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, 20192020

Commission File Number: 0-21683

hopTo Inc.

(Exact name of registrant as specified in its charter)

6 Loudon Road, Suite 200

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:

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

Yes [X] No [  ]

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

Yes [X] No [  ]

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

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 August 14, 2019,2020, there were issued and outstanding 9,834,86618,621,533 shares of the registrant’s common stock, par value $0.0001.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

hopTo Inc.

Consolidated Balance Sheets

(Unaudited)

See accompanying notes to unaudited consolidated financial statements

hopTo Inc.

Consolidated Statements of Operations

(Unaudited)

See accompanying notes to unaudited consolidated financial statements

hopTo Inc.

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

See accompanying notes to unaudited consolidated financial statements

hopTo Inc.

Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to unaudited consolidated financial statements

hopTo Inc.

Notes to Unaudited Consolidated Financial Statements

1. Organization

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

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

2. Significant Accounting Policies

Basis of Presentation

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

The unaudited consolidated financial statements included herein reflect all adjustments, which include only normal, recurring adjustments, that are, in our opinion, necessary to state fairly the results for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 20182019 which was filed with the SEC on April 1, 14, 2020 (“2019 (“2018 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, 20192020 or any future period.

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

Use of Estimates

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

Liquidity

The Company has incurred significant net losses since inception. As of June 30, 2019, we had an accumulated deficit of $80,237,500 and a working capital deficit of $425,300, which includes deferred revenue of $1,260,300. Our ability to continue to generate net income 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. The Company believes its current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet its working capital requirements for at least one year from the date of the issuance of the accompanying financial statements. The Company continues to control its cash expenses as a percentage of expected revenue on an annual basis and thus may use its cash balances in the short-term to invest in revenue growth. Based on current internal projections, the Company believes it has and/or will generate sufficient cash for its operational needs, for at least one year from the date of issuance of the accompanying financial statements. Management is focused on growing the Company’s existing product offering, as well as its customer base, to increase its revenues. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently experienced. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all.

Revenue Recognition

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

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

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

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

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

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

Cash and Cash Equivalents

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. The Company had no cash equivalents as of June 30, 20192020 (unaudited) or December 31, 2018.2019.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts that reflects our best estimate of potentially uncollectible trade receivables. The allowance is based on assessments of the collectability of specific customer accounts and the general aging and size of the accounts receivable. We regularly review the adequacy of our allowance for doubtful accounts by considering such factors as historical experience, credit worthiness, and current economic conditions that may affect a customer’s ability to pay. We specifically reserve for those accounts deemed uncollectible. We also establish, and adjust, a general allowance for doubtful accounts based on our review of the aging and size of our accounts receivable. As of June 30, 20192020 and December 31, 2018,2019, the allowance for doubtful accounts totaled $6,800$4,400 and $3,600,$7,300, respectively.

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 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 discounted future cash flows, among other variables, as appropriate. Assets to be held and used (which assets 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. No such impairment charge was recorded during the three or six months ended June 30, 2019 or 2018.

Property and Equipment

Property and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated useful lives ranging from three to seven years.

Concentration of Credit Risk

For the three and six-month ended June 30, 2020 and 2019, we currently consider the following to be our most significant customers and partners. For the purposes of this presentation, “Sales” refers to the dollar value of orders received from these customers and partners in the period indicated. These Sales values do not necessarily equal recognized revenue for these periods due to our revenue recognition policies which require deferral of revenue associated with prepaid software service fees.

For the three months ended June 30, 2020, the Company had two customers comprising 15.5% and 11.3%, respectively, of total sales. For the three months ended June 30, 2019, the Company had one customer and two customers comprising 14.5%, and 10.3%, respectively, of total revenues. sales.

For the threesix months ended June 30, 2018,2020, the Company had one customer comprising 17.1%11.1% of total revenues.

sales. For the six months ended June 30, 2019, the Company had one customer comprising 20.9%, respectively, of total revenues. Forsales.

A loss of one of these customers could potentially have a significant negative impact on the six months ended June 30, 2018, the Company had one customer comprising 15.7% of total revenues.Company’s financial statements.

