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Executives

Eldad Eilam - President and CEO

Analysts

Brian Murphy - Merriman Capital

hopTo Inc. (OTCQB:HPTO) Q4 2013 Earnings Conference Call March 31, 2014 4:30 PM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the hopTo Earnings Conference Call. I would now like to turn the conference over to Eldad Eilam. Please go ahead.

Eldad Eilam

Good afternoon, everyone, and welcome to hopTo's 2013 year-end update call. This is Eldad Eilam, President and CEO of hopTo. Considering it's been a while since our last podcast, there are a lot of exciting developments to talk about and much to update. If you would indulge me, I plan to take full advantage of this opportunity to share our corporate update, reiterate our mission, elaborate on hopTo's mobile productivity platform, and to tell you more about the advancements we have made with hopTo Work.

However, before I begin, I'd like to remind everyone that this call is being webcast and is available at the Investor Relations section of our Web-site at hopto.com/investors. A replay of this webcast will be available on our Web-site beginning later this afternoon.

We would like to advise you that some of the information discussed on this conference call will contain forward-looking statements. These statements involve risks, uncertainties and assumptions that are difficult to predict. Such forward-looking statements are not a guarantee of performance. The Company's actual results could differ materially from those contained in such statements. Several factors could cause or contribute to such differences.

These factors are described in detail in the 'Risk Factors' and other sections of our annual report on Form 10-K and quarterly reports on Form 10-Q, which are on file with the SEC. These forward-looking statements speak only as of the date of this call. The Company undertakes no obligation to publicly update any forward-looking statements based on new information or revised expectations.

I would now like to give you our corporate updates. 2013 was a pivotal year for us and we continued to make great strides on hopTo's mobile productivity platform. Here are the highlights. As you know, our name changed to hopTo. In November, we launched the Prosumer version of hopTo and have accumulated over 350,000 users to-date, currently growing at a rate of approximately 3,000 new users per day.

The product was featured in articles on CNET, VentureBeat, Engadget and PC World, and I became a contributing blogger on Wired. Just last week, we were featured in an independent comparative review article that compared us with five other competitors and we came out as the top productivity tool currently available for the iPad.

Our team has expanded quite a bit in 2013 and we recently moved into a larger office space here in Campbell, California in the building right next door to our old offices. We have continued strengthening our Board of Directors with the addition of Jeremy Verba in December. Jeremy is a seasoned C-Level executive with both private and public companies and extensive experience in the areas of marketing and monetizing products. Couple of weeks ago, Steven Ledger, a long-time Board member and our former Chairman, moved on.

In January of 2014, we announced that we completed $3.4 million raise at $0.30 per share with a 50% warrant coverage at $0.40. The funds raised are being used to develop our recently announced hopTo Work product, which is our SMB and enterprise offering, and to continue developing and marketing of the Prosumer version of our hopTo product.

We reported earlier today that the Company had a consolidated operating loss of $3.8 million for the year ending December 31, 2013, which is an improvement on the $8.2 million loss we had for 2012. The lower operating loss is primarily due to the fact that we restructured the majority of our outstanding warrants in a way that allowed us to no longer record them as an expense on our books.

Revenue was $5.9 million, which is directly attributed to our legacy product, GO-Global, and was a year-over-year decrease of 10%. This decrease was expected as the Company continued to shift its focus to hopTo. We anticipate revenue from hopTo by the end of this year as we rollout hopTo Work. We can also report that five patent applications have been allowed and will be issued within 60 days. We have applied for a total of 167 patents with 16 design patents being filed in the European Union.

Now, I would like to take the opportunity to talk about what drives us at hopTo. Our goal from the start has been to develop a mobile productivity platform for business users which allows the growing number of mobile workers to leave their PC behind and be truly productive on their tablets and smartphones. This trend of business users moving from working on a PC towards needing to be productive on a mobile device is relatively new and is not without its challenges.

