Greetings and welcome to the Socket Mobile First Quarter 2016 Management 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. I would now like to turn the conference over to your host, Mr. Jim Byers of the MKR Group. Thank you. You may begin.

Thank you, operator. Good afternoon and welcome to Socket’s conference call today to review financial results for its first quarter ended March 31, 2016. On the call today from Socket are Kevin Mills, President and CEO; Dave Dunlap, Chief Financial Officer. And also joining us today from Socket Mobile is James Lopez, Socket’s Vice President of Marketing and Business Development to answer your questions on recently announced Socket products and the markets for these products. Socket Mobile distributed its earnings release over the wire service earlier today. The release has also been posted on Socket’s website at www.socketmobile.com. In addition, a replay of today’s call will be available at vcall.com shortly after the call completion and a transcript of this call will be posted on the Socket website within a few days. We’ve also posted replay numbers in today’s press release for those wishing to replay this call by phone. The phone replays will be available for one-week. Before we begin, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities and Exchange Act of 1934 as amended. Such forward-looking statements include but are not limited to statements regarding mobile computer data collection and handheld computer products, including details on timing, distribution and market acceptance of products; and statements predicting trends of sales and market conditions and opportunities in the markets in which Socket sells its products. Such statements involve risks and uncertainties, and actual results could differ materially from the results anticipated in such forward-looking statements, as a result of a number of factors including but not limited to the risk that manufacture of Socket’s products may be delayed or not rolled out as predicted, due to technological market or financial factors, including the availability of product components and necessary working capital, the risk that market acceptance and sales opportunities may not happen as anticipated, the risk that Socket’s application partners and current distribution channels may choose not to distribute the products or may not be successful in doing so, the risks that acceptance of Socket’s products in vertical application markets may not happen as anticipated, as well as other risks described in Socket’s most recent Form 10-K and 10-Q reports filed with the Securities and Exchange Commission. Socket does not undertake any obligation to update any such forward-looking statements. Now, with that said, I would like to turn the call over to Socket’s President and CEO, Kevin Mills.

Thanks, Jim. Good afternoon, everyone and thank you for joining us today. We are pleased to report first quarter results that include solid revenue growth year-over-year and continued profitability. The quarter was very much in line with the expectations we outlined in our previous earnings call and is a solid start to 2016. Our revenue for the first quarter was $5 million, an increase of 26% over Q1 last year. This increase was primarily driven by our cordless barcode scanning business, which grew approximately 16% year-over-year and represented 80% of our total Q1 revenue. Our legacy SoMo related business contributed 17% of our total revenue in Q1, reflecting some last time buy orders we delivered during the quarter and the remaining 3% of total revenue came from service related product. Our higher revenue coupled with our improved gross margins and modest expense growth in Q1 resulted in a bottom-line profit for the quarter of $548,000 or $0.10 per share. This is a substantial improvement over the loss of $77,000 or a loss of $0.01 per share we reported in Q1 of last year. This also represents our fourth consecutive profitable quarter. Our Q1 results reflect the continued success of our strong application driven business model, which has been our focus over the past few years. As we have discussed before under this model our scanners are a secondary purchase to an application sale. The mobile point of sale market is a good example of how model works and has continued to be the primary driver of our business. With over 70% of our scanner sales being mobile point of sales related. Once the customer has selected and purchased their mobile point of sale application they then must choose from a limited number of hardware peripherals supported by that application provider.…