As of June 30, 2019,2020, the Company has fivethree customers comprising 23.6%26.0%, 18.5%, 14.9%, 11.4%23.4%, and 11.3%14.3%, respectively, of net accounts receivable. As of December 31, 2018,2019, the Company has three customers1 customer comprising 32.18%, 15.4% and 10.8%, respectively,17.9% of net accounts receivable.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes,” using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Basic and Diluted Earnings Per Share

In accordance with ASC 260, “Earnings Per Share,” the basic income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted income (loss) per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Dilutive common share equivalents as of June 30, 2019,2020, representing 511,801481,335 of outstanding in-the-money warrants, were included in the computation of diluted net income (loss) per share using the Treasury Stock Method. During the sixthree months ended June 30, 20192020 and 2018,2019, the Company had total common stock equivalents of 106,07793,076 and 432,594,106,077, respectively, which were excluded from the computation of net income (loss) per share because they are out of the money and thus 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

Leases

In February 2016,The FASB issues ASUs to amend the Financial Accounting Standards Board (“FASB”)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 Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” which requires lessees to recognizedate either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a right-of-use asset and a lease liability for most leases on the balance sheet as well as other qualitative and quantitative disclosures. ASU 2016-02 is to be applied using a modified retrospective method and was effective for the Company on January 1, 2019. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842),” which provides an optional transition method allowing entities to recognize a cumulative-effect adjustment to the opening balance of stockholders’ equity in the period of adoption, with no restatement of comparative prior periods required. The Company adopted the standard using this optional transition method. The Company also made an accounting policy to exclude leases with an initial term of 12 months or less from the balance sheet as permitted under the new guidance.

The Company assessed thesignificant impact that the new lease recognition standard had on its consolidatedour financial statements. As of the adoption date of January 1, 2019, the Company has only one lease, which was for its office space it leases under a month-to-month arrangement for a monthly amount of $4,000, which can be cancelled at any time by either party with a six-month advance notice. As management has elected a policy to exclude leases with an initial term of 12 months of less from the balance sheet presentation required under Topic 842, the office lease has been excluded from balance sheet presentation as it has an original term of 12 months or less. The rent associated with the lease continues to be expensed as incurred. Rent expense for the three months ended June 30, 2019 and 2018, amounted to $12,000 and $12,000, respectively. Rent expense for the six months ended June 30, 2019 and 2018, amounted to $24,000 and $24,000, respectively.

3. Property and Equipment

Property and equipment consisted of the following.

Depreciation expense amounted to $300$0 and $8,800 for the three months ended June 30, 2019 and 2018, respectively. Depreciation expense amounted to $400 and $17,800 for the six months ended June 30, 20192020 and 2018,2019, respectively.

4. Stockholders’ Equity

Stock-Based Compensation Plans

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

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

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

All options granted under the 12 Plan are immediately exercisable by the optionee; however, there is a vesting period for the options. The options (and the shares of common stock issuable upon exercise of such options) vest, ratably, over a 33-month period; however, no options (and the underlying shares of common stock) vest until after three months from the date of the option grant. The exercise price is immediately due upon exercise of the option. The maximum term of options issued under the 12 Plan is ten years. Shares issued upon exercise of options are subject to the Company’s repurchase, which right lapses as the shares vest. The 12 Plan will terminate no later than November 7, 2022. As of June 30, 2019, 411,5932020, 424,594 shares of common stock remained available for issuance under the 12 Plan.

The following summarizes the stock option activity for the six months ended June 30, 2019.2020.

The following table summarizes information about options outstanding and exercisable as of June 30, 2019.2020.

Shares of Common Stock Issued

During the three-month period ending June 30, 2020, the Company issued a total of 1,600,638 shares of common stock to shareholders for the rights offering at $0.30 per share. The proceeds for these shares were received in April of 2020. During the six-month period, the Company issued total of 1,755,390 shares of common stock, of which 1,600,638 shares for rights offering and 120,000 shares of common stock to two former members of our board of directors that was previously committed to them and included in accrued expenses. The issuance of the 120,000 shares of common stock settles a total of $39,600 of accrued expenses that was included in the Company’s balance sheet.

Warrants

During the six months ended June 30, 2019, the Company issued 30,466 shares of common stock for the exercise of warrants. As of June 30, 2019,2020 and December 31, 2018,2019, the Company had 481,335 and 622,912 warrants outstanding, respectively.outstanding. The warrants outstanding at June 30, 20192020 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, 20192020 and 20182019 was as follows.

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, 20192020 and 2018,2019, the Company contributed a total of $6,100 and $1,900, in each year in the same period.respectively. During the six months ended June 30, 20192020 and 2018,2019, the Company contributed a total of $14,100$15,600 and $15,300,$14,100, respectively.

Contingencies

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

7. Related Party Transactions

The Company’s Chief Executive Officer and Interim Chief Financial Officer has served in these executive roles providing management services to the Company since September 2018, however, does not currently receive a salary or other forms of compensation. During the three and six months ended June 30, 2020 and 2019, the Company has recorded an expense and contributed capital of $56,200 and $112,200, respectively,approximately $112,400 for contributed services based on the estimated market rate for these services.

