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, 2021 which was filed with the
"SEC") on
Statements included in this report are based upon information known to us as of the date that this report is filed with theSEC , and we assume no obligation to update or alter our forward-looking statements made in this report, whether as a result of new information, future events or otherwise, except as otherwise required by applicable federal securities laws. Introduction hopTo, Inc., through its wholly owned subsidiaryGraphOn Corporation (collectively, "we", "us," "our" or the "Company"), is a developer of application publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants. Our application publishing software solutions are sold under the brand name GO-Global, which is our sole revenue source. GO-Global is an application access solution for use by independent software vendors ("ISVs"), corporate enterprises, governmental and educational institutions, and others who wish to take advantage of cross-platform remote access and Web-enabled access to their existing software applications, as well as those who are deploying secure, private cloud environments. Critical Accounting Policies
We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as "critical" because these specific areas require us to make judgments and estimates about matters that are uncertain at the time when we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 2021 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
The following are the results of our operations for the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . For the Three Months Ended September 30, September 30, 2022 2021 $ Change (unaudited) (unaudited) Revenues$ 980,200 $ 919,400 $ 60,800 Cost of revenues 49,800 36,100 13,700 Gross profit 930,400 883,300 47,100 Operating expenses: Selling and marketing 248,600 152,000 96,600 General and administrative 429,900 162,400 267,500 Research and development 379,000 354,300 24,700 Total operating expenses 1,057,500 668,700 388,800 Income from operations (127,100 ) 214,600 (341,700 ) Other income (loss): Unrealized gain on marketable securities (17,800 ) 146,800 (164,600 ) Interest and other income 500 - 500 Other income (loss) (17,300 ) 146,800 (164,100 ) Income before provision for income taxes (144,400 ) 361,400 (505,800 ) Net income (loss)$ (144,400 ) $ 361,400 $ (505,800 ) 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.
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The following is a summary of our revenues by category for the three months
ended
For the Three Months Ended September 30, September 30, 2022 2021 $ Change Revenue Software Licenses Windows$ 134,000 $ 151,700 $ (17,700 ) UNIX/Linux 1,500 15,900 (14,400 ) Total 135,500 167,600 (32,100 ) Software Service Fees Windows 795,200 684,500 110,700 UNIX/Linux 28,600 45,600 (17,000 ) Total 823,800 730,100 93,700 Other 20,900 21,700 (800 )$ 980,200 $ 919,400 $ 60,800 Software Licenses
Windows software licenses revenue decreased by
Software licenses revenue from our UNIX/Linux products decreased by$14,100 or 90.6% to$1,500 for the three months endedSeptember 30, 2022 from$15,900 for the same periods of 2021. The decrease was due to lower revenue from stocking order licenses and lower standard license sale. Software Service Fees Service fees attributable to our Windows product service increased by$110,700 or 16.2% to$795,200 during three months endedSeptember 30, 2022 , from$684,500 for the same period in 2021. The increase was due to an increase in subscriptions and maintenance renewals from existing customers. Service fees revenue attributable to our UNIX products decreased by$17,000 or 37.3% to$28,600 during the three months endedSeptember 30, 2022 , from$45,600 for the same period in 2021. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of a long-term maintenance contract. Cost of Revenues Cost of revenue is comprised primarily of software service costs, which represent the costs of customer service. Also included in cost of revenue are software product costs, which are primarily comprised of the amortization of capitalized software development costs and costs associated with licenses to third party software included in our product offerings, and the required import tax withholdings fromBrazil 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 endedSeptember 30, 2022 increased by$13,700 , or 38.0%, to$49,800 for the three months endedSeptember 30, 2022 from$36,100 for the same period in 2021. Cost of revenue 5.6% of total revenue for the three months endedSeptember 30, 2022 and for the same period in 2021. The increase was due to import tax withholdings associated with higher revenue fromBrazil resellers for the three-month period endedSeptember 30, 2022 .
Selling and Marketing Expenses
Selling and marketing expenses primarily consisted of employee, outside services and travel and entertainment expenses.
Selling and marketing expenses increased by$96,600 , or 63.3%, to$248 ,600for the three months endedSeptember 30, 2022 from$152,000 for the same period in 2021. Selling and marketing expenses represented approximately 25.4% and 16.5% of total revenue for the three months endedSeptember 30 2022 and 2021, respectively.
The increase in selling and marketing expenses was primarily due to an increase
in consulting services as we continue to expand our sales and marketing
initiatives for the three months ended
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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
The increase in general and administrative expense was primarily due increase in employee related expenses and board of director fees granted during the three months endedSeptember 30, 2022 , that were not paid in the prior year period.
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 increased by$24,700 , or 7.0% to$379,000 for the three months endedSeptember 30, 2022 from$354,300 for the same period in 2021. This represented approximately 38.7% and 38.5% of total revenue for the three months endedSeptember 30, 2022 and 2021, respectively.
