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 March 31, 2020

Commission File Number: 0-21683

 

hopTo Inc.

(Exact name of registrant as specified in its charter)

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

6 Loudon Road, Suite 200

Concord, NH 03301
(Address of principal executive offices)

Registrant’s telephone number:

(800) 472-7466

(408) 688-2674

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

Yes [X] No [  ]

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

Yes [X] No [  ]

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

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ]	Smaller reporting company	[X]
Emerging growth company	[  ]

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

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

As of May 20, 2020, there were issued and outstanding 11,572,880 shares of the registrant’s common stock, par value $0.0001.

Table of Contents

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mine Safety Disclosures	17
Item 5.	Other Information	18
Item 6.	Exhibits	18
	Signatures	19

2

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

hopTo Inc.

Consolidated Balance Sheets

	March 31,			December 31,
	2020			2019
		(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	1,467,000		$	1,541,900
Accounts receivable, net		396,700			271,200
Prepaid expenses and other current assets		193,200			59,000
Total current assets		2,056,900			1,872,100
Property and equipment, net		-			-
Other assets		17,800			17,800
Total assets	$	2,074,700		$	1,889,900
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable	$	260,400		$	271,900
Accrued expenses		121,000			106,000
Accrued wages		144,500			136,400
Deferred revenue		1,279,500			1,256,000
Total current liabilities		1,805,400			1,770,300
Deferred revenue		474,300			529,500
Total liabilities		2,279,700			2,299,800
Commitments and contingencies
Stockholders’ equity (deficit)
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding as of March 31, 2020 (unaudited) or December 31, 2019		-			-
Common stock, $0.0001 par value, 195,000,000 shares authorized, 9,954,866 and 9,834,866 shares issued and outstanding as of March 31, 2020(unaudited) and December 31, 2019, respectively		1,000			1,000
Additional paid-in capital		79,619,300			79,523,500
Accumulated deficit		(79,825,300	)		(79,934,400	)
Total stockholders’ deficit		(205,000	)		(409,900	)
Total liabilities and stockholders’ deficit	$	2,074,700		$	1,889,900

See accompanying notes to unaudited consolidated financial statements

3

hopTo Inc.

Consolidated Statements of Operations

	For the Three Months Ended
	March 31,		March 31,
	2020		2019
	(Unaudited)		(Unaudited)
Revenues	$	844,600	$	1,053,800
Cost of revenues		38,100		29,200
Gross profit		806,500		1,024,600
Operating expenses:
Selling and marketing		104,400		117,000
General and administrative		229,000		295,000
Research and development		364,000		374,500
Total operating expenses		697,400		786,500
Income from operations		109,100		238,100
Other income (expense):
Other income (expense)		-		13,800
Income before provision for income taxes		109,100		251,900
Provision for income taxes		-		-
Net income	$	109,100	$	251,900
Net income per share, basic	$	0.01	$	0.03
Net income per share, diluted	$	0.01	$	0.03
Weighted average number of common shares outstanding
Basic		9,927,990		9,804,400
Diluted		9,937,617		10,031,148

See accompanying notes to unaudited consolidated financial statements

4

hopTo Inc.

Consolidated Statements of Stockholders’ Deficit

	Common Stock				Additional Paid-In		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance at December 31, 2018		9,804,400	$	1,000	$	79,298,200	$	(80,488,700	)	$	(1,189,500	)
Contributed services		-		-		56,300		-			56,300
Net income		-		-		-		251,900			251,900
Balance at March 31, 2019 (unaudited)		9,804,400	$	1,000	$	79,354,500	$	(80,236,800	)	$	(881,300	)
Balance at December 31, 2019		9,834,866	$	1,000	$	79,523,500	$	(79,934,400	)	$	(409,900	)
Shares issued for settlement of accrued expenses		120,000		-		39,600		-			39,600
Contributed services		-		-		56,200		-			56,200
Net income		-		-		-		109,100			109,100
Balance at March 31, 2020 (unaudited)		9,954,866	$	1,000	$	79,619,300	$	(79,825,300	)	$	(205,000	)

See accompanying notes to unaudited consolidated financial statements

5

hopTo Inc.

Consolidated Statements of Cash Flows

	For the Three Months Ended
	March 31,			March 31,
	2020			2019
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net income	$	109,100		$	251,900
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		-			100
Contributed services		56,200			56,300
Changes in allowance for doubtful accounts		5,600			15,000
Changes in operating assets and liabilities:
Accounts receivable		(131,100	)		(199,500	)
Prepaid expenses and other current assets		(134,200	)		9,900
Accounts payable and accrued expenses		51,200			(7,100	)
Deposit liability		-			(12,100	)
Deferred revenue		(31,700	)		(4,300	)
Net cash provided (used) by operating activities		(74,900	)		110,200
Net change in cash		(74,900	)		110,200
Cash, beginning of the period		1,541,900			892,500
Cash, end of the period	$	1,467,000		$	1,002,700
Supplemental disclosure of cash flow information:
Interest paid	$	-		$	-
Income taxes paid	$	-		$	-
Non-cash financing activites: shares issued for settlement of accrued expenses	$	39,600		$	-

See accompanying notes to unaudited consolidated financial statements

6

hopTo Inc.

Notes to Unaudited Consolidated Financial Statements

1. Organization

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

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

2. Significant Accounting Policies

Basis of Presentation

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

The unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 which was filed with the SEC on April 14, 2020 (“2019 10-K Report”). The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2020 or any future period.

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

Use of Estimates

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

7

Revenue Recognition

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

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

The following is a summary of how the Company recognizes revenue for its different products and services.

● Product Sales

All of our licenses are delivered to the customer electronically. The Company sends the license key to the customer to download the related software from Company portal. We recognize revenue upon delivery of these licenses. For stocking resellers who purchase licenses through inventory stocking orders with the intent to resell to an end-user, revenue is recognized when the resellers’ accounts have been credited, at their discretion, for the number of licenses purchased.

● Service Revenue

The Company has maintenance contracts with certain of its customers. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

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

Cash and Cash Equivalents

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. The Company had no cash equivalents as of March 31, 2020 (unaudited) or December 31, 2019.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts that reflects our best estimate of potentially uncollectible trade receivables. The allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts receivable. We regularly review the adequacy of our allowance for doubtful accounts by considering such factors as historical experience, credit worthiness, and current economic conditions that may affect a customer’s ability to pay. We specifically reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance for doubtful accounts based on our review of the aging and size of our accounts receivable. As of March 31,2020 and December 31, 2019, the allowance for doubtful accounts totaled $12,900 and $7,300, respectively.