Thank you, Kevin. The first quarter of 2016 was Socket’s fourth consecutive profitable quarter. First quarter revenue in 2016 was $5 million compared to revenue of $4 million in the first quarter a year ago, a quarter-over-quarter growth rate of 26%. Cordless barcode scanning revenue in the first quarter grew 16% over the first quarter of 2015, which maintained the 16% growth pace that we experienced in all 2015 compared to 2014. Cordless barcode scanning revenue in the first quarter was nearly 60% I’m sorry 80% of our quarterly revenue and we expect these percentage to grow. Our handheld computer sales in the quarter were $868,000 or 17% of total quarterly revenue. Service comprised the remaining 3%. Our handheld computer sales included 40% of a one-time $1.6 million order we’ve received last year. We expect to ship the last 40% of that order in the second quarter. Our quarter-over-quarter growth in barcode scanning units shipped during the first quarter was nearly 27%, up from 13,892 units in the first quarter a year ago to 17,624 units in the first quarter of this year. Our fastest growing product continues to be our entry levels 7C linear imager, which is also our most attractively priced entry level product. Our growth continues to be driven by mobile point of ale applications into the underserved Tier 3 retail sector from registered developers who have incorporated our barcode scanners into their applications. Our first quarter margin on sales was 49.7%, up from 45.1% in the first quarter a year ago, reflecting our success in reducing product cost while holding our overhead cost level despite increased shipment volumes. The increase in our margins has been a significant contributor to our bottom-line growth. Our operating expenses in the first quarter increased 6% or $105,000 over the same…

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from James Denovo from Trident Capital [ph] Management. Please go ahead.

Good afternoon. Kevin or James the DuraScan product that’s coming out, is there any clear industry, which think that would have the biggest demand for. Can you give us a little more kind of flavor on where you think that would be very popular?

So it's designed - this is James by the way. Thanks James. This is - DuraScan is designed primarily for non-point of sale market. But we still see a strong demand in mobile point of sale as well. In our non-mobile point of sale markets about 40% of scanners purchased are more durable scanners. So this is certainly going to meet that need. But it also is a limiting factor in those markets where they’re looking for something that’s tougher and IT rated as an example. So we definitely see it hitting that market. In the mobile of point of sale space 20% of our scanners so there are our durable flavor of scanners. So this is going to even be a better version of that product for those customers.

Okay, thank you. And a question for Dave, I may be getting ahead of myself. Is there any - the outlook looks really good there is a lot going on is there any way to consider buying back stock by borrowing some more money doing anything to buy back stock? I knew I said we’re getting little ahead, but I mean realistically. I think it’s a fair question.

Sure I agree it’s a fair question I have to laugh because Kevin once in a while will mention that Socket Mobile is probably one of the longest startups in the valley. We go back to the 1992. And obviously we’re still growing we’re developing products. We have no shortage of ways to apply our cash. That will change overtime, we’ll start to - assuming we maintain our profitable growth, we’ll start to generate positive cash in the future. But I think in the near-term as I look out a year as a need for us to maintain the cash available for our operating use is probably the biggest priority.

That’s fair. I just see so many observed valuations out there in the market that you hear about all day along and obviously you are such a small relative company. But the growth outlook and what you guys are doing of late is pretty compelling that’s why [indiscernible]. Thank you very much.

Well and the other factor is that availability of stock, we have a lot of long-term holders who have recognized the direction we’re going and are believing that as we do with that we’re going to see continued growth in the customers we’re serving and the markets we’re serving. And so stock is - in order to get stock from people who have that belief, you almost have to get the stock up. So even if we were to go out and try to buy stock back I’m not sure we get a lot of people wanted to sell it to at these prices. So - but anyway, well certainly that’s always an option down the road, but certainly we don’t want to do that yet.

I would say we’ve been part of the stock going up by. But okay thank you very much. Thank you.

Thanks, Dave.

Out next question comes from Peter Mainz from Suitewood [ph] Research. Please go ahead.

Thank you. First of all I got to congratulate you guys. As you I have been following it for quite some time and it’s great to see steady growing revenue and profits that’s fantastic. I guess on the financial side, I want to find out in particular like in the operating budget going forward do you see that being relatively stable over the next year? I guess R&D in particular seems that you have been able to hold up pretty stable. Is that going to be the case going forward at least for the next 12 months?

