As
filed with the Securities and Exchange Commission on May 8 , 2018
Registration
No. 333-206861
Registration
No. 333-193666
Registration
No. 333-190681
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
hopTo
Inc.
(Exact
name of registrant as specified in its charter)
Delaware
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6770
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13-3899021
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(State
of
incorporation)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer
Identification
Number)
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6
Loudon Road, Suite 200
Concord,
New Hampshire 03301
(800)
472-7466
(Address
and telephone number of registrant’s principal executive offices)
Jean-Louis
Casabonne
Chief
Financial Officer and Interim Chief Executive Officer
hopTo
Inc.
6
Loudon Road, Suite 200
Concord,
New Hampshire 03301
(800)
472-7466
(Name,
Address and Telephone Number of Agent for Service)
Copy
to:
Ben
D. Orlanski, Esq.
Katherine
J. Blair, Esq.
Manatt,
Phelps & Phillips, LLP
11355
West Olympic Boulevard
Los
Angeles, CA 90064
(310)
312-4000
(310)
312-4224 Facsimile
Approximate
date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. [X]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933,
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box
and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
[ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box
and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
[ ]
Indicate
by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company or 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
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[ ]
Accelerated filer
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[ ]
Non-accelerated filer
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[X]
Smaller reporting company
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[ ]
Emerging growth company
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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 to Section 7(a)(2)(B) of the Securities Act. [ ]
Pursuant
to Rule 429 under the Securities Act of 1933, as amended, the prospectus filed as part of this Registration Statement also relates
to the Registrant’s previously filed Registration Statement on Form S-1 (File No. 333-206861), originally filed on September
10, 2015, previously filed Registration Statement on Form S-1 (File No. 333-193666), originally filed on January 30, 2014, and
previously filed Registration Statement on Form S-1 (File No. 333-190681), originally filed on August 16, 2013. This Registration
Statement constitutes a Post-Effective Amendment No. 4 to Form S-1 (File No. 333-190681), Post-Effective Amendment No. 3 to Form
S-1 (File No. 333-193666) and Post-Effective Amendment No. 2 to Form S-1 (File No. 333-206861), all of which shall become effective
concurrently with the effectiveness of this Registration Statement.
The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.
EXPLANATORY
NOTE
This
Post-Effective Amendment No. 2 on Form S-1 (File No. 333-206861) (this “Post-Effective Amendment”) is being filed
to update certain information in the prospectus, including as a result of the registrant filing its Annual Report on Form 10-K
for the year ended December 31, 2017, filed with the Securities and Exchange Commission (the “SEC”) on April 17, 2018.
Pursuant
to Rule 429 under the Securities Act of 1933, as amended (the “Securities Act”), the prospectus contained in this
Post-Effective Amendment will be used as a combined prospectus in connection with the following registration statements:
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(i)
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Registration
Statement on Form S-1 (File No. 333-190681), originally filed on August 16, 2013 and declared effective on September 25, 2013,
and last declared effective via post-effective amendment No. 3 on May 8, 2017 (as amended, the “2013 Registration Statement”),
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(ii)
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Registration
Statement on Form S-1 (File No. 333-193666), originally filed on January 30, 2014 and declared effective on June 3, 2014,
and last declared effective via post-effective amendment No. 2 on May 8, 2017 (as amended, the “2014 Registration Statement”),
and
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(iii)
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Registration
Statement on Form S-1 (File No. 333-206861), originally filed on September 10, 2015 and declared effective on September 22,
2015, and last declared effective via post-effective amendment No. 1 on May 8, 2017 (as amended, the “2015 Registration
Statement”).
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This
Post-Effective Amendment now covers the sale of 4,182,312 shares of the Company’s common stock, 538,887 of which
are issuable from time to time upon the exercise of the warrants. The registration fees for the securities included in this Post-Effective
Amendment were paid in connection with the original registration of such shares pursuant to the 2013 Registration Statement, the
2014 Registration Statement and the 2015 Registration Statement, as applicable, and therefore no additional registration fee is
being paid in connection herewith. No additional securities are being registered under this filing.
The
information contained in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities
until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and the selling stockholders are not soliciting offers to buy these securities in any state where the
offer or sale of these securities is not permitted.
SUBJECT
TO COMPLETION, DATED May 8 , 2018
PROSPECTUS
HOPTO
INC.
4,182,312
Shares of Common Stock
This
prospectus relates to the sale or other disposition from time to time of up to an aggregate of 4,182,312 shares of our
common stock by the persons described in this prospectus, whom we call the “selling stockholders,” identified in the
section entitled “Selling Stockholders” in this prospectus, or their transferees. We are registering these shares
as required by the terms of the registration rights agreements between the selling stockholders and us. Such registration does
not mean that the selling stockholders will actually offer or sell any of these shares. We will not receive any proceeds from
the sale or other disposition of the shares of common stock offered by the selling stockholders. We will, however, receive the
exercise price of any warrants exercised for cash. To the extent that we receive cash upon exercise of any warrants, we expect
to use that cash for working capital and general corporate purposes.
The
selling stockholders or their transferees may, from time to time, sell, transfer or otherwise dispose of any or all of their shares
of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are
traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale,
at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices. For
additional information, you should refer to the section entitled “Plan of Distribution” of this prospectus. We are
contractually obligated to pay all expenses of registration incurred in connection with this offering, except any underwriting
discounts and commissions incurred by the selling stockholders.
Our
common stock is currently quoted on the OTC Bulletin Board under the symbol “HPTO.” The closing sales price of our
common stock on May 7 , 2018 was $0.30 per share.
This
investment involves risks. You should refer to the discussion of risk factors, beginning on page 8 of this prospectus, and in
Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017, attached hereto as Appendix A.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This
prospectus is dated , 2018
Table
of Contents
ABOUT
THIS PROSPECTUS
As
permitted under the rules of the Securities and Exchange Commission, or the SEC, this prospectus includes important business information
about hopTo Inc. that is also contained in documents that we file with the SEC. You may obtain copies of these documents, without
charge, from the website maintained by the SEC at
www.sec.gov,
as well as other sources. See “Where You Can Find
More Information” in this prospectus.
Before
you invest in our securities, you should read carefully the registration statement (including the exhibits thereto) of which this
prospectus forms a part, this prospectus, any prospectus supplement, or any accompanying prospectus supplement, and our Annual
Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2017, filed with the SEC on April 17, 2018, attached
as Appendix A to this prospectus and forming a part hereof. You should rely only on the information contained in this prospectus
and in our Form 10-K. We have not authorized anyone to provide you with additional or different information from that contained
in this prospectus or our Form 10-K. You should assume that the information contained in this prospectus and in our Form 10-K
is accurate only as of any date on the front cover of this prospectus or the date of our Form 10-K, as applicable, regardless
of the time of delivery of this prospectus or any exercise of the subscription rights. Our business, financial condition, results
of operations and prospects may have changed since those dates.
Unless
otherwise indicated or unless the context requires otherwise, all references in this prospectus to the “Company,”
“the registrant,” “we,” “us,” and “our” mean hopTo Inc., a Delaware corporation,
together with our consolidated subsidiaries, including GraphOn Corporation, a Delaware corporation, unless the context otherwise
requires.
hopTo®
and GO-Global®, among others, are registered trademarks of hopTo Inc., or its subsidiaries.
FORWARD-LOOKING
INFORMATION
This
prospectus includes, in addition to historical information, “forward-looking statements.” All statements other than
statements of historical fact we make in this prospectus are forward-looking statements. In particular, the statements regarding
industry prospects and our future results of operations or financial position are forward-looking statements. Such statements
are based on management’s current expectations and are subject to a number of uncertainties and risks that could cause actual
results to differ significantly from those described in the forward looking statements. Factors that may cause such a difference
include, but are not limited to, those discussed in Item 1A. “Risk Factors,” as well as those discussed elsewhere
in this prospectus. Statements included in this prospectus are based upon information known to us as of the date that this prospectus
is filed with the Securities and Exchange Commission (the “SEC”), and we assume no obligation to update or alter our
forward-looking statements made in this prospectus, whether as a result of new information, future events or otherwise, except
as otherwise required by applicable federal securities laws.
For
further discussion of these and other factors see “Risk Factors” in this prospectus and the sections titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in our Form 10-K
(Part II, Item 7 and Part I, Item 1A, respectively) attached hereto as Appendix A. This prospectus and all other written and oral
forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained in or referred to in this section.
PROSPECTUS
SUMMARY
This
summary highlights information contained throughout this prospectus, and in our Annual Report on Form 10-K (“Form 10-K”)
for the year ended December 31, 2017, which is attached as Appendix A to this prospectus and forms a part hereof. This summary
does not contain all of the information that should be considered before investing in our securities. Investors should read the
entire prospectus carefully, including the more detailed information regarding our business, the risks of purchasing our securities
discussed in this prospectus and in the Form 10-K. See “Risk Factors” beginning on page 8 of this prospectus and in
Part I, Item 1A of our Form 10-K attached hereto as Appendix A.
OVERVIEW
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.
Since
2012 we have also been developing several products in the field of software productivity for mobile devices such as tablets and
smartphones, which have been marketed under the hopTo brand. However, as of Q4 2016, we have effectively ceased all of our sales,
marketing and R&D efforts for the hopTo products, and at this time we do not expect any meaningful revenues from these products
in the foreseeable future.
Except
for the sale of 7 patents sold to Salesforce.com during the fourth quarter of 2017, we own all hopTo-related IP including source-code,
related patents, and the relevant trademarks. We continue to believe that we may be able to extract value from these assets and
are currently working to do so at this time. For detailed information on the hopTo products and technologies, please refer to
our Annual Report on form 10-K for the year ended December 31, 2015, which was filed with the SEC on March 30, 2016 as well as
our other SEC filings which are available at
www.sec.gov
. Such filings are being noted for historical information only;
unless expressly noted, they are not incorporated herein by reference.
The
hopTo products were originally marketed to consumers and were later also marketed to small and medium sized businesses and enterprise
level customers under the name hopTo Work. hopTo Work allows customers to instantly transform their legacy applications to become
touch friendly on modern mobile devices. During 2015 and 2016 we also worked to integrate hopTo Work with certain software products
offered by Citrix Systems.
Over
the years, we have also made significant investments in intellectual property (“IP”). We have filed many patents designed
to protect the new technologies embedded in hopTo, although we are not currently pursuing additional patents.
Recent
Developments
Rights
Agreement
As
previously disclosed, on February 16, 2018, we entered into a Rights Agreement (the “Rights Agreement”) with American
Stock Transfer & Trust Company, LLC, as rights agent (the “Rights Agent”). Details of the plan, including a copy
of the Rights Agreement, can be found in the Form 8-A that the Company filed with the SEC on February 16, 2018.
In
connection with the adoption of the Rights Agreement and pursuant to its terms, the Company’s Board of Directors (the “Board”)
authorized and declared a dividend distribution of one right (a “Right”) for each outstanding share of the common
stock, $0.0001 par value per share (the “Common Stock”), of the Company to stockholders of record at the close of
business on February 26, 2018 (the “Record Date”). Each Right entitles the registered holder to purchase from the
Company one one-thousandth of a share of the Series A Junior Participating Preferred Stock, $0.01 par value per share (the “Preferred
Stock”), of the Company at an exercise price of $1.00 per one one-thousandth of a Preferred Share, subject to adjustment
(the “Exercise Price”). The complete terms of the Rights are set forth in the Rights Agreement (the “Rights
Agreement”).
Generally,
the Rights Agreement works by imposing a significant penalty upon any person or group (including a group of persons that are acting
in concert with each other) that acquires ten percent (10%) or more of the Common Shares without the approval of the Board. As
a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to render more difficult or discourage
a merger, tender or exchange offer or other business combination involving the Company that is not approved by the Board. The
Rights Agreement is not intended to interfere with any merger, tender or exchange offer or other business combination approved
by the Board. Nor does the Rights Agreement prevent the Board from considering any offer that it considers to be in the best interest
of its stockholders. The Rights expire at or prior to the earlier of (i) February 16, 2021 or (ii) the redemption or exchange
of the Rights as provided for in the Rights Agreement.
Proposed
Liquidated Damages Settlement
On
March 27, 2018, the Company entered a non-binding term sheet for the settlement of certain potential liquidated damages resulting
from delays in filing registration statements for shares of our common stock and shares of our common stock underlying warrants
for certain private placements that the Company closed in 2013 and 2015. We refer to this as the Proposed Settlement. The Proposed
Settlement involves no cash payments or cash commitments by the Company but is expected to include the issuance of new, five year,
penny exercise, common stock warrants in exchange for existing warrants currently held by the affected shareholders. The Proposed
Settlement, if it becomes final, will not result in an increase in the total number of warrants held by these shareholders or
the total number of warrants outstanding. Although subject to completion of final definitive documentation and there is no guarantee
of any agreement being reached, the Company believes that this transaction will be completed in the next 45 days.
Corporate
Background
hopTo
Inc., or the Company, is a Delaware corporation, founded in May 1996. Our headquarters are located at 6 Loudon Road, Suite 200,
Concord, NH 03301, our toll-free phone number is 1-800-472-7466, and our phone number for local and international calls is 408-688-2674.
We also have remote employees located in various states, as well as internationally in the United Kingdom and Israel. Our corporate
Internet Website is http://www.hopTo.com. The information on our Website is not part of this prospectus.
Our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed
with or furnished to the SEC under sections 13(a) or 15(d) of the Securities Exchange Act of 1934 are made available free of charge
on our corporate Internet Website investor webpage at
www.hopto.com/investors
(click the “Financial Reporting”
link and then the “SEC Filings” link) as soon as reasonably practicable after such reports are electronically filed
with or furnished to the SEC.
Our
Intellectual Property
We
believe that IP is a business tool that potentially maximizes our competitive advantages and product differentiation, grows revenue
opportunities, encourages collaboration with key business partners, and protects our long-term growth opportunities. Strategic
IP development is therefore a critical component of our overall business strategy. It is a business function that consistently
interacts with our research and development, product development, and marketing initiatives to generate further value from those
operations.
We
rely primarily on trade secret protection, copyright law, confidentiality, and proprietary information agreements to protect our
proprietary technology and registered trademarks. Despite our precautions, it may be possible for unauthorized third parties to
copy portions of our products, or to obtain information we regard as proprietary. The loss of any material trade secret, trademark,
trade name or copyright could have a material adverse effect on our results of operations and financial condition. We intend to
defend our proprietary technology rights; however, we cannot give any assurance that our efforts to protect our proprietary technology
rights will be successful.
We
also currently hold rights to patents but are not currently pursuing additional patent applications.
We
do not believe our products infringe on the rights of any third parties, but we can give no assurance that third parties will
not assert infringement claims against us in the future, or that any such assertion will not result in costly litigation or require
us to obtain a license to proprietary technology rights of such parties.
ipCapital
Group, Inc.
On
October 11, 2011, we engaged ipCapital Group, Inc. (“ipCapital”), an affiliate of John Cronin, who is one of our directors,
to assist us in the execution of our strategic decision to significantly strengthen, grow and commercially exploit our intellectual
property assets. Our engagement agreement with ipCapital, which has been amended three times, affords us the right to request
ipCapital to perform a number of diverse services, employing its proprietary processes and methodologies, to facilitate our ability
to identify and extract from our current intellectual property base new inventions, potential patent applications, and marketing
and licensing opportunities. See the Exhibits referred to in Item 15 in Form 10-K attached hereto as Appendix A for further details
on the ipCapital engagement agreement and amendments thereto.
As
a result of ipCapital’s work under the engagement agreement, as amended, as of March 31, 2018, 173 new patent applications
have been filed. Of these 173 applications, 53 patents have been granted by the United States Patent and Trademark Office (“USPTO”).
Due to financial constraints on our operations, we have suspended patent prosecution activity other than to pay issuance and maintenance
fees for patents already approved by the USPTO. We do not expect to file more applications in 2018.
ipCapital
Licensing Company I, LLC
In
February 2013, we entered into an IP Brokerage agreement with ipCapital Licensing Company I, LLC (“ipCLC”) (the “IP
Brokerage Agreement”). At the time that we entered into this agreement, John Cronin was a partner at ipCLC. He is no longer
affiliated with ipCLC. Pursuant to the IP Brokerage Agreement, we engaged ipCLC, on a no-retainer basis, to identify and present
us with candidates who may be seeking to acquire a certain limited group of our patents unrelated to our current business strategy.
In June 2016, we determined that the IP Brokerage Agreement is no longer in effect since ipCLC no longer exists as an entity.
The
GO-Global Software Products
Our
GO-Global product offerings can be categorized into product families as follows:
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GO-Global
for Windows:
Allows access to Windows-based applications from remote locations and a variety of connections, including
the Internet connections. The Windows applications run on a central computer server along with GO-Global Windows
Host software. This allows the applications to be accessed remotely via GO-Global Client software, or a Web browser, over
many types of data connections, regardless of the bandwidth or operating system. Web-enabling is achieved without modifying
the underlying application’s code or requiring costly add-ons.
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GO-Global
for UNIX:
Allows access to UNIX and Linux-based applications from remote locations and a variety of connections, including
the Internet connections. The UNIX/Linux applications run on a central computer server along with the GO-Global
for UNIX Host software. This allows the applications to be accessed and run remotely via GO-Global Client software or a Web
browser without having to modify the application’s code or requiring costly add-ons.
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GO-Global
Client:
We offer a range of GO-Global Client software that allows remote application access from a wide variety of
local, remote and mobile platforms, including Windows, Linux, UNIX, Apple OS X and iOS, and Google Android. We plan to continue
to develop GO-Global Client software for new portable and mobile devices.
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Target
Markets
The
target market for our GO-Global products includes small to medium-sized companies, departments within large corporations, governmental
and educational institutions, independent software vendors (ISVs) and value-added resellers (VARs). Our software enables these
targeted organizations to move their existing applications to the public cloud and provide SaaS, or move them to a secure, private
cloud environment. By using our software, organizations can give their remote users, partners and customers access to their native
applications. Our software is designed to allow these organizations and enterprises to tailor the configuration of the end-user
device for a particular purpose, rather than following a “one PC fits all” high-cost ownership model. We believe our
opportunities are as follows:
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ISVs
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By Web-enabling their applications through use of our products, we believe that our
ISV customers can accelerate their time to market without the risks and delays associated
with rewriting applications or using other third-party software, thereby opening up additional
revenue opportunities and securing greater satisfaction and loyalty from their customers.
Our
technology integrates with their existing software applications without sacrificing the full-featured look and feel of
such applications, thereby providing ISVs with out-of-the-box Web-enabled applications with their own branding for licensed,
volume distribution to their enterprise customers. We further believe that ISVs that effectively address the Web computing
needs of customers and the emerging application service provider market will have a competitive advantage in the marketplace.
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Enterprises
Employing a Mix of UNIX, Linux, Macintosh and Windows
. Small to medium-sized companies that utilize a mixed computing
environment require cross-platform connectivity software, like GO-Global Host and/or GO-Global Gateway, which will allow users
to access applications from different client devices. We believe that our server-based software products will significantly
reduce the cost and complexity of connecting PCs to various applications.
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Enterprises
with Remote Computer Users and/or Extended Markets
. We believe that remote computer users and enterprises with extended
markets comprise two of the faster growing market segments in the computing industry. Extended enterprises permit access to
their computing resources by their customers, suppliers, distributors and other partners, thereby affording them manufacturing
flexibility, increased speed-to-market, and enhanced customer satisfaction. For example, extended enterprises may maintain
decreased inventory via just-in-time, vendor-managed inventory and related techniques, or they may license their proprietary
software application on a “pay-per-use” model, based on actual time usage by the user. The early adoption of extended
enterprise software may be driven in part by an organization’s need to exchange information over a wide variety of computing
platforms. We believe that our server-based software products, along with our low-impact communications protocol, which has
been designed to enable highly efficient low-bandwidth connections, are well positioned to provide extended enterprises with
the necessary means to exchange information over a wide variety of computing platforms.
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VARs
.
The VAR channel presents an additional sales force for our products and services. In addition to creating broader awareness
of our GO-Global products, VARs also provide integration and support services for our current and potential customers. Our
products allow VARs to offer a cost-effective competitive alternative for server-based, or thin-client, computing. In addition,
reselling our GO-Global products creates new revenue streams for our VARs.
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Strategic
Customer Relationships
We
believe it is important to maintain our current strategic alliances and to seek suitable new alliances in order to enhance shareholder
value, improve our technology and/or enhance our ability to penetrate relevant target markets. We also are focusing on strategic
relationships that have immediate revenue generating potential, strengthen our position in the server-based software market, add
complementary capabilities and/or raise awareness of our products and us. Our strategic relationships for all GO-Global products
include the following:
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We
are party to a non-exclusive distribution agreement with KitASP, a Japanese application service provider founded by companies
within Japan’s electronics and infrastructure industries, including NTT DATA, Mitsubishi Electric, Omron, RICS, Toyo
Engineering and Hitachi. Pursuant to this agreement, which was entered into in September 2011, KitASP has licensed our GO-Global
product line for inclusion in their software products, primarily their server-bundled application service provider software
solution. Either party may terminate the contract upon 60 days’ written notice to the other party.
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We
are party to a non-exclusive channel partner agreement with Elosoft Informatica Ltda, a South American distributor of various
technology products, including both hardware and software offerings, and related services. Under the terms of this agreement,
Elosoft has licensed both our GO-Global Windows Host and GO-Global for UNIX software for deployment to their distribution
network with both sub-distributors and end-users. Our agreement with Elosoft, which was originally entered into in February
2005, automatically renews annually. Either party may terminate the agreement upon 60 days’ written notice to the other
party.
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We
are party to a non-exclusive global purchasing agreement with Alcatel-Lucent, a telecommunications, network systems and services
company. Pursuant to this relationship, which started in July 1999, Alcatel-Lucent has licensed our GO-Global for UNIX software
for inclusion with their software products. Many of Alcatel-Lucent’s customers are using our server-based software to
remote access Alcatel-Lucent’s Network Management Systems (“NMS”) applications. Our current agreement with
Alcatel-Lucent expired in December 2012. Since December 2012 we have mutually agreed with Alcatel-Lucent to renew this contract
each year for additional one-year with terms consistent with those set forth in the expired contract. The current renewal
period expires in December 2018 .
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We
are party to a non-exclusive distribution agreement with GE Intelligent Platforms (“GE”), a U.S. based designer,
manufacturer, and supplier of products for industrial control and automation. GE has licensed our GO-Global product line for
inclusion in their automation and production management software products. Our agreement with GE, which was originally entered
into in December 2002, automatically renews annually. Either party may terminate the contract upon 60 days’ written
notice to the other party.
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In
August 2011 we entered into an agreement with GAD eG (“GAD”), a Germany based provider of information technology,
software development and data processing solutions for retail banks. GAD licensed our GO-Global for Windows software and embedded
it in their banking applications. This agreement covered a one-time transaction of theirs with a large German bank. The installation
of their software application generated significant product license sales for us in 2011 and 2012. We expect to have maintenance
sales in future years; however we do not expect to have future product licensing sales to GAD comparable to the 2012 and 2011
levels.
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In
January 2010, we entered into a non-exclusive reseller and distribution agreement with Information Delivery Systems, LLC (IDS),
a U.S. based publisher and hosting solutions provider for churches and educational institutions. IDS has licensed our GO-Global
for Windows software and has utilized it as the hosting engine for its cloud-based solutions. Our agreement with IDS automatically
renews annually. Either party may terminate the contract upon 60 days’ written notice to the other party.
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Sales,
Marketing and Support
Sales
and marketing efforts for our software products are directed at increasing product awareness and demand among ISVs, small to medium-sized
enterprises, departments within larger corporations and VARs who have a vertical orientation or are focused on Windows, UNIX and/or
Linux environments. Current marketing activities have been limited due to budget constraints but include Internet
marketing, direct response, promotional materials, and maintaining an active Web presence for marketing and sales purposes.
We
currently consider the following to be our most significant customers and partners. For the purposes of this table, “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 stocking orders of software licenses and prepaid software service fees.
|
|
2017
|
|
|
2016
|
|
Customer
|
|
%
Sales
|
|
|
%
Sales
|
|
Centric
System
|
|
|
6.9
|
%
|
|
|
5.0
|
%
|
Elosoft
|
|
|
16.9
|
%
|
|
|
11.0
|
%
|
IDS
|
|
|
5.5
|
%
|
|
|
3.6
|
%
|
Uniface
|
|
|
6.5
|
%
|
|
|
6.1
|
%
|
Total
|
|
|
35.8
|
%
|
|
|
25.7
|
%
|
Many
of our customers enter into, and periodically renew, maintenance contracts to ensure continued product updates and support. Currently,
we offer maintenance contracts for one, two, three and five-year periods.
Operations
We
perform all purchasing, order processing and shipping of products and accounting functions related to our operations. Although
we generally ship products electronically, when a customer requires us to physically ship them a disc, production of the disc,
printing of documentation and packaging are also accomplished through in-house means; however, since virtually all of our orders
are currently being fulfilled electronically, we do not maintain any prepackaged inventory. Additionally, we have relatively little
backlog at any given time; thus, we do not consider backlog a significant indicator of future performance.
Research
and Development
Our
2017 research and development efforts focused on further enhancing the functionality, performance and reliability of existing
products and developing new features. We invested $1,500,100 and $2,187,900 in research and development with respect to our software
products in 2017 and 2016, respectively. During 2017 and 2016, we did not capitalize any additional development investments incurred.
During 2017 and 2016, we determined that an impairment of $0 and $15,500, respectively, existed with certain capitalized software
development costs associated with our hopTo consumer product and recognized that cost as part of cost of revenue.
Competition
The
software markets in which we participate are highly competitive. Competitive factors in our market space include price, product
quality, functionality, product differentiation and the breadth and variety of product offerings and product features. We believe
that our products offer certain advantages over our competitors, particularly in product performance and market positioning.
GO-Global
competes with developers of conventional server-based software for the individual PC, as well as with other companies in the cloud
computing software market and the application virtualization software market. We believe our principal competitors in the cloud
computing software market include Citrix Systems, Inc., OpenText Communications, Ltd. and Microsoft Corporation. Citrix is an
established leading vendor of virtualization software, OpenText is an established market leader for remote access to UNIX applications
and Microsoft is an established leading vendor of Windows operating systems and services for servers.
Employees
As
of March 31, 2018, we had a full-time equivalent of 14.0 total employees, including 3 in marketing, sales and support, 8.5 in
research and development (which is inclusive of employees who may also perform customer service related activities), 2.0 in administration
and finance and 0.5 in our patent group. We believe our relationship with our employees is good. None of our employees are covered
by a collective bargaining agreement.
PRIVATE
PLACEMENTS
On
September 1, 2011, we entered into a securities purchase agreement with a limited number of institutional and retail investors,
all of whom were “accredited investors” within the meaning of Rule 501 promulgated under the Securities Act, pursuant
to which we issued and sold for cash 2,366,667 shares of our common stock at a purchase price of $3.00 per share, resulting in
our receipt of gross proceeds of $7.1 million (the “2011 Private Placement”). We also issued warrants to the investors
and the placement agent for no additional consideration, which expired on September 1, 2016.
On
June 17, 2013, we entered into, and subsequently consummated, an Exercise Agreement (the “Exercise Agreement”) with
five of the largest investors in our 2011 Private Placement, providing for the exercise for cash by such investors of warrants
to purchase an aggregate of 600,000 shares of our common stock. We received cash proceeds of $2.34 million as a result of the
warrants exercised. In consideration for the early exercise of these warrants, we issued to the exercising holders an aggregate
of 300,000 new warrants to purchase common stock at an exercise price of $15.00 per warrant, with a term of five years from issuance
(the “New Warrants”).
On
August 9, 2013, we consummated an offer to exercise warrants (the “Offer to Exercise”) made to holders of warrants
issued in the 2011 private placement who were not parties to the Exercise Agreement. We were obligated to conduct the Offer to
Exercise under the terms of the Exercise Agreement. In connection with the Offer to Exercise, warrants to purchase an aggregate
of 20,333 shares of our common stock were exercised for which we received cash proceeds of $64,000. In consideration for the early
exercise of these warrants, we issued an aggregate of 10,167 New Warrants at an exercise price of $15.00 per warrant, with a term
of five years from issuance.
On
January 7, 2014, we entered into a securities purchase agreement, with a limited number of accredited investors, pursuant to which
we issued and sold for cash units consisting of an aggregate of 753,333 shares of our common stock and warrants to purchase an
aggregate 376,667 shares of our common stock (the “2014 Private Placement”). The purchase price was $4.50 per unit.
The warrants have an exercise price of $6.00 per share and are exercisable until January 7, 2019. We received $3,390,000 from
this placement.
On
July 28, 2015, we sold an aggregate of 1,924,266 shares of common stock to certain accredited investors at a purchase price of
$1.21 per share. In addition, on that date, we sold an additional 181,653 shares of common stock at the same price to the following
officers and directors of the Company: Jean-Louis Casabonne (CFO and Interim CEO), current directors Eldad Eilam (former CEO),
Michael Brochu, and John Cronin, and former directors, Sam Auriemma and Jeremy Verba (such transactions, collectively, the “2015
Private Placement”). We derived gross proceeds of $2,550,500 from this placement.
This
prospectus relates to the sale or other disposition by the selling stockholders of (i) the common stock issuable or originally
issuable upon exercise of the warrants issued to the investors as a result of the Exercise Agreement and Offer to Exercise, (ii)
the common stock issuable or originally issuable upon exercise of the warrants issued to the investors in the 2014 Private Placement,
and (iii) the common stock issued to the investors in the 2015 Private Placement as well as shares of common stock issued to those
investors to the extent they purchased and own shares from the 2011 Private Placement, Exercise Agreement, Offer to Exercise and
2014 Private Placement.
THE
OFFERING
Common
stock outstanding prior to this offering:
|
|
9,804,400
shares (1)
|
|
|
|
Common
stock offered for sale by the selling stockholders:
|
|
4,182,312
shares (2)
|
|
|
|
Common
stock to be outstanding after this offering:
|
|
10,343,287
shares (3)
|
|
|
|
Use
of Proceeds:
|
|
We
will not receive any proceeds from the sale or other disposition of the 4,182,312 shares of common stock offered by
the selling stockholders under this prospectus. We will, however, receive up to $5,933,313 in the aggregate from the selling
stockholders if they exercise, for cash, unexercised warrants to acquire 538,887 shares of our common stock. To the extent
that we receive cash upon exercise of any warrants, we expect to use that cash for working capital and general corporate purposes.
|
|
|
|
Risk
Factors:
|
|
See
the section entitled “Risk Factors” beginning on page 9 and other information included in this prospectus and
Part I, Item 1A of our Form 10-K attached hereto as Appendix A for a discussion of factors you should consider before making
an investment decision.
|
|
|
|
OTC
QB symbol:
|
|
HPTO
|
(1)
|
As
of April 17, 2018. This number excludes 698,119 shares issuable upon the exercise of warrants and (ii) 315,167 shares of our
common stock, which are issuable upon exercise of our outstanding options. An additional 404,926 shares are reserved for future
grants under our stock option plans.
|
|
|
(2)
|
Includes
538,887 shares issuable upon the exercise of warrants held by the selling stockholders.
|
|
|
(3)
|
Based
upon our issued and outstanding shares of common stock as of April 17, 2018 and assumes the exercise of all 538,887 shares
issuable upon the exercise of warrants held by the selling stockholders that are being offered under this prospectus and that
no other warrants or options are exercised.
|
RISK
FACTORS
The
risks and uncertainties described below could materially and adversely affect our business, financial condition and results of
operations and could cause actual results to differ materially from our expectations. The risk factors described below include
the considerable risks associated with the current economic environment and the related potential adverse effects on our financial
condition and results of operations. You should read these risk factors in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in Item 7 and our Consolidated Financial Statements and related
notes in Item 8
in our Annual Report on Form 10-K for the year ended December 31, 2017
. There also may be other factors
that we cannot anticipate or that are not described in this report generally because we do not currently perceive them to be material.
Those factors could cause results to differ materially from our expectations.
There
have been no material changes in our risk factors from those set forth under Part I, Item 1A, “Risk Factors” in our
Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the Securities and Exchange Commission on
April 17, 2018.
Risks
Related to Our Business
We
have a history of operating and net losses.
We
have experienced significant operating and net losses since we began operations. Despite generating a modest net profit from operations
before provision for income taxes and net income for the year ended December 31, 2017 after years of losses, this improved financial
performance could reverse if our GO-Global business, our only source of revenue, declines or if we are unable to maintain control
over our expenses.
Our
revenue is typically generated from a limited number of significant customers.
