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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2022

Commission File Number: 0-21683

hopTo Inc.

(Exact name of registrant as specified in its charter)

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

189 North Main St., Suite 102

Concord, NH 03301

(Address of principal executive offices)

Registrant’s telephone number:

(800) 472-7466

(408) 688-2674

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common		HPTO		OTC Market

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

Yes ☒ 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 ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
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 ☒

As of August 15, 2022, there were issued and outstanding 18,826,342 shares of the registrant’s common stock, par value $0.0001.

Table of Contents

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Exhibits	19
	Signatures	20

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

hopTo Inc.

Consolidated Balance Sheets

(unaudited)

	June 30,			December 31,
	2022			2021

Assets

Current assets
Cash and cash equivalents	$	5,207,200		$	4,755,300
Marketable securities		332,100			417,600
Accounts receivable, net		504,700			558,600
Prepaid expenses and other current assets		99,200			52,700
Total current assets		6,143,200			5,784,200

Right-of-use assets		66,700			-
Property and equipment, net		6,900			8,200
Other assets		17,800			17,800
Total assets	$	6,234,600		$	5,810,200

Liabilities and Stockholders’ Equity

Current liabilities
Accounts payable	$	240,000		$	260,800
Accrued expenses		98,700			64,200
Accrued wages		121,700			108,900
Lease liabilities - current		10,200			-
Deferred revenue - current		1,298,000			1,033,800
Total current liabilities		1,768,600			1,467,700
Long-term liabilities
Lease liabilities		56,100			-
Deferred revenue		323,600			373,900
Total liabilities		2,148,300			1,841,600

Commitments and contingencies		-			-

Stockholders’ equity
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding as of June 30, 2022 or December 31, 2021		-			-
Common stock, $0.0001 par value, 195,000,000 shares authorized, 18,826,342 and 18,850,675 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		1,900			1,900
Additional paid-in capital		82,145,100			82,155,200
Accumulated deficit		(78,060,700	)		(78,188,500	)
Total stockholders’ equity		4,086,300			3,968,600
Total liabilities and stockholders’ equity	$	6,234,600		$	5,810,200

See accompanying notes to unaudited consolidated financial statements

hopTo Inc.

Consolidated Statements of Operations

(unaudited)

	2022			2021		2022			2021
	For the Three Months Ended					For the Six Months Ended
	June 30,			June 30,		June 30,			June 30,
	2022			2021		2022			2021

Revenues:
Software licenses	$	132,000		$	174,800	$	313,500		$	374,200
Software service fees		808,600			702,700		1,556,300			1,342,000
Other		21,000			21,600		42,000			43,100
Total revenue		961,600			899,100		1,911,800			1,759,300

Cost of revenue:
Software service costs		13,500			13,500		27,000			27,000
Software product costs		35,300			32,100		99,200			62,800
Total cost of revenue		48,800			45,600		126,200			89,800

Gross profit		912,800			853,500		1,785,600			1,669,500

Operating expenses:
Selling and marketing		315,900			153,100		439,000			296,100
General and administrative		165,900			199,600		370,800			414,300
Research and development		380,800			364,500		763,500			727,600
Total operating expenses		862,600			717,200		1,573,300			1,438,000

Income from operations		50,200			136,300		212,300			231,500

Other income (loss):
Unrealized loss in marketable securities		(29,800	)		12,400		(85,500	)		26,600
Interest and other income		900			-		1,000			269,800
Other income (loss)		(28,900	)		12,400		(84,500	)		296,400
Income before provision for income taxes		21,300			148,700		127,800			527,900
Provision for income taxes		-			-		-			-
Net income	$	21,300		$	148,700	$	127,800		$	527,900

Net income per share, basic	$	0.00		$	0.01	$	0.01		$	0.03
Net income per share, diluted	$	0.00		$	0.01	$	0.01		$	0.03

Weighted average number of common shares outstanding
Basic		18,846,664			18,850,675		18,848,658			18,850,675
Diluted		19,089,238			19,092,981		19,091,102			19,092,981

See accompanying notes to unaudited consolidated financial statements

hopTo Inc.

