Welcome to the Socket Mobile's 2016 Fourth Quarter and Full Year Conference Call. My name is Eric and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note this conference is being recorded. I will now turn the call over to Jim Byers of MKR Group. Please go ahead.

Thank you, operator, good afternoon and welcome to Socket's conference call today to review financial results for its fourth quarter and year ended December 31, 2016. On the call today from Socket are Kevin Mills, President and CEO; Dave Dunlap, Chief Financial Officer; and James Lopez, Socket's Vice President of Marketing, Sales and Developer Programs to answer your questions on recently announced Socket products and the markets for these product. 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 vikal.com shortly after the calls completion and a transcript of this call will be posted on the Socket website within a few days. We will also post a 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 the trends of sales on 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. And now, with that said, I would like to turn the call over to Socket's President and CEO, Kevin Mills.

Thank you, Jim. Good afternoon, everyone, and thank you for joining us today. 2016 was a very good year for Socket Mobile. We achieved all of the goals we outlined on last year's Q4 call and even a few we didn't. Namely, we increased both the revenue and profitability in 2016. We expanded our data capture business by serving a greater number of applications across a wide range of industries and by increasing our business with existing customers. We expanded our product offerings with new hardware solutions that enable our partners to expand their offerings. As part of this we have developed RFID products, a key objective. As we announced this past Monday, we introduced and new contactless reader writer which we successfully demonstrated last month at the National Retail Federation Expo. Entering the RFID market expands our capabilities to electronic smart tag, read and writing, making Socket a more complete mobile data capture company. We returned to a listing on the NASDAQ Capital Markets during the year. We also exited our legacy SoMo handheld computer business this past year without any adverse impact on our customers or our financials. We are now a business solely focused on mobile data capture. Finally, we ended the year with a significantly stronger balance sheet. Let me briefly address our larger than expected profit and earnings per share in Q4. Socket has always had a significant amount of net operating losses or NOLs on our books but has not been able to show them on our balance sheet because we have not met the required criteria to meet expectations that would likely be realized. These criteria include profitability for three consecutive years to name one. The fact that we can now carry these NOLs on our balance sheet is an indication of the…

Thank you, Kevin. Market activity in Q4 continue to show overall strength and demand for scanners to complement mobile point-of-sale applications, and while we did see typical fourth quarter seasonality for the second year in a row it's much less than expected. In addition, we also saw increased demand in the enterprise mobility segment as applications are being deployed for connected field workers that are leveraging scanning. Demand for our scanners and control systems and logistic applications also saw significant increases compared to the same quarter last year. New and updated socket STK enabled applications generally available in the App Store and Google Play Store grew at a steady pace as did Socket's developer community. Most notably in the second half of 2016, non-U.S. based worldwide developer registrations comprise more than half of our new developers overall. This is a positive indicator for future international sales which today represent less than 25% of our business. In Q4 we added two more diverse scan solutions to our product line-up, the D730 laser barcode scanner and the D700 1D barcode scanner and also added two new color choices for our DuraScan family. These additions complement this D750 2D barcode scanner which has quickly become a developer favorite and complete our DuraScan barcode reader solutions. As Kevin noted, we will further add to our DuraScan family in 2017 when we introduced the recently announced DuraScan D600 contactless NFC reader writer. The D600 will enable the Socket Developer Community to easily support existing workflows and create new ones leveraging NFC. The D600 will sit side by side with our existing scanners and be fully supported by the same Socket STK. Now I'd like to hand things back over to Kevin.

Thanks, James. So in summary, 2016 was a very positive year for Socket in which we grew our revenue and profitability and significantly improved our balance sheet further validating our unique application driven business model. We expect to see a continuation of this trend in 2017. In addition, we delivered new products that expand our markets and enable our developer partners to service more customers. We expect to see meaningful revenue contribution from these products in 2017 and beyond. Our goals for 2017 are to grow our revenue with our new DuraScan and DuraCase to expand our business to new markets, especially Japan and China; to enable our partners to begin servicing the emerging mobile or FID markets and to steadily increase our growth and profitability. With that said I would now like to turn the call over to Dave for a review of the financials. Dave?

