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Executives

Eldad Eilam – President and Chief Executive Officer

Jean-Louis Casabonne – Chief Financial Officer

Analysts

Jeff A. Kone – Wall Street Resource LLC

Brian J. Murphy – Merriman Capital, Inc.

hopTo Inc. (OTCQB:HPTO) Q1 2014 Earnings Conference Call May 13, 2014 4:30 PM ET

Operator

Greetings, and welcome to the hopTo First Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It’s now my pleasure to turn the conference over to your host Eldad Eilam, CEO of hopTo. Thank you, you may begin.

Eldad Eilam

Good afternoon, everyone. And welcome to hopTo’s first quarter 2014 earnings conference call. We are here to discuss our first quarter 2014 financing results, recent developments as well as give you a broader picture of the coming months as we continue to roll out new features for our hopTo Prosumer product and build towards launching our SMB and enterprise offering of 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 website at hopto.com/investors. A replay of this webcast will be available on our website beginning later this afternoon.

I would also like to apologize for some technical issues during our last earnings call. I know many of you try to ask questions and due to technical issues we were unaware of your questions. We’ve switched to a new provider so let’s hope this issue is resolved today. Please make sure to enter your full name when signing into the call.

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.

Before we dive into the details of this call I would like to take this opportunity to introduce you to our new Chief Financial Officer, Jean-Louis Casabonne. JL is a seasoned executive with over 25 years of corporate finance business development and senior management experience. He brings a proven track record of operating in senior finance positions in company that expand the range from the 4,500 to the tech start-up world.

In his prior role as CFO at Quova, Inc. he was instrumental in achieving profitability in positive cash flow and then following the acquisition of Quova by NeuStar, Inc. was successful in managing key customer relationships and developing new business partnerships with a goal of increasing recurring revenue. As we move closer to launching our SMB and enterprise offering, we believe the JL’s broad based experience of the finance professionally both large and small companies and his experience in fund raising, strategic planning, and building development will help ensure that we continue to successfully execute the company’s strategic plan. Let me now turn the call over to our CFO Jean-Louis Casabonne to review our financial results in more details. JL?

Jean-Louis Casabonne

Thank you, Eldad, I am excited to join hopTo with this important point the company’s evolution and look forward to contributing my experience and expertise to help drive shareholder value. I look forward to working hard and hand-in-hand with the strong leadership team here at hopTo, in order to achieve our growth and profitability objectives. My sleeves are rolled up and fully engaged with the team. To that end I would now like to give you an update on our financials from the first quarter of this year.

We announced our first quarter results earlier today and reported that the company had a consolidated net loss of $672,000 for the quarter ending March 31, 2014 which is an improvement on the $3.9 million loss we realized for the same quarter in 2013. The lower operating loss is primarily due to the impact of the change in the valuation of our warrants. Revenue was $1.34 million which is directly attributed to our legacy products GO-Global and was a year-over-year decrease of 17%. This decrease was due to the company’s ongoing shift and focus to hopTo and consistent with management’s expectations.

And now let me hand this back over to Eldad for a corporate update. Eldad?

Eldad Eilam

Thank you, JL. Let me take a few moments to talk about our recent progress and to discuss our plans for the coming months. As you all know, in November, we launched a Prosumer version of hopTo product and have built up a user base of 100’s of 1,000’s of users. I think it’s important to take a minute, now that it’s been about six months since we launched to discuss the underlying strategy behind that launch its results in next steps.

The important thing to keep in mind is hopTo was never meant to be just a consumer company. The hopTo workspace was designed from day one as a business tool to be sold to enterprises and SMBs. But when we first got started, we belief that the right first move would be to put a free approximately out on the App Store. This strategy we believed and still believe would be rapid way to effectively reach our initial markets.

We would put our product in the hands of 1,000 of users allow us to very rapidly improve our product and most importantly create solid leads for our business offering later down the roads. We also believe that we might be able to monetize the App Store product directly through Apple for some monthly subscription fee.

But App Store revenue was never meant to be the end game. How does one gauge the progress and success of the company today and more importantly in the future? Here is our view, we’ve accumulated 100’s of 1,000’s of users who are clearly interested in our product offering. 10’s of 1,000’s of them use it actively and 100’s of 1,000 of documents have already been edited using hopTo.