8

Concentration of Credit Risk

For the three-month ended March 31, 2020 and 2019, we currently consider the following to be our most significant customers and partners. For the purposes of this presentation, “Sales” refers to the dollar value of orders received from these customers and partners in the period indicated. These Sales values do not necessarily equal recognized revenue for these periods due to our revenue recognition policies which require deferral of revenue associated with prepaid software service fees.

For the three months ended March 31, 2020, the Company had 2 customers comprising 10.8% and 12.8%, respectively, of total sales. For the three months ended March 31, 2019, the Company had 3 customers comprising 24.9%, 14.6%, and 11.0%, respectively, of total sales. A loss of one of these customers could potentially have a significant negative impact on the Company’s financial statements.

As of March 31, 2020, the Company has 4 customers comprising 27.4%,14.3%, 12.9%, and 12.0%, respectively, of net accounts receivable. As of December 31, 2019, the Company has 1 customer comprising 17.9% of net accounts receivable.

Basic and Diluted Earnings Per Share

In accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted income (loss) per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Dilutive common share equivalents as of March 31, 2020, representing 481,335 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three months ended March 31, 2020 and 2019, the Company had total common stock equivalents of 93,076 and 106,077, respectively, which were excluded from the computation of net income (loss) per share because they are anti-dilutive.

Fair Value of Financial Instruments

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

9

Recently Adopted Accounting Pronouncements

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

3. Property and Equipment

Property and equipment consisted of the following.

	March 31,			December 31,
	2020			2019
	(Unaudited)
Equipment	$	154,300		$	154,300
Furniture and fixtures		1,600			1,600
		155,900			155,900
Less: accumulated depreciation		(155,900	)		(155,900	)
	$	-		$	-

Depreciation expense amounted to $0 and $100 for the three months ended March 31, 2020 and 2019, respectively.

4. Stockholders’ Equity

Stock-Based Compensation Plans

In November 2012, the Company’s 2012 Equity Incentive Plan (the “12 Plan”) was approved by the stockholders. Pursuant to the terms of the 12 Plan, stock options, stock appreciation rights, restricted stock and restricted stock units (sometimes referred to individually or collectively as “awards”) may be granted to officers and other employees, non-employee directors and independent consultants and advisors who render services to the Company. The Company is authorized to issue options to purchase up to 643,797 shares of common stock, stock appreciation rights, or restricted stock in accordance with the terms of the 12 Plan.

10

In the case of a restricted stock award, the entire number of shares subject to such award would be issued at the time of the grant and subject to vesting provisions based on time or other conditions specified by the Board or an authorized committee of the Board. For awards based on time, should the grantee’s service to the Company end before full vesting occurred, all unvested shares would be forfeited and returned to the Company. In the case of awards granted with vesting provisions based on specific performance conditions, if those conditions were not met, then all shares would be forfeited and returned to the Company. Until forfeited, all shares issued under a restricted stock award would be considered outstanding for dividend, voting and other purposes.

Under the 12 Plan, the exercise price of non-qualified stock options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted. The exercise price of incentive stock options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted provided, however, that if the recipient of the incentive stock option owns greater than 10% of the voting power of all shares of the Company’s capital stock then the exercise price will be no less than 110% of the fair market value of the Company’s common stock on the date the option is granted. The purchase price of the restricted stock issued under the 12 Plan shall also not be less than 100% of the fair market value of the Company’s common stock on the date the restricted stock is granted.

All options granted under the 12 Plan are immediately exercisable by the optionee; however, there is a vesting period for the options. The options (and the shares of common stock issuable upon exercise of such options) vest, ratably, over a 33-month period; however, no options (and the underlying shares of common stock) vest until after three months from the date of the option grant. The exercise price is immediately due upon exercise of the option. The maximum term of options issued under the 12 Plan is ten years. Shares issued upon exercise of options are subject to the Company’s repurchase, which right lapses as the shares vest. The 12 Plan will terminate no later than November 7, 2022. As of March 31, 2020, 424,594 shares of common stock remained available for issuance under the 12 Plan.

The following summarizes the stock option activity for the three months ended March 31, 2020.

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual
				Exercise		Life
	Options			Price		(Years)
Outstanding at December 31, 2019		106,077		$	2.77		1.53
Granted		-
Forfeited/cancelled		(13,001	)
Exercised		-
Outstanding at March 31, 2020 (unaudited)		93,076		$	3.03		1.49
Vested and expected to vest
at March 31, 2020 (unaudited)		93,076		$	3.03		1.49
Exercisable at March 31, 2020 (unaudited)		93,076		$	3.03		1.49

11

The following table summarizes information about options outstanding and exercisable as of March 31, 2020.

		Options Outstanding						Options Exercisable
				Weighted		Weighted				Weighted
Range of				Average		Average				Average
Exercise		Number		Remaining		Exercise		Number		Exercise
Price		of Shares		Life (Years)		Price		of Shares		Price
$	0.75 - 1.00		14,533		0.78	$	0.78		14,533	$	0.78
	2.00 - 4.00		63,677		1.62		3.21		63,677		3.21
	4.20 - 6.68		14,866		1.65		4.46		14,866		4.46
			93,076						93,076

Shares of Common Stock Issued

During the three-month period ending March 31, 2020, the Company issued a total of 120,000 shares of common stock to two former members of our board of directors that was previously committed to them and included in accrued expenses. The issuance of the 120,000 shares of common stock settles a total of $39,600 of accrued expenses that was included in the Company’s balance sheet.

Warrants

As of March 31,2020 and December 31, 2019, the Company had 481,335 warrants outstanding. The warrants outstanding at March 31, 2020 are all exercisable at $0.01 and have an expiration date of May 20, 2023.

5. Sales by Geographical Location

Revenue by country for the three months ended March 31, 2020 and 2019 was as follows.

	Three Months Ended
	2020		2019
Revenue by Country
United States	$	312,600	$	334,700
Brazil		164,900		146,000
The Netherland		81,800		262,900
Other Countries		285,300		310,200
Total	$	844,600	$	1,053,800

6. Commitments and Contingencies

Profit Sharing Plans

The Company has adopted a 401(k) plan to provide retirement benefits for employees under which the Company makes discretionary matching contributions. During the three months ended March 31, 2020 and 2019, the Company contributed a total of $9,500 and $12,200, respectively.