Consolidated Statements of Stockholders’ Equity

(unaudited)

	Shares			Amount		Capital			Deficit			Total
	Common Stock					Additional Paid-In			Accumulated
	Shares			Amount		Capital			Deficit			Total

Balance at December 31, 2020		18,850,675		$	1,900	$	82,155,200		$	(79,240,700	)	$	2,916,400
Net income		-			-		-			379,200			379,200
Balance at March 31, 2021 (unaudited)		18,850,675		$	1,900	$	82,155,200		$	(78,861,500	)	$	3,295,600
Net income		-			-		-			148,700			148,700
Balance at June 30, 2021 (unaudited)		18,850,675		$	1,900	$	82,155,200		$	(78,712,800	)	$	3,444,300

Balance at December, 2021		18,850,675		$	1,900	$	82,155,200		$	(78,188,500	)	$	3,968,600
Net income		-			-		-			106,500			106,500
Balance at March 31, 2022 (unaudited)		18,850,675		$	1,900	$	82,155,200		$	(78,082,000	)	$	4,075,100
Purchase of hopTo common stock		(24,333	)		-		(10,100	)		-			(10,100	)
Net income		-			-		-			21,300			21,300
Balance at June 30, 2022 (unaudited)		18,826,342		$	1,900	$	82,145,100		$	(78,060,700	)	$	4,086,300

See accompanying notes to unaudited consolidated financial statements

hopTo Inc.

Consolidated Statements of Cash Flows

(unaudited)

	2022			2021
	For the Six Months Ended
	June 30,			June 30,
	2022			2021

Cash flows from operating activities
Net income	$	127,800		$	527,900
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,300			500
Changes in allowance for doubtful accounts		1,100			5,600
Unrealized (gain) loss from marketable securities		85,500			(26,600	)
Gain on sale of patents		-			(269,800	)

Changes in operating assets and liabilities:
Accounts receivable		52,800			(55,000	)
Prepaid expenses and other current assets		(46,500	)		(87,500	)
Accounts payable and accrued expenses		26,500			(18,100	)
Lease liabilities		(400	)		-
Deferred revenue		213,900			55,300
Net cash provided by operating activities		462,000			132,300

Cash flows from investing activities
Purchase of marketable securities		-			(290,600	)
Purchase of hopTo common stock		(10,100	)		-
Proceeds from sale of patents		-			269,800
Purchase of property and equipment		-			(3,400	)
Net cash used by investing activities		(10,100	)		(24,200	)

Net change in cash		451,900			108,100
Cash and cash equivalents, beginning of the period		4,755,300			4,375,300
Cash and cash equivalents, end of the period	$	5,207,200		$	4,483,400

See accompanying notes to unaudited consolidated financial statements

hopTo Inc.

Notes to Unaudited Consolidated Financial Statements

1. Organization

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

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

2. Significant Accounting Policies

Basis of Presentation

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

The unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 31, 2022 (“2021 10-K Report”). The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2022, or any future period.

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

Use of Estimates

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

Revenue Recognition

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

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

Product Sales

All of our licenses are delivered to the customer electronically. The Company sends the license key to the customer to download the related software from the Company portal. We recognize revenue upon delivery of these licenses.

Services Revenue

The Company has maintenance contracts that entitle customers to support and certain updates to the product. Revenue from maintenance contracts is recognized ratably over the related contract period, which generally ranges from one to five years.

Subscription Revenue

The Company sells subscription licenses that provide the customer with the right to use the software, maintenance and support and certain updates to the product. Subscription licenses are delivered electronically by either the Company’s cloud licensing server or by sending a term license key to the customer to download the related software from the Company portal. Revenue from subscription licenses is recognized ratably over the related contract period, which generally ranges from one month to one year.

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

Cash and Cash Equivalents

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts that reflects our best estimate of potentially uncollectible trade receivables. The allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts receivable. We regularly review the adequacy of our allowance for doubtful accounts by considering such factors as historical experience, credit worthiness, and current economic conditions that may affect a customer’s ability to pay. We specifically reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance for doubtful accounts based on our review of the aging and size of our accounts receivable. As of June 30, 2022 and December 31, 2021, the allowance for doubtful accounts totaled $8,100 and $7,000, respectively.