The increase in research and development expense was primarily due to an
increase in wages and software subscriptions during the three months ended
Other Income
Other income decreased by
Results of Operations for the Nine-Month Periods EndedSeptember 30, 2022 and 2021 For the Nine Months Ended September 30, September 30, 2022 2021 $ Change (Unaudited) (Unaudited) Revenues$ 2,892,000 $ 2,678,700 $ 213,300 Cost of revenues 176,000 125,800 50,200 Gross profit 2,716,000 2,552,900 163,100 Operating expenses: Selling and marketing 687,600 448,100 239,500 General and administrative 800,700 576,800 223,900 Research and development 1,142,500 1,081,900 60,600 Total operating expenses 2,630,800 2,106,800 524,000 Income from operations 85,200 446,100 (360,900 ) Other income: Unrealized gain on marketable securities (103,300 ) 173,400 (276,700 ) Interest and other income 1,500
269,800 (268,300 )
(101,800 ) 443,200 (545,000 ) Income before provision for income taxes (16,600 ) 889,300 (905,900 ) Provision for income taxes - - - Net income (loss)$ (16,600 ) $ 889,300 $ (905,900 ) 16 Revenues
The following is a summary of our revenues by category for the nine months ended
For the Nine Months Ended September 30, September 30, 2022 2021 $ Change Revenue Software Licenses Windows$ 433,500 $ 502,900 $ (69,400 ) UNIX/Linux 15,500 38,900 (23,400 ) Total 449,000 541,800 (92,800 ) Software Service Fees Windows 2,286,400 1,932,300 354,100 UNIX/Linux 93,700 139,700 (46,000 ) Total 2,380,100 2,072,000 308,100 Other 62,900 64,900 (2,000 )$ 2,892,000 $ 2,678,700 $ 213,300 Software Licenses
Windows software licenses revenue decreased by$69,400 or 13.8% to$433,500 during the nine months endedSeptember 30, 2022 , from$502,900 for the same period in 2021. The decrease for the nine months endedSeptember 30,2022 was due to lower license orders from standard licenses, offset by increase of stocking orders.
Software licenses revenue from our UNIX/Linux products decreased by$23,400 or 60.2% to$15,500 for the nine months endedSeptember 30, 2022 from$38,900 for the same period of 2021. The decrease was primarily due to lower revenue from standard order licenses during the nine months endedSeptember 30,2022 . Software Service Fees Service fees attributable to our Windows product service increased by$354,100 or 18.3% to$2,286,400 during the nine months endedSeptember 30, 2022 , from$1,932,300 for the same period in 2021. The increase was due to an increase in maintenance renewals from existing customers and higher subscription license orders.
Service fees revenue attributable to our UNIX products decreased by$46,000 or 32.9% to$93,700 during the nine months endedSeptember 30, 2022 , from$139,700 for the same period in 2021. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of a long-term maintenance contract. Other
Other revenue consists of private labeling fees, professional services, and
other non-recurring revenues. Other revenue decreased by
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 fromBrazil 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 nine months endedSeptember 30, 2022 increased by$50,200 , or 39.9%, to$176,000 for the nine months endedSeptember 30, 2022 from$125,800 for the same period in 2021. Cost of revenue represented 6.3% and 4.7% of total revenue for the nine months endedSeptember 30, 2022 and 2021, respectively. The primarily increase was due to increase import tax withholdings associated with higher revenue fromBrazil resellers for the nine-month period endedSeptember 30, 2022 . 17
Selling and Marketing Expenses
Selling and marketing expenses primarily consisted of employee, outside services and travel and entertainment expenses.
Selling and marketing expenses increased by$239,500 , or 53.4%, to$687,600 for the nine months endedSeptember 30, 2022 from$448,100 for the same period in 2021. Selling and marketing expenses represented approximately 23.8% and 16.7% of total revenue for the nine months endedSeptember 2022 and 2021, respectively. The increase in selling and marketing expenses was due to an increase in employee related expenses and consulting services as we continue to expand our sales and marketing initiatives.
General and Administrative Expenses
General and administrative expenses primarily consist of employee costs, legal, accounting, board fees, 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 increased by$223,900 , or 38.8%, to$800,700 for the nine months endedSeptember 30, 2022 from$576,800 for the same period in 2021. General and administrative expenses represented approximately 27.7% and 21.5% of total revenue for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase in general and administrative expense was primarily due to increase of employee related fees and board of director fees paid that were not paid
in the prior year period.
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 increased by$60,600 , or 5.6% to$1,142,500 for the nine months endedSeptember 30, 2022 from$1,081,900 for the same period in 2021. This represented approximately 39.5% and 40.4% of total revenue for the nine months endedSeptember 30, 2022 and 2021, respectively.
The increase in research and development expense was primarily due to increase in wages and software subscriptions.
Other Income (Expense)
Other income decreased by$545,000 for the nine months endedSeptember 30, 2022 , compare to the same periods in 2021 was primarily related to income from the sale of certain patents and unrealized gain of marketable securities during
the prior year.
Liquidity and Capital Resources
As ofSeptember 30, 2022 , we had cash of$4,821,400 and a working capital position of$4,207,600 as compared to cash of$4,755,300 and a working capital position of$4,316,500 atDecember 31, 2021 . The increase in cash as ofSeptember 30, 2022 was primarily the result of cash provided by operations during the period. We expect our results from operations and capital resources will be sufficient to fund our operations for at least the next 12 months.
The following is a summary of our cash flows from operating, investing and
financing activities for the nine months ended
For the Nine Months EndedSeptember 30 ,September 30, 2022 2021
Cash flows provided by operating activities$ 76,200 $ 208,800 Cash flows used in investing activities$ (10,100 ) $ (24,100 ) Cash flows provided by financing activities $ - $
- Net cash flows provided by operating activities for the nine months endedSeptember 30, 2022 was$76,200 while net cash flows provided for the nine months endedSeptember 30,2021 was$208,800 . The decrease in cash flows used in operating activities is the result of an increase in accounts receivable and deferred revenue and offset by decrease in prepaid assets and change in value in marketable securities compared to the prior year period. The Company had net cash flows of$10,100 used in investing activities for the nine months endedSeptember 30, 2022 , while the Company had net cash flows of$24,100 for the same periods endedSeptember 30, 2021 . The Company expended$10,100 on the repurchase of 24,333 shares of treasury stock during the nine months endedSeptember 30,2022 .
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