Contingencies

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

7. Related Party Transactions

The Company’s Chief Executive Officer and Interim Chief Financial Officer has served in these executive roles providing management services to the Company since September 2018, however, does not currently receive a salary or other forms of compensation. During the three months ended March 31, 2020 and 2019, the Company recorded an expense and contributed capital of $56,200 for contributed services based on the estimated market rate for these services.

On January 31, 2020, we entered into the Backstop Agreement (the “Backstop Agreement”) with a consortium of accredited investors, including all of our directors and led by Novelty Capital Partners LP, pursuant to which such investors agreed to purchase in a private placement, at $0.30 per share, up to $2.41 million of shares of our common stock. The consummation of the investment pursuant to the Backstop Agreement was conditioned on the closing of our subscription rights offering to all of our stockholders (the “Rights Offering”). While upon the closing of the Rights Offering, we anticipated that the Backstop Agreement would close in April 2020, as of the filing of this Quarterly Report on Form 10-Q the Backstop Agreement has not closed and we now expect to consummate the Backstop Agreement transactions by the end of May 2020.

Subsequent to the expiration of the Rights Offering, we received gross proceeds of $480,191 in exchange for 1.6 million shares of common stock. Pursuant to the Backstop Agreement, we expect to receive proceeds of $2.12 million in exchange for the issuance of 7.0 million restricted shares of common stock.

8. Subsequent Events

See Note 7 above regarding the Rights Offering and Backstop Agreement.

12

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

Forward-Looking Information

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

● the success of products depends on a number of factors including market acceptance and our ability to manage the risks associated with product introduction;

● local, regional, national and international economic conditions and events, and the impact they may have on us and our customers;

● our revenue could be adversely impacted if any of our significant customers reduces its order levels or fails to order during a reporting period; customer demand is based on many factors out of our control;

● as a result of the new revenue recognition standards, if any significant end user customer or reseller substantially changes its order level, or fails to order during the reporting period, whether the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially impacted; and

● other factors, including, but not limited to, those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 which was filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2020, and in other documents we have filed with the SEC.

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

Introduction

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

Beginning in 2012, we developed and marketed several products in the field of software productivity for mobile devices such as tablets and smartphones under the hopTo brand. We ceased all our sales, marketing and development for the hopTo products in 2016.

We have made investments in intellectual property (“IP”) and filed many patents designed to protect the technologies embedded in the hopTo products. We are currently marketing for sale 49 patents and related source code developed from our hopTo development efforts.

Critical Accounting Policies

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas require us to make judgments and estimates about matters that are uncertain at the time we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 2019 10-K Report and Note 2 to our unaudited consolidated financial Statements included under Item 1 – Financial Statements in this Form 10-Q.

13

Results of Operations for the Three-Month Periods Ended March 31, 2020 and 2019

The following are the results of our operations for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019.

	For the Three Months Ended
	March 31,		March 31,
	2020		2019
	(Unaudited)		(Unaudited)
Revenues	$	844,600	$	1,053,800
Cost of revenues		38,100		29,200
Gross profit		806,500		1,024,600
Operating expenses:
Selling and marketing		104,400		117,000
General and administrative		229,000		295,000
Research and development		364,000		374,500
Total operating expenses		697,400		786,500
Income from operations		109,100		238,100
Other income (expense):
Other income (expense)		-		13,800
Income before provision for income taxes		109,100		251,900
Provision for income taxes		-		-
Net income	$	109,100	$	251,900
Net income per share, basic	$	0.01	$	0.03
Net income per share, diluted	$	0.01	$	0.03
Weighted average number of common shares outstanding
Basic		9,927,990		9,804,400
Diluted		9,938,226		10,031,148

Revenues

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

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

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

Software Licenses

Windows software licenses revenue decreased by $97,600 or 29.1% to $237,900 during the three months ended March 31, 2020, from $335,500 for the same period in 2019. The decrease was entirely due to a certain partner that purchased a large order of Windows licenses from the Company during the three months ended March 31, 2019 that did not recur during the three months ended March 31, 2020. The decrease was partially offset by an increase in purchase activity related to demand for remote access software due to the coronavirus pandemic.

14

Software licenses revenue from our UNIX/Linux products increased by $24,800 or 182.4% to $38,400 for the three months ended March 31, 2020 from $13,600 for the same periods of 2019. The increase was primarily due to higher revenue from higher stocking and standard order licenses.

We expect aggregate GO-Global total software license revenue in 2020 to be in-line with 2019 levels as we are observing a mix of both higher and lower aggregate revenue from our various customers.

Software Service Fees

Service fees attributable to our Windows product service decreased by $116,100 or 19.4% to $481,600 during three months ended March 31, 2020, from $597,700 for the same period in 2019. The decrease was primarily due to timing of revenue recognition for maintenance support fees along with a decrease in maintenance support for a large OEM partner and the expiration of a long-term maintenance contract for a European customer. These were partially offset by an increase in maintenance support fees due to an increase in Windows product sales from other customers throughout the prior year.

Service fees revenue attributable to our UNIX products decreased by $19,000 or 22.6% to $65,100 during the three months ended March 31, 2020, from $84,100 for the same period in 2019. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of certain long-term maintenance contracts.

We expect that software service fees for 2020 will approximate to those for 2019.

Other

Other revenue consists of private labeling fees and professional services. Other revenue decreased by $1,400 or 6.1% for the three months ended March 31, 2020, compared to the same period in 2019.

Cost of Revenues

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

Cost of revenue for the three months ended March 31, 2020 increased by $8,900, or 30.5%, to $38,100 for the three months ended March 31, 2020 from $29,200 for the same period in 2019. Cost of revenue represented 4.5% and 2.8% of total revenue for the three months ended March 31, 2020 and 2019, respectively. The primarily increase was due to increase import tax withholdings associated with higher revenue from Brazil resellers for the three-month period ended March 31, 2020.

We expect 2020 cost of revenue to be slightly higher than 2019 for the above reason.

Selling and Marketing Expenses

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

Selling and marketing expenses decreased by $12,600, or 10.8%, to $104,400 for the three months ended March 31, 2020 from $117,000 for the same period in 2019. Selling and marketing expenses represented approximately 12.4% and 11.1% of total revenue for the three months ended March 2020 and 2019, respectively. The decrease in selling and marketing expenses was due to a decrease in consulting services and employee benefit costs.

We expect to maintain our sales and marketing efforts in 2020 for anticipated GO-Global releases with select targeted modest investments in promotional activity; accordingly, for this reason, we expect 2020 sales and marketing expenses to be slightly higher than 2019 levels.