Concentration of Credit Risk

For the six months ended June 30, 2022 and June 30, 2021, the Company had four resellers comprising 12.1%,11.8%, 10.6% and 10.1%, and two resellers comprising 11.2% and 10.2 %, respectively, of total sales.

As of June 30, 2022 and December 31, 2021, the Company has five resellers comprising 23.0%, 18.9%, 14.8%, 10.2% and 10.0%, and four reseller comprising 39.7%, 15.0%, 11.9%, and 11.7%, 27.8%, respectively, of net accounts receivable.

For the purposes of this description, “sales” refers to the dollar value of orders received from these customers and partners in the period indicated. The sales values do not necessarily equal recognized revenue for these periods due to our revenue recognition policies which require deferral of revenue associated with prepaid software service fees. The loss of one of these resellers would not have a material impact as the Company could take over the end customer relationship.

Basic and Diluted Earnings Per Share

In accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted income (loss) per share reflects per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Dilutive common share equivalents as of June 30, 2022 and December 31, 2021, representing 248,216 of outstanding in-the-money warrants, were included in the computation of diluted net income per share using the Treasury Stock Method. During the three months ended June 30, 2022 and 2021, the Company had total common stock equivalents of 3,200 and 78,550 respectively, which were excluded from the computation of net income per share because they are anti-dilutive.

Fair Value of Financial Instruments

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

Recently Adopted Accounting Pronouncements

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

Right-of-use Assets (ROU) and Lease Liabilities

On January 1, 2022, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which establishes ASC 842 and supersedes the lease accounting guidance under ASC 840. The standard generally requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and provide enhanced disclosures on the amount, timing, and uncertainty of cash flows arising from lease arrangements. The Company adopted ASC 842 using the modified retrospective approach. The Company elected the package of practical expedients available for existing contracts, which allowed the Company to carry forward our historical assessments of lease identification, lease classification, and initial direct costs. The Company also elected a policy to not apply the recognition requirements of ASC 842 for short-term leases with a term of 12 months of less

As of January 1, 2022, the effective date, the Company identified one operating lease arrangement relating to the Company’s headquarters facility. The adoption of ASC 842 resulted in a recognition of an ROU asset and lease liability of $73,800 on the Company’s balance sheet relating to the leases as of January 1, 2022. The adoption of the standard did not have a material effect on the Company’s consolidated statements of operations and consolidated statements of cash flows.

Schedule of operating lease

	2022			2021
	June 30, 2022			December 31, 2021
Operating lease:
Operating lease right-of-use asset	$	66,700		$	-

Operating lease liability, current portion	$	10,200		$	-
Operating lease liability, net of current portion		56,100			-
Total operating lease liabilities	$	66,300		$	-

Weighted-average remaining lease term		2.2 years
weighted-average discount rate		0.41	%

3. Property and Equipment

Property and equipment consisted of the following.

Schedule of Property and Equipment

	June 30,			December 31,
	2022			2021

Equipment	$	164,100		$	164,100
Furniture and fixtures		1,600			1,600

Property and equipment gross		165,700			165,700

Less: accumulated depreciation		(158,800	)		(157,500	)

Property and equipment net	$	6,900		$	8,200

Depreciation expense amounted to $1,300 and $500 for the six months ended June 30, 2022 and 2021, respectively.

4. Stockholders’ Equity

Stock-Based Compensation Plans

The following summarizes the stock option activity for the six months ended June 30, 2022:

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual
				Exercise		Life
	Options			Price		(Years)

Outstanding at December 31, 2021		4,939		$	3.86		1.59
Granted		-
Forfeited/cancelled		(1,739	)
Outstanding at June 30, 2022		3,200		$	4.27		1.85

Vested and expected to vest at June 30, 2022		3,200		$	4.27		1.85

Exercisable at June 30, 2022		3,200		$	4.27		1.85

The following table summarizes information about options outstanding and exercisable as of June 30, 2022:

		Options Outstanding						Options Exercisable
						Weighted-				Weighted-
Range of				Average		Average				Average
Exercise		Number		Remaining		Exercise		Number		Exercise
Price		of Shares		Life (Years)		Price		of Shares		Price

$	2.00 - 4.00		1,667		2.45	$	2.06		1,667	$	2.06
	4.20 - 6.68		1,533		1.19		6.68		1,533		6.68
			3,200						3,200

Shares of Common Stock Issued

During the three and six-month periods ending June 30, 2022 and for the same periods ending 2021, the Company did not issue any shares of common stock.