A
material portion of our revenue, all of which is currently derived from our GO-Global products, during any reporting period is
typically generated from a limited number of significant customers, all of which are unrelated third parties. We categorize our
customers into three broad categories for revenue recognition purposes: stocking resellers, non-stocking resellers and direct
end users. If any of our significant non-stocking resellers or direct end users reduce their order level or fail to order during
a reporting period, our revenue could be materially adversely impacted because we recognize revenue on sales to these customers
upon product delivery, assuming all other revenue recognition criteria have been met.
Our
significant stocking resellers are typically ISVs who have bundled our products with theirs to sell as Web-enabled versions of
their products. These customers maintain inventories of our products for resale, and we do not recognize revenue until our products
are resold to end users, assuming all other revenue recognition criteria have been met. If these customers decide to maintain
a lower level of inventory in the future and/or they are unable to sell their inventory to end users as quickly as they have in
the past, our revenue and business could be materially adversely impacted.
If
we are unable to develop new products and enhancements to our existing products, our business, results of operations, financial
condition, and cash flows could be materially adversely impacted.
The
market for our products and services is characterized by:
|
●
|
frequent
new product and service introductions and enhancements;
|
|
|
|
|
●
|
rapid
technological change;
|
|
|
|
|
●
|
evolving
industry standards;
|
|
|
|
|
●
|
fluctuations
in customer demand; and
|
|
|
|
|
●
|
changes
in customer requirements.
|
Our
future success depends on our ability to continually enhance our current products and develop and introduce new features and capabilities
that our customers choose to buy. If we are unable to satisfy our customers’ demands and remain competitive with other products
that could satisfy their needs by introducing new features, capabilities and enhancements, our business, results of operations,
financial condition, and cash flows could be materially adversely impacted. Our future success could be hindered by, among other
factors:
|
●
|
the
amount of cash we have available to fund investment in new products and enhancements;
|
|
|
|
|
●
|
the
reduced level of research and development resources that the we now have available in the Company to perform the work necessary
to develop new features and capabilities
|
|
|
|
|
●
|
delays
in our introduction of new features, capabilities and/or enhancements of existing products;
|
|
|
|
|
●
|
delays
in market acceptance of new products and/or enhancements of existing products; and
|
|
|
|
|
●
|
a
competitor’s announcement of new products and/or product enhancements or technologies that could replace or shorten
the life cycle of our existing products.
|
For
example, sales of our GO-Global Windows Host software could be affected by the announcement from Microsoft of an intended release,
and the subsequent actual release, of a new Windows-based operating system, or an upgrade to a previously released Windows-based
operating system version. These new or upgraded systems may contain similar features to our products or they could contain architectural
changes that would temporarily prevent our products from functioning properly within a Windows-based operating system environment.
Despite
our generating net profit and positive cash flows from operations in fiscal 2017, we are subject to various liquidity risks.
We
have incurred significant net losses since our inception. Despite making a net profit of $600,600 for the fiscal year ended December
31 , 2017, as of that date we had an accumulated deficit of $81,849,200 and a working capital deficit of $1,947,800. Our
ability to continue to generate net profits and positive cash flows from operations is dependent on our ability to continue to
generate revenue from our legacy GO-Global business, which in turn is subject to a variety of risks, some of which are described
in this prospectus . As a very small company, we have limited ability to deploy new revenue increasing opportunities, and limited
flexibility to respond to unforeseen adverse developments, such as customer losses, adverse market developments or unanticipated
expenses. Although our current operating plan does not call for the raising of new capital, if we need to raise new capital, our
ability to do so is extremely limited given our very small market capitalization and the limited volume in the trading of our
common stock.
If
we do need to issue new equity, such issuances may be at a significant discount to market prices, would dilute existing stockholders
and may give the purchasers of new capital stock additional rights, preferences and privileges relative to existing stockholders.
There can be no assurance that additional capital necessary for any execution of our operations will be available on a timely
basis, on reasonable terms or at all.
Challenges
to Develop New Business May Reverse the Improvements in Our Finances
. Our management believes that any significant improvement
in the Company’s cash flow must result from increases in revenues from existing sources and from new revenue sources. The
Company’s ability to develop new revenues depends on many factors not in its control, or only partially in its control,
including available capital resources which affect the extent of its marketing activities and its research and development activities,
all of which are limited by the Company’s small size and revenue base. We cannot assure you that the resources that the
Company can devote to marketing and to research and development will be sufficient to increase its revenues to levels that will
enable it to maintain positive operating cash flow in the future.
Sales
of products within our GO-Global product families are likely to be our only source of revenue during 2018.
Due
to financial constraints we gradually suspended all development and sales of hopTo products over the course of the second half
of 2016. Sales of products within our GO-Global product families, and related enhancements, were our only source of revenue during
2017 and will continue to be our only source of revenue during 2018. The success, if any, of our new GO-Global releases may depend
on a number of factors, including market acceptance of the new GO-Global releases and our ability to manage the risks associated
with introducing such releases. Declines in demand for our GO-Global products could occur as a result of, among other factors:
|
●
|
lack
of success with our strategic partners;
|
|
|
|
|
●
|
new
competitive product releases and updates to existing competitive products;
|
|
|
|
|
●
|
decreasing
or stagnant information technology spending levels;
|
|
|
|
|
●
|
price
competition;
|
|
|
|
|
●
|
technological
changes; or
|
|
|
|
|
●
|
general
economic conditions in the markets in which we operate.
|
If
our customers do not continue to purchase GO-Global products as a result of these or other factors, our revenue would decrease
and our results of operations, financial condition, and cash flows would be adversely affected.
Any
growth in our business will come solely from GO-Global and our other assets, and not from the hopTo Work products. GO-Global is
not a high growth business.
As
of the fourth quarter of 2016, we effectively ceased all of our sales, marketing and R&D efforts for the hopTo products. hopTo
Work was our primary growth initiative. We hope to maintain our GO-Global business at or near current levels, and we will evaluate
opportunities for growing this business and for extracting value from our other assets as part of our business planning, but shareholders
and prospective shareholders should clearly understand that the growth opportunity we previously anticipated in the hopTo product
suite is not currently being pursued, and that our growth, if any, will be on a much lower scale.
Our
operating results in one or more future periods are likely to fluctuate significantly and may fail to meet or exceed the expectations
of investors.
Our
operating results are likely to fluctuate significantly in the future on a quarterly and annual basis due to a number of factors,
many of which are outside our control. Factors that could cause our operating results and therefore our revenues to fluctuate
include the following, among other factors:
|
●
|
our
ability to maximize the revenue opportunities of our patents;
|
|
|
|
|
●
|
variations
in the size of orders by our customers;
|
|
|
|
|
●
|
increased
competition; and
|
|
|
|
|
●
|
the
proportion of overall revenues derived from different sales channels such as distributors, original equipment manufacturers
(“OEMs”) and others.
|
In
addition, our royalty and license revenues are impacted by fluctuations in OEM licensing activity from quarter to quarter, which
may involve one-time orders from non-recurring customers, or customers who order infrequently. Our expense levels are based, in
part, on expected future orders and sales; therefore, if orders and sales levels are below expectations, our operating results
are likely to be materially adversely affected. Additionally, because significant portions of our expenses are fixed, a reduction
in sales levels may disproportionately affect our net financial results. Also, we may reduce prices and/or increase spending in
response to competition or to pursue new market opportunities. Because of these factors, our operating results in one or more
future periods may fail to meet or exceed the expectations of investors. In that event, the trading price of our common stock
would likely be adversely affected.
We
will encounter challenges in recruiting, hiring and retaining new personnel and/or replacements for any members of key management
or other personnel who depart. Our chief executive and financial officer serves us on a part-time basis.
Our
success and business strategy is dependent in large part on our ability to attract and retain key management and other personnel
in certain areas of our business. If any of these employees were to leave, we would need to attract and retain replacements for
them. We have lost employees, including at the officer level and in our new products engineering group, in the past. Without a
successful replacement, the loss of the services of one or more key members of our management group and other key personnel could
have a material adverse effect on our business.
With
the exception of the employment agreement we entered into with our former Chief Executive Officer during 2013 which was terminated
in July 2017, we do not have long-term employment agreements with any of our key personnel and any officer or other employee can
terminate their relationship with us at any time. We may also need to add key personnel in the future in order to successfully
implement our business strategies. The market for such qualified personnel is highly competitive and it includes other potential
employers whose financial resources for such qualified personnel are more substantial than ours. Consequently, we could find it
difficult to attract, assimilate or retain such qualified personnel in sufficient numbers to successfully implement our business
strategies.
We
have sought to match our expenses structure with business opportunities, but this creates risks. When we ceased our development
and sales efforts associated with our hopTo Work products, we re-evaluated our management needs. As a result, our current Chief
Executive Officer and Chief Financial Officer works for us on a part time basis. While we believe the smaller scale of our operations
makes this arrangement workable, and has reduced our expense structure, the arrangement nevertheless makes it more difficult for
the Company to evaluate and plan for growth opportunities. The Company has sought to address this challenge in various ways, including
relying on the considerable expertise of our Board of Directors and the moderate use of professional advisors. Even though the
Company has made considerable progress in the past fiscal year with a much reduced management staff, the Company and stockholders
should recognize that this arrangement limits the Company’s ability to respond to challenges and develop opportunities.
Should the Company revise its approach to management by hiring additional resources, this too, can create risks to the cost savings
we have achieved, if any anticipated business opportunities are not realized, as has occurred in the past with hopTo Work.
Our
failure to adequately protect our proprietary rights may adversely affect us.
Our
commercial success is dependent, in large part, upon our ability to protect our proprietary rights. We rely on a combination of
patent, copyright and trademark laws, as well as trade secrets, confidentiality provisions and other contractual provisions to
protect our proprietary rights. These measures afford only limited protection. We cannot assure you that measures we have taken
or may take in the future will be adequate to protect us from misappropriation or infringement of our intellectual property. Despite
our efforts to protect proprietary rights, it may be possible for unauthorized third parties to copy aspects of our products or
obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries do not protect our intellectual
property or other proprietary rights as fully as do the laws of the United States. Furthermore, we cannot assure you that the
existence of any proprietary rights will prevent the development of competitive products. The infringement upon, or loss of, any
proprietary rights, or the development of competitive products despite such proprietary rights, could have a material adverse
effect on our business.
Our
business significantly benefits from strategic relationships and there can be no assurance that such relationships will continue
in the future.
Our
business and strategy relies to a significant extent on our strategic relationships with other companies. There is no assurance
that we will be able to maintain or further develop any of these relationships or to replace them in the event any of these relationships
are terminated. In addition, any failure to renew or extend any license between any third party and us may adversely affect our
business.
We
rely on indirect distribution channels for our products and may not be able to retain existing reseller relationships or develop
new reseller relationships.
Our
GO-Global products are primarily sold through several distribution channels. An integral part of our strategy is to strengthen
our relationships with resellers such as OEMs, systems integrators, VARs, distributors and other vendors to encourage these parties
to recommend or distribute our products and to add resellers both domestically and internationally. We currently invest, and intend
to continue to invest, significant resources to expand our sales and marketing capabilities. We cannot assure you that we will
be able to attract and/or retain resellers to market our products effectively. Our inability to attract resellers and the loss
of any current reseller relationships could have a material adverse effect on our business, results of operations, financial condition,
and cash flows. Additionally, we cannot assure you that resellers will devote enough resources to provide effective sales and
marketing support to our products.
The
markets in which we participate are highly competitive and have more established competitors.
The
markets we participate in with GO-Global are intensely competitive, rapidly evolving and subject to continuous technological changes.
We expect competition to increase in each of these markets as other companies introduce additional competitive products. In order
to compete effectively, we must continually develop and market new and enhanced products and market those products at competitive
prices. As markets for our products continue to develop, additional companies, including companies in the computer hardware, software
and networking industries with significant market presence, may enter the markets in which we compete and further intensify competition.
A number of our current and potential competitors have longer operating histories, greater name recognition and significantly
greater financial, sales, technical, marketing and other resources than we do. We cannot give any assurance that our competitors
will not develop and market competitive products that will offer superior price or performance features, or that new competitors
will not enter our markets and offer such products. We believe that we will need to invest significant financial resources in
research and development to remain competitive in the future in each of the markets in which we compete. Such financial resources
may not be available to us at the time or times that we need them, or upon terms acceptable to us, or at all. We cannot assure
you that we will be able to establish and maintain a significant market position in the face of our competition and our failure
to do so would adversely affect our business.
Risks
Related to Our Common Stock
Our
stock is thinly traded and its price has been historically volatile.
Our
stock is thinly traded. As such, holders of our stock are subject to a high risk of illiquidity, e.g., you may not be able to
sell as many shares at the price you would like, or you may not be able to purchase as many shares at the price you would like,
due to the low average daily trading volume of our stock. Additionally, the market price of our stock has historically been volatile;
it has fluctuated significantly to date. The trading price of our stock is likely to continue to be highly volatile and subject
to wide fluctuations. Your investment in our stock could lose some or all of its value.
Future
sales of our common stock could adversely affect its price and our future capital-raising activities, and could involve the issuance
of additional equity securities, which would dilute current shareholder investments in our common stock and could result in lowering
the trading price of our common stock.
We
may sell securities in the public or private equity markets if and when conditions are favorable. Sales of substantial amounts
of common stock, or the perception that such sales could occur, could adversely affect the prevailing market price of our common
stock and our ability to raise capital. We may issue additional common stock in future financing transactions or as incentive
compensation for our management team and other key personnel, consultants and advisors. Issuing any equity securities would be
dilutive to the equity interests represented by our then-outstanding shares of common stock. The market price for our common stock
could decrease as the market takes into account the dilutive effect of any of these issuances. Furthermore, we may enter into
financing transactions and issue securities with rights and preferences senior to the rights and preferences of our common stock,
and we may issue securities at prices that represent a substantial discount to the market price of our common stock. A negative
reaction by investors and securities analysts to any discounted sale of our equity securities could result in a decline in the
trading price of our common stock.
We
have a significant number of outstanding warrants and options, and future sales of these shares could adversely affect the market
price of our common stock.
As
of December 31, 2017 and December 31, 2016, we had outstanding warrants for an aggregate of 698,119 shares of common stock, at
a weighted average exercise price of $10.02. As of December 31, 2017 and December 31, 2016, we had outstanding options exercisable
for an aggregate of 315,167 and 684,722 shares of common stock, respectively, at weighted average exercise prices of $2.30 and
$2.64 per share, respectively. The holders may sell these shares exercisable under warrants or options in the public markets from
time to time. In addition, if our stock price rises, more outstanding warrants and options will be “in-the-money”
and the holders may exercise their warrants and options and sell a large number of shares. This could cause the market price of
our common stock to decline.
In
addition, if our Proposed Settlement becomes final, then the exercise price of approximately 565,553 outstanding warrants included
in the above amounts, currently at a weighted average price of $10.77, will be reduced to $0.01 per share, and the duration of
such warrants, which are currently expiring between June 17, 2018 and January 7, 2019, will be extended to 5 years from the issuance
date. If such warrants were to be exercised, as we expect they would, that would result in dilution to existing shareholders who
do hold such warrants.
Our
common stock is quoted on the FINRA OTC Bulletin Board, which may have an unfavorable impact on our stock price and liquidity.
Our
common stock is currently quoted under the symbol “HPTO” on the OTC Bulletin Board market (“OTCBB”) operated
by FINRA (Financial Industry Regulatory Authority) and on the OTC Markets Group QB tier (“OTCQB”). Neither the OTCBB
nor the OTCQB is a “national securities exchange,” and in general, each is a significantly more limited market than
the markets operated by the New York Stock Exchange and NASDAQ. The quotation of our shares on the OTCBB and the OTCQB could result
in a less liquid market being available for existing and potential stockholders to trade shares of our common stock, which could
depress the trading price of our common stock and have a long-term adverse impact on our ability to raise capital in the future.
Because of the limited trading market for our common stock, and because of the significant price volatility, investors may not
be able to sell their shares of common stock when they want to do so.
Our
stock may lose access to a viable trading market
.
Given
the increasing cost and resource demands of being a public company, we may decide to “go dark,” or cease filing with
the SEC, by deregistering our securities, for a period of time until our assets and stockholder base are sufficient to warrant
public trading again. During such time, there would be a substantial decrease in disclosure by us of our operations and prospects,
and a substantial decrease in the liquidity in our common stock even though stockholders may still continue to trade our common
stock in the OTC market or “pink sheets.” The market’s interpretation of a company’s motivation for “going
dark” varies from cost savings, to negative changes in the firm’s prospects, to serving insider interests, which may
affect the overall price and liquidity of a company’s securities.
We
have never paid dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We
have never declared or paid dividends on our common stock, nor do we anticipate paying any cash dividends for the foreseeable
future. We currently intend to retain future earnings, if any, to finance the operations and expansion of our business. Any future
determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon the earnings,
financial condition, operating results, capital requirements and other factors as deemed necessary by our Board of Directors.
FINRA’s
sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
FINRA
has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds
for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial
status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there
is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA’s requirements
make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability
to buy and sell our stock and have an adverse effect on the market for our shares.
Provisions
in our Amended and Restated Certificate of Incorporation and Second Amended and Restated Bylaws and our Rights Agreement may prevent
or discourage third parties or our stockholders from attempting to replace our management or influencing significant decisions.
Provisions
in our Amended and Restated Certificate of Incorporation and Second Amended and Restated Bylaws may have the effect of delaying
or preventing a change in control of our company or our management, even if doing so would be beneficial to our stockholders.
These provisions include, but are not limited to, authorizing our Board of Directors to issue preferred stock without stockholder
approval and limiting the persons who may call special meetings of stockholders and providing that stockholders cannot take action
by written consent in lieu of a meeting. In addition, as described above under “Recent Developments”, the Rights Agreement
works by imposing a significant penalty upon any person or group (including a group of persons that are acting in concert with
each other) that acquires ten percent (10%) or more of the Common Shares without the approval of the Board. As a result, the overall
effect of the Rights Agreement and the issuance of the Rights may be to render more difficult or discourage a merger, tender or
exchange offer or other business combination involving the Company that is not approved by the Board. The Rights Agreement is
not intended to interfere with any merger, tender or exchange offer or other business combination approved by the Board. Nor does
the Rights Agreement prevent the Board from considering any offer that it considers to be in the best interest of its stockholders.
The Rights expire at or prior to the earlier of (i) February 16, 2021 or (ii) the redemption or exchange of the Rights as provided
for in the Rights Agreement. Together, these charter and contractual provisions could make the removal of management more difficult
and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common
stock.
USE
OF PROCEEDS
We
will not receive any proceeds from the sale or other disposition of the shares of common stock offered by the selling stockholders.
We will, however, receive the exercise price of any warrants exercised for cash. To the extent that we receive cash upon exercise
of any warrants, we expect to use that cash for working capital and general corporate purposes.
PRICE
RANGE OF OUR COMMON STOCK
Our
common stock is quoted on the OTC QB tier under the symbol “HPTO.”
The
following table sets forth, for the periods indicated, the high and low reported sales price of our common stock. Since March
27, 2003 our common stock has been quoted on the Over-the-Counter Bulletin Board. Our common stock is quoted under the symbol
“HPTO.” The amounts reflected in the following table are also adjusted to reflect the impact of the Reverse Stock
Split, which became effective in the stock market upon commencement of trading on January 28, 2016.
|
|
Fiscal
2017 *
|
|
|
Fiscal
2016 *
|
|
Quarter
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
First
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
|
$
|
1.74
|
|
|
$
|
0.71
|
|
Second
|
|
$
|
0.35
|
|
|
$
|
0.02
|
|
|
$
|
2.10
|
|
|
$
|
0.83
|
|
Third
|
|
$
|
0.12
|
|
|
$
|
0.04
|
|
|
$
|
1.29
|
|
|
$
|
0.03
|
|
Fourth
|
|
$
|
0.20
|
|
|
$
|
0.03
|
|
|
$
|
0.14
|
|
|
$
|
0.02
|
|
|
*
|
The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
|
On
March 26, 2018 there were approximately 122 holders of record of our common stock. Between January 1, 2018 and March 30, 2018
the high and low reported sales price of our common stock was $0.17 and $0.25, respectively, and on March 30, 2018 the closing
price of our common stock was $0.20.
DIVIDEND
POLICY
We
have never declared or paid dividends on our common stock, nor do we anticipate paying any cash dividends for the foreseeable
future. We currently intend to retain future earnings, if any, to finance the operations and expansion of our business. Any future
determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon the earnings,
financial condition, operating results, capital requirements and other factors as deemed necessary by the Board of Directors.
PROPERTIES
See
Part I, Item 2 of our Form 10-K, which is attached as Appendix A to and forms a part of this prospectus.
legal
proceedings
See
Part I, Item 3 of our Form 10-K which is attached as Appendix A to and forms a part of this prospectus.
FINANCIAL
STATEMENTS and supplementary data
See
Part II, Item 8 of our Form 10-K which is attached as Appendix A to and forms a part of this prospectus.
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
The
objective of this section is to help investors understand our views on our financial condition and results of operations. You
should read this discussion in conjunction with the audited consolidated financial statements and the related notes contained
in our Form 10-K for the year ended December 31, 2017, which is attached as Appendix A to this prospectus.
See
Part II, Item 7 of our Form 10-K, which is attached as Appendix A to and forms a part of this prospectus.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
See
Part III, Item 10 “
Directors, Executive Officers and Corporate Governance
” of our Form 10-K, which is attached
as Appendix A to and forms a part of this prospectus.
EXECUTIVE
COMPENSATION
See
Part III, Item 11 “
Executive Compensation
” of our Form 10-K, which is attached as Appendix A to and forms a
part of this prospectus.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See
Part III, Item 12 “
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
”
of our Form 10-K, which is attached as Appendix A to and forms a part of this prospectus.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
See
Part III, Item 13 “
Related Party Transactions
” and “
Director Independence
” of our Form 10-K,
which is attached as Appendix A to and forms a part of this prospectus.
SELLING
STOCKHOLDERS
On
September 1, 2011, in the 2011 Private Placement, we entered into a securities purchase agreement with a limited number of institutional
and retail investors, all of whom were “accredited investors” within the meaning of Rule 501 promulgated under the
Securities Act, pursuant to which we issued and sold for cash 2,366,667 shares of our common stock at a purchase price of $3.00
per share, resulting in our receipt of gross proceeds of $7.1 million. We also issued warrants to the investors for no additional
consideration, which expired on September 1, 2016.
On
June 17, 2013, we entered into, and subsequently consummated, the Exercise Agreement with five of the largest investors in the
2011 Private Placement, providing for the exercise for cash by such investors of warrants to purchase an aggregate of 600,000
shares of our common stock. We received cash proceeds of $2.34 million as a result of the warrants exercised. In consideration
for the early exercise of these warrants, we issued to the exercising holders an aggregate of 300,000 New Warrants to purchase
common stock at an exercise price of $15.00 per warrant, with a term of five years from issuance. On August 9, 2013, we consummated
the Offer to Exercise with holders of warrants issued in the 2011 Private Placement who were not parties to the Exercise Agreement.
We were obligated to conduct the Offer to Exercise under the terms of the Exercise Agreement. In connection with the Offer to
Exercise, warrants to purchase an aggregate of 20,333 shares of our common stock were exercised for which we received cash proceeds
of $64,000 and issued to participating warrant holders an aggregate of 10,167 New Warrants.
On
January 7, 2014, in the 2014 Private Placement, we entered into the 2014 Agreement, with a limited number of “accredited
investors” within the meaning of Rule 501 promulgated under the Securities Act, pursuant to which we issued and sold for
cash units consisting of an aggregate of 753,333 shares of our common stock and warrants to purchase an aggregate of 376,664 shares
of our common stock. The purchase price was $4.50 per unit. The warrants have an exercise price of $6.00 per share and are exercisable
until January 7, 2019. We received gross proceeds of $3,390,000 from this placement.
On
July 28, 2015, in the 2015 Private Placement, we sold an aggregate of 1,924,266 shares of common stock to a limited number of
“accredited investors” within the meaning of Rule 501 promulgated under the Securities Act at a purchase price of
$1.21 per share. In addition, on that date, we sold an additional 181,653 shares of common stock at the same price to Eldad Eilam
(former CEO), Jean-Louis Casabonne (CFO and Interim CEO), current directors - Eldad Eilam, John Cronin and Michael Brochu, and
former directors - Sam Auriemma, and Jeremy Verba.
We
are registering the resale or other disposition by the selling stockholders of certain common stock sold to the investors in the
offerings:
|
●
|
common
stock issuable or originally issuable upon exercise of the warrants issued to the investors as a result of the Exercise Agreement
and Offer to Exercise,
|
|
|
|
|
●
|
common
stock issuable or originally issuable upon exercise of the warrants issued to those investors participating in both the 2014
and 2015 Private Placements, and
|
|
|
|
|
●
|
common
stock issued to the investors in the 2015 Private Placement, as well as common stock issued to those investors in the Exercise
Agreement, Offer to Exercise, and 2014 Private Placement,
|
each
as required by the terms of registration rights agreements entered into between us and these selling stockholders. We have agreed
to pay all expenses and costs to comply with our obligation to register the selling stockholders’ shares of common stock.
We have also agreed to indemnify and hold harmless the selling stockholders against certain losses, claims, damages or liabilities,
joint or several, arising under the Securities Act.
The
information in the table and the footnotes to the table have been provided to us by the selling stockholders. The last column
of this table assumes the sale of all of the shares of common stock offered by this prospectus. The registration of the offered
shares does not mean that any or all of the selling stockholders will offer or sell any of these shares. Each selling stockholder’s
percentage of ownership of our outstanding shares in the table below, calculated as of April 17, 2018, is based upon 9,804,400
shares of common stock outstanding and as further adjusted to give effect to the offering as noted in the footnotes in the table
below. Except as set forth in the notes to this table, there is not nor has there been a material relationship between us and
any of the selling stockholders within the past three years.
Name
of Selling Stockholder
|
|
Common
Stock
Offered by Selling
Stockholder
|
|
|
Number
of Shares
Beneficially
Owned
|
|
|
Shares
Beneficially
Owned
After Offering (1)
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Percent
|
|
Michael
A. Brochu (2)
|
|
|
82,569
|
|
|
|
144,792
|
|
|
|
62,223
|
|
|
|
*
|
|
Jean-Louis
Casabonne (2)
|
|
|
8,256
|
|
|
|
82,525
|
|
|
|
74,269
|
|
|
|
*
|
|
John
Cronin (2)
|
|
|
20,642
|
|
|
|
82,865
|
|
|
|
62,223
|
|
|
|
*
|
|
Eldad
Eilam (2)
|
|
|
20,642
|
|
|
|
231,194
|
|
|
|
210,552
|
|
|
|
2.0
|
|
Neal
Goldman (3)
|
|
|
161,110
|
|
|
|
275,000
|
|
|
|
113,890
|
|
|
|
1.1
|
|
JMI
Holdings, LLC (2011 Family Series) (4)
|
|
|
952,604
|
|
|
|
952,604
|
|
|
|
—
|
|
|
|
*
|
|
Jon
Christopher Baker Family, LLC (5)
|
|
|
810,399
|
|
|
|
860,866
|
|
|
|
50,467
|
|
|
|
*
|
|
London
Family Trust, Robert S. London Trustee (6)
|
|
|
25,000
|
|
|
|
168,073
|
|
|
|
143,073
|
|
|
|
1.4
|
|
MPP
Holdings LLC
|
|
|
28,899
|
|
|
|
28,899
|
|
|
|
—
|
|
|
|
*
|
|
Novelty
Capital Partners GP LLC (9)
|
|
|
315,139
|
|
|
|
975,711
|
|
|
|
660,572
|
|
|
|
6.7
|
%
|
S.
and P. Auriemma Family Trust dated 12/16/1999
|
|
|
41,284
|
|
|
|
41,284
|
|
|
|
—
|
|
|
|
*
|
|
Special
Situations Technology Fund II, L.P. / AWM Investment Company (8)
|
|
|
707,754
|
|
|
|
707,754
|
|
|
|
—
|
|
|
|
*
|
|
Special
Situations Technology Fund, L.P. / AWM Investment Company (7)
|
|
|
143,093
|
|
|
|
143,093
|
|
|
|
—
|
|
|
|
*
|
|
Jeremy
E. Verba (2)
|
|
|
8,256
|
|
|
|
8,256
|
|
|
|
—
|
|
|
|
*
|
|
David
R. Wilmerding, III (8)
|
|
|
856,665
|
|
|
|
944,735
|
|
|
|
88,070
|
|
|
|
*
|
|
(1)
|
Assumes
shares of common stock outstanding following completion of this offering, based on (i) 9,804,400 shares of common stock outstanding
as of April 17, 2018 and (ii) assumes no other shares of common stock are issued by the Company or exercised under other warrants
or options for common stock.
|
|
|
(2)
|
Includes
the following shares of common stock issuable upon exercise of outstanding stock options: 57,911 stock options held by Mr.
Casabonne; and 62,200 stock options held by each of Messrs. Brochu and Cronin.
|
|
|
(3)
|
Neal
Goldman has sole voting and dispositive power with respect to 33,333 shares of our common stock and warrants to purchase 127,777
shares of our common stock.
|
|
|
(4)
|
Based
solely on information known to us, Charles E. Noell, III, John J. Moores and Bryant W. Burke share voting and dispositive
power over these shares by virtue of being members of El Camino Advisors, LLC, the manager of JMI Holdings, LLC (2011 Family
Series). JMI Holdings, LLC (2011 Family Series) owns 841,493 shares of our common stock and warrants to purchase 111,111 shares
of our common stock.
|
|
|
(5)
|
Based
on information contained in a Schedule 13G/A filed by Jon C. Baker on January 30, 2017, and information known to us, Mr. Baker
has sole voting and dispositive power with respect to 777,533 shares of our common stock and warrants to purchase 83,333 shares
of our common stock.
|
|
|
(6)
|
Consists
of warrants to purchase 25,000 shares of common stock. Robert S. London has voting and dispositive power over such shares.
|
|
|
(7)
|
Based
solely on information contained in a joint Schedule 13G/A filed by Austin Marxe, David Greenhouse and Adam Stettner on February
10, 2017. Such stockholders share voting and dispositive power over these shares by virtue of being the controlling principals
of AWM Investment Company, Inc. (“AWM”), and the members of SST Advisers, L.L.C. (“SST”). AWM acts
as investment advisor to each of Special Situations Technology Fund, L.P. (“Tech Fund”) and Special Situations
Technology Fund II, L.P. (“Tech Fund II”); SST is the general partner of each of Tech Fund and Tech Fund II. Tech
Fund owns 130,426 shares of our common stock and holds warrants to purchase 12,667 shares of our common stock. Tech Fund II
owns 628,754 shares of our common stock and holds warrants to purchase 79,000 shares of our common stock.
|
|
|
(8)
|
Based
on information contained in a Schedule 13G/A filed by David Wilmerding on February 1, 2017, and information known to us, Mr.
Wilmerding has sole voting and dispositive power with respect to 844,736 shares of our common stock and warrants to purchase
99,999 shares of our common stock.
|
|
|
(9)
|
Based
on information contained in a Schedule 13D filed on April 2, 2018 by Novelty Capital
Partners LP, Novelty Capital Partners GP LLC, Novelty Capital, LLC and Jonathan R. Skeels
who is the managing partner of Novelty Capital and has shared voting and dispositive
power.
|
PLAN
OF DISTRIBUTION
The
selling stockholders, which as used herein include donees, pledgees, transferees or other successors-in-interest selling shares
of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as
a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any
or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices
at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at
negotiated prices.
The
selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:
|
●
|
ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
|
|
|
●
|
block
trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block
as principal to facilitate the transaction;
|
|
|
|
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
|
|
|
●
|
an
exchange distribution in accordance with the rules of the applicable exchange;
|
|
|
|
|
●
|
privately
negotiated transactions;
|
|
|
|
|
●
|
short
sales effected after the date the registration statement of which this Prospectus is a part is declared effective by the SEC;
|
|
|
|
|
●
|
through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
|
|
|
●
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
|
|
|
|
|
●
|
a
combination of any such methods of sale; and
|
|
|
|
|
●
|
any
other method permitted by applicable law.
|
The
selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock
owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer
and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer
the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will
be the selling beneficial owners for purposes of this prospectus.
In
connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course
of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these
securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions
or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution
of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of
the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together
with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly
or through agents. We will not receive any of the proceeds from this offering.
The
selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under
the Securities Act, provided that they meet the criteria and conform to the requirements of that rule.
The
selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests
therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions,
concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities
Act. Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be
subject to the prospectus delivery requirements of the Securities Act.
To
the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase
prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with
respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.
In
order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only
through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has
been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied
with.
We
have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934
(the “Exchange Act”) may apply to sales of shares in the market and to the activities of the selling stockholders
and their affiliates. In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented
or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the
sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
We
have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state
securities laws, relating to the registration of the shares offered by this prospectus.