15

General and Administrative Expenses

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

General and administrative expenses decreased by $66,000, or 22.4%, to $229,000 for the three months ended March 31, 2020 from $295,000 for the same period in 2019. General and administrative expenses represented approximately 27.1% and 28.0% of total revenue for the three months ended March 31, 2020 and 2019, respectively.

The decrease in general and administrative expense was due to lower accounting fees and employee benefit costs.

In 2020, we anticipate a reduction in accounting fees and employee benefit costs compared to 2019 levels due to changes in service providers and improved cost controls by management. We therefore expect that our 2020 general and administrative costs will be slightly lower than those for 2019.

Research and Development Expenses

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

Research and development expenses decreased by $10,500, or 12.8% to $364,000 for the three months ended March 31, 2020 from $374,500 for the same period in 2019. This represented approximately 43.1% and 35.5% of total revenue for the three months ended March 31, 2020 and 2019, respectively.

The decrease in research and development expense was primarily due to a decrease in consulting fees associated with completing the new releases of our GO-Global products.

In 2020, we expect to continue our investments in research and development resources associated with our GO-Global products based on market feedback. We therefore expect 2020 research and development expenses to be slightly higher than 2019 levels.

Liquidity and Capital Resources

As of March 31, 2020, we had cash of $1,467,000 and a working capital position of $251,500 as compared to cash of $1,541,900 and a working capital position of $101,800 at December 31, 2019. The decrease in cash as of March 31, 2020 was primarily the result of cash used in operations during the period. We expect our results from operations and capital resources will be sufficient to fund our operations for at least the next 12 months from the date of the filing of this quarterly report on Form 10-Q.

The following is a summary of our cash flows from operating, investing and financing activities for the three months ended March 31, 2020 and 2019.

	For the Three Months Ended
	March 31,			March 31,
	2020			2020
Cash flows provided by operating activities	$	(74,900	)	$	110,200
Cash flows provided by investing activities	$	-		$	-
Cash flows provided by financing activities	$	-		$	-

Net cash flows used by operating activities for the three months ended March 31, 2020 amounted to $74,900, compared to cash flows provided by operating activities of $110,200 for the three months ended March 31, 2019. The decrease in cash flows provided by operating activities is primarily the result of lower net income and an increase in accounts receivable and prepaid expenses compared to the prior year period.

16

We had no cash flow activity relating to investing or financing activities for the three months ended March 31, 2020 or 2019.

Subsequent to March 31, 2020, we received gross proceeds of $480,191 from the Rights Offering and expect to receive $2.12 million from the closing of the investment pursuant to the Backstop Agreement. We intend to use the proceeds from the Rights Offering and the Backstop Agreement for general corporate purposes, which may include acquisitions (although we do not currently have any plans with respect to any acquisition).

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2020.

There has not been any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Not applicable

ITEM 1A. Risk Factors

There have been no material changes in our risk factors from those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission on April 14, 2020.

The coronavirus pandemic could adversely affect our results of operations.

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

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

On January 31, 2020, we entered into the Backstop Agreement with a consortium of accredited investors, including all of our directors and led by Novelty Capital Partners LP, pursuant to which such investors agreed to purchase in a private placement, at $0.30 per share, up to $2.41 million of shares of our common stock. The consummation of the investment pursuant to the Backstop Agreement was conditioned on the closing of the Rights Offering. The Rights Offering expired on March 31, 2020. While upon the closing of the Rights Offering, we anticipated that the Backstop Agreement would close in April 2020, as of the filing of this Quarterly Report on Form 10-Q the Backstop Agreement has not closed and we now expect to consummate the Backstop Agreement transactions by the end of May 2020.

At the closing of the Rights Offering, we received gross proceeds of $480,191 in exchange for 1.6 million shares of common stock. Pursuant to the Backstop Agreement, we expect to receive proceeds of $2.12 million in exchange for the issuance of 7.0 million restricted shares of common stock. We intend to use the proceeds from the Rights Offering and the Backstop Agreement for general corporate purposes, which may include acquisitions (although we do not currently have any plans with respect to any acquisition). The shares were issued to the Backstop Agreement investors pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Mine Safety Disclosures

Not applicable

17

ITEM 5. Other Information

On March 31, 2020, our previously announced Rights Offering expired and in April 2020 we subsequently received $480,191 in exchange for 1.6 million shares of our common stock. Pursuant to the Backstop Agreement we expect to receive proceeds of $2.12 million in exchange for the issuance of 7.0 million restricted shares of common stock.

ITEM 6. Exhibits

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

18

SIGNATURES

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

hopTo Inc.
(Registrant)
Date:	May 20, 2020
By:	/s/ Jonathon R. Skeels
	Jonathon R. Skeels
	Chief Executive Officer (Principal Executive Officer) and
	Interim Chief Financial Officer
	(Principal Financial Officer and
	Principal Accounting Officer)

19

EX-31

EXHIBIT 31

CERTIFICATIONS

I, Jonathon R. Skeels, 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 the 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 persons 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.

Dated: May 20, 2020

By:	/s/ Jonathon R. Skeels
	Jonathon R. Skeels
	Chief Executive Officer and Interim Chief Financial Officer

EX-32

Exhibit 32

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 on Form 10-Q of hopTo Inc. (the “Company”) for the quarter ending March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Jonathon R. Skeels, Chief Executive Officer and Interim Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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.

Dated: May 20, 2020	By:	/s/ Jonathon R. Skeels
		Jonathon R. Skeels
		Chief Executive Officer, Interim Chief Financial Officer

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Consolidated Statements of Cash Flows - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash flows from operating activities
Net income	$ 109,100	$ 251,900
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		100
Contributed services	56,200	56,300
Changes in allowance for doubtful accounts	5,600	15,000
Changes in operating assets and liabilities:
Accounts receivable	(131,100)	(199,500)
Prepaid expenses and other current assets	(134,200)	9,900
Accounts payable and accrued expenses	51,200	(7,100)
Deposit liability		(12,100)
Deferred revenue	(31,700)	(4,300)
Net cash provided (used) by operating activities	(74,900)	110,200
Net change in cash	(74,900)	110,200
Cash, beginning of the period	1,541,900	892,500
Cash, end of the period	1,467,000	1,002,700
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
Non-cash financing activites: shares issued for settlement of accrued expenses	$ 39,600

