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, 2020March 31, 2021

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.

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, 2020,May 17, 2021, there were issued and outstanding 18,621,53318,850,675 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’ DeficitEquity (Unaudited)

(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., a Delaware corporation, through subsidiariesits 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, 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, 20192020 which was filed with the SEC on April 14, March 31, 2021 (“2020 (“2019 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, 20202021 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.

Revenue Recognition

The Company markets and licenses its products indirectly through channel distributors, value-added resellers, 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.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 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.

Services Revenue

The Company has maintenance contracts withthat entitle customers to support and certain of its customers.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. The Company had no cash equivalents of $257,500 primarily in money market account as of June 30, 2020March 31, 2021 (unaudited) orand had no such cash equivalents at December 31, 2019.2020.

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, 2020March 31, 2021 and December 31, 2019,2020, the allowance for doubtful accounts totaled $4,400$11,800 and $7,300,$5,900, respectively.

Concentration of Credit Risk

For the three months ended March 31, 2021 and six-monththree months ended June 30,March 31, 2020, the Company had two resellers comprising 13.0% and 2019, we currently consider10.6%, and two resellers comprising 12.8% and 10.8%, respectively, of total sales.

As of March 31, 2021 and December 31, 2020, the following to be our most significant customersCompany has two resellers comprising 28.4% and partners. 22.3%, and two resellers comprising 25.7% and 18.9%, respectively, of net accounts receivable.

For the purposes of this presentation, “Sales”description, “sales” refers to the dollar value of orders received from these customers and partners in the period indicated. These SalesThe 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 two customers comprising 14.5% and 10.3%, respectively, of total sales.

For the six months ended June 30, 2020, the Company had one customer comprising 11.1% of total sales. For the six months ended June 30, 2019, the Company had one customer comprising 20.9% of total sales.

A The loss of one of these customers could potentiallyresellers would not have a significant negativematerial impact on the Company’s financial statements.

As of June 30, 2020,as the Company has three customers comprising 26.0%, 23.4%, and 14.3%, respectively, of net accounts receivable. As of December 31, 2019,could take over the Company has 1end customer comprising 17.9% of net accounts receivable.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 reflectreflects 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, 2020,March 31, 2021, representing 481,335248,216 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,March 31, 2021 and 2020, and 2019, the Company had total common stock equivalents of 93,07678,550 and 106,077,93,076, 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

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.

3. Property and Equipment

Property and equipment consisted of the following.

Depreciation expense amounted to $0$200 and $400$0 for the sixthree months ended June 30,March 31, 2021 and 2020, and 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, 2020, 424,594 shares of common stock remained available for issuance under the 12 Plan.

The following summarizes the stock option activity for the sixthree months ended June 30, 2020.March 31, 2021.

The following table summarizes information about options outstanding and exercisable as of June 30, 2020.March 31, 2021.

Shares of Common Stock Issued

During the three-month period ending June 30,March 31, 2021, the Company did not issue any shares of common stock. During the three-month period ending March 31, 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

As of June 30, 2020March 31, 2021 and December 31, 2019,2020, the Company had 481,335248,216 warrants outstanding. The warrants outstanding at June 30, 2020March 31, 2021 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,March 31, 2021 and 2020 and 2019 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,March 31, 2021 and 2020, and 2019, the Company contributed a total of $6,100$12,200 and $1,900, respectively. During the six months ended June 30, 2020 and 2019, the Company contributed a total of $15,600 and $14,100,$9,500, 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 six months ended June 30, 2020 and 2019, the Company recorded an expense and contributed capital of 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 developershopTo, 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 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 when we make the estimates. Actual results may differ from these estimates. For a summary of our critical accounting policies, please refer to our 20192020 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 MonthsThree-Month Periods Ended June 30,March 31, 2021 and 2020 and 2019

The following are the results of our operations for the three months ended June 30, 2020March 31, 2021 as compared to the three months ended June 30, 2019.March 31, 2020.

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, 2020 and 2019.

Software Licenses

Windows software licenses revenue increaseddecreased by $6,200$56,000 or 4.1%23.5% to $159,000$181,900 during the three months ended June 30, 2020,March 31, 2021, from $152,800$237,900 for the same period in 2019.2020. The increasedecrease was primarily due to higher revenue from standard and encryption licenses for three months ended June 30, 2020.

lower license orders following elevated license order activity in the prior year period related to the onset of the COVID-19 pandemic.

Software licenses revenue from our UNIX/Linux products increaseddecreased by $14,100$20,900 or 587.5%54.4% to $16,500$17,500 for the three months ended June 30, 2020March 31, 2021 from $2,400$38,400 for the same period in 2019.periods of 2020. The increasedecrease was primarily due to higherlower revenue from stocking and standard and encryption licenses for the three months ended June 30, 2020.order licenses.