Issues such as the bring-your-own-device movement as well as a host of others that I will discuss later on have made true productivity on your mobile device nearly impossible. Over the last year and a half, we have been developing our hopTo solution, a mobile productivity platform that truly meets the needs of the on-the-go business user, while at the same time addresses the challenges faced by their employer. Now, I would like to share some more details on the why, what, who and when of hopTo's mobile productivity platform.

As most are aware, working people are trying to leave their PC behind when they travel and yet they still want to get work done. They are not trying to abandon the PC altogether, they just want a more flexible workspace while on-the-go without compromising flexibility and having to say, 'Oh, I'll just do that on the PC when I get back to the office'. Businesses and vendors are all trying to solve this need and are running into a very complex multi-part problem.

The first part of the problem is, business users want to be productive on their mobile devices and have access to their content from anywhere. Yet, the average mobile device won't let you do that. You can download a specialized app to act as a Dropbox, but then you run into the issue of having the file stored in a number of different places. Having the document that you wish to work on exist in one single place where you can edit, save and share, is one challenge of mobile productivity.

The second aspect to the complex problem of mobile productivity is multitasking. This multitasking doesn't necessarily mean that you're doing more than one thing at a time, it means that you have more than one document open at the time. After decades of having the flexibility of a PC, this is something we have all grown accustomed to and have a hard time living without. A user may have a spreadsheet, a PowerPoint deck, a Word document, and possibly an e-mail, all open at the same time and is moving text and data around because, well, that's how people work. No one works in a single document environment. But when you look at mobile solutions today, that is what you find. The current mobile productivity options out there, including the newly released Office for iPad, assumes that you are only working on one document at a time.

Compatibility is another issue when taking your work mobile. Users are asking these questions, how can my work document from the PC environment be completely compatible on my mobile device? How can I make sure that I can open, modify, save and send a document, which was sent to me by a colleague on my mobile device, that will be truly compatible with the PC that they are going to receive the work on?

The fourth component is document duplication. Current mobile solutions tend to perpetuate document duplication. This is becoming problematic for organizations as more and more users purchase their own mobile devices, the BYOD phenomenon everyone is talking about. When you receive a document on your mobile device, say via e-mail, it gets saved locally to the device thereby creating duplicate number one. Then you might edit it in something like Office for iPad for example, saving it again within that app and possibly creating a second copy. Finally, you will probably send it back to a colleague via e-mail, thereby creating a third copy of that document on your device. This issue, which we like to call 'document sprawl', is a major security concern for organizations. If an employee leaves, the company will have no idea of or control over what document still exists on that employee's personal mobile devices.

The final part of the problem, and perhaps the most important, is that all organizations have certain requirements. Sure, organizations care deeply about employee productivity, but IT departments are also in charge of things such as security, compliance and auditing, and within these complex requirements, there can often be conflict with employee productivity. We created hopTo Work to specifically address these issues at the intersection of mobile productivity and security, and we firmly believe that they are not currently addressed by either the dominant mobile device management or BYOD players, nor by the mobile productivity players.

But before I continue the discussion of hopTo Work, let me take a step back and talk about the launch that took us from essentially a startup to having a successful product in the marketplace. We launched the Prosumer version of hopTo for the iPad in November 2013. We chose to launch this as a free product available on the Apple App Store for a number of reasons. First of all, it was a cheap way for us to test the market and get feedback on the user experience and the feature set. Secondly, we saw this as a great way to build the user base to reach potential leads to sell into the SMB and enterprise market.

As I mentioned above, we have had over 350,000 new users since the launch with about 3,000 new users added every day. We have learned so many things from our users. We recently polled a sampling of over 1,000 active users and confirmed that; one, there is a great need for a cloud-based mobile productivity platform that provides access to files stored on PCs or internal corporate networks from mobile devices; two, an overwhelming majority found hopTo easy to use and would recommend it to others; three, many used it to draft or edit Microsoft Office documents; and four, that most users expressed the need for flexible cloud-based storage capabilities.

