10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

 SECURITIES EXCHANGE ACT OF 1934

 For the Quarterly Period Ended September 30, 2013

Commission File Number: 0-21683

HOPTO INC.

(Exact name of registrant as specified in its charter)

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

1901 S. Bascom Avenue, Suite 660

Campbell, CA 95008

(Address of principal executive offices)

Registrant’s telephone number:

(800) 472-7466

(408) 688-2674

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

 Yes x No o

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

 Yes x No o

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

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

As of November 8, 2013, there were issued and outstanding 101,459,382 shares of the registrant’s common stock, par value $0.0001.

HOPTO INC.

FORM 10-Q

Table of Contents

PART I.	FINANCIAL INFORMATION	PAGE
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012	2
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine-Month Periods Ended September 30, 2013 and 2012	3
	Unaudited Condensed Consolidated Statements of Stockholders’ Deficit for the Nine-Month Periods Ended September 30, 2013 and 2012	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2013 and 2012	5
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
	Signatures	35

Forward-Looking Information

This report includes, in addition to historical information, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  This act provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results.  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 future results of operations or financial position 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 our new 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; and

· other factors, including, but not limited to, those set forth under Item 1A, “Risk Factors” in our Annual Report, as amended, on Form 10-K/A for the year ended December 31, 2012, which was filed with the SEC on April 12, 2013, 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.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

HOPTO INC.

Condensed Consolidated Balance Sheets

 

	(Unaudited)
Assets	September 30, 2013			December 31, 2012
Current Assets:
Cash	$	3,557,100		$	3,960,600
Accounts receivable, net		700,400			865,900
Prepaid expenses		62,400			150,200
Total Current Assets		4,319,900			4,976,700
Capitalized software development costs, net		659,600			223,100
Property and equipment, net		357,800			358,900
Other assets		31,700			46,900
Total Assets	$	5,369,000		$	5,605,600
Liabilities and Stockholders’ Deficit
Current Liabilities:
Accounts payable and accrued expenses	$	969,400		$	739,100
Deferred revenue		2,638,200			2,921,600
Severance liability		140,100			209,500
Deferred rent		29,800			26,700
Total Current Liabilities		3,777,500			3,896,900
Warrants liability		1,968,800			7,390,100
Deferred revenue		476,700			570,400
Severance liability		—			52,900
Deferred rent		104,500			127,500
Total Liabilities		6,327,500			12,037,800
Commitments and contingencies
Stockholders' 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, 95,507,634 and 82,616,750 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		9,500			8,300
Additional paid-in capital		70,748,100			62,425,400
Accumulated deficit		(71,716,100	)		(68,865,900	)
Total Stockholders'  Deficit		(958,500	)		(6,432,200	)
Total Liabilities and Stockholders' Deficit	$	5,369,000		$	5,605,600

See accompanying notes to unaudited condensed consolidated financial statements

2

 HOPTO INC.

Condensed Consolidated Statements of Operations

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenue	$	1,534,700		$	1,734,100		$	4,545,500		$	4,915,600
Costs of revenue		100,500			160,700			349,600			431,600
Gross profit		1,434,200			1,573,400			4,195,900			4,484,000
Operating expenses:
Selling and marketing		683,300			602,100			1,743,500			1,781,400
General and administrative		914,900			677,500			2,441,600			3,162,300
Research and development		1,444,500			948,600			3,533,300			2,966,500
Total operating expenses		3,042,700			2,228,200			7,718,400			7,910,200
Loss from operations		(1,608,500	)		(654,800	)		(3,522,500	)		(3,426,200	)
Other income (expense):
Change in fair value of warrants liability		(639,100	)		(3,025,700	)		680,100			(2,417,800	)
Other, net		(200	)		1,600			(500	)		5,100
Loss from continuing operations before provision for income tax		(2,247,800	)		(3,678,900	)		(2,842,900	)		(5,838,900	)
Provision for income tax		4,600			600			7,300			2,600
Loss from continuing operations		(2,252,400	)		(3,679,500	)		(2,850,200	)		(5,841,500	)
Loss from discontinued operations		—			(347,100	)		—			(468,400	)
Net Loss	$	(2,252,400	)	$	(4,026,600	)	$	(2,850,200	)	$	(6,309,900	)
Loss per share:
Continuing operations – basic and diluted	$	(0.02	)	$	(0.04	)	$	(0.03	)	$	(0.07	)
Discontinued operations – basic and diluted		—			(0.01	)		—			(0.01	)
Basic and diluted loss per share	$	(0.02	)	$	(0.05	)	$	(0.03	)	$	(0.08	)
Average weighted common shares outstanding – basic and diluted		94,836,777			82,255,955			87,992,742			82,044,581

See accompanying notes to unaudited condensed consolidated financial statements

3

HOPTO INC.

Condensed Consolidated Statements of Stockholders’ Deficit

	Nine Months Ended September 30,
	2013			2012
	(Unaudited)			(Unaudited)
Preferred stock – shares outstanding
Beginning balance		—			—
Ending balance		—			—
		—			—
Common stock – shares outstanding
Beginning balance		82,616,750			81,886,926
Employee stock option issuances		1,459,972			567,176
Exercise of warrants		10,222,500			—
Vesting of restricted stock awards		1,208,412			—
Ending balance		95,507,634			82,454,102
Common stock – amount
Beginning balance	$	8,300		$	8,200
Exercise of employee stock options		100			400
Exercise of warrants		900			—
Vesting of restricted stock awards		200			—
Ending balance	$	9,500		$	8,600
Additional paid-in capital
Beginning balance	$	62,425,400		$	61,398,600
Stock-based compensation expense		617,000			521,600
Stock-based compensation expense – severance agreement		—			237,400
Proceeds from exercise of employee stock options		302,600			44,000
Proceeds from exercise of warrants		2,614,400			—
Issuance of new warrants, per exercise agreement		514,800			—
New warrants recorded as cost of exercise agreement		(514,800	)		—
Issuance of new warrants,  per offer to exercise		45,600			—
New warrants recorded as cost of offer to exercise		(45,600	)		—
Accretion of compensation expense – consultant warrants		11,800			—
Reclassification of warrants liability to equity from exercise of warrants		385,900			—
Reclassification of warrants liability to equity from amendment of warrants		4,391,000			—
Ending balance	$	70,748,100		$	62,201,600
Accumulated deficit
Beginning balance	$	(68,865,900	)	$	(60,689,200	)
Net loss		(2,850,200	)		(6,309,900	)
Ending balance	$	(71,716,100	)	$	(66,999,100	)
Total Stockholders’ Deficit	$	(958,500	)	$	(4,788,900	)

See accompanying notes to unaudited condensed consolidated financial statements

4

HOPTO INC.

Condensed Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
	2013			2012
Cash Flows Provided By (Used In) Operating Activities:	(Unaudited)			(Unaudited)
Net Loss	$	(2,850,200	)	$	(6,309,900	)
Loss from discontinued operations		—			468,400
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		187,700			191,700
Stock-based compensation expense		580,500			759,000
Change in fair value of derivative instruments – warrants		(680,100	)		2,417,800
Accretion of warrants liability for consulting services		35,700			52,700
Accretion of equity warrants for consulting services		11,800			—
Revenue deferred to future periods		2,725,500			3,832,300
Recognition of deferred revenue		(3,102,600	)		(3,519,300	)
Changes in severance liability		(122,300	)		336,800
Changes in deferred rent		(19,900	)		32,000
Changes to allowance for doubtful accounts		(4,300	)		5,200
Loss on disposal of fixed assets		—			600
Changes in operating assets and liabilities:
Accounts receivable		169,800			(53,000	)
Prepaid expenses		87,800			31,700
Accounts payable and accrued expenses		226,600			56,600
Other assets		15,200			(7,500	)
Net Cash Used In Operating Activities - Continuing Operations		(2,738,800	)		(1,704,900	)
Net Cash Used In Operating Activities - Discontinued Operations		—			(432,800	)
Net Cash Used in Operating Activities		(2,738,800	)		(2,137,700	)
Cash Flows Used In Investing Activities:
Capital expenditures		(75,800	)		(269,800	)
Capitalized software development costs		(506,900	)		—
Net Cash Used In Investing Activities - Continuing Operations		(582,700	)		(269,800	)
Net Cash Used In Investing Activities - Discontinued Operations		—			—
Net Cash Used In Investing Activities		(582,700	)		(269,800	)

5

HOPTO INC.

Condensed Consolidated Statements of Cash Flows (Continued)

	Nine Months Ended September 30,
	2013			2012
	(Unaudited)			(Unaudited)
Cash Flows Provided By (Used In) Financing Activities:
Proceeds from exercise of warrants		2,615,300			—
Proceeds from exercise of employee stock options		302,700			44,400
Increase in payables related to restricted cash		—			198,300
Proceeds from restricted cash transaction		—			(198,300	)
Net Cash Provided By Financing Activities -Continuing Operations		2,918,000			44,400
Net Cash Provided By Financing Activities - Discontinued Operations		—			—
Net Cash Provided By Financing Activities		2,918,000			44,400
Net Decrease in Cash		(403,500	)		(2,363,100	)
Cash - Beginning of Period		3,960,600			7,237,500
Cash - End of Period	$	3,557,100		$	4,874,400

See accompanying notes to unaudited condensed consolidated financial statements

6

HOPTO INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1.  Basis of Presentation

Our Board of Directors adopted an amendment to our Certificate of Incorporation changing our name from GraphOn Corporation to hopTo Inc. effective September 9, 2013. A Certificate of Amendment of Incorporation was filed with the Delaware Secretary of State implementing the name change. The amendment had been previously approved by our stockholders.

The unaudited condensed consolidated financial statements include the accounts of hopTo Inc. and its subsidiaries (collectively, “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, except for the effect of the amendment to warrants (Note 4), 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, as amended, on Form 10-K/A for the year ended December 31, 2012, which was filed with the SEC on April 12, 2013 (“2012 10-K/A 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, 2013 or any future period.

During September 2012, we reached settlement and licensing agreements that effectively ended all of our then on-going intellectual property litigation.  Having been approached by the respective counter-parties to each of our lawsuits, and in consultation with our board of directors, we determined that it was in our best long-term strategic interests to settle each lawsuit in order to move forward and shift our focus to our software products, including our new product initiatives.    We do not intend to pursue intellectual property litigation as an integral part of our strategy to fund our future operations.  Accordingly for all periods presented, the results of operations and cash flows related to our former intellectual property segment has been segregated and reported as “Discontinued Operations”.  See Note 17 to our Notes to Unaudited Condensed Consolidated Financial Statements.

2.  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

7

· 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 lease for our office in Campbell, California, contains free rent and predetermined fixed escalations in our minimum rent payments. We recognize rent expense related to this lease on a straight-line basis over the term of the lease. We record any difference between the straight-line rent amounts and amounts payable under the lease as part of deferred rent in current or long-term liabilities, as appropriate.

Incentives that we 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. We record the unamortized portion of these incentives as a part of deferred rent in current or long-term liabilities, as appropriate.

Postemployment Benefits (Severance Liability)

Nonretirement postemployment benefits, including salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits and continuation of benefits such as health care benefits, are recognized as a liability and a loss when it is probable that the employee(s) will be entitled to such benefits and the amount can be reasonably estimated. The cost of termination benefits recognized as a liability and an expense includes the amount of any lump-sum payments and the present value of any expected future payments. During 2012, we recorded $721,800 of severance expense, including stock compensation expense. Such expense was recorded as a result of a separation agreement and a release with Robert Dilworth in connection with Mr. Dilworth’s resignation as our Chief Executive Officer and as a member of our board of directors.  In addition, during 2013 we recorded an additional $75,700 of severance expense as a result of a separation and release agreement we entered into with a former vice president-level employee (as further discussed in Note 5 to Unaudited Condensed Consolidated Financial Statements).  An aggregate of $140,100 and $262,400 is reflected as a severance liability, at September 30, 2013 and December 31, 2012, respectively.

8

Software Development Costs

We capitalize software development costs incurred from the time technological feasibility of the software is established until the software is available for general release, in accordance with GAAP. Such capitalized costs are subsequently amortized as costs of revenue over the shorter of three years or the remaining estimated useful life of the product.

Research and development costs and other computer software maintenance costs related to the software development are expensed as incurred.

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. No such impairment charge was recorded during either of the three or nine-month periods ended September 30, 2013 or 2012.

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 and nine-month periods ended September 30, 2013 and 2012:

	Beginning Balance		Charge Offs		Recoveries		Provision			Ending Balance
	Three Months Ended September 30,
2013	$	24,600	$	—	$	—	$	5,000		$	29,600
2012		37,900		—		—		(7,700	)		30,200
		Nine Months Ended September 30,
2013	$	33,900	$	—	$	—	$	(4,300	)	$	29,600
2012		25,000		—		—		5,200			30,200

Concentration of Credit Risk

For the three and nine-month periods ended September 30, 2013 and 2012 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 for the three and nine-month periods ended September 30, 2013 and 2012, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net, as of September 30, 2013 and 2012.

	Three Months Ended September 30, 2013						Three Months Ended September 30, 2012
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Elosoft		10.4	%		15.1	%		7.2	%		10.7	%
IDS		9.9	%		4.5	%		8.7	%		1.2	%
GE		9.7	%		16.5	%		10.1	%		19.8	%
Alcatel-Lucent		8.4	%		16.2	%		7.2	%		14.3	%
GAD		6.4	%		—			5.5	%		—
Total		44.8	%		52.3	%		38.7	%		46.0	%

9

	Nine Months Ended September 30, 2013						Nine Months Ended September 30, 2012
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Elosoft		6.3	%		15.1	%		5.5	%		10.7	%
IDS		6.6	%		4.5	%		5.4	%		1.2	%
GE		6.8	%		16.5	%		8.1	%		19.8	%
Alcatel-Lucent		7.5	%		16.2	%		4.8	%		14.3	%
GAD		4.7	%		—			10.5	%		—
Total		31.9	%		52.3	%		34.3	%		46.0	%

Derivative Financial Instruments

We currently do not have a material exposure to either commodity prices or interest rates; accordingly, we do not currently use derivative instruments to manage such risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. All derivative financial instruments are recognized in the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge accounting.

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 Account 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.

As of September 30, 2013, all of our $1,968,800 Warrants Liability reported at fair value was categorized as Level 3 inputs (See Note 4).

Recent Accounting Pronouncements

In July 2013, FASB issued ASU No. 2013-11 “Income Taxes (Topic 740)” (ASU 2013-11). The objective of ASU 2013-11 is to provide explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. FASB recognized that there was inconsistency in how previous guidance in this topic was applied in practice, thus; the objective of ASU 2013-11 is to eliminate the diversity of how previous guidance was applied. As the amendments in ASU 2013-11 do not require new recurring disclosures, rather, they are aimed at creating consistency in how previous guidance is applied, we do not believe that adoption of ASU 2013-11, which will become effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, will have a material impact on our results of operations, cash flows or financial position.

10

In February 2013, FASB issued ASU No. 2013-02 “Other Comprehensive Income” (ASU 2013-02). The objective of ASU 2013-02 is to improve the reporting of reclassifications out of other comprehensive income.  This objective is reached by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income.  ASU 2013-02 is effective and is to be applied prospectively to reporting periods beginning after December 15, 2012. We currently have no amounts that would meet the criteria to be reclassified; accordingly, the adoption of ASU 2013-02 did not have a material impact on our results of operations, cash flows or financial position.  Comprehensive loss equals net loss for the each of the three and nine-month periods ended September 30, 2013 and 2012, respectively.

In July 2012, FASB issued ASU No. 2012-02 “Intangibles – Goodwill and Other” (ASU 2012-02). The objective of ASU 2012-02 is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. ASU 2012-02 is effective for fiscal years beginning after September 15, 2012. Early adoption is permitted. We currently have no goodwill or material indefinite-lived intangible assets; accordingly, the adoption of ASU 2012-02 did not have a material impact on our results of operations, cash flows or financial position.

3.  Property and Equipment

Property and equipment was:

	September 30, 2013		December 31, 2012
Equipment	$	1,238,800	$	1,171,900
Furniture		392,800		380,200
Leasehold improvements		147,500		147,500
		1,779,100		1,699,600
Less: accumulated depreciation and amortization		1,421,300		1,340,700
	$	357,800	$	358,900

Aggregate property and equipment depreciation and amortization expense was $28,200 during the three-month period ended September 30, 2013 and $80,600 during the nine-month period ended September 30, 2013. During the nine-month period ended September 30, 2013, we capitalized the following costs: equipment; $64,900, furniture; $14,600.

4.  Liability Attributable to Warrants

On June 17, 2013, we entered into, and subsequently consummated, an Exercise Agreement (the “Exercise Agreement”) with five of the largest investors in our September 1, 2011 private placement of common stock and warrants (the “2011 Transaction”), providing for the exercise for cash by such investors of warrants to purchase an aggregate of 9 million shares of our common stock, out of the approximately 17 million shares of common stock subject to warrants issued to the investors in the 2011 Transaction that remained outstanding as of such date. The approximately 5 million shares of common stock subject to warrants issued to the placement agent in the 2011 Transaction that remained outstanding as of such date were not part of the Exercise Agreement.  The Company agreed under the Exercise Agreement to subsequently commence a tender offer (the “Offer to Exercise”) to provide these holders of other warrants that remained outstanding from the 2011 Transaction with the same opportunity to exercise as provided under the Exercise Agreement.

The warrants exercised had a remaining term of approximately 38 months, and had an exercise price of $0.26 per warrant, which was the original exercise price. We received cash proceeds of $2.34 million as a result of the warrants exercised. In consideration for the early exercise of these warrants, we issued to the five investors an aggregate of 4.5 million warrants to purchase common stock at an exercise price of $1.00 per warrant, with a term of five years from issuance (the “New Warrants”). The New Warrants were issued on June 18, 2013, are substantially similar to the investor warrants that were exercised, and, after giving effect to the amendments to such warrants described below, such warrants have been recorded as a component of equity (additional paid-in capital “APIC”) at Level 3 fair value.

Using a binomial pricing model, we calculated the fair value of the New Warrants issued at the time of the Exercise Agreement to be $514,800. We used the following assumptions in the binomial pricing model: estimated volatility – 185%; annualized forfeiture rate – 0%; expected term – 5 years; estimated exercise factor – 1.5, risk free interest rate – 1.07%; and dividends – 0.  The New Warrants were accounted for as a cost of the exercise of the warrants issued pursuant to the Exercise Agreement; as a result a $514,800 reduction of APIC was also recorded.  Accordingly, there was no net effect on equity because of the issuance of the new warrants.

11

Immediately prior to the exercise for cash, the five investors, who held a majority of the outstanding warrants issued in the 2011 Transaction to investors (“Investor Warrants”), agreed to amend the entire series of such warrants to delete the following provisions: (1) the price-based anti-dilution clause; (2) our right to lower the exercise price in our discretion; and (3) a clause that mandated that we buy the warrants for cash at their Black-Scholes value in the event of certain extraordinary transactions. By virtue of a majority-rule clause in the warrants, the elimination of these provisions from the Investor Warrants issued in the 2011 Transaction eliminated the warrant derivative liability classification related to all of the Investor Warrants issued in the 2011 Transaction including those held by investors who did not exercise their warrants at the date of the amendment.   The tables below show the calculation of the reduction of the warrants derivative liability.

The warrants issued to the placement agent and to an intellectual property consulting firm (ipCapital Group, Inc.) were not included in the Exercise Agreement or affected by the amendment described above.   The exercise price of such warrants could, in certain circumstances, be reset to below-market value. Accordingly, unlike the amended investor warrants, we have concluded that the warrants issued to the placement agent and ipCapital Group, Inc. are not indexed to our common stock; therefore, the fair value of these warrants were, and continue to be, recorded as a liability.

On August 9, 2013, we consummated an offer to exercise warrants (the “Offer to Exercise”) made to holders of warrants in the 2011 Transaction who were not parties to the Exercise Agreement.  We were obligated to conduct the Offer to Exercise under the terms of the Exercise Agreement entered into in connection with the June 17, 2013 transaction.  In connection with the Offer to Exercise, warrants to purchase an aggregate of 305,000 shares of our common stock were exercised for which we received cash proceeds of $64,000.  In consideration for the early exercise of these warrants, we issued an aggregate of 152,500 New Warrants at an exercise price of $1.00 per warrant, with a term of five years from issuance.

Using a binomial pricing model, we calculated the fair value of the New Warrants issued at the end of the Offer to Exercise to be $45,600. We used the following assumptions in the binomial pricing model: estimated volatility 171%; annualized forfeiture rate 0%; expected term 4.875 years; estimated exercise factor 4, risk free interest rate 1.31%; and dividends 0.  The New Warrants were accounted for as a cost of the exercise of the warrants issued pursuant to the Exercise Agreement; as a result a $45,600 reduction of APIC was also recorded.  Accordingly, there was no net effect on equity because of the issuance of the new warrants.

Under ASC 820, “Fair Value Measurement,” we re-measure the fair value of the warrants classified as a liability at every balance sheet date.  As an integral part of the re-measurement process, we reevaluate each of the assumptions used, and when circumstances change or we become aware of new information affecting any of our assumptions, we adjust those assumptions accordingly.  During the three months ended March 31, 2013 two investors in the 2011 private placement exercised an aggregate of 462,500 warrants.  While closing our books for the three months ended March 31, 2013, we reevaluated our internal assumptions based on historic and recent exercise patterns and analysis of our stock performance.  Based on the work performed, we concluded that a lowering of our estimated exercise factor for the warrants issued in conjunction with the 2011 transaction from 10 to 4 was appropriate (see the assumptions used, as set forth in the tables, below).

Changes in fair value of the warrants liability are recognized in other (income), except for changes in the fair value of the warrants issued to ipCapital which are recognized as a component of general and administrative expense in the condensed consolidated statement of operations.

We used the exercise price of the warrants, as well as the fair market value of our common stock, to determine the fair value of our warrants.  The exercise price for warrants issued in conjunction with the 2011 Transaction, including those issued to the placement agent, was either $0.20 or $0.26 per share, and was $0.26 per share for the warrants issued to ipCapital. The fair market value of our common stock was $0.54 and $0.30 per share as of September 30, 2013 and 2012, respectively.

We used a binomial pricing model to determine the fair value of our warrants liability as of September 30, 2013 and December 31, 2012, the balance sheet dates, using the following assumptions:

	2011 Transaction						ipCapital
	September 30, 2013			December 31, 2012			September 30, 2013			December 31, 2012
Estimated volatility		120	%		159	%		125	%		163	%
Annualized forfeiture rate		—			—			—			—
Expected option term (years)		2.92			3.67			3.04			3.79
Estimated exercise factor		4			10			4			10
Risk-free interest rate		0.50	%		0.45	%		0.64	%		0.65	%
Dividends		—			—			—			—

12

The following table is a reconciliation of the warrants liability measured at fair value using significant unobservable inputs (Level 3) for the nine months ended September 30, 2013:

Warrants liability – December 31, 2012 fair value	$	7,390,100
Change in fair value of warrant liability recorded in other income		(680,100	)
Change in fair value of warrant liability recorded in general and administrative expense		35,700
Reclassification of warrants liability to equity from exercise of warrants (1)		(385,900	)
Reclassification of warrants liability to equity from amendment to warrants  (1)		(4,391,000	)
Warrants liability – September 30, 2013 fair value	$	1,968,800

(1) During the nine-month period ended September 30, 2013, our warrants liability was reduced as a result of the warrants amendment, as discussed above. Additionally, our warrants liability was further reduced by $385,900 as a result of the exercise of 1,072,500 warrants during such period, whose terms were not affected by the changes made under the warrants amendment. The aggregate reduction in the liability, combining the warrant amendment and this exercise, was $4,776,900. See Note 13.

