Forward-Looking Information

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



  ? the success of products depends on a number of factors including market
    acceptance and our ability to manage the risks associated with product
    introduction;
  ? local, regional, national and international economic conditions and events,
    and the impact they may have on us and our customers;
  ? our revenue could be adversely impacted if any of our significant customers
    reduces its order levels or fails to order during a reporting period; customer
    demand is based on many factors out of our control;
  ? as a result of the new revenue recognition standards, if any significant end
    user customer or reseller substantially changes its order level, or fails to
    order during the reporting period, whether the order is placed directly with
    us or through one of our non-stocking resellers, our software licenses revenue
    could be materially impacted; and
  ? other factors, including, but not limited to, those set forth under Item 1A,
    "Risk Factors" in our Annual Report on Form 10-K for the year ended December
    31, 2021 which was filed with the Securities and Exchange Commission (the
    "SEC") on March 31, 2022, and in other documents we have filed with the SEC.

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

Introduction

hopTo, Inc., through its wholly owned subsidiary GraphOn Corporation (collectively, "we", "us," "our" or the "Company"), is a developer of application publishing software which includes application virtualization software and cloud computing software for multiple computer operating systems including Windows, UNIX and several Linux-based variants. Our application publishing software solutions are sold under the brand name GO-Global, which is our sole revenue source. GO-Global is an application access solution for use by independent software vendors ("ISVs"), corporate enterprises, governmental and educational institutions, and others who wish to take advantage of cross-platform remote access and Web-enabled access to their existing software applications, as well as those who are deploying secure, private cloud environments.

Critical Accounting Policies

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as "critical" because these specific areas require us to make judgments and estimates about matters that are uncertain at the time when we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 2021 10-K Report and Note 2 to our unaudited consolidated financial Statements included under Item 1 - Financial Statements in this Form 10-Q.



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Results of Operations for the Three-Month Periods Ended March 31, 2022 and 2021

The following are the results of our operations for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.



                                                For the Three Months Ended
                                             March 31,             March 31,
                                                2022                 2021             $ Change
                                            (unaudited)           (unaudited)

Revenues                                   $      950,200       $       860,200     $      90,000
Cost of revenues                                   77,400                44,200            33,200
Gross profit                                      872,800               816,000            56,800

Operating expenses:
Selling and marketing                             123,100               143,000           (19,900 )
General and administrative                        204,900               214,700            (9,800 )
Research and development                          382,700               363,100            19,600
Total operating expenses                          710,700               720,800           (10,100 )

Income from operations                            162,100                95,200            66,900

Other income (loss):
Unrealized gain on marketable securities          (55,600 )              14,200           (69,800 )
Interest and other income                               -               269,800          (269,800 )
Other income (loss)                               (55,600 )             284,000          (339,600 )
Income before provision for income taxes          106,500               379,200          (272,700 )
Net income                                 $      106,500       $       379,200     $    (272,700 )



Revenues

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

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

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

Software Licenses

Windows software licenses revenue decreased by $4,800 or 2.6% to $177,100 during the three months ended March 31, 2022, from $181,900 for the same period in 2021.



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Software licenses revenue from our UNIX/Linux products decreased by $13,100 or 74.9% to $4,400 for the three months ended March 31, 2022 from $17,500 for the same periods of 2021. The decrease was primarily due to lower revenue from stocking and standard order licenses.

Software Service Fees

Service fees attributable to our Windows product service increased by $124,400 or 21.1% to $714,600 during three months ended March 31, 2022, from $590,200 for the same period in 2021. The increase was due to an increase in maintenance renewals from existing customers and higher subscription license orders.

Service fees revenue attributable to our UNIX products decreased by $16,000 or 32.6% to $33,100 during the three months ended March 31, 2022, from $49,100 for the same period in 2021. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of a long-term maintenance contract.

Cost of Revenues

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

Cost of revenue for the three months ended March 31, 2022 increased by $33,200, or 75.1%, to $77,400 for the three months ended March 31, 2022 from $44,200 for the same period in 2021. Cost of revenue 8.1% and 5.1% of total revenue for the three months ended March 31, 2022 and 2021, respectively. The increase was due to import tax withholdings associated with higher revenue from Brazil resellers for the three-month period ended March 31, 2022.

Selling and Marketing Expenses

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

Selling and marketing expenses decrease by $19,900, or 13.9%, to $123,100 for the three months ended March 31, 2022 from $143,000 for the same period in 2021. Selling and marketing expenses represented approximately 13.0% and 16.6% of total revenue for the three months ended March 2022 and 2021, respectively. The decrease in selling and marketing expenses was due to lower payroll expenses due to changes in personnel during the first three months of March 31, 2022.



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General and Administrative Expenses

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

General and administrative expenses decreased by $9,800, or 4.6%, to $204,900 for the three months ended March 31, 2022 from $214,700 for the same period in 2021. General and administrative expenses represented approximately 21.6% and 25.0% of total revenue for the three months ended March 31, 2022 and 2021, respectively.

The decrease in general and administrative expense was primarily due to reduction of legal patent fees.

Research and Development Expenses

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

Research and development expenses increased by $19,600, or 5.2% to $382,700 for the three months ended March 31, 2022 from $363,100 for the same period in 2021. This represented approximately 40.3% and 42.2% of total revenue for the three months ended March 31, 2022 and 2021, respectively.

Liquidity and Capital Resources

As of March 31, 2021, we had cash of $5,033,300 and a working capital position of $4,398,700 as compared to cash of $4,755,300 and a working capital position of $4,316,500 at December 31, 2021. The increase in cash as of March 31, 2022 was primarily the result of cash provided by operations during the period. We expect our results from operations and capital resources will be sufficient to fund our operations for at least the next 12 months.

The following is a summary of our cash flows from operating, investing and financing activities for the three months ended March 31, 2022 and 2021.



                                                  For the Three Months Ended
                                                March 31,            March 31,
                                                   2022                2021

Cash flows provided by operating activities $ 278,000 $ (6,300 ) Cash flows used by investing activities $

            -       $      23,800
Cash flows provided by financing activities   $            -       $           -

Net cash flows provided by operating activities for the three months ended March 31, 2022 was $278,000 while net cash flows used for the three months ended March 31,2021 was $6,300. The increase in cash flows provided by operating activities is primarily the result of an increase in deferred revenue compared to the prior year period.

The Company had no cash related to investing activities for the three months ended March 31, 2022, while the Company had net cash flows of $23,800 provided by investing activities for the same periods ended March 31, 2021.

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