We
have agreed with the selling stockholders to keep the registration statement of which this prospectus constitutes a part effective
until the earlier of (1) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance
with the registration statement, Rule 144 under the 1933 Act, or otherwise in a transaction in which the transferee received unlegended
securities, and (2) the date on which all of the securities covered hereby are freely tradable without restriction and are replaced
with certificates not bearing restrictive legends.
DESCRIPTION
OF OUR SECURITIES
The
following is a brief description of our capital stock. This summary does not purport to be complete in all respects. This description
is subject to and qualified entirely by the terms of our amended and restated certificate of incorporation, as amended, or our
certificate of incorporation, and our second amended and restated bylaws, or our bylaws, copies of which have been filed with
the SEC and are also available upon request from us, and is also qualified by the General Corporation Law of the State of Delaware.
Common
Stock
We
are currently authorized to issue up to 195,000,000 shares of our common stock, $0.0001 par value, and 5,000,000 shares of preferred
stock, $0.01 par value. As of March 26, 2018, 9,804,400 shares of our common stock were issued and outstanding, and held of record
by 122 persons, and no shares of preferred stock were issued and outstanding.
Holders
of shares of our common stock are entitled to such dividends as may be declared from time to time by the board in its discretion,
on a ratable basis, out of funds legally available therefrom, and to a pro rata share of all assets available for distribution
upon liquidation, dissolution or other winding up of our affairs. All of the outstanding shares of our common stock are fully
paid and non-assessable.
On
January 27, 2016, we filed an amendment of our Amended and Restated Certificate of Incorporation, as amended, to effect a 1-for-15
reverse stock split of our common stock (the “Reverse Stock Split”). The Reverse Stock Split became effective in the
stock market upon commencement of trading on January 28, 2016. As a result of the Reverse Stock Split, every 15 shares of our
pre-Reverse Stock Split common stock were combined and reclassified into one share of our common stock. No fractional shares were
issued in connection with the Reverse Stock Split, and cash paid to stockholders for potential fractional shares was insignificant.
The number of shares of common stock subject to outstanding options, restricted stock units, warrants and convertible securities
were also reduced by a factor of 15 as of January 27, 2016. All historical share and per share amounts reflected throughout this
prospectus have been adjusted to reflect the Reverse Stock Split. The authorized number of shares and the par value per share
of our common stock were not affected by the Reverse Stock Split.
Warrants
The
material terms of the warrants issued by the Company are as follows:
|
●
|
warrants
to purchase an aggregate 376,667 shares of our common stock are exercisable at $6.00 per share and expire on January 7, 2019;
|
|
|
|
|
●
|
warrants
to purchase an aggregate 11,285 shares of our common stock are exercisable at $7.50 per share and expire on September 18,
2018;
|
|
|
|
|
●
|
warrants
to purchase an aggregate of 300,000 shares of our common stock are exercisable at $15.00 per share and expire on June 17,
2018; and
|
|
|
|
|
●
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warrants
to purchase an aggregate 10,167 shares of our common stock are exercisable at $15.00 per share and expire on August 9, 2018;
|
The
exercise prices of the warrants are subject to adjustment upon the occurrence of certain events, such as a split- up or combination
of our common stock and a reorganization or merger to which we are a party.
Preferred
Stock
Our
certificate of incorporation permits us to issue up to 5,000,000 shares of preferred stock in one or more series and with rights
and preferences that may be fixed or designated by our board of directors without any further action by our stockholders. On February
16, 2018, in connection with the adoption of the Rights Agreement (as defined below), we filed a Certificate of Designation authorizing
500,000 shares of Series A Junior Participating Preferred Stock. We currently have no shares of preferred stock outstanding.
Subject
to the limitations prescribed in our certificate of incorporation and under Delaware law, our certificate of incorporation authorizes
the board of directors, from time to time by resolution and without further stockholder action, to provide for the issuance of
shares of preferred stock, in one or more series, and to fix the designation, powers, preferences and other rights of the shares
and to fix the qualifications, limitations and restrictions thereof. Although our board of directors has no present intention
to issue any additional preferred stock, the issuance of preferred stock could adversely affect the rights of holders of our common
stock, including with respect to voting, dividends and liquidation, by issuing shares of preferred stock with certain voting,
conversion and/or redemption rights. Such issuance of preferred stock may have the effect of delaying, deferring or preventing
a change of control.
Anti-Takeover
Effects of Certain Provisions of Delaware Law and Our Charter Documents
The
following is a summary of certain provisions of Delaware law, our certificate of incorporation and our bylaws. This summary does
not purport to be complete and is qualified in its entirety by reference to the corporate law of Delaware and our certificate
of incorporation and bylaws.
Classified
Board of Directors; Removal
.
Pursuant to our certificate of incorporation, the number of directors is fixed by our board
of directors. Our directors are divided into three classes, each class to serve a three-year term and to consist as nearly as
possible of one third of the total number of directors. Vacancies on our board of directors may be filled by a majority of the
remaining members of the board of directors, even if less than a quorum, and a director may only be removed from office by stockholders
upon the approval of holders of at least 66 2/3% of the outstanding shares entitled to vote at an election of directors.
Stockholder
Meetings; Bylaws
.
Our certificate of incorporation provides that any action taken by our stockholders must be effected
at an annual or special meeting of stockholders and may not be taken by written consent instead of a meeting. In addition, our
certificate of incorporation provides that a special meeting of stockholders may be called only by the board of directors or the
holders of at least 50% of the outstanding shares of capital stock. Our bylaws may be amended either by the board of directors
or the holders of at least 66 2/3% of the entitled to vote at an election of directors.
Rights
Agreement.
On February 16, 2018, the Company entered into a Rights Agreement with American Stock Transfer & Trust,
LLC, as rights agent (the “Rights Agreement”). In connection with the adoption of the Rights Agreement, each stockholder
of the Company as of February 26, 2018 received one right for each outstanding share of common stock, which entitles the stockholder
to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock (the “Preferred
Stock”) at an exercise price of $1.00 per one one-thousandth of Preferred Stock. The Rights Agreement effectively imposes
a significant penalty upon any person or group that acquires ten percent or more of the shares of Common Stock without the approval
of the Board. As a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to render more difficult
or discourage a merger, tender or exchange offer or other business combination involving the Company that is not approved by the
Board.
Limitation
of Liability
As
permitted by the General Corporation Law of the State of Delaware, our certificate of incorporation provides that our directors
shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except
for liability:
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●
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for
any breach of the director’s duty of loyalty to us or our stockholders;
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●
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for
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
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●
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under
section 174 of the Delaware law, relating to unlawful payment of dividends or unlawful stock purchases or redemption of stock;
and
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●
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for
any transaction from which the director derives an improper personal benefit.
|
As
a result of this provision, we and our stockholders may be unable to obtain monetary damages from a director for breach of his
or her duty of care.
Our
certificate of incorporation provides for the indemnification of our directors and officers to the fullest extent authorized by,
and subject to the conditions set forth in the Delaware law.
Transfer
Agent
The
transfer agent for our common stock is American Stock Transfer & Trust Company, 6201 15th Avenue, Brooklyn, New York 10038.
LEGAL
MATTERS
The
validity of the common stock being offered hereby has been passed upon by Manatt, Phelps & Phillips, LLP, Los Angeles, California.
MPP Holdings, LLC, an affiliate of Manatt, Phelps & Phillips, LLP, holds 28,899 shares of common stock of the Company.
EXPERTS
The
consolidated financial statements of the Company at December 31, 2017 and 2016, and for each of the years in the two-year period
ended December 31, 2017, have been included herein in reliance upon the report of Macias Gini & O’Connell LLP, independent
registered public accounting firm, appearing elsewhere herein, and upon authority of said firm as experts in accounting and auditing.
The report contains an explanatory paragraph that the Company has incurred losses from operations, an accumulated deficit, a working
capital deficit, and needs to raise additional funds to meet short and long-term operational requirements all of which raise substantial
doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that
result from the outcome of this uncertainty.
WHERE
YOU CAN FIND MORE INFORMATION
We
are subject to the informational requirements of the Securities Exchange Act of 1934 and, therefore, we file annual, quarterly
and current reports, proxy statements and other information with the Securities and Exchange Commission. Copies of such periodic
reports, proxy statements and other information are available for inspection without charge at the public reference room maintained
by the SEC, located at 100 F Street, N.E., Washington, D.C. 20549, and copies of all or any part of these filings may be obtained
from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information
about the public reference room. The SEC also maintains an Internet web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov.
These
filings and other documents are available and may be accessed on our website at www.hopto.com/investors. You may request a copy
of these filings at no cost, by writing or calling hopTo Inc., Attention: Secretary, 6 Loudon Road, Suite 200, Concord, NH 03301,
408.688.2674.
We
make our website content available for information purposes only. It should not be relied upon for investment purposes, nor is
it incorporated by reference in this prospectus.
APPENDIX
A
ANNUAL
REPORT ON FORM 10-K FOR THE
FISCAL
YEAR ENDED DECEMBER 31, 2017
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2017
Commission
File Number: 0-21683
hopTo
Inc.
(Exact
name of Registrant as specified in its charter)
Delaware
|
|
13-3899021
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
Number)
|
6
Loudon Road, Suite 200
Concord,
New Hampshire 03301
(Address
of principal executive offices)
(800)
472-7466
(408)
688-2674
(Registrant’s
telephone number)
Securities
registered pursuant to Section 12(b) of the Exchange Act: None
Securities
registered pursuant to Section 12(g) of the Exchange Act: (1) Common Stock, $0.0001 par value; and (2) Preferred Stock Purchase
Rights
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
[ ]
No [X]
Indicate
by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
[ ]
No [X]
Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate
by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting
company, or emerging growth company. See 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 [X] Smaller reporting
company
[ ]
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 June 30, 2017, the aggregate market value of the Registrant’s common stock held by non-affiliates was $939,577.
As
of March 31, 2018, there were outstanding 9,804,400 shares of the Registrant’s common stock.
hopTo
Inc
.
ANNUAL
REPORT ON FORM 10-K
TABLE
OF CONTENTS
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 future results of operations or financial position are forward-looking statements. Such statements are based on management’s
current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ significantly
from those described in the forward looking statements. Factors that may cause such a difference include, but are not limited
to, those discussed in Item 1A. “Risk Factors,” as well as those discussed elsewhere in this report. Statements included
in this report are based upon information known to us as of the date that this report is filed with the Securities and Exchange
Commission (the “SEC”), and we assume no obligation to update or alter our forward-looking statements made in this
report, whether as a result of new information, future events or otherwise, except as otherwise required by applicable federal
securities laws.
PART
I
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.
Since
2012 we have also been developing several products in the field of software productivity for mobile devices such as tablets and
smartphones, which have been marketed under the hopTo brand. However, as of Q4 2016, we have effectively ceased all of our sales,
marketing and R&D efforts for the hopTo products, and at this time we do not expect any meaningful revenues from these products
in the foreseeable future.
Except
for the sale of 7 patents sold to Salesforce.com during the fourth quarter of 2017, we own all hopTo-related IP including source-code,
related patents, and the relevant trademarks. We continue to believe that we may be able to extract value from these assets and
are currently working to do so at this time. For detailed information on the hopTo products and technologies, please refer to
our Annual Report on form 10-K for the year ended December 31, 2015, which was filed with the SEC on March 30, 2016 as well as
our other SEC filings which are available at
www.sec.gov
. Such filings are being noted for historical information only;
unless expressly noted, they are not incorporated herein by reference.
The
hopTo products were originally marketed to consumers and were later also marketed to small and medium sized businesses and enterprise
level customers under the name hopTo Work. hopTo Work allows customers to instantly transform their legacy applications to become
touch friendly on modern mobile devices. During 2015 and 2016 we also worked to integrate hopTo Work with certain software products
offered by Citrix Systems.
Over
the years, we have also made significant investments in intellectual property (“IP”). We have filed many patents designed
to protect the new technologies embedded in hopTo, although we are not currently pursuing additional patents.
Recent
Developments
Rights
Agreement
As
previously disclosed, on February 16, 2018, we entered into a Rights Agreement (the “Rights Agreement”) with American
Stock Transfer & Trust Company, LLC, as rights agent (the “Rights Agent”). Details of the plan, including a copy
of the Rights Agreement, can be found in the Form 8-A that the Company filed with the SEC on February 16, 2018.
In
connection with the adoption of the Rights Agreement and pursuant to its terms, the Company’s Board of Directors (the “Board”)
authorized and declared a dividend distribution of one right (a “Right”) for each outstanding share of the common
stock, $0.0001 par value per share (the “Common Stock”), of the Company to stockholders of record at the close of
business on February 26, 2018 (the “Record Date”). Each Right entitles the registered holder to purchase from the
Company one one-thousandth of a share of the Series A Junior Participating Preferred Stock, $0.01 par value per share (the “Preferred
Stock”), of the Company at an exercise price of $1.00 per one one-thousandth of a Preferred Share, subject to adjustment
(the “Exercise Price”). The complete terms of the Rights are set forth in the Rights Agreement (the “Rights
Agreement”).
Generally,
the Rights Agreement works by imposing a significant penalty upon any person or group (including a group of persons that are acting
in concert with each other) that acquires ten percent (10%) or more of the Common Shares without the approval of the Board. As
a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to render more difficult or discourage
a merger, tender or exchange offer or other business combination involving the Company that is not approved by the Board. The
Rights Agreement is not intended to interfere with any merger, tender or exchange offer or other business combination approved
by the Board. Nor does the Rights Agreement prevent the Board from considering any offer that it considers to be in the best interest
of its stockholders. The Rights expire at or prior to the earlier of (i) February 16, 2021 or (ii) the redemption or exchange
of the Rights as provided for in the Rights Agreement.
Proposed
Liquidated Damages Settlement
On
March 27, 2018, the Company entered a non-binding term sheet for the settlement of certain potential liquidated damages resulting
from delays in filing registration statements for shares of our common stock and shares of our common stock underlying warrants
for certain private placements that the Company closed in 2013 and 2015. We refer to this as the Proposed Settlement. The Proposed
Settlement involves no cash payments or cash commitments by the Company but is expected to include the issuance of new, five year,
penny exercise, common stock warrants in exchange for existing warrants currently held by the affected shareholders. The Proposed
Settlement, if it becomes final, will not result in an increase in the total number of warrants held by these shareholders or
the total number of warrants outstanding. Although subject to completion of final definitive documentation and there is no guarantee
of any agreement being reached, the Company believes that this transaction will be completed in the next 45 days.
Corporate
Background
hopTo
Inc., or the Company, is a Delaware corporation, founded in May 1996. Our headquarters are located at 6 Loudon Road, Suite 200,
Concord, NH 03301, our toll-free phone number is 1-800-472-7466, and our phone number for local and international calls is 408-688-2674.
We also have remote employees located in various states, as well as internationally in the United Kingdom and Israel. Our corporate
Internet Website is http://www.hopTo.com. The information on our Website is not part of this Annual Report on Form 10-K.
Our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed
with or furnished to the SEC under sections 13(a) or 15(d) of the Securities Exchange Act of 1934 are made available free of charge
on our corporate Internet Website investor webpage at
www.hopto.com/investors
(click the “Financial Reporting”
link and then the “SEC Filings” link) as soon as reasonably practicable after such reports are electronically filed
with or furnished to the SEC.
Our
Intellectual Property
We
believe that IP is a business tool that potentially maximizes our competitive advantages and product differentiation, grows revenue
opportunities, encourages collaboration with key business partners, and protects our long-term growth opportunities. Strategic
IP development is therefore a critical component of our overall business strategy. It is a business function that consistently
interacts with our research and development, product development, and marketing initiatives to generate further value from those
operations.
We
rely primarily on trade secret protection, copyright law, confidentiality, and proprietary information agreements to protect our
proprietary technology and registered trademarks. Despite our precautions, it may be possible for unauthorized third parties to
copy portions of our products, or to obtain information we regard as proprietary. The loss of any material trade secret, trademark,
trade name or copyright could have a material adverse effect on our results of operations and financial condition. We intend to
defend our proprietary technology rights; however, we cannot give any assurance that our efforts to protect our proprietary technology
rights will be successful.
We
also currently hold rights to patents but are not currently pursuing additional patent applications.
We
do not believe our products infringe on the rights of any third parties, but we can give no assurance that third parties will
not assert infringement claims against us in the future, or that any such assertion will not result in costly litigation or require
us to obtain a license to proprietary technology rights of such parties.
ipCapital
Group, Inc.
On
October 11, 2011, we engaged ipCapital Group, Inc. (“ipCapital”), an affiliate of John Cronin, who is one of our directors,
to assist us in the execution of our strategic decision to significantly strengthen, grow and commercially exploit our intellectual
property assets. Our engagement agreement with ipCapital, which has been amended three times, affords us the right to request
ipCapital to perform a number of diverse services, employing its proprietary processes and methodologies, to facilitate our ability
to identify and extract from our current intellectual property base new inventions, potential patent applications, and marketing
and licensing opportunities. See the Exhibits referred to in Item 15 in this Form 10-K for further details on the ipCapital engagement
agreement and amendments thereto.
As
a result of ipCapital’s work under the engagement agreement, as amended, as of March 31, 2018, 173 new patent applications
have been filed. Of these 173 applications, 53 patents have been granted by the United States Patent and Trademark Office (“USPTO”).
Due to financial constraints on our operations, we have suspended patent prosecution activity other than to pay issuance and maintenance
fees for patents already approved by the USPTO. We do not expect to file more applications in 2018.
ipCapital
Licensing Company I, LLC
In
February 2013, we entered into an IP Brokerage agreement with ipCapital Licensing Company I, LLC (“ipCLC”) (the “IP
Brokerage Agreement”). At the time that we entered into this agreement, John Cronin was a partner at ipCLC. He is no longer
affiliated with ipCLC. Pursuant to the IP Brokerage Agreement, we engaged ipCLC, on a no-retainer basis, to identify and present
us with candidates who may be seeking to acquire a certain limited group of our patents unrelated to our current business strategy.
In June 2016, we determined that the IP Brokerage Agreement is no longer in effect since ipCLC no longer exists as an entity.
The
GO-Global Software Products
Our
GO-Global product offerings can be categorized into product families as follows:
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GO-Global
for Windows:
Allows access to Windows-based applications from remote locations and a variety of connections, including
the Internet connections. The Windows applications run on a central computer server along with GO-Global Windows Host software.
This allows the applications to be accessed remotely via GO-Global Client software, or a Web browser, over many types of data
connections, regardless of the bandwidth or operating system. Web-enabling is achieved without modifying the underlying application’s
code or requiring costly add-ons.
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GO-Global
for UNIX:
Allows access to UNIX and Linux-based applications from remote locations and a variety of connections, including
the Internet and connections. The UNIX/Linux applications run on a central computer server along with the GO-Global for UNIX
Host software. This allows the applications to be accessed and run remotely via GO-Global Client software or a Web browser
without having to modify the application’s code or requiring costly add-ons.
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GO-Global
Client:
We offer a range of GO-Global Client software that allows remote application access from a wide variety of
local, remote and mobile platforms, including Windows, Linux, UNIX, Apple OS X and iOS, and Google Android. We plan to continue
to develop GO-Global Client software for new portable and mobile devices.
|
Target
Markets
The
target market for our GO-Global products includes small to medium-sized companies, departments within large corporations, governmental
and educational institutions, independent software vendors (ISVs) and value-added resellers (VARs). Our software enables these
targeted organizations to move their existing applications to the public cloud and provide SaaS, or move them to a secure, private
cloud environment. By using our software, organizations can give their remote users, partners and customers access to their native
applications. Our software is designed to allow these organizations and enterprises to tailor the configuration of the end-user
device for a particular purpose, rather than following a “one PC fits all” high-cost ownership model. We believe our
opportunities are as follows:
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ISVs
.
By Web-enabling their applications through use of our products, we believe that our ISV customers can accelerate their
time to market without the risks and delays associated with rewriting applications or using other third-party software, thereby
opening up additional revenue opportunities and securing greater satisfaction and loyalty from their customers.
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Our
technology integrates with their existing software applications without sacrificing the full-featured look and feel of such
applications, thereby providing ISVs with out-of-the-box Web-enabled applications with their own branding for licensed, volume
distribution to their enterprise customers. We further believe that ISVs that effectively address the Web computing needs
of customers and the emerging application service provider market will have a competitive advantage in the marketplace.
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Enterprises
Employing a Mix of UNIX, Linux, Macintosh and Windows
. Small to medium-sized companies that utilize a mixed computing
environment require cross-platform connectivity software, like GO-Global Host and/or GO-Global Gateway, which will allow users
to access applications from different client devices. We believe that our server-based software products will significantly
reduce the cost and complexity of connecting PCs to various applications.
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Enterprises
with Remote Computer Users and/or Extended Markets
. We believe that remote computer users and enterprises with extended
markets comprise two of the faster growing market segments in the computing industry. Extended enterprises permit access to
their computing resources by their customers, suppliers, distributors and other partners, thereby affording them manufacturing
flexibility, increased speed-to-market, and enhanced customer satisfaction. For example, extended enterprises may maintain
decreased inventory via just-in-time, vendor-managed inventory and related techniques, or they may license their proprietary
software application on a “pay-per-use” model, based on actual time usage by the user. The early adoption of extended
enterprise software may be driven in part by an organization’s need to exchange information over a wide variety of computing
platforms. We believe that our server-based software products, along with our low-impact communications protocol, which has
been designed to enable highly efficient low-bandwidth connections, are well positioned to provide extended enterprises with
the necessary means to exchange information over a wide variety of computing platforms.
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VARs
.
The VAR channel presents an additional sales force for our products and services. In addition to creating broader awareness
of our GO-Global products, VARs also provide integration and support services for our current and potential customers. Our
products allow VARs to offer a cost-effective competitive alternative for server-based, or thin-client, computing. In addition,
reselling our GO-Global products creates new revenue streams for our VARs.
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Strategic
Customer Relationships
We
believe it is important to maintain our current strategic alliances and to seek suitable new alliances in order to enhance shareholder
value, improve our technology and/or enhance our ability to penetrate relevant target markets. We also are focusing on strategic
relationships that have immediate revenue generating potential, strengthen our position in the server-based software market, add
complementary capabilities and/or raise awareness of our products and us. Our strategic relationships for all GO-Global products
include the following:
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We
are party to a non-exclusive distribution agreement with KitASP, a Japanese application service provider founded by companies
within Japan’s electronics and infrastructure industries, including NTT DATA, Mitsubishi Electric, Omron, RICS, Toyo
Engineering and Hitachi. Pursuant to this agreement, which was entered into in September 2011, KitASP has licensed our GO-Global
product line for inclusion in their software products, primarily their server-bundled application service provider software
solution. Either party may terminate the contract upon 60 days’ written notice to the other party.
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We
are party to a non-exclusive channel partner agreement with Elosoft Informatica Ltda, a South American distributor of various
technology products, including both hardware and software offerings, and related services. Under the terms of this agreement,
Elosoft has licensed both our GO-Global Windows Host and GO-Global for UNIX software for deployment to their distribution
network with both sub-distributors and end-users. Our agreement with Elosoft, which was originally entered into in February
2005, automatically renews annually. Either party may terminate the agreement upon 60 days’ written notice to the other
party.
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We
are party to a non-exclusive global purchasing agreement with Alcatel-Lucent, a telecommunications, network systems and services
company. Pursuant to this relationship, which started in July 1999, Alcatel-Lucent has licensed our GO-Global for UNIX software
for inclusion with their software products. Many of Alcatel-Lucent’s customers are using our server-based software to
remote access Alcatel-Lucent’s Network Management Systems applications. Our current agreement with Alcatel-Lucent expired
in December 2012. Since December 2012 we have mutually agreed with Alcatel-Lucent to renew this contract each year for additional
one-year with terms consistent with those set forth in the expired contract. The current renewal period expires in December
2018.
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We
are party to a non-exclusive distribution agreement with GE Intelligent Platforms (“GE”), a U.S. based designer,
manufacturer, and supplier of products for industrial control and automation. GE has licensed our GO-Global product line for
inclusion in their automation and production management software products. Our agreement with GE, which was originally entered
into in December 2002, automatically renews annually. Either party may terminate the contract upon 60 days’ written
notice to the other party.
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In
August 2011 we entered into an agreement with GAD eG (“GAD”), a Germany based provider of information technology,
software development and data processing solutions for retail banks. GAD licensed our GO-Global for Windows software and embedded
it in their banking applications. This agreement covered a one-time transaction of theirs with a large German bank. The installation
of their software application generated significant product license sales for us in 2011 and 2012. We expect to have maintenance
sales in future years; however we do not expect to have future product licensing sales to GAD comparable to the 2012 and 2011
levels.
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In
January 2010, we entered into a non-exclusive reseller and distribution agreement with Information Delivery Systems, LLC (IDS),
a U.S. based publisher and hosting solutions provider for churches and educational institutions. IDS has licensed our GO-Global
for Windows software and has utilized it as the hosting engine for its cloud-based solutions. Our agreement with IDS automatically
renews annually. Either party may terminate the contract upon 60 days’ written notice to the other party.
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Sales,
Marketing and Support
Sales
and marketing efforts for our software products are directed at increasing product awareness and demand among ISVs, small to medium-sized
enterprises, departments within larger corporations and VARs who have a vertical orientation or are focused on Windows, UNIX and/or
Linux environments. Current marketing activities have been limited due to budget constraints but include Internet marketing, direct
response, promotional materials, and maintaining an active Web presence for marketing and sales purposes.
We
currently consider the following to be our most significant customers and partners. For the purposes of this table, “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 stocking orders of software licenses and prepaid software service fees.
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2017
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2016
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Customer
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%
Sales
|
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%
Sales
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|
Centric System
|
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6.9
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%
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5.0
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%
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Elosoft
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16.9
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%
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11.0
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%
|
IDS
|
|
|
5.5
|
%
|
|
|
3.6
|
%
|
Uniface
|
|
|
6.5
|
%
|
|
|
6.1
|
%
|
Total
|
|
|
35.8
|
%
|
|
|
25.7
|
%
|
Many
of our customers enter into, and periodically renew, maintenance contracts to ensure continued product updates and support. Currently,
we offer maintenance contracts for one, two, three and five-year periods.
Operations
We
perform all purchasing, order processing and shipping of products and accounting functions related to our operations. Although
we generally ship products electronically, when a customer requires us to physically ship them a disc, production of the disc,
printing of documentation and packaging are also accomplished through in-house means; however, since virtually all of our orders
are currently being fulfilled electronically, we do not maintain any prepackaged inventory. Additionally, we have relatively little
backlog at any given time; thus, we do not consider backlog a significant indicator of future performance.
Research
and Development
Our
2017 research and development efforts focused on further enhancing the functionality, performance and reliability of existing
products and developing new features. We invested $1,500,100 and $2,187,900 in research and development with respect to our software
products in 2017 and 2016, respectively. During 2017 and 2016, we did not capitalize any additional development investments incurred.
During 2017 and 2016, we determined that an impairment of $0 and $15,500, respectively, existed with certain capitalized software
development costs associated with our hopTo consumer product and recognized that cost as part of cost of revenue.
Competition
The
software markets in which we participate are highly competitive. Competitive factors in our market space include price, product
quality, functionality, product differentiation and the breadth and variety of product offerings and product features. We believe
that our products offer certain advantages over our competitors, particularly in product performance and market positioning.
GO-Global
competes with developers of conventional server-based software for the individual PC, as well as with other companies in the cloud
computing software market and the application virtualization software market. We believe our principal competitors in the cloud
computing software market include Citrix Systems, Inc., OpenText Communications, Ltd. and Microsoft Corporation. Citrix is an
established leading vendor of virtualization software, OpenText is an established market leader for remote access to UNIX applications
and Microsoft is an established leading vendor of Windows operating systems and services for servers.
Employees
As
of March 31, 2018, we had a full-time equivalent of 14.0 total employees, including 3 in marketing, sales and support, 8.5 in
research and development (which is inclusive of employees who may also perform customer service related activities), 2.0 in administration
and finance and 0.5 in our patent group. We believe our relationship with our employees is good. None of our employees are covered
by a collective bargaining agreement.
The
risks and uncertainties described below could materially and adversely affect our business, financial condition and results of
operations and could cause actual results to differ materially from our expectations. The risk factors described below include
the considerable risks associated with the current economic environment and the related potential adverse effects on our financial
condition and results of operations. You should read these risk factors in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in Item 7 and our Consolidated Financial Statements and related
notes in Item 8. There also may be other factors that we cannot anticipate or that are not described in this report generally
because we do not currently perceive them to be material. Those factors could cause results to differ materially from our expectations.
Risks
Related to Our Business
We
have a history of operating and net losses.
We
have experienced significant operating and net losses since we began operations. Despite generating a modest net profit from operations
before provision for income taxes and net income for the year ended December 31, 2017 after years of losses, this improved financial
performance could reverse if our GO-Global business, our only source of revenue, declines or if we are unable to maintain control
over our expenses.
Our
revenue is typically generated from a limited number of significant customers.
A
material portion of our revenue, all of which is currently derived from our GO-Global products, during any reporting period is
typically generated from a limited number of significant customers, all of which are unrelated third parties. We categorize our
customers into three broad categories for revenue recognition purposes: stocking resellers, non-stocking resellers and direct
end users. If any of our significant non-stocking resellers or direct end users reduce their order level or fail to order during
a reporting period, our revenue could be materially adversely impacted because we recognize revenue on sales to these customers
upon product delivery, assuming all other revenue recognition criteria have been met.
Our
significant stocking resellers are typically ISVs who have bundled our products with theirs to sell as Web-enabled versions of
their products. These customers maintain inventories of our products for resale, and we do not recognize revenue until our products
are resold to end users, assuming all other revenue recognition criteria have been met. If these customers decide to maintain
a lower level of inventory in the future and/or they are unable to sell their inventory to end users as quickly as they have in
the past, our revenue and business could be materially adversely impacted.
If
we are unable to develop new products and enhancements to our existing products, our business, results of operations, financial
condition, and cash flows could be materially adversely impacted.
The
market for our products and services is characterized by:
|
●
|
frequent
new product and service introductions and enhancements;
|
|
|
|
|
●
|
rapid
technological change;
|
|
|
|
|
●
|
evolving
industry standards;
|
|
|
|
|
●
|
fluctuations
in customer demand; and
|
|
|
|
|
●
|
changes
in customer requirements.
|
Our
future success depends on our ability to continually enhance our current products and develop and introduce new features and capabilities
that our customers choose to buy. If we are unable to satisfy our customers’ demands and remain competitive with other products
that could satisfy their needs by introducing new features, capabilities and enhancements, our business, results of operations,
financial condition, and cash flows could be materially adversely impacted. Our future success could be hindered by, among other
factors:
|
●
|
the
amount of cash we have available to fund investment in new products and enhancements;
|
|
|
|
|
●
|
the
reduced level of research and development resources that the we now have available in the Company to perform the work necessary
to develop new features and capabilities
|
|
|
|
|
●
|
delays
in our introduction of new features, capabilities and/or enhancements of existing products;
|
|
|
|
|
●
|
delays
in market acceptance of new products and/or enhancements of existing products; and
|
|
|
|
|
●
|
a
competitor’s announcement of new products and/or product enhancements or technologies that could replace or shorten
the life cycle of our existing products.
|
For
example, sales of our GO-Global Windows Host software could be affected by the announcement from Microsoft of an intended release,
and the subsequent actual release, of a new Windows-based operating system, or an upgrade to a previously released Windows-based
operating system version. These new or upgraded systems may contain similar features to our products or they could contain architectural
changes that would temporarily prevent our products from functioning properly within a Windows-based operating system environment.
Despite
our generating net profit and positive cash flows from operations in fiscal 2017, we are subject to various liquidity risks.
We
have incurred significant net losses since our inception. Despite making a net profit of $600,600 for the fiscal year ended December
21, 2017, as of that date we had an accumulated deficit of $81,849,200 and a working capital deficit of $1,947,800. Our ability
to continue to generate net profits and positive cash flows from operations is dependent on our ability to continue to generate
revenue from our legacy GO-Global business, which in turn is subject to a variety of risks, some of which are described in this
Annual Report on Form 10-K. As a very small company, we have limited ability to deploy new revenue increasing opportunities, and
limited flexibility to respond to unforeseen adverse developments, such as customer losses, adverse market developments or unanticipated
expenses. Although our current operating plan does not call for the raising of new capital, if we need to raise new capital, our
ability to do so is extremely limited given our very small market capitalization and the limited volume in the trading of our
common stock.
If
we do need to issue new equity, such issuances may be at a significant discount to market prices, would dilute existing stockholders
and may give the purchasers of new capital stock additional rights, preferences and privileges relative to existing stockholders.
There can be no assurance that additional capital necessary for any execution of our operations will be available on a timely
basis, on reasonable terms or at all.
