to $65,100 during the three months
ended March 31, 2020, from $84,100 for the same period in 2019. The decrease was primarily the result of the lower level
of UNIX product sales throughout the prior year and an expiration of certain long-term maintenance contracts.
We
expect that software service fees for 2020 will approximate to those for 2019.
Other
Other
revenue consists of private labeling fees and professional services. Other revenue decreased by $1,400 or 6.1% for the three months
ended March 31, 2020, compared to the same period in 2019.
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, 2020 increased by $8,900, or 30.5%, to $38,100 for the three months ended March
31, 2020 from $29,200 for the same period in 2019. Cost of revenue represented 4.5% and 2.8% of total revenue for the three months
ended March 31, 2020 and 2019, respectively. The primarily increase was due to increase import tax withholdings associated with
higher revenue from Brazil resellers for the three-month period ended March 31, 2020.
We
expect 2020 cost of revenue to be slightly higher than 2019 for the above reason.
Selling
and Marketing Expenses
Selling
and marketing expenses primarily consisted of employee, outside services and travel and entertainment expenses.
Selling
and marketing expenses decreased by $12,600, or 10.8%, to $104,400 for the three months ended March 31, 2020 from $117,000 for
the same period in 2019. Selling and marketing expenses represented approximately 12.4% and 11.1% of total revenue for the three
months ended March 2020 and 2019, respectively. The decrease in selling and marketing expenses was due to a decrease in consulting
services and employee benefit costs.
We
expect to maintain our sales and marketing efforts in 2020 for anticipated GO-Global releases with select targeted modest investments
in promotional activity; accordingly, for this reason, we expect 2020 sales and marketing expenses to be slightly higher than
2019 levels.
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 $66,000, or 22.4%, to $229,000 for the three months ended March 31, 2020 from $295,000
for the same period in 2019. General and administrative expenses represented approximately 27.1% and 28.0% of total revenue for
the three months ended March 31, 2020 and 2019, respectively.
The
decrease in general and administrative expense was due to lower accounting fees and employee benefit costs.
In
2020, we anticipate a reduction in accounting fees and employee benefit costs compared to 2019 levels due to changes in service
providers and improved cost controls by management. We therefore expect that our 2020 general and administrative costs will be
slightly lower than those for 2019.
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 $10,500, or 12.8% to $364,000 for the three months ended March 31, 2020 from $374,500 for
the same period in 2019. This represented approximately 43.1% and 35.5% of total revenue for the three months ended March 31,
2020 and 2019, respectively.
The
decrease in research and development expense was primarily due to a decrease in consulting fees associated with completing the
new releases of our GO-Global products.
In
2020, we expect to continue our investments in research and development resources associated with our GO-Global products based
on market feedback. We therefore expect 2020 research and development expenses to be slightly higher than 2019 levels.
Liquidity
and Capital Resources
As
of March 31, 2020, we had cash of $1,467,000 and a working capital position of $251,500 as compared to cash of $1,541,900 and
a working capital position of $101,800 at December 31, 2019. The decrease in cash as of March 31, 2020 was primarily the result
of cash used in operations during the period. We expect our results from operations and capital resources will be sufficient to
fund our operations for at least the next 12 months from the date of the filing of this quarterly report on Form 10-Q.
The
following is a summary of our cash flows from operating, investing and financing activities for the three months ended March 31,
2020 and 2019.
|
|
For
the Three Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2020
|
|
|
2020
|
|
Cash flows provided by operating
activities
|
|
$
|
(74,900
|
)
|
|
$
|
110,200
|
|
Cash flows provided by investing activities
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash flows provided by financing activities
|
|
$
|
-
|
|
|
$
|
-
|
|
Net
cash flows used by operating activities for the three months ended March 31, 2020 amounted to $74,900, compared to cash flows
provided by operating activities of $110,200 for the three months ended March 31, 2019. The decrease in cash flows provided by
operating activities is primarily the result of lower net income and an increase in accounts receivable and prepaid expenses compared
to the prior year period.
We
had no cash flow activity relating to investing or financing activities for the three months ended March 31, 2020 or 2019.
Subsequent
to March 31, 2020, we received gross proceeds of $480,191 from the Rights Offering and expect to receive $2.12 million
from the closing of the investment pursuant to the Backstop Agreement. We intend to use the proceeds from the Rights Offering
and the Backstop Agreement for general corporate purposes, which may include acquisitions (although we do not currently have any
plans with respect to any acquisition).