These numbers match our internal projections for this stage. One of the most positive outcomes we’ve seen from our free prosumer offering is that these users represent 1,000’s of potential business customers for hopTo Work, they include organizations in many large verticals such as real estate, financial services, energy, government and education. These are individuals, who would like to see their employers deploy hopTo. So they can use its powerful capabilities to be more productive.

In some cases it’s IT managers and in another cases it’s non-IT employees they just love hopTo. Some of them have already reached out to us to discuss possible deployments. What we are working on right now is building hopTo Work. The IT friendly product that we would sell to those 1,000 and beyond, in terms of observing the companies progress it is tempting to compare our success on the App Store with product such as office for iPad and use that to determine the companies chances for success, but we believe that is the wrong way to understand the company.

We don’t view office for iPad is a competitor for hopTo Work, because it’s an extremely limited business solution given that is tight with single cloud storage solution called Microsoft OneDrive. We would like to reiterate that our App Store release was primarily a marketing move. Our success on the App Store is not how the success of the business will eventually to be measured.

Ultimately, we believe this move is a great success and are working on several short-term items to continue drive in an even further. We are currently adding Android and iPhone compatibility for the hopTo app, which could add 100’s of 1,000’s of users. Our product development roadmap for this year, includes several new versions of our Prosumer product in addition to our initial release of hopTo Work expected in Q4 of this year. You can look forward to enhanced features such as significant user experience upgrades based on extensive user feedback PowerPoint editing, stronger security features, Google authorization for sign-in and much more.

This leads into another highlight that I wanted to share today. We have partnered with Egnyte a privately held company based hear in Silicon Valley. The Egnyte enterprise file sharing platform, includes clouds file sharing, private file sharing, cross office collaboration and fast local final access. Egnyte adds to our already extensive catalog of file storage accessibility while at the same time having hopTo both its Egnyte offering with a true small office/home office, what’s called SOHO, and small/medium business mobile productivity solution.

We share a similar machine with Ignite and that we both want users to be able to access file securely from mobile devices from anywhere. We believe hopTo highly compliment Ignites offering by adding an iteration with their storage technologies and allowing Ignite customer to benefit from our powerful document management capabilities in rich editing features. Whether it is cloud storage, local storage, or hybrid of the two Ignite and hopTo continue to redefine file access and productivity.

Now let’s go back to hopTo Work. Let me take a moment to explain just what hopTo Work is. We want to be sure that our investors understand why we are confident that we will be solving a unique problem in the mobile productivity markets. Today’s mobile productivity and BYOD markets are crowded in complex. There is a very strong emphasis on security, usually at the expense of user experience. Our view of industry requirement is simple. Business is large and small, are looking for a powerful mobile productivity solutions that allows employees to get their work done outside of the office using their own mobile devices.

Solutions must have strong compatibility with the PC ecosystem, deliver an incredible user experience, provide access to all of the critical data used by the employee, and most importantly be secure. Secure means that no information leaks out of the organization while the solution is deployed, and that when individual employee leaves and takes their device home with them that no information owned by the organization is ever compromised.

There are dozens of companies trying to solve this problem, each brings a different set of advantages and challenges some have security shortcomings others are missing fundamental features required for productivity, while still others have everything figured out on paper, but in reality their user experience is a dismal and actual employee adoption remains extremely low.

We believe hopTo Work will successfully address these needs and provide a very balanced and powerful combination of capabilities to the market. For more information on specific features in hopTo Work I invite you to download the white paper on our website. We expect to release further details regarding hopTo Work in the near future. Another topic we’ve been repeatedly ask to cover is pricing in a more detail go-to-market strategy for hopTo Work.

We have built a pricing model and revenue projections for both a cloud-based offering that will be attractive to SMBs, as well as on premise or self managed deployments for enterprise customers. I know some of you have been waiting for pricing information, but in the interest of keeping our competitive advantage in the marketplace we cannot make any formal announcements on our pricing structure today. Specific pricing information will be available when we launch hopTo Work later this year.