Challenges
to Develop New Business May Reverse the Improvements in Our Finances
. Our management believes that any significant improvement
in the Company’s cash flow must result from increases in revenues from existing sources and from new revenue sources. The
Company’s ability to develop new revenues depends on many factors not in its control, or only partially in its control,
including available capital resources which affect the extent of its marketing activities and its research and development activities,
all of which are limited by the Company’s small size and revenue base. We cannot assure you that the resources that the
Company can devote to marketing and to research and development will be sufficient to increase its revenues to levels that will
enable it to maintain positive operating cash flow in the future.
Sales
of products within our GO-Global product families are likely to be our only source of revenue during 2018.
Due
to financial constraints we gradually suspended all development and sales of hopTo products over the course of the second half
of 2016. Sales of products within our GO-Global product families, and related enhancements, were our only source of revenue during
2017 and will continue to be our only source of revenue during 2018. The success, if any, of our new GO-Global releases may depend
on a number of factors, including market acceptance of the new GO-Global releases and our ability to manage the risks associated
with introducing such releases. Declines in demand for our GO-Global products could occur as a result of, among other factors:
|
●
|
lack
of success with our strategic partners;
|
|
|
|
|
●
|
new
competitive product releases and updates to existing competitive products;
|
|
|
|
|
●
|
decreasing
or stagnant information technology spending levels;
|
|
|
|
|
●
|
price
competition;
|
|
|
|
|
●
|
technological
changes; or
|
|
|
|
|
●
|
general
economic conditions in the markets in which we operate.
|
If
our customers do not continue to purchase GO-Global products as a result of these or other factors, our revenue would decrease
and our results of operations, financial condition, and cash flows would be adversely affected.
Any
growth in our business will come solely from GO-Global and our other assets, and not from the hopTo Work products. GO-Global is
not a high growth business.
As
of the fourth quarter of 2016, we effectively ceased all of our sales, marketing and R&D efforts for the hopTo products. hopTo
Work was our primary growth initiative. We hope to maintain our GO-Global business at or near current levels, and we will evaluate
opportunities for growing this business and for extracting value from our other assets as part of our business planning, but shareholders
and prospective shareholders should clearly understand that the growth opportunity we previously anticipated in the hopTo product
suite is not currently being pursued, and that our growth, if any, will be on a much lower scale.
Our
operating results in one or more future periods are likely to fluctuate significantly and may fail to meet or exceed the expectations
of investors.
Our
operating results are likely to fluctuate significantly in the future on a quarterly and annual basis due to a number of factors,
many of which are outside our control. Factors that could cause our operating results and therefore our revenues to fluctuate
include the following, among other factors:
|
●
|
our
ability to maximize the revenue opportunities of our patents;
|
|
|
|
|
●
|
variations
in the size of orders by our customers;
|
|
|
|
|
●
|
increased
competition; and
|
|
|
|
|
●
|
the
proportion of overall revenues derived from different sales channels such as distributors, original equipment manufacturers
(“OEMs”) and others.
|
In
addition, our royalty and license revenues are impacted by fluctuations in OEM licensing activity from quarter to quarter, which
may involve one-time orders from non-recurring customers, or customers who order infrequently. Our expense levels are based, in
part, on expected future orders and sales; therefore, if orders and sales levels are below expectations, our operating results
are likely to be materially adversely affected. Additionally, because significant portions of our expenses are fixed, a reduction
in sales levels may disproportionately affect our net financial results . Also, we may reduce prices and/or increase spending
in response to competition or to pursue new market opportunities. Because of these factors, our operating results in one or more
future periods may fail to meet or exceed the expectations of investors. In that event, the trading price of our common stock
would likely be adversely affected.
We
will encounter challenges in recruiting, hiring and retaining new personnel and/or replacements for any members of key management
or other personnel who depart. Our chief executive and financial officer serves us on a part-time basis.
Our
success and business strategy is dependent in large part on our ability to attract and retain key management and other personnel
in certain areas of our business. If any of these employees were to leave, we would need to attract and retain replacements for
them. We have lost employees, including at the officer level and in our new products engineering group, in the past. Without a
successful replacement, the loss of the services of one or more key members of our management group and other key personnel could
have a material adverse effect on our business.
With
the exception of the employment agreement we entered into with our former Chief Executive Officer during 2013 which was terminated
in July 2017, we do not have long-term employment agreements with any of our key personnel and any officer or other employee can
terminate their relationship with us at any time. We may also need to add key personnel in the future in order to successfully
implement our business strategies. The market for such qualified personnel is highly competitive and it includes other potential
employers whose financial resources for such qualified personnel are more substantial than ours. Consequently, we could find it
difficult to attract, assimilate or retain such qualified personnel in sufficient numbers to successfully implement our business
strategies.
We
have sought to match our expenses structure with business opportunities, but this creates risks. When we ceased our development
and sales efforts associated with our hopTo Work products, we re-evaluated our management needs. As a result, our current Chief
Executive Officer and Chief Financial Officer works for us on a part time basis. While we believe the smaller scale of our operations
makes this arrangement workable, and has reduced our expense structure, the arrangement nevertheless makes it more difficult for
the Company to evaluate and plan for growth opportunities. The Company has sought to address this challenge in various ways, including
relying on the considerable expertise of our Board of Directors and the moderate use of professional advisors. Even though the
Company has made considerable progress in the past fiscal year with a much reduced management staff, the Company and stockholders
should recognize that this arrangement limits the Company’s ability to respond to challenges and develop opportunities.
Should the Company revise its approach to management by hiring additional resources, this too, can create risks to the cost savings
we have achieved, if any anticipated business opportunities are not realized, as has occurred in the past with hopTo Work.
Our
failure to adequately protect our proprietary rights may adversely affect us.
Our
commercial success is dependent, in large part, upon our ability to protect our proprietary rights. We rely on a combination of
patent, copyright and trademark laws, as well as trade secrets, confidentiality provisions and other contractual provisions to
protect our proprietary rights. These measures afford only limited protection. We cannot assure you that measures we have taken
or may take in the future will be adequate to protect us from misappropriation or infringement of our intellectual property. Despite
our efforts to protect proprietary rights, it may be possible for unauthorized third parties to copy aspects of our products or
obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries do not protect our intellectual
property or other proprietary rights as fully as do the laws of the United States. Furthermore, we cannot assure you that the
existence of any proprietary rights will prevent the development of competitive products. The infringement upon, or loss of, any
proprietary rights, or the development of competitive products despite such proprietary rights, could have a material adverse
effect on our business.
Our
business significantly benefits from strategic relationships and there can be no assurance that such relationships will continue
in the future.
Our
business and strategy relies to a significant extent on our strategic relationships with other companies. There is no assurance
that we will be able to maintain or further develop any of these relationships or to replace them in the event any of these relationships
are terminated. In addition, any failure to renew or extend any license between any third party and us may adversely affect our
business.
We
rely on indirect distribution channels for our products and may not be able to retain existing reseller relationships or develop
new reseller relationships.
Our
GO-Global products are primarily sold through several distribution channels. An integral part of our strategy is to strengthen
our relationships with resellers such as OEMs, systems integrators, VARs, distributors and other vendors to encourage these parties
to recommend or distribute our products and to add resellers both domestically and internationally. We currently invest, and intend
to continue to invest, significant resources to expand our sales and marketing capabilities. We cannot assure you that we will
be able to attract and/or retain resellers to market our products effectively. Our inability to attract resellers and the loss
of any current reseller relationships could have a material adverse effect on our business, results of operations, financial condition,
and cash flows. Additionally, we cannot assure you that resellers will devote enough resources to provide effective sales and
marketing support to our products.
The
markets in which we participate are highly competitive and have more established competitors.
The
markets we participate in with GO-Global are intensely competitive, rapidly evolving and subject to continuous technological changes.
We expect competition to increase in each of these markets as other companies introduce additional competitive products. In order
to compete effectively, we must continually develop and market new and enhanced products and market those products at competitive
prices. As markets for our products continue to develop, additional companies, including companies in the computer hardware, software
and networking industries with significant market presence, may enter the markets in which we compete and further intensify competition.
A number of our current and potential competitors have longer operating histories, greater name recognition and significantly
greater financial, sales, technical, marketing and other resources than we do. We cannot give any assurance that our competitors
will not develop and market competitive products that will offer superior price or performance features, or that new competitors
will not enter our markets and offer such products. We believe that we will need to invest significant financial resources in
research and development to remain competitive in the future in each of the markets in which we compete. Such financial resources
may not be available to us at the time or times that we need them, or upon terms acceptable to us, or at all. We cannot assure
you that we will be able to establish and maintain a significant market position in the face of our competition and our failure
to do so would adversely affect our business.
Risks
Related to Our Common Stock
Our
stock is thinly traded and its price has been historically volatile.
Our
stock is thinly traded. As such, holders of our stock are subject to a high risk of illiquidity, e.g., you may not be able to
sell as many shares at the price you would like, or you may not be able to purchase as many shares at the price you would like,
due to the low average daily trading volume of our stock. Additionally, the market price of our stock has historically been volatile;
it has fluctuated significantly to date. The trading price of our stock is likely to continue to be highly volatile and subject
to wide fluctuations. Your investment in our stock could lose some or all of its value.
Future
sales of our common stock could adversely affect its price and our future capital-raising activities, and could involve the issuance
of additional equity securities, which would dilute current shareholder investments in our common stock and could result in lowering
the trading price of our common stock.
We
may sell securities in the public or private equity markets if and when conditions are favorable. Sales of substantial amounts
of common stock, or the perception that such sales could occur, could adversely affect the prevailing market price of our common
stock and our ability to raise capital. We may issue additional common stock in future financing transactions or as incentive
compensation for our management team and other key personnel, consultants and advisors. Issuing any equity securities would be
dilutive to the equity interests represented by our then-outstanding shares of common stock. The market price for our common stock
could decrease as the market takes into account the dilutive effect of any of these issuances. Furthermore, we may enter into
financing transactions and issue securities with rights and preferences senior to the rights and preferences of our common stock,
and we may issue securities at prices that represent a substantial discount to the market price of our common stock. A negative
reaction by investors and securities analysts to any discounted sale of our equity securities could result in a decline in the
trading price of our common stock.
We
have a significant number of outstanding warrants and options, and future sales of these shares could adversely affect the market
price of our common stock.
As
of December 31, 2017 and December 31, 2016, we had outstanding warrants for an aggregate of 698,119 shares of common stock, at
a weighted average exercise price of $10.02. As of December 31, 2017 and December 31, 2016, we had outstanding options exercisable
for an aggregate of 455,168 and 684,722 shares of common stock, respectively, at weighted average exercise prices of $2.30 and
$2.64 per share, respectively. The holders may sell these shares exercisable under warrants or options in the public markets from
time to time. In addition, if our stock price rises, more outstanding warrants and options will be “in-the-money”
and the holders may exercise their warrants and options and sell a large number of shares. This could cause the market price of
our common stock to decline.
In
addition, if our Proposed Settlement becomes final, then the exercise price of approximately 565,553 outstanding warrants included
in the above amounts, currently at a weighted average price of $10.77, will be reduced to $0.01 per share, and the duration of
such warrants, which are currently expiring between June 17, 2018 and January 7, 2019, will be extended to 5 years from the issuance
date. If such warrants were to be exercised, as we expect they would, that would result in dilution to existing shareholders who
do hold such warrants.
Our
common stock is quoted on the FINRA OTC Bulletin Board, which may have an unfavorable impact on our stock price and liquidity.
Our
common stock is currently quoted under the symbol “HPTO” on the OTC Bulletin Board market (“OTCBB”) operated
by FINRA (Financial Industry Regulatory Authority) and on the OTC Markets Group QB tier (“OTCQB”). Neither the OTCBB
nor the OTCQB is a “national securities exchange,” and in general, each is a significantly more limited market than
the markets operated by the New York Stock Exchange and NASDAQ. The quotation of our shares on the OTCBB and the OTCQB could result
in a less liquid market being available for existing and potential stockholders to trade shares of our common stock, which could
depress the trading price of our common stock and have a long-term adverse impact on our ability to raise capital in the future.
Because of the limited trading market for our common stock, and because of the significant price volatility, investors may not
be able to sell their shares of common stock when they want to do so.
Our
stock may lose access to a viable trading market
.
Given
the increasing cost and resource demands of being a public company, we may decide to “go dark,” or cease filing with
the SEC, by deregistering our securities, for a period of time until our assets and stockholder base are sufficient to warrant
public trading again. During such time, there would be a substantial decrease in disclosure by us of our operations and prospects,
and a substantial decrease in the liquidity in our common stock even though stockholders may still continue to trade our common
stock in the OTC market or “pink sheets.” The market’s interpretation of a company’s motivation for “going
dark” varies from cost savings, to negative changes in the firm’s prospects, to serving insider interests, which may
affect the overall price and liquidity of a company’s securities.
We
have never paid dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We
have never declared or paid dividends on our common stock, nor do we anticipate paying any cash dividends for the foreseeable
future. We currently intend to retain future earnings, if any, to finance the operations and expansion of our business. Any future
determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon the earnings,
financial condition, operating results, capital requirements and other factors as deemed necessary by our Board of Directors.
FINRA’s
sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
FINRA
has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds
for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial
status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there
is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA’s requirements
make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability
to buy and sell our stock and have an adverse effect on the market for our shares.
Provisions
in our Amended and Restated Certificate of Incorporation and Second Amended and Restated Bylaws and our Rights Agreement may prevent
or discourage third parties or our stockholders from attempting to replace our management or influencing significant decisions.
Provisions
in our Amended and Restated Certificate of Incorporation and Second Amended and Restated Bylaws may have the effect of delaying
or preventing a change in control of our company or our management, even if doing so would be beneficial to our stockholders.
These provisions include, but are not limited to, authorizing our Board of Directors to issue preferred stock without stockholder
approval and limiting the persons who may call special meetings of stockholders and providing that stockholders cannot take action
by written consent in lieu of a meeting. In addition, as described above under “Recent Developments”, the Rights Agreement
works by imposing a significant penalty upon any person or group (including a group of persons that are acting in concert with
each other) that acquires ten percent (10%) or more of the Common Shares without the approval of the Board. As a result, the overall
effect of the Rights Agreement and the issuance of the Rights may be to render more difficult or discourage a merger, tender or
exchange offer or other business combination involving the Company that is not approved by the Board. The Rights Agreement is
not intended to interfere with any merger, tender or exchange offer or other business combination approved by the Board. Nor does
the Rights Agreement prevent the Board from considering any offer that it considers to be in the best interest of its stockholders.
The Rights expire at or prior to the earlier of (i) February 16, 2021 or (ii) the redemption or exchange of the Rights as provided
for in the Rights Agreement. Together, these charter and contractual provisions could make the removal of management more difficult
and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common
stock.
Item
1B.
|
Unresolved
Staff Comments
|
None.
Our
corporate headquarters currently occupies approximately 2,527 square feet of office space in Concord, New Hampshire, under a lease
that expired in August 2016. On August 31, 2016, we signed an amendment to extend the lease on a month-to-month basis and requiring
a six-month notice from the lessor to terminate. Rent on the corporate headquarters continues at $4,000 per month for the current
extension of the lease.
Our
former corporate headquarters at 51 E. Campbell Ave in Campbell, California is comprised of approximately 2,514 square feet of
office space under a lease that will expire in October 1, 2018. Rental of these premises will average approximately $9,200 per
month over the remaining term of the lease. On April 28, 2017 we entered into a sublease agreement to sublease the entirety of
the leased space at 51 E. Campbell Avenue to a third party. The term of the sublease began on June 1, 2017 and extends through
the end of our office lease term for that space. The monthly rent payments due to hopTo will offset approximately 62% of the monthly
rent payments due to the landlord under hopTo’s lease for that space.
Our
other former corporate headquarters at 1919 S. Bascom Ave in Campbell, California is comprised of approximately 10,667 square
feet of office space under a lease that will expire on October 31, 2018. Rental of these premises for the remaining term averages
$39,600 per month. On August 11, 2015 we entered into a sublease agreement to sublease the entirety of the leased space at 1919
S. Bascom Avenue to a third party for the remainder of the master lease term. The monthly rent payments due to hopTo fully offsets
the rent payments due under the Company’s lease for that space.
We
believe our current facilities will be adequate to accommodate our needs for the foreseeable future.
Item
3.
|
Legal
Proceedings
|
From
time to time, we are party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business.
We are not currently a party to any legal proceedings that we believe would reasonably be expected to have a materially adverse
effect on our business, financial condition or results of operations.
Item
4.
|
Mine
safety disclosures
|
Not
applicable.
PART
II
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
Market
Information
The
following table sets forth, for the periods indicated, the high and low reported sales price of our common stock. Since March
27, 2003 our common stock has been quoted on the Over-the-Counter Bulletin Board. Our common stock is quoted under the symbol
“HPTO.” The amounts reflected in the following table are also adjusted to reflect the impact of the Reverse Stock
Split, which became effective in the stock market upon commencement of trading on January 28, 2016.
|
|
Fiscal
2017 *
|
|
|
Fiscal
2016 *
|
|
Quarter
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
First
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
|
$
|
1.74
|
|
|
$
|
0.71
|
|
Second
|
|
$
|
0.35
|
|
|
$
|
0.02
|
|
|
$
|
2.10
|
|
|
$
|
0.83
|
|
Third
|
|
$
|
0.12
|
|
|
$
|
0.04
|
|
|
$
|
1.29
|
|
|
$
|
0.03
|
|
Fourth
|
|
$
|
0.20
|
|
|
$
|
0.03
|
|
|
$
|
0.14
|
|
|
$
|
0.02
|
|
|
*
|
The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
|
On
March 26, 2018 there were approximately 122 holders of record of our common stock. Between January 1, 2018 and March 30, 2018
the high and low reported sales price of our common stock was $0.17 and $0.25, respectively, and on March 30, 2018 the closing
price of our common stock was $0.20.
Dividends
We
have never declared or paid dividends on our common stock, nor do we anticipate paying any cash dividends for the foreseeable
future. We currently intend to retain future earnings, if any, to finance the operations and expansion of our business. Any future
determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon the earnings,
financial condition, operating results, capital requirements and other factors as deemed necessary by the Board of Directors.
Unregistered
Sales of Equity Securities
None.
Item
6.
|
Selected Financial Data
|
Not
applicable for smaller reporting companies.
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
Update
on HopTo Plans
During
Q4 2016, we effectively ceased all of our sales, marketing and development efforts for the hopTo products, and at this time we
do not expect any meaningful revenues from these products in the foreseeable future. Our sole revenues are from our GO-Global
business.
Except
for the sale of 7 patents sold to Salesforce.com during the fourth quarter of 2017, we own all hopTo-related intellectual property
including source-code, related patents, and the relevant trademarks. We continue to believe that we may be able to extract value
from these assets and continue working to do so at this time. For detailed information on the hopTo products and technologies,
please refer to our Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on March 30,
2016 as well as our other SEC filings which are available at
www.sec.gov
. Such filings are being noted for historical information
only; unless expressly noted, they are not incorporated herein by reference.
Although
there is no certainty as to timing or success of our efforts to extract value from our hopTo assets, and stockholders should not
place any significant reliance on the outcome of such efforts unless and until definitive agreements are reached, this may include
the sale of certain of our hopTo software products or additional sales of patents.
Introduction
We
are developers of application publishing software which includes application virtualization software and cloud computing software
for multiple computer operating systems including Windows, UNIX and several Linux-based variants. Our application publishing software
solutions are sold under the brand name GO-Global, which is our sole revenue source at this time. GO-Global is an application
access solution for use and/or resale by independent software vendors (“ISVs”), corporate enterprises, governmental
and educational institutions, and others who wish to take advantage of cross-platform remote access and Web-enabled access to
their existing software applications, as well as those who are deploying secure, private cloud environments.
Since
2012 we have also been developing several products in the field of software productivity for mobile devices such as tablets and
smartphones, which have been marketed under the hopTo brand.
The
hopTo products were originally marketed to consumers and were later also marketed to small and medium sized businesses and enterprise
level customers under the name hopTo Work. hopTo Work allows customers to instantly transform their legacy applications to become
touch friendly on modern mobile devices. During 2015 and 2016 we also worked to integrate hopTo Work with certain software products
offered by Citrix Systems.
Over
the years, we have also made significant investments in intellectual property (“IP”). We have filed many patents designed
to protect the new technologies embedded in hopTo. However, we do not expect to file for additional patents during 2018.
The
following discussion should be read in conjunction with the consolidated financial statements and related notes provided in Item
8 “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
Critical
Accounting Policies
Use
of Estimates
The
preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted
(“GAAP”) in the United States requires management to make judgments, assumptions and estimates 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 period(s) being reported upon. Estimates are used for, but not limited
to, the amount of stock-based compensation expense, the warrants liability, the amount of capitalized software development costs,
the allowance for doubtful accounts, the estimated lives, valuation, and amortization of intangible assets (including capitalized
software), depreciation of long-lived assets, post-employment benefits, and accruals for liabilities and taxes. While we believe
that such estimates are fair, actual results could differ materially from those estimates.
Revenue
Recognition
We
market and license our products indirectly through channel distributors, ISVs, VARs (collectively “resellers”) and
directly to corporate enterprises, governmental and educational institutions and others. Our product licenses are perpetual. We
also separately sell maintenance contracts (which are comprised of license updates and customer service access), and other products
and services.
For
the years ended December 31, 2017 and 2016, software license revenues were recognized when:
|
●
|
Persuasive
evidence of an arrangement exists (i.e., when we sign a non-cancelable license agreement wherein the customer acknowledges
an unconditional obligation to pay, or upon receipt of the customer’s purchase order), and
|
|
|
|
|
●
|
Delivery
has occurred or services have been rendered and there are no uncertainties surrounding product acceptance (i.e., when title
and risk of loss have been transferred to the customer, which generally occurs when the media containing the licensed program(s)
is provided to a common carrier or, in the case of electronic delivery, when the customer is given access to the licensed
programs), and
|
|
|
|
|
●
|
The
price to the customer is fixed or determinable, as typically evidenced in a signed non-cancelable contract, or a customer’s
purchase order, and
|
|
|
|
|
●
|
Collectability
is probable. If collectability is not considered probable, revenue is recognized when the fee is collected.
|
Revenue
recognized on software arrangements involving multiple deliverables is allocated to each deliverable based on vendor-specific
objective evidence (“VSOE”) or third party evidence of the fair values of each deliverable; such deliverables include
licenses for software products, maintenance, private labeling fees, and customer training. We limit our assessment of VSOE for
each deliverable to either the price charged when the same deliverable is sold separately, or the price established by management
having the relevant authority to do so, for a deliverable not yet sold separately.
If
sufficient VSOE of fair value does not exist, so as to permit the allocation of revenue to the various elements of the arrangement,
all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. If VSOE of the fair
value does not exist, and the only undelivered element is maintenance, then we recognize revenue on a ratable basis. If VSOE of
the fair value of all undelivered elements exists but does not exist for one or more delivered elements, then revenue is recognized
using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining
portion of the arrangement fee is recognized as revenue.
Certain
resellers (“stocking resellers”) purchase product licenses that they hold in inventory until they are resold to the
ultimate end user (an “inventory stocking order”). At the time that a stocking reseller places an inventory stocking
order, we do not ship any product licenses to them, rather, the stocking reseller’s inventory is credited with the number
of licenses purchased and the stocking reseller can resell (issue) any number of licenses from their inventory at any time. Upon
receipt of an order to issue one or more licenses from a stocking reseller’s inventory (a “draw down order”),
we will ship the license(s) in accordance with the draw down order’s instructions. We defer recognition of revenue from
inventory stocking orders until the underlying licenses are sold and shipped to the end user, as evidenced by the receipt and
fulfillment of the stocking reseller’s draw down order, assuming all other revenue recognition criteria have been met.
Effective
January 1, 2018, ASC 606, “Revenue from Contracts with Customers,” changed the recognition of revenue standards for
reporting periods beginning after December 31, 2017.
In
May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers
(Topic 606)” (“ASU 2014-09”). Subsequently FASB has released several updates to ASU 2014-09 including ASU 2016-
20, ASU 2016-12, ASU-2016-10, ASU-2016-08, and ASU-2015-14. The effective date for ASU 2014-09 is January 1, 2018. The new standard
supersedes nearly all existing revenue recognition standards. The Company expects to adopt this standard using the modified retrospective
approach. The Company has substantially completed its assessment of the new standard, but is continuing to assess potential impacts
primarily related to upgrade rights held by a limited number of customers. We believe the most significant change to the timing
and amount of revenue recognition under the new standard is related to our stocking orders. Under the current standard, we defer
substantially all of the licensing revenue associated with stocking orders until delivery to the end user. Under the new standard,
substantially all licensing revenue from stocking orders will be recognized at the time the licenses are delivered to our customers,
who are generally resellers or distributors. Based upon our agreements with our customers, we believe that under the new standard,
the ownership rights and rewards of the software licenses have been transferred. Due to this change, we anticipate that we will
record substantially all of our deferred licensing revenue to retained earnings under the modified retrospective approach in Q1
2018.
As
a result of the adoption of ASU NO. 2014-09 we expect our annual and quarterly revenues to be subject to greater variability.
There
are no rights of return granted to resellers or other purchasers of our software products.
We
recognize revenue from maintenance contracts ratably over the related contract period, which generally ranges from one to five
years.
All
of our software licenses are sold in U.S. dollars.
Deferred
Rent
The
lease for our office at 1919 S. Bascom Avenue in Campbell, California, as amended, (See Note 7) contains free rent and predetermined
fixed escalations in our minimum rent payments. On August 11, 2015 we entered into a sublease agreement to sublease the entirety
of the leased space at 1919 S. Bascom Avenue to a third party (See Note 7).
On
August 24, 2015 we entered into a lease agreement for office space at 51 E. Campbell Avenue in Campbell, California, which became
effective on October 1, 2015 (See Note 7).
The
leases for both of the Company’s subleased former offices in Campbell, California contain free rent and predetermined fixed
escalations in our minimum rent payments (See Notes 7 and 12). Rent expense related to these leases is recognized on a straight-line
basis over the terms of the leases. Any difference between the straight-line rent amounts and amounts payable under the leases
is recorded as part of deferred rent in current or long-term liabilities, as appropriate. The monthly rent payments due to the
Company for the sublease of the office at 1919 S. Bascom Avenue fully offsets the rent payments due under the Company’s
lease for that space.
Incentives
that we received pursuant to the amended lease agreement for 1919 S. Bascom Avenue are recognized on a straight-line basis as
a reduction to rent over the term of the lease. We record the unamortized portion of these incentives as a part of deferred rent
in current or long-term liabilities, as appropriate.
Long-Lived
Assets
Long-lived
assets, which consist primarily of capitalized software, are assessed for possible impairment whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable, whenever we have committed to a plan to dispose of the assets or, at
a minimum, annually. Typically, for long-lived assets to be held and used, measurement of an impairment loss is based on the fair
value of such assets, with fair value being determined based on appraisals, current market value, comparable sales value, and
undiscounted future cash flows, among other variables, as appropriate. Assets to be held and used that are affected by an impairment
loss are depreciated or amortized at their new carrying amount over their remaining estimated life; assets to be sold or otherwise
disposed of are not subject to further depreciation or amortization. During 2017 and 2016, we determined that an impairment of
$0 and $15,500, respectively, existed with certain capitalized software development costs associated with our hopTo Work product
and recognized that cost as part of cost of revenue.
Software
Development Costs
We
capitalize software development costs incurred from the time technological feasibility of the software is established until the
time the software is available for general release, in accordance with GAAP. Research and development costs and other computer
software maintenance costs related to the software development are expensed as incurred. Upon the establishment of technological
feasibility, related software development costs are capitalized. Such capitalized costs are subsequently amortized as costs of
revenue over the shorter of three years or the remaining estimated useful life of the product. Software development costs, and
amortization of such costs, are discussed further under “Results of Operations – Costs of Revenue.”
We
make ongoing evaluations of the recoverability of its capitalized software projects by comparing the net amount capitalized for
each product to the estimated net realizable value of the product. If such evaluations indicate that the unamortized software
development costs exceed the net realizable value, we will write off the amount by which the unamortized software development
costs exceed net realizable value.
During
2017 and 2016, we determined that certain capitalized software development costs associated with the hopTo consumer product totaling
$0 and $15,500, respectively, should be written off as we do not anticipate monetization of that particular product during the
time fame that the costs were scheduled to be amortized.
Allowance
for Doubtful Accounts
We
maintain an allowance for doubtful accounts that reflects our best estimate of potentially uncollectible trade receivables. The
allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts
receivable. We regularly review the adequacy of our allowance for doubtful accounts by considering such factors as historical
experience, credit worthiness, and current economic conditions that may affect a customer’s ability to pay. We specifically
reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance for doubtful accounts based
on our review of the aging and size of our accounts receivable. The following table sets forth the details of the Allowance for
Doubtful Accounts for the years ended December 31, 2017 and 2016:
|
|
Beginning
Balance
|
|
|
Charge
Offs
|
|
|
Recoveries
|
|
|
Provision
|
|
|
Ending
Balance
|
|
2017
|
|
$
|
7,700
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
100
|
|
|
$
|
7,800
|
|
2016
|
|
|
17,300
|
|
|
|
(3,700
|
)
|
|
|
—
|
|
|
|
(5,900
|
)
|
|
|
7,700
|
|
Stock-Based
Compensation
We
apply the fair value recognition provisions of the Financial Accounting Standards Board (FASB) Codification Subtopic (ASC) 718-10,
“Compensation – Stock Compensation.”
We estimate the fair value of each option grant on the date of grant
using the binomial model. Stock-based compensation is estimated using our stock price volatility for grants awarded by analyzed
historic volatility over a period of time equal in length to the expected option term for the period being issued. For grants
made to newly hired employees the period of time over which we analyzed our historic volatility ended on the last day of the quarter
during which the new employee was hired. We derived an annualized forfeiture rate by analyzing our historical forfeiture data,
including consideration of the impact of certain non-recurring events, such as reductions in our work force. Our estimates of
the expected option term and the estimated exercise factor are derived from an analysis of historical data and future projections.
The approximate risk-free interest rate is based on the implied yield available on U.S. Treasury issues with remaining terms equivalent
to our expected option term. We believe that each of these estimates is reasonable in light of the data we analyzed. However,
as with any estimate, the ultimate accuracy of these estimates is only verifiable over time. During the years ended December 31,
2017 and 2016, we did not issue any stock options.
During
2016, we awarded 0 and 35,000 shares of restricted common stock to employees and the board of advisors, respectively. The valuation
of the restricted common stock awards was based on the closing fair market value of our common stock on the grant date. For the
awards made to the board of advisors, such fair market value was $1.65 per share. We later canceled the remaining total of 26,250
of unvested shares from these board of advisors in the three-month period ending September 30, 2016 as a result of our termination
agreement entered with the members of the board of advisors. Total stock-based compensation expense for these unvested shares
was $38,500.
During
2016, we accelerated the vesting of all 34,100 remaining unvested shares of restricted common stock granted to employees resulting
in $77,000 of stock-based compensation expense which is included in the table below. The following table illustrates the non-cash
stock-based compensation expense recorded, net of amounts capitalized, during the years ended December 31, 2017 and 2016 by income
statement classification:
|
|
2017
|
|
|
2016
|
|
Cost of revenue
|
|
$
|
100
|
|
|
$
|
5,500
|
|
Selling and marketing expense
|
|
|
200
|
|
|
|
69,200
|
|
General and administrative expense
|
|
|
13,000
|
|
|
|
156,100
|
|
Research and
development expense
|
|
|
100
|
|
|
|
93,600
|
|
|
|
$
|
13,400
|
|
|
$
|
324,400
|
|
Concentration
of Credit Risk
Financial
instruments, which potentially subject us to concentration of credit risk, consist principally of cash and trade receivables.
We place cash and, when applicable, cash equivalents, with high quality financial institutions and, by policy, limit the amount
of credit exposure to any one financial institution. As of December 31, 2017, we had approximately $765,400 of cash with financial
institutions in excess of FDIC insurance limits. As of December 31, 2016, the Company had approximately $330,400 of cash with
financial institutions in excess of FDIC insurance limits.