The following tables reconcile the number of warrants outstanding for the periods indicated:

For the Three-Month Period Ended September 30, 2013
	Beginning Outstanding		Issued		Exercised		Ending Outstanding
2011 Transaction		13,157,500		—		305,000		12,852,500
Exercise Agreement		4,500,000		—		—		4,500,000
ipCapital		400,000		—		—		400,000
Consultant Warrant (1)		—		312,500		—		312,500
Offer to Exercise		—		152,500		—		152,500
Total		18,057,500		465,000		305,000		18,217,500

For the Nine-Month Period Ended September 30, 2013
	Beginning Outstanding		Issued		Exercised		Ending Outstanding
2011 Transaction		23,075,000		—		10,222,500		12,852,500
Exercise Agreement		—		4,500,000		—		4,500,000
ipCapital		400,000		—		—		400,000
Consulting Warrant (1)		—		312,500		—		312,500
Offer to Exercise		—		152,500		—		152,500
Total		23,475,000		4,965,000		10,222,500		18,217,500

For the Three and Nine-Month Period Ended September 30, 2012
	Beginning Outstanding		Issued		Exercised		Ending Outstanding
2011 Transaction		23,075,000		—		—		23,075,000
ipCapital		400,000		—		—		400,000
Total		23,475,000		—		—		23,475,000

13

(1) Effective September 18, 2013, we entered into a consulting agreement with Genesis Select to provide us with a variety of investor relations services. As part of their compensation, we issued to them a warrant to purchase 312,500 shares of our common stock at an exercise price of $0.50 per share. The warrant will vest, monthly, over the initial twelve-month service period of the contract, assuming that the agreement remains in-force, with the first vesting having occured on October 18, 2013. The warrant is substantially similar in nature to those issued in the warrant amendment, discussed above, thus; the warrant is accounted in equity and is not included as a component of our warrants liability as of September 30, 2013. We used the following assumptions in a binomial pricing model to calculate the fair value of the warrant issued to Genesis: estimated volatility – 181%; expected term – 4.96 years; estimated exercise factor – 4, risk free interest rate – 1.41%; and dividends – 0. Expense associated with this warrant is recognized as a component of general and administrative expense over the one-year vesting term of the warrant.

5.  Severance Liability

On April 12, 2012, we entered into a separation agreement and a release with Robert Dilworth in connection with Mr. Dilworth’s resignation as our Chief Executive Officer and as a member of our board of directors. Subject to the terms of the separation agreement, effective April 20, 2012 (the “Release Effective Date”) we paid or provided Mr. Dilworth the following:

· On the Release Effective Date, Mr. Dilworth’s outstanding unvested options became fully vested and exercisable, and his outstanding vested options were modified to extend the exercise period. All options will remain exercisable until the earlier of (i) the expiration dates of each of such options or (ii) the date that is 30 months after the Release Effective Date. The number of shares of common stock issuable upon exercise of such outstanding options is 2,000,000. We recognized $172,700 of non-cash stock-based compensation expense during 2012, as a result of the modification of Mr. Dilworth’s outstanding stock options.  No expense was recognized during the nine-month period ended September 30, 2013 as a result of the modifications.

· On the Release Effective Date, Mr. Dilworth was granted an option to purchase 500,000 shares of common stock at an exercise price of $0.20 per share. Such option has a term of 30 months from the date of grant and will vest and become exercisable at a rate of 62,500 shares per quarter commencing on July 1, 2012. We recognized $64,700 of non-cash stock-based compensation expense during 2012 as a result of the issuance of this stock option to Mr. Dilworth.  No expense was recognized during the nine-month period ended September 30, 2013 as a result of the issuance.

· From May 2012 through April 2013, Mr. Dilworth was paid $27,300 per month. From May 2013 through April 2014, Mr. Dilworth will be paid $13,600 per month.  During the three-month period ended June 30, 2012, we recognized $433,700 compensation expense related to Mr. Dilworth’s separation agreement, which we recorded as a liability.  Such amount represented the present value of the future salary and medical insurance (discussed below) continuation payments due Mr. Dilworth under the terms of the separation agreement.  During the three and nine-month periods ended September 30, 2013, we made salary continuation payments aggregating $36,600 and $172,900, respectively, to Mr. Dilworth.  As of September 30, 2013, the aggregate present value of the remaining future salary and medical insurance coverage continuation payments due Mr. Dilworth was $92,300, which was reported as a current liability.  All interest expense associated with the salary and medical insurance continuation payments made are charged to general and administrative expenses as incurred.  During the three and nine-month periods ended June 30, 2013, we incurred interest charges of $4,200 and $18,100 respectively.

· From May 2012 through October 2013, we paid the premium costs to continue medical coverage for Mr. Dilworth and his spouse under the Employment Retirement Income Security Act of 1974. Such premiums aggregated $5,800 for May 2012 and June 2012, and will approximate $1,300 per month thereafter. During the three and nine-month periods ended September 30, 2013 we made medical insurance coverage continuation payments of $3,800 and $11,000 respectively.  During the three and nine-month periods ended September 30, 2013, we incurred interest charges of $100 and $700, respectively.

· We paid Mr. Dilworth $15,000 as reimbursement for a portion of his legal fees in connection with negotiation of the separation agreement and the release.

Mr. Dilworth’s participation in the Key Employee Severance Plan and the Director Severance Plan was automatically terminated on the Release Effective Date. In addition, the separation agreement contains confidentiality and non-disparagement provisions subject to the terms set forth therein. Pursuant to the terms of the release, Mr. Dilworth provided as of the Release Effective Date a release of claims in connection with his employment and resignation. As a result of the separation agreement, we recognized an aggregate $721,800 of additional operating expenses, as summarized above of which all such expense was recognized contemporaneously with the consummation of Mr. Dilworth’s separation agreement during the second quarter of 2012.

14

We estimated the fair value of each stock-based award set forth above, which were included as part of Mr. Dilworth’s separation agreement during 2012, using a binomial model with the assumptions set forth in the following table:

	Estimated Volatility			Annualized Forfeiture Rate			Expected Option Term (Years)		Estimated Exercise Factor		Risk-Free Interest Rate			Dividends
Modified options		70% - 157	%		0.00	%		0.25 – 2.5		10		0.08% - 0.29	%		—
New option		157	%		0.00	%		2.5		10		0.29	%		—

Expected volatility is based on the historical volatility of our common stock over the expected option term period ended on the last business day of each respective quarterly reporting period. The estimated forfeiture rate was set to zero as Mr. Dilworth is not obligated to perform any services for us under the terms of the separation agreement. The expected term was based on the actual expiration date of each of the options in the separation agreement. The estimated exercise factor was based on an analysis of historical data; historical exercise patterns; and a comparison of historical and current share prices. The approximate risk free interest rate was based on the implied yield available on U.S. Treasury issues with remaining terms equivalent to our expected term on our stock-based awards. We do not anticipate paying dividends on our common stock for the foreseeable future.

We discounted the initial aggregate remaining cash salary continuation payments due Mr. Dilworth and medical premiums to be paid on his behalf of $458,600 under the terms of the separation agreement using a 14.3% discount factor, with such factor representing our average cost of capital, which we derived by analyzing the costs we incurred in the various private placement transactions we have closed since 2004.

On July 17, 2013 we entered into a separation agreement and release with a former vice president-level employee who left the Company on June 7, 2013.  Subject to the terms of the separation agreement, which became effective on July 17, 2013 (the “Effective Date”), we accrued $75,700 of severance liability at June 30, 2013, of which, $47,800 remained outstanding as of September 30, 2013.

The following table summarizes the salary continuation and medical coverage payments during the nine-month period ended September 30, 2013.

	Compensation			Medical Coverage			Total
Balance at December 31, 2012	$	250,100		$	12,300		$	262,400
Separation agreement entered into in 2013		60,000			15,700			75,700
Accrued interest		18,100			700			18,800
Payments		(197,200	)		(19,600	)		(216,800	)
Balance at September 30, 2013	$	131,000		$	9,100		$	140,100

6. Deferred Rent

As of September 30, 2013 deferred rent was:

Component	Current Liabilities		Long-Term Liabilities		Total
Deferred rent expense	$	5,800	$	38,500	$	44,300
Deferred rent benefit		24,000		66,000		90,000
	$	29,800	$	104,500	$	134,300

As of December 31, 2012 deferred rent was:

Component	Current Liabilities		Long-Term Liabilities		Total
Deferred rent expense	$	2,700	$	43,500	$	46,200
Deferred rent benefit		24,000		84,000		108,000
	$	26,700	$	127,500	$	154,200

15

Deferred rent expense represents the remaining balance of the aggregate free rent we received from our landlord and escalations that are being recognized over the life of the lease as a component of rent expense. Deferred rent benefit relates to the unamortized portion of the leasehold improvements provided to us by our landlord (i.e., incentives) that we are recognizing on a straight-line basis as a reduction to rent expense over the term of the lease.

7.  Stock-Based Compensation

The following table summarizes the stock-based compensation expense, net of amounts capitalized, we recorded in our Unaudited Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2013 and 2012, respectively, by classification:

	Three Months Ended September 30,					Nine Months Ended September 30,
Statement of Operations Classification	2013			2012		2013		2012
Costs of revenue	$	(500	)	$	6,700	$	3,300	$	17,100
Selling and marketing expense		39,800			33,200		118,700		84,800
General and administrative expense		76,300			71,000		255,800		404,700
Research and development expense		74,400			82,600		202,700		252,400
	$	190,000		$	193,500	$	580,500	$	759,000

The following table presents summaries of the status and activity of our stock option awards for the three-month period ended September 30, 2013.

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Outstanding – June 30, 2013		13,134,398		$	0.20
Granted		23,000			0.44
Exercised		(708,594	)		0.18
Forfeited or expired		(77,745	)		0.20
Outstanding – September 30, 2013		12,371,059		$	0.20		6.12	$	4,161,600

The following table presents summaries of the status and activity of our stock option awards for the nine-month period ended September 30, 2013.

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Outstanding – December 31, 2012		14,174,000		$	0.20
Granted		23,000			0.44
Exercised		(1,459,972	)		0.17
Forfeited or expired		(232,151	)		0.20
Cancellation of unearned performance option		(133,818	)		0.19
Outstanding – September 30, 2013		12,371,059		$	0.20		6.12	$	4,161,600

Of the options outstanding as of September 30, 2013, 8,332,644 were vested, 3,906,226 were estimated to vest in future periods and 132,189 were estimated to be forfeited prior to their vesting.  As of September 30, 2013, there was approximately $239,100 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options. Such cost is expected to be recognized over a weighted-average period of approximately nine months.

All options are exercisable immediately upon grant.  Options vest, ratably over a 33-month period commencing in the fourth month after the grant date.  We have the right to repurchase common stock issued upon the exercise of an option upon an optionee’s termination of service to us prior to full vesting at the option’s exercise price.

The following table presents summaries of the status and activity of our restricted stock awards for the three-month period ended September 30, 2013. We include the common stock underlying the restricted stock award in shares outstanding once such common stock has vested and the restriction has been removed (“releases” or “released”).The common stock vests ratably, over a 33-month period; however, no such shares vest until after three months from the date of the restricted stock award.

16

	Number of Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Recognition P eriod (Years)		Unrecognized Compensation Cost Remaining
Unreleased – June 30, 2013		3,796,324		$	0.22
Awarded		1,027,500			0.42
Released		(432,521	)		0.23
Forfeited		(265,157	)		0.27
Outstanding – September 30, 2013		4,126,146		$	0.26		2.15	$	918,400

The following table presents summaries of the status and activity of our restricted stock awards for the nine-month period ended September 30, 2013.

	Number of Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Recognition Period (Years)		Unrecognized Compensation Cost Remaining
Unreleased – December 31, 2012		4,043,123		$	0.18
Awarded		1,607,500			0.42
Released		(1,208,412	)		0.21
Forfeited		(316,065	)		0.36
Outstanding – September 30, 2013		4,126,146		$	0.26		2.15	$	918,400

As of September 30, 2013, there was approximately $918,400 of total unrecognized compensation cost, net of estimated forfeitures, related to unreleased restricted stock awards. That cost is expected to be recognized over a weighted-average period of approximately twenty-six months.

8.  Revenue

Revenue for the three-month periods ended September 30, 2013 and 2012 was:

	Three Months Ended September 30,				2013 Over (Under) 2012
Revenue	2013		2012		Dollars			Percent
Software Licenses
Windows	$	559,600	$	775,600	$	(216,000	)		-27.8	%
UNIX/Linux		219,900		234,200		(14,300	)		-6.1	%
		779,500		1,009,800		(230,300	)		-22.8	%
Software Service Fees
Windows		511,300		469,200		42,100			9.0	%
UNIX/Linux		226,500		232,700		(6,200	)		-2.7	%
		737,800		701,900		35,900			5.1	%
Other		17,400		22,400		(5,000	)		-22.3	%
Total Revenue	$	1,534,700	$	1,734,100	$	(199,400	)		-11.5	%

17

Revenue for the nine-month periods ended September 30, 2013 and 2012 was:

	Nine Months Ended September 30,				2013 Over (Under) 2012
Revenue	2013		2012		Dollars			Percent
Software Licenses
Windows	$	1,673,400	$	2,046,200	$	(372,800	)		-18.2	%
UNIX/Linux		670,100		724,300		(54,200	)		-7.5	%
		2,343,500		2,770,500		(427,000	)		-15.4	%
Software Service Fees
Windows		1,471,700		1,338,800		132,900			9.9	%
UNIX/Linux		686,300		705,000		(18,700	)		-2.7	%
		2,158,000		2,043,800		114,200			5.6	%
Other		44,000		101,300		(57,300	)		-56.6	%
Total Revenue	$	4,545,500	$	4,915,600	$	(370,100	)		-7.5	%

9.  Cost of Revenue

Cost of revenue for the three-month periods ended September 30, 2013 and 2012 was:

	Three Months Ended September 30,						2013 Over (Under) 2012
	2013			2012			Dollars				Percent
Software service costs		$	64,100		$	97,500		$	(33,400	)		-34.3	%
Software product costs			36,400			63,200			(26,800	)		-42.4	%
		$	100,500		$	160,700		$	(60,200	)		-37.5	%

Cost of revenue for the nine-month periods ended September 30, 2013 and 2012 was:

	Nine Months Ended September 30,				2013 Over (Under) 2012
	2013		2012		Dollars			Percent
Software service costs	$	191,900	$	233,000	$	(41,100	)		-17.6	%
Software product costs		157,700		198,600		(40,900	)		-20.6	%
	$	349,600	$	431,600	$	(82,000	)		-19.0	%

10.  Capitalized Software Development Costs

Capitalized software development costs consisted of the following:

	September 30, 2013			December 31, 2012
Software development costs	$	1,116,700		$	573,100
Accumulated amortization		(457,100	)		(350,000	)
	$	659,600		$	223,100

Amortization of capitalized software development costs is a component of costs of revenue. Capitalized software development costs amortization aggregated $24,000 and $107,100 during the three and nine-month periods ended September 30, 2013, respectively, and $41,500 and $124,600 during the three and nine-month periods ended September 30, 2012, respectively.

We recorded $79,100 and $543,600 of capitalized software development costs during the three and nine-month periods ended September 30, 2013, respectively.  Such capitalized costs were incurred in the development of our new product hopTo, and are comprised primarily of employee costs and the cost of licenses to third party software that will be used by our hopTo product upon its commercial release.  We anticipate releasing the first commercial version of hopTo in the fourth quarter time frame and will begin amortizing its capitalized software development costs accordingly (See Note 18).  Had these costs not met the criteria for capitalization, they would have been expensed.  We did not record any capitalized software development costs during the nine-month period ended September 30, 2012.

18

11.  Stockholders’ Equity

Stock Repurchase Program

During each of the three and nine-month periods ended September 30, 2013 and 2012, we did not repurchase any of our common stock under the terms of our Board-approved $1,000,000 stock repurchase program (“stock repurchase program”). As of September 30, 2013, approximately $782,600 remained available for future purchases under this program. We are not obligated to repurchase any specific number of shares and the stock repurchase program may be suspended or terminated at our discretion.

12.  Commitments and Contingencies

Our corporate headquarters currently occupies 4,413 square feet of office space in Campbell, California, under a five-year lease that expires June 30, 2017. During October 2013, we amended our lease in order to secure a larger facility from our landlord. See Note 18.

13.  Supplemental Disclosure of Cash Flow Information

We did not disburse any cash for the payment of interest expense during the nine-month periods ended September 30, 2013 or 2012.

We disbursed $1,800 and $3,100 for the payment of income taxes during the nine-month periods ended September 30, 2013 and 2012, respectively. All such disbursements were for the payment of foreign income taxes related to the operation of our Israeli subsidiary, GraphOn Research Labs Ltd.

During the nine-month period ended September 30, 2013, we capitalized $36,700 of stock-based compensation expense for which no cash was disbursed, as a component of capitalized software development costs. We did not capitalize any stock based compensation expense costs during the nine month period ended September 30, 2012.

During the nine-month period ended September 30, 2013, we reduced our warrants liability by $5,421,300, of which $680,100 was recorded in the Condensed Consolidated Statement of Operations. The amendment to the warrants resulted in $4,391,000 being reclassified to equity.  The remaining reduction amount was the result of the exercise of 1,072,500 warrants that were not part of the amendment.  No cash was disbursed in conjunction with these items (see Note 4).

During the nine-month period ended September 30, 2013, we capitalized $3,700 of property and equipment for which no cash was disbursed.

During the nine month period ended September 30, 2012, we incurred costs associated with discontinued intellectual property operations activities of $468,400, of which $432,800 was disbursed, and the balance reported as a component of accounts payable.

During the nine-month period ended September 30, 2012, we capitalized $130,900 of property and equipment for which no cash was disbursed. We recorded $104,100 of such amount to long term liabilities – deferred rent, $24,000 of such amount to current liabilities – deferred rent and the balance to accounts payable and accrued liabilities.

14.  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 September 30, 2013 and 2012, 33,707,201 and 36,997,357 shares of common stock equivalents, respectively, were excluded from the computation of dilutive loss per share since their effect would be antidilutive.

For the nine-month periods ended September 30, 2013 and 2012, 33,707,201 and 36,997,357 shares of common stock equivalents, respectively, were excluded from the computation of dilutive loss per share since their effect would be antidilutive.

19

15.  Segment Information

FASB has established guidance for reporting information about operating segments that require segmentation based on our internal organization and reporting of revenue and operating income, based on internal accounting methods. Our financial reporting systems present various data for management to operate the business prepared in methods consistent with such guidance.

During 2012, we entered into settlement and licensing agreements that effectively ended all of our then ongoing intellectual property litigation activities (Note 17).  As a result of these agreements, we will no longer be pursuing patent litigation as an integral funding strategy for our operations.

We will continue to pursue the intellectual property initiatives we have undertaken in conjunction with our relationship with ipCapital, however we believe that these initiatives do not comprise a reporting segment as the intent of these initiatives is to support and leverage our current software products and those in development.

Also, effective for the quarter ended December 31, 2012, we added a new segment (hopTo) and identified that we currently operate our business in two segments; namely GO-Global and hopTo.  Currently, GO-Global is the only segment that generates revenue.

During the three-month period ended September 30, 2013, commensurate with the renaming of our company to hopTo Inc., we reclassified certain corporate-level expenses from the GO-Global segment to the hopTo segment, including those pertaining to our ipCapital initiatives. The impact of such reclassifications appears in the following segment tables for all periods presented.

Segment revenue for the three-month periods ended September 30, 2013 and 2012 was as follows:

					Increase (Decrease)
	2013		2012		Dollars			Percentage
GO-Global	$	1,534,700	$	1,734,100	$	(199,400	)		-11.5	%
hopTo		—		—		—			n/	a
Consolidated Total	$	1,534,700	$	1,734,100	$	(199,400	)		-11.5	%

Segment revenue for the nine-month periods ended September 30, 2013 and 2012 was as follows:

					Increase (Decrease)
	2013		2012		Dollars			Percentage
GO-Global	$	4,545,500	$	4,915,600	$	(370,100	)		-7.5	%
hopTo		—		—		—			n/	a
Consolidated Total	$	4,545,500	$	4,915,600	$	(370,100	)		-7.5	%

Segment loss from continuing operations for the three and nine-month periods ended September 30, 3013 and 2012 was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
GO-Global	$	800		$	413,000		$	(204,500	)	$	(591,000	)
hopTo		(1,609,300	)		(1,067,800	)		(3,318,000	)		(2,835,200	)
Total	$	(1,608,500	)	$	(654,800	)	$	(3,522,500	)	$	(3,426,200	)

We do not allocate interest, other income, other expense, or income tax to our segments.

As of September 30, 2013 segment fixed assets (long-lived assets) were as follows:

			Accumulated
			Depreciation
	Cost Basis		/Amortization			Net
GO-Global	$	1,964,900	$	(1,799,100	)	$	165,800
hopTo		930,800		(79,200	)		851,600
Total from continuing operations		2,895,700		(1,878,300	)		1,017,400
Discontinued operations		2,839,000		(2,839,000	)		—
Unallocated		31,700		—			31,700
Total	$	5,766,400	$	(4,717,300	)	$	1,049,100

20

We do not maintain any significant long-lived assets outside of the United States.

Products and services provided by the GO-Global segment include all currently available versions of the GO-Global family of products, OEM private labeling kits, software developer’s kits, maintenance contracts, and product training and support. The hopTo segment, which is under development, will provide mobile end-users with a productivity workspace for their mobile devices that will allow users to manage, share, view, and edit their documents, regardless of where they are stored. We launched the first public release of hopTo through Apple’s App Store in April 2013.  The two segments do not engage in cross-segment transactions.

Go-Global software revenue by country for the three-and nine month periods ended September 30, 2013 and 2012 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
Revenue by Country	2013		2012		2013		2012
United States	$	677,600	$	668,800	$	1,886,000	$	1,980,100
Germany		84,600		181,000		354,200		533,300
Brazil		161,000		176,400		415,100		444,800
Other Countries		611,500		707,900		1,890,200		1,957,400
Total	$	1,534,700	$	1,734,100	$	4,545,500	$	4,915,600

21

16.  Related Party Transactions

Tamalpais Partners LLC

Steven Ledger, the Chairman of our Board of Directors, is the founder and managing partner of Tamalpais Partners LLC, (“Tamalpais”) a business consulting firm. On August 1, 2013, we amended our consulting agreement with Tamalpais. Under the consulting agreement, as amended, Tamalpais will provide us with advisory services focused on capital and business issues, including assistance on raising capital, mergers, acquisitions, business development and investor relations/positioning. We paid Tamalpais $54,000 and $18,000 during the three-month periods ended September 30, 2013 and 2012, respectively, for services rendered to us under the terms of this consulting agreement.  We paid Tamalpais $92,000 and $48,000 during the nine-month periods ended September 30, 2013 and 2012, respectively, for services rendered to us under the terms of this consulting agreement.  No amounts were due to Tamalpais at September 30, 2013.

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.