Software Service Fees

Service fees attributable to our Windows product service increased by $98,200$108,600 or 20.3%22.5% to $582,500$590,200 during three months ended June 30, 2020,March 31, 2021, from $484,300$481,600 for the same period in 2019.2020. The increase was primarily due to aan increase in maintenance renewals from existing customers and higher of Windows subscription license revenue.orders.

Service fees revenue attributable to our UNIX products decreased by $12,800$16,000 or 18.4%24.6% to $56,700$49,100 during the three months ended June 30, 2020,March 31, 2021, from $69,500$65,100 for the same period in 2019.2020. 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 other non-recurring revenues. Other revenue increased by $228,400 or 993.0% for the three months ended June 30, 2020, compared to the same period in 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, 2020 decreased by $2,200, or 5.6%, to $37,400 for the three months ended June 30, 2020 from $39,600 for the same period in 2019. Cost of revenue represented 3.6% and 5.4% of total revenue for the three months ended June 30, 2020 and 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 $40,900, or 37.0%, to $151,500 for the three months ended June 30, 2020 from $110,600 for the same period in 2019. Selling and marketing expenses represented approximately 14.6% and 15.1% of total revenue for the three months ended June 30, 2020 and 2019, respectively. Selling and marketing expenses increased during three months period ended June 30, 2020 due to the increase in 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 increased by $39,900, or 20.0%, to $239,500 for the three months ended June 30, 2020 from $199,600 for the same period in 2019. The increase in general and administrative expense was due to the increase in board of director fees, offset by decrease in accounting 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 $26,100, or 6.8% to $356,900 for the three months ended June 30, 2020 from $383,000 for the same period in 2019. The research and development decrease due lower consulting fees as a result of completion of research and development expenses during the second quarter of 2019.

Other Income

Other income increased by $46,800 for the three months ended June 30, 2020, 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 use of our license.

Results of Operations for the Six-Month Periods Ended June 30, 2020 and 2019

The following are the results of our operations for the six months ended June 30, 2020 as compared to the six months ended June 30, 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, 2020 and 2019.

Software Licenses

Windows software licenses revenue decreased by $75,200 or 15.9% to $396,900 during the six months ended June 30, 2020, from $472,100 for the same period in 2019. The decrease was entirely due to a certain partner that purchased a large order of Windows licenses from the Company during the three 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 increased by $38,900 or 243.1% to $54,900 for the six months ended June 30, 2020 from $16,000 for the same periods of 2019. The increase was primarily due to higher revenue from higher 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 decreased by $34,100 or 3.1% to $1,064,100 during the six months ended June 30, 2020, from $1,098,200 for the same period in 2019. The decrease was primarily due to timing of revenue recognition for maintenance support fees along with a decrease in maintenance support for a large OEM partner and the expiration of a long-term maintenance contract for a European customer. These were partially offset by an increase in maintenance support fees due to an increase in Windows product sales from other customers throughout the prior year.contract.

Service fees revenue attributable to our UNIX products decreased by $31,700 or 20.7% to $121,800 during the six months ended June 30, 2020, from $153,500 for the same period in 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.

We expect that software service fees for 2020 will approximate to those for 2019.

Other

Other revenue consists of private labeling fees, professional services, and other non-recurring revenues. Other revenue increased by $227,000 or 493.5% for the six months ended June 30, 2020, compared to the same period in 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 sixthree months ended June, 2020March 31, 2021 increased by $6,700,$6,100, or 9.7%16.0%, to $75,500$44,200 for the sixthree months ended June, 2020March 31, 2021 from $68,800$38,100 for the same period in 2019.2020. Cost of revenue represented 4.0%5.1% and 3.9%4.5% of total revenue for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively. The primarily increase was due to increase import tax withholdings associated with higher revenue from Brazil resellers for the six-monththree-month period ended June 30, 2020.March 31, 2021.

We expect 2020 cost of revenue to be slightly higher than 2019 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 $28,300,$38,600, or 12.4%37.0%, to $255,900$143,000 for the sixthree months ended June 30, 2020March 31, 2021 from $227,600$104,400 for the same period in 2019.2020. Selling and marketing expenses represented approximately 13.6%16.6% and 12.7%12.4% of total revenue for the sixthree months ended JuneMarch 2021 and 2020, and 2019, respectively. The increase in selling and marketing expenses was due to an increase inhigher consulting services offset by lower employee benefit costs.services.

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.