Warrants

As of June 30, 2022 and December 31, 2021, the Company had 248,216 warrants outstanding. The warrants outstanding at June 30, 2022 are all exercisable at $0.01 and have an expiration date of May 20, 2023.

5. Sales by Geographical Location

Revenue by country for the three and six months ended June 30, 2022 and 2021 was as follows:

Schedule of Revenue by Country

	2022		2021		2022		2021
	Three Months Ended				Six Months Ended
	2022		2021		2022		2021
Revenue by Country
United States	$	388,900	$	364,700	$	779,500	$	712,200
Brazil		256,500		174,600		467,500		348,600
Japan		53,000		115,800		125,900		232,200
The Netherland		84,100		48,200		148,200		94,800
Other Countries		179,100		195,800		390,700		371,500
Total	$	961,600	$	899,100		1,911,800		1,759,300

6. Commitments and Contingencies

Profit Sharing Plans

The Company has adopted a 401(k) plan to provide retirement benefits for employees under which the Company makes discretionary matching contributions. During the three months ended June 30, 2022 and 2021, the Company contributed a total of $3,500 and $3,200, respectively. During the six months ended June 30, 2022 and 2021, the Company contributed a total of $15,400 each of these same periods.

Contingencies

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

Lease

The Company leases its’ headquarters office in Concord, New Hampshire under a thirty-six-month noncancelable operating lease agreement which will expire on August 31, 2024. The terms of certain lease agreement provide for increasing rental payments at fixed twelve-month intervals.

Supplemental balance sheet information related to leases as of June 30, 2022 is as follows:

Future minimum lease payments:
2022	$	15,200
2023		30,700
2024		20,700
Total future minimum lease payments	$	66,600
Less: Lease imputed interest		300
Total	$	66,300

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

Forward-Looking Information

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

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

Results of Operations for the Three-Month Periods Ended June 30, 2022 and 2021

The following are the results of our operations for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

	For the Three Months Ended
	June 30,			June 30,
	2022			2021		$ Change
	(unaudited)			(unaudited)
Revenues	$	961,700		$	899,100	$	62,500
Cost of revenues		48,800			45,600		3,200
Gross profit		912,900			853,500		59,300

Operating expenses:
Selling and marketing		315,900			153,100		162,800
General and administrative		165,900			199,600		(33,700	)
Research and development		380,800			364,500		16,300
Total operating expenses		862,600			717,200		145,400

Income from operations		50,300			136,300		(86,100	)

Other income (loss):
Unrealized gain on marketable securities		(29,900	)		12,400		(42,200	)
Interest and other income		900			-		900
Other income (loss)		(29,000	)		12,400		(41,300	)
Income before provision for income taxes		21,300			148,700		(127,400	)
Net income	$	21,300		$	148,700	$	(127,400	)

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.

The following is a summary of our revenues by category for the three months ended June 30, 2022 and 2021.

	For the Three Months Ended
	June 30,		June 30,
	2022		2021		$ Change
Revenue
Software Licenses
Windows	$	122,400	$	169,300	$	(46,900	)
UNIX/Linux		9,600		5,500		4,100
Total		132,000		174,800		(42,800	)

Software Service Fees
Windows		776,600		657,700		118,900
UNIX/Linux		32,000		45,000		(13,000	)
Total		808,600		702,700		105,900

Other		21,000		21,600		(600	)
	$	961,600	$	899,100	$	62,500

Software Licenses

Windows software licenses revenue decreased by $46,900 or 27.7% to $122,400 during the three months ended June 30, 2022, from $169,300 for the same period in 2021. The decrease was primarily due to lower level of stocking orders and standard licenses orders sold for the three months ended June 30,2022.

Software licenses revenue from our UNIX/Linux products increased by $4,100 or 74.5% to $9,600 for the three months ended June 30, 2022 from $5,500 for the same periods of 2021. The increase was primarily due to higher revenue from stocking order licenses, offset by lower level of standard license sale.