For
the years ended December 31, 2017 and December 31, 2016, the Company considered the following to be its most significant customers:
|
|
2017
|
|
|
2016
|
|
Customer
|
|
%
Sales
|
|
|
%
Accounts
Receivable
|
|
|
%
Sales
|
|
|
%
Accounts
Receivable
|
|
Centric System
|
|
|
6.9
|
%
|
|
|
12.6
|
%
|
|
|
5.0
|
%
|
|
|
11.5
|
%
|
Elosoft
|
|
|
16.9
|
%
|
|
|
56.2
|
%
|
|
|
11.0
|
%
|
|
|
18.8
|
%
|
IDS
|
|
|
5.5
|
%
|
|
|
0.0
|
%
|
|
|
3.6
|
%
|
|
|
0.0
|
%
|
Uniface
|
|
|
6.5
|
%
|
|
|
0.8
|
%
|
|
|
6.1
|
%
|
|
|
10.9
|
%
|
Total
|
|
|
35.8
|
%
|
|
|
69.6
|
%
|
|
|
25.7
|
%
|
|
|
41.2
|
%
|
Results
of Operations
Set
forth below is statement of operations data for the years ended December 31, 2017 and 2016 along with the dollar and percentage
changes from 2016 to 2017 in the respective line items.
|
|
Year
Ended December 31,
|
|
|
Increase
(Decrease)
|
|
|
|
2017
|
|
|
2016
|
|
|
Dollars
|
|
|
Percentage
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$
|
1,530,800
|
|
|
$
|
1,446,600
|
|
|
$
|
84,200
|
|
|
|
5.8
|
%
|
Software service fees
|
|
|
2,297,700
|
|
|
|
2,413,700
|
|
|
|
(116,000
|
)
|
|
|
(4.8
|
)%
|
Other
|
|
|
61,000
|
|
|
|
141,000
|
|
|
|
(80,000
|
)
|
|
|
(56.7
|
)%
|
Total
Revenue
|
|
|
3,889,500
|
|
|
|
4,001,300
|
|
|
|
(111,800
|
)
|
|
|
(2.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software service costs
|
|
|
57,000
|
|
|
|
109,100
|
|
|
|
(52,100
|
)
|
|
|
(47.8
|
)%
|
Software product costs
|
|
|
11,300
|
|
|
|
38,000
|
|
|
|
(26,700
|
)
|
|
|
(70.3
|
)%
|
Write-down of
capitalized software development costs
|
|
|
—
|
|
|
|
15,500
|
|
|
|
(15,500
|
)
|
|
|
(100.0
|
)%
|
Total
Cost of revenue
|
|
|
68,300
|
|
|
|
162,600
|
|
|
|
(94,300
|
)
|
|
|
(58.0
|
)%
|
Gross profit
|
|
|
3,821,200
|
|
|
|
3,838,700
|
|
|
|
(17,500
|
)
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
355,300
|
|
|
|
774,400
|
|
|
|
(419,100
|
)
|
|
|
(54.1
|
)%
|
General and administrative
|
|
|
1,558,400
|
|
|
|
2,759,200
|
|
|
|
(1,200,800
|
)
|
|
|
(43.5
|
)%
|
Research and
development
|
|
|
1,500,100
|
|
|
|
2,187,900
|
|
|
|
(687,800
|
)
|
|
|
(31.4
|
)%
|
Total
Operating expenses
|
|
|
3,413,800
|
|
|
|
5,721,500
|
|
|
|
(2,307,700
|
)
|
|
|
(40.3
|
)%
|
Income/(loss)
from operations
|
|
|
407,400
|
|
|
|
(1,882,800
|
)
|
|
|
2,290,200
|
|
|
|
(121.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrants liability
|
|
|
—
|
|
|
|
29,300
|
|
|
|
(29,300
|
)
|
|
|
(100.0
|
)%
|
Interest and other income
|
|
|
197,000
|
|
|
|
3,700
|
|
|
|
193,300
|
|
|
|
5224.3
|
%
|
Interest and
other expense
|
|
|
(500
|
)
|
|
|
(300
|
)
|
|
|
(200
|
)
|
|
|
66.7
|
%
|
Total
other income (expense)
|
|
|
196,500
|
|
|
|
32,700
|
|
|
|
163,800
|
|
|
|
500.9
|
%
|
Loss from operations before provision
for income tax
|
|
|
603,900
|
|
|
|
(1,850,100
|
)
|
|
|
2,454,400
|
|
|
|
(132.60
|
)%
|
Provision for
income taxes
|
|
|
3,300
|
|
|
|
2,800
|
|
|
|
43,900
|
|
|
|
17.9
|
%
|
Net income /
(loss)
|
|
$
|
600,600
|
|
|
$
|
(1,852,900
|
)
|
|
$
|
2,453,500
|
|
|
|
(132.4.
|
)%
|
Revenue
Software
Licenses
The
table that follows summarizes software licenses revenue for the years ended December 31, 2017 and 2016, and calculates the change
in dollars and percentage from 2016 to 2017 in the respective line item.
|
|
Year
Ended December 31,
|
|
|
Increase
(Decrease)
|
|
Software
licenses
|
|
2017
|
|
|
2016
|
|
|
Dollars
|
|
|
Percentage
|
|
Windows
|
|
$
|
1,255,200
|
|
|
$
|
1,161,100
|
|
|
$
|
94,100
|
|
|
|
8.1
|
%
|
UNIX/Linux
|
|
|
275,600
|
|
|
|
285,500
|
|
|
|
(9,900
|
)
|
|
|
(3.5
|
)%
|
Total
|
|
$
|
1,530,800
|
|
|
$
|
1,446,600
|
|
|
$
|
84,200
|
|
|
|
5.8
|
%
|
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”). We defer recognition of
revenue from these sales (on our Consolidated Balance Sheet under the caption “Deferred Revenue”) until the stocking
reseller sells the underlying software licenses to the ultimate end user. Consequently, if any of our significant stocking resellers
materially change the rate at which they resell our software licenses to the ultimate end user, our software licenses revenue
could be materially impacted.
When
a software license is sold directly to an end user by us, or by one of our resellers who does not stock licenses into inventory,
revenue is recognized immediately upon shipment, assuming all other criteria for revenue recognition are met. Consequently, if
any significant end user customer substantially changes its order level, or fails to order during the reporting period, whether
the order is placed directly with us or through one of our non-stocking resellers, our software licenses revenue could be materially
impacted.
Almost
all stocking resellers maintain inventories of our Windows products; few stocking resellers maintain inventories of our UNIX products.
The
increase in Windows software licenses revenue for the year ended December 31, 2017, as compared with the prior year, was primarily
due to higher license purchases from certain OEM partners and international distributors during 2017.
Software
licenses revenue from our UNIX/Linux products during 2017 is lower than during 2016 due to lower revenue from certain of our European
telecommunications customers, partially offset by higher revenue from certain end users and other resellers.
We
expect aggregate GO-Global software license revenue in 2018 to be approximately the same to modestly lower than 2017 levels as
we are observing a mix of both lower and higher aggregate revenue from our stocking resellers. At the same time, we continue to
work to maintain or improve cash flow from the GO-Global business through cost control and other measures.
Software
Service Fees
The
table that follows summarizes revenue recognized derived from software service fees for the years ended December 31, 2017 and
2016, and calculates the changes in dollars and percentage from 2016 to 2017 in the respective line item.
|
|
Year
Ended December 31,
|
|
|
Increase
(Decrease)
|
|
Software
service fees
|
|
2017
|
|
|
2016
|
|
|
Dollars
|
|
|
Percentage
|
|
Windows
|
|
$
|
1,769,200
|
|
|
$
|
1,802,500
|
|
|
$
|
(33,300
|
)
|
|
|
(1.8
|
)%
|
UNIX/Linux
|
|
|
528,500
|
|
|
|
611,200
|
|
|
|
(82,700
|
)
|
|
|
(13.5
|
)%
|
Total
|
|
$
|
2,297,700
|
|
|
$
|
2,413,700
|
|
|
$
|
(116,000
|
)
|
|
|
(4.8
|
)%
|
The
decrease in software service fees revenue attributable to our Windows products during 2017, as compared with 2016, was primarily
due to the expiration of maintenance contracts from one of our OEM partners. The aggregate of all other software service fees
attributable to our Windows products were slightly higher during 2017 as compared to 2016.
The
decrease in service fees revenue attributable to our UNIX products for 2017, as compared with 2016, 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.
The majority of this decrease was attributable to our European telecommunications customers, as discussed above.
We
expect that software service fees for 2018 will be modestly lower than those for 2017.
Other
The
decrease in other revenue for 2017, as compared with 2016, was primarily due to a decrease in professional services associated
with a large project completed for one customer in 2016, partially offset by an increase in private labeling fees associated with
certain of our GO-Global ISV Partners.
Costs
of Revenue
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. We incur no significant shipping
or packaging costs as virtually all of our deliveries are made via electronic means over the Internet.
Research
and development costs for new product development, after technological feasibility is established, are recorded as “capitalized
software” on our Consolidated Balance Sheet. Such capitalized costs are subsequently amortized to cost of revenue as a component
of software product costs over the shorter of three years or the remaining estimated life of the products so capitalized. We capitalized
$0 of software development costs during 2017 and 2016. Amortization related to capitalized software development costs charged
to costs of revenue was approximately $0 and $5,400 during 2017 and 2016, respectively. This amortization was separate from the
impairment costs detailed below.
Cost
of revenue for the year ended December 31, 2017 decreased by $94,300, or 58.0%, to $68,300 from $162,600 for 2016. Cost of revenue
represented 1.8% and 4.1% of total revenue for the years ended December 31, 2017 and 2016, respectively.
Software
Service Costs -
Software service costs decreased during 2017, as compared with 2016, due to lower customer support costs associated
with GoGlobal. We expect software service costs for 2018 to approximately the same as 2017 as we have been able to reduce headcount
costs in this area due to a lower level of effort required.
Software
Product Costs -
The decrease in software product costs for 2017, as compared with 2016, was due to all capitalized software
development being fully amortized.
Write-Down
of Capitalized Software Development Cost
- During 2017 and 2016, the Company wrote down the capitalized software development
costs of $0 and $15,500, respectively. These costs were associated solely with the hopTo consumer product which we do not anticipate
to monetize during the period in which these costs were scheduled to be amortized. These impairment costs are in addition to the
amortization costs detailed above.
For
the reasons outlined above, we expect 2018 costs of revenue to be approximately the same as 2017 levels.
Selling
and Marketing Expenses
. Selling and marketing expenses primarily consist of employee costs (inclusive of non-cash stock-based
compensation expense), outside services and travel and entertainment expenses.
Selling
and marketing expenses for the year ended December 31, 2017 decreased by $419,100, or 54.1%, to $355,300 from $774,400 in 2016.
Selling and marketing expenses for the years ended December 31, 2017 and 2016 represented approximately 9.1% and 19.4% of total
revenue, respectively. The decrease in selling and marketing expenses during 2017, compared to 2016, was due to a combination
of lower headcount and a decrease in advertising and promotional costs associated with hopTo Work as we have suspended sales and
marketing activity for that product.
We
expect 2018 sales and marketing expenses to be slightly higher than 2017 levels as we make some modest investment into marketing
activity for the GO-Global products.
General
and Administrative Expenses
. General and administrative expenses primarily consist of employee, amortization and depreciation,
legal, accounting, other professional services including those related to our patents, rent, travel and entertainment and insurance.
Certain costs associated with being a publicly-held corporation are also included in general and administrative expenses, as well
as bad debts expense.
General
and administrative expenses for the year ended December 31, 2017 decreased by $1,200,800, or 43.5%, to $1,558,400 from $2,759,200
for 2016. General and administrative expenses for the years ended December 31, 2017 and 2016 represented approximately 40.1% and
69.0% of total revenue, respectively.
The
decrease in general and administrative expense in 2017 was due to a combination of decreased rent expense associated with lower
net operating leases for the sublease of our Campbell office, decreased executive compensation associated with the part-time arrangement
for CEO and CFO positions, decreased legal expenses associated with activity related to our patents, lower stock compensation
expense associated with the decrease of the stock price, other lower costs associated with investor relations, and lower accruals
for potential liquidated damages resulting from delays in filing registration statements for shares of common stock and shares
of common stock underlying warrants for certain of the private placements that the Company closed in prior periods.
In
2018, we intend to continue cost controls and to benefit from lower rent expense associated with consolidation of our headquarters
location to Concord, NH. We also intend maintain our general and administrative headcount and use of legal service to a level
consistent with the second half of 2017 and our financial resources. We therefore expect that our 2018 general and administrative
costs will be lower than those for 2017.
Research
and Development Expenses
. Research and development expenses consist primarily of employee costs, payments to contract programmers,
travel and entertainment for our engineers, and all rent for our leased engineering facilities.
Research
and development expenses, net of amounts capitalized, decreased by $687,800, or 31.4%, to $1,500,100 for the year ended December
31, 2017 from $2,187,900 in the prior year. Research and development expenses for the years ended December 31, 2017 and 2016 represented
approximately 38.6% and 54.7% of total revenue, respectively.
During
both 2017 and 2016, we capitalized $0 of software development costs.
The
decrease in research and development expense is primarily due to our suspension of development activity for hopTo products, resulting
in lower employee costs associated with lower headcount, lower payments to contract programmers, and lower operating rent expense.
In
2018, we expect to make some modest targeted investments in research and development resources associated with our GO-Global products
based on market feedback. We therefore expect 2018 research and development expenses, net of capitalized software developments
costs to be slightly higher than 2017 levels.
Change
in Fair Value of Warrants Liability
. During 2017 and 2016, we recognized a net change of $0 and $29,300 respectively, in the
aggregate fair value of the warrant liability (See Note 8 to Notes to Consolidated Financial Statements). The change in fair value
of warrants liability was approximately 0.0% and 0.7% of total revenues for the years ended December 31, 2017 and 2016, respectively.
Such amounts resulted from price changes in the market value for our common stock and can vary from period to period due to the
exercise and/or issuance of warrants accounted for under the liability method. For further information regarding our Warrants
Liability, see Note 8 to the Notes to Consolidated Financial Statements.
Income
Taxes
. For the years ended December 31, 2017 and 2016, we recorded a current tax provision for a foreign subsidiary of approximately
$3,300 and $2,800, respectively. At December 31, 2017, we had approximately $62.3 million of federal net operating loss carryforwards,
which will begin to expire in 2018. Also at December 31, 2017, we had approximately $6.9 million of California state net operating
loss carryforwards available to reduce future taxable income, which begin to expire in 2017. During the years ended December 31,
2017 and 2016, we utilized $193,376 federal and no California net operating losses and have recorded a full valuation allowance
against each of them.
At
December 31, 2017, we had approximately $1.0 million of federal research and development tax credits, for which a full valuation
allowance has been provided. Such tax credits will begin to expire in 2018.
Net
Income/ (Loss)
. As a result of the foregoing items, we reported a net income of $600,600 for the year ended December 31, 2017,
as compared with a net loss of $1,852,900 for 2016.
Liquidity
and Capital Resources
Our
reported net income of $600,600 in 2017 included two significant non-cash items: depreciation and amortization of $51,200 and
stock-based compensation expense of $13,400.
We
did not invest in capital expenditures or capitalized software development cost during 2017.
We
sold seven patents in the fourth quarter of 2017 with $0 net book value for net proceeds after expenses of $320,000 and some expensed
equipment for $900.
During
fiscal 2017: (1) we reduced our operating expense from approximately $1.3 million per quarter to less than $0.8 million; (2) we
have improved the operating results from our GO-Global business and have reasonable confidence in its ability to generate cash
for at least the next 12 months; (3) sold several patents for cash; and (4) we increased our cash position from a low of $300
thousand in August of 2016 to $1.0 million at December 31, 2017.
In
addition, for the reasons described above, 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 Annual Report on Form 10-K however, we do not
expect these funds and resources to be sufficient for material new investments in our GO-Global business.
In
order to achieve the expense controls in the past fiscal year, we implemented significant expense reductions, including (1) a
limited number of employee layoffs primarily related to the hopTo product; (2) during the three month period ended September 30,
2016, our CEO and CFO voluntarily agreed with our board of directors to defer 50% of their salary beginning September 1, 2016
until such time as the Company can reasonably pay such compensation upon approval by the board of directors; (and on October 25,
2017, the board of directors of the Company determined that the financial status of the Company had improved and accordingly,
determined that it was reasonable for the Company to pay 50% of this deferred salary and such payments were made to the CFO and
CEO on October 30, 2017) and (3) undertook other expense reduction initiatives related to related to patent maintenance, real
estate and use of professionals.
We
no longer are considering potentially suspending or terminating our SEC filing status, although we reserve the right to do so
subject to applicable law.
We
have had, and as a regular part of our business from time to time continue to have, discussions with various parties about the
possibility of strategic transactions.
Cash
As
of December 31, 2017, cash was $1,015,400 as compared with $546,200 as of December 31, 2016, an increase of $469,200, or 85.9%.
The increase primarily resulted from the cash generated by our operations and the net proceeds from the sale of 7 patents in October
2017.
Accounts
Receivable, net
At
December 31, 2017 and 2016, we had $426,800 and $355,300, respectively, in accounts receivable, net of allowances totaling $7,800
and $7,700, respectively. The increase in net accounts receivable was primarily due to higher sales during the three-month period
ended December 31, 2017, as compared with same period ended December 31, 2016. We collect the significant majority of our quarter-end
accounts receivable during the subsequent quarter; accordingly, increases or decreases in accounts receivable from one period
to the next tends to be indicative of the trend in our sales from one period to the next. From time to time, we could have individually
significant accounts receivable balances due us from one or more of our significant customers. If the financial condition of any
of these significant customers should deteriorate, our operating results could be materially affected.
Working
Capital
As
of December 31, 2017, we had current assets of $1,555,100 and current liabilities of $3,502,900, which netted to a working capital
deficit of $(1,947,800). Included in current liabilities was the current portion of deferred revenue of $1,409,700 and an accrual
for potential liquidated damages of $855,100 (see Note 12).
Commitments
and Contingencies
The
following table discloses our contractual commitments for future periods, which consist entirely of leases for office space and
is inclusive of our contractual commitments for our Campbell, California office, including the commitments under the lease amendment
for 1919 S. Bascom Avenue. The table assumes that we will occupy all currently leased facilities for the full term of each respective
lease:
|
|
Lease
Payments
|
|
|
Sublease
Receipts
|
|
|
Total
|
|
2018
|
|
|
475,400
|
|
|
|
(420,800
|
)
|
|
|
54,600
|
|
Rent
expense aggregated approximately $67,600 and $141,700 for the years ended December 31, 2017 and 2016, respectively.
Recent
Accounting Pronouncements
In
May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09 “
Revenue from Contracts with Customers
(Topic 606)
” (“ASU 2014-09”). Subsequently FASB has released several updates to ASU 2014-09 including ASU
2016- 20, ASU 2016-12, ASU-2016-10, ASU-2016-08, and ASU-2015-14. The effective date for ASU 2014-09 is January 1, 2018. The new
standard supersedes nearly all existing revenue recognition standards. The Company expects to adopt this standard using the modified
retrospective approach. The Company has substantially completed its assessment of the new standard, but is continuing to assess
potential impacts primarily related to upgrade rights held by a limited number of customers. We believe the most significant change
to the timing and amount of revenue recognition under the new standard is related to our stocking orders. Under the current standard,
we defer substantially all of the licensing revenue associated with stocking orders until delivery to the end user. Under the
new standard, substantially all licensing revenue from stocking orders will be recognized at the time the licenses are delivered
to our customers, who are generally resellers or distributors. Based upon our agreements with our customers, we believe that under
the new standard, the ownership rights and rewards of the software licenses have been transferred. Due to this change, we anticipate
that we will record substantially all of our deferred licensing revenue to retained earnings under the modified retrospective
approach in Q1 2018.
As
a result of the adoption of ASU NO. 2014-09 we expect our annual and quarterly revenues to be subject to greater variability.
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Not
applicable for smaller reporting companies.
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Index
to Consolidated Financial Statements
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Shareholders of hopTo Inc.
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of hopTo Inc. and subsidiaries (the “Company”) as of December
31, 2017 and 2016, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for
each of the years in the two year period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company and subsidiaries as of December 31, 2017 and 2016, and the results of their operations and
their cash flows for each of the years in the two year period ended December 31, 2017
,
in conformity with accounting principles
generally accepted in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the Public Accounting Company Oversight Board (United States) (PCAOB) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing
procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
Macias Gini & O’Connell LLP
|
|
We
have served as the Company’s auditor since 2008.
Sacramento,
California
April
17, 2018
hopTo
Inc.
Consolidated
Balance Sheets
|
|
As
of December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,015,400
|
|
|
$
|
546,200
|
|
Accounts receivable, net of allowance
for doubtful accounts of $7,800 and $7,700, respectively
|
|
|
426,800
|
|
|
|
355,300
|
|
Prepaid expenses
and other current assets
|
|
|
112,900
|
|
|
|
38,700
|
|
Total
Current Assets
|
|
|
1,555,100
|
|
|
|
940,200
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
30,800
|
|
|
|
143,300
|
|
Other assets
|
|
|
17,800
|
|
|
|
109,000
|
|
Total
Assets
|
|
$
|
1,603,700
|
|
|
$
|
1,192,500
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
251,700
|
|
|
$
|
575,500
|
|
Accrued expenses
|
|
|
107,700
|
|
|
|
87,400
|
|
Accrued wages
|
|
|
275,700
|
|
|
|
312,900
|
|
Deferred rent
|
|
|
74,100
|
|
|
|
24,100
|
|
Capital lease
|
|
|
—
|
|
|
|
6,800
|
|
Deposit liability
|
|
|
93,500
|
|
|
|
—
|
|
Deferred revenue
|
|
|
1,845,100
|
|
|
|
1,759,000
|
|
Other current
liabilities
|
|
|
855,100
|
|
|
|
571,100
|
|
Total
Current Liabilities
|
|
|
3,502,900
|
|
|
|
3,336,800
|
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
1,409,700
|
|
|
|
1,694,600
|
|
Deposit liability
|
|
|
—
|
|
|
|
81,400
|
|
Deferred rent
|
|
|
—
|
|
|
|
2,600
|
|
Total
Liabilities
|
|
|
4,912,600
|
|
|
|
5,115,400
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note
12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity (Deficit):
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 5,000,000
shares authorized, no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.0001 par value, 195,000,000
shares authorized, 9,804,400 shares issued and outstanding, respectively
|
|
$
|
14,700
|
|
|
$
|
14,700
|
|
Additional paid-in capital
|
|
|
78,525,600
|
|
|
|
78,512,200
|
|
Accumulated
deficit
|
|
|
(81,849,200
|
)
|
|
|
(82,449,800
|
)
|
Total
Shareholders’ Deficit
|
|
|
(3,308,900
|
)
|
|
|
(3,922,900
|
)
|
Total
Liabilities and Shareholders’ Deficit
|
|
$
|
1,603,700
|
|
|
$
|
1,192,500
|
|
See
accompanying notes to consolidated financial statements
hopTo
Inc.
Consolidated
Statements of Operations
|
|
For
the Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$
|
1,530,800
|
|
|
$
|
1,446,600
|
|
Software service fees
|
|
|
2,297,700
|
|
|
|
2,413,700
|
|
Other
|
|
|
61,000
|
|
|
|
141,000
|
|
Total
Revenue
|
|
|
3,889,500
|
|
|
|
4,001,300
|
|
|
|
|
|
|
|
|
|
|
Cost of
Revenue
|
|
|
|
|
|
|
|
|
Software service costs
|
|
|
57,000
|
|
|
|
109,100
|
|
Software product costs
|
|
|
11,300
|
|
|
|
38,000
|
|
Write-down of
capitalized software development costs
|
|
|
—
|
|
|
|
15,500
|
|
Total
Cost of Revenue
|
|
|
68,300
|
|
|
|
162,600
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
3,821,200
|
|
|
|
3,838,700
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
355,300
|
|
|
|
774,400
|
|
General and administrative
|
|
|
1,558,400
|
|
|
|
2,759,200
|
|
Research and
development
|
|
|
1,500,100
|
|
|
|
2,187,900
|
|
Total
Operating Expenses
|
|
|
3,413,800
|
|
|
|
5,721,500
|
|
|
|
|
|
|
|
|
|
|
Profit
/ (loss) from Operations
|
|
|
407,400
|
|
|
|
(1,882,800
|
)
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
Change in fair value of warrants liability
|
|
|
—
|
|
|
|
29,300
|
|
Interest and other income
|
|
|
197,000
|
|
|
|
3,700
|
|
Interest and
other expense
|
|
|
(500
|
)
|
|
|
(300
|
)
|
Total
Other Income (Expense)
|
|
|
196,500
|
|
|
|
32,700
|
|
Profit / (loss) from
operations before provision for income tax
|
|
|
603,900
|
|
|
|
(1,850,100
|
)
|
Provision for
income tax
|
|
|
3,300
|
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
Net
Income / (Loss)
|
|
$
|
600,600
|
|
|
$
|
(1,852,900
|
)
|
Earnings
/ (loss) per share – basic and diluted
|
|
$
|
0.06
|
|
|
$
|
(0.19
|
)
|
Weighted
Average Common Shares Outstanding – Basic and Diluted
|
|
|
9,804,400
|
|
|
|
9,770,076
|
|
See
accompanying notes to consolidated financial statements
hopTo
Inc.
Consolidated
Statements of Shareholders’ Equity (Deficit)
|
|
For
the Years Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Preferred
stock - shares outstanding
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
—
|
|
|
|
—
|
|
Ending balance
|
|
|
—
|
|
|
|
—
|
|
Common
stock - shares outstanding
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
9,804,462
|
|
|
|
9,731,233
|
|
Employee stock option issuances
|
|
|
—
|
|
|
|
1,800
|
|
Reconciling variance
|
|
|
(62
|
)
|
|
|
—
|
|
Vesting of restricted
stock awards
|
|
|
—
|
|
|
|
71,429
|
|
Ending balance
|
|
|
9,804,400
|
|
|
|
9,804,462
|
|
Common
stock – amount
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
14,700
|
|
|
$
|
14,600
|
|
Vesting of restricted
stock awards
|
|
|
—
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
14,700
|
|
|
$
|
14,700
|
|
Additional
paid-in capital
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
78,512,200
|
|
|
$
|
78,189,300
|
|
Stock-based compensation expense
|
|
|
13,400
|
|
|
|
324,400
|
|
Company payment of employee taxes for
stock-based compensation
|
|
|
—
|
|
|
|
(2,700
|
)
|
Proceeds from exercise of employee stock
options
|
|
|
—
|
|
|
|
1,500
|
|
Other rounding
|
|
|
—
|
|
|
|
(300
|
)
|
Ending balance
|
|
$
|
78,525,600
|
|
|
$
|
78,512,200
|
|
Accumulated
deficit
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(82,449,800
|
)
|
|
$
|
(80,596,900
|
)
|
Net Income (Loss)
|
|
|
600,600
|
|
|
|
(1,852,900
|
)
|
Ending balance
|
|
$
|
(81,849,200
|
)
|
|
$
|
(82,449,800
|
)
|
|
|
|
|
|
|
|
|
|
Total
Shareholders’ Deficit
|
|
$
|
(3,308,900
|
)
|
|
$
|
(3,922,900
|
)
|
See
accompanying notes to consolidated financial statements
hopTo
Inc.
Consolidated
Statements Of Cash Flows
|
|
For
the Years Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash Flows Provided
By (Used In) Operating Activities:
|
|
|
|
|
|
|
|
|
Net profit / (loss)
|
|
$
|
600,600
|
|
|
$
|
(1,852,900
|
)
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
51,200
|
|
|
|
94,600
|
|
Write-down of capitalized software
development costs
|
|
|
-
|
|
|
|
15,500
|
|
Stock based compensation expense
|
|
|
13,400
|
|
|
|
324,400
|
|
Company payments of employee taxes
for stock-based compensation
|
|
|
-
|
|
|
|
(2,700
|
)
|
Revenue deferred to future periods
|
|
|
2,752,600
|
|
|
|
2,944,800
|
|
Recognition of deferred revenue
|
|
|
(2,951,400
|
)
|
|
|
(3,424,000
|
)
|
Change in allowance for doubtful
accounts
|
|
|
100
|
|
|
|
(9,600
|
)
|
Change in fair value of derivative
instruments - warrants
|
|
|
-
|
|
|
|
(29,300
|
)
|
Accretion of warrants liability for
consulting services
|
|
|
-
|
|
|
|
(2,300
|
)
|
Loss /(gain) on disposal of fixed
assets
|
|
|
60,400
|
|
|
|
(3,300
|
)
|
Loss on sublease
|
|
|
63,100
|
|
|
|
-
|
|
Net gain on sale of patents
|
|
|
(320,000
|
)
|
|
|
-
|
|
Interest accrued for capital lease
|
|
|
200
|
|
|
|
800
|
|
Changes in severance liability
|
|
|
-
|
|
|
|
(5,900
|
)
|
Changes in deferred rent
|
|
|
(15,700
|
)
|
|
|
(21,000
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(71,600
|
)
|
|
|
89,200
|
|
Prepaid expenses
and other current assets
|
|
|
(74,200
|
)
|
|
|
100,500
|
|
Other assets
(LT)
|
|
|
91,200
|
|
|
|
-
|
|
Accounts payable
|
|
|
(323,800
|
)
|
|
|
190,300
|
|
Accrued expenses
|
|
|
20,300
|
|
|
|
17,700
|
|
Accrued wages
|
|
|
(37,200
|
)
|
|
|
(244,400
|
)
|
Deposit liability
|
|
|
12,100
|
|
|
|
-
|
|
Other
current liabilities
|
|
|
284,000
|
|
|
|
571,100
|
|
Net
Cash Provided By (Used In) Operating Activities
|
|
|
155,300
|
|
|
|
(1,246,500
|
)
|
Cash Flows Provided
By (Used In) Investing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of fixed assets
|
|
|
900
|
|
|
|
23,300
|
|
Proceeds from
sale of patents
|
|
|
320,000
|
|
|
|
-
|
|
Net
Cash Provided By Investing Activities
|
|
|
320,900
|
|
|
|
23,300
|
|
Cash Flows Provided
By (Used In) Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of employee
stock options
|
|
|
-
|
|
|
|
1,500
|
|
Payments for
capital lease
|
|
|
(7,000
|
)
|
|
|
(9,400
|
)
|
Net
Cash Used In Financing Activities
|
|
|
(7,000
|
)
|
|
|
(7,900
|
)
|
Net Increase/
(Decrease) in Cash
|
|
|
469,200
|
|
|
|
(1,231,100
|
)
|
Cash, beginning
of year
|
|
|
546,200
|
|
|
|
1,777,300
|
|
Cash, end
of year
|
|
$
|
1,015,400
|
|
|
$
|
546,200
|
|
See
accompanying notes to consolidated financial statements
Notes
to Consolidated Financial Statements
1.
Basis of Presentation
The
Company
. Our Board of Directors adopted an amendment to our Certificate of Incorporation changing our name from GraphOn Corporation
to hopTo Inc. effective September 9, 2013. A Certificate of Amendment of Incorporation was filed with the Delaware Secretary of
State implementing the name change. The amendment had been previously approved by our stockholders. Our headquarters are in Concord,
NH.
hopTo
Inc., and its subsidiaries 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 (“ISVs”), corporate enterprises, governmental and educational institutions, and others, who wish
to take advantage of cross-platform remote access and Web-enabled access to their existing software applications, as well as those
who are deploying secure, private cloud environments.
Since
2012 we have also been developing several products in the field of software productivity for mobile devices such as tablets and
smartphones, which have been marketed under the hopTo brand. The hopTo products were originally marketed to consumers and were
later also marketed to small and medium sized businesses and enterprise level customers under the name hopTo Work. hopTo Work
allows customers to instantly transform their legacy applications to become touch friendly on modern mobile devices. During 2016,
we also worked to integrate hopTo Work with certain software products offered by Citrix Systems.
As
of Q4 2016, we have effectively ceased all of our sales, marketing and R&D efforts for the hopTo products, and at this time
we do not expect any meaningful revenues from these products in the foreseeable future.
We
continue to own all hopTo-related IP including source-code, related patents, and the relevant trademarks, other than seven patents
we sold to Salesforce.com in 2017. We continue to believe that we may be able to extract value from these assets and are currently
working to do so at this time.
Over
the years, the Company has also made significant investments in intellectual property (“IP”). It has filed many patents
designed to protect the new technologies embedded in hopTo. As of March 31, 2018, 53 patents have been granted by the USPTO. Due
to financial constraints on our operations, we have suspended patent prosecution activity other than to pay maintenance or issuance
fees for patents already approved by USPTO.
On
January 27, 2016, we filed an amendment of our Amended and Restated Certificate of Incorporation, as amended, to effect a 1-for-15
reverse stock split of our common stock (the “Reverse Stock Split”). The Reverse Stock Split became effective in the
stock market upon commencement of trading on January 28, 2016. As a result of the Reverse Stock Split, every fifteen shares of
our pre-Reverse Stock Split common stock were combined and reclassified into one share of our common stock. No fractional shares
were issued in connection with the Reverse Stock Split, and cash paid to stockholders for potential fractional shares was insignificant.
The number of shares of common stock subject to outstanding options, restricted stock units, warrants and convertible securities
were also reduced by a factor of fifteen as of January 27, 2016. All historical share and per share amounts reflected throughout
this report have been adjusted to reflect the Reverse Stock Split. The authorized number of shares and the par value per share
of our common stock were not affected by the Reverse Stock Split.