XML

Consolidated Balance Sheets - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Current assets
Cash and cash equivalents	$ 1,467,000	$ 1,541,900
Accounts receivable, net	396,700	271,200
Prepaid expenses and other current assets	193,200	59,000
Total current assets	2,056,900	1,872,100
Property and equipment, net
Other assets	17,800	17,800
Total assets	2,074,700	1,889,900
Current liabilities
Accounts payable	260,400	271,900
Accrued expenses	121,000	106,000
Accrued wages	144,500	136,400
Deferred revenue	1,279,500	1,256,000
Total current liabilities	1,805,400	1,770,300
Deferred revenue	474,300	529,500
Total liabilities	2,279,700	2,299,800
Commitments and contingencies
Stockholders' equity (deficit)
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding as of March 31, 2020 (unaudited) or December 31, 2019
Common stock, $0.0001 par value, 195,000,000 shares authorized, 9,954,866 and 9,834,866 shares issued and outstanding as of March 31, 2020(unaudited) and December 31, 2019, respectively	1,000	1,000
Additional paid-in capital	79,619,300	79,523,500
Accumulated deficit	(79,825,300)	(79,934,400)
Total stockholders' deficit	(205,000)	(409,900)
Total liabilities and stockholders' deficit	$ 2,074,700	$ 1,889,900

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Related Party Transactions (Details Narrative) - USD ($)		2 Months Ended	3 Months Ended
	Jan. 31, 2020	May 20, 2020	Mar. 31, 2020	Mar. 31, 2019
Contributed services			$ 56,200	$ 56,300
Backstop Agreement [Member] | Subsequent Event [Member]
Gross proceeds from issuance of private placement		$ 2,120,000
Number of restricted shares of common stock		$ 7,000,000
Backstop Agreement [Member] | Accredited Investors [Member] | Novelty Capital Partners LP [Member]
Shares issued purchase price, per share	$ 0.30
Backstop Agreement [Member] | Accredited Investors [Member] | Novelty Capital Partners LP [Member] | Maximum [Member]
Number of shares issued in private placement	2,410,000
Rights Offering [Member] | Subsequent Event [Member]
Number of shares issued in private placement		1,600,000
Proceeds from offering		$ 480,191

XML

Stockholders' Equity - Schedule of Share-based Compensation, Stock Options, Activity (Details)	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Equity [Abstract]
Options Outstanding, Beginning Balance | shares	106,077
Options Outstanding, Granted | shares
Options Outstanding, Forfeited/cancelled | shares	(13,001)
Options Outstanding, Exercised | shares
Options Outstanding, Ending Balance | shares	93,076
Options Outstanding, Vested and expected to vest at March 31, 2020 | shares	93,076
Options Exercisable at March 31, 2020 | shares	93,076
Weighted Average Exercise Price, Outstanding Beginning Balance | $ / shares	$ 2.77
Weighted Average Exercise Price, Granted | $ / shares
Weighted Average Exercise Price, Forfeited/cancelled | $ / shares
Weighted Average Exercise Price, Exercised | $ / shares
Weighted Average Exercise Price, Outstanding Ending Balance | $ / shares	3.03
Weighted Average Exercise Price, Vested and expected to vest at March 31, 2020 | $ / shares	3.03
Weighted Average Exercise Price, Exercisable at March 31, 2020 | $ / shares	$ 3.03
Weighted Average Remaining Contractual Life (Years) Outstanding, Beginning Balance	1 year 6 months 10 days
Weighted Average Remaining Contractual Life (Years) Outstanding, Ending Balance	1 year 5 months 27 days
Weighted Average Remaining Contractual Life (Years), Vested and expected to vest at March 31, 2020	1 year 5 months 27 days
Weighted Average Remaining Contractual Life (Years) Exercisable at March 31, 2020	1 year 5 months 27 days

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

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

The unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 which was filed with the SEC on April 14, 2020 (“2019 10-K Report”). The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2020 or any future period.

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

Use of Estimates

Use of Estimates

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

Revenue Recognition

Revenue Recognition

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

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

The following is a summary of how the Company recognizes revenue for its different products and services.

● Product Sales

All of our licenses are delivered to the customer electronically. The Company sends the license key to the customer to download the related software from Company portal. We recognize revenue upon delivery of these licenses. For stocking resellers who purchase licenses through inventory stocking orders with the intent to resell to an end-user, revenue is recognized when the resellers’ accounts have been credited, at their discretion, for the number of licenses purchased.

● Service Revenue

The Company has maintenance contracts with certain of its customers. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

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

Cash and Cash equivalents

Cash and Cash Equivalents

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. The Company had no cash equivalents as of March 31, 2020 (unaudited) or December 31, 2019.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts that reflects our best estimate of potentially uncollectible trade receivables. The allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts receivable. We regularly review the adequacy of our allowance for doubtful accounts by considering such factors as historical experience, credit worthiness, and current economic conditions that may affect a customer’s ability to pay. We specifically reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance for doubtful accounts based on our review of the aging and size of our accounts receivable. As of March 31,2020 and December 31, 2019, the allowance for doubtful accounts totaled $12,900 and $7,300, respectively.

Concentration of Credit Risk

Concentration of Credit Risk

For the three-month ended March 31, 2020 and 2019, we currently consider the following to be our most significant customers and partners. For the purposes of this presentation, “Sales” refers to the dollar value of orders received from these customers and partners in the period indicated. These Sales values do not necessarily equal recognized revenue for these periods due to our revenue recognition policies which require deferral of revenue associated with prepaid software service fees.

For the three months ended March 31, 2020, the Company had 2 customers comprising 10.8% and 12.8%, respectively, of total sales. For the three months ended March 31, 2019, the Company had 3 customers comprising 24.9%, 14.6%, and 11.0%, respectively, of total sales. A loss of one of these customers could potentially have a significant negative impact on the Company’s financial statements.

As of March 31, 2020, the Company has 4 customers comprising 27.4%,14.3%, 12.9%, and 12.0%, respectively, of net accounts receivable. As of December 31, 2019, the Company has 1 customer comprising 17.9% of net accounts receivable.

Basic and Diluted Earnings Per Share

Basic and Diluted Earnings Per Share

In accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted income (loss) per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Dilutive common share equivalents as of March 31, 2020, representing 481,335 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three months ended March 31, 2020 and 2019, the Company had total common stock equivalents of 93,076 and 106,077, respectively, which were excluded from the computation of net income (loss) per share because they are anti-dilutive.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

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

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

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Sales by Geographical Location

3 Months Ended

Mar. 31, 2020

Segment Reporting [Abstract]

Sales by Geographical Location

5. Sales by Geographical Location

Revenue by country for the three months ended March 31, 2020 and 2019 was as follows.