For the three and nine-month periods ended September 30, 2013 we paid ipCapital an aggregate of $0 and $31,200, respectively, for services performed under the engagement agreement, as amended. No amounts were due ipCapital at September 30, 2013. For the three and nine-month periods ended September 30, 2012 we paid ipCapital an aggregate $30,000 and $130,000, respectively for services performed under the engagement agreement, as amended. As of September 30, 2012, we owed ipCapital $37,300.

Prior to entering into the engagement agreement with ipCapital in 2011, ipCapital performed an analysis of our intellectual property and the potential methods we could employ to strengthen our intellectual property on a consulting basis.  We paid ipCapital $50,000 for this analysis in the nine-month period ended September 30, 2012.  All amounts paid to ipCapital in 2013 and 2012 have been reported within general and administrative expense.

In addition to the fees we agreed to pay ipCapital for its services, we issued ipCapital a five-year warrant to purchase up to 400,000 shares of our common stock at an initial price of $0.26 per share.  Half of the warrant (200,000 shares) has a time-based vesting condition, with such vesting to occur in three equal annual installments. The first two vesting installments occurred on October 11, 2012 and October 11, 2013, respectively, with the remaining vesting installment to occur on October 11, 2014.  The remaining 200,000 shares became fully vested upon the completion to our satisfaction of all services that we requested from ipCapital under the engagement agreement, prior to the signing of the amendments.  Such performance was deemed satisfactory during 2012.  We believe that these fees, together with the issuance of the warrant, constitute no greater compensation than we would be required to pay an unaffiliated person for performing substantially similar services.

The exercise price of the warrant issued to ipCapital could be reset to below-market value. Consequently, we have concluded that such warrant is not indexed to our common stock and should be recorded as a liability. We recognize the warrants liability over their vesting period, and in accordance with the liability method of accounting, we re-measure the fair value of the accrued warrants at each balance sheet date and recognize the change in fair value as general and administrative compensation expense. (See Note 4) We recognized $49,500 and $38,200 as a component of general and administrative expense during the three-month periods ended September, 2013 and 2012, respectively, and $35,700 and $52,700 during the nine-month periods ended September 30, 2013 and 2012, respectively, resulting from the change in fair value.

22

ipCapital Licensing Company I, LLC

On February 4, 2013, we entered into an IP Brokerage agreement with ipCapital Licensing Company I, LLC (“ipCLC”).  John Cronin is a partner at ipCLC.  Pursuant to the agreement, we have engaged ipCLC, on a no-retainer basis, to identify and present us with candidates who may be seeking to acquire a certain limited group of our patents unrelated to our current business strategy. If during the applicable term we enter into an agreement with any candidate presented by ipCLC to acquire or otherwise exploit the covered patents, we will pay ipCLC a fee of ten percent (10%) of the royalties, fees, and other consideration paid over the life of the agreement.

The agreement is effective as of February 4, 2013, and will end 18 months after we or ipCLC serve 60 days written notice of termination to the other party (with earlier termination possible in the event of a material breach).  The agreement provides for customary confidentiality undertakings, limitations on ipCLC’s total liability and mutual indemnification provisions.

We believe the terms of the agreement are fair and reasonable to us and are at least as favorable as those that could be obtained on an arms’ length basis.

17. Discontinued Operations

During 2012, we reached settlement agreements that effectively ended all of our then on-going intellectual property litigation. With the settlement of such litigation activities we ceased actively pursuing intellectual property litigation as an integral part of our strategy to fund our operations.  Accordingly, for all periods presented, the results of operations and cash flows related to our former intellectual property segment has been segregated and reported as “Discontinued Operations”.  There was no revenue derived from our intellectual property litigation in either of the three or nine month periods ended September 30, 2013 or 2012.  During the three and nine-month periods ended September 30, 2012 we incurred costs of $347,100 and $468,400 related to our discontinued operations, respectively.

We will continue to make significant investments in our intellectual property during the remainder of 2013.  We believe such investments will be an asset that will leverage our product strategy and protect our long-term growth strategies.  We do not intend to pursue intellectual property litigation as an integral part of our strategy to fund our future operations.

As of September 30, 2013 and 2012, all of our patents were fully amortized.  Additionally, we have characterized the NES patents as “held for sale” and will be pursuing reasonable sales opportunities for such patents as they become known to us.

18. Subsequent Events

On October 7, 2013, we amended our office lease with our landlord. Under the terms of the amendment, we will move from our current location to another building within the same office complex, and increase the space we lease from 4,413 square feet to 10,659 square feet. We believe the move will be completed on or about December 31, 2013.

The amended lease becomes effective November 1, 2013 and will expire on October 31, 2018. The lease contains rent escalation clauses and four months of free rent. Additionally, we paid $18,100 to the landlord as a prepayment of the first month’s rent on the new space. The following table sets forth the minimum lease payments due over the life of the lease.

Year	Amount
Remainder of 2013	$	—
2014		346,000
2015		449,500
2016		463,000
2017		476,900
2018		407,300
	$	2,142,700

Under the terms of the lease, the landlord will provide us with various leasehold improvements totaling $106,600. Upon signing the amendment, we made a deposit of $109,000 to our landlord.

As of September 30, 2013, we reported $103,700 of unamortized leasehold improvements associated with our current lease. We expect to amortize this amount over the remaining three month life of our current lease. We believe we will be moving most of our current furniture and equipment to our new space.

On November 14, 2013, we launched the first commercial version of hopTo, our mobile productivity workspace product on Apple’s App Store.

23

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

Introduction

We are developers of software productivity products for mobile devices such as tablets and smartphones, and application publishing software solutions. Our newest product, which is called hopTo, will be marketed to both consumers and businesses. hopTo will provide mobile end-users with a productivity workspace for their mobile devices that will allow users to manage, share, view, and edit their documents, regardless of where they are stored. We launched the first public release of hopTo through Apple’s App Store on April 15, 2013. This release was targeted at Apple’s tablet devices, the iPad and the iPad Mini. Future releases will be targeted at other devices such as Apple’s iPhone, as well as competing devices such as those based on Google’s Android platform.

In addition to hopTo, we also sell a family of products under the brand name GO-Global, which is a software application publishing business and 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.  

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, and we plan to continue to aggressively invest in the creation and protection of new IP as we continue to develop hopTo and other products.

Recent Developments

On September 9, 2013, we changed the name of our company from GraphOn Corporation to hopTo Inc.

We launched the first commercial version of hopTo on November 14, 2013 on Apple’s App Store.

Corporate Background

We are a Delaware corporation, founded in May 1996.  Our headquarters are located at 1901 S. Bascom Avenue, Suite 660, Campbell, California, 95008 and our phone number is 1-800- 472-7466.   We also have an office in Concord, New Hampshire. Additionally, 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 (click the “Investors” on our home page and then click “SEC Filings”) as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.

The hopTo Product

The premise of hopTo is that mobile users using devices such as Apple’s iPad are looking for ways to leave their Mac or Windows computer behind and travel with just their tablets. hopTo was designed to assist such users in performing operations on their iPads that would typically require a Mac or Windows PC. Our view is that devices such as the iPad lack a number of basic functionalities in order to serve as a suitable “PC replacement” for business users:

24

· The ability to access and manage all of the user’s files and documents, no matter where they are stored. This includes cloud storage sources such as Dropbox and Google Drive, and also connectivity into the user’s home or work PC, which for many users, still serves as a primary storage device.

· The ability to multitask, meaning to deal with multiple documents at the same time, side by side. The iPad is inherently a single document environment, which we believe is a major shortcoming for most users.

· The ability to view, create, and edit Microsoft Office documents in a way that is 100% compatible with Microsoft Office, thus allowing users to collaborate with other users who are using Microsoft Office on a Mac or a Windows PC.

hopTo was designed to address these issues. hopTo is a productivity workspace for mobile devices (currently for the Apple iPad) that aims to empower mobile users by offering them functionalities similar to what they’ve come to expect from their PCs. For example, hopTo aggregates files and documents from multiple storage silos (such as Dropbox, Box, or the user’s PC) into a single touch-friendly workspace. From within this workspace, users are able to view, edit, and share their documents.

hopTo provides powerful document editing capabilities that leverages legacy Windows applications such as Microsoft Office to provide users with a rich editing feature set, and with a high degree of compatibility with Microsoft Office to enable collaboration with users running Microsoft Office on Mac or Windows PCs. We believe that hopTo is unique in the sense that while it leverages legacy applications for document editing, it provides a “touch-friendly” user experience that, in our view, none of our competitors are able to achieve, and that mobile users will view as highly desirable.

In addition to the above, hopTo also provides users with a way to easily switch between multiple documents, which is a very common operation on PCs but is not generally available on the iPad.

The first commercially available version of hopTo was released on November 14, 2013 through Apple’s App Store. hopTo currently runs on Apple’s iPad family of devices, and we plan to make it available in the future for other devices, such as Apple’s iPhone and for devices based on Google’s Android platform.

Our Intellectual Property

We believe that intellectual property (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 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 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., 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 November 12, 2013, 150 new patent applications have been filed, of which 140 pertain to our hopTo technology and 10 pertain to our NES patent portfolio. We expect to file more applications throughout the remainder of 2013.

ipCapital Licensing Company I, LLC

On February 4, 2013, we entered into an IP Brokerage agreement with ipCapital Licensing Company I, LLC (“ipCLC”).  John Cronin is a partner at ipCLC.  Pursuant to the agreement, we have engaged ipCLC, on a no-retainer basis, to identify and present us with candidates who may be seeking to acquire a certain limited group of our patents unrelated to our current business strategy. If during the applicable term we enter into an agreement with any candidate presented by ipCLC to acquire or otherwise exploit the covered patents, we will pay ipCLC a fee of ten percent (10%) of the royalties, fees, and other consideration paid over the life of the agreement.

25

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 released GO-Global Client products for the iPad and Android tablets in June 2011 and February 2012, respectively.

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 2012 10-K/A Report and Note 2 to our Notes to Unaudited Condensed Consolidated Financial Statements.

Results of Operations for the Three and Nine-Month Periods Ended September 30, 2013 and 2012

The following operating results should be read in conjunction with our critical accounting policies.

Revenue

Revenue for the three-month periods ended September 30, 2013 and 2012 was:

	Three Months Ended September 30,				2013 Over (Under) 2012
Revenue	2013		2012		Dollars			Percent
Software Licenses
Windows	$	559,600	$	775,600	$	(216,000	)		-27.8	%
UNIX/Linux		219,900		234,200		(14,300	)		-6.1	%
		779,500		1,009,800		(230,300	)		-22.8	%
Software Service Fees
Windows		511,300		469,200		42,100			9.0	%
UNIX/Linux		226,500		232,700		(6,200	)		-2.7	%
		737,800		701,900		35,900			5.1	%
Other		17,400		22,400		(5,000	)		-22.3	%
Total Revenue	$	1,534,700	$	1,734,100	$	(199,400	)		-11.5	%

Revenue for the nine-month periods ended September 30, 2013 and 2012 was:

	Nine Months Ended September 30,				2013 Over (Under) 2012
Revenue	2013		2012		Dollars			Percent
Software Licenses
Windows	$	1,673,400	$	2,046,200	$	(372,800	)		-18.2	%
UNIX/Linux		670,100		724,300		(54,200	)		-7.5	%
		2,343,500		2,770,500		(427,000	)		-15.4	%
Software Service Fees
Windows		1,471,700		1,338,800		132,900			9.9	%
UNIX/Linux		686,300		705,000		(18,700	)		-2.7	%
		2,158,000		2,043,800		114,200			5.6	%
Other		44,000		101,300		(57,300	)		-56.6	%
Total Revenue	$	4,545,500	$	4,915,600	$	(370,100	)		-7.5	%

26

Revenue

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

The decrease in Windows software licenses revenue for the three and nine-month periods ended September 30, 2013, as compared with the same periods of the prior year, were primarily due to lower aggregate revenue derived from our stocking resellers.  Adding to the decrease was lower revenue recognized in 2013 associated with two maintenance transactions entered into with an end-user customer during 2012.  All revenue from both of these transactions had previously been deferred.  We recognized the revenue from each transaction, ratably, over each transaction’s respective maintenance period.  As the maintenance period for the first of these two transactions was expired prior to the three-month period ended September 30, 2013, we completed recognition of the revenue related thereto, and as a result we only recognized revenue from the second of these two transactions during the three month period ended September 30, 2013.  The decreases described above were partially offset by higher license sales to other end user customers.

Software licenses revenue from our UNIX/Linux products decreased during the three and nine-month periods ended September 30, 2013, as compared with the same periods of the prior year, primarily due to lower aggregate revenue from our resellers and end users, particularly our European telecommunications customers. During the three-month period ended September 30, 2013, we learned that one of our significant European telecommunications customers, Ericsson, would no longer be ordering product or future maintenance contracts from us as their technology no longer utilized our GO-Global product.

We expect aggregate software license revenue in 2013 to be lower than 2012 levels due to lower aggregate revenue from our stocking resellers and our European telecommunications customers. At the same time, we will seek to improve cash flow from the GO-Global business through cost control and other measures.

Software Service Fees

The increase in software service fees revenue attributable to our Windows products during the three and nine-month periods ended September 30, 2013, as compared to the same periods of the prior year, was the result of the continued growth of the number of Windows maintenance contracts purchased by our end-user customers on new license installations and the renewal of maintenance contracts on currently installed software licenses.

The decrease in service fees revenue attributable to our UNIX products for the three and nine-month periods ended September 30, 2013, as compared with the same periods 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 decrease in maintenance contract renewals. We believe that these decreases reflect the continued economic malaise and the competitive challenges facing the telecommunications industry, particularly in Europe. The majority of this decrease was attributable to our European telecommunications customers, including Ericsson, as discussed above.

27

We expect that software service fees for 2013 will modestly increase over those for 2012, as we expect to see continued strength in the sale and renewal of Windows maintenance contracts.

Other

The decrease in other revenue for the three and nine -month periods ended September 30, 2013, as compared with the same period of the prior year was primarily due to a decrease in private labeling fees. We typically recognize private labeling fees revenue only when such services are requested by a new stocking reseller; they sign a contract with us, simultaneously place their first stocking order and ultimately, when they sell through their entire first stocking order, we recognize the private labeling fees revenue. Private labeling fees do not comprise a material portion of our revenue streams, and they can vary from period to period.

Costs of Revenue

Software 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 accounting principles generally accepted in the United States (“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 periods ended September 30, 2013 and 2012, we capitalized $79,100 and $0 of software development costs, respectively. During the nine-month periods ended September 30, 2013 and 2012, we capitalized $543,600 and $0 of software development costs, respectively. All of such capitalized costs were incurred in the development of hopTo.

Amortization of capitalized software development costs was $24,000 and $41,500 during the three-month periods ended September 30, 2013 and 2012, respectively.  Amortization of capitalized software development costs was $107,000 and $124,600 during the nine-month periods ended September 30, 2013 and 2012, respectively.

Software Cost of revenue was 6.5% and 9.3% of total revenue for the three months ended September 30, 2013 and 2012, respectively.  Software cost of revenue was 7.7% and 8.8% of total revenue for the nine months ended September 30, 2013 and 2012, respectively.

Cost of revenue for the three-month periods ended September 30, 2013 and 2012 was:

	Three Months Ended September 30,				2013 Over (Under) 2012
	2013		2012		Dollars			Percent
Software service costs	$	64,100	$	97,500	$	(33,400	)		-34.3	%
Software product costs		36,400		63,200		(26,800	)		-42.4	%
	$	100,500	$	160,700	$	(60,200	)		-37.5	%

Cost of revenue for the nine-month periods ended September 30, 2013 and 2012 was:

	Nine Months Ended September 30,				2013 Over (Under) 2012
	2013		2012		Dollars			Percent
Software service costs	$	191,900	$	233,000	$	(41,100	)		-17.6	%
Software product costs		157,700		198,600		(40,900	)		-20.6	%
	$	349,600	$	431,600	$	(82,000	)		-19.0	%

Software service costs decreased during both the three and nine-month periods ended September 30, 2013, as compared with the same periods of the prior year, primarily as a result of less time being spent on customer service issues.  We expect software service costs to remain lower during the remainder of 2013, as compared with the prior year.

Software service costs include non-cash stock-based compensation. Such costs were, in the aggregate, approximately $(500) and $6,700 for the three-month periods ended September 30, 2013 and 2012, respectively and $3,300 and $17,100 for the nine-month periods ended September 30, 2013 and 2012, respectively.  No new stock awards were issued to customer service personnel in either 2013 or 2012; thus, the decreases in both the three and nine-month periods ended September 30, 2013, as compared with the similar periods of the prior year, resulted from less stock-based compensation expense being recognized from the outstanding stock awards held by such employees.

28

Software product costs decreased in both the three and nine-month periods ended September 30, 2013 compared with the same periods in 2012 due to a decrease in costs associated with third party software we license into our products.

We expect that software costs of revenue for 2013 will be lower than 2012 levels, due to these items.

Selling and Marketing Expenses

Selling and marketing expenses primarily consist of employee costs (inclusive of non-cash stock-based compensation expense), outside services, and travel and entertainment expense.

Selling and marketing expenses for the three-month periods ended September 30, 2013 decreased by $81,200, or 13.5%, to $683,300, from $602,100 for the same period of 2012, which represented approximately 44.5% and 34.7% of revenue during these periods, respectively. Selling and marketing expenses for the nine-month period ended September 30, 2013 decreased by $37,900 or 2.1% to $1,743,500 from $1,781,400 for the same period in 2012, which represented approximately 38.4% and 36.2% of revenue during those periods, respectively.

The decrease in selling and marketing expenses during the three and nine-month periods ended September 30, 2013, as compared with the same periods of the prior year, was mainly due to lower commissions, bonuses, and marketing services costs partially offset by higher wages and employee severance costs.

Selling and marketing employee costs included non-cash stock-based compensation costs aggregating approximately $39,800 and $33,200 for the three-month periods ended September 30, 2013 and 2012, respectively. The same costs for the nine-month periods ended September 30, 2013 and 2012 were approximately $118,700 and $84,800, respectively. The increase in these costs resulted from stock awards issued in 2012.

We currently expect our full-year 2013 selling and marketing expenses related to GO-Global to decrease compared to 2012 levels as we have enacted certain cost cutting measures aimed at generating greater operational efficiencies, and anticipate continuing to do so throughout the remainder of the year. As we focus greater resources on our hopTo product, we expect 2014 selling and marketing expenses for hopTo to increse compared to 2013 levels.

General and Administrative Expenses

General and administrative expenses primarily consist of employee costs (inclusive of non-cash stock-based compensation expense), depreciation and amortization, legal, accounting, other professional services (including those related to realizing benefits from 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 increased by $237,400, or 35.0%, to $914,900, for the three-month period ended September 30, 2013, from $677,500 for the same period of 2012, which represented approximately 59.6% and 39.1% of revenue during these periods, respectively.

General and administrative expenses decreased by $720,700, or 22.8%, to $2,441,600 for the nine-month period ended September 30, 2013, from $3,162,300 for the same period of 2012, which represented approximately 53.7% and 64.3% of revenue during these periods, respectively.

The increase in general and administrative expense in the three-month period ended September 30, 2013, as compared with the same period of the prior year, was primarily due to an increase in employee costs, costs associated with consultants, including compensation expense derived from warrants issued to such consultants, and increased costs associated with our patent portfolio.

The decrease in general and administrative expense for the nine-month period ended September 30, 2013, as compared with the same period of the prior year, was primarily due to the cost of the severance agreement with our former chief executive officer and chairman, which, as described in Note 5, resulted in a one-time charge of $721,800 that was recognized in the three-month period ended June 30, 2012.

29

Included in general and administrative employee costs was non-cash stock-based compensation expense aggregating $76,300 and $71,000 for the three-month periods ended September 30, 2013 and 2012, respectively.  Non-cash stock-based compensation expense included in general and administrative costs aggregated $255,800 and $404,700 for the nine-month periods ended September 30, 2013 and 2012, respectively.  The decrease in these costs resulted from such expense associated with the separation agreement with our former chief executive officer and chairman in 2012 which was partially offset by the expenses associated with stock awards issued in 2012.

We expect that general and administrative expense for 2013 will be lower than 2012 levels, primarily as a result of the one-time costs incurred in connection with the separation agreement we entered into during April 2012 with our former chief executive officer and chairman and the legal fees incurred related thereto, and the stock-based compensation expense associated with the restricted stock awards granted during 2012.  We also expect to have fewer employees in our patent group.  See Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding the separation agreement.

Research and Development Expenses

Research and development expenses consist primarily of employee costs (inclusive of non-cash stock-based compensation expense), payments to contract programmers, travel and entertainment for all our engineers, and all rent for our leased engineering facilities.

Research and development expenses increased by $495,900, or 52.3%, to $1,444,500, for the three-month period ended September 30, 2013, from $948,600 for the same period of 2012, which represented approximately 94.1% and 54.7% of revenue for these periods, respectively.

The increase in research and development expense for the three-month period ended September 30, 2013, as compared with the same periods of the prior year, was primarily due to higher staffing levels and recruitment fees for the new product development team in Campbell, California, and higher outside services costs.

Research and development expenses increased by $566,800 or 19.1%, to $3,533,300, for the nine-month period ended September 30, 2013, from $2,966,500 for the same period of 2012, which represented approximately 77.7% and 60.3% of revenue for these periods, respectively.

The increase in research and development expense for the nine-month period ended September 30, 2013, as compared with the same period of the prior year, was primarily due to higher staffing levels and recruitment fees for the new product development team in Campbell, California and higher outside services costs.  These costs were partially offset by the capitalization of software development costs relating to hopTo, and having fewer employees in the Concord, New Hampshire engineering office as a result of terminations that occurred in the prior year.

Included in research and development employee costs was non-cash stock-based compensation expense totaling $74,400 and $82,600 for the three-month periods ended September 30, 2013 and 2012, respectively. Non-cash stock-based compensation expense was $202,700 and $252,400 for the nine-month periods ended September 30, 2013 and 2012, respectively. The decrease in non-cash stock-based compensation costs for the three-month period ended September 30, 2013, as compared with the same period of the prior year was due to a decrease in the number of shares awarded to research and development employees in 2013, as compared with 2012. The decrease in stock-based compensation expense for the nine-month period ended September 30, 2013, as compared with the same period of 2012 was primarily the result of the capitalization of $36,700 of stock-based compensation costs, attributable to the development of hopTo, as well as a decrease in the number of shares awarded during 2013, as compared with 2012.

During the nine-month period ended September 30, 2013, we capitalized $659,600 of software development costs associated with the development of hopTo, which, had they not met the criteria for capitalization, would have otherwise been expensed.  Such costs were inclusive of the $36,700 of stock-based compensation costs referred to in the preceding paragraph.  No such development costs were capitalized during the corresponding period of the prior year.

We expect 2013 research and development expenses to be significantly higher than those for 2012.  The main driver of the increased costs will be the costs associated with our new products development team, which will be primarily comprised of employee costs, recruitment fees, rent, equipment and supplies for the team.

30

Other Income (Expense) - Change in Fair Value of Warrants Liability

During the three-month periods ended September 30, 2013 and 2012, we reported non-cash expense related to the change in fair value of our Warrants Liability of $639,100 and $3,025,700, respectively. During the nine-month period ended September 30, 2013, we reported non-cash income related to the change in fair value of our Warrants Liability of $680,100, and non-cash expense of $2,417,800 for the same period of the prior year. Such changes in 2013 resulted from price changes in the market value for our common stock as well as having a lower number of outstanding warrants as a result of warrant exercises.  For further information regarding our Warrants Liability, see Note 4 to the Notes to Unaudited Condensed Consolidated Financial Statements.