On January 31, 2020, we entered into the Backstop Agreement (the “Backstop Agreement”) with a consortium of accredited investors, including all of our directors and led by Novelty Capital Partners LP, pursuant to which such investors agreed to purchase in a private placement, at $0.30 per share, up to 2.41 million of shares of our common stock. The consummation of the investment pursuant to the Backstop Agreement was conditioned on the closing of our subscription rights offering to all of our stockholders (the “Rights Offering”). The Rights Offering expired on March 31, 2020, and we consummated the Backstop Agreement transactions on August 13, 2020.

At closing of the Rights Offering, we received net proceeds of $480,200 in exchange for 1.6 million shares of common stock. Pursuant to the Backstop Agreement, we received gross proceeds of $2.12 million in exchange for the issuance of 7.0 million restricted shares of common stock.

8. Subsequent Events

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

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:

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

Introduction

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

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

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

Critical Accounting Policies

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas require us to make judgments and estimates about matters that are uncertain at the time we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 20182019 10-K Report and Note 2 to our unaudited consolidated financial statementsStatements included under Item 1 – Financial Statements in this Form 10-Q.

Results of Operations for the Three Months Ended June 30, 20192020 and 20182019

The following are the results of our operations for the three months ended June 30, 20192020 as compared to the three months ended June 30, 2018.2019.

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, 20192020 and 2018.2019.

Software Licenses

Windows software licenses revenue decreasedincreased by $29,300$6,200 or 16.1%4.1% to $152,800$159,000 during the three months ended June 30, 2019,2020, from $182,100$152,800 for the same period in 2018.2019. The decreaseincrease was primarily due to lower purchase in stocking ordershigher revenue from standard and encryption licenses from a certain Brazil reseller for three months ended June 30, 2019.2020.

Software licenses revenue from our UNIX/Linux products decreasedincreased by $48,000$14,100 or 95.2%587.5% to $2,400$16,500 for the three months ended June 30, 20192020 from $50,400$2,400 for the same period in 2018.2019. The decreaseincrease was primarily due to lowerhigher revenue from lower stocking order licenses.standard and encryption licenses for the three months ended June 30, 2020.

Software Service Fees

Service fees attributable to our Windows product service decreasedincreased by $19,300$98,200 or 3.8%20.3% to $484,300$582,500 during three months ended June 30, 2019,2020, from $503,600$484,300 for the same period in 2018.2019. The decreaseincrease was primarily due to a lower of license orders stated above, offset by higher of Windows subscription licenses.license revenue.

Service fees revenue attributable to our UNIX products decreased by $31,200$12,800 or 31.0%18.4% to $69,500$56,700 during the three months ended June 30, 2019,2020, from $100,700$69,500 for the same period in 2018.2019. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of certain long-term maintenance contracts. The majority of this decrease was attributable to our European telecommunications customers.

Other

Other revenue consists of private labeling fees, professional services, and professional services.other non-recurring revenues. Other revenue decreasedincreased by $6,200$228,400 or 21.2%993.0% for the three months ended June 30, 2019,2020, compared to the same period in 2018.2019. The primary increase was related to revenue recognized from a one-time, non-recurring license agreement with an existing customer for the use of our software.

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 is primarily 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, 2019 increased2020 decreased by $1,900,$2,200, or 5.0%5.6%, to $39,600$37,400 for the three months ended June 30, 20192020 from $37,700$39,600 for the same period in 2018.2019. Cost of revenue represented 5.4%3.6% and 4.4%5.4% of total revenue for the three months ended June 30, 20192020 and 2018,2019, respectively.

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 $2,100,$40,900, or 1.9%37.0%, to $110,600$151,500 for the three months ended June 30, 20192020 from $108,500$110,600 for the same period in 2018.2019. Selling and marketing expenses represented approximately 15.1%14.6% and 12.5%15.1% of total revenue for the three months ended June 30, 20192020 and 2018,2019, respectively. Selling and marketing expenses increased slightly during 2019 due to consulting services and benefit costs and represented a higher percentage of overall total revenuethree months period ended June 30, 2020 due to the decreaseincrease in revenue in the same period.marketing consulting services.