	Three Months Ended
	2020		2019
Revenue by Country
United States	$	312,600	$	334,700
Brazil		164,900		146,000
The Netherland		81,800		262,900
Other Countries		285,300		310,200
Total	$	844,600	$	1,053,800

XML

Significant Accounting Policies (Details Narrative) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Allowance for doubtful accounts	$ 12,900		$ 7,300
Number of common shares equivalents of outstanding in money warrants	481,335
Shares of common stock equivalents were excluded from the computation of diluted earnings per share since its effect would be antidilutive	93,076	106,077
Sales [Member] | Customer One [Member]
Concentration of credit risk percentage	10.80%	24.90%
Sales [Member] | Customer Two [Member]
Concentration of credit risk percentage	12.80%	14.60%
Sales [Member] | Customer Three [Member]
Concentration of credit risk percentage		11.00%
Accounts Receivable [Member] | Customer One [Member]
Concentration of credit risk percentage	27.40%		17.90%
Accounts Receivable [Member] | Customer Two [Member]
Concentration of credit risk percentage	14.30%
Accounts Receivable [Member] | Customer Three [Member]
Concentration of credit risk percentage	12.90%
Accounts Receivable [Member] | Customer Four [Member]
Concentration of credit risk percentage	12.00%

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Sales by Geographical Location (Tables)

3 Months Ended

Mar. 31, 2020

Segment Reporting [Abstract]

Schedule of Revenue by Country

Revenue by country for the three months ended March 31, 2020 and 2019 was as follows.

	Three Months Ended
	2020		2019
Revenue by Country
United States	$	312,600	$	334,700
Brazil		164,900		146,000
The Netherland		81,800		262,900
Other Countries		285,300		310,200
Total	$	844,600	$	1,053,800

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Subsequent Events

3 Months Ended

Mar. 31, 2020

Subsequent Events [Abstract]

Subsequent Events

8. Subsequent Events

See Note 7 above regarding the Rights Offering and Backstop Agreement.

XML

Stockholders' Equity

3 Months Ended

Mar. 31, 2020

Equity [Abstract]

Stockholders' Equity

4. Stockholders’ Equity

Stock-Based Compensation Plans

In November 2012, the Company’s 2012 Equity Incentive Plan (the “12 Plan”) was approved by the stockholders. Pursuant to the terms of the 12 Plan, stock options, stock appreciation rights, restricted stock and restricted stock units (sometimes referred to individually or collectively as “awards”) may be granted to officers and other employees, non-employee directors and independent consultants and advisors who render services to the Company. The Company is authorized to issue options to purchase up to 643,797 shares of common stock, stock appreciation rights, or restricted stock in accordance with the terms of the 12 Plan.

In the case of a restricted stock award, the entire number of shares subject to such award would be issued at the time of the grant and subject to vesting provisions based on time or other conditions specified by the Board or an authorized committee of the Board. For awards based on time, should the grantee’s service to the Company end before full vesting occurred, all unvested shares would be forfeited and returned to the Company. In the case of awards granted with vesting provisions based on specific performance conditions, if those conditions were not met, then all shares would be forfeited and returned to the Company. Until forfeited, all shares issued under a restricted stock award would be considered outstanding for dividend, voting and other purposes.

Under the 12 Plan, the exercise price of non-qualified stock options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted. The exercise price of incentive stock options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted provided, however, that if the recipient of the incentive stock option owns greater than 10% of the voting power of all shares of the Company’s capital stock then the exercise price will be no less than 110% of the fair market value of the Company’s common stock on the date the option is granted. The purchase price of the restricted stock issued under the 12 Plan shall also not be less than 100% of the fair market value of the Company’s common stock on the date the restricted stock is granted.

All options granted under the 12 Plan are immediately exercisable by the optionee; however, there is a vesting period for the options. The options (and the shares of common stock issuable upon exercise of such options) vest, ratably, over a 33-month period; however, no options (and the underlying shares of common stock) vest until after three months from the date of the option grant. The exercise price is immediately due upon exercise of the option. The maximum term of options issued under the 12 Plan is ten years. Shares issued upon exercise of options are subject to the Company’s repurchase, which right lapses as the shares vest. The 12 Plan will terminate no later than November 7, 2022. As of March 31, 2020, 424,594 shares of common stock remained available for issuance under the 12 Plan.

The following summarizes the stock option activity for the three months ended March 31, 2020.

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual
				Exercise		Life
	Options			Price		(Years)
Outstanding at December 31, 2019		106,077		$	2.77		1.53
Granted		-
Forfeited/cancelled		(13,001	)
Exercised		-
Outstanding at March 31, 2020 (unaudited)		93,076		$	3.03		1.49
Vested and expected to vest
at March 31, 2020 (unaudited)		93,076		$	3.03		1.49
Exercisable at March 31, 2020 (unaudited)		93,076		$	3.03		1.49

The following table summarizes information about options outstanding and exercisable as of March 31, 2020.

		Options Outstanding						Options Exercisable
				Weighted		Weighted				Weighted
Range of				Average		Average				Average
Exercise		Number		Remaining		Exercise		Number		Exercise
Price		of Shares		Life (Years)		Price		of Shares		Price
$	0.75 - 1.00		14,533		0.78	$	0.78		14,533	$	0.78
	2.00 - 4.00		63,677		1.62		3.21		63,677		3.21
	4.20 - 6.68		14,866		1.65		4.46		14,866		4.46
			93,076						93,076

Shares of Common Stock Issued

During the three-month period ending March 31, 2020, the Company issued a total of 120,000 shares of common stock to two former members of our board of directors that was previously committed to them and included in accrued expenses. The issuance of the 120,000 shares of common stock settles a total of $39,600 of accrued expenses that was included in the Company’s balance sheet.

Warrants

As of March 31,2020 and December 31, 2019, the Company had 481,335 warrants outstanding. The warrants outstanding at March 31, 2020 are all exercisable at $0.01 and have an expiration date of May 20, 2023.