Loss From Operations

We reported losses from operations of $1,608,500 and $654,800 for the three-month periods ended September 30, 2013 and 2012, respectively.  We reported losses from operations of $3,522,500 and $3,426,200 for the nine-month periods ended September 30, 2013 and 2012, respectively.

31

Loss from Discontinued Operations

During September 2012, we reached settlement and licensing agreements that effectively ended all of our then on-going intellectual property litigation.  Having been approached by the respective counter-parties to each of our lawsuits, and in consultation with our board of directors, we determined that it was in our best long-term strategic interests to settle each lawsuit in order to move forward and shift our focus to our software products, including our new product initiatives.  We do not intend to pursue intellectual property litigation as an integral part of our strategy to fund our future operations.  Accordingly for all periods presented the results of operations and cash flows related to our former intellectual property segment has been segregated and reported as “Discontinued Operations”.  See Note 17 to our Notes to Unaudited Condensed Consolidated Financial Statements.

As a result of this decision, we reported losses from discontinued operations of $0 and $347,100 for the three-month periods ended September 30, 2013 and 2012, respectively and losses of $0 and $468,400 for the nine-month periods ended September 30, 2013 and 2012, respectively.

Liquidity and Capital Resources

During 2013, we expect to continue to prioritize the investment of our resources into the development of various new products, with our primary focus being on hopTo.  We believe that we will continue to experience weakness in our legacy GO-Global business from our European telecommunications customers, as we increase investments in hopTo and our intellectual property strategy, and we experience reduced demand in our GO-Global business, we expect our cash flow from operations and overall cash resources to decrease.  In order to fully execute on our business strategy for hopTo we will require additional capital resources, which may include debt or equity issuances.

Based on our cash on hand as of September 30, 2013, and anticipated cash derived from our legacy GO-Global business, we believe that we will have sufficient resources to support our operational plans for the next twelve months, however; as noted, full implementation of our business plans for the next twelve months would require capital from issuances of debt or equity, or new revenue from our recently launched hopTo product.

There can be no assurance of new revenue from new product lines or additional capital from debt or equity issuances.  In addition, issuances of new capital stock would dilute existing stockholder and may give the purchasers of new capital stock additional rights, preferences and privileges relative to existing stockholders.  There can be no assurance that additional capital necessary for full execution of our hopTo business strategy will be available on a timely basis, on reasonable terms or at all.

During the nine-month periods ended September 30, 2013 and 2012, our reported net losses of $2,850,200 and $6,309,900 respectively, included three significant non-cash items: depreciation and amortization of $187,700 and $191,700, respectively, which were primarily related to amortization of capitalized software development costs and depreciation of fixed assets, stock-based compensation expense of $580,500 and $759,000, respectively, and $(680,100) and $2,417,800, respectively, related to the change in fair value recorded for the Warrants Liability.

During the nine-month periods ended September 30, 2013 and 2012, we incurred operating cash outflows of $0 and $432,800, respectively in our former intellectual property segment, whose operations we discontinued in 2012.  (See Note 17 to Notes to Unaudited Condensed Consolidated Financial Statements).

We expect to continue making investments in our products during the remainder of 2013, with a focus on new product development, primarily within the planned hopTo product line.  During the nine-month periods ended September 30, 2013 and 2012, we invested approximately $75,800 and $269,800 of cash, respectively, into fixed assets.  Such expenditures made during the nine-month period ended September 30, 2012 were primarily incurred in connection with the opening of our office in Campbell, California and equipping our new products development team located therein.

During the nine-month period ended September 30, 2013, we invested approximately $506,900 of cash into capitalized software development costs. Such expenditures were made in the development of our hopTo product. No investments into capitalized software development costs were made during the same period of the prior year.

During the nine-month period ended September 30, 2013, 10,222,500 warrants and 1,459,972 employee options were exercised, which provided cash flows from financing activities of $2,615,300 and $302,700, respectively.  During the nine-month period ended September 30, 2012, 567,176 employee options were exercised, which provided cash flows from financing activities of $44,400. No warrants were exercised during the nine-month period ended September 30, 2012.

32

Cash

As of September 30, 2013, our cash balance was $3,557,100, as compared with $3,960,600 as of December 31, 2012, a decrease of $403,500, or 10.2%. The decrease primarily resulted from the cash consummed by our operations, as well as the investments we made in fixed assets, capitalized software development costs, and increased employee costs, primarily associated with our new products development team. Such costs were partially offset by the cash we raised in the amendment to our warrants transaction and the cash received from the exercise of warrants and employee stock options.

Accounts Receivable, net

At September 30, 2013 and December 31, 2012, we reported accounts receivable, net, of $700,400 and $865,900, respectively. Such amounts were reported net of the allowance for doubtful accounts, which allowances totaled $29,600 and $33,900 at September 30, 2013 and December 31, 2012, respectively.  The decrease in accounts receivable, net, was mainly due to lower sales during the nine-month period ended September 30, 2013, and the timing of sales during the three-month period ended September 30, 2013.  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.

Stock Repurchase Program

As of September 30, 2013, we had purchased 1,424,000 shares of our common stock for $217,400 under terms of our Board-approved stock repurchase program, which was established on January 8, 2008. Under this program, the Board approved up to $1,000,000 to be used in repurchasing our stock; however, we are not obligated to repurchase any specific number of shares and the program may be suspended or terminated at our discretion. During each of the three and nine-month periods ended September 30, 2013 and 2012, no repurchases were made. As of September 30, 2013, $782,600 remains available for stock purchases under this program.

Working Capital

As of September 30, 2013, we had current assets of $4,319,900 and current liabilities of $3,777,500, which netted to working capital of $542,400. Included in current liabilities was the current portion of deferred revenue of $2,638,200.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Vice President of Finance, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.  Based upon that evaluation, our Chief Executive Officer and Vice President of Finance concluded that our disclosure controls and procedures were effective as of September 30, 2013.

There has not been any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except that we reduced the number of employees in our finance department by two. We have retained the services of an independent consultant to assist us with a polciy and procedural review to help ensure we maintain adequate controls as a result of such workforce reduction.

33

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Not Applicable

ITEM 1A. Risk Factors

There have been no material changes in our risk factors from those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K/A for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission on April 12, 2013.

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

On January 8, 2008, our Board of Directors authorized a stock repurchase program to repurchase up to $1,000,000 of our outstanding common stock. Under terms of the program, we are not obligated to repurchase any specific number of shares and the program may be suspended or terminated at management’s discretion. No shares were repurchased under the stock repurchase program during the three-month period ended September 30, 2013.

On June 17, 2013, we entered into, and subsequently consummated, an Exercise Agreement (the "Exercise Agreement") with five of the largest investors in our September 1, 2011 private placement of common stock and warrants (the "2011 Transaction"), providing for the exercise for cash by such investors of warrants to purchase an aggregate 9 million shares of our common stock, out of the approximately 17 million shares of common stock subject to warrants issued to the investors in the 2011 Transaction that remained outstanding as of such date.   We received cash proceeds of $2.34 million as a result of the warrants exercised. In consideration for the early exercise of these warrants, we issued to the five investors an aggregate of 4.5 million warrants to purchase common stock at an exercise price of $1.00 per warrant, with a term of five years from issuance (the "New Warrants").   Each of the warrant holders represented to us that there were "accredited investors."  The issuance of such common stock upon exercise and the issuance of the New Warrants was not registered under the Securities Act of 1933 because such securities were offered and sold in transactions not involving a public offering, exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) and in compliance with Rule 506 thereunder.

On August 9, 2013, we consummated an offer to exercise warrants (the “Offer to Exercise”) made to holders of warrants in the 2011 Transaction who were not parties to the Exercise Agreement.  We were obligated to conduct the Offer to Exercise under the terms of the Exercise Agreement entered into in connection with the June 17, 2013 transaction.  In connection with the Offer to Exercise, warrants to purchase an aggregate of 305,000 shares of our common stock were exercised for which we received cash proceeds of $64,000.  In consideration for the early exercise of these warrants, we issued an aggregate of 152,500 New Warrants at an exercise price of $1.00 per warrant, with a term of five years from issuance.   Each of the warrant holders represented to us that there were “accredited investors.”  The issuance of such common stock upon exercise and the issuance of the New Warrants was not registered under the Securities Act of 1933 because such securities were offered and sold in transactions not involving a public offering, exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) and in compliance with Rule 506 thereunder.

Effective September 18, 2013, we entered into a consulting agreement with Genesis Select to provide us with a variety of investor relations services. As part of their compensation, we issued to them a warrant to purchase 312,500 shares of our common stock at an exercise price of $0.50 per share. The issuance of such warrants and common stock upon exercise and the issuance of such warrants was not registered under the Securities Act of 1933 because such securities were offered and sold in transactions not involving a public offering, exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) and/or in compliance with Rule 506 thereunder.

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Mine Safety Disclosures

Not applicable

ITEM 5. Other Information

Not applicable

ITEM 6. Exhibits

Exhibit Number	Exhibit Description
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Vice President of Finance Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished, not filed)
32.2	Certification of Vice President of Finance Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished, not filed)
101*	The following financial information from hopTo Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012, (ii) Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2013 and 2012, (iii) Unaudited Condensed Consolidated Statements of Stockholders' Deficit, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2013 and 2012, (v) Notes to Unaudited Condensed Consolidated Financial Statements.

  * Furnished, not filed

34

SIGNATURES

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

		HOPTO INC.
		(Registrant)
Date:	November 14, 2013		Date:	November 14, 2013
By:	/s/ Eldad Eilam		By:	/s/ Robert L. Dixon
	Eldad Eilam			Robert L. Dixon
	Chief Executive Officer			Vice President of Finance
	(Principal Executive Officer)			(Principal Financial Officer and
				Principal Accounting Officer)

35

EX-31.1

Exhibit 31.1

I, Eldad Eilam, certify that:

1. I have reviewed this quarterly report on Form 10-Q of hopTo Inc. (“registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or person performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2013

/s/ Eldad Eilam

Eldad Eilam

Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Robert L. Dixon, certify that:

1. I have reviewed this quarterly report on Form 10-Q of hopTo Inc. (“registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or person performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2013

/s/ Robert L. Dixon

Robert L. Dixon

Vice President of Finance

EX-32.1

Exhibit 32.1

 (a) Certification of Quarterly Report by Chief Executive Officer.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of hopTo Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eldad Eilam, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Eldad Eilam

Eldad Eilam

Chief Executive Officer

November 14, 2013

EX-32.2

Exhibit 32.2

(b) Certification of Quarterly Report by Vice President of Finance.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of hopTo Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert L. Dixon, Vice President of Finance of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert L. Dixon

Robert L. Dixon

Vice President of Finance

November 14, 2013

XML

Stockholders' Equity

9 Months Ended

Sep. 30, 2013

Stockholders' Equity [Abstract]

Stockholders' Equity

11.  Stockholders’ Equity

Stock Repurchase Program

During each of the three and nine-month periods ended September 30, 2013 and 2012, we did not repurchase any of our common stock under the terms of our Board-approved $1,000,000 stock repurchase program (“stock repurchase program”). As of September 30, 2013, approximately $782,600 remained available for future purchases under this program. We are not obligated to repurchase any specific number of shares and the stock repurchase program may be suspended or terminated at our discretion.

XML

Subsequent Events (Details) (USD $)	9 Months Ended	0 Months Ended
	Sep. 30, 2013 Campbell Facility [Member] sqft	Oct. 07, 2013 Subsequent Event [Member] sqft
Subsequent Event [Line Items]
Area of office space (in square feet)	4,413	10,659
Lease expiration date	Jun. 30, 2017	Oct. 31, 2018
Prepayment of First Month's Rent		$ 18,100
Additional Deposits Made to Landlord		109,000
Amount of leasehold improvements provided by the landlord		106,600
Number of First Months of Free Rent		4 months
Write off of Cambell Facility leasehold improvements	103,700
Amortization period of leasehold improvements	3 months
Minimum lease payments [Abstract]
Remainder of 2013	0
2014	346,000
2015	449,500
2016	463,000
2017	476,900
2018	407,300
Total	$ 2,142,700

XML

Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Condensed Consolidated Statements of Operations (Unaudited) [Abstract]
Revenue	$ 1,534,700	$ 1,734,100	$ 4,545,500	$ 4,915,600
Costs of revenue	100,500	160,700	349,600	431,600
Gross profit	1,434,200	1,573,400	4,195,900	4,484,000
Operating expenses:
Selling and marketing	683,300	602,100	1,743,500	1,781,400
General and administrative	914,900	677,500	2,441,600	3,162,300
Research and development	1,444,500	948,600	3,533,300	2,966,500
Total operating expenses	3,042,700	2,228,200	7,718,400	7,910,200
Loss from operations	(1,608,500)	(654,800)	(3,522,500)	(3,426,200)
Other income (expense):
Change in fair value of warrants liability	(639,100)	(3,025,700)	680,100	(2,417,800)
Other, net	(200)	1,600	(500)	5,100
Loss from continuing operations before provision for income tax	(2,247,800)	(3,678,900)	(2,842,900)	(5,838,900)
Provision for income taxes	4,600	600	7,300	2,600
Loss from continuing operations	(2,252,400)	(3,679,500)	(2,850,200)	(5,841,500)
Loss from discontinued operations	0	(347,100)	0	(468,400)
Net Loss	$ (2,252,400)	$ (4,026,600)	$ (2,850,200)	$ (6,309,900)
Loss per share:
Continuing operations - basic and diluted (in dollars per share)	$ (0.02)	$ (0.04)	$ (0.03)	$ (0.07)
Discontinued operations - basic and diluted (in dollars per share)	$ 0	$ (0.01)	$ 0	$ (0.01)
Basic and diluted loss per share (in dollars per share)	$ (0.02)	$ (0.05)	$ (0.03)	$ (0.08)
Average weighted common share outstanding - basic and diluted (in shares)	94,836,777	82,255,955	87,992,742	82,044,581

XML

Liability Attributable to Warrants

9 Months Ended

Sep. 30, 2013

Liability Attributable to Warrants [Abstract]

Liability Attributable to Warrants

4.  Liability Attributable to Warrants

On June 17, 2013, we entered into, and subsequently consummated, an Exercise Agreement (the “Exercise Agreement”) with five of the largest investors in our September 1, 2011 private placement of common stock and warrants (the “2011 Transaction”), providing for the exercise for cash by such investors of warrants to purchase an aggregate of 9 million shares of our common stock, out of the approximately 17 million shares of common stock subject to warrants issued to the investors in the 2011 Transaction that remained outstanding as of such date. The approximately 5 million shares of common stock subject to warrants issued to the placement agent in the 2011 Transaction that remained outstanding as of such date were not part of the Exercise Agreement.  The Company agreed under the Exercise Agreement to subsequently commence a tender offer (the “Offer to Exercise”) to provide these holders of other warrants that remained outstanding from the 2011 Transaction with the same opportunity to exercise as provided under the Exercise Agreement.

The warrants exercised had a remaining term of approximately 38 months, and had an exercise price of $0.26 per warrant, which was the original exercise price. We received cash proceeds of $2.34 million as a result of the warrants exercised. In consideration for the early exercise of these warrants, we issued to the five investors an aggregate of 4.5 million warrants to purchase common stock at an exercise price of $1.00 per warrant, with a term of five years from issuance (the “New Warrants”). The New Warrants were issued on June 18, 2013, are substantially similar to the investor warrants that were exercised, and, after giving effect to the amendments to such warrants described below, such warrants have been recorded as a component of equity (additional paid-in capital “APIC”) at Level 3 fair value.

Using a binomial pricing model, we calculated the fair value of the New Warrants issued at the time of the Exercise Agreement to be $514,800. We used the following assumptions in the binomial pricing model: estimated volatility – 185%; annualized forfeiture rate – 0%; expected term – 5 years; estimated exercise factor – 1.5, risk free interest rate – 1.07%; and dividends – 0.  The New Warrants were accounted for as a cost of the exercise of the warrants issued pursuant to the Exercise Agreement; as a result a $514,800 reduction of APIC was also recorded.  Accordingly, there was no net effect on equity because of the issuance of the new warrants.

Immediately prior to the exercise for cash, the five investors, who held a majority of the outstanding warrants issued in the 2011 Transaction to investors (“Investor Warrants”), agreed to amend the entire series of such warrants to delete the following provisions: (1) the price-based anti-dilution clause; (2) our right to lower the exercise price in our discretion; and (3) a clause that mandated that we buy the warrants for cash at their Black-Scholes value in the event of certain extraordinary transactions. By virtue of a majority-rule clause in the warrants, the elimination of these provisions from the Investor Warrants issued in the 2011 Transaction eliminated the warrant derivative liability classification related to all of the Investor Warrants issued in the 2011 Transaction including those held by investors who did not exercise their warrants at the date of the amendment.   The tables below show the calculation of the reduction of the warrants derivative liability.

The warrants issued to the placement agent and to an intellectual property consulting firm (ipCapital Group, Inc.) were not included in the Exercise Agreement or affected by the amendment described above.   The exercise price of such warrants could, in certain circumstances, be reset to below-market value. Accordingly, unlike the amended investor warrants, we have concluded that the warrants issued to the placement agent and ipCapital Group, Inc. are not indexed to our common stock; therefore, the fair value of these warrants were, and continue to be, recorded as a liability.

On August 9, 2013, we consummated an offer to exercise warrants (the “Offer to Exercise”) made to holders of warrants in the 2011 Transaction who were not parties to the Exercise Agreement.  We were obligated to conduct the Offer to Exercise under the terms of the Exercise Agreement entered into in connection with the June 17, 2013 transaction.  In connection with the Offer to Exercise, warrants to purchase an aggregate of 305,000 shares of our common stock were exercised for which we received cash proceeds of $64,000.  In consideration for the early exercise of these warrants, we issued an aggregate of 152,500 New Warrants at an exercise price of $1.00 per warrant, with a term of five years from issuance.

Using a binomial pricing model, we calculated the fair value of the New Warrants issued at the end of the Offer to Exercise to be $45,600. We used the following assumptions in the binomial pricing model: estimated volatility 171%; annualized forfeiture rate 0%; expected term 4.875 years; estimated exercise factor 4, risk free interest rate 1.31%; and dividends 0.  The New Warrants were accounted for as a cost of the exercise of the warrants issued pursuant to the Exercise Agreement; as a result a $45,600 reduction of APIC was also recorded.  Accordingly, there was no net effect on equity because of the issuance of the new warrants.

Under ASC 820, “Fair Value Measurement,” we re-measure the fair value of the warrants classified as a liability at every balance sheet date.  As an integral part of the re-measurement process, we reevaluate each of the assumptions used, and when circumstances change or we become aware of new information affecting any of our assumptions, we adjust those assumptions accordingly.  During the three months ended March 31, 2013 two investors in the 2011 private placement exercised an aggregate of 462,500 warrants.  While closing our books for the three months ended March 31, 2013, we reevaluated our internal assumptions based on historic and recent exercise patterns and analysis of our stock performance.  Based on the work performed, we concluded that a lowering of our estimated exercise factor for the warrants issued in conjunction with the 2011 transaction from 10 to 4 was appropriate (see the assumptions used, as set forth in the tables, below).

Changes in fair value of the warrants liability are recognized in other (income), except for changes in the fair value of the warrants issued to ipCapital which are recognized as a component of general and administrative expense in the condensed consolidated statement of operations.

We used the exercise price of the warrants, as well as the fair market value of our common stock, to determine the fair value of our warrants.  The exercise price for warrants issued in conjunction with the 2011 Transaction, including those issued to the placement agent, was either $0.20 or $0.26 per share, and was $0.26 per share for the warrants issued to ipCapital. The fair market value of our common stock was $0.54 and $0.30 per share as of September 30, 2013 and 2012, respectively.

We used a binomial pricing model to determine the fair value of our warrants liability as of September 30, 2013 and December 31, 2012, the balance sheet dates, using the following assumptions:

	2011 Transaction						ipCapital
	September 30, 2013			December 31, 2012			September 30, 2013			December 31, 2012
Estimated volatility		120	%		159	%		125	%		163	%
Annualized forfeiture rate		—			—			—			—
Expected option term (years)		2.92			3.67			3.04			3.79
Estimated exercise factor		4			10			4			10
Risk-free interest rate		0.50	%		0.45	%		0.64	%		0.65	%
Dividends		—			—			—			—

The following table is a reconciliation of the warrants liability measured at fair value using significant unobservable inputs (Level 3) for the nine months ended September 30, 2013:

Warrants liability – December 31, 2012 fair value	$	7,390,100
Change in fair value of warrant liability recorded in other income		(680,100	)
Change in fair value of warrant liability recorded in general and administrative expense		35,700
Reclassification of warrants liability to equity from exercise of warrants (1)		(385,900	)
Reclassification of warrants liability to equity from amendment to warrants  (1)		(4,391,000	)
Warrants liability – September 30, 2013 fair value	$	1,968,800

(1) During the nine-month period ended September 30, 2013, our warrants liability was reduced as a result of the warrants amendment, as discussed above. Additionally, our warrants liability was further reduced by $385,900 as a result of the exercise of 1,072,500 warrants during such period, whose terms were not affected by the changes made under the warrants amendment. The aggregate reduction in the liability, combining the warrant amendment and this exercise, was $4,776,900. See Note 13.

The following tables reconcile the number of warrants outstanding for the periods indicated:

For the Three-Month Period Ended September 30, 2013
	Beginning Outstanding		Issued		Exercised		Ending Outstanding
2011 Transaction		13,157,500		—		305,000		12,852,500
Exercise Agreement		4,500,000		—		—		4,500,000
ipCapital		400,000		—		—		400,000
Consultant Warrant (1)		—		312,500		—		312,500
Offer to Exercise		—		152,500		—		152,500
Total		18,057,500		465,000		305,000		18,217,500

For the Nine-Month Period Ended September 30, 2013
	Beginning Outstanding		Issued		Exercised		Ending Outstanding
2011 Transaction		23,075,000		—		10,222,500		12,852,500
Exercise Agreement		—		4,500,000		—		4,500,000
ipCapital		400,000		—		—		400,000
Consulting Warrant (1)		—		312,500		—		312,500
Offer to Exercise		—		152,500		—		152,500
Total		23,475,000		4,965,000		10,222,500		18,217,500

For the Three and Nine-Month Period Ended September 30, 2012
	Beginning Outstanding		Issued		Exercised		Ending Outstanding
2011 Transaction		23,075,000		—		—		23,075,000
ipCapital		400,000		—		—		400,000
Total		23,475,000		—		—		23,475,000

(1) Effective September 18, 2013, we entered into a consulting agreement with Genesis Select to provide us with a variety of investor relations services. As part of their compensation, we issued to them a warrant to purchase 312,500 shares of our common stock at an exercise price of $0.50 per share. The warrant will vest, monthly, over the initial twelve-month service period of the contract, assuming that the agreement remains in-force, with the first vesting having occured on October 18, 2013. The warrant is substantially similar in nature to those issued in the warrant amendment, discussed above, thus; the warrant is accounted in equity and is not included as a component of our warrants liability as of September 30, 2013. We used the following assumptions in a binomial pricing model to calculate the fair value of the warrant issued to Genesis: estimated volatility – 181%; expected term – 4.96 years; estimated exercise factor – 4, risk free interest rate – 1.41%; and dividends – 0. Expense associated with this warrant is recognized as a component of general and administrative expense over the one-year vesting term of the warrant.