2.
Significant Accounting Policies
Basis
of Presentation and Use of Estimates
. The consolidated financial statements include the accounts of hopTo Inc. and its subsidiaries
(collectively, “we”, “us”, “our”, or “Company”); significant intercompany accounts
and transactions are eliminated upon consolidation. The preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States (“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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates
include: the amount of stock-based compensation expense; the allowance for doubtful accounts; the estimated lives of property
of equipment, valuation and amortization of intangible assets (including capitalized software); depreciation of long-lived assets;
valuation of warrants; post-employment benefits; and accruals for liabilities and taxes. While the Company believes that such
estimates are fair, actual results could differ materially from those estimates.
Property
and Equipment
. Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the
estimated useful lives of the respective assets, between three and seven years. Amortization of leasehold improvements is calculated
using the straight-line method over the lesser of the lease term or useful lives of the respective assets, between three and seven
years.
Shipping
and Handling
. Shipping and handling costs are included in cost of revenue for all periods presented.
Software
Development Costs
. Under the criteria set forth in Financial Accounting Standards Board’s (FASB) Accounting Standards
Codification (ASC) 985-20,
“Costs of Software to be Sold, Leased or Marketed,”
development costs incurred in
the research and development of new software products are expensed as incurred until technological feasibility, in the form of
a working model, has been established, at which time such costs are capitalized until the product is available for general release
to customers. The Company did not capitalize any software development costs during 2017 or 2016. The Company makes ongoing evaluations
of the recoverability of its capitalized software projects by comparing the net amount capitalized for each product to the estimated
net realizable value of the product. If such evaluations indicate that the unamortized software development costs exceed the net
realizable value, the Company writes off the amount by which the unamortized software development costs exceed net realizable
value (see Note 3).
Revenue
Recognition
. The Company markets and licenses products indirectly through channel distributors, independent software vendors
(“ISVs”), value-added resellers (“VARs”) (collectively “resellers”) and directly to corporate
enterprises, governmental and educational institutions and others. Its product licenses are perpetual. The Company also separately
sells intellectual property licenses, maintenance contracts (which are comprised of license updates and customer service access),
and other products and services.
For
the years ended December 31, 2016 and 2017, software license revenues were recognized when:
|
●
|
Persuasive
evidence of an arrangement exists (i.e., when the Company signs a non-cancelable license agreement wherein the customer acknowledges
an unconditional obligation to pay, or upon receipt of the customer’s purchase order), and
|
|
|
|
|
●
|
Delivery
has occurred or services have been rendered and there are no uncertainties surrounding product acceptance (i.e., when title
and risk of loss have been transferred to the customer, which generally occurs when the media containing the licensed program(s)
is provided to a common carrier or, in the case of electronic delivery, when the customer is given access to the licensed
programs), and
|
|
|
|
|
●
|
The
price to the customer is fixed or determinable, as typically evidenced in a signed non-cancelable contract, or a customer’s
purchase order, and
|
|
|
|
|
●
|
Collectability
is probable. If collectability is not considered probable, revenue is recognized when the fee is collected.
|
Revenue
recognized on software arrangements involving multiple deliverables is allocated to each deliverable based on vendor-specific
objective evidence (“VSOE”) or third party evidence of the fair values of each deliverable; such deliverables include
licenses for software products, maintenance, private labeling fees, or customer training. The Company limits its assessment of
VSOE for each deliverable to either the price charged when the same deliverable is sold separately or the price established by
management having the relevant authority to do so, for a deliverable not yet sold separately.
If
sufficient VSOE of fair value does not exist, so as to permit the allocation of revenue to the various elements of the arrangement,
all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. If VSOE of the fair
value does not exist and the only undelivered element is maintenance, then we recognize revenue on a ratable basis. If VSOE of
the fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue
is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and
the remaining portion of the arrangement fee is recognized as revenue.
Certain
resellers (“stocking resellers”) purchase product licenses that they hold in inventory until they are resold to the
ultimate end-user (an “inventory stocking order”). At the time that a stocking reseller places an inventory stocking
order, no product licenses are shipped by the Company to the stocking reseller rather, the stocking reseller’s inventory
is credited with the number of licenses purchased and the stocking reseller can resell (issue) any number of licenses from their
inventory at any time. Upon receipt of an order to issue one or more licenses from a stocking reseller’s inventory (a “draw
down order”), the Company will ship the licenses(s) in accordance with the draw down order’s instructions. The Company
defers recognition of revenue from inventory stocking orders until the underlying licenses are sold and shipped to the end user,
as evidenced by the receipt and fulfillment of the stocking reseller’s draw down order, assuming all other revenue recognition
criteria have been met.
There
are no rights of return granted to purchasers of the Company’s software products.
Effective
January 1, 2018, ASC 606, Revenue from Contracts with Customers, changed the recognition of revenue standards for reporting periods
beginning after December 31, 2017.
In
May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers
(Topic 606)” (“ASU 2014-09”). Subsequently FASB has released several updates to ASU 2014-09 including ASU 2016-
20, ASU 2016-12, ASU-2016-10, ASU-2016-08, and ASU-2015-14. The effective date for ASU 2014-09 is January 1, 2018. The new standard
supersedes nearly all existing revenue recognition standards. The Company expects to adopt this standard using the modified retrospective
approach. The Company has substantially completed its assessment of the new standard, but is continuing to assess potential impacts
primarily related to upgrade rights held by a limited number of customers. We believe the most significant change to the timing
and amount of revenue recognition under the new standard is related to our stocking orders. Under the current standard, we defer
substantially all of the licensing revenue associated with stocking orders until delivery to the end user. Under the new standard,
substantially all licensing revenue from stocking orders will be recognized at the time the licenses are delivered to our customers,
who are generally resellers or distributors. Based upon our agreements with our customers, we believe that under the new standard,
the ownership rights and rewards of the software licenses have been transferred. Due to this change, we anticipate that we will
record substantially all of our deferred licensing revenue to retained earnings under the modified retrospective approach in Q1
2018.
As
a result of the adoption of ASU NO. 2014-09 we expect our annual and quarterly revenues to be subject to greater variability.
Revenue
is recognized from maintenance contracts ratably over the related contract period, which generally ranges from one to five years.
All
of the Company’s software licenses are denominated in U.S. dollars.
Deferred
Rent
. The leases for both of the Company’s subleased former offices in Campbell, California contain free rent and predetermined
fixed escalations in our minimum rent payments (See Notes 7 and 12). Rent expense related to these leases is recognized on a straight-line
basis over the terms of the leases. Any difference between the straight-line rent amounts and amounts payable under the leases
is recorded as part of deferred rent in current or long-term liabilities, as appropriate. The monthly rent payments due to the
Company for the sublease of the office at 1919 S. Bascom Avenue fully offsets the rent payments due under the Company’s
lease for that space.
Incentives
received upon entering into the lease agreement are recognized on a straight-line basis as a reduction to rent over the term of
the lease. The unamortized portion of these incentives are recorded as a part of deferred rent in current or long-term liabilities,
as appropriate.
Allowance
for Doubtful Accounts
. The Company maintains an allowance for doubtful accounts that reflects our best estimate of potentially
uncollectible trade receivables. Such allowance is based on assessments of the collectability of specific customer accounts and
the general aging and size of the accounts receivable. We regularly review the adequacy of our allowance for doubtful accounts
by considering such factors as historical experience, credit worthiness, and current economic conditions that may affect a customer’s
ability to pay. We specifically reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance
for doubtful accounts based on our review of the aging and size of our accounts receivable. The following table illustrates the
details of the Allowance for Doubtful Accounts for the years ended December 31, 2017 and 2016:
|
|
Beginning
Balance
|
|
|
Charge
Offs
|
|
|
Recoveries
|
|
|
Provision
|
|
|
Ending
Balance
|
|
2017
|
|
$
|
7,700
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
$
|
7,800
|
|
2016
|
|
$
|
17,300
|
|
|
$
|
(3,700
|
)
|
|
$
|
—
|
|
|
$
|
(5,900
|
)
|
|
$
|
7,700
|
|
Income
Taxes
. In accordance with FASB ASC 740-10-05,
“Income Taxes,”
the Company performed a comprehensive review
of uncertain tax positions as of December 31, 2017. In this regard, an uncertain tax position represents the expected treatment
of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring
income tax expense for financial reporting purposes.
The
Company and one or more of its subsidiaries are subject to United States federal income taxes, as well as income taxes of multiple
state and foreign jurisdictions. The Company and its subsidiaries are no longer subject to U.S. federal, state and local, or non-U.S.
income tax examinations by tax authorities for years prior to 2011. There are no tax examinations currently underway for any of
the Company’s or its subsidiaries’ tax returns for years subsequent to 2010.
The
Company’s policy for deducting interest and penalties is to treat interest as interest expense and penalties as taxes. The
Company had not accrued any amount for the payment of interest or penalties related to any uncertain tax positions at either December
31, 2017 or 2016, as its review of such positions indicated that such potential positions were minimal.
Under
FASB ASC 740-10-05,
“Income Taxes,”
deferred income taxes are recognized for the tax consequences of temporary
differences between the financial statement and income tax bases of assets, liabilities and net loss carryforwards using enacted
tax rates. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is more likely
than not expected to be realized. Realization is dependent upon future pre-tax earnings, the reversal of temporary differences
between book and tax income, and the expected tax rates in effect in future periods.
Fair
Value of Financial Instruments
. The fair value of the Company’s accounts receivable, accounts payable and other current
liabilities approximate their carrying amounts due to the relative short maturities of these items.
The
fair value of the Company’s warrants are determined in accordance with FASB ASC 820,
“Fair Value Measurement,”
which establishes a fair value hierarchy that prioritizes the assumptions (inputs) to valuation techniques used to price assets
or liabilities that are measured at fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The guidance for
fair value measurements requires that assets and liabilities measured at fair value be classified and disclosed in one of the
following categories:
|
●
|
Level
1: Defined as observable inputs, such as quoted (unadjusted) prices in active markets for identical assets or liabilities.
|
|
●
|
Level
2: Defined as observable inputs other than quoted prices included in Level 1. This includes quoted prices for similar assets
or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active,
or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the
assets or liabilities.
|
|
|
|
|
●
|
Level
3: Defined as unobservable inputs to the valuation methodology that are supported by little or no market activity and that
are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include
those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation
techniques, as well as significant management judgment or estimation.
|
As
of December 31, 2017 and 2016, the Company did not have any Warrants Liability reported.
Derivative
Financial Instruments
. The Company currently does not have a material exposure to either commodity prices or interest rates;
accordingly, it does not currently use derivative instruments to manage such risks. The Company evaluates all of its financial
instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. All derivative
financial instruments are recognized in the balance sheet at fair value. Changes in fair value are recognized in earnings if they
are not eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge accounting.
Long-Lived
Assets
. Long-lived assets are assessed for possible impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable, whenever the Company has committed to a plan to dispose of the assets or, at a minimum,
annually. Typically, for long-lived assets to be held and used, measurement of an impairment loss is based on the fair value of
such assets, with fair value being determined based on appraisals, current market value, comparable sales value, and undiscounted
future cash flows, among other variables, as appropriate. Assets to be held and used affected by an impairment loss are depreciated
or amortized at their new carrying amount over their remaining estimated life; assets to be sold or otherwise disposed of are
not subject to further depreciation or amortization. During 2017 and 2016, we determined that there was an impairment of $0 and
$15,500, respectively, associated with certain capitalized software development expense (see Note 3).
Loss
Contingencies
. The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business.
The Company considers the likelihood of the loss or impairment of an asset or the incurrence of a liability as well as its ability
to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it
is probable that a liability has been incurred or an asset has been impaired and the amount of the loss can be reasonably estimated.
The Company regularly evaluates current information available to it to determine whether such accruals should be adjusted. No
such loss contingency was recorded during the years ended December 31, 2017 and 2016.
Stock-Based
Compensation
. The Company applies the fair value recognition provisions of FASB ASC 718-10, “
Compensation –
Stock Compensation.
”
Valuation
and Expense Information Under FASB ASC 718-10
The
Company recorded stock-based compensation expense of $13,400 and $324,400 in the years ended December 31, 2017 and 2016, respectively.
No expense was capitalized related to software development. As required by FASB ASC 718-10, the Company estimates forfeitures
of employee stock-based awards and recognizes compensation cost only for those awards expected to vest. Forfeiture rates are estimated
based on an analysis of historical experience and are adjusted to actual forfeiture experience as needed.
During
2016, we awarded 35,000 shares of restricted common stock to seven members of our board of advisors. The valuation of the restricted
common stock awards was based on the closing fair market value of our common stock on the grant date. For these awards, such fair
market value was $1.65 per share. These shares were canceled in the three month period ended September 2016.
For
stock options granted, the Company set the exercise price equal to the closing fair market value of the Company’s common
stock as of the grant date. No options were issued during the years ended December 31 2017 and 2016.
The
following table illustrates the non-cash stock-based compensation expense recorded during the years ended December 31, 2017 and
2016 by income statement classification:
|
|
2017
|
|
|
2016
|
|
Cost of revenue
|
|
$
|
100
|
|
|
$
|
5,600
|
|
Selling and marketing expense
|
|
|
200
|
|
|
|
69,200
|
|
General and administrative expense
|
|
|
13,000
|
|
|
|
156,000
|
|
Research and
development expense
|
|
|
100
|
|
|
|
93,600
|
|
|
|
$
|
13,400
|
|
|
$
|
324,400
|
|
Estimated
compensation expense is based on the estimated fair value of each option granted on the date of grant using a binomial model,
using the estimated annualized forfeiture rate based on an analysis of historical data and considered the impact of events such
as work force reductions we carried out in previous years. The expected term of our stock-based awards was based on historical
award holder exercise patterns and considered the market performance of our common stock and other items. The estimated exercise
factor was based on an analysis of historical data; historical exercise patterns; and a comparison of historical and current share
prices. The approximate risk free interest rate was based on the implied yield available on U.S. Treasury issues with remaining
terms equivalent to our expected term on our stock-based awards.
The
Company used the average historical volatility of its daily closing price for a period of time equal in length to the expected
option term for the option being issued. The period of time over which historical volatility was measured ended on the last day
of the quarterly reporting period during which the stock-based award was made.
The
Company does not anticipate paying dividends on its common stock for the foreseeable future.
Earnings
Per Share of Common Stock
. FASB ASC 260-10,
“Earnings Per Share,”
provides for the calculation of basic
and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss attributable
to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities by adding other common stock equivalents, including common stock options, warrants,
and unreleased (unvested) restricted stock awards in the weighted average number of common shares outstanding for a period, if
dilutive. Potentially dilutive securities are excluded from the computation if their effect is antidilutive. For the year ended
December 31, 2017 and 2016, 1,153,287 and 1,382,841, respectively, common shares equivalents were excluded in the computation
of diluted earnings per share since its effect would be antidilutive.
Comprehensive
Loss
. FASB ASC 220-10,
“Reporting Comprehensive Income,”
establishes standards for reporting comprehensive
income and its components in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during the period from non-owner sources. Examples of items to
be included in comprehensive income, which are excluded from net income, include foreign currency translation adjustments and
unrealized gain/loss of available-for-sale securities. The individual components of comprehensive income (loss) are reflected
in the consolidated statement of operations. For the years ended December 31, 2017 and 2016, there were no changes in equity (net
assets) from non-owner sources.
Recent
Accounting Pronouncements
.
In
May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers
(Topic 606)” (“ASU 2014-09”). Subsequently FASB has released several updates to ASU 2014-09 including ASU 2017-17,
ASU 2017-13, ASU 2016- 20, ASU 2016-12, ASU-2016-10, ASU-2016-08, and ASU-2015-14. The effective date for ASU 2014-09 is January
1, 2018. See discussion of the impact of this new standard in the Revenue Recognition section of this note above.
3.
Capitalized Software Development Costs
As
of December 31, 2017 and 2016, the Company’s total capitalized software development costs of $490,440 were fully amortized.
There was no amortization expense in either 2017 or 2016.
During
2017 and 2016, we did not capitalize any software development costs associated with hopTo. Such costs were the cost of licenses
to third party software used by hopTo.
Amortization
of capitalized software development costs is a component of costs of revenue. Capitalized software development costs amortization
aggregated $0 and $5,400 during the years ended December 31, 2017 and 2016, respectively.
During
2017 and 2016, we determined that an impairment of $0 and $15,500, respectively, existed with certain capitalized software development
costs associated with our
hopTo
consumer product and recognized that cost as part of cost of revenue.
4.
Property and Equipment
Property
and equipment as of December 31, 2017 and 2016 consisted of the following:
|
|
2017
|
|
|
2016
|
|
Equipment
|
|
$
|
184,600
|
|
|
$
|
258,700
|
|
Furniture & fixture
|
|
|
3,600
|
|
|
|
190,600
|
|
Leasehold
improvements
|
|
|
167,600
|
|
|
|
167,600
|
|
|
|
|
355,800
|
|
|
|
616,900
|
|
Less: accumulated
depreciation and amortization
|
|
|
325,000
|
|
|
|
473,600
|
|
|
|
$
|
30,800
|
|
|
$
|
143,300
|
|
Aggregate
property and equipment depreciation expense for the years ended December 31, 2017 and 2016 was $51,200 and $89,200 respectively.
During 2017 and 2016, we did not capitalize any property and equipment. During 2017, we retired equipment with costs of $74,100
and furniture and fixtures with costs of $187,000. During 2016, we retired equipment with costs of $55,000 and furniture and fixtures
with costs of $43,300. The $261,100 and $98,300 total in assets retired in 2017 and 2016, respectively, had total remaining book
value of $61,300 and $20,000.
5.
Accrued Expenses
Accrued
expenses as of December 31, 2017 and 2016 consisted of the following:
|
|
2017
|
|
|
2016
|
|
Consulting services
|
|
$
|
20,500
|
|
|
$
|
35,000
|
|
Franchise tax
|
|
|
900
|
|
|
|
1,500
|
|
Software and subscription fees
|
|
|
100
|
|
|
|
2,300
|
|
Board of director fees
|
|
|
64,000
|
|
|
|
23,000
|
|
Royalty fees
|
|
|
5,400
|
|
|
|
10,800
|
|
Other
|
|
|
16,800
|
|
|
|
14,800
|
|
|
|
$
|
107,700
|
|
|
$
|
87,400
|
|
6.
Severance Liability
In
August of 2015 we agreed to provide a terminated employee a lump sum payment $15,000 and six months of medical coverage payments
which ended on March 2, 2016. As of December 31, 2017 and 2016, the Company had no outstanding severance liability.
7.
Deferred Rent
The
leases for both of the Company’s subleased former offices in Campbell, California contain free rent and predetermined fixed
escalations in our minimum rent payments. Rent expense related to these leases is recognized on a straight-line basis over the
terms of the leases. Any difference between the straight-line rent amounts and amounts payable under the leases is recorded as
part of deferred rent in current or long-term liabilities, as appropriate. The monthly rent payments due to the Company for the
sublease of the office at 1919 S. Bascom Avenue fully offset the rent payments due under the Company’s lease for that space.
The monthly rent payments due to the Company for the sublease of the office at 51 East Campbell Avenue will offset approximately
62% of the monthly rent payments due to the landlord under the Company’s lease for that space. During the three-month period
ended September 30, 2017, the Company recorded a loss of $62,900 representing the total of the shortfall of monthly rent payments
over the life of this sublease. As of December 31, 2017, $13,800 remains on the balance sheet as a lease liability to be amortized
over the remaining 10 months of the sublease.
Incentives
that we received upon entering into the S. Bascom Avenue lease agreement are recognized on a straight-line basis as a reduction
to rent over the term of the lease. We record the unamortized portion of these incentives as a part of deferred rent in current
or long-term liabilities, as appropriate.
As
of December 31, 2017 deferred rent was:
Component
|
|
Current
Liabilities
|
|
|
Long-Term
Liabilities
|
|
|
Total
|
|
Lease liability - ST
|
|
$
|
13,800
|
|
|
$
|
—
|
|
|
$
|
13,800
|
|
Deferred rent expense
|
|
|
27,200
|
|
|
|
—
|
|
|
|
27,200
|
|
Deferred rent
benefit
|
|
|
33,100
|
|
|
|
—
|
|
|
|
33,100
|
|
|
|
$
|
74,100
|
|
|
$
|
—
|
|
|
$
|
74,100
|
|
As
of December 31, 2016 deferred rent was:
Component
|
|
Current
Liabilities
|
|
|
Long-Term
Liabilities
|
|
|
Total
|
|
Deferred
rent expense
|
|
$
|
(15,600
|
)
|
|
$
|
(30,500
|
)
|
|
$
|
(46,100
|
)
|
Deferred
rent benefit
|
|
|
39,700
|
|
|
|
33,100
|
|
|
|
72,800
|
|
|
|
$
|
24,100
|
|
|
$
|
2,600
|
|
|
$
|
26,700
|
|
Deferred
rent expense represents the remaining balance of the aggregate free rent we received from our landlord and escalations that are
being recognized over the life of the lease as a component of rent expense. Deferred rent benefit relates to the unamortized portion
of the leasehold improvements provided to us by our landlord (i.e., incentives) that we are recognizing on a straight-line basis
as a reduction to rent expense over the term of the lease.
8.
Liability Attributable to Warrants
On
January 7, 2014, we entered into a securities purchase agreement (the “SPA”) with a limited number of institutional
investors, pursuant to which we issued and sold for cash an aggregate 753,333 shares of our common stock at a purchase price of
$4.50 per share (the “2014 Transaction”). We also issued warrants to the investors for no additional consideration
to purchase an aggregate 376,667 shares of our common stock at an exercise price of $6.00 per share from January 7, 2014 through
January 7, 2019.
Under
certain conditions of the SPA that were to expire no later than January 7, 2015, we could have been required to issue a variable
number of additional warrants to the investors at a below-market value exercise price. Accordingly, we have concluded that the
warrants issued to the investors are not indexed to our common stock; therefore, the fair value of these warrants had been recorded
as a liability of $1,356,000 on January 7, 2014 on our Balance Sheet. Since these conditions did not occur as of January 7, 2015,
we have reclassified the warrant from liability to equity.
Using
a binomial pricing model, we calculated the fair value of the warrants issued to the investors on January 7, 2015 to be $407,300.
We used the following assumptions in the binomial pricing model to derive the fair value: estimated volatility 113%; annualized
forfeiture rate 0%; expected term 4.1 years; estimated exercise factor 3.5; risk free interest rate 1.20; and dividends 0.
We
used the exercise price of the warrants, as well as the fair market value of our common stock, to determine the fair value of
our warrants. The exercise price for warrants issued in conjunction with a 2011 transaction, including those issued to the placement
agent, was either $3.00 or $3.90 per share, and was $3.90 per share for the warrants issued to ipCapital. The warrants issued
to the placement agent included anti-dilution provisions for repricing of the warrants in the event that future issuances of stock
by hopTo met certain conditions. The 2015 Transaction (Note 10) met those conditions and resulted in the placement agent warrants
being repriced from $3.00 and $3.90 to $2.55 and $3.30, respectively. On September 1, 2016, the liability warrants for the 2011
transaction expired.
The
following tables reconcile the number of warrants outstanding for the periods indicated:
|
|
For
the Year Ended December 31, 2017
|
|
|
|
Beginning
Outstanding
|
|
|
Issued
|
|
|
Exercised
|
|
|
Cancelled
/
Forfeited
|
|
|
Ending
Outstanding
|
|
2014 Transaction
|
|
|
376,667
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
376,667
|
|
Exercise Agreement
|
|
|
300,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,000
|
|
Consultant Warrant
|
|
|
11,285
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,285
|
|
Offer to Exercise
|
|
|
10,167
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,167
|
|
|
|
|
698,119
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
698,119
|
|
|
|
For
the Year Ended December 31, 2016
|
|
|
|
Beginning
Outstanding
|
|
|
Issued
|
|
|
Exercised
|
|
|
Cancelled
/
Forfeited
|
|
|
Ending
Outstanding
|
|
2011 Transaction
|
|
|
686,833
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(686,833
|
)
|
|
|
—
|
|
2014 Transaction
|
|
|
376,667
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
376,667
|
|
ipCapital
|
|
|
26,667
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26,667
|
)
|
|
|
—
|
|
Exercise Agreement
|
|
|
300,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,000
|
|
Consultant Warrant
|
|
|
11,285
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,285
|
|
Offer to Exercise
|
|
|
10,167
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,167
|
|
|
|
|
1,411,619
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(713,500
|
)
|
|
|
698,119
|
|
9.
Stockholders’ Equity
Common
Stock
The
Company did not issue any stock or pay any dividends during the years ended December 31, 2017 and 2016. During 2016, we awarded
35,000 shares of restricted common stock to seven members of our board of advisors. The valuation of the restricted common stock
awards was based on the closing fair market value of our common stock on the grant date. For the awards made to board of advisors,
such fair market value was $1.65 per share. These shares were canceled in the three-month period ended September 2016 and we did
not recognize additional stock compensation expense on the unvested awards upon cancellation.
Stock-Based
Compensation Plans
Active
Plans
2012
Equity Incentive Plan
. 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.
During
the years ended December 31, 2017 and 2016, no options were granted under the 12 Plan. There were 35,000 shares of restricted
common stock, with a weighted average grant date fair value of $1.65, granted, no options had been exercised and 404,926 shares
of common stock remained available for issuance under the 12 Plan.
No
options previously issued under the 12 Plan were exercised during the years ended December 31, 2017 and December 31, 2016.
Inactive
Plans
The
following table summarizes options outstanding as of December 31, 2017 and 2016 that were granted from stock based compensation
plans that are inactive. As of December 31, 2017 no options can be granted under these plans.
|
|
|
|
|
Options
Outstanding
|
|
|
|
Year
|
|
|
Beginning
of
Year
|
|
|
Granted
|
|
|
Exercised
|
|
|
Cancelled
|
|
|
End
of Year
|
|
2008 Stock Option Plan
|
|
|
2017
|
|
|
|
380,611
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(186,666
|
)
|
|
|
193,945
|
|
2005 Equity Incentive Plan
|
|
|
2017
|
|
|
|
7,666
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,999
|
)
|
|
|
667
|
|
Supplemental
Stock Option Agreement
|
|
|
2017
|
|
|
|
333
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(333
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
388,610
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(193,998
|
)
|
|
|
194,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Stock Option Plan
|
|
|
2016
|
|
|
|
395,545
|
|
|
|
—
|
|
|
|
(1,800
|
)
|
|
|
(13,134
|
)
|
|
|
380,611
|
|
2005 Equity Incentive Plan
|
|
|
2016
|
|
|
|
14,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,334
|
)
|
|
|
7,666
|
|
Supplemental
Stock Option Agreement
|
|
|
2016
|
|
|
|
333
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
333
|
|
|
|
|
|
|
|
|
409,878
|
|
|
|
—
|
|
|
|
(1,800
|
)
|
|
|
(19,468
|
)
|
|
|
388,610
|
|
Summary
– All Plans
A
summary of the status of all of the options outstanding under all of the Company’s stock option plans, and non-plan grants
to consultants, as of December 31, 2017 and 2016, and changes during the years then ended, is presented in the following table:
|
|
2017
|
|
|
2016
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Beginning
|
|
|
684,722
|
|
|
$
|
2.64
|
|
|
|
705,990
|
|
|
$
|
2.63
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
(1,800
|
)
|
|
$
|
0.81
|
|
Forfeited or
expired
|
|
|
(369,555
|
)
|
|
$
|
|
|
|
|
(19,468
|
)
|
|
$
|
2.74
|
|
Ending
|
|
|
315,167
|
|
|
$
|
2.46
|
|
|
|
684,722
|
|
|
$
|
2.64
|
|
Exercisable at
year-end
|
|
|
315,167
|
|
|
$
|
2.46
|
|
|
|
684,722
|
|
|
$
|
2.64
|
|
Vested or expected
to vest at year-end
|
|
|
315,167
|
|
|
$
|
2.46
|
|
|
|
684,571
|
|
|
$
|
2.64
|
|
Weighted average fair value of options granted during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.64
|
|
As
of December 31, 2017 and 2016, of the options exercisable, 315,167 and 684,571 were vested, respectively.
The
following table summarizes information about stock options outstanding as of December 31, 2017:
|
|
Options
Outstanding
|
|
Range
of Exercise
Price
|
|
Number
Outstanding/Exercisable
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted
Average
Outstanding/Exercise
Price
|
|
$0.75-$1.80
|
|
|
99,843
|
|
|
|
3.19
|
|
|
$
|
1.38
|
|
$1.83-$2.40
|
|
|
23,334
|
|
|
|
6.85
|
|
|
$
|
2.28
|
|
$2.49-$2.54
|
|
|
31,112
|
|
|
|
7.93
|
|
|
$
|
2.54
|
|
$2.55-$3.00
|
|
|
74,001
|
|
|
|
5.07
|
|
|
$
|
2.71
|
|
$3.01-$3.30
|
|
|
37,602
|
|
|
|
4.81
|
|
|
$
|
3.08
|
|
$3.31-$3.45
|
|
|
33,749
|
|
|
|
4.81
|
|
|
$
|
3.45
|
|
$3.46-$4.20
|
|
|
13,333
|
|
|
|
4.69
|
|
|
$
|
4.20
|
|
$4.21-$6.88
|
|
|
2,193
|
|
|
|
3.85
|
|
|
$
|
6.38
|
|
$0.75-$6.88
|
|
|
315,167
|
|
|
|
4.02
|
|
|
$
|
2.46
|
|
As
of December 31, 2017, there were outstanding options to purchase 315,167 shares of common stock with a weighted average exercise
price of $2.46 per share, a weighted average remaining contractual term of 4 years and an aggregate intrinsic value of $0. All
of the options outstanding as of December 31, are fully vested and 0 were estimated to be forfeited or to expire in future periods.
As
of December 31, 2017, there was no unrecognized compensation cost, net of estimated forfeitures, related to unvested options.
During
2016, the Company awarded 35,000 shares of restricted common stock, which vest ratably, over a 12-month period; however, these
shares were canceled in the three-month period ended September 30, 2016. The Company includes the common stock underlying the
restricted stock award in shares outstanding once the common stock underlying the restricted stock award has vested and the restriction
has been removed (“releases” or “released”).
During
the year ended 2016, we accelerated and released all of the remaining employee unvested restricted award shares and there was
no unreleased restricted stock awards as of December 31, 2017 and 2016.
As
of December 31, 2017, there was $0 of total unrecognized compensation cost, net of estimated forfeitures, related to unreleased
restricted stock awards.
10.
Income Taxes
The
components of the provision (benefit) for income taxes for the years ended December 31, 2017 and 2016 consisted of the following:
|
|
2017
|
|
|
2016
|
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
Foreign
|
|
|
3,300
|
|
|
|
2,800
|
|
|
|
$
|
3,300
|
|
|
$
|
2,800
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
Foreign
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
3,300
|
|
|
$
|
2,800
|
|
The
following table summarizes the differences between income tax expense and the amount computed applying the federal income tax
rate of 34% for the years ended December 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Federal income tax (benefit)
at statutory rate
|
|
$
|
205,300
|
|
|
$
|
(629,000
|
)
|
State income tax (benefit) at statutory rate
|
|
|
800
|
|
|
|
(3,700
|
)
|
Foreign tax rate differential
|
|
|
(600
|
)
|
|
|
(300
|
)
|
IRC 965 Subpart F Income
|
|
|
21,000
|
|
|
|
—
|
|
Compensation from exercise of non-qualified
stock options and restricted stock awards
|
|
|
—
|
|
|
|
2,100
|
|
SBC – NQ cancellations
|
|
|
235,900
|
|
|
|
163,100
|
|
Change in valuation allowance
|
|
|
(439,700
|
)
|
|
|
434,000
|
|
Warrant liability
|
|
|
—
|
|
|
|
(10,000
|
)
|
Meals and entertainment (50%)
|
|
|
700
|
|
|
|
2,500
|
|
Tax rate changes
|
|
|
—
|
|
|
|
(800
|
)
|
Other items
|
|
|
(20,100
|
)
|
|
|
44,900
|
|
Provision (benefit)
for income tax
|
|
$
|
3,300
|
|
|
$
|
2,800
|
|
Deferred
income taxes and benefits result from temporary timing differences in the recognition of certain expense and income items for
tax and financial reporting purposes. The following table sets forth those differences as of December 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Net operating loss carryforwards
|
|
$
|
13,566,000
|
|
|
$
|
21,808,000
|
|
Tax credit carryforwards
|
|
|
1,047,000
|
|
|
|
1,047,000
|
|
Compensation expense – non-qualified
stock options
|
|
|
238,000
|
|
|
|
620,000
|
|
Deferred revenue and maintenance service
contracts
|
|
|
691,000
|
|
|
|
1,181,000
|
|
Reserves and
other
|
|
|
108,000
|
|
|
|
73,000
|
|
Total deferred tax assets
|
|
|
15,650,000
|
|
|
|
24,729,000
|
|
Deferred tax
liability – depreciation, amortization and capitalized software
|
|
|
(7,000
|
)
|
|
|
(7,000
|
)
|
Net deferred tax asset
|
|
|
15,643,000
|
|
|
|
24,722,000
|
|
Valuation
allowance
|
|
|
(15,643,000
|
)
|
|
|
(24,722,000
|
)
|
Net deferred
tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
For
financial reporting purposes, with the exception of the year ended December 31, 2017, the Company has incurred a loss in each
year since inception. Based on the available objective evidence, management believes it is more likely than not that the net deferred
tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its net deferred
tax assets at December 31, 2017 and 2016. The net change in the valuation allowance was $9,079,000 and $(434,000) for the years
ended December 31, 2017 and 2016, respectively.