General and Administrative Expenses

General and administrative expenses primarily consist of employee costs, depreciation and amortization, legal, accounting, board of director 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 decreasedincreased by $128,200,$39,900, or 39.1%20.0%, to $199,600$239,500 for the three months ended June 30, 20192020 from $327,800$199,600 for the same period in 2018.2019. The decreaseincrease in general and administrative expense was due to lower legal andthe increase in board of director fees, offset by decrease in accounting costs.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 decreased by $29,000,$26,100, or 3.7%6.8% to $757,500$356,900 for the three months ended June 30, 20192020 from $786,500$383,000 for the same period in 2018.2019. The research and development costs overall remained consistent, although we had an increase indecrease due lower consulting fees as a result of completion of research and development expenses during the second quarter of 2019 from higher consulting fees associated with completing the new releases of our GO-Global products, which was offset by lower expenses in the first quarter of 2019.

Other Income

Other income increased by $46,800 for the three months ended June 30, 20182020, compare to the same periods in 2019 was primarily related to penalty fees from a one-time, non-recurring license agreement with an existing customer for the settlement and reversaluse of an accrual for potential liquidated damages that resulted in other income of $155,700, offset by other expenses. There was no such activity in 2019.our license.

Results of Operations for the Six MonthsSix-Month Periods Ended June 30, 20192020 and 20182019

The following are the results of our operations for the six months ended June 30, 20192020 as compared to the six months ended June 30, 2018.2019.

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 six months ended June 30, 20192020 and 2018.2019.

Software Licenses

Windows software licenses revenue increaseddecreased by $84,900$75,200 or 21.9%15.9% to $472,100$396,900 during the six months ended June 30, 2019,2020, from $387,200$472,100 for the same period in 2018.2019. The increasedecrease was primarilyentirely due to a certain partner that purchased a large order of WindowWindows licenses from the Company during the first quarter ofthree months ended March 31, 2019 that did not recur during the three months ended March 31, 2020.

Software licenses revenue from our UNIX/Linux products decreasedincreased by $52,700$38,900 or 76.7%243.1% to $16,000$54,900 for the six months ended June 30, 20192020 from $68,700$16,000 for the same period in 2018.periods of 2019. The decreaseincrease was primarily due to lowerhigher revenue from lowerhigher stocking and standard order licenses.

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

Software Service Fees

Service fees attributable to our Windows product service increaseddecreased by $129,000$34,100 or 13.3%3.1% to $1,098,200$1,064,100 during the six months ended June 30, 2019,2020, from $969,200$1,098,200 for the same period in 2018.2019. The increasedecrease was primarily due to a combinationtiming of large renewals ofrevenue recognition for maintenance support fromfees along with a decrease in maintenance support for a large OEM partnerspartner and the expiration of a long-term maintenance contract for a European customer. These were partially offset by an increase of new license orders stated above.in maintenance support fees due to an increase in Windows product sales from other customers throughout the prior year.

Service fees revenue attributable to our UNIX products decreased by $56,900$31,700 or 27.0%20.7% to $153,500$121,800 during the six months ended June 30, 2019,2020, from $210,400$153,500 for the same period in 2018.2019. The decrease was primarily the result of the lower level of UNIX product sales throughout the prior year and an expiration of certain long-term maintenance contracts. The majority of this decrease was attributable

We expect that software service fees for 2020 will approximate to our European telecommunications customers.those for 2019.

Other

Other revenue consists of private labeling fees, professional services, and professional services.other non-recurring revenues. Other revenue decreasedincreased by $6,800$227,000 or 12.9% to $46,000493.5% for the six months ended June 30, 2019, from $52,800compared2020, compared to the same period in 2018.2019.The primary increase was related to revenue recognized from a one-time, non-recurring a license agreement with an existing customer for the use of our license.

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 six months ended June, 30, 20192020 increased by $2,300,$6,700, or 3.5%9.7%, to $75,500 for the six months ended June, 2020 from $68,800 for the same period in 2019. Cost of revenue represented 4.0% and 3.9% of total revenue for the six months ended June 30, 2020 and 2019, respectively. The primarily increase was due to increase import tax withholdings associated with higher revenue from $66,500Brazil resellers for the samesix-month period in 2018. Cost of revenue represented 3.9% for both the six months ended June 30, 2020.

We expect 2020 cost of revenue to be slightly higher than 2019 and 2018.for the above reason.

Selling and Marketing Expenses

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

Selling and marketing expenses increased by $17,500,$28,300, or 8.3%12.4%, to $227,600$255,900 for the six months ended June 30, 20192020 from $210,100$227,600 for the same period in 2018.2019. Selling and marketing expenses represented approximately 12.7%13.6% and 12.4%12.7% of total revenue for the six months ended June 30,2020 and 2019, and 2018, respectively. SellingThe increase in selling and marketing expenses increased during 2019was due to an increase in consulting services andoffset by lower employee benefit costs.

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