Software Service Fees

Service fees attributable to our Windows product service increased by $118,900 or 18.1% to $776,600 during three months ended June 30, 2022, from $657,700 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 $13,000 or 28.9% to $32,000 during the three months ended June 30, 2022, from $45,000 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 June 30, 2022 increased by $3,200, or 7.0%, to $48,800 for the three months ended June 30, 2022 from $45,600 for the same period in 2021. Cost of revenue 5.1% of total revenue for the three months ended June 30, 2022 and for the same period in 2021. The increase was due to import tax withholdings associated with higher revenue from Brazil resellers for the three-month period ended June 30, 2022.

Selling and Marketing Expenses

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

Selling and marketing expenses increased by $162,800, or 106.3%, to $315,900 for the three months ended June 30, 2022 from $153,100 for the same period in 2021. Selling and marketing expenses represented approximately 32.9% and 22.2% of total revenue for the three months ended June 30 2022 and 2021, respectively. The increase in selling and marketing expenses was due to an increase in consulting services as we continue to expand our sales and marketing initiatives for the three months ended June 30, 2022.

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 $33,700, or 16.9%, to $165,900 for the three months ended June 30, 2022 from $199,600 for the same period in 2021. General and administrative expenses represented approximately 17.3% and 22.2% of total revenue for the three months ended June 30, 2022 and 2021, respectively.

The decrease in general and administrative expense was primarily due to reduction in outside service fees and employee related expenses during the three months ended June 30, 2022.

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 $16,300, or 4.5% to $380,800 for the three months ended June 30, 2022 from $364,500 for the same period in 2021. This represented approximately 39.6% and 40.5% of total revenue for the three months ended June 30, 2022 and 2021, respectively.

The increase in research and development expense was primarily due to an increase in wages and software subscriptions during the three months ended June 30, 2022.

Other Income

Other income decreased by $127,400 for the three months ended June 30, 2022, compared to the same periods in 2021. The decrease primarily due to a decline in the value of marketable securities relative to the three months ended June 30,2021.

Results of Operations for the Six-Month Periods Ended June 30, 2022 and 2021

	For the Six Months Ended
	June 30,			June 30,
	2022			2021		$ Change
	(Unaudited)			(Unaudited)
Revenues	$	1,911,800		$	1,759,300	$	152,500
Cost of revenues		126,200			89,800		36,400
Gross profit		1,785,600			1,669,500		116,100

Operating expenses:
Selling and marketing		439,000			296,100		142,900
General and administrative		370,800			414,300		(43,500	)
Research and development		763,500			727,600		35,900
Total operating expenses		1,573,300			1,438,000		135,300

Income from operations		212,300			231,500		(19,200	)

Other income:
Unrealized gain on marketable securities		(85,500	)		26,600		(112,100	)
Other income		1,000			269,800		(268,800	)
		(84,500	)		296,400		(380,900	)
Income before provision for income taxes		127,800			527,900		(400,100	)
Provision for income taxes		-			-		-
Net income	$	127,800		$	527,900	$	(400,100	)

Revenues

The following is a summary of our revenues by category for the six months ended June 30, 2022 and 2021.

	For the Six Months Ended
	June 30,		June 30,
	2022		2021		$ Change
Revenue
Software Licenses
Windows	$	299,500	$	351,200	$	(51,700	)
UNIX/Linux		14,000		23,000		(9,000	)
Total		313,500		374,200		(60,700	)

Software Service Fees
Windows		1,491,200		1,247,900		243,300
UNIX/Linux		65,100		94,100		(29,000	)
Total		1,556,300		1,342,000		214,300

Other		42,000		43,100		(1,100	)
	$	1,911,800	$	1,759,300	$	152,500

Software Licenses

Windows software licenses revenue decreased by $51,700 or 14.7% to $299,500 during the six months ended June 30, 2022, from $351,200 for the same period in 2021. The decrease for the six months ended June 30,2022 was due to lower license orders from standard licenses, offset by increase of stocking orders.

Software licenses revenue from our UNIX/Linux products decreased by $9,000 or 39.1% to $14,000 for the six months ended June 30, 2022 from $54,900 for the same period of 2021. The decrease was primarily due to lower revenue from standard order licenses offset by higher stocking order licenses during the six months ended June 30,2022.