Amazingly, we have also been contacted numerous times by individual users who represent businesses, including some Fortune 500 companies, interested in deploying the hopTo Work mobile productivity platform within their organizations. In other words, our premium App Store model has more than proven itself.

Before I talk more specifically about hopTo Work, I do want to mention that we will also be announcing some exciting feature updates to the Prosumer version of hopTo in Q2. The key difference between the Prosumer version of hopTo, which we currently offered for free on the iPad App Store, and hopTo Work is the access to the corporate network. hopTo Work will tie-in to backend services inside the corporate network. For example, hopTo Work will allow organizations to securely let their employees browse files stored internally within the corporate network. This is a far easier step for an organization than moving all of their content to a cloud storage service.

I think it's important to realize that some of the indirect competitors of hopTo Work, including products such as Google Apps and the newly released Office for iPad, essentially dictates the organizations that they must transfer all of their documents to cloud storage in order to access them from mobile devices. Now, while that might be a valid notion when we look to the future, I think no one truly expects the majority of the industry to complete this kind of transition in the foreseeable future.

We are designing hopTo Work as a hybrid solution. Sure, we support cloud storage. In fact, we support most major cloud storage services and we continue adding more this year. However, we also realize that most organizations still have countless documents on individual users' PCs or on various file storage servers, NAS devices, and so on. hopTo Work will provide incredibly flexible support for organizations that combine all of those different storage strategies. We believe that mobile solutions that ignore the complexity of the situation and focus exclusively on cloud storage will only appeal to a small segment of the market.

Another unique aspect of hopTo Work has to do with security. Pretty much all of our competitors, including Office for iPad, actually duplicate documents and store them locally on the user's device. With hopTo Work, documents are never downloaded to the mobile device, which is a major security and compliance advantage. In fact, copies will not exist anywhere outside of the corporate servers. In that sense, hopTo Work is similar to remote-access solutions from Citrix and VMware. The difference is that unlike remote-access solutions with their clunky impractical user interfaces, the user experience our customers will get is that beautiful seamless experience that current hopTo users rave about.

Beyond document access, hopTo Work will grow to support many other mission-critical features within the workspace, including secure corporate e-mail, instant messaging, a desktop-class Web browser capable of letting employees browse the corporate intranet and much more. We also plan to support third-party or 'home-grown' legacy applications that are used by the organizations via remote-access.

Later on, we will provide our customers with an SDK to help them easily improve the user experience of their internal legacy applications so as to help make everything inside the hopTo workspace user and touch friendly. The ultimate goal for hopTo Work to become a secure and user-friendly productivity workspace which employees can sign-in to from their mobile device and have instant access to all the tools they need to get their work done, simple, secure and touch-friendly. We believe no one else does this today and the opportunity is massive.

A question we often get is, how are we building a customer base. We have already seen tremendous organic growth through the current user base, and as I mentioned earlier, individual users that represent SMBs and enterprise have begun to reach out to us just as we strategized. Additionally, we see a natural partnership with cloud storage companies, solution partners, hardware OEMs, and enterprise SaaS offerings. In fact, we announced a new partner last Thursday with Drobo’s Transporter. Partnering provides access to an already established customer base. It increases the functionality of our partners' offering, thus creating happier customers, which will translate into more word-of-mouth recommendations. Stay tuned for more partnership announcements coming in the very near future.

Another question we get is, how do we plan to make money. We are researching and developing two different pricing models, a price for a cloud-based model which will be attractive to the SMBs, and an on-premise pricing model specifically for enterprise. I wish I could say more about that now, and I will be able to elaborate more on these when we launch hopTo Work later this year.

$53 billion is spent per year on mobile business apps that do not offer what hopTo Work will offer, easy document access and flexibility, elegant user experience, compatibility, and audit and security features, and as the ongoing decline in PC sales and the increase in tablet sales suggests, we believe the market potential is huge.