We do appreciate that many of you would like more detail in order to build your own model of the hopTo business and how soon it might reach profitability and become cash flow positive. The good news is that in the coming weeks, we will be holding a webinar in which we intend to provide more details to help you better understand our role to profitability. In the webinar, we plan to talk about the position in the hopTo Work and to give you our high level analysis of the competitive landscape. We are confident that this webinar will help you see what we see a tremendous opportunity for hopTo to capitalize on. Please stay tuned for specific details on this webinar.

Until then let’s talk about a couple of other major developments that we expect to see in the coming months. We are in the final stages of the hiring process for two key positions a Vice President of Product Management, and a Vice President of Engineering. We will also be announcing additional partnerships in the June, July timeframe, but most importantly, we are hard at work on delivering hopTo Work in Q4, which will be a key development for the company since we believe it’s our path to revenue and ultimately profitability.

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

Question-and-Answer Session

Operator

Thank you. At this time we will be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Jeff Kone with Wall Street Capital Partners. Please proceed with your question.

Jeff A. Kone – Wall Street Resource LLC

Good afternoon. Can you give us a little bit more color on the Egnyte relationship as to revenue potential and if there is revenue potential from it, when you might expect it?

Eldad Eilam

Hi, Jeff. Thanks for the good question. Just one thing before I answer, I just wanted to share with everyone on the call one key frustration that we and the management team here at hopTo have. hopTo, we’re in a unique position, we’re extensionally trying a launch would it effectively started up within the concept of the public company. And we are doing our best – keep our investors inform about our future plans and current status. But in a secular bandwidth we do and bandwidth we don’t with respect to the amount of information that we give. I just want to ask everyone to kind of keep that in mind as you talk to us and watch the kind of public information that we release.

With regards to Egnyte, we do believe that there is a very real revenue opportunity there. And there is a couple of different ways to look at it I mean I think for Egnyte the simple way to look at it is that they have a very powerful, very flexible backend third solution. And they are looking for a front end a powerful front end that allows effectively the kind of stuff that we do, which is rich document editing and document management and multi-tasking and all this. Here is a number of different ways this can happen and we’ve already started engaging with them pretty and best. And Louis can talk about anything specific there, but I will tell you that we do believe that the Egnyte partnership is going to generate revenue for the company. It’s a task something I can get into some much detail on how that’s going to happen right now.

Jeff A. Kone – Wall Street Resource LLC

That’s good to hear. Is there a big build out for that to happen or is that something we could see in the next quarter?

Eldad Eilam

So, yes, I wouldn’t give you a date on that right now, but I will tell you that even we’re engaged with the sales and marketing on a number of different levels. And we made a software company with kind of in the process of building a business and I think there is - so far the team is very successful. And I think that both companies believe that there is a lot of synergy when you look at their – the type of customers they are getting right now. I don’t want to commit with it right now, when we can expect to see revenue, but we do believe the revenue is going to come from that partnership.

Jeff A. Kone – Wall Street Resource LLC

Okay, and is there a reach to market sales force or marketing through the net or how do they go about reaching customers and what kind of quantity or type of customers they have?

Eldad Eilam

Yeah, well I want to be cautious of sharing their information with anyone on this public call obviously. But they are – they have a large sales team and they have a number of different sales strategies. But they are fairly fell along in that regard; they are a pretty established company in that sense. They definitely have a live and active business, they are pretty far along. There are not a pretty revenue company, by any mean. But again I want to be very cautious in this is – you know we’ll talk about…

Jeff A. Kone – Wall Street Resource LLC

It’s sounds promising now.

Eldad Eilam

Yes, we think it is. Thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Brian Murphy with Merriman Capital. Please proceed with your question.

Brian J. Murphy – Merriman Capital, Inc.

Hi, thanks taking my question. So, nice to see that the revenue base from the legacy business was stable on a sequential basis, also you made some comments of that or maybe was in the press release about some of the things that you are learning from the user base during this phase of the strategy. Can you just talk about that in a little bit more detail about what you’re seeing and how that might be informing some of your product development?

Eldad Eilam

Well, absolutely I mean I think its there is a number of different levels for that Brian. I think part of it is just kind of basic usage tactics. And mainly kind of being a kind of internal product guy I like him (indiscernible) we have some many users and so much activity. And you learn from what they do – do they edit, do they view what type of documents which features work, which features don’t. So there is a lot of kind of product evolution type stuff that comes into this. One of great things about is for us by the way, that when we look at hopTo Work, you talk to a customer and its like well this is going to be a 1.0 right that’s kind of that the initial perception.