Software Service Fees

Service fees attributable to our Windows product service increased by $243,300 or 19.5% to $1,491,200 during the six months ended June 30, 2022, from $1,247,900 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 $29,000 or 30.8% to $65,100 during the six months ended June 30, 2022, from $94,100 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.

Other

Other revenue consists of private labeling fees, professional services, and other non-recurring revenues. Other revenue decreased by $1,100 or 2.62% for the six months ended June 30, 2022, compared to the same period in 2021.

Cost of Revenues

Cost of revenue for the six months ended June 30, 2022 increased by $36,400, or 40.5%, to $126,200 for the six months ended June 30, 2022 from $89,800 for the same period in 2021. Cost of revenue represented 6.6% and 5.1% of total revenue for the six months ended June 30, 2022 and 2021, respectively. The primarily increase was due to increase import tax withholdings associated with higher revenue from Brazil resellers for the six-month period ended June 30, 2022.

Selling and Marketing Expenses

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

Selling and marketing expenses increased by $142,900, or 48.3%, to $439,000 for the six months ended June 30, 2022 from $296,100 for the same period in 2020. Selling and marketing expenses represented approximately 19.4% and 23.5% of total revenue for the six months ended June 2022 and 2021, respectively. The increase in selling and marketing expenses was due to an increase in consulting services as we continue to expand our sales and marketing initiatives.

General and Administrative Expenses

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

General and administrative expenses decreased by $43,500, or 10.5%, to $370,800 for the six months ended June 30, 2022 from $414,300 for the same period in 2021. General and administrative expenses represented approximately 19.4% and 23.5% of total revenue for the six months ended June 30, 2022 and 2021, respectively.

The decrease in general and administrative expense was primarily due to reduction of employee related fees, outside service fees and patent legal fees.

Research and Development Expenses

Research and development expenses increased by $35,900, or 4.9% to $763,500 for the six months ended June 30, 2022 from $727,600 for the same period in 2021. This represented approximately 39.9% and 41.4% of total revenue for the six months ended June 30, 2022 and 2021, respectively.

The increase in research and development expense was primarily due to increase in wages and software subscriptions.

Other Income

Other income decreased by $380,900 for the six months ended June 30, 2022, compare to the same periods in 2021 was primarily related to income from the sale of certain patents and unrealized gain of marketable securities during the prior year.

Liquidity and Capital Resources

As of June 30, 2022, we had cash of $5,207,200 and a working capital position of $4,374,600 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 June 30, 2022 was primarily the result of cash provided by operations during the period. We expect our results from operations and capital resources will be sufficient to fund our operations for at least the next 12 months.

The following is a summary of our cash flows from operating, investing and financing activities for the six months ended June 30, 2022 and 2021.

	For the Six Months Ended
	June 30,			June 30,
	2022			2021
Cash flows provided by operating activities	$	462,200		$	132,300
Cash flows used in investing activities	$	(10,100	)	$	(24,200	)
Cash flows provided by financing activities	$	-		$	-

Net cash flows provided by operating activities for the three months ended June 30, 2022 was $462,000 while net cash flows provided for the three months ended June 30,2021 was $132,300. The increase in cash flows provided by operating activities is the result of an increase in deferred revenue and change in value in marketable securities compared to the prior year period.

The Company had net cash flows of $10,100 used in investing activities for the six months ended June 30, 2022, while the Company had net cash flows of $24,200 for the same periods ended June 30, 2021. The Company expended $10,100 on the repurchase of 24,333 shares of treasury stock during the six months ended June 30,2022.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2022.

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 June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Not applicable

ITEM 1A. Risk Factors

There have been no material changes in our risk factors from those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on March 31, 2022.

The coronavirus pandemic could adversely affect our results of operations.

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

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

None.

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Mine Safety Disclosures

Not applicable

ITEM 5. Exhibits

Exhibit Number		Exhibit Description
31		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

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

	hopTo Inc.
	(Registrant)

	Date:	August 15, 2022

	By:	/s/ Jonathon R. Skeels
		Jonathon R. Skeels
		Chief Executive Officer (Principal Executive Officer) and
		Interim Chief Financial Officer
		(Principal Financial Officer and
		Principal Accounting Officer)

hopTo Inc. 10-Q