At
December 31, 2017, the Company had approximately $62.3 million of federal net operating loss carryforwards and approximately $6.9
million of California state net operating loss carryforwards available to reduce future taxable income. The federal loss carryforwards
will begin to expire in 2018 and the California state loss carry forwards began to expire in 2015. During the year ended December
31, 2017, the Company utilized $193,376 federal and no California net operating losses. Under the Tax Reform Act of 1986, the
amounts of benefits from net operating loss carryforwards may be impaired or limited if the Company incurs a cumulative ownership
change of more than 50%, as defined, over a three-year period.
At
December 31, 2017, the Company had approximately $1 million of federal research and development tax credits that will begin to
expire in 2018.
11.
Concentration of Credit Risk
Financial
instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and trade receivables.
The Company places cash and, when applicable, cash equivalents, with high quality financial institutions and, by policy, limits
the amount of credit exposure to any one financial institution. As of December 31, 2017, the Company had approximately $765,400
of cash with financial institutions in excess of FDIC insurance limits. As of December 31, 2016, the Company had approximately
$330,400 of cash with financial institutions in excess of FDIC insurance limits.
For
the years ended December 31, 2017 and December 31, 2016, the Company considered the following to be its most significant customers:
|
|
2017
|
|
|
2016
|
|
Customer
|
|
%
Sales
|
|
|
%
Accounts
Receivable
|
|
|
%
Sales
|
|
|
%
Accounts
Receivable
|
|
Centric Systems
|
|
|
6.9
|
%
|
|
|
12.6
|
%
|
|
|
5.0
|
%
|
|
|
11.5
|
%
|
Elosoft
|
|
|
16.9
|
%
|
|
|
56.2
|
%
|
|
|
11.0
|
%
|
|
|
18.8
|
%
|
IDS
|
|
|
5.5
|
%
|
|
|
0.0
|
%
|
|
|
3.6
|
%
|
|
|
0.0
|
%
|
Uniface
|
|
|
6.5
|
%
|
|
|
0.8
|
%
|
|
|
6.1
|
%
|
|
|
10.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
35.80
|
%
|
|
|
69.60
|
%
|
|
|
25.7
|
%
|
|
|
41.2
|
%
|
The
Company performs credit evaluations of customers’ financial condition whenever necessary, and does not require cash collateral
or other security to support customer receivables.
12.
Commitments and Contingencies
Operating
Leases
.
The
leases for both of the Company’s subleased former offices in Campbell, California contain free rent and predetermined fixed
escalations in our minimum rent payments. Rent expense related to these leases is recognized on a straight-line basis over the
terms of the leases. Any difference between the straight-line rent amounts and amounts payable under the leases is recorded as
part of deferred rent in current or long-term liabilities, as appropriate. The monthly rent payments due to the Company for the
sublease of the office at 1919 S. Bascom Avenue fully offset the rent payments due under the Company’s lease for that space.
The monthly rent payments due to the Company for the sublease of the office at 51 East Campbell Avenue will offset approximately
62% of the monthly rent payments due to the landlord under the Company’s lease for that space. During the three-month period
ended September 30, 2017, the Company recorded a loss of $62,900 representing the total of the shortfall of monthly rent payments
over the life of this sublease. As of December 31, 2017, $13,800 remains on the balance sheet as a lease liability to be amortized
over the remaining 12 months of the sublease.
Incentives
that we received upon entering into the S. Bascom Avenue lease agreement are recognized on a straight-line basis as a reduction
to rent over the term of the lease. We record the unamortized portion of these incentives as a part of deferred rent in current
or long-term liabilities, as appropriate.
The
following table sets forth the net minimum lease payments we will be required to make throughout the remainder of these leases:
Year
ended December 31, 2017
|
|
|
Lease
Payments
|
|
|
Sublease
Receipts
|
|
|
Total
|
|
2018
|
|
|
475,400
|
|
|
|
(461,600
|
)
|
|
|
13,800
|
|
Rent
expense aggregated approximately $67,600 and $141,700 for the years ended December 31, 2017 and 2016, respectively.
Contingencies.
Under its Amended and Restated Certificate of Incorporation and Second Amended and Restated Bylaws and certain agreements
with officers and directors, the Company has agreed to indemnify its officers and directors for certain events or occurrences
arising as a result of the officer’s or director’s serving in such capacity. Generally, the term of the indemnification
period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could
be required to make under these indemnification agreements is limited as the Company currently has a directors and officers liability
insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. The Company believes
the estimated fair value of these indemnification agreements is minimal and has no liabilities recorded for these agreements as
of December 31, 2017.
The
Company enters into indemnification provisions under (i) its agreements with other companies in its ordinary course of business,
including contractors and customers and (ii) its agreements with investors. Under these provisions, the Company generally indemnifies
and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s
activities or, in some cases, as a result of the indemnified party’s activities under the agreement. These indemnification
provisions often include indemnifications relating to representations made by the Company with regard to intellectual property
rights, and often survive termination of the underlying agreement. The maximum potential amount of future payments the Company
could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to
defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated
fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of December
31, 2017.
The
Company’s software license agreements also generally include a performance guarantee that the Company’s software products
will operate substantially as described in the applicable program documentation for a period of 90 days after delivery. The Company
also generally warrants that services that the Company performs will be provided in a manner consistent with reasonably applicable
industry standards. To date, the Company has not incurred any material costs associated with these warranties and has no liabilities
recorded for these agreements as of December 31, 2017.
During
the year ended December 31, 2017 and 2016, we reported non-cash expense of $284,000 and $571,100, respectively, related to potential
liquidated damages resulting from delays in filing registration statements for shares and shares underlying warrants for certain
private placements that the Company closed in prior periods. While we believe that the applicable agreements, in most cases, provide
exceptions or defenses to liquidated damages that may result in the reduction or non-payment of such damages, we have chosen to
accrue to the full extent potentially required by the registration rights agreements that contained liquidated damages provisions
due to uncertainty of such matters. The potential liquidated damages is reported as other current liabilities on the consolidated
balance sheet and as a component of general and administrative expense on the consolidated statements of operations.
During
the three-month period ended September 30, 2016, our CEO and CFO voluntarily agreed with our board of directors to defer 50% of
their salaries beginning September 1, 2016 until such time as the Company can reasonably pay such compensation, upon approval
by the board of directors. In the fourth quarter of 2017, the Company paid out $63,000 to CEO and $32,800 to CFO. During the year
ended December 31, 2017, total deferred salaries remaining for the CEO and CFO was $63,000 and $32,800, respectively. There is
currently no definitive schedule for the remaining portion of the accrued payments although the Company remains obligated to pay
these amounts and intends to do so in the near future, subject to liquidity requirements. The deferred salaries are recorded as
a component of accounts payable and accrued expenses on the consolidated balance sheet.
Employment
Agreement – Eldad Eilam
On
August 21, 2013, our Board of Directors and Compensation Committee approved a new employment agreement for Eldad Eilam, our President
and Chief Executive Officer. Under the employment agreement, Mr. Eilam received an annual base salary of $275,000 and was eligible
for a performance-based bonus in the discretion of our Compensation Committee. The employment agreement included other elements
related to restricted shares, stock options and insurance. Mr. Eilam resigned as our President and CEO on July 28, 2017 and this
agreement is no longer in effect.
During
the three month period ended September 30, 2016, Mr. Eilam voluntarily agreed with our board of directors to defer 50% of his
salary beginning September 1, 2016. On October 25, 2017, the board of directors of the Company determined that the financial status
of the Company had improved and accordingly, determined that it was reasonable for the Company to pay 50% of this deferred salary
and such payments were made to the CFO and CEO on October 30, 2017.
13.
Employee 401(k) Plan
In
December 1998, the Company adopted a 401(k) Plan (the “Plan”), to provide retirement benefits for employees. As allowed
under Section 401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary deductions for eligible employees. Employees
may contribute up to 15% of their annual compensation to the Plan, limited to a maximum annual amount as set periodically by the
Internal Revenue Service. In addition, the Company may make discretionary/matching contributions. During 2017 and 2016, the Company
contributed a total of approximately $0 and $39,100, to the Plan, respectively.
14.
Supplemental Disclosure of Cash Flow Information
The
following table presents supplemental disclosure information for the statements of cash flows for the years ended December 31,
2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Cash Paid:
|
|
|
|
|
|
|
|
|
Income Taxes (1)
|
|
$
|
3,500
|
|
|
$
|
2,900
|
|
Interest
|
|
|
—
|
|
|
|
—
|
|
|
(1)
|
All
such disbursements were for the payment of foreign income taxes.
|
During
2017 and 2016, we incurred $0 and $15,500, respectively, of impairment loss from writing down certain capitalized software development
cost that were associated with our consumer products.
15.
Related Party Transactions
ipCapital
Group, Inc.
On
October 11, 2011, we engaged ipCapital, an affiliate of John Cronin, who is one of our directors, to assist us in the execution
of our strategic decision to significantly strengthen, grow and commercially exploit our intellectual property assets. Our engagement
agreement with ipCapital, which has been amended three times, affords us the right to request ipCapital to perform a number of
diverse services, employing its proprietary processes and methodologies, to facilitate our ability to identify and extract from
our current intellectual property base new inventions, potential patent applications, and marketing and licensing opportunities.
For
the years ended December 31, 2017 and 2016, there were no services performed, additional charges incurred or payments made to
ipCapital under the agreement.
In
addition to the fees we agreed to pay ipCapital for its services, we issued ipCapital a five-year warrant to purchase up to 26,667
shares of our common stock at an initial price of $3.90 per share. Half of the warrant (13,333 shares) has a time-based vesting
condition, with such vesting to occur in three equal annual installments. The first, second, and third vesting installments occurred
on October 11, 2012, 2013, and 2014. The remaining 13,333 shares became fully vested upon the completion to our satisfaction of
all services that we requested from ipCapital under the engagement agreement, prior to the signing of the amendments. Such performance
was deemed satisfactory during 2012. We believe that these fees, together with the issuance of the warrant, constitute no greater
compensation than we would be required to pay an unaffiliated person for substantially similar services.
The
exercise price of the warrant issued to ipCapital could be reset to below-market value. Consequently, we have concluded that such
warrant is not indexed to our common stock; thus, we will accrete the fair value of the warrant as a liability over the anticipated
service period. Additionally, in accordance with the liability method of accounting, we will re-measure the fair value of the
then-outstanding warrant at each future balance sheet date and recognize the change in fair value as general and administrative
compensation expense. (See Note 8) We recognized $0 and $(2,300) as a component of general and administrative expense during the
years ended December 31, 2017 and 2016, respectively, resulting from the change in fair value.
The
warrants expired on October 11, 2016.
ipCapital
Licensing Company I, LLC
In
February 2013, we entered into an IP Brokerage agreement with ipCapital Licensing Company I, LLC (“ipCLC”) (the “IP
Brokerage Agreement”). At the time that we entered into this agreement, John Cronin was a partner at ipCLC. He is no longer
affiliated with ipCLC. Pursuant to the IP Brokerage Agreement, we engaged ipCLC, on a no-retainer basis, to identify and present
us with candidates who may be seeking to acquire a certain limited group of our patents unrelated to our current business strategy.
In June 2016, we determined that the IP Brokerage Agreement is no longer in effect since ipCLC no longer exists as an entity.
16.
Segment Information
The
Company’s operations have historically been conducted and reported in two segments, GO-Global and hopTo, each representing
a specific product line and dedicated operating resources. During the fourth quarter of 2014, the Company developed its hopTo
Work product and go to market strategy, and beginning in January of 2015, it reorganized to a functional organization structure
with consolidated decision-making authority over engineering, product management, sales and marketing resources. Resources in
these functional departments are now shared for the development, sales and support of both the GO-Global and hopTo products. The
GO-Global and hopTo Work products also have similar target customers, distribution channels, and common reseller partners.
Beginning
with the three-month period ended March 31, 2015, the Company will no longer report financial results in two segments. Software
revenue and services revenue for the hopTo Work product will be included in the Windows software and Windows services revenue,
respectively.
Revenue
by country for the years ended December 31, 2017 and 2016 was as follows:
|
|
Years
Ended December 31,
|
|
Revenue
by Country
|
|
2017
|
|
|
2016
|
|
United States
|
|
$
|
1,239,300
|
|
|
$
|
1,554,800
|
|
Brazil
|
|
|
758,000
|
|
|
|
606,600
|
|
Other Countries
|
|
|
1,892,200
|
|
|
|
1,839,900
|
|
Total
|
|
$
|
3,889,500
|
|
|
$
|
4,001,300
|
|
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
Item
9A.
|
CONTROLS
AND PROCEDURES
|
We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports
that we file under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and
reported within the time periods specified in the Security and Exchange Commission’s rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (Principal
Financial Officer), as appropriate, to allow for timely decisions regarding required disclosures. In designing and evaluating
the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and
operated, can only provide reasonable assurance of achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible 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 the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Exchange Act) 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 December 31, 2017.
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 December 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is defined in Rules 13a-15(f) under the Exchange Act as a process designed by, or under the supervision
of, our Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with accounting principles generally accepted in the United States and includes those policies
and procedures that:
|
●
|
pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
our assets; and
|
|
|
|
|
●
|
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States, and our receipts and expenditures are being made only
in accordance with authorizations of our management and directors; and
|
|
|
|
|
●
|
provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material impact on the financial statements.
|
Because
of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our evaluation of internal control
over financial reporting includes using the criteria in Internal Control-Integrated Framework (1992), an integrated framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission, for the evaluation of internal control to identify
the risks and control objectives related to the evaluation of our control environment.
Based
on our evaluation under the framework described above, our management has concluded that our internal control over financial reporting
was effective as of December 31, 2017.
This
Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control
over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting
firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this
Annual Report.
Item
9B.
|
Other
Information
|
Not
applicable.
PART
III
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The
following table sets forth certain information regarding those individuals currently serving as our directors and executive officers
as of March 31, 2018:
Name
|
|
Age
|
|
Position
|
Jean-Louis
Casabonne
|
|
60
|
|
Interim
Chief Executive Officer, Chief Financial Officer, Secretary
|
Michael
A. Brochu (2,3)
|
|
63
|
|
Director
|
John
Cronin (1,2,3)
|
|
63
|
|
Director
|
Eldad
Eilam (3)
|
|
40
|
|
Director
|
(1)
|
Chairman
of Board and Chairman of our Audit Committee
|
(2)
|
Member
of our Compensation Committee
|
(3)
|
Member
of our Audit Committee
|
Directors
Michael
A. Brochu
has served as a director since April 2012. From November 1997 until its acquisition in November 2004 by Art
Technology Group, Inc., Mr. Brochu served as president, chief executive officer and chairman of the board of directors of Primus
Knowledge Solutions, Inc. Mr. Brochu was a member of the board of directors of Art Technology Group, Inc. from November 2004 until
its acquisition by Oracle Corporation in January 2011. Beginning in December 2003, Mr. Brochu served as a director of Loudeye
Corp., and from February 2005 until October 2006, as its president and chief executive officer. In October 2006, Loudeye Corp.
was acquired by Nokia Corp. Mr. Brochu left Nokia Corp. in December 2006. From June 2007 until its acquisition in September 2011
by WPP PLC, Mr. Brochu served as president, chief executive officer and a director of Global Market Insite, Inc. Our Board has
determined that Mr. Brochu is qualified to serve on our Board because of his more than 20 years’ of senior-level experience
as a veteran operational executive in a variety of technology companies. Mr. Brochu is currently a member of the board of directors
for Centro Digital Media, Vines of Mendoza and Zotec Partners (each privately held). He is also a member of the Operating Committee
of BelHealth Investment Partners, a private equity firm specializing in healthcare, and is on the advisory board of Seattle-based
venture capital firm Voyager Capital. Mr. Brochu holds a BBA in Finance/Accounting from the University of Texas at El Paso.
John
Cronin
has served as a director since August 2011. Mr. Cronin is the founder, managing director and chairman of ipCapital
Group, Inc., an intellectual property consulting firm, with which we have formed an alliance to deploy a range of strategic invention
and intellectual tactics aimed at accelerating the growth and commercialization of our IP portfolio. We also have relationships
with certain related parties to ipCapital Group, Inc. and Mr. Cronin as described below under “Related-Party Transactions”.
Prior to founding ipCapital Group, Inc. in 1998, Mr. Cronin was an inventor at IBM for 17 years where he patented 100 inventions,
published over 150 technical papers and received IBM’s “Most Distinguished Inventor Award.” Our Board has determined
that Mr. Cronin is qualified to serve on our Board because of his over 30 years’ experience developing and consulting with
the development of high-tech intellectual property and his extensive knowledge and understanding of the high-tech industry. Mr.
Cronin serves on the board of directors of Imageware, which is a publicly-held company. He holds a BS in Electrical Engineering,
an MS in Electrical Engineering and a BA in Psychology from the University of Vermont.
Eldad
Eilam
has been a member of our Board since March 2012 and previously served as our Chief Executive Officer from August
2012 through July 2017 and as our President from January 2012 through July 2017. Mr. Eilam currently is Senior Software Engineering
Manager for Apple Inc. Previously, Mr. Eilam served as our Acting Chief Executive Officer between March 2012 and April 2012, as
our Interim Chief Executive Officer between April 2012 and August 2012, as our Chief Operating Officer from January 2012 to August
2012, and as our Chief Technology Officer from July 2011 to January 2012. In 2004, Mr. Eilam founded Elgix, Limited, a consulting
firm to the high-tech industry, and served as its initial president until his appointment as our Chief Technology Officer. From
July 2006 to March 2009, Mr. Eilam was president of GraphOn Research Labs, Limited, our Israeli subsidiary. From April 2009 to
July 2011, in his role as President of Elgix, Limited, Mr. Eilam served as a consultant to the high-tech industry, including as
a consultant to us since June 2010. Mr. Eilam is a technology expert in the Windows operating system, mobile user interfaces and
advanced software technology development, and is the author of the book Reversing: Secrets of Reverse Engineering. Our Board has
determined that Mr. Eilam is qualified to serve on our Board because of his experience advising high-tech companies at similar
stages of development as our Company, and his technological expertise in the Windows operating system and mobile user interfaces.
Executive
Officers
Jean-Louis
Casabonne
has served as our Chief Financial Officer since May 2014, as our Secretary since May 2014 and as our Interim
Chief Executive Officer since August 2017. Since July of 2017 he has served on a part-time basis. Mr. Casabonne is currently the
Chief Financial Officer of Kobie Marketing, Inc., a privately held technology company since July 2017. Previously from 2002 to
2011, Mr. Casabonne has served as the Chief Financial Officer of Quova, Inc., a venture backed company which he guided to profitability
prior to its successful sale to Neustar, Inc. (NYSE:NSR). Following the sale of Quova to Neustar, Mr. Casabonne continued with
Neustar from 2011 to 2014 as a strategic evangelist and director of business development managing strategic relationships with
key partners. From 1996 to 2002, Mr. Casabonne was a founder and controller for Inxight Software, a spin-out from Xerox Corporation.
He became CFO and VP of Operations for Inxight in 1999, managing finance, administration, legal affairs, information technology
and customer support. From 1992 to 1996, Mr. Casabonne served in a number of senior financial positions for Xerox Corporation’s
XSoft Division. Mr. Casabonne received his MBA and BS from Santa Clara University.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires our officers and directors, as well as
those persons who own more than 10% of our common stock, to file reports of ownership and changes in ownership with the SEC. These
persons are required by SEC rule to furnish us with copies of all Section 16(a) forms they file.
Based
solely on a review of copies of reports filed with the SEC and submitted to us and on written representations by certain of our
directors and executive officers, we believe that all of our directors and executive officers complied on a timely basis during
the fiscal year ended December 31, 2017 with the reporting requirements of Section 16(a) of the Exchange Act.
Code
of Ethics
We
have a code of ethics that applies to all of our employees, including our Chief Executive Officer and Chief Financial Officer.
Our code of ethics is made available at our website at: http://hopto.com/investors/corp-governance (click “Corporate Governance”
and then click “Code of Conduct”).
Stockholder
Nominations and Bylaw Procedures
Our
bylaws establish procedures pursuant to which a stockholder may nominate a person for election to our Board. Our bylaws are available
at our website at: http://hopto.com/investors/corp-governance (click “Code of Conduct”).
To
nominate a person for election to our Board, a stockholder must set forth all information relating to the nominee that is required
to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation
14A under the Exchange Act. Such notice must also contain information specified in the bylaws as to the director nominee, information
about the stockholder making the nomination and the beneficial owner, if any, on behalf of whom the nomination is made, including
name and address, class and number of shares owned, and representations regarding the intention to make such a nomination and
to solicit proxies in support of it. We may require any proposed nominee to furnish information concerning his or her eligibility
to serve as an independent director or that could be material to a reasonable stockholder’s understanding of the independence
of the nominee.
Audit
Committee
The
current members of our Audit Committee are John Cronin (Chairman), Michael Brochu and Eldad Eilam. Our Audit Committee held four
meetings during 2017. Our Board determined that each of our Audit Committee members is “independent” for audit committee
purposes under the Nasdaq and SEC definitions, except that Mr. Eilam would not be considered independent under the Nasdaq independence
rules due to the fact that he served as our CEO within the last 3 years. Nasdaq’s rules require 3 independent directors
on the Audit Committee; therefore, due to Mr. Eilam’s status as a prior officer, the Audit Committee of the Company would
not meet the Nasdaq rules. The Board has determined that none of the Audit Committee members can be classified as an “audit
committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K. The Board believes that attracting and retaining
board members that could be classified as an “audit committee financial expert” is unlikely due to the high cost of
such director candidates.
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
Summary
Compensation Table
The
following table sets forth the compensation we paid to our executive officers for the fiscal years ended December 31, 2017 and
2016:
Name
and
Principal Position
|
|
Year
|
|
|
Salary
$
|
|
|
Bonus
$
|
|
|
Stock
Awards $
|
|
|
Option
Awards $
|
|
|
All
Other Compensation $
|
|
|
Total
$
|
|
Eldad
Eilam, (1)
|
|
|
2017
|
|
|
|
179,366
|
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
916
|
(3)
|
|
|
180,282
|
|
CEO,
President
|
|
|
2016
|
|
|
|
275,000
|
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,470
|
(3)
|
|
|
278,470
|
|
Jean-Louis
Casabonne (2)
|
|
|
2017
|
|
|
|
163,662
|
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
903
|
(4)
|
|
|
164,565
|
|
Interim
CEO, CFO, Secretary
|
|
|
2016
|
|
|
|
225,000
|
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,903
|
(4)
|
|
|
227,903
|
|
(1)
|
Mr.
Eilam served as our President since January 2012 and as our Acting Chief Executive Officer between March 2012 and April 2012
when he was appointed Interim Chief Executive Officer. Mr. Eilam became Chief Executive Officer on August 15, 2012. Mr. Eilam
served as our Chief Operating Officer from January 2012 to April 2012 and as our Chief Technology Officer from July 2011 to
January 2012. Mr. Eilam resigned as our President and CEO in July 2017. He continues to serve as a member of our board of
directors.
|
|
|
(2)
|
Mr.
Casabonne was hired and appointed Chief Financial Officer on May 3, 2014. Since August 2017 he has served as our interim Chief
Executive Officer.
|
|
|
(3)
|
Represents
group life insurance premiums ($1,470 in 2016 and $916 in 2017), and our contribution to the 401(k) plan ($2,000 in 2016 and
$0 in 2017).
|
|
|
(4)
|
Represents
group life insurance premiums ($903 in each of 2016 and 2017), and our contribution to the 401(k) plan ($2,000 in 2016 and
$0 in 2017).
|
|
|
(5)
|
During
the three month period ended September 30, 2016, Messrs. Eilam and Casabonne voluntarily agreed with our board of directors
to defer 50% of their salary beginning September 1, 2016 until such time as the Company can reasonably pay such compensation
upon approval by the board of directors. The 2016 salary for Mr. Eilam and Mr. Casabonne includes deferred salary of $46,011
and $37,644, respectively. The 2017 salary for Mr. Eilam and Mr. Casabonne includes deferred salary of $80,208 and $28,125,
respectively. (See Note 12 to the consolidated financial statements).
|
Mr.
Casabonne has been employed since May, 2014 and continues to be employed on an at-will, part time, basis. Mr. Casabonne will receive
an annual base salary of $225,000 and is eligible for an annual performance-based bonus up to 30% of his annual base salary that
is based on goals and achievements mutually set by Mr. Casabonne and management. In 2014, Mr. Casabonne was awarded equity compensation
equivalent to 66,667 shares of hopTo Inc. common stock.
Outstanding
Equity Awards at Fiscal Year-End
Outstanding
Equity Awards at December 31, 2017
|
|
|
Option
Awards
|
|
|
|
|
Name
|
|
Number
of Underlying Securities (1)
|
|
|
Number
of Underlying Securities
unvested
|
|
|
Number
of Underlying Securities unearned
|
|
|
Option
Exercise Price $
|
|
|
Option
Expiration Date
|
|
Jean-Louis Casabonne
|
|
|
57,911
|
(2)
|
|
|
15,108
|
|
|
|
15,108
|
|
|
|
1.800
|
|
|
|
8/04/2025
|
|
Interim CEO, CFO,
Secretary
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(1)
|
All
options are immediately exercisable upon grant and vest in 33 equal monthly installments beginning in the fourth month after
their respective date of grant. We have the right to repurchase exercised unvested options at the exercise price of the respective
option upon the optionee’s cessation of service to our Company.
|
|
|
(2)
|
On
August 5, 2015, Mr. Casabonne was granted stock options to purchase 57,911 shares of common stock which vests monthly. This
option grant was offered as an exchange for forfeiting 44,445 of unreleased restricted stock award that was originally awarded
in May 2014.
|
Compensation
of Directors
During
the fiscal year ended December 31, 2017 our non-employee directors were eligible to be compensated at the rate of $1,000 for attendance
at each meeting of our Board, $500 if their attendance was via telephone, $500 for attendance at each meeting of a Board committee,
and a $1,500 quarterly retainer. As of December 31, 2017, $64,000 of the board fees earned were accrued and not yet paid (see
Note 5 to our Notes to Consolidated Financial Statements).
Name
|
|
Year
|
|
|
Fees
Earned or Paid in Cash
|
|
|
Option
Awards
|
|
|
All
Other Compensation
|
|
|
Total
|
|
Michael A. Brochu
|
|
|
2017
|
|
|
$
|
10,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,000
|
|
John Cronin
|
|
|
2017
|
|
|
$
|
10,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,000
|
|
Eldad Eilam
|
|
|
2017
|
|
|
$
|
6,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,000
|
|
Compensation
Committee Interlocks and Insider Participation
During
the year ended December 31, 2017, the Compensation Committee was comprised of Michael A. Brochu and John Cronin, each of whom
is a non-employee director. See Item 13 for a summary of transactions with entities controlled by Mr. Cronin.
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The
following table sets forth the beneficial ownership of our common stock as of March 31, 2018, by (i) each of our directors and
nominees; (ii) each person known by us to beneficially own 5% or more of our common stock (based upon review of the most recent
Schedule 13D and 13G filings as of March 31, 2018); (iii) each executive officer named in the summary compensation table; and
(iv) all directors and executive officers as a group. Unless otherwise indicated, the address for each of the following stockholders
is c/o hopTo Inc., 6 Loudon Road, Suite 200, Concord, NH 03301.
Name
and Address
|
|
Number
of Shares of Common Stock Beneficially Owned (1)(2)
|
|
|
Percent
of Class (%)
|
|
Eldad Eilam
|
|
|
231,194
|
|
|
|
2.4
|
|
Michael A. Brochu (3)
|
|
|
144,791
|
|
|
|
1.5
|
|
John Cronin (3)
|
|
|
82,864
|
|
|
|
*
|
|
Jean-Louis Casabonne (3)
|
|
|
82,525
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All current executive officers and directors
as a group (4 persons)(3)
|
|
|
541,374
|
|
|
|
5.5
|
|
JMI Holdings, LLC (2011 Family Series)
(4)
|
|
|
952,604
|
|
|
|
9.6
|
|
David R. Wilmerding, III (5)
2
Hamill Road, Suite 272
Baltimore, MD 21117
|
|
|
938,071
|
|
|
|
9.4
|
|
Jon C. Baker (6)
101 St. Johns
Road
Baltimore, MD 21210
|
|
|
860,866
|
|
|
|
8.7
|
|
Austin Marxe, David Greenhouse and Adam
C. Stettner (7)
527 Madison Avenue, Suite 2600
New York, NY 10022
|
|
|
850,847
|
|
|
|
8.6
|
|
Novelty
Capital Partners LP (8)
520
Newport Center Drive, 12
th
Floor
Newport
Beach, CA 92660
|
|
|
975,711
|
|
|
|
9.9
|
|
(1)
|
As
used in this table, beneficial ownership means the sole or shared power to vote, or direct the voting of, a security, or the
sole or shared power to invest or dispose, or direct the investment or disposition, of a security. Except as otherwise indicated,
based on information provided by the named individuals, all persons named herein have sole voting power and investment power
with respect to their respective shares of our common stock, except to the extent that authority is shared by spouses under
applicable law, and record and beneficial ownership with respect to their respective shares of our common stock. With respect
to each stockholder, any shares issuable upon exercise of options and warrants held by such stockholder that are currently
exercisable or will become exercisable within 60 days of March 31, 2018 are deemed outstanding for computing the percentage
of the person holding such options, but are not deemed outstanding for computing the percentage of any other person.
|
(2)
|
Percentage
ownership of our common stock is based on 9,804,400 shares of common stock outstanding as of March 31, 2018.
|
(3)
|
Includes
the following shares of common stock issuable upon exercise of outstanding stock options: 57,911 stock options held by Mr.
Casabonne; and 62,200 stock options held by each of Messrs. Brochu and Cronin.
|
(4)
|
Based
solely on information known to us, Charles E. Noell, III, John J. Moores and Bryant W. Burke share voting and dispositive
power over these shares by virtue of being members of El Camino Advisors, LLC, the manager of JMI Holdings, LLC (2011 Family
Series). JMI Holdings, LLC (2011 Family Series) owns 841,493 shares of our common stock and warrants to purchase 111,111 shares
of our common stock.
|
(5)
|
Based
on information contained in a Schedule 13G/A filed by David Wilmerding on February 1, 2017, and information known to us, Mr.
Wilmerding has sole voting and dispositive power with respect to 844,736 shares of our common stock and warrants to purchase
99,999 shares of our common stock.
|
(6)
|
Based
on information contained in a Schedule 13G/A filed by Jon C. Baker on January 30, 2017, and information known to us, Mr. Baker
has sole voting and dispositive power with respect to 777,533 shares of our common stock and warrants to purchase 83,333 shares
of our common stock.
|
(7)
|
Based
solely on information contained in a joint Schedule 13G/A filed by Austin Marxe, David Greenhouse and Adam Stettner on February
13, 2018. Such stockholders share voting and dispositive power over these shares by virtue of being the controlling principals
of AWM Investment Company, Inc. (“AWM”), and the members of SST Advisers, L.L.C. (“SST”). AWM acts
as investment advisor to each of Special Situations Technology Fund, L.P. (“Tech Fund”) and Special Situations
Technology Fund II, L.P. (“Tech Fund II”); SST is the general partner of each of Tech Fund and Tech Fund II. Tech
Fund owns 130,426 shares of our common stock and holds warrants to purchase 12,667 shares of our common stock. Tech Fund II
owns 628,754 shares of our common stock and holds warrants to purchase 79,000 shares of our common stock.
|
(8)
|
Based
on information contained in Schedule 13D filed on March 23,2018, by Novelty Capital, LLC, Jonathon R.Skeels as the sole general
partner of Novelty Capital has sole voting and dispositive power with respect to 975,711 shares of our common stock.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Related-Party
Transactions
John
Cronin
ipCapital
Group, Inc.