XML

Subsequent Events

9 Months Ended

Sep. 30, 2013

Subsequent Events [Abstract]

Subsequent Events

18. Subsequent Events

On October 7, 2013, we amended our office lease with our landlord. Under the terms of the amendment, we will move from our current location to another building within the same office complex, and increase the space we lease from 4,413 square feet to 10,659 square feet. We believe the move will be completed on or about December 31, 2013.

The amended lease becomes effective November 1, 2013 and will expire on October 31, 2018. The lease contains rent escalation clauses and four months of free rent. Additionally, we paid $18,100 to the landlord as a prepayment of the first month’s rent on the new space. The following table sets forth the minimum lease payments due over the life of the lease.

Year	Amount
Remainder of 2013	$	—
2014		346,000
2015		449,500
2016		463,000
2017		476,900
2018		407,300
	$	2,142,700

Under the terms of the lease, the landlord will provide us with various leasehold improvements totaling $106,600. Upon signing the amendment, we made a deposit of $109,000 to our landlord.

As of September 30, 2013, we reported $103,700 of unamortized leasehold improvements associated with our current lease. We expect to amortize this amount over the remaining three month life of our current lease. We believe we will be moving most of our current furniture and equipment to our new space.

On November 14, 2013, we launched the first commercial version of hopTo, our mobile productivity workspace product on Apple’s App Store.

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies [Abstract]

Commitments and Contingencies

12.  Commitments and Contingencies

Our corporate headquarters currently occupies 4,413 square feet of office space in Campbell, California, under a five-year lease that expires June 30, 2017. During October 2013, we amended our lease in order to secure a larger facility from our landlord. See Note 18.

XML

Supplemental Disclosure of Cash Flow Information (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013		Sep. 30, 2012
Supplemental Disclosure of Cash Flow Information [Abstract]
Payment for interest expense	$ 0	$ 0	$ 0		$ 0
Payment of income tax			1,800		3,100
Warrants exercised in noncash transaction (in shares)			1,072,500
Change in warrant liability			5,421,300
Reduction in warrants liability			644,400
Reclassification of warrants liability to equity from amendment of warrants			(4,391,000)	[1]
Acquired Finite-Lived Intangible Assets [Line Items]
Stock based compensation expense			580,500		759,000
Capitalized property and equipment			3,700		130,900
Portion of capitalized property and equipment recorded as long term liabilities - deferred rent					104,100
Cost incurred associated with discontinued intellectual property operations					468,000
Cash used in discontinued operations					432,000
Capitalized Software [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Stock based compensation expense	$ 0		$ 36,700

[1] During the nine-month period ended September 30, 2013, our warrants liability was reduced as a result of the warrants amendment, as discussed above. Additionally, our warrants liability was further reduced by $385,900 as a result of the exercise of 1,072,500 warrants during such period, whose terms were not affected by the changes made under the warrants amendment. The aggregate reduction in the liability, combining the warrant amendment and this exercise, was $4,776,900. See Note 14.

XML

Property and Equipment (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Dec. 31, 2012
Summary of property and equipment [Abstract]
Property and equipment, gross	$ 1,779,100	$ 1,779,100	$ 1,699,600
Less: accumulated depreciation and amortization	1,421,300	1,421,300	1,340,700
Property and equipment, net	357,800	357,800	358,900
Depreciation and amortization	28,200	80,600
Equipment [Member]
Summary of property and equipment [Abstract]
Property and equipment, gross	1,238,800	1,238,800	1,171,900
Capitalized cost of property and equipment		64,900
Furniture [Member]
Summary of property and equipment [Abstract]
Property and equipment, gross	392,800	392,800	380,200
Capitalized cost of property and equipment		14,600
Leasehold Improvements [Member]
Summary of property and equipment [Abstract]
Property and equipment, gross	$ 147,500	$ 147,500	$ 147,500

XML

Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2013

Property and Equipment [Abstract]

Property and equipment

Property and equipment was:

	September 30, 2013		December 31, 2012
Equipment	$	1,238,800	$	1,171,900
Furniture		392,800		380,200
Leasehold improvements		147,500		147,500
		1,779,100		1,699,600
Less: accumulated depreciation and amortization		1,421,300		1,340,700
	$	357,800	$	358,900

XML

Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2013

Significant Accounting Policies [Abstract]

Allowance for doubtful accounts

The following table sets forth the details of the Allowance for Doubtful Accounts for the three and nine-month periods ended September 30, 2013 and 2012:

	Beginning Balance		Charge Offs		Recoveries		Provision			Ending Balance
	Three Months Ended September 30,
2013	$	24,600	$	—	$	—	$	5,000		$	29,600
2012		37,900		—		—		(7,700	)		30,200
		Nine Months Ended September 30,
2013	$	33,900	$	—	$	—	$	(4,300	)	$	29,600
2012		25,000		—		—		5,200			30,200

Schedule of most significant customers

For the three and nine-month periods ended September 30, 2013 and 2012 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 for the three and nine-month periods ended September 30, 2013 and 2012, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net, as of September 30, 2013 and 2012.

	Three Months Ended September 30, 2013						Three Months Ended September 30, 2012
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Elosoft		10.4	%		15.1	%		7.2	%		10.7	%
IDS		9.9	%		4.5	%		8.7	%		1.2	%
GE		9.7	%		16.5	%		10.1	%		19.8	%
Alcatel-Lucent		8.4	%		16.2	%		7.2	%		14.3	%
GAD		6.4	%		—			5.5	%		—
Total		44.8	%		52.3	%		38.7	%		46.0	%

	Nine Months Ended September 30, 2013						Nine Months Ended September 30, 2012
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Elosoft		6.3	%		15.1	%		5.5	%		10.7	%
IDS		6.6	%		4.5	%		5.4	%		1.2	%
GE		6.8	%		16.5	%		8.1	%		19.8	%
Alcatel-Lucent		7.5	%		16.2	%		4.8	%		14.3	%
GAD		4.7	%		—			10.5	%		—
Total		31.9	%		52.3	%		34.3	%		46.0	%

XML

Stockholders' Equity (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013
Stock Repurchase Program [Abstract]
Board approved authorized amount for stock repurchase program	$ 1,000,000	$ 1,000,000
Remaining amount available for future stock repurchase program plan		$ 782,600
Amount of shares repurchased (in shares)	0	0

XML

Capitalized Software Development Costs (Tables)

9 Months Ended

Sep. 30, 2013

Capitalized Software Development Costs [Abstract]

Schedule of capitalized software

Capitalized software development costs consisted of the following:

	September 30, 2013			December 31, 2012
Software development costs	$	1,116,700		$	573,100
Accumulated amortization		(457,100	)		(350,000	)
	$	659,600		$	223,100

XML

Severance Liability (Details) (USD $)	3 Months Ended	9 Months Ended		12 Months Ended	9 Months Ended								3 Months Ended		9 Months Ended		12 Months Ended		3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Sep. 30, 2013 Modified Options [Member] Factor	Sep. 30, 2013 Modified Options [Member] Minimum [Member]	Sep. 30, 2013 Modified Options [Member] Maximum [Member]	Sep. 30, 2013 New Option [Member] Factor	Sep. 30, 2013 Compensation [Member]	Sep. 30, 2013 Medical Coverage [Member]	Sep. 30, 2013 Employee Severance [Member]	Jun. 30, 2013 Employee Severance [Member]	Sep. 30, 2013 Chief Executive Officer [Member]	Sep. 30, 2012 Chief Executive Officer [Member]	Sep. 30, 2013 Chief Executive Officer [Member]	Sep. 30, 2012 Chief Executive Officer [Member]	Dec. 31, 2012 Chief Executive Officer [Member]	Jun. 30, 2012 Chief Executive Officer [Member]	Sep. 30, 2013 Chief Executive Officer [Member] Compensation [Member]	Sep. 30, 2013 Chief Executive Officer [Member] Compensation [Member]	Sep. 30, 2013 Chief Executive Officer [Member] Medical Coverage [Member]	Sep. 30, 2013 Chief Executive Officer [Member] Medical Coverage [Member]
Restructuring Cost and Reserve [Line Items]
Stock options expiration term													30 months		30 months			30 months
Common stock issued as a result of exercise of employee stock options (in shares)															2,000,000
Share based compensation as a result of agreement modification													$ 0		$ 0		$ 172,700
Options granted on release effective date (in shares)														500,000
Exercise price of options granted on release effective date (in dollars per share)														$ 0.20
Number of shares vested and exercisable per quarter (in shares)														62,500
Stock-based compensation expense		580,500	759,000										0		0		64,700
Periodic severance expenses to be paid from May 2012 through April 2013															27,300
Periodic severance expenses to be paid from May 2013 through April 2014															13,600
Severance costs	75,700			721,800										433,700		721,800
Accrued medical payments													92,300		92,300
Healthcare premium for May and June																		5,800
Future healthcare premium per month													1,300		1,300
Payment for legal fees in connection with separation agreement															15,000
Estimated fair value of each stock-based award granted [Abstract]
Estimated Volatility (in hundredths)								157.00%
Estimated Volatility, Minimum (in hundredths)					70.00%
Estimated Volatility, Maximum (in hundredths)					157.00%
Annualized Forfeiture Rate (in hundredths)					0.00%			0.00%
Expected Option Term						3 months	2 years 6 months	2 years 6 months
Estimated exercise factor					10			10
Risk-Free Interest Rate, Minimum (in hundredths)					0.08%
Risk-Free Interest Rate, Maximum (in hundredths)					0.29%
Risk-Free Interest Rate (in hundredths)								0.29%
Dividends (in hundredths)					0.00%			0.00%
Cash salary continuation payments															458,600
Discount factor under terms of separation agreement (in hundredths)															14.30%
Restructuring Reserve [Roll Forward]
Beginning Balance		262,400							250,100	12,300	47,100	75,700
Separation agreement entered into in 2013		75,700							60,000	15,700
Accrued interest		18,800							18,100	700									4,200	18,100	100	700
Payments		(216,800)							(197,200)	(19,600)									(36,600)	(172,900)	(3,800)	(11,000)
Ending Balance	$ 140,100	$ 140,100		$ 262,400					$ 131,000	$ 9,100	$ 47,100	$ 75,700

XML

Earnings (Loss) Per Share (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Earnings (Loss) Per Share [Abstract]
Antidilutive shares excluded from computation of dilutive loss per share (in shares)	33,707,201	36,997,357	33,707,201	36,997,357

XML

Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2013

Stock-Based Compensation [Abstract]

Summary of stock-based compensation expense

The following table summarizes the stock-based compensation expense, net of amounts capitalized, we recorded in our Unaudited Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2013 and 2012, respectively, by classification:

	Three Months Ended September 30,					Nine Months Ended September 30,
Statement of Operations Classification	2013			2012		2013		2012
Costs of revenue	$	(500	)	$	6,700	$	3,300	$	17,100
Selling and marketing expense		39,800			33,200		118,700		84,800
General and administrative expense		76,300			71,000		255,800		404,700
Research and development expense		74,400			82,600		202,700		252,400
	$	190,000		$	193,500	$	580,500	$	759,000

Summary of status and activity of stock option awards

The following table presents summaries of the status and activity of our stock option awards for the three-month period ended September 30, 2013.

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Outstanding – June 30, 2013		13,134,398		$	0.20
Granted		23,000			0.44
Exercised		(708,594	)		0.18
Forfeited or expired		(77,745	)		0.20
Outstanding – September 30, 2013		12,371,059		$	0.20		6.12	$	4,161,600

The following table presents summaries of the status and activity of our stock option awards for the nine-month period ended September 30, 2013.

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Outstanding – December 31, 2012		14,174,000		$	0.20
Granted		23,000			0.44
Exercised		(1,459,972	)		0.17
Forfeited or expired		(232,151	)		0.20
Cancellation of unearned performance option		(133,818	)		0.19
Outstanding – September 30, 2013		12,371,059		$	0.20		6.12	$	4,161,600

Summary of status and activity of restricted stock awards

The following table presents summaries of the status and activity of our restricted stock awards for the three-month period ended September 30, 2013. We include the common stock underlying the restricted stock award in shares outstanding once such common stock has vested and the restriction has been removed (“releases” or “released”).The common stock vests ratably, over a 33-month period; however, no such shares vest until after three months from the date of the restricted stock award.

	Number of Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Recognition P eriod (Years)		Unrecognized Compensation Cost Remaining
Unreleased – June 30, 2013		3,796,324		$	0.22
Awarded		1,027,500			0.42
Released		(432,521	)		0.23
Forfeited		(265,157	)		0.27
Outstanding – September 30, 2013		4,126,146		$	0.26		2.15	$	918,400

The following table presents summaries of the status and activity of our restricted stock awards for the nine-month period ended September 30, 2013.

	Number of Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Recognition Period (Years)		Unrecognized Compensation Cost Remaining
Unreleased – December 31, 2012		4,043,123		$	0.18
Awarded		1,607,500			0.42
Released		(1,208,412	)		0.21
Forfeited		(316,065	)		0.36
Outstanding – September 30, 2013		4,126,146		$	0.26		2.15	$	918,400

XML

Revenue (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Software Licenses [Abstract]
Software licenses	$ 779,500	$ 1,009,800	$ 2,343,500	$ 2,770,500
Software licenses, changes	(230,300)		(427,000)
Software licenses, changes (in hundredths)	(22.80%)		(15.40%)
Software Service Fees [Abstract]
Software service fees	737,800	701,900	2,158,000	2,043,800
Software service fees, changes	35,900		114,200
Software service fees, changes (in hundredths)	5.10%		5.60%
Other Revenue [Abstract]
Other	17,400	22,400	44,000	101,300
Other, changes	(5,000)		(57,300)
Other changes (in hundredths)	(22.30%)		(56.60%)
Total Revenue	1,534,700	1,734,100	4,545,500	4,915,600
Total revenue, changes	(199,400)		(370,100)
Total revenue changes (in hundredths)	(11.50%)		(7.50%)
Windows [Member]
Software Licenses [Abstract]
Software licenses	559,600	775,600	1,673,400	2,046,200
Software licenses, changes	(216,000)		(372,800)
Software licenses, changes (in hundredths)	(27.80%)		(18.20%)
Software Service Fees [Abstract]
Software service fees	511,300	469,200	1,471,700	1,338,800
Software service fees, changes	42,100		132,900
Software service fees, changes (in hundredths)	9.00%		9.90%
UNIX/Linux [Member]
Software Licenses [Abstract]
Software licenses	219,900	234,200	670,100	724,300
Software licenses, changes	(14,300)		(54,200)
Software licenses, changes (in hundredths)	(6.10%)		(7.50%)
Software Service Fees [Abstract]
Software service fees	226,500	232,700	686,300	705,000
Software service fees, changes	$ (6,200)		$ (18,700)
Software service fees, changes (in hundredths)	(2.70%)		(2.70%)

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2013

Significant Accounting Policies [Abstract]

Use of Estimates

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

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

Deferred Rent

The lease for our office in Campbell, California, contains free rent and predetermined fixed escalations in our minimum rent payments. We recognize rent expense related to this lease on a straight-line basis over the term of the lease. We record any difference between the straight-line rent amounts and amounts payable under the lease as part of deferred rent in current or long-term liabilities, as appropriate.

Incentives that we 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. We record the unamortized portion of these incentives as a part of deferred rent in current or long-term liabilities, as appropriate.

Postemployment Benefits (Severance Liability)

Postemployment Benefits (Severance Liability)

Nonretirement postemployment benefits, including salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits and continuation of benefits such as health care benefits, are recognized as a liability and a loss when it is probable that the employee(s) will be entitled to such benefits and the amount can be reasonably estimated. The cost of termination benefits recognized as a liability and an expense includes the amount of any lump-sum payments and the present value of any expected future payments. During 2012, we recorded $721,800 of severance expense, including stock compensation expense. Such expense was recorded as a result of a separation agreement and a release with Robert Dilworth in connection with Mr. Dilworth’s resignation as our Chief Executive Officer and as a member of our board of directors.  In addition, during 2013 we recorded an additional $75,700 of severance expense as a result of a separation and release agreement we entered into with a former vice president-level employee (as further discussed in Note 5 to Unaudited Condensed Consolidated Financial Statements).  An aggregate of $140,100 and $262,400 is reflected as a severance liability, at September 30, 2013 and December 31, 2012, respectively.

Software Development Costs

Software Development Costs

We capitalize software development costs incurred from the time technological feasibility of the software is established until the software is available for general release, in accordance with GAAP. Such capitalized costs are subsequently amortized as costs of revenue over the shorter of three years or the remaining estimated useful life of the product.

Research and development costs and other computer software maintenance costs related to the software development are expensed as incurred.

Long-Lived Assets

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. No such impairment charge was recorded during either of the three or nine-month periods ended September 30, 2013 or 2012.

Allowance for Doubtful Accounts

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 and nine-month periods ended September 30, 2013 and 2012:

	Beginning Balance		Charge Offs		Recoveries		Provision			Ending Balance
	Three Months Ended September 30,
2013	$	24,600	$	—	$	—	$	5,000		$	29,600
2012		37,900		—		—		(7,700	)		30,200
		Nine Months Ended September 30,
2013	$	33,900	$	—	$	—	$	(4,300	)	$	29,600
2012		25,000		—		—		5,200			30,200

Concentration of Credit Risk

Concentration of Credit Risk

For the three and nine-month periods ended September 30, 2013 and 2012 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 for the three and nine-month periods ended September 30, 2013 and 2012, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net, as of September 30, 2013 and 2012.

	Three Months Ended September 30, 2013						Three Months Ended September 30, 2012
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Elosoft		10.4	%		15.1	%		7.2	%		10.7	%
IDS		9.9	%		4.5	%		8.7	%		1.2	%
GE		9.7	%		16.5	%		10.1	%		19.8	%
Alcatel-Lucent		8.4	%		16.2	%		7.2	%		14.3	%
GAD		6.4	%		—			5.5	%		—
Total		44.8	%		52.3	%		38.7	%		46.0	%

	Nine Months Ended September 30, 2013						Nine Months Ended September 30, 2012
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Elosoft		6.3	%		15.1	%		5.5	%		10.7	%
IDS		6.6	%		4.5	%		5.4	%		1.2	%
GE		6.8	%		16.5	%		8.1	%		19.8	%
Alcatel-Lucent		7.5	%		16.2	%		4.8	%		14.3	%
GAD		4.7	%		—			10.5	%		—
Total		31.9	%		52.3	%		34.3	%		46.0	%

Derivative Financial Instruments

Derivative Financial Instruments

We currently do not have a material exposure to either commodity prices or interest rates; accordingly, we do not currently use derivative instruments to manage such risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. All derivative financial instruments are recognized in the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge accounting.

Fair Value of Financial Instruments

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 Account 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.

As of September 30, 2013, all of our $1,968,800 Warrants Liability reported at fair value was categorized as Level 3 inputs (See Note 4).

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In July 2013, FASB issued ASU No. 2013-11 “Income Taxes (Topic 740)” (ASU 2013-11). The objective of ASU 2013-11 is to provide explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. FASB recognized that there was inconsistency in how previous guidance in this topic was applied in practice, thus; the objective of ASU 2013-11 is to eliminate the diversity of how previous guidance was applied. As the amendments in ASU 2013-11 do not require new recurring disclosures, rather, they are aimed at creating consistency in how previous guidance is applied, we do not believe that adoption of ASU 2013-11, which will become effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, will have a material impact on our results of operations, cash flows or financial position.

In February 2013, FASB issued ASU No. 2013-02 “Other Comprehensive Income” (ASU 2013-02). The objective of ASU 2013-02 is to improve the reporting of reclassifications out of other comprehensive income.  This objective is reached by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income.  ASU 2013-02 is effective and is to be applied prospectively to reporting periods beginning after December 15, 2012. We currently have no amounts that would meet the criteria to be reclassified; accordingly, the adoption of ASU 2013-02 did not have a material impact on our results of operations, cash flows or financial position.  Comprehensive loss equals net loss for the each of the three and nine-month periods ended September 30, 2013 and 2012, respectively.

In July 2012, FASB issued ASU No. 2012-02 “Intangibles – Goodwill and Other” (ASU 2012-02). The objective of ASU 2012-02 is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. ASU 2012-02 is effective for fiscal years beginning after September 15, 2012. Early adoption is permitted. We currently have no goodwill or material indefinite-lived intangible assets; accordingly, the adoption of ASU 2012-02 did not have a material impact on our results of operations, cash flows or financial position.

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Cash Flows Provided By (Used In) Operating Activities:
Net loss	$ (2,850,200)	$ (6,309,900)
Loss from discontinued operations	0	468,400
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	187,700	191,700
Stock-based compensation expense	580,500	759,000
Change in fair value of derivative instruments - warrants	(680,100)	2,417,800
Accretion of warrants liability for consulting services	35,700	52,700
Accretion of equity warrants for consulting services	11,800	0
Revenue deferred to future periods	2,725,500	3,832,300
Recognition of deferred revenue	(3,102,600)	(3,519,300)
Changes in severance liability	(122,300)	336,800
Changes in deferred rent	(19,900)	32,000
Changes to allowance for doubtful accounts	(4,300)	5,200
Loss on disposal of fixed assets	0	600
Changes in operating assets and liabilities:
Accounts receivable	169,800	(53,000)
Prepaid expenses	87,800	31,700
Accounts payable and accrued expenses	226,600	56,600
Other assets	15,200	(7,500)
Net Cash Used In Operating Activities - Continuing Operations	(2,738,800)	(1,704,900)
Net Cash Used In Operating Activities - Discontinued Operations	0	(432,800)
Net Cash Used in Operating Activities	(2,738,800)	(2,137,700)
Cash Flows Used In Investing Activities:
Capital expenditures	(75,800)	(269,800)
Capitalized software development costs	(506,900)	0
Net Cash Used In Investing Activities - Continuing Operations	(582,700)	(269,800)
Net Cash Used In Investing Activities - Discontinued Operations	0	0
Net Cash Used In Investing Activities	(582,700)	(269,800)
Cash Flows Provided By Financing Activities:
Proceeds from exercise of warrants	2,615,300	0
Proceeds from exercise of employee stock options	302,700	44,400
Increase in payables related to restricted cash	0	198,300
Proceeds from restricted cash transaction	0	(198,300)
Net Cash Provided By Financing Activities -Continuing Operations	2,918,000	44,400
Net Cash Provided By Financing Activities - Discontinued Operations	0	0
Net Cash Provided By Financing Activities	2,918,000	44,400
Net Decrease in Cash	(403,500)	(2,363,100)
Cash - Beginning of Period	3,960,600	7,237,500
Cash - End of Period	$ 3,557,100	$ 4,874,400

XML

Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Significant Accounting Policies [Abstract]

Significant Accounting Policies

2.  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 lease for our office in Campbell, California, contains free rent and predetermined fixed escalations in our minimum rent payments. We recognize rent expense related to this lease on a straight-line basis over the term of the lease. We record any difference between the straight-line rent amounts and amounts payable under the lease as part of deferred rent in current or long-term liabilities, as appropriate.

Incentives that we 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. We record the unamortized portion of these incentives as a part of deferred rent in current or long-term liabilities, as appropriate.