And now, I will turn this call over to the operator to open it up for the Q&A portion of the call.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Brian Murphy with Merriman Capital.

Brian Murphy - Merriman Capital

Hi, Brian Murphy, Merriman Capital. Eldad, first, thanks for taking my question. So, you spoke about the 350,000 users and that growing at about 3,000 per day. How has that been trending? Has that been accelerating in recent months?

Eldad Eilam

The answer is, absolutely yes. If you look at – kind of if you chart it from the moment we launched, obviously there was a huge spike the moment we launched, and then it kind of dropped pretty significantly, and from there if you look between then, I'm talking let's say December and today, there's been a significant acceleration and it's being going up steadily up to the numbers that I have been talking about, that I just talked about a minute ago. And another thing I'll tell you is that, in the short term, we have not seen any impact by the Office for iPad announcement. So we feel like our numbers are good and definitely climbing and looking good.

Brian Murphy - Merriman Capital

Okay, that was actually my next question, so you anticipated that one. So can you talk to us a little bit about – I mean you guys have been in the enterprise business for a long time, how are you going to leverage your sort of legacy enterprise business in terms of hopTo Work and bringing in these new products to the enterprise?

Eldad Eilam

So I think -- that's a good question. I think we have a network of partners today on the GO-Global side, and not all of them are relevant, but I think many of them are relevant. When you look at value-added resellers that we have partnered with and things like that, that we can definitely tap into in order to help us promote and sell hopTo Work. I think it's a little early to talk about details there but I think it's definitely going to be an asset that makes a positive impact for us.

Operator

(Operator Instructions) Your next question comes from the line of David [indiscernible] with [indiscernible].

Unidentified Analyst

Eldad, can you give us a little bit of a framework for what enterprise pricing might look like down the road and give us some examples of maybe some comparables in today's marketplace?

Eldad Eilam

David, so I'd say it's somewhat premature, I mean we're still obviously looking at that. One of the challenges that we have is that there is no single comparable product that you can say, this is exactly the same as hopTo Work as the direct competitor. So you have to kind of deal with the fact that all of the competitors whose pricing we can look at are offering something quite a bit different from what we do.

But I can give you an idea. I mean I think what you can expect to see is probably a one-time perpetual license for the backend software, okay, plus some annual maintenance charge on top of that, which is similar by the way to what we do with GO-Global today, and what you'll have on top of that is a monthly per user charges, okay. And that's – by the way I'll tell you, that's similar to what a lot of the BYOD MDM guys do, but again it's hard to compare prices directly because our offering is so different, it does mainly so much more than they do, that I'm not sure – we're not sure that that's a good comparison directly.

So to give you numbers, for the backend you're probably looking at a few thousand dollars again for that one-time perpetual or few thousand dollars per server or something like that, plus some percentage annual maintenance, I couldn't tell you what that number would be but you can probably guess. For the monthly, again I wouldn't commit to anything, but if you look at the comparables, you'll see numbers probably around $20 a month per user. That's about it. I mean again that's kind of a quick summary, and again without getting too specific.

Operator

(Operator Instructions) We have reached our allotted time for questions. At this time, I would now like to turn the floor back over to management for any closing remarks.

Eldad Eilam

So before closing, I just want to let you know about a couple of conferences we are attending this year. The two that we know of right now is B. Riley in Santa Monica on May 19. Another one is Marcum Conference in New York City on the May 29. There's going to be others but that's kind of what we have locked down at the moment. And I also wanted to let you know that we'd be holding these calls on a quarterly basis from now on, and that's it.

Thank you for participating in today's call and for your continued support. We are very excited by all the positive recent developments, and later this year we will launch hopTo Work and begin to generate revenue. Looking forward to the next quarterly update and thanks for listening.

Operator

Thank you for participating in today's conference. You may now disconnect.

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