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Commitments and Contingencies (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]
Profit sharing plans	$ 9,500	$ 12,200

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Stockholders' Equity (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Note 9 - Stockholders' Equity (Details) [Line Items]
Accrued expenses	$ 121,000	$ 106,000
Warrants outstanding	481,335	481,335
Warrants outstanding exercisable price	$ 0.01
Warrants expiration date	May 20, 2023
Common Stock [Member]
Note 9 - Stockholders' Equity (Details) [Line Items]
Number of common stock shares issued	120,000
Accrued expenses	$ 39,600
Board of Directors [Member]
Note 9 - Stockholders' Equity (Details) [Line Items]
Number of common stock shares issued	120,000
2012 Equity Incentive Plan [Member]
Note 9 - Stockholders' Equity (Details) [Line Items]
Share-based compensation arrangement by share-based payment award, number of shares authorized	643,797
Plan terminate term	The 12 Plan will terminate no later than November 7, 2022.
Share-based compensation arrangement by share-based payment award, number of shares available for grant	424,594
2012 Equity Incentive Plan [Member] | Non Qualified Stock Options [Member] | Minimum [Member]
Note 9 - Stockholders' Equity (Details) [Line Items]
Share-based compensation arrangement by share-based payment award, purchase price of common stock, percent	100.00%
2012 Equity Incentive Plan [Member] | Incentive Stock Options [Member] | Minimum [Member]
Note 9 - Stockholders' Equity (Details) [Line Items]
Share-based compensation arrangement by share-based payment award, purchase price of common stock, percent	10.00%
2012 Equity Incentive Plan [Member] | Incentive Stock Options [Member] | Minimum [Member] | If Recipient Owns Greater Than Ten Percent Voting Power [Member]
Note 9 - Stockholders' Equity (Details) [Line Items]
Share-based compensation arrangement by share-based payment award, purchase price of common stock, percent	110.00%
2012 Equity Incentive Plan [Member] | Restricted Stock [Member] | Minimum [Member]
Note 9 - Stockholders' Equity (Details) [Line Items]
Share-based compensation arrangement by share-based payment award, purchase price of common stock, percent	100.00%

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Organization

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

1. Organization

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

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

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	195,000,000	195,000,000
Common stock, shares issued	9,954,866	9,834,866
Common stock, shares outstanding	9,954,866	9,834,866

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Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2020

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

Property and equipment consisted of the following.

	March 31,			December 31,
	2020			2019
	(Unaudited)
Equipment	$	154,300		$	154,300
Furniture and fixtures		1,600			1,600
		155,900			155,900
Less: accumulated depreciation		(155,900	)		(155,900	)
	$	-		$	-

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

6. Commitments and Contingencies

Profit Sharing Plans

The Company has adopted a 401(k) plan to provide retirement benefits for employees under which the Company makes discretionary matching contributions. During the three months ended March 31, 2020 and 2019, the Company contributed a total of $9,500 and $12,200, respectively.

Contingencies

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

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Property and Equipment

3 Months Ended

Mar. 31, 2020

Property, Plant and Equipment [Abstract]

Property and Equipment

3. Property and Equipment

Property and equipment consisted of the following.

	March 31,			December 31,
	2020			2019
	(Unaudited)
Equipment	$	154,300		$	154,300
Furniture and fixtures		1,600			1,600
		155,900			155,900
Less: accumulated depreciation		(155,900	)		(155,900	)
	$	-		$	-

Depreciation expense amounted to $0 and $100 for the three months ended March 31, 2020 and 2019, respectively.

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Stockholders' Equity - Schedule of Share-based Compensation, Shares Authorized Under Stock Option Plans, by Exercise Price Range (Details)	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Options Outstanding, Number of shares | shares	93,076
Options Exercisable, Number of shares | shares	93,076
Exercise Price Range 1 [Member]
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Exercise Price Range, Lower Range Limit	$ 0.75
Exercise Price Range, Upper Range Limit	$ 1.00
Options Outstanding, Number of shares | shares	14,533
Options Outstanding, Weighted Average Remaining Life (Years)	9 months 11 days
Options Outstanding, Weighted Average Exercise Price	$ 0.78
Options Exercisable, Number of shares | shares	14,533
Options Exercisable, Weighted Average Exercise Price	$ 0.78
Exercise Price Range 2 [Member]
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Exercise Price Range, Lower Range Limit	2.00
Exercise Price Range, Upper Range Limit	$ 4.00
Options Outstanding, Number of shares | shares	63,677
Options Outstanding, Weighted Average Remaining Life (Years)	1 year 7 months 13 days
Options Outstanding, Weighted Average Exercise Price	$ 3.21
Options Exercisable, Number of shares | shares	63,677
Options Exercisable, Weighted Average Exercise Price	$ 3.21
Exercise Price Range 3 [Member]
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Exercise Price Range, Lower Range Limit	4.20
Exercise Price Range, Upper Range Limit	$ 6.68
Options Outstanding, Number of shares | shares	14,866
Options Outstanding, Weighted Average Remaining Life (Years)	1 year 7 months 24 days
Options Outstanding, Weighted Average Exercise Price	$ 4.46
Options Exercisable, Number of shares | shares	14,866
Options Exercisable, Weighted Average Exercise Price	$ 4.46

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Property and Equipment (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Property, Plant and Equipment [Abstract]
Depreciation expense		$ 100

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Consolidated Statements of Stockholders' Deficit - USD ($)	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Deficit [Member]	Total
Beginning balance at Dec. 31, 2018	$ 1,000	$ 79,298,200	$ (80,488,700)	$ (1,189,500)
Beginning balance, shares at Dec. 31, 2018	9,804,400
Contributed services		56,300		56,300
Net Income			251,900	251,900
Ending balance at Mar. 31, 2019	$ 1,000	79,354,500	(80,236,800)	(881,300)
Ending balance, shares at Mar. 31, 2019	9,804,400
Beginning balance at Dec. 31, 2019	$ 1,000	79,523,500	(79,934,400)	(409,900)
Beginning balance, shares at Dec. 31, 2019	9,834,866
Contributed services		56,200		56,200
Shares issued for settlement of accrued expenses		39,600		39,600
Shares issued for settlement of accrued expenses, shares	120,000
Net Income			109,100	109,100
Ending balance at Mar. 31, 2020	$ 1,000	$ 79,619,300	$ (79,825,300)	$ (205,000)
Ending balance, shares at Mar. 31, 2020	9,954,866

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Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 20, 2020
Document And Entity Information
Entity Registrant Name	hopTo Inc.
Entity Central Index Key	0001021435
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business Flag	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		11,572,880
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2020

XML

Consolidated Statements of Operations - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Income Statement [Abstract]
Revenues	$ 844,600	$ 1,053,800
Cost of revenues	38,100	29,200
Gross profit	806,500	1,024,600
Operating expenses:
Selling and marketing	104,400	117,000
General and administrative	229,000	295,000
Research and development	364,000	374,500
Total operating expenses	697,400	786,500
Income from operations	109,100	238,100
Other income (expense):
Other income (expense)		13,800
Income before provision for income taxes	109,100	251,900
Provision for income taxes
Net income	$ 109,100	$ 251,900
Net income per share, basic	$ 0.01	$ 0.03
Net income per share, diluted	$ 0.01	$ 0.03
Weighted average number of common shares outstanding
Basic	9,927,990	9,804,400
Diluted	9,937,617	10,031,148

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Significant Accounting Policies

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Significant Accounting Policies

2. Significant Accounting Policies

Basis of Presentation

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

The unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 which was filed with the SEC on April 14, 2020 (“2019 10-K Report”). The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2020 or any future period.