But the reality is that is pretty far from that because we have been out in the work for a while we’re getting all this feedback. We’re fixing problems, we’re making it better some by the time we go to market I think the product is going to be pretty but sure. We’re also getting a lot of kind of market level information out of this. And we’ve done a couple of surveys and I don’t know if you are aware of those. And I think I mentioned some of that, we’ve done some surveying of those customers. And we learn a lot about who they are, how they use it.

For example one of things we learned. We just published it today is that the vast majority of them would like to combine their business and their personal stuff into the same place, gives the lot more practical it kind of have both to be able to see both size of the world in the same place which is again kind of goes after the BYOD movement in general. So that I think that’s kind of stuff is very helpful for us, there is a lot more in there, I really couldn’t share much. But its’ I think we’re getting a lot of information of that nature. Again it’s I would definitely say its two different levels it’s a product level. And it’s the more kind of market and industry level that we’re getting out of this.

Brian J. Murphy – Merriman Capital, Inc.

Okay great and the download activity on the App Store for the free app is that sort of tracking within your expectations?

Eldad Eilam

It is. It is absolutely and this is an interesting thing by the way and we’ve gotten a lot of questions about this. And I want to be very clear on this you’d seen some the App Store ranking jumped up and down quite a bit in the past few weeks. And I want to be clear on this – this is us doing this a lot of people have asked me that this mean that for example office for iPad or any other product has caused this to happen. And the answer is we don’t believe that to be the case.

We’re currently working on our marketing mix, okay and we are probably testing various add networks and kind of fine tuning our marketing spend. And the other thing we are doing is we are shifting our ad spend towards hopTo Work then you’re going to expect to see the outcome of that in the coming months all of that is affecting kind of in real time, by the way on a daily basis, our App Store ranking, we’re not worried about that it all. We’re in terms of downloads and kind of organic DemandGen, we are absolutely feeling that it’s – that’s within expectations.

Brian J. Murphy – Merriman Capital, Inc.

Okay. And I mean it sounds like you’re starting to identify some actually specific beachheads in the SMB market and enterprises in terms of region and potential deals there. I mean, are you starting to see the shape of those opportunities already.

Eldad Eilam

I think its early days obviously, but we are at a stage now where we have some ongoing conversations and the conversations are very interesting. Because they teach us about customer size, a little bit about customer size as it teach us about requirements and they are different of course between the much larger customers and the smaller customers. So we are learning a lot in that sense, I couldn’t tell you that we’ve – that at this point we know enough to say, yes, we think our customers are going to be size X or size Y, because we have – look we have although really all over the map, it’s really a pretty, pretty diverse range of customers, but I think it’s enough that they help us understand what people care about, what people wants.

A lot of it’s around security; a lot of it’s around some very specific feature that they are looking for. In the webinar I hope to be able to talk about that more in depth. I probably here we can’t name any customers or anything like that right now, but we can start talking about what we’ve learned and what they want and we obviously looking for some of that to talk about in the webinar.

Brian J. Murphy – Merriman Capital, Inc.

Okay, great. I’ll hop back in the queue. Thank you.

Eldad Eilam

Great. Thank you very much.

Operator

Thank you. (Operator Instructions) There appeared to be no further questions at this time. I’d like to turn the floor back over to management for closing comments.

Eldad Eilam

Thank you, very much. Before closing I just want to let you know about a few conferences that we will be attending this year. We will be attending the 15 Annual B. Riley Conferences and are schedule to present on May 19, from 1.30 PM to 1.55 PM Pacific Time in the Palisades D ballroom in the local town in Santa Monica, California. We will also be presenting at the Marcum MicroCap Conference on May 29 at 10.30 Eastern Time in the Imperial ballroom at the Grand Hyatt that’s in New York. If you are attending either of those conferences, or we might to set up a one on one meeting with us, please do so by contacting either with the conference organizers. And that’s it, thank you very much for participating in today’s call and for your continued support. We are all very excited about the positive in recent developments and we and hopTo look forward to the next quarterly updates. Thanks for listening.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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