I think our general parameters Peter are that we are looking to fund our growth from operating results. That’s why we’ve maintained positive cash flow and why our profitability has been there. But research and development is driven by the opportunities that we see in the market. And we continue to evaluate that we are working on products now that will come out end of the year into next year. So I don’t want to project that we’re always going to hold things steady as we’ve done over the past two years. I do expect growth this year and operating expenses, but I expect growth to be in line with revenue growth and we’ll apply. And we’ll only add expenses where we believe it’s in the best interest of the company in growing towards the future. I think our biggest expense obviously is our personnel expenses that’s more than 50% of our operating expenses. And we’ve done a good job of holding our headcount at around 50 employees over the past two years and I am anticipating that we’ll moderate growth not add a lot of employees during this current years that we’re in. But as we go through the future, we also want to be sure we’re being responsive to our customers and the opportunities we see. So we’ll manage it as we go.

Quick question regarding sort of the revenue distribution and where it’s coming from international versus U.S. Can you talk a little bit about that and then are there any specific areas internationally where you see some dynamic or potential growth coming over the next year or so?

Well let’s take that in two pieces. Historically our European revenues have run between 15% and 20%. And our international revenues out of the Asia Pacific region have run between 5% and maybe 8%. So we’re seeing that continue, but I think the other factor is how quickly the international locations are catching up with the focus by developers on mobile markets. And maybe I can turn that part of the question over to Kevin for his comments.

Yeah so Peter what we’re seeing is that I think the two things that affect the sales is the availability of applications and the level of comfort people have in buying online. Certainly in the U.S., I think people are much more comfortable buying online than they are other parts of the world. So today, we probably have 75% of our business in the U.S. and 25% in Europe and 5% in Asia-Pac if you will. But we are seeing the trend there by as the level of comfort with online shopping increases outside the U.S. people are buying more of our products and there is more applications coming to the market. So I would actually say the trends outside the U.S. are probably 12 months behind. What we’re seeing in the U.S. but we’re seeing them starting to mirror a copy of what we’re seeing. So there is nothing dramatic it’s just an evolution here. And I would say longer term, we would expect to do probably get back to a 60-40 split overtime.

Okay, thank you. And by the way I agree with the person who made the previous question I mean the evaluation of this is really good. Someday it will catch up from where it should be. So keep going, thanks.

All right, thanks a lot.

Our next question comes from Alice Roy [ph] a private investor. Please go ahead.

Congratulations Kevin and Dave. It’s really nice to see the company going in the right direction. As far as NASDAQ goes, the Socket meet all of the qualifications to get on NASDAQ so this should be no problem with the listing?

Well I’ll answer the first part of that. We believe we meet the qualifications. And the process is we’ve got to file the Q, because the NASDAQ will rely on our net equity balances as we report them on the Q which now are above the $4 million minimum listing or the net income standard for the capital markets. From there, it’s a very detail application, NASDAQ indicates four to six weeks. They’ll be interacting with the company and they’ll obviously make the determination for qualified. But we’ll move that process along as quickly as we can once we file the Q.

Right. And Socket has a tax loss carried forward I believe about $28 million that’s so you want to pay taxes for quite some time, is that correct?

Well that’s our expectations yes. We still will be fine tuning the numbers relative to what they called section 382, which limits your ability for any particular year’s NOL to be applied. But we have lots of years of NOL and fortunately and that’s now fortunately and we’ll apply those. We don’t expect to pay taxes for a long time.

Okay, that’s good. Now if you go onto NASDAQ, I think that Socket should somehow so something to increase their exposure as far as being known. I mean this company is doing so great and growing so fast and making money and all the right things and yet there is really very little exposure with the volume on the stock. So is there any plans to somehow get more PR work?

We do expect to improve our outreach getting on NASDAQ is actually a major step forward. It provides them the systems provides a lot more information about the company to people on whatever systems are using to track companies. But we do expect to increase our outreach activities particularly on the other side of getting on the other side of getting on NASDAQ.

Okay, that’s great and thank you very much. And it’s great to see the company going in the right direction and I’m really happy about things.

Thanks.