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

Use of Estimates

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

Revenue Recognition

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

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

The following is a summary of how the Company recognizes revenue for its different products and services.

● Product Sales

All of our licenses are delivered to the customer electronically. The Company sends the license key to the customer to download the related software from Company portal. We recognize revenue upon delivery of these licenses. For stocking resellers who purchase licenses through inventory stocking orders with the intent to resell to an end-user, revenue is recognized when the resellers’ accounts have been credited, at their discretion, for the number of licenses purchased.

● Service Revenue

The Company has maintenance contracts with certain of its customers. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

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

Cash and Cash Equivalents

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. The Company had no cash equivalents as of March 31, 2020 (unaudited) or December 31, 2019.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts that reflects our best estimate of potentially uncollectible trade receivables. The allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts receivable. We regularly review the adequacy of our allowance for doubtful accounts by considering such factors as historical experience, credit worthiness, and current economic conditions that may affect a customer’s ability to pay. We specifically reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance for doubtful accounts based on our review of the aging and size of our accounts receivable. As of March 31,2020 and December 31, 2019, the allowance for doubtful accounts totaled $12,900 and $7,300, respectively.

Concentration of Credit Risk

For the three-month ended March 31, 2020 and 2019, we currently consider the following to be our most significant customers and partners. For the purposes of this presentation, “Sales” refers to the dollar value of orders received from these customers and partners in the period indicated. These Sales values do not necessarily equal recognized revenue for these periods due to our revenue recognition policies which require deferral of revenue associated with prepaid software service fees.

For the three months ended March 31, 2020, the Company had 2 customers comprising 10.8% and 12.8%, respectively, of total sales. For the three months ended March 31, 2019, the Company had 3 customers comprising 24.9%, 14.6%, and 11.0%, respectively, of total sales. A loss of one of these customers could potentially have a significant negative impact on the Company’s financial statements.

As of March 31, 2020, the Company has 4 customers comprising 27.4%,14.3%, 12.9%, and 12.0%, respectively, of net accounts receivable. As of December 31, 2019, the Company has 1 customer comprising 17.9% of net accounts receivable.

Basic and Diluted Earnings Per Share

In accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted income (loss) per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Dilutive common share equivalents as of March 31, 2020, representing 481,335 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three months ended March 31, 2020 and 2019, the Company had total common stock equivalents of 93,076 and 106,077, respectively, which were excluded from the computation of net income (loss) per share because they are anti-dilutive.

Fair Value of Financial Instruments

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

Recently Adopted Accounting Pronouncements

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

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Sales by Geographical Location - Schedule of Revenue by Country (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Revenue by country	$ 844,600	$ 1,053,800
United States [Member]
Revenue by country	312,600	334,700
Brazil [Member]
Revenue by country	164,900	146,000
The Netherlands [Member]
Revenue by country	81,800	262,900
Other Countries [Member]
Revenue by country	$ 285,300	$ 310,200

XML

Property and Equipment - Schedule of Property and Equipment (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Property and equipment gross	$ 155,900	$ 155,900
Less: accumulated depreciation	(155,900)	(155,900)
Property and equipment net
Equipment [Member]
Property and equipment gross	154,300	154,300
Furniture and Fixtures [Member]
Property and equipment gross	$ 1,600	$ 1,600

XML

Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2020

Equity [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity

The following summarizes the stock option activity for the three months ended March 31, 2020.

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual
				Exercise		Life
	Options			Price		(Years)
Outstanding at December 31, 2019		106,077		$	2.77		1.53
Granted		-
Forfeited/cancelled		(13,001	)
Exercised		-
Outstanding at March 31, 2020 (unaudited)		93,076		$	3.03		1.49
Vested and expected to vest
at March 31, 2020 (unaudited)		93,076		$	3.03		1.49
Exercisable at March 31, 2020 (unaudited)		93,076		$	3.03		1.49

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

The following table summarizes information about options outstanding and exercisable as of March 31, 2020.

		Options Outstanding						Options Exercisable
				Weighted		Weighted				Weighted
Range of				Average		Average				Average
Exercise		Number		Remaining		Exercise		Number		Exercise
Price		of Shares		Life (Years)		Price		of Shares		Price
$	0.75 - 1.00		14,533		0.78	$	0.78		14,533	$	0.78
	2.00 - 4.00		63,677		1.62		3.21		63,677		3.21
	4.20 - 6.68		14,866		1.65		4.46		14,866		4.46
			93,076						93,076

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Related Party Transactions

3 Months Ended

Mar. 31, 2020

Related Party Transactions [Abstract]

Related Party Transactions

7. Related Party Transactions

The Company’s Chief Executive Officer and Interim Chief Financial Officer has served in these executive roles providing management services to the Company since September 2018, however, does not currently receive a salary or other forms of compensation. During the three months ended March 31, 2020 and 2019, the Company recorded an expense and contributed capital of $56,200 for contributed services based on the estimated market rate for these services.

On January 31, 2020, we entered into the Backstop Agreement (the “Backstop Agreement”) with a consortium of accredited investors, including all of our directors and led by Novelty Capital Partners LP, pursuant to which such investors agreed to purchase in a private placement, at $0.30 per share, up to $2.41 million of shares of our common stock. The consummation of the investment pursuant to the Backstop Agreement was conditioned on the closing of our subscription rights offering to all of our stockholders (the “Rights Offering”). While upon the closing of the Rights Offering, we anticipated that the Backstop Agreement would close in April 2020, as of the filing of this Quarterly Report on Form 10-Q the Backstop Agreement has not closed and we now expect to consummate the Backstop Agreement transactions by the end of May 2020.

Subsequent to the expiration of the Rights Offering, we received gross proceeds of $480,191 in exchange for 1.6 million shares of common stock. Pursuant to the Backstop Agreement, we expect to receive proceeds of $2.12 million in exchange for the issuance of 7.0 million restricted shares of common stock.