Postemployment Benefits (Severance Liability)

Nonretirement postemployment benefits, including salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits and continuation of benefits such as health care benefits, are recognized as a liability and a loss when it is probable that the employee(s) will be entitled to such benefits and the amount can be reasonably estimated. The cost of termination benefits recognized as a liability and an expense includes the amount of any lump-sum payments and the present value of any expected future payments. During 2012, we recorded $721,800 of severance expense, including stock compensation expense. Such expense was recorded as a result of a separation agreement and a release with Robert Dilworth in connection with Mr. Dilworth’s resignation as our Chief Executive Officer and as a member of our board of directors.  In addition, during 2013 we recorded an additional $75,700 of severance expense as a result of a separation and release agreement we entered into with a former vice president-level employee (as further discussed in Note 5 to Unaudited Condensed Consolidated Financial Statements).  An aggregate of $140,100 and $262,400 is reflected as a severance liability, at September 30, 2013 and December 31, 2012, respectively.

Software Development Costs

We capitalize software development costs incurred from the time technological feasibility of the software is established until the software is available for general release, in accordance with GAAP. Such capitalized costs are subsequently amortized as costs of revenue over the shorter of three years or the remaining estimated useful life of the product.

Research and development costs and other computer software maintenance costs related to the software development are expensed as incurred.

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. No such impairment charge was recorded during either of the three or nine-month periods ended September 30, 2013 or 2012.

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 and nine-month periods ended September 30, 2013 and 2012:

	Beginning Balance		Charge Offs		Recoveries		Provision			Ending Balance
	Three Months Ended September 30,
2013	$	24,600	$	—	$	—	$	5,000		$	29,600
2012		37,900		—		—		(7,700	)		30,200
		Nine Months Ended September 30,
2013	$	33,900	$	—	$	—	$	(4,300	)	$	29,600
2012		25,000		—		—		5,200			30,200

Concentration of Credit Risk

For the three and nine-month periods ended September 30, 2013 and 2012 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 for the three and nine-month periods ended September 30, 2013 and 2012, and the respective customer’s ending accounts receivable balance as a percentage of reported accounts receivable, net, as of September 30, 2013 and 2012.

	Three Months Ended September 30, 2013						Three Months Ended September 30, 2012
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Elosoft		10.4	%		15.1	%		7.2	%		10.7	%
IDS		9.9	%		4.5	%		8.7	%		1.2	%
GE		9.7	%		16.5	%		10.1	%		19.8	%
Alcatel-Lucent		8.4	%		16.2	%		7.2	%		14.3	%
GAD		6.4	%		—			5.5	%		—
Total		44.8	%		52.3	%		38.7	%		46.0	%

	Nine Months Ended September 30, 2013						Nine Months Ended September 30, 2012
Customer	Sales			Accounts Receivable			Sales			Accounts Receivable
Elosoft		6.3	%		15.1	%		5.5	%		10.7	%
IDS		6.6	%		4.5	%		5.4	%		1.2	%
GE		6.8	%		16.5	%		8.1	%		19.8	%
Alcatel-Lucent		7.5	%		16.2	%		4.8	%		14.3	%
GAD		4.7	%		—			10.5	%		—
Total		31.9	%		52.3	%		34.3	%		46.0	%

Derivative Financial Instruments

We currently do not have a material exposure to either commodity prices or interest rates; accordingly, we do not currently use derivative instruments to manage such risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. All derivative financial instruments are recognized in the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge accounting.

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 Account 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.

As of September 30, 2013, all of our $1,968,800 Warrants Liability reported at fair value was categorized as Level 3 inputs (See Note 4).

Recent Accounting Pronouncements

In July 2013, FASB issued ASU No. 2013-11 “Income Taxes (Topic 740)” (ASU 2013-11). The objective of ASU 2013-11 is to provide explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. FASB recognized that there was inconsistency in how previous guidance in this topic was applied in practice, thus; the objective of ASU 2013-11 is to eliminate the diversity of how previous guidance was applied. As the amendments in ASU 2013-11 do not require new recurring disclosures, rather, they are aimed at creating consistency in how previous guidance is applied, we do not believe that adoption of ASU 2013-11, which will become effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, will have a material impact on our results of operations, cash flows or financial position.

In February 2013, FASB issued ASU No. 2013-02 “Other Comprehensive Income” (ASU 2013-02). The objective of ASU 2013-02 is to improve the reporting of reclassifications out of other comprehensive income.  This objective is reached by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income.  ASU 2013-02 is effective and is to be applied prospectively to reporting periods beginning after December 15, 2012. We currently have no amounts that would meet the criteria to be reclassified; accordingly, the adoption of ASU 2013-02 did not have a material impact on our results of operations, cash flows or financial position.  Comprehensive loss equals net loss for the each of the three and nine-month periods ended September 30, 2013 and 2012, respectively.

In July 2012, FASB issued ASU No. 2012-02 “Intangibles – Goodwill and Other” (ASU 2012-02). The objective of ASU 2012-02 is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. ASU 2012-02 is effective for fiscal years beginning after September 15, 2012. Early adoption is permitted. We currently have no goodwill or material indefinite-lived intangible assets; accordingly, the adoption of ASU 2012-02 did not have a material impact on our results of operations, cash flows or financial position.

XML

Severance Liability

9 Months Ended

Sep. 30, 2013

Severance Liability [Abstract]

Severance Liability

5.  Severance Liability

On April 12, 2012, we entered into a separation agreement and a release with Robert Dilworth in connection with Mr. Dilworth’s resignation as our Chief Executive Officer and as a member of our board of directors. Subject to the terms of the separation agreement, effective April 20, 2012 (the “Release Effective Date”) we paid or provided Mr. Dilworth the following:

· On the Release Effective Date, Mr. Dilworth’s outstanding unvested options became fully vested and exercisable, and his outstanding vested options were modified to extend the exercise period. All options will remain exercisable until the earlier of (i) the expiration dates of each of such options or (ii) the date that is 30 months after the Release Effective Date. The number of shares of common stock issuable upon exercise of such outstanding options is 2,000,000. We recognized $172,700 of non-cash stock-based compensation expense during 2012, as a result of the modification of Mr. Dilworth’s outstanding stock options.  No expense was recognized during the nine-month period ended September 30, 2013 as a result of the modifications.

· On the Release Effective Date, Mr. Dilworth was granted an option to purchase 500,000 shares of common stock at an exercise price of $0.20 per share. Such option has a term of 30 months from the date of grant and will vest and become exercisable at a rate of 62,500 shares per quarter commencing on July 1, 2012. We recognized $64,700 of non-cash stock-based compensation expense during 2012 as a result of the issuance of this stock option to Mr. Dilworth.  No expense was recognized during the nine-month period ended September 30, 2013 as a result of the issuance.

· From May 2012 through April 2013, Mr. Dilworth was paid $27,300 per month. From May 2013 through April 2014, Mr. Dilworth will be paid $13,600 per month.  During the three-month period ended June 30, 2012, we recognized $433,700 compensation expense related to Mr. Dilworth’s separation agreement, which we recorded as a liability.  Such amount represented the present value of the future salary and medical insurance (discussed below) continuation payments due Mr. Dilworth under the terms of the separation agreement.  During the three and nine-month periods ended September 30, 2013, we made salary continuation payments aggregating $36,600 and $172,900, respectively, to Mr. Dilworth.  As of September 30, 2013, the aggregate present value of the remaining future salary and medical insurance coverage continuation payments due Mr. Dilworth was $92,300, which was reported as a current liability.  All interest expense associated with the salary and medical insurance continuation payments made are charged to general and administrative expenses as incurred.  During the three and nine-month periods ended June 30, 2013, we incurred interest charges of $4,200 and $18,100 respectively.

· From May 2012 through October 2013, we paid the premium costs to continue medical coverage for Mr. Dilworth and his spouse under the Employment Retirement Income Security Act of 1974. Such premiums aggregated $5,800 for May 2012 and June 2012, and will approximate $1,300 per month thereafter. During the three and nine-month periods ended September 30, 2013 we made medical insurance coverage continuation payments of $3,800 and $11,000 respectively.  During the three and nine-month periods ended September 30, 2013, we incurred interest charges of $100 and $700, respectively.

· We paid Mr. Dilworth $15,000 as reimbursement for a portion of his legal fees in connection with negotiation of the separation agreement and the release.

Mr. Dilworth’s participation in the Key Employee Severance Plan and the Director Severance Plan was automatically terminated on the Release Effective Date. In addition, the separation agreement contains confidentiality and non-disparagement provisions subject to the terms set forth therein. Pursuant to the terms of the release, Mr. Dilworth provided as of the Release Effective Date a release of claims in connection with his employment and resignation. As a result of the separation agreement, we recognized an aggregate $721,800 of additional operating expenses, as summarized above of which all such expense was recognized contemporaneously with the consummation of Mr. Dilworth’s separation agreement during the second quarter of 2012.

We estimated the fair value of each stock-based award set forth above, which were included as part of Mr. Dilworth’s separation agreement during 2012, using a binomial model with the assumptions set forth in the following table:

	Estimated Volatility			Annualized Forfeiture Rate			Expected Option Term (Years)		Estimated Exercise Factor		Risk-Free Interest Rate			Dividends
Modified options		70% - 157	%		0.00	%		0.25 – 2.5		10		0.08% - 0.29	%		—
New option		157	%		0.00	%		2.5		10		0.29	%		—

Expected volatility is based on the historical volatility of our common stock over the expected option term period ended on the last business day of each respective quarterly reporting period. The estimated forfeiture rate was set to zero as Mr. Dilworth is not obligated to perform any services for us under the terms of the separation agreement. The expected term was based on the actual expiration date of each of the options in the separation agreement. The estimated exercise factor was based on an analysis of historical data; historical exercise patterns; and a comparison of historical and current share prices. The approximate risk free interest rate was based on the implied yield available on U.S. Treasury issues with remaining terms equivalent to our expected term on our stock-based awards. We do not anticipate paying dividends on our common stock for the foreseeable future.

We discounted the initial aggregate remaining cash salary continuation payments due Mr. Dilworth and medical premiums to be paid on his behalf of $458,600 under the terms of the separation agreement using a 14.3% discount factor, with such factor representing our average cost of capital, which we derived by analyzing the costs we incurred in the various private placement transactions we have closed since 2004.

On July 17, 2013 we entered into a separation agreement and release with a former vice president-level employee who left the Company on June 7, 2013.  Subject to the terms of the separation agreement, which became effective on July 17, 2013 (the “Effective Date”), we accrued $75,700 of severance liability at June 30, 2013, of which, $47,800 remained outstanding as of September 30, 2013.

The following table summarizes the salary continuation and medical coverage payments during the nine-month period ended September 30, 2013.

	Compensation			Medical Coverage			Total
Balance at December 31, 2012	$	250,100		$	12,300		$	262,400
Separation agreement entered into in 2013		60,000			15,700			75,700
Accrued interest		18,100			700			18,800
Payments		(197,200	)		(19,600	)		(216,800	)
Balance at September 30, 2013	$	131,000		$	9,100		$	140,100

XML

Property and Equipment

9 Months Ended

Sep. 30, 2013

Property and Equipment [Abstract]

Property and Equipment

3.  Property and Equipment

Property and equipment was:

	September 30, 2013		December 31, 2012
Equipment	$	1,238,800	$	1,171,900
Furniture		392,800		380,200
Leasehold improvements		147,500		147,500
		1,779,100		1,699,600
Less: accumulated depreciation and amortization		1,421,300		1,340,700
	$	357,800	$	358,900

Aggregate property and equipment depreciation and amortization expense was $28,200 during the three-month period ended September 30, 2013 and $80,600 during the nine-month period ended September 30, 2013. During the nine-month period ended September 30, 2013, we capitalized the following costs: equipment; $64,900, furniture; $14,600.

XML

Deferred Rent (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Deferred Revenue Arrangement [Line Items]
Deferred Rent, Current Liabilities	$ 29,800	$ 26,700
Deferred Rent, Long-Term Liabilities	104,500	127,500
Deferred Rent	134,300	154,200
Deferred rent expense [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Rent, Current Liabilities	5,800	2,700
Deferred Rent, Long-Term Liabilities	38,500	43,500
Deferred Rent	44,300	46,200
Deferred rent benefit [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Rent, Current Liabilities	24,000	24,000
Deferred Rent, Long-Term Liabilities	66,000	84,000
Deferred Rent	$ 90,000	$ 108,000

XML

Liability Attributable to Warrants (Tables)

9 Months Ended

Sep. 30, 2013

Liability Attributable to Warrants [Abstract]

Assumption used to determine the fair value of warrants

We used a binomial pricing model to determine the fair value of our warrants liability as of September 30, 2013 and December 31, 2012, the balance sheet dates, using the following assumptions:

	2011 Transaction						ipCapital
	September 30, 2013			December 31, 2012			September 30, 2013			December 31, 2012
Estimated volatility		120	%		159	%		125	%		163	%
Annualized forfeiture rate		—			—			—			—
Expected option term (years)		2.92			3.67			3.04			3.79
Estimated exercise factor		4			10			4			10
Risk-free interest rate		0.50	%		0.45	%		0.64	%		0.65	%
Dividends		—			—			—			—

Reconciliation of the warrants liability measured at fair value using significant unobservable inputs

The following table is a reconciliation of the warrants liability measured at fair value using significant unobservable inputs (Level 3) for the nine months ended September 30, 2013:

Warrants liability – December 31, 2012 fair value	$	7,390,100
Change in fair value of warrant liability recorded in other income		(680,100	)
Change in fair value of warrant liability recorded in general and administrative expense		35,700
Reclassification of warrants liability to equity from exercise of warrants (1)		(385,900	)
Reclassification of warrants liability to equity from amendment to warrants  (1)		(4,391,000	)
Warrants liability – September 30, 2013 fair value	$	1,968,800

(1) During the nine-month period ended September 30, 2013, our warrants liability was reduced as a result of the warrants amendment, as discussed above. Additionally, our warrants liability was further reduced by $385,900 as a result of the exercise of 1,072,500 warrants during such period, whose terms were not affected by the changes made under the warrants amendment. The aggregate reduction in the liability, combining the warrant amendment and this exercise, was $4,776,900. See Note 13.

Warrants outstanding

The following tables reconcile the number of warrants outstanding for the periods indicated:

For the Three-Month Period Ended September 30, 2013
	Beginning Outstanding		Issued		Exercised		Ending Outstanding
2011 Transaction		13,157,500		—		305,000		12,852,500
Exercise Agreement		4,500,000		—		—		4,500,000
ipCapital		400,000		—		—		400,000
Consultant Warrant (1)		—		312,500		—		312,500
Offer to Exercise		—		152,500		—		152,500
Total		18,057,500		465,000		305,000		18,217,500

For the Nine-Month Period Ended September 30, 2013
	Beginning Outstanding		Issued		Exercised		Ending Outstanding
2011 Transaction		23,075,000		—		10,222,500		12,852,500
Exercise Agreement		—		4,500,000		—		4,500,000
ipCapital		400,000		—		—		400,000
Consulting Warrant (1)		—		312,500		—		312,500
Offer to Exercise		—		152,500		—		152,500
Total		23,475,000		4,965,000		10,222,500		18,217,500

For the Three and Nine-Month Period Ended September 30, 2012
	Beginning Outstanding		Issued		Exercised		Ending Outstanding
2011 Transaction		23,075,000		—		—		23,075,000
ipCapital		400,000		—		—		400,000
Total		23,475,000		—		—		23,475,000

(1) Effective September 18, 2013, we entered into a consulting agreement with Genesis Select to provide us with a variety of investor relations services. As part of their compensation, we issued to them a warrant to purchase 312,500 shares of our common stock at an exercise price of $0.50 per share. The warrant will vest, monthly, over the initial twelve-month service period of the contract, assuming that the agreement remains in-force, with the first vesting having occured on October 18, 2013. The warrant is substantially similar in nature to those issued in the warrant amendment, discussed above, thus; the warrant is accounted in equity and is not included as a component of our warrants liability as of September 30, 2013. We used the following assumptions in a binomial pricing model to calculate the fair value of the warrant issued to Genesis: estimated volatility – 181%; expected term – 4.96 years; estimated exercise factor – 4, risk free interest rate – 1.41%; and dividends – 0. Expense associated with this warrant is recognized as a component of general and administrative expense over the one-year vesting term of the warrant.

XML

Revenue (Tables)

9 Months Ended

Sep. 30, 2013

Revenue [Abstract]

Schedule of revenue

Revenue for the three-month periods ended September 30, 2013 and 2012 was:

	Three Months Ended September 30,				2013 Over (Under) 2012
Revenue	2013		2012		Dollars			Percent
Software Licenses
Windows	$	559,600	$	775,600	$	(216,000	)		-27.8	%
UNIX/Linux		219,900		234,200		(14,300	)		-6.1	%
		779,500		1,009,800		(230,300	)		-22.8	%
Software Service Fees
Windows		511,300		469,200		42,100			9.0	%
UNIX/Linux		226,500		232,700		(6,200	)		-2.7	%
		737,800		701,900		35,900			5.1	%
Other		17,400		22,400		(5,000	)		-22.3	%
Total Revenue	$	1,534,700	$	1,734,100	$	(199,400	)		-11.5	%

Revenue for the nine-month periods ended September 30, 2013 and 2012 was:

	Nine Months Ended September 30,				2013 Over (Under) 2012
Revenue	2013		2012		Dollars			Percent
Software Licenses
Windows	$	1,673,400	$	2,046,200	$	(372,800	)		-18.2	%
UNIX/Linux		670,100		724,300		(54,200	)		-7.5	%
		2,343,500		2,770,500		(427,000	)		-15.4	%
Software Service Fees
Windows		1,471,700		1,338,800		132,900			9.9	%
UNIX/Linux		686,300		705,000		(18,700	)		-2.7	%
		2,158,000		2,043,800		114,200			5.6	%
Other		44,000		101,300		(57,300	)		-56.6	%
Total Revenue	$	4,545,500	$	4,915,600	$	(370,100	)		-7.5	%

XML

Significant Accounting Policies (Details) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013 Element	Sep. 30, 2012	Dec. 31, 2012	Mar. 31, 2013	Mar. 31, 2012
Revenue Recognition [Abstract]
Number of delivered elements for which evidence does not exist, minimum			1
Postemployment Benefits (Severance Liability) [Abstract]
Severance costs	$ 75,700				$ 721,800
Severance liability	140,100		140,100		262,400
Software Development Costs [Abstract]
Maximum useful life			3 years
Long-Lived Assets [Abstract]
Impairment charge	0	0	0	0
Allowance for Doubtful Accounts [Abstract]
Beginning Balance			33,900	25,000	25,000	24,600	37,900
Charge Offs	0	0	0	0
Recoveries	0	0	0	0
Provision	5,000	(7,700)	(4,300)	5,200
Ending Balance	29,600	30,200	29,600	30,200	33,900	24,600	37,900
Fair Value of Financial Instruments [Abstract]
Warrants liability reported	$ 1,968,800		$ 1,968,800		$ 7,390,100
Sales [Member]
Concentration Risk [Line Items]
Concentration of risk (in hundredths)	44.80%	38.70%	31.90%	34.30%
Sales [Member] | Elosoft [Member]
Concentration Risk [Line Items]
Concentration of risk (in hundredths)	10.40%	7.20%	6.30%	5.50%
Sales [Member] | IDS [Member]
Concentration Risk [Line Items]
Concentration of risk (in hundredths)	9.90%	8.70%	6.60%	5.40%
Sales [Member] | GE [Member]
Concentration Risk [Line Items]
Concentration of risk (in hundredths)	9.70%	10.10%	6.80%	8.10%
Sales [Member] | Alcatel-Lucent [Member]
Concentration Risk [Line Items]
Concentration of risk (in hundredths)	8.40%	7.20%	7.50%	4.80%
Sales [Member] | GAD [Member]
Concentration Risk [Line Items]
Concentration of risk (in hundredths)	6.40%	5.50%	4.70%	10.50%
Accounts Receivable [Member]
Concentration Risk [Line Items]
Concentration of risk (in hundredths)	52.30%	46.00%	52.30%	46.00%
Accounts Receivable [Member] | Elosoft [Member]
Concentration Risk [Line Items]
Concentration of risk (in hundredths)	15.10%	10.70%	15.10%	10.70%
Accounts Receivable [Member] | IDS [Member]
Concentration Risk [Line Items]
Concentration of risk (in hundredths)	4.50%	1.20%	4.50%	1.20%
Accounts Receivable [Member] | GE [Member]
Concentration Risk [Line Items]
Concentration of risk (in hundredths)	16.50%	19.80%	16.50%	19.80%
Accounts Receivable [Member] | Alcatel-Lucent [Member]
Concentration Risk [Line Items]
Concentration of risk (in hundredths)	16.20%	14.30%	16.20%	14.30%
Accounts Receivable [Member] | GAD [Member]
Concentration Risk [Line Items]
Concentration of risk (in hundredths)	0.00%	0.00%	0.00%	0.00%
Minimum [Member]
Revenue Recognition [Abstract]
Maintenance contract period			1 year
Maximum [Member]
Revenue Recognition [Abstract]
Maintenance contract period			5 years

XML

Segment Information (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013 Segment	Sep. 30, 2012
Segment Information [Abstract]
Number of operating segments			2
Segment revenue [Abstract]
Consolidated Revenues Total	$ 1,534,700	$ 1,734,100	$ 4,545,500	$ 4,915,600
Increase (Decrease) in segment revenue	(199,400)		(370,100)
Increase (Decrease) in segment revenue, percentage (in hundredths)	(11.50%)		(7.50%)
Segment income (loss) from operations [Abstract]
Income (loss) from continuing operations	(1,608,500)	(654,800)	(3,522,500)	(3,426,200)
Segment fixed assets (long-lived assets) [Abstract]
Cost Basis	5,766,400		5,766,400
Accumulated Depreciation / Amortization	(4,717,300)		(4,717,300)
Net	1,049,100		1,049,100
Revenue by Country [Abstract]
Revenue	1,534,700	1,734,100	4,545,500	4,915,600
United States [Member]
Revenue by Country [Abstract]
Revenue	677,600	668,800	1,886,000	1,980,100
Germany [Member]
Revenue by Country [Abstract]
Revenue	84,600	181,000	354,200	533,300
Brazil [Member]
Revenue by Country [Abstract]
Revenue	161,000	176,400	415,100	444,800
Other Countries [Member]
Revenue by Country [Abstract]
Revenue	611,500	707,900	1,890,200	1,957,400
GO-Global [Member]
Segment revenue [Abstract]
Consolidated Revenues Total	1,534,700	1,734,100	4,545,500	4,915,600
Increase (Decrease) in segment revenue	(199,400)		(370,100)
Increase (Decrease) in segment revenue, percentage (in hundredths)	(11.50%)		(7.50%)
Segment income (loss) from operations [Abstract]
Income (loss) from continuing operations	800	413,000	(204,500)	(591,000)
Segment fixed assets (long-lived assets) [Abstract]
Cost Basis	1,964,900		1,964,900
Accumulated Depreciation / Amortization	(1,799,100)		(1,799,100)
Net	165,800		165,800
HopTo [Member]
Segment revenue [Abstract]
Consolidated Revenues Total	0	0	0	0
Increase (Decrease) in segment revenue	0		0
Segment income (loss) from operations [Abstract]
Income (loss) from continuing operations	(1,609,300)	(1,067,800)	(3,318,000)	(2,835,200)
Segment fixed assets (long-lived assets) [Abstract]
Cost Basis	930,800		930,800
Accumulated Depreciation / Amortization	(79,200)		(79,200)
Net	851,600		851,600
Segment, Continuing Operations [Member]
Segment income (loss) from operations [Abstract]
Income (loss) from continuing operations	(1,608,500)	(654,800)	(3,522,500)	(3,426,200)
Segment fixed assets (long-lived assets) [Abstract]
Cost Basis	2,895,700		2,895,700
Accumulated Depreciation / Amortization	(1,878,300)		(1,878,300)
Net	1,017,400		1,017,400
Segment, Discontinued Operations [Member]
Segment fixed assets (long-lived assets) [Abstract]
Cost Basis	2,839,000		2,839,000
Accumulated Depreciation / Amortization	(2,839,000)		(2,839,000)
Net	0		0
Unallocated Amount to Segment [Member]
Segment fixed assets (long-lived assets) [Abstract]
Cost Basis	31,700		31,700
Accumulated Depreciation / Amortization	0		0
Net	$ 31,700		$ 31,700