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 $26,100,$14,300, or 5.3%6.2%, to $468,500$214,700 for the sixthree months ended June 30, 2020March 31, 2021 from $494,600$104,400 for the same period in 2019.2020. General and administrative expenses represented approximately 24.8%25.0% and 27.7%27.1% of total revenue for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively.

The decrease in general and administrative expense was due to lower accounting fees and employee benefit costs, offset by higher board member service fees.

In 2020, we anticipate a reduction in accounting fees and employee benefit costs compared to 2019 levels due to changes in service providers and improved cost controls by management. We therefore expect that our 2020 general and administrative costs will be slightly lower than those for 2019.consulting related 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 $36,600,$900, or 4.8%0.2% to $720,900$363,100 for the sixthree months ended June 30, 2020March 31, 2021 from $757,500$364,000 for the same period in 2019.2020. This represented approximately 38.2%42.2% and 42.4%43.1% of total revenue for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively.

The decrease in research and development expense was primarily due to a decrease in benefit cost and consulting fees associated with completing the new releases of our GO-Global products.

In 2020, we expect to continue our investments in research and development resources associated with our GO-Global products based on market feedback. We therefore expect 2020 research and development expenses to be slightly higher than 2019 levels.

Other Income

Other income increased by $33,000 for the six months ended June 30, 2020, compare to the same periods in 2019 was primarily related to penalty fees from a license agreement with an existing customer for the use of our license.

Liquidity and Capital Resources

As of June 30, 2020,March 31, 2021, we had cash of $2,372,700$4,392,800 and a working capital position of $964,500$3,670,100 as compared to cash of $1,541,900$4,375,300 and a working capital position of $101,8003,281,600 at December 31, 2019.2020. The increase in cash as of June 30, 2020March 31, 2021 was primarily the result of cash provided in operating and financing activitiesby 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 from the date of the filing of this quarterly report on Form 10-Q.

The following is a summary of our cash flows from operating, investing and financing activities for the three months ended June 30, 2020March 31, 2021 and 2019.2020.

Net cash flows providedused by operating activities for the sixthree months ended June 30, 2020March 31, 2021 and for the same periods ended March 31,2020 amounted to $413,800, compared to cash flows provided by operating activities of $227,500 for the six months ended June 30, 2019.$6,300 and $74,900, respectively. The increase in cash flows provided by operating activities is primarily the result of higher net income due to a one-time settlement income from a particular customerdecrease in prepaid expenses and increase in deferred revenue offset by elimination of contributed services compared to the prior year period.

Net cash flows provided by investing activities for the three months ended March 31, 2021 amount to $23,800 due to net cash receipt from sale of patents, offset by purchase of marketable securities investments and property equipment. The Company had no cash related to investing activities for the same periods of prior year. The Company had no cash flows related to financing activities for the three months ended March 31, 2021 or 2020.

Net cash provided by financing activities for the six months ended June 30, 2020 amounted to $417,000. We received gross proceeds of $480,100 from the Rights Offering and paid $63,100 of issuance cost for the six months ended June 30, 2020. Subsequent to June 30, 2020, we received $2.12 million from the closing of the investment pursuant to the Backstop Agreement. We intend to use the proceeds from the Rights Offering and the Backstop Agreement for general corporate purposes, which may include acquisitions (although we do not currently have any plans with respect to any acquisition).

We had no significant financing activity for the six months ended June 30, 2019.

We had no cash flow activity relating to investing for the six months ended June 30, 2020 or 2019.

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, 2020.March 31, 2021.

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 , 2020March 31, 2021 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, 2019,2020, which was filed with the Securities and Exchange Commission on April 14, 2020.March 31, 2021.

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 maywill 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

On January 31, 2020, we entered into 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 the Rights Offering. The Rights Offering expired on March 31, 2020, and we consummated the Backstop Agreement transactions on August 13, 2020.None.

At the closing of the Rights Offering, we received gross proceeds of $480,191 in exchange for 1.6 million shares of common stock. Pursuant to the Backstop Agreement, we received proceeds of $2.12 million in exchange for the issuance of 7.0 million restricted shares of common stock. We intend to use the proceeds from the Rights Offering and the Backstop Agreement for general corporate purposes, which may include acquisitions (although we do not currently have any plans with respect to any acquisition). The shares were issued to the Backstop Agreement investors pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Mine Safety Disclosures

Not applicable

ITEM 5. Other Information

On March 31, 2020, our previously announced Rights Offering expired and in April 2020 we subsequently received $480,191 in exchange for 1.6 million shares of our common stock. Pursuant to the Backstop Agreement we received proceeds of $2.12 million in exchange for the issuance of 7.0 million restricted shares of common stock.

ITEM 6.5. Exhibits

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.