[Operator Instructions]. And our next question comes from David Fabry [ph], also a Private Investor. Please go ahead.

Hi, congratulations on another solid quarter. Not a question, just for clarification. So in the second quarter the balance of the $640,000 OEM order should ship, plus then the remaining amount of SoMo and about how much revenue do you have left in just individual unit SoMo [ph]?

So we are talking $200,000, David. Not a large amount.

Okay. Be done in second quarter or it just kind of little just...

The bulk of it will be done in the second quarter. We have customers who will continue to buy products in small quantities as we support them. But there will be no significance revenue going forward based on those.

Okay. On that topic you did about $150,000 in service warranty revenue this quarter. Usually you do about $100,000-$125,000. How do you see that running out going forward as the SoMo fades away? Are you getting more interest in scanner warranty?

Yeah, I mean we can do a better job on the scanner warranty. The bulk of the revenue has come from SoMo. The programs that we have for scanner revenue really needs to be revamped. We're in the process of doing this and we will expect some revenue to come from scanners going forward. Plus we do have let’s say $100,000 SoMos out there that people want to continue to use and we are happy to service them. So the SoMo does work well in a number of very important applications and people seem to be dependent on as long as they are we’ll support them. So it doesn’t just evaporate overnight.

Okay, that’s good. On your margins it’s glad to see they were at 49.7% as you start to sell more scanners. Do you see them going up above 50% or will you do the opposite and then potentially like drop the price of the scanner but hold margins about the same level.

First of all, there is many things go into the margin calculation and there is many moving parts. We are very happy with a business model that’s around 50 points of growth margin. Yes, we will have a combination of price reductions, cost reductions. But I think as from a model point of view we’d like to be close to around 50 points of gross margin. But it’s not just - it's not something we fully control because we’re dealing in live markets, where there are moving parts.

Okay. So just kind of a follow-up question on the operating expenses. Do you expect second quarter to come in lower than first quarter because the audit isn’t there?

Well, again I’ve characterized our plans for this year as being a moderate growth plans. We will add some engineering people to the help pick up the pace on future products. But in general we are going to keep cost down to those we feel where absolutely needed to support growth. But I would expect operating expenses will grow more than they did last year. But certainly less than what we will see in terms of growth at the top-line.

Okay. And speaking of top-line numbers you grew scanner 16% year-over-year in 2015 versus 2014. You match that again in the first quarter, is that the type of growth rate we should be looking at going forward or do you think it can ramp up as more software applications come online other markets open up?

Yeah, I think in the short-term we don’t know. Obviously longer term we believe it can ramp up. But we are selling let’s say 13%-14% of our scanners via Amazon probably 50% via Amazon CDW and a few others. It’s very hard to predict the growth that’s going to happen today when the customer gets up today they don’t know they are going to buy the scanner. So it’s hard to predict it. So we are comfortable within the high teens. We are hoping it will go faster, but we don’t have the control to know that for sure in the short-term.

But a lot of the revenue growth we’ve seen to-date David is we just characterize that as small quantity purchases. We refer to it as run-rate. Because we just don’t know it’s a whole a lot of small quantity purchases. The new products will help in non-mobile point of sale areas. And we would expect that as it takes longer for larger organizations to begin to move in the direction that we’ve been able to see mobile point of sale moving of adopting smartphones and tablets and using them for business applications. But we do expect that there will be some larger organizations over the next year or two that will start moving in this direction as well. And we would like to think we’ll benefit from that.

Okay wonderful. And just as a last comment. I had to smile about the idea of buying stock. I actually kind of thought as you guys become a cash count, maybe you can deliver some, but that look like would take a year or two from now. Alright thank you very much.

Thank you.

Our next question comes from Mike Schellinger from MicroCapClub. Please go ahead.

Yes. So in the NASDAQ uplisting process, in the past you’ve talked about needing to do a mid-year audit. It sounds like from what you said that’s no longer required.

Yeah correct. That is not required. We weren’t 100% sure of the process as we got closer, we checked all the rules and the rules are that we can use the Q1 results based on the filing of the 10-Q.