XML

Capitalized Software Development Costs (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Capitalized software [Abstract]
Software development costs	$ 1,116,700		$ 1,116,700		$ 573,100
Accumulated amortization	(457,100)		(457,100)		(350,000)
Capitalized software, net	659,600		659,600		223,100
Finite-Lived Intangible Assets [Line Items]
Amortization of capitalized software development cost	24,000	41,500	107,100	124,600
HopTo [Member]
Finite-Lived Intangible Assets [Line Items]
Capitalized software development cost			$ 79,100	$ 543,600

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Stockholders' (Deficit):
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (in shares)	195,000,000	195,000,000
Common stock, shares issued (in shares)	95,507,634	82,616,750
Common stock, shares outstanding (in shares)	95,507,634	82,616,750

XML

Revenue

9 Months Ended

Sep. 30, 2013

Revenue [Abstract]

Revenue

8.  Revenue

Revenue for the three-month periods ended September 30, 2013 and 2012 was:

	Three Months Ended September 30,				2013 Over (Under) 2012
Revenue	2013		2012		Dollars			Percent
Software Licenses
Windows	$	559,600	$	775,600	$	(216,000	)		-27.8	%
UNIX/Linux		219,900		234,200		(14,300	)		-6.1	%
		779,500		1,009,800		(230,300	)		-22.8	%
Software Service Fees
Windows		511,300		469,200		42,100			9.0	%
UNIX/Linux		226,500		232,700		(6,200	)		-2.7	%
		737,800		701,900		35,900			5.1	%
Other		17,400		22,400		(5,000	)		-22.3	%
Total Revenue	$	1,534,700	$	1,734,100	$	(199,400	)		-11.5	%

Revenue for the nine-month periods ended September 30, 2013 and 2012 was:

	Nine Months Ended September 30,				2013 Over (Under) 2012
Revenue	2013		2012		Dollars			Percent
Software Licenses
Windows	$	1,673,400	$	2,046,200	$	(372,800	)		-18.2	%
UNIX/Linux		670,100		724,300		(54,200	)		-7.5	%
		2,343,500		2,770,500		(427,000	)		-15.4	%
Software Service Fees
Windows		1,471,700		1,338,800		132,900			9.9	%
UNIX/Linux		686,300		705,000		(18,700	)		-2.7	%
		2,158,000		2,043,800		114,200			5.6	%
Other		44,000		101,300		(57,300	)		-56.6	%
Total Revenue	$	4,545,500	$	4,915,600	$	(370,100	)		-7.5	%

XML

Condensed Consolidated Statements of Stockholders' (Deficit) (Unaudited) (USD $)	Preferred Stock [Member]	Common Stock [Member] USD ($)	Additional Paid-In Capital [Member] USD ($)	Accumulated Deficit [Member] USD ($)	Total USD ($)
Balance at Dec. 31, 2011		$ 8,200	$ 61,398,600	$ (60,689,200)
Balance (in shares) at Dec. 31, 2011	0	81,886,926
Exercise of employee stock options		400
Employee stock option issuances (in shares)		567,176
Exercise of warrants		0
Exercise of warrants (in shares)		0
Vesting of restricted stock awards		0
Vesting of restricted stock awards (in shares)		0
Stock-based compensation expense			521,600
Stock-based compensation expense - severance agreement			237,400
Proceeds from exercise of employee stock options			44,000		44,400
Proceeds from exercise of warrants			0		0
Issuance of new warrants, per exercise agreement			0
New warants recorded as cost of exercise agreement			0
Issuance of new warrants, per offer to exercise			0
New warrants recorded as cost of offer to exercise			0
Accretion of compensation expense - consultant warrants			0
Reclassification of warrants liability to equity from the exercise of warrants			0
Reclassification of warrants liability to equity from amendment of warrants			0
Net loss				(6,309,900)	(6,309,900)
Balance at Sep. 30, 2012		8,600	62,201,600	(66,999,100)	(4,788,900)
Balance (in shares) at Sep. 30, 2012	0	82,454,102
Balance at Dec. 31, 2012		8,300	62,425,400	(68,865,900)	(6,432,200)
Balance (in shares) at Dec. 31, 2012	0	82,616,750
Exercise of employee stock options		100
Employee stock option issuances (in shares)		1,459,972
Exercise of warrants		900
Exercise of warrants (in shares)		10,222,500
Vesting of restricted stock awards		200
Vesting of restricted stock awards (in shares)		1,208,412
Stock-based compensation expense			617,000
Stock-based compensation expense - severance agreement			0
Proceeds from exercise of employee stock options			302,600		302,700
Proceeds from exercise of warrants			2,614,400		2,615,300
Issuance of new warrants, per exercise agreement			514,800
New warants recorded as cost of exercise agreement			(514,800)
Issuance of new warrants, per offer to exercise			45,600
New warrants recorded as cost of offer to exercise			(45,600)
Accretion of compensation expense - consultant warrants			11,800
Reclassification of warrants liability to equity from the exercise of warrants			385,900		(385,900)	[1]
Reclassification of warrants liability to equity from amendment of warrants			4,391,000		(4,391,000)	[1]
Net loss				(2,850,200)	(2,850,200)
Balance at Sep. 30, 2013		$ 9,500	$ 70,748,100	$ (71,716,100)	$ (958,500)
Balance (in shares) at Sep. 30, 2013	0	95,507,634

[1] During the nine-month period ended September 30, 2013, our warrants liability was reduced as a result of the warrants amendment, as discussed above. Additionally, our warrants liability was further reduced by $385,900 as a result of the exercise of 1,072,500 warrants during such period, whose terms were not affected by the changes made under the warrants amendment. The aggregate reduction in the liability, combining the warrant amendment and this exercise, was $4,776,900. See Note 14.

XML

Condensed Consolidated Balance Sheets (Unaudited) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Current Assets:
Cash	$ 3,557,100	$ 3,960,600
Accounts receivable, net	700,400	865,900
Prepaid expenses	62,400	150,200
Total Current Assets	4,319,900	4,976,700
Capitalized software development costs, net	659,600	223,100
Property and equipment, net	357,800	358,900
Other assets	31,700	46,900
Total Assets	5,369,000	5,605,600
Current Liabilities:
Accounts payable and accrued expenses	969,400	739,100
Deferred revenue	2,638,200	2,921,600
Severance liability	140,100	209,500
Deferred rent	29,800	26,700
Total Current Liabilities	3,777,500	3,896,900
Warrants liability	1,968,800	7,390,100
Deferred revenue	476,700	570,400
Severance liability	0	52,900
Deferred rent	104,500	127,500
Total Liabilities	6,327,500	12,037,800
Commitments and contingencies
Stockholders' (Deficit):
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding	0	0
Common stock, $0.0001 par value, 195,000,000 shares authorized, 95,507,634 and 82,616,750 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively	9,500	8,300
Additional paid-in capital	70,748,100	62,425,400
Accumulated deficit	(71,716,100)	(68,865,900)
Total Stockholders' Equity (Deficit)	(958,500)	(6,432,200)
Total Liabilities and Stockholders' Equity (Deficit)	$ 5,369,000	$ 5,605,600

XML

Related Party Transactions (Details) (USD $)	3 Months Ended		9 Months Ended		3 Months Ended				9 Months Ended		3 Months Ended		6 Months Ended	9 Months Ended			3 Months Ended		9 Months Ended		0 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013 Selling, General and Administrative Expenses [Member]	Sep. 30, 2012 Selling, General and Administrative Expenses [Member]	Sep. 30, 2013 Tamalpais Partners LLC [Member]	Sep. 30, 2012 Tamalpais Partners LLC [Member]	Sep. 30, 2013 Tamalpais Partners LLC [Member]	Sep. 30, 2012 Tamalpais Partners LLC [Member]	Sep. 30, 2013 ipCapital Group, Inc.[Member]	Sep. 30, 2012 ipCapital Group, Inc.[Member]	Jun. 30, 2012 ipCapital Group, Inc.[Member]	Sep. 30, 2013 ipCapital Group, Inc.[Member] Installment Contract	Sep. 30, 2012 ipCapital Group, Inc.[Member]	Oct. 11, 2011 ipCapital Group, Inc.[Member] Director	Sep. 30, 2013 ipCapital Group, Inc.[Member] Selling, General and Administrative Expenses [Member]	Sep. 30, 2012 ipCapital Group, Inc.[Member] Selling, General and Administrative Expenses [Member]	Sep. 30, 2013 ipCapital Group, Inc.[Member] Selling, General and Administrative Expenses [Member]	Sep. 30, 2012 ipCapital Group, Inc.[Member] Selling, General and Administrative Expenses [Member]	Feb. 04, 2013 ipCapital Licensing Company LLC [Member]
ipCapital Group, Inc. [Abstract]
Number of directors provide assistance in execution of entity strategic decision																1
Payment for services performed under agreement							$ 54,000	$ 18,000	$ 92,000	$ 48,000	$ 0	$ 30,000		$ 31,200	$ 133,000		$ 49,500	$ 38,200	$ 35,700	$ 52,700
Payment for analysis of intellectual property and potential methods to employ												0	50,000
Unpaid balance for services performed												37,300			37,300
Term of warrants														5 years
Common stock convertible from warrants (in shares)											400,000			400,000
Investment warrants, exercise price (in dollars per share)														$ 0.26
Warrants with time-based vesting condition (in shares)														200,000
Number of vesting installments														3
Number of separate addendums to initial agreement														3
Remaining warrants to vest upon completion of services (in shares)														200,000
Percentage of royalty fees and other consideration paid as fees (in hundredths)																					10.00%
Period of agreement																					18 months
Number of days of written notice of termination																					60 days
Change in fair value of warrant liability	$ 639,100	$ 3,025,700	$ (680,100)	$ 2,417,800	$ (49,500)	$ (38,200)													$ (35,700)	$ (52,700)

XML

Severance Liability (Tables)

9 Months Ended

Sep. 30, 2013

Severance Liability [Abstract]

Fair value of stock-based award granted

We estimated the fair value of each stock-based award set forth above, which were included as part of Mr. Dilworth’s separation agreement during 2012, using a binomial model with the assumptions set forth in the following table:

	Estimated Volatility			Annualized Forfeiture Rate			Expected Option Term (Years)		Estimated Exercise Factor		Risk-Free Interest Rate			Dividends
Modified options		70% - 157	%		0.00	%		0.25 – 2.5		10		0.08% - 0.29	%		—
New option		157	%		0.00	%		2.5		10		0.29	%

Salary continuation and medical coverage payments

The following table summarizes the salary continuation and medical coverage payments during the nine-month period ended September 30, 2013.

	Compensation			Medical Coverage			Total
Balance at December 31, 2012	$	250,100		$	12,300		$	262,400
Separation agreement entered into in 2013		60,000			15,700			75,700
Accrued interest		18,100			700			18,800
Payments		(197,200	)		(19,600	)		(216,800	)
Balance at September 30, 2013	$	131,000		$	9,100		$	140,100

XML

Discontinued Operations

9 Months Ended

Sep. 30, 2013

Discontinued Operations [Abstract]

Discontinued Operations

17. Discontinued Operations

During 2012, we reached settlement agreements that effectively ended all of our then on-going intellectual property litigation. With the settlement of such litigation activities we ceased actively pursuing intellectual property litigation as an integral part of our strategy to fund our operations.  Accordingly, for all periods presented, the results of operations and cash flows related to our former intellectual property segment has been segregated and reported as “Discontinued Operations”.  There was no revenue derived from our intellectual property litigation in either of the three or nine month periods ended September 30, 2013 or 2012.  During the three and nine-month periods ended September 30, 2012 we incurred costs of $347,100 and $468,400 related to our discontinued operations, respectively.

We will continue to make significant investments in our intellectual property during the remainder of 2013.  We believe such investments will be an asset that will leverage our product strategy and protect our long-term growth strategies.  We do not intend to pursue intellectual property litigation as an integral part of our strategy to fund our future operations.

As of September 30, 2013 and 2012, all of our patents were fully amortized.  Additionally, we have characterized the NES patents as “held for sale” and will be pursuing reasonable sales opportunities for such patents as they become known to us.

XML

Cost of Revenue (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Cost of revenue [Abstract]
Software service costs	$ 64,100	$ 97,500	$ 191,900	$ 233,000
Software service costs, changes	(33,400)		(41,100)
Software service costs, changes (in hundredths)	(34.30%)		(17.60%)
Software product costs	36,400	63,200	157,700	198,600
Software product costs, changes	(26,800)		(40,900)
Software product costs, changes (in hundredths)	(42.40%)		(20.60%)
Cost of revenue	100,500	160,700	349,600	431,600
Cost of revenue, changes	$ (60,200)		$ (82,000)
Cost of revenue changes, in (hundredths)	(37.50%)		(19.00%)

XML

Liability Attributable to Warrants (Details) (USD $)	3 Months Ended		9 Months Ended			0 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended	3 Months Ended		9 Months Ended		3 Months Ended	9 Months Ended			0 Months Ended	9 Months Ended				3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013		Sep. 30, 2012	Jun. 17, 2013 2011 Private Placement [Member]	Sep. 30, 2013 2011 Private Placement [Member]	Sep. 30, 2012 2011 Private Placement [Member]	Sep. 30, 2013 2011 Private Placement [Member] Factor	Sep. 30, 2012 2011 Private Placement [Member]	Dec. 31, 2012 2011 Private Placement [Member] Factor	Sep. 30, 2013 Exercise Agreement [Member]	Sep. 30, 2013 Exercise Agreement [Member]	Sep. 30, 2013 ipCapital [Member]	Sep. 30, 2012 ipCapital [Member]	Sep. 30, 2013 ipCapital [Member] Factor	Sep. 30, 2012 ipCapital [Member]	Dec. 31, 2012 ipCapital [Member] Factor	Sep. 30, 2013 Consultant Warrants [Member]		Sep. 30, 2013 Consultant Warrants [Member]		Sep. 30, 2013 Offer to Exercise [Member]	Sep. 30, 2013 Offer to Exercise [Member]	Sep. 30, 2013 July 2013 New Warrants [Member] Factor	Sep. 30, 2013 August 2012 New Warrants [Member] Factor	Jun. 17, 2013 2011 Private Placement [Member] Investor	Sep. 30, 2013 2011 Private Placement [Member]	Sep. 30, 2013 2011 Private Placement [Member] Minimum [Member]	Sep. 30, 2013 2011 Private Placement [Member] Maximum [Member]	Sep. 30, 2013 ipCapital [Member]	Mar. 31, 2013 2012 Private Placement [Member] Investor	Sep. 30, 2013 Genesis Select [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Number of investors																											5					2
Exercise price of warrants (in dollars per share)																											$ 1.00	$ 0.26	$ 0.20	$ 0.26	$ 0.26		$ 0.50
Share price (in dollars per share)	$ 0.54	$ 0.30	$ 0.54		$ 0.30
Cash Proceeds			$ 2,615,300		$ 0																						$ 2,340,000
Stock issued on exercise of warrants (in shares)																											9,000,000						312,500
Common stock subject to warrants (in shares)																												17,000,000
Common stock subject to warrants excluded from exercise agreement (in shares)																												5,000,000
Warrants exercised (in shares)																																462,500
Remaining contractual term																												38 months
Reconciliation of warrants liability measured at fair value using significant unobservable inputs [Abstract]
Warrants liability - December 31, 2012 fair value			7,390,100
Change in fair value of warrant liability recorded in other income			(680,100)
Diminution of warrant liability recorded in general and administrative expense			35,700
Reclassification of warrants liability to equity from the exercise of warrants			(385,900)	[1]
Reclassification of warrants liability to equity from amendment of warrants			(4,391,000)	[1]
Warrants liability - September 30, 2013 fair value	1,968,800		1,968,800
Class of Warrant or Right [Line Items]
Warrants, Beginning Outstanding (in shares)	18,057,500	23,475,000	23,475,000		23,475,000		13,157,500	23,075,000	23,075,000	23,075,000	23,075,000	4,500,000	0	400,000	400,000	400,000	400,000	400,000	0	[2]	0		0	0
Warrants issued (in shares)	465,000	0	4,965,000		0	4,500,000	0	0	0	0		0	4,500,000	0	0	0	0		312,500	[2]	312,500		152,500	152,500
Warrants Exercised (in shares)	305,000	0	10,222,500		0		305,000	0	10,222,500	0		0	0	0	0	0	0		0	[2]	0		0	0
Warrants, Ending Outstanding (in shares)	18,217,500	23,475,000	18,217,500		23,475,000		12,852,500	23,075,000	12,852,500	23,075,000	23,075,000	4,500,000	4,500,000	400,000	400,000	400,000	400,000	400,000	312,500	[2]	312,500	[2]	152,500	152,500
Assumption used to determine the fair value of warrants [Abstract]
Estimated fair value of New warrants																									514,800
Estimated volatility (in hundredths)									120.00%		159.00%					125.00%		163.00%							185.00%	181.00%
Annualized forfeiture rate (in hundredths)									0.00%		0.00%					0.00%		0.00%							0.00%	5.00%
Expected option term									2 years 11 months 1 day		3 years 8 months 1 day					3 years 0 months 14 days		3 years 9 months 14 days							5 years	4 years 11 months 16 days
Estimated exercise factor									4		10					4		10							1.5	0.04
Risk-free interest rate (in hundredths)									0.50%		0.45%					0.64%		0.65%							1.07%	1.41%
Dividends (in hundredths)									0.00%		0.00%					0.00%		0.00%							0.00%	0.00%
Cost of issuance of warrants																									$ (514,800)
Vesting period																										1 year

[1] During the nine-month period ended September 30, 2013, our warrants liability was reduced as a result of the warrants amendment, as discussed above. Additionally, our warrants liability was further reduced by $385,900 as a result of the exercise of 1,072,500 warrants during such period, whose terms were not affected by the changes made under the warrants amendment. The aggregate reduction in the liability, combining the warrant amendment and this exercise, was $4,776,900. See Note 14.

[2] Effective September 18, 2013, we entered into a consulting agreement with Genesis Select to provide us with a variety of investor relations services. As part of their compensation, we issued to them a warrant to purchase 312,500 shares of our common stock at an exercise price of $0.50 per share. The warrant will vest, monthly, over the initial twelve-month service period of the contract, assuming that the agreement remains in-force, with the first vesting to occur on October 18, 2013. The warrant is substantially similar in nature to those issued in the warrant amendment, discussed above, thus; the warrant is accounted for under the equity method and is not included as a component of our warrants liability as of September 30, 2013. We used the following assumptions in a binomial pricing model to calculate the fair value of the warrant issued to Genesis: estimated volatility – 181%; annualized forfeiture rate – 5%; expected term – 4.96 years; estimated exercise factor – 4%, risk free interest rate – 1.41%; and dividends – 0. Compensation expense associated with these warrants is recognized as a component of general and administrative expense.

XML

Segment Information (Tables)

9 Months Ended

Sep. 30, 2013

Segment Information [Abstract]

Segment revenue

Segment revenue for the three-month periods ended September 30, 2013 and 2012 was as follows:

					Increase (Decrease)
	2013		2012		Dollars			Percentage
GO-Global	$	1,534,700	$	1,734,100	$	(199,400	)		-11.5	%
hopTo		—		—		—			n/	a
Consolidated Total	$	1,534,700	$	1,734,100	$	(199,400	)		-11.5	%

Segment revenue for the nine-month periods ended September 30, 2013 and 2012 was as follows:

					Increase (Decrease)
	2013		2012		Dollars			Percentage
GO-Global	$	4,545,500	$	4,915,600	$	(370,100	)		-7.5	%
hopTo		—		—		—			n/	a
Consolidated Total	$	4,545,500	$	4,915,600	$	(370,100	)		-7.5	%

Segment loss from operations

Segment loss from continuing operations for the three and nine-month periods ended September 30, 3013 and 2012 was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
GO-Global	$	800		$	413,000		$	(204,500	)	$	(591,000	)
hopTo		(1,609,300	)		(1,067,800	)		(3,318,000	)		(2,835,200	)
Total	$	(1,608,500	)	$	(654,800	)	$	(3,522,500	)	$	(3,426,200	)

Segment fixed assets

As of September 30, 2013 segment fixed assets (long-lived assets) were as follows:

			Accumulated
			Depreciation
	Cost Basis		/Amortization			Net
GO-Global	$	1,964,900	$	(1,799,100	)	$	165,800
hopTo		930,800		(79,200	)		851,600
Total from continuing operations		2,895,700		(1,878,300	)		1,017,400
Discontinued operations		2,839,000		(2,839,000	)		—
Unallocated		31,700		—			31,700
Total	$	5,766,400	$	(4,717,300	)	$	1,049,100

Revenue based on geographical location

Go-Global software revenue by country for the three-and nine month periods ended September 30, 2013 and 2012 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
Revenue by Country	2013		2012		2013		2012
United States	$	677,600	$	668,800	$	1,886,000	$	1,980,100
Germany		84,600		181,000		354,200		533,300
Brazil		161,000		176,400		415,100		444,800
Other Countries		611,500		707,900		1,890,200		1,957,400
Total	$	1,534,700	$	1,734,100	$	4,545,500	$	4,915,600

XML

Subsequent Events (Tables)

9 Months Ended

Sep. 30, 2013

Subsequent Events [Abstract]

Future minimum lease payments for operating leases

The amended lease becomes effective November 1, 2013 and will expire on October 31, 2018. The lease contains rent escalation clauses and four months of free rent. Additionally, we paid $18,100 to the landlord as a prepayment of the first month’s rent on the new space. The following table sets forth the minimum lease payments due over the life of the lease.

Year	Amount
Remainder of 2013	$	—
2014		346,000
2015		449,500
2016		463,000
2017		476,900
2018		407,300
	$	2,142,700

XML

Stock-Based Compensation

9 Months Ended

Sep. 30, 2013

Stock-Based Compensation [Abstract]

Stock-Based Compensation

7.  Stock-Based Compensation

The following table summarizes the stock-based compensation expense, net of amounts capitalized, we recorded in our Unaudited Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2013 and 2012, respectively, by classification:

	Three Months Ended September 30,					Nine Months Ended September 30,
Statement of Operations Classification	2013			2012		2013		2012
Costs of revenue	$	(500	)	$	6,700	$	3,300	$	17,100
Selling and marketing expense		39,800			33,200		118,700		84,800
General and administrative expense		76,300			71,000		255,800		404,700
Research and development expense		74,400			82,600		202,700		252,400
	$	190,000		$	193,500	$	580,500	$	759,000

The following table presents summaries of the status and activity of our stock option awards for the three-month period ended September 30, 2013.