On
October 11, 2011, we engaged ipCapital Group, Inc. (“ipCapital”), an affiliate of John Cronin, who is one of our directors,
to assist us in the execution of our strategic decision to significantly strengthen, grow and commercially exploit our intellectual
property assets. Our engagement agreement with ipCapital, which has been amended three times, affords us the right to request
ipCapital to perform a number of diverse services, employing its proprietary processes and methodologies, to facilitate our ability
to identify and extract from our current intellectual property base new inventions, potential patent applications, and marketing
and licensing opportunities.
For
the years ended December 31, 2017 and 2016, there were no services performed, additional charges incurred or payments made to
ipCapital under the agreement.
In
addition to the fees we agreed to pay ipCapital for its services, we issued ipCapital a five-year warrant to purchase up to 26,667
shares of our common stock at an initial price of $3.90 per share. Half of the warrant (13,333 shares) has a time-based vesting
condition, with such vesting to occur in three equal annual installments. The first, second, and third vesting installments occurred
on October 11, 2012, 2013, and 2014. The remaining 13,333 shares became fully vested upon the completion to our satisfaction of
all services that we requested from ipCapital under the engagement agreement, prior to the signing of the amendments. Such performance
was deemed satisfactory during 2012. We believe that these fees, together with the issuance of the warrant, constitute no greater
compensation than we would be required to pay an unaffiliated person for substantially similar services.
The
exercise price of the warrant issued to ipCapital could be reset to below-market value. Consequently, we have concluded that such
warrant is not indexed to our common stock; thus, we will accrete the fair value of the warrant as a liability over the anticipated
service period. Additionally, in accordance with the liability method of accounting, we will re-measure the fair value of the
then-outstanding warrant at each future balance sheet date and recognize the change in fair value as general and administrative
compensation expense. (See Note 8) We recognized $(2,300) and $(18,100) as a component of general and administrative expense during
the years ended December 31, 2016 and 2015, respectively, resulting from the change in fair value.
The
warrants expired on October 11, 2016.
ipCapital
Licensing Company I, LLC
In
February 2013, we entered into an IP Brokerage agreement with ipCapital Licensing Company I, LLC (“ipCLC”) (the “IP
Brokerage Agreement”). At the time that we entered into this agreement, John Cronin was a partner at ipCLC. He is no longer
affiliated with ipCLC. Pursuant to the IP Brokerage Agreement, we engaged ipCLC, on a no-retainer basis, to identify and present
us with candidates who may be seeking to acquire a certain limited group of our patents unrelated to our current business strategy.
In June 2016, we determined that the IP Brokerage Agreement is no longer in effect since ipCLC no longer exists as an entity.
Director
Independence
Our
Board of Directors has determined that each of our non-employee directors (John Cronin and Michael A. Brochu), who collectively
constitute a majority of our Board, meets the general independence criteria set forth in the NASDAQ Marketplace rules. As noted
above, Mr. Eilam would not be independent under NASDAQ rules due to his status as a prior officer. Our Board has made a subjective
determination as to each of the foregoing individuals that no relationships exist (including the relationship with ipCapital,
that is described above under “Related-Party Transactions”) that, in the opinion of our Board, would interfere with
the exercise of independent judgment in carrying out the responsibilities of a director.
ITEM
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Fees
for professional services provided by Macias Gini & O’Connell LLP for the fiscal years ended December 31, 2017 and 2016
were as follows:
Category
|
|
2017
|
|
|
2016
|
|
Audit fees
|
|
$
|
131,600
|
|
|
$
|
147,500
|
|
Audit – related fees
|
|
|
8,000
|
|
|
|
—
|
|
Tax fees
|
|
|
10,000
|
|
|
|
11,800
|
|
All Other fees
|
|
|
—
|
|
|
|
—
|
|
Totals
|
|
$
|
149,600
|
|
|
$
|
159,300
|
|
Audit
fees include fees associated with our annual audit, the reviews of our quarterly reports on Form 10-Q, and assistance with and
review of documents filed with the Securities and Exchange Commission. Audit-related fees include consultations regarding revenue
recognition and new accounting pronouncements as they related to the financial reporting of certain transactions. Tax fees included
tax compliance and tax consultations.
The
audit committee has adopted a policy that requires advance approval of all audit, audit-related, tax services and other services
performed by our independent registered public accounting firm. The policy provides for pre-approval by the audit committee of
specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to
that fiscal year, the audit committee must approve the permitted service before the independent registered public accounting firm
is engaged to perform it.
PART
IV
Item
15.
|
Exhibits,
Financial Statement Schedules
|
(a)
Financial Statements
Our
financial statements as set forth in the Index to Consolidated Financial Statements under Part II, Item 8 of this Annual Report
on Form 10-K are hereby incorporated by reference.
(b)
Exhibits
The
following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed as part of this Annual Report
on Form 10-K or, as noted, incorporated by reference herein:
Exhibit
Number
|
|
Exhibit
Description
|
|
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation of Registrant, as amended (1)
|
3.2
|
|
Certificate
of Amendment of Amended and Restated Certificate of Incorporation of GraphOn Corporation (19)
|
3.3
|
|
Certificate
of Amendment of Amended and Restated Certificate of Incorporation of hopTo Inc. (28)
|
3.4
|
|
Certificate
of Designation of Series A Junior Participating Preferred Stock of hopTo Inc. (31)
|
3.5
|
|
Second
Amended and Restated Bylaws of Registrant (2)
|
4.1
|
|
Form
of certificate evidencing shares of common stock of Registrant (3)
|
4.2
|
|
Form
of Warrant issued on September 1, 2011 (4)
|
4.3
|
|
Warrant
to Purchase Common Stock, dated October 11, 2011 (5)
|
4.4
|
|
Exercise
Agreement, dated June 17, 2013 (including Allonge to 2011 warrants) (20)
|
4.5
|
|
Form
of New Warrant issued on June 17, 2013 (20)
|
4.6
|
|
Registration
Rights Agreement, dated June 17, 2013 (20)
|
4.7
|
|
Form
of Warrant issued on January 7, 2014 (21)
|
4.8
|
|
Registration
Rights Agreement, dated January 7, 2014 (21)
|
4.9
|
|
Rights
Agreement, dated as of February 16, 2018, by and between hopTo Inc. and American Stock Transfer & Trust Company, LLC,
as rights agent (31)
|
10.1*
|
|
Restricted
Stock Agreement (1 of 2) with Eldad Eilam dated August 15, 2012 (15)
|
10.2*
|
|
Restricted
Stock Agreement (2 of 2) with Eldad Eilam dated August 15, 2012 (15)
|
10.3*
|
|
Restricted
Stock Agreement with Christoph Berlin dated August 15, 2012 (15)
|
10.4*
|
|
Restricted
Stock Agreement with Robert Dixon dated August 15, 2012 (15)
|
10.5
|
|
Separation
Agreement, dated April 12, 2012, between Registrant and Robert Dilworth (14)
|
10.6
|
|
Release,
dated April 12, 2012, between Registrant and Robert Dilworth (14)
|
10.7
|
|
1998
Stock Option/Stock Issuance Plan of Registrant (7)
|
10.8
|
|
Supplemental
Stock Option Agreement, dated as of June 23, 2000 (7)
|
10.9
|
|
2005
Equity Incentive Plan (8)
|
10.10
|
|
2008
Equity Incentive Plan, as Amended (9)
|
10.11*
|
|
Employment
Agreement, dated August 21, 2013, by and between Registrant and Eldad Eilam (16)
|
10.12*
|
|
Director
Severance Plan (11)
|
10.13*
|
|
Key
Employee Severance Plan (11)
|
10.14
|
|
Securities
Purchase Agreement, dated September 1, 2011 (4)
|
10.15
|
|
Form
of Registration Rights Agreement, dated September 1, 2011 (4)
|
10.16(a)*
|
|
Engagement
Agreement, dated October 11, 2011, by and between Registrant and ipCapital Group, Inc. (5)
|
10.16(b)*
|
|
First
Addendum to the Engagement Agreement by and between Registrant and ipCapital Group, Inc., dated as of November 7, 2011 (12)
|
10.16(c)*
|
|
Second
Addendum to the Engagement Agreement by and between Registrant and ipCapital Group, Inc., dated as of November 14, 2011 (12)
|
10.16(d)*
|
|
Third
Addendum to the Engagement Agreement by and between Registrant and ipCapital Group, Inc., dated as of January 20, 2012 (13)
|
10.17
|
|
First
Amendment to Office Lease between Registrant and CA-Pruneyard Limited Partnership, dated as of October 7, 2013 (27)
|
10.18
|
|
Consulting
Agreement, dated February 1, 2012, by and between Registrant and Steven Ledger/Tamalpais Partners LLC (22)
|
10.19
|
|
Amendment
to Consulting Agreement, by and between Registrant and Steven Ledger/Tamalpais Partners, LLC, dated August 1, 2013 (16)
|
10.20
|
|
Intellectual
Property Brokerage Agreement by and between Registrant and ipCapital Licensing Company I, LLC, dated as of February 4, 2013
(17)
|
10.21*
|
|
Consulting
Agreement, dated March 29, 2013, by and between Registrant and Gordon Watson (23)
|
10.22*
|
|
Consulting
Agreement, dated November 18, 2013, by and between Registrant and ipCreate, Inc. (24)
|
10.23
|
|
Securities
Purchase Agreement, dated January 7, 2014 (21)
|
10.24*
|
|
Consulting
Agreement, dated March 17, 2014, by and between Registrant and Steven Ledger (25)
|
10.25
|
|
Separation
Agreement, dated March 12, 2014, by and between Registrant and Christoph Berlin (25)
|
10.26
|
|
Employment
Letter dated April 30, 2014 and executed May 5, 2014 between Registrant and Jean-Louis Casabonne (26)
|
10.27
|
|
Sublease
dated August 11, 2015, by and between Registrant and CDNetworks (32)
|
10.28
|
|
Securities
Purchase Agreement, dated as of July 24, 2015 (29)
|
10.29
|
|
Registration
Rights Agreement, dated as of July 28, 2015 (29)
|
10.30
|
|
Lease
Agreement effective October 1, 2015 between the Registrant and Heritage Village Offices (30)
|
10.31
|
|
Patent
Purchase Agreement dated October 10, 2017
|
14.1
|
|
Code
of Ethics (6)
|
21.1
|
|
Subsidiaries
of Registrant
|
23.1
|
|
Consent
of Macias Gini & O’Connell LLP
|
31
|
|
Certification
pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
|
32
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished, not
filed)
|
101
|
|
The
following financial information from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted
in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of December 31, 2017 and 2016, (ii) Consolidated
Statements of Operations for the years ended December 31, 2017 and 2016, (iii) Consolidated Statements of Shareholders’
Equity (Deficit) for the years ended December 31, 2017 and 2016, (iv) Consolidated Statements of Cash Flows for the years
ended December 31, 2017 and 2016, (v) Notes to Consolidated Financial Statements (18)
|
*Management
or compensatory plan or arrangement
|
(1)
|
Filed
on April 2, 2007 as an exhibit to Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 2006, and
incorporated herein by reference. (File number 000-21683)
|
|
(2)
|
Filed
on March 31, 2010 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009,
and incorporated herein by reference. (File number 000-21683)
|
|
(3)
|
Filed
on September 19, 1996 as an exhibit to the Registrant’s Registration Statement on Form S-1 and incorporated herein by
reference. (File No. 333-11165)
|
,
|
(4)
|
Filed
on September 8, 2011 as an exhibit to Registrant’s Current Report on Form 8-K and incorporated herein by reference.
(File number 000-21683)
|
|
(5)
|
Filed
on October 13, 2011 as an exhibit to Registrant’s Current Report on Form 8-K and incorporated herein by reference. (File
number 000-21683)
|
|
(6)
|
Filed
on March 30, 2004 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003,
and incorporated herein by reference. (File number 000-21683)
|
|
(7)
|
Filed
on June 23, 2000 as an exhibit to the Registrant’s Registration Statement on Form S-8, and incorporated herein by reference.
(File number 333-40174)
|
|
(8)
|
Filed
on November 25, 2005 as an exhibit to the Registrant’s definitive Proxy Statement for the Registrant’s 2005 Annual
Meeting, and incorporated herein by reference. (File number 000-21683)
|
|
(9)
|
Filed
on September 29, 2011 as an exhibit to the Registrant’s Registration Statement on Form S-8 and incorporated herein by
reference. (File No. 333-177069)
|
|
(10)
|
Reserved.
|
|
(11)
|
Filed
on November 14, 2011 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2011, and incorporated herein by reference. (File number 000-21683)
|
|
(12)
|
Filed
on November 23, 2011 as an exhibit to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, and incorporated
herein by reference. (File number 333-177073)
|
|
(13)
|
Filed
on February 14, 2012 as an exhibit to the Registrant’s Current Report on Form 8-K and incorporated herein by reference.
(File number 000-21683)
|
|
(14)
|
Filed
on May 21, 2012 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2012, and incorporated herein by reference. (File number 000-21683)
|
|
(15)
|
Filed
on November 14, 2012 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarterly reporting period
ended September 30, 2012, and incorporated herein by reference. (File number 000-21683)
|
|
(16)
|
Filed
on August 27, 2013 as an exhibit to the Registrant’s Current Report on Form 8-K, dated August 21, 2013, and incorporated
herein by reference. (File number 000-21683)
|
|
(17)
|
Filed
on February 19, 2013 as an exhibit to the Registrant’s Current Report on Form 8-K, and incorporated herein by reference.
(File number 000-21683)
|
|
(18)
|
Submitted
electronically with the original Form 10-K.
|
|
(19)
|
Filed
on September 10, 2013 as an exhibit to the Registrant’s Current Report on Form 8-K, dated September 9, 2013, and incorporated
herein by reference. (File number 000-21683)
|
|
(20)
|
Filed
on June 24, 2013 as an exhibit to the Registrant’s Current Report on Form 8-K, dated June 17, 2013, and incorporated
herein by reference. (File number 000-21683)
|
|
(21)
|
Filed
on January 13, 2014 as an exhibit to the Registrant’s Current Report on Form 8-K, dated January 7, 2014, and incorporated
herein by reference. (File number 000-21683)
|
|
(22)
|
Filed
on April 16, 2012 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011,
and incorporated herein by reference. (File number 000-21683)
|
|
(23)
|
Filed
on April 3, 2013 as an exhibit to the Registrant’s Current Report on Form 8-K, dated March 29, 2013, and incorporated
herein by reference. (File number 000-21683)
|
|
(24)
|
Filed
on December 12, 2013 as an exhibit to the Registrant’s Current Report on Form 8-K, dated December 11, 2013, and incorporated
herein by reference. (File number 000-21683)
|
|
(25)
|
Filed
on March 18, 2014 as an exhibit to the Registrant’s Current Report on Form 8-K, dated March 12, 2014, and incorporated
herein by reference. (File number 000-21683)
|
|
(26)
|
Filed
on May 12, 2014 as an exhibit to the Registrant’s Current Report on Form 8-K, dated March 9, 2014, and incorporated
herein by reference. (File number 000-21683)
|
|
(27)
|
Filed
on March 31, 2014 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013,
and incorporated herein by reference. (File number 000-21683)
|
|
(28)
|
Filed
on February 1, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, dated January 27, 2016, and incorporated
herein by reference. (File number 000-21683)
|
|
(29)
|
Filed
on July 30, 2015 as an exhibit to the Registrant’s Current Report on Form 8-K, dated July 24, 2015, and incorporated
herein by reference. (File number 000-21683)
|
|
(30)
(31)
|
Filed
on September 10, 2015 as an exhibit to the Registrant’s Registration Statement
on Form S-1 and incorporated herein by reference. (File No. 333-206861)
Filed
on February 16, 2018 as an exhibit to the Registrant’s Current Report on Form 8-K, dated February 16, 2018 and incorporated
herein by reference. (File number 000-21683)
|
|
(32)
|
Filed
on March 30, 2016 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015
and incorporated herein by reference. (File number 000-21683)
|
(c)
Financial Statement Schedule
Not
applicable for smaller reporting companies.
ITEM
16.
|
FORM
10-K SUMMARY.
|
None.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
|
hopTo
Inc.
|
|
|
|
April 17
,
2018
|
By:
|
/s/
Jean-Louis Casabonne
|
|
|
Jean-Louis
Casabonne
|
|
|
Interim
Chief Executive Officer, Chief Financial Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Jean-Louis Casabonne
|
|
Interim
Chief Executive Officer, Chief Financial Officer
|
|
April
17, 2018
|
Jean-Louis
Casabonne
|
|
(Principal
Executive Officer, Principal Financial Officer and Principal Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Michael A. Brochu
|
|
Director
|
|
April
17, 2018
|
Michael
A. Brochu
|
|
|
|
|
|
|
|
|
|
/s/
John Cronin
|
|
Director
|
|
April
17, 2018
|
John
Cronin
|
|
|
|
|
|
|
|
|
|
/s/
Eldad Eilam
|
|
Director
|
|
April
17
, 2018
|
Eldad
Eilam
|
|
|
|
|
HOPTO
INC.
PROSPECTUS
4,182,312
shares of
Common Stock
,
2018
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
following table sets forth various expenses that will be incurred in connection with this offering as it relates to this Registration
Statement:
SEC
Filing Fee
|
|
$
|
2,530
|
+
|
State
Securities Filing Fees
|
|
|
n/a
|
*
|
Legal
Fees and Expenses
|
|
|
5,000
|
*
|
Accounting
Fees and Expenses
|
|
|
3,000
|
*
|
Printing
Expenses
|
|
|
n/a
|
*
|
Miscellaneous
Expenses
|
|
|
n/a
|
*
|
Total
|
|
$
|
10,530
|
*
|
*
|
Estimated
|
+
|
Previously
paid with original filing of each registration statement.
|
Item
14. Indemnification of Directors and Officers
Section
145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings
in which such person is made a party by reason of such person being or having been a director, officer, employee of or agent of
such corporation. The statute provides that it is not exclusive of other rights to which those seeking indemnification may be
entitled under any by-law, agreement, or vote of stockholders or disinterested directors or otherwise. Our certificate of incorporation
and bylaws provide for the indemnification of our directors and officers to the fullest extent authorized by, and subject to the
conditions set forth in the Delaware law.
Section
102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation for certain
limitations on a director being personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. The Company’s certificate of incorporation provides for such elimination of liability to provide that
the Company’s directors shall not be personally liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability:
|
●
|
for
any breach of the director’s duty of loyalty to the Company or its stockholders;
|
|
|
|
|
●
|
for
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
|
|
|
|
|
●
|
under
section 174 of the Delaware law, relating to unlawful payment of dividends or unlawful stock purchases or redemption of stock;
and
|
|
|
|
|
●
|
for
any transaction from which the director derives an improper personal benefit.
|
As
a result of this provision, the Company and its stockholders may be unable to obtain monetary damages from a director for breach
of his or her duty of care. The Company maintains directors and officers liability insurance.
Item
15. Recent Sales of Unregistered Securities
On
July 28, 2015, we sold an aggregate of 1,924,266 shares of common stock to certain accredited investors at a purchase price of
$1.21 per share. In addition, on that date, we sold an additional 181,653 shares of common stock at the same price to our former
CEO and current director, Eldad Eilam, and CFO, Jean-Louis Casabonne, current directors Michael Brochu, and John Cronin, and former
directors Sam Auriemma and Jeremy Verba. The shares of common stock sold in the 2015 Private Placement were offered and sold without
registration under the Securities Act pursuant to Section 4(a)(2) thereof and in reliance on Rule 506 of Regulation D promulgated
thereunder.
During
the year ended December 31, 2015, we made restricted stock awards for an aggregate 15,000 shares of common stock. The valuation
of the restricted stock awards was based on the closing fair market value of our common stock on the grant date. For the awards
made to employees, such fair market value ranged from $1.95 to $2.40 per share. During the year ended December 31, 2014, restricted
stock awards for an aggregate 291,467 shares of common stock, at a weighted average award date fair market value of $2.40 per
share, were awarded. The grant of such restricted stock awards was not registered under the Securities Act because the restricted
stock awards were offered and sold in a transaction not involving a public offering, exempt from registration under the Securities
Act pursuant to section 4(2).
Item
16. Exhibits and Financial Statement Schedules
|
(a)
|
Exhibits
.
The exhibits are incorporated by reference from the Exhibit Index attached hereto.
|
|
|
|
|
(b)
|
Financial
Statements.
The financial statements set forth in the Index to Consolidated Financial Statements under Part II, Item 8
of our Form 10-K which is attached as Appendix A to and forms a part of the prospectus, are hereby incorporated by reference.
|
Item
17. Undertakings
The
undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
|
(a)
|
To
include any prospectus required by Section 10(a)(3) of the Securities Act;
|
|
|
|
|
(b)
|
To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration
statement;
|
|
|
|
|
(c)
|
To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
|
(2)
That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4)
That each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included
in the registration statement as of the date it is first used after effectiveness.
Provided
,
however
, that no statement
made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such first use, supersede of modify any statement that was made in
the registration statement or prospectus that was part of the registration statement or made in any such document immediately
prior to such date of first use.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City of Concord, State of New Hampshire, on the 8 th
day of May , 2018.
|
HOPTO
INC.
|
|
|
|
|
By:
|
/s/
Jean Louis-Casabonne
|
|
|
Jean
Louis-Casabonne
|
|
|
Chief
Financial Officer and Interim Chief Executive Officer
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
/s/
Jean Louis-Casabonne
|
|
Interim
Chief Executive Officer, Chief Financial Officer, and Director
|
|
May
8
, 2018
|
Jean-Louis
Casabonne
|
|
(Principal
Executive Officer, Principal Financial Officer, and Principal Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Eldad Eilam
|
|
Director
|
|
May
8
, 2018
|
Eldad
Eilam
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/s/
Michael A. Brochu
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Director
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May
8
, 2018
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Mike
Brochu
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/s/
John Cronin
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Director
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May
8
, 2018
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John
Cronin
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EXHIBIT
INDEX
Exhibit
Number
|
|
Exhibit
Description
|
|
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation of Registrant, as amended (1)
|
3.2
|
|
Certificate
of Amendment of Amended and Restated Certificate of Incorporation of GraphOn Corporation (19)
|
3.3
|
|
Certificate
of Amendment of Amended and Restated Certificate of Incorporation of hopTo Inc. (28)
|
3.4
|
|
Certificate
of Designation of Series A Junior Participating Preferred Stock of hopTo Inc. (31)
|
3.5
|
|
Second
Amended and Restated Bylaws of Registrant (2)
|
4.1
|
|
Form
of certificate evidencing shares of common stock of Registrant (3)
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4.2
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|
Form
of Warrant issued on September 1, 2011 (4)
|
4.3
|
|
Warrant
to Purchase Common Stock, dated October 11, 2011 (5)
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4.4
|
|
Exercise
Agreement, dated June 17, 2013 (including Allonge to 2011 warrants) (20)
|
4.5
|
|
Form
of New Warrant issued on June 17, 2013 (20)
|
4.6
|
|
Registration
Rights Agreement, dated June 17, 2013 (20)
|
4.7
|
|
Form
of Warrant issued on January 7, 2014 (21)
|
4.8
|
|
Registration
Rights Agreement, dated January 7, 2014 (21)
|
4.9
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|
Rights
Agreement, dated as of February 16, 2018, by and between hopTo Inc. and American Stock Transfer & Trust Company, LLC,
as rights agent (31)
|
10.1*
|
|
Restricted
Stock Agreement (1 of 2) with Eldad Eilam dated August 15, 2012 (15)
|
10.2*
|
|
Restricted
Stock Agreement (2 of 2) with Eldad Eilam dated August 15, 2012 (15)
|
10.3*
|
|
Restricted
Stock Agreement with Christoph Berlin dated August 15, 2012 (15)
|
10.4*
|
|
Restricted
Stock Agreement with Robert Dixon dated August 15, 2012 (15)
|
10.5
|
|
Separation
Agreement, dated April 12, 2012, between Registrant and Robert Dilworth (14)
|
10.6
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|
Release,
dated April 12, 2012, between Registrant and Robert Dilworth (14)
|
10.7
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|
1998
Stock Option/Stock Issuance Plan of Registrant (7)
|
10.8
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|
Supplemental
Stock Option Agreement, dated as of June 23, 2000 (7)
|
10.9
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|
2005
Equity Incentive Plan (8)
|
10.10
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|
2008
Equity Incentive Plan, as Amended (9)
|
10.11*
|
|
Employment
Agreement, dated August 21, 2013, by and between Registrant and Eldad Eilam (16)
|
10.12*
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|
Director
Severance Plan (11)
|
10.13*
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|
Key
Employee Severance Plan (11)
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10.14
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Securities
Purchase Agreement, dated September 1, 2011 (4)
|
10.15
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|
Form
of Registration Rights Agreement, dated September 1, 2011 (4)
|
10.16(a)*
|
|
Engagement
Agreement, dated October 11, 2011, by and between Registrant and ipCapital Group, Inc. (5)
|
10.16(b)*
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|
First
Addendum to the Engagement Agreement by and between Registrant and ipCapital Group, Inc., dated as of November 7, 2011 (12)
|
10.16(c)*
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Second
Addendum to the Engagement Agreement by and between Registrant and ipCapital Group, Inc., dated as of November 14, 2011 (12)
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10.16(d)*
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Third
Addendum to the Engagement Agreement by and between Registrant and ipCapital Group, Inc., dated as of January 20, 2012 (13)
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10.17
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First
Amendment to Office Lease between Registrant and CA-Pruneyard Limited Partnership, dated as of October 7, 2013 (27)
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10.18
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|
Consulting
Agreement, dated February 1, 2012, by and between Registrant and Steven Ledger/Tamalpais Partners LLC (22)
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10.19
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|
Amendment
to Consulting Agreement, by and between Registrant and Steven Ledger/Tamalpais Partners, LLC, dated August 1, 2013 (16)
|
10.20
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|
Intellectual
Property Brokerage Agreement by and between Registrant and ipCapital Licensing Company I, LLC, dated as of February 4, 2013
(17)
|
10.21*
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|
Consulting
Agreement, dated March 29, 2013, by and between Registrant and Gordon Watson (23)
|
10.22*
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|
Consulting
Agreement, dated November 18, 2013, by and between Registrant and ipCreate, Inc. (24)
|
10.23
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|
Securities
Purchase Agreement, dated January 7, 2014 (21)
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10.24*
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Consulting
Agreement, dated March 17, 2014, by and between Registrant and Steven Ledger (25)
|
10.25
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|
Separation
Agreement, dated March 12, 2014, by and between Registrant and Christoph Berlin (25)
|
10.26
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|
Employment
Letter dated April 30, 2014 and executed May 5, 2014 between Registrant and Jean-Louis Casabonne (26)
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10.27
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Sublease
dated August 11, 2015, by and between Registrant and CDNetworks (32)
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10.28
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Securities
Purchase Agreement, dated as of July 24, 2015 (29)
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10.29
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Registration
Rights Agreement, dated as of July 28, 2015 (29)
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10.30
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Lease
Agreement effective October 1, 2015 between the Registrant and Heritage Village Offices (30)
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10.31
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Patent
Purchase Agreement dated October 10, 2017 (33)
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14.1
|
|
Code
of Ethics (6)
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21.1
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|
Subsidiaries
of Registrant (33)
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23.1
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|
Consent
of Macias Gini & O’Connell LLP
|
101
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|
The
following financial information from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted
in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of December 31, 2017 and 2016, (ii) Consolidated
Statements of Operations for the years ended December 31, 2017 and 2016, (iii) Consolidated Statements of Shareholders’
Equity (Deficit) for the years ended December 31, 2017 and 2016, (iv) Consolidated Statements of Cash Flows for the years
ended December 31, 2017 and 2016, (v) Notes to Consolidated Financial Statements (18)
|
*Management
or compensatory plan or arrangement
|
(1)
|
Filed
on April 2, 2007 as an exhibit to Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 2006, and
incorporated herein by reference. (File number 000-21683)
|
|
(2)
|
Filed
on March 31, 2010 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009,
and incorporated herein by reference. (File number 000-21683)
|
|
(3)
|
Filed
on September 19, 1996 as an exhibit to the Registrant’s Registration Statement on Form S-1 and incorporated herein by
reference. (File No. 333-11165)
|
,
|
(4)
|
Filed
on September 8, 2011 as an exhibit to Registrant’s Current Report on Form 8-K and incorporated herein by reference.
(File number 000-21683)
|
|
(5)
|
Filed
on October 13, 2011 as an exhibit to Registrant’s Current Report on Form 8-K and incorporated herein by reference. (File
number 000-21683)
|
|
(6)
|
Filed
on March 30, 2004 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003,
and incorporated herein by reference. (File number 000-21683)
|
|
(7)
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Filed
on June 23, 2000 as an exhibit to the Registrant’s Registration Statement on Form S-8, and incorporated herein by reference.
(File number 333-40174)
|
|
(8)
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Filed
on November 25, 2005 as an exhibit to the Registrant’s definitive Proxy Statement for the Registrant’s 2005 Annual
Meeting, and incorporated herein by reference. (File number 000-21683)
|
|
(9)
|
Filed
on September 29, 2011 as an exhibit to the Registrant’s Registration Statement on Form S-8 and incorporated herein by
reference. (File No. 333-177069)
|
|
(10)
|
Reserved.
|
|
(11)
|
Filed
on November 14, 2011 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2011, and incorporated herein by reference. (File number 000-21683)
|
|
(12)
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Filed
on November 23, 2011 as an exhibit to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, and incorporated
herein by reference. (File number 333-177073)
|
|
(13)
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Filed
on February 14, 2012 as an exhibit to the Registrant’s Current Report on Form 8-K and incorporated herein by reference.
(File number 000-21683)
|
|
(14)
|
Filed
on May 21, 2012 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2012, and incorporated herein by reference. (File number 000-21683)
|
|
(15)
|
Filed
on November 14, 2012 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarterly reporting period
ended September 30, 2012, and incorporated herein by reference. (File number 000-21683)
|
|
(16)
|
Filed
on August 27, 2013 as an exhibit to the Registrant’s Current Report on Form 8-K, dated August 21, 2013, and incorporated
herein by reference. (File number 000-21683)
|
|
(17)
|
Filed
on February 19, 2013 as an exhibit to the Registrant’s Current Report on Form 8-K, and incorporated herein by reference.
(File number 000-21683)
|
|
(18)
|
Submitted
electronically with the original Form 10-K.
|
|
(19)
|
Filed
on September 10, 2013 as an exhibit to the Registrant’s Current Report on Form 8-K, dated September 9, 2013, and incorporated
herein by reference. (File number 000-21683)
|
|
(20)
|
Filed
on June 24, 2013 as an exhibit to the Registrant’s Current Report on Form 8-K, dated June 17, 2013, and incorporated
herein by reference. (File number 000-21683)
|
|
(21)
|
Filed
on January 13, 2014 as an exhibit to the Registrant’s Current Report on Form 8-K, dated January 7, 2014, and incorporated
herein by reference. (File number 000-21683)
|
|
(22)
|
Filed
on April 16, 2012 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011,
and incorporated herein by reference. (File number 000-21683)
|
|
(23)
|
Filed
on April 3, 2013 as an exhibit to the Registrant’s Current Report on Form 8-K, dated March 29, 2013, and incorporated
herein by reference. (File number 000-21683)
|
|
(24)
|
Filed
on December 12, 2013 as an exhibit to the Registrant’s Current Report on Form 8-K, dated December 11, 2013, and incorporated
herein by reference. (File number 000-21683)
|
|
(25)
|
Filed
on March 18, 2014 as an exhibit to the Registrant’s Current Report on Form 8-K, dated March 12, 2014, and incorporated
herein by reference. (File number 000-21683)
|
|
(26)
|
Filed
on May 12, 2014 as an exhibit to the Registrant’s Current Report on Form 8-K, dated March 9, 2014, and incorporated
herein by reference. (File number 000-21683)
|
|
(27)
|
Filed
on March 31, 2014 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013,
and incorporated herein by reference. (File number 000-21683)
|
|
(28)
|
Filed
on February 1, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, dated January 27, 2016, and incorporated
herein by reference. (File number 000-21683)
|
|
(29)
|
Filed
on July 30, 2015 as an exhibit to the Registrant’s Current Report on Form 8-K, dated July 24, 2015, and incorporated
herein by reference. (File number 000-21683)
|
|
(30)
(31)
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Filed
on September 10, 2015 as an exhibit to the Registrant’s Registration Statement
on Form S-1 and incorporated herein by reference. (File No. 333-206861)
Filed
on February 16, 2018 as an exhibit to the Registrant’s Current Report on Form 8-K, dated February 16, 2018 and incorporated
herein by reference. (File number 000-21683)
|
|
(32)
|
Filed
on March 30, 2016 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015
and incorporated herein by reference. (File number 000-21683)
|
|
(33)
|
Filed
on April 17, 2018 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017
and incorporated herein by reference. (File number 000-21683)
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