Excellent. And then just one other question, operating expenses have been slightly higher in the Q1 in the last couple of years. Is there something seasonal about operating system or operating expenses like just the audit that is kind of leading to that?

That’s the biggest item. Our audit is - our expenses are pretty much all are captured in Q1. And our audit expenses which we disclosed in our proxy are in the $80,000 range. Plus we have quarterly reviews. So most of that falls in the first quarter.

Okay, alright thank you very much. Great quarter.

Thanks very much, Mike.

Our next question comes from the Fernac Fidel [ph] a Private Investor. Please go ahead.

Hi guys. Nice to see that we’re being profitable every quarter. I noticed that most of the scanners are related to point of sales. Would you comment a little bit on the enterprise possibilities now and in the future?

Yeah I can comment on that. So we kind of view that as our non-mobile point of sales phase. But it’s actually what was traditional space for Socket in the SoMo space. As that phase starts adapting to mobile devices, we definitely see more opportunity. That space is typically characterized by deployments that are three to five year long deployments of equipment. So as we starts seeing those kind of cycle into the new mobile equipment we see opportunity there. And that’s reflected in the developer sign ups that we have. Where we have developers coming from those spaces, developing new applications for those spaces. And hopefully carrying us in our products into those spaces with them. And that’s one of the reasons why our next couple of products are focusing more on the needs and demands of those spaces with the more durable solution for harsher environments and our new DuraCase which is a more captive solution for our mobile field workers that operate in those environments.

Right. Okay I notice the American dollar has been quite week. And is that benefiting us for particularly in Japan and obviously it’s increasing our revenue?

Obviously it’s marginally improved our profits when we bring those results back to the U.S. Because you get more callers. But that’s really not driving the business. We’re not in a competitive and by lower the scanner by $0.02; people will buy us or not buy us. As we pointed out, people buy it because their applications dictate that we are the scanner that works with the application. I think that overseas we don’t have as many applications because those markets are not as far along and moving to an application driven business model. So in the short-term we drive a little benefit in our gross margin because of the dollar. But it doesn’t really change the demand profile because the demand profile is determined by application. So I don’t know if that answer your question. The short answer is the dollar price doesn’t make a big difference to us at this stage of the game. Longer term obviously it will, but today it don’t.

And the only area of the world that we’re selling in foreign currency is in European area where we sell in euros and we are not in the business of speculating on foreign currency. So we do hedge our receivables which would be exposed to currency fluctuations. So doing that minimizes I think our exposure. The other impact just becomes where we are doing dollars in the rest of the world if the local currencies that in our products either become more expensive or less expensive to the people buying that as Kevin said it’s not a highly elastic decision process.

Okay. Is it a fair assumption that the second quarter is we expect to be surpassing the first quarter?

Yeah, certainly in terms of scanner scales that’s the fair assumption.

Okay. Most of my questions are already answered. But this is the last one, I noticed, I’m very, very pleased that we are now eligible for the NASDAQ because two things that I thought of is that once we are on NASDAQ it makes the stock marginable which gives a greater demand. And number two if I am correct there are many institutions that will not buy an over the counter stock and when we get our NASDAQ they take another look at us.

Yeah. I think that those are two valid points. I think what’s actually also important is that many people today look at their stock portfolio make their decisions within programs like e-trade or other online programs and the level of connectivity to NASDAQ based companies is much greater with these programs than to over the counter program. So I think getting back on NASDAQ which is something we said we would work hard to do and we are pleased to be in a position to apply for that now. It will be a benefit to everyone and that it will allow more people to see our story and to see the progress we are making et cetera. So I think there is nothing but goodness about getting back in NASDAQ.

Okay. Well, I’m finished. Keep up the good work.

Thank you very much.

Thank you. I show no further questions at the moment. Management which will make any closing remarks?

Yeah, we just like to thank everyone for participating in today’s call and to wish everyone a good afternoon. Thank you.

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