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Outstanding – June 30, 2013		13,134,398		$	0.20
Granted		23,000			0.44
Exercised		(708,594	)		0.18
Forfeited or expired		(77,745	)		0.20
Outstanding – September 30, 2013		12,371,059		$	0.20		6.12	$	4,161,600

The following table presents summaries of the status and activity of our stock option awards for the nine-month period ended September 30, 2013.

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Outstanding – December 31, 2012		14,174,000		$	0.20
Granted		23,000			0.44
Exercised		(1,459,972	)		0.17
Forfeited or expired		(232,151	)		0.20
Cancellation of unearned performance option		(133,818	)		0.19
Outstanding – September 30, 2013		12,371,059		$	0.20		6.12	$	4,161,600

Of the options outstanding as of September 30, 2013, 8,332,644 were vested, 3,906,226 were estimated to vest in future periods and 132,189 were estimated to be forfeited prior to their vesting.  As of September 30, 2013, there was approximately $239,100 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options. Such cost is expected to be recognized over a weighted-average period of approximately nine months.

All options are exercisable immediately upon grant.  Options vest, ratably over a 33-month period commencing in the fourth month after the grant date.  We have the right to repurchase common stock issued upon the exercise of an option upon an optionee’s termination of service to us prior to full vesting at the option’s exercise price.

The following table presents summaries of the status and activity of our restricted stock awards for the three-month period ended September 30, 2013. We include the common stock underlying the restricted stock award in shares outstanding once such common stock has vested and the restriction has been removed (“releases” or “released”).The common stock vests ratably, over a 33-month period; however, no such shares vest until after three months from the date of the restricted stock award.

	Number of Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Recognition P eriod (Years)		Unrecognized Compensation Cost Remaining
Unreleased – June 30, 2013		3,796,324		$	0.22
Awarded		1,027,500			0.42
Released		(432,521	)		0.23
Forfeited		(265,157	)		0.27
Outstanding – September 30, 2013		4,126,146		$	0.26		2.15	$	918,400

The following table presents summaries of the status and activity of our restricted stock awards for the nine-month period ended September 30, 2013.

	Number of Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Recognition Period (Years)		Unrecognized Compensation Cost Remaining
Unreleased – December 31, 2012		4,043,123		$	0.18
Awarded		1,607,500			0.42
Released		(1,208,412	)		0.21
Forfeited		(316,065	)		0.36
Outstanding – September 30, 2013		4,126,146		$	0.26		2.15	$	918,400

As of September 30, 2013, there was approximately $918,400 of total unrecognized compensation cost, net of estimated forfeitures, related to unreleased restricted stock awards. That cost is expected to be recognized over a weighted-average period of approximately twenty-six months.

XML

Deferred Rent (Tables)

9 Months Ended

Sep. 30, 2013

Deferred Rent [Abstract]

Schedule of deferred rent

As of September 30, 2013 deferred rent was:

Component	Current Liabilities		Long-Term Liabilities		Total
Deferred rent expense	$	5,800	$	38,500	$	44,300
Deferred rent benefit		24,000		66,000		90,000
	$	29,800	$	104,500	$	134,300

As of December 31, 2012 deferred rent was:

Component	Current Liabilities		Long-Term Liabilities		Total
Deferred rent expense	$	2,700	$	43,500	$	46,200
Deferred rent benefit		24,000		84,000		108,000
	$	26,700	$	127,500	$	154,200

XML

Stock-Based Compensation (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Summary of stock-based compensation expense [Abstract]
Total stock-based compensation expense	$ 190,000	$ 193,500	$ 580,500	$ 759,000
Weighted Average Exercise Price [Roll Forward]
Shares fully vested (in shares)	8,035,144		8,035,144
Shares expected to vest in future (in shares)	3,906,226		3,906,226
Shares expected to be forfeited (in shares)	132,189		132,189
Stock Options [Member]
Number of Shares [Roll Forward]
Outstanding - Beginning of Period (in shares)	13,134,398		14,174,000
Granted (in shares)	23,000		23,000
Exercised (in shares)	(1,006,094)		(1,757,472)
Forfeited or expired (in shares)	(77,745)		(232,151)
Cancellation of unearned performance option (in shares)			(133,818)
Outstanding - End of Period (in shares)	12,073,559		12,073,559
Weighted Average Exercise Price [Roll Forward]
Outstanding - Beginning of Period (in dollars per share)	$ 0.20		$ 0.20
Granted (in dollars per share)	$ 0.44		$ 0.44
Exercised (in dollars per share)	$ 0.19		$ 0.17
Forfeited or expired (in dollars per share)	$ 0.20		$ 0.20
Cancellation of unearned performance option (in dollars per share)			$ 0.19
Outstanding - End of Period (in dollars per share)	$ 0.20		$ 0.20
Weighted Average Remaining Contractual Terms	6 years 3 months		6 years 3 months
Aggregate Intrinsic Value	4,065,900		4,065,900
Unrecognized compensation cost	239,100		239,100
Weighted-average period, compensation cost not yet recognized			9 months
Stock option vesting term			33 months
Restricted Stock [Member]
Weighted Average Exercise Price [Roll Forward]
Unrecognized compensation cost	918,400		918,400
Weighted-average period, compensation cost not yet recognized			26 months
Stock option vesting term			3 months
Number of Shares [Abstract]
Unreleased - Beginning of Period (in shares)	3,796,324		4,043,123
Awarded (in shares)	1,027,500		1,607,500
Released (in shares)	(432,521)		(1,208,412)
Forfeited (in shares)	(265,157)		(316,065)
Unreleased - End of Period (in shares)	4,126,146		4,126,146
Weighted Average Grant Date Fair Value [Abstract]
Unreleased - Beginning of Period (in dollars per share)	$ 0.22		$ 0.18
Awarded (in dollars per share)	$ 0.42		$ 0.42
Released (in dollars per share)	$ 0.23		$ 0.21
Forfeited (in dollars per share)	$ 0.27		$ 0.36
Unreleased - End of Period (in dollars per share)	$ 0.26		$ 0.26
Weighted Average Remaining Recognition Period	2 years 1 month 24 days		2 years 1 month 24 days
Unrecognized Compensation Cost Remaining	918,400		918,400
Costs of Revenue [Member]
Summary of stock-based compensation expense [Abstract]
Total stock-based compensation expense	(500)	6,700	3,300	17,100
Selling and Marketing Expense [Member]
Summary of stock-based compensation expense [Abstract]
Total stock-based compensation expense	39,800	33,200	118,700	84,800
General and Administrative Expense [Member]
Summary of stock-based compensation expense [Abstract]
Total stock-based compensation expense	76,300	71,000	255,800	404,700
Research and Development Expense [Member]
Summary of stock-based compensation expense [Abstract]
Total stock-based compensation expense	$ 74,400	$ 82,600	$ 202,700	$ 252,400

XML

Capitalized Software Development Costs

9 Months Ended

Sep. 30, 2013

Capitalized Software Development Costs [Abstract]

Capitalized Software Development Costs

10.  Capitalized Software Development Costs

Capitalized software development costs consisted of the following:

	September 30, 2013			December 31, 2012
Software development costs	$	1,116,700		$	573,100
Accumulated amortization		(457,100	)		(350,000	)
	$	659,600		$	223,100

Amortization of capitalized software development costs is a component of costs of revenue. Capitalized software development costs amortization aggregated $24,000 and $107,100 during the three and nine-month periods ended September 30, 2013, respectively, and $41,500 and $124,600 during the three and nine-month periods ended September 30, 2012, respectively.

We recorded $79,100 and $543,600 of capitalized software development costs during the three and nine-month periods ended September 30, 2013, respectively.  Such capitalized costs were incurred in the development of our new product hopTo, and are comprised primarily of employee costs and the cost of licenses to third party software that will be used by our hopTo product upon its commercial release.  We anticipate releasing the first commercial version of hopTo in the fourth quarter time frame and will begin amortizing its capitalized software development costs accordingly (See Note 18).  Had these costs not met the criteria for capitalization, they would have been expensed.  We did not record any capitalized software development costs during the nine-month period ended September 30, 2012.

XML

Deferred Rent

9 Months Ended

Sep. 30, 2013

Deferred Rent [Abstract]

Deferred Rent

6. Deferred Rent

As of September 30, 2013 deferred rent was:

Component	Current Liabilities		Long-Term Liabilities		Total
Deferred rent expense	$	5,800	$	38,500	$	44,300
Deferred rent benefit		24,000		66,000		90,000
	$	29,800	$	104,500	$	134,300

As of December 31, 2012 deferred rent was:

Component	Current Liabilities		Long-Term Liabilities		Total
Deferred rent expense	$	2,700	$	43,500	$	46,200
Deferred rent benefit		24,000		84,000		108,000
	$	26,700	$	127,500	$	154,200

Deferred rent expense represents the remaining balance of the aggregate free rent we received from our landlord and escalations that are being recognized over the life of the lease as a component of rent expense. Deferred rent benefit relates to the unamortized portion of the leasehold improvements provided to us by our landlord (i.e., incentives) that we are recognizing on a straight-line basis as a reduction to rent expense over the term of the lease.

XML

Basis of Presentation

9 Months Ended

Sep. 30, 2013

Basis of Presentation [Abstract]

Basis of Presentation

1.  Basis of Presentation

Our Board of Directors adopted an amendment to our Certificate of Incorporation changing our name from GraphOn Corporation to hopTo Inc. effective September 9, 2013. A Certificate of Amendment of Incorporation was filed with the Delaware Secretary of State implementing the name change. The amendment had been previously approved by our stockholders.

The unaudited condensed consolidated financial statements include the accounts of hopTo Inc. and its subsidiaries (collectively, “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, except for the effect of the amendment to warrants (Note 4), 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, as amended, on Form 10-K/A for the year ended December 31, 2012, which was filed with the SEC on April 12, 2013 (“2012 10-K/A 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, 2013 or any future period.

During September 2012, we reached settlement and licensing agreements that effectively ended all of our then on-going intellectual property litigation.  Having been approached by the respective counter-parties to each of our lawsuits, and in consultation with our board of directors, we determined that it was in our best long-term strategic interests to settle each lawsuit in order to move forward and shift our focus to our software products, including our new product initiatives.    We do not intend to pursue intellectual property litigation as an integral part of our strategy to fund our future operations.  Accordingly for all periods presented, the results of operations and cash flows related to our former intellectual property segment has been segregated and reported as “Discontinued Operations”.  See Note 17 to our Notes to Unaudited Condensed Consolidated Financial Statements.

XML

Discontinued Operations (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Discontinued Operations [Abstract]
Cost related to intellectual property litigation		$ 347,100		$ 468,400
Revenue derived from intellectual property litigation	$ 0	$ 0	$ 0	$ 0

XML

Commitments and Contingencies (Details) (Campbell Facility [Member])	9 Months Ended
	Sep. 30, 2013 sqft
Campbell Facility [Member]
Operating Leased Assets [Line Items]
Area of office space (in square feet)	4,413
Lease expiration term	5 years
Lease expiration date	Jun. 30, 2017

XML

Cost of Revenue (Tables)

9 Months Ended

Sep. 30, 2013

Cost of Revenue [Abstract]

Schedule of cost of revenue

Cost of revenue for the three-month periods ended September 30, 2013 and 2012 was:

	Three Months Ended September 30,						2013 Over (Under) 2012
	2013			2012			Dollars				Percent
Software service costs		$	64,100		$	97,500		$	(33,400	)		-34.3	%
Software product costs			36,400			63,200			(26,800	)		-42.4	%
		$	100,500		$	160,700		$	(60,200	)		-37.5	%

Cost of revenue for the nine-month periods ended September 30, 2013 and 2012 was:

	Nine Months Ended September 30,				2013 Over (Under) 2012
	2013		2012		Dollars			Percent
Software service costs	$	191,900	$	233,000	$	(41,100	)		-17.6	%
Software product costs		157,700		198,600		(40,900	)		-20.6	%
	$	349,600	$	431,600	$	(82,000	)		-19.0	%

XML

Supplemental Disclosure of Cash Flow Information

9 Months Ended

Sep. 30, 2013

Supplemental Disclosure of Cash Flow Information [Abstract]

Supplemental Disclosure of Cash Flow Information

13.  Supplemental Disclosure of Cash Flow Information

We did not disburse any cash for the payment of interest expense during the nine-month periods ended September 30, 2013 or 2012.

We disbursed $1,800 and $3,100 for the payment of income taxes during the nine-month periods ended September 30, 2013 and 2012, respectively. All such disbursements were for the payment of foreign income taxes related to the operation of our Israeli subsidiary, GraphOn Research Labs Ltd.

During the nine-month period ended September 30, 2013, we capitalized $36,700 of stock-based compensation expense for which no cash was disbursed, as a component of capitalized software development costs. We did not capitalize any stock based compensation expense costs during the nine month period ended September 30, 2012.

During the nine-month period ended September 30, 2013, we reduced our warrants liability by $5,421,300, of which $680,100 was recorded in the Condensed Consolidated Statement of Operations. The amendment to the warrants resulted in $4,391,000 being reclassified to equity.  The remaining reduction amount was the result of the exercise of 1,072,500 warrants that were not part of the amendment.  No cash was disbursed in conjunction with these items (see Note 4).

During the nine-month period ended September 30, 2013, we capitalized $3,700 of property and equipment for which no cash was disbursed.

During the nine month period ended September 30, 2012, we incurred costs associated with discontinued intellectual property operations activities of $468,400, of which $432,800 was disbursed, and the balance reported as a component of accounts payable.

During the nine-month period ended September 30, 2012, we capitalized $130,900 of property and equipment for which no cash was disbursed. We recorded $104,100 of such amount to long term liabilities – deferred rent, $24,000 of such amount to current liabilities – deferred rent and the balance to accounts payable and accrued liabilities.

XML

Cost of Revenue

9 Months Ended

Sep. 30, 2013

Cost of Revenue [Abstract]

Cost of Revenue

9.  Cost of Revenue

Cost of revenue for the three-month periods ended September 30, 2013 and 2012 was:

	Three Months Ended September 30,						2013 Over (Under) 2012
	2013			2012			Dollars				Percent
Software service costs		$	64,100		$	97,500		$	(33,400	)		-34.3	%
Software product costs			36,400			63,200			(26,800	)		-42.4	%
		$	100,500		$	160,700		$	(60,200	)		-37.5	%

Cost of revenue for the nine-month periods ended September 30, 2013 and 2012 was:

	Nine Months Ended September 30,				2013 Over (Under) 2012
	2013		2012		Dollars			Percent
Software service costs	$	191,900	$	233,000	$	(41,100	)		-17.6	%
Software product costs		157,700		198,600		(40,900	)		-20.6	%
	$	349,600	$	431,600	$	(82,000	)		-19.0	%

XML

Related Party Transactions

9 Months Ended

Sep. 30, 2013

Related Party Transactions [Abstract]

Related Party Transactions [Text Block]

16.  Related Party Transactions

Tamalpais Partners LLC

Steven Ledger, the Chairman of our Board of Directors, is the founder and managing partner of Tamalpais Partners LLC, (“Tamalpais”) a business consulting firm. On August 1, 2013, we amended our consulting agreement with Tamalpais. Under the consulting agreement, as amended, Tamalpais will provide us with advisory services focused on capital and business issues, including assistance on raising capital, mergers, acquisitions, business development and investor relations/positioning. We paid Tamalpais $54,000 and $18,000 during the three-month periods ended September 30, 2013 and 2012, respectively, for services rendered to us under the terms of this consulting agreement.  We paid Tamalpais $92,000 and $48,000 during the nine-month periods ended September 30, 2013 and 2012, respectively, for services rendered to us under the terms of this consulting agreement.  No amounts were due to Tamalpais at September 30, 2013.

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.

For the three and nine-month periods ended September 30, 2013 we paid ipCapital an aggregate of $0 and $31,200, respectively, for services performed under the engagement agreement, as amended. No amounts were due ipCapital at September 30, 2013. For the three and nine-month periods ended September 30, 2012 we paid ipCapital an aggregate $30,000 and $130,000, respectively for services performed under the engagement agreement, as amended. As of September 30, 2012, we owed ipCapital $37,300.

Prior to entering into the engagement agreement with ipCapital in 2011, ipCapital performed an analysis of our intellectual property and the potential methods we could employ to strengthen our intellectual property on a consulting basis.  We paid ipCapital $50,000 for this analysis in the nine-month period ended September 30, 2012.  All amounts paid to ipCapital in 2013 and 2012 have been reported within general and administrative expense.

In addition to the fees we agreed to pay ipCapital for its services, we issued ipCapital a five-year warrant to purchase up to 400,000 shares of our common stock at an initial price of $0.26 per share.  Half of the warrant (200,000 shares) has a time-based vesting condition, with such vesting to occur in three equal annual installments. The first two vesting installments occurred on October 11, 2012 and October 11, 2013, respectively, with the remaining vesting installment to occur on October 11, 2014.  The remaining 200,000 shares became fully vested upon the completion to our satisfaction of all services that we requested from ipCapital under the engagement agreement, prior to the signing of the amendments.  Such performance was deemed satisfactory during 2012.  We believe that these fees, together with the issuance of the warrant, constitute no greater compensation than we would be required to pay an unaffiliated person for performing substantially similar services.

The exercise price of the warrant issued to ipCapital could be reset to below-market value. Consequently, we have concluded that such warrant is not indexed to our common stock and should be recorded as a liability. We recognize the warrants liability over their vesting period, and in accordance with the liability method of accounting, we re-measure the fair value of the accrued warrants at each balance sheet date and recognize the change in fair value as general and administrative compensation expense. (See Note 4) We recognized $49,500 and $38,200 as a component of general and administrative expense during the three-month periods ended September, 2013 and 2012, respectively, and $35,700 and $52,700 during the nine-month periods ended September 30, 2013 and 2012, respectively, resulting from the change in fair value.

ipCapital Licensing Company I, LLC

On February 4, 2013, we entered into an IP Brokerage agreement with ipCapital Licensing Company I, LLC (“ipCLC”).  John Cronin is a partner at ipCLC.  Pursuant to the agreement, we have engaged ipCLC, on a no-retainer basis, to identify and present us with candidates who may be seeking to acquire a certain limited group of our patents unrelated to our current business strategy. If during the applicable term we enter into an agreement with any candidate presented by ipCLC to acquire or otherwise exploit the covered patents, we will pay ipCLC a fee of ten percent (10%) of the royalties, fees, and other consideration paid over the life of the agreement.

The agreement is effective as of February 4, 2013, and will end 18 months after we or ipCLC serve 60 days written notice of termination to the other party (with earlier termination possible in the event of a material breach).  The agreement provides for customary confidentiality undertakings, limitations on ipCLC’s total liability and mutual indemnification provisions.

We believe the terms of the agreement are fair and reasonable to us and are at least as favorable as those that could be obtained on an arms’ length basis.

XML

Earnings (Loss) Per Share

9 Months Ended

Sep. 30, 2013

Earnings (Loss) Per Share [Abstract]

Earnings (Loss) Per Share

14.  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 September 30, 2013 and 2012, 33,707,201 and 36,997,357 shares of common stock equivalents, respectively, were excluded from the computation of dilutive loss per share since their effect would be antidilutive.

For the nine-month periods ended September 30, 2013 and 2012, 33,707,201 and 36,997,357 shares of common stock equivalents, respectively, were excluded from the computation of dilutive loss per share since their effect would be antidilutive.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 08, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	hopTo Inc.
Entity Central Index Key	0001021435
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		101,459,382
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013

XML

Segment Information

9 Months Ended

Sep. 30, 2013

Segment Information [Abstract]

Segment Information

15.  Segment Information

FASB has established guidance for reporting information about operating segments that require segmentation based on our internal organization and reporting of revenue and operating income, based on internal accounting methods. Our financial reporting systems present various data for management to operate the business prepared in methods consistent with such guidance.

During 2012, we entered into settlement and licensing agreements that effectively ended all of our then ongoing intellectual property litigation activities (Note 17).  As a result of these agreements, we will no longer be pursuing patent litigation as an integral funding strategy for our operations.

We will continue to pursue the intellectual property initiatives we have undertaken in conjunction with our relationship with ipCapital, however we believe that these initiatives do not comprise a reporting segment as the intent of these initiatives is to support and leverage our current software products and those in development.

Also, effective for the quarter ended December 31, 2012, we added a new segment (hopTo) and identified that we currently operate our business in two segments; namely GO-Global and hopTo.  Currently, GO-Global is the only segment that generates revenue.

During the three-month period ended September 30, 2013, commensurate with the renaming of our company to hopTo Inc., we reclassified certain corporate-level expenses from the GO-Global segment to the hopTo segment, including those pertaining to our ipCapital initiatives. The impact of such reclassifications appears in the following segment tables for all periods presented.

Segment revenue for the three-month periods ended September 30, 2013 and 2012 was as follows:

					Increase (Decrease)
	2013		2012		Dollars			Percentage
GO-Global	$	1,534,700	$	1,734,100	$	(199,400	)		-11.5	%
hopTo		—		—		—			n/	a
Consolidated Total	$	1,534,700	$	1,734,100	$	(199,400	)		-11.5	%

Segment revenue for the nine-month periods ended September 30, 2013 and 2012 was as follows:

					Increase (Decrease)
	2013		2012		Dollars			Percentage
GO-Global	$	4,545,500	$	4,915,600	$	(370,100	)		-7.5	%
hopTo		—		—		—			n/	a
Consolidated Total	$	4,545,500	$	4,915,600	$	(370,100	)		-7.5	%

Segment loss from continuing operations for the three and nine-month periods ended September 30, 3013 and 2012 was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
GO-Global	$	800		$	413,000		$	(204,500	)	$	(591,000	)
hopTo		(1,609,300	)		(1,067,800	)		(3,318,000	)		(2,835,200	)
Total	$	(1,608,500	)	$	(654,800	)	$	(3,522,500	)	$	(3,426,200	)

We do not allocate interest, other income, other expense, or income tax to our segments.

As of September 30, 2013 segment fixed assets (long-lived assets) were as follows:

			Accumulated
			Depreciation
	Cost Basis		/Amortization			Net
GO-Global	$	1,964,900	$	(1,799,100	)	$	165,800
hopTo		930,800		(79,200	)		851,600
Total from continuing operations		2,895,700		(1,878,300	)		1,017,400
Discontinued operations		2,839,000		(2,839,000	)		—
Unallocated		31,700		—			31,700
Total	$	5,766,400	$	(4,717,300	)	$	1,049,100

We do not maintain any significant long-lived assets outside of the United States.

Products and services provided by the GO-Global segment include all currently available versions of the GO-Global family of products, OEM private labeling kits, software developer’s kits, maintenance contracts, and product training and support. The hopTo segment, which is under development, will provide mobile end-users with a productivity workspace for their mobile devices that will allow users to manage, share, view, and edit their documents, regardless of where they are stored. We launched the first public release of hopTo through Apple’s App Store in April 2013.  The two segments do not engage in cross-segment transactions.

Go-Global software revenue by country for the three-and nine month periods ended September 30, 2013 and 2012 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
Revenue by Country	2013		2012		2013		2012
United States	$	677,600	$	668,800	$	1,886,000	$	1,980,100
Germany		84,600		181,000		354,200		533,300
Brazil		161,000		176,400		415,100		444,800
Other Countries		611,500		707,900		1,890,200		1,957,400
Total	$	1,534,700	$	1,734,100	$	4,545,500	$	4,915,600