Thanks Kevin. 2016 was Socket Mobile's third consecutive profitable year fueled by growth in cordless barcode scanning revenue and improving margins. Worldwide unit sales of our barcode scanning products increased 20% in 2016 approaching 80,000 units while cordless barcode scanning revenues increased 15% to $17.9 million in 2016, 86% of total 2016 revenue. Our margins for 2016 were 50.2% of revenue, up from 48.6% of revenue in 2015. In 2016 we allowed our operating expenses to grow in line with margin contribution, up 15.7% to $7.9 million reflecting increases in product development and certification cost for new products and additional investment in personnel as we continue to facilitate and prepare for further growth. Net income before income taxes for 2016 was $2.4 million, up 31.5% from net income before income taxes in 2015 of $1.85 million. Our results for the fourth quarter and 2016 fiscal year include a one-time income tax benefit of $9.7 million. And our balance sheet at December 31, 2016 now includes net deferred tax assets of $9,589,000. Until now we've offset deferred tax assets with a full valuation allowance until we met the gap required criteria that was more likely than not that we would realize the deferred tax assets from future profitability. Deferred tax assets at December 31, 2016 include a future tax benefits of $8.1 million in federal and state net operating loss carry forwards along with other tax versus book timing differences such as asset reserves on our books. The primary factors leading us to conclude that we met the realized ability standard included the past three years of growing profitability and our continued outlook for further profitable growth; including positive market trends, new products, and a growing developer base integrating our products into their mobile applications. Our balance sheet has benefited, we…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from James Yannello from Skyden Capital. James, your line is now open.

Hi, good evening, pretty impressive update here. Can you provide a little more details of the software adoption overseas? I think you said it was like a 50% rate of interest in your software which clearly could suggest growing hardware demand overseas? Can you kind of give us a little idea of what kind of clients you're seeing? What type of customers are adopting?

Sure. So what we're talking about are developers and what we're seeing is that our developer registration is starting to come from around the world versus being very U.S. centric. And while we do have a tail that has our developers develop their application, mature and then release the application it bodes well for the potential overseas because a lot of these developers are developing for their local markets, particularly in mobile point-of-sale which is very local centric. So what we're saying there is that we're seeing that interest overseas that we've never seen before and given that our overseas sales are less than 25% of our sales today, it bodes well for the future.

Yes, I guess what I'm asking is off the developers what type of -- like for what applications are they developing for?

Okay. Mobile point-of-sale is still the lead application. And it -- the brunt of new developers are coming from that area but we're also seeing it across the other spaces as well. So it's not exclusively mobile point-of-sale but the lead application is mobile point-of-sale.

Okay. And is there any industry in particular or is it just broad-based?

It's very broad-based, it's like we've talked about previously, it has a lot to do with the enterprise mobility efforts that are happening right now where more and more of the workforce is armed with a mobile device and that's being used to facilitate workflow. And where that workflow contains scanning, we're getting a lot of development and interest.

Okay, thank you.

And your next question comes from Al Troy. Al, your line is now open.

Hi gentleman, congratulations on three years of profits, it's quite a turnaround for the company. I've noticed that the institutional ownership is picking up dramatically from zero institutions to quite a few that now that are purchasing shares in Socket. My question is, do you have any plans to attract more institutions to take up position in Socket in the near future?

Sure. I mean yes, on the back of these positive trends and better results, we will continue to reach out to investors. I think that's we're getting into the zone where more people are interested and we have now good track record to make sure that the story is not viewed as just being a blip but more of a trend. So I think you can expect more institutional investors going forward.

That's great. Do you have any plans to hire a PR firm or somebody to go around and have them speak on your behalf to institutions?

Not at this stage, we can speak well for ourselves and we'll do that when we run out of that capacity. We'll do -- we'll hire appropriate people but at the moment, again, we still have to I would say to build this institutional base and that requires them to talk to management. So we're happy to talk to them and were having more meetings, plus it's a process.

Okay, good. It looks like it's getting near that point which is good. Okay, thank you. Keep up the good work.

And our next question comes from Dominic [ph]. Dominic, your line is now open.

Thank you guys, great quarter. Can you give us a little bit of an idea of how the first quarter of this year is going to look as we're halfway through right now. Can you give us -- can you provide us some?

Sure. I mean it's -- we're off to a solid start, we've said in the past that January is a pretty dead month for us. I think it wasn't quite as dead as last year but I would say it's too early to give a firm indication but we're pretty confident in the underlying trend. So we would expect to have a good quarter and to continue to grow the business along the lines we expect. As we've pointed out in the past, the exact timing of deals and run rate is hard to predict, we do see some seasonality. December and January tend to be the deadliest months, particularly in the mobile point-of-sale category as people generally speaking don't replace their cash registers during the busiest portion of their sales cycle. So I would say we saw a better January than we did last year but it was still relatively quiet. We are seeing better February than we saw last year at this stage but it's a trend you have to follow at the specific moment or day. So we're comfortable with the business going forward.

Very good. In terms of your expenses, do you hope -- do you expect the expenses to be stable in 2017 because you came in about 7/9 and the last quarter was about two one. And I just wanted to get over the idea how it's looking for in 2017?

Yes, I mean we're making a conscious effort to invest a little bit more in engineering and online marketing of various types. So this is a conscious effort to grow the business, so I would not expect us to have our expenses flash. We will allow them to grow as the business supports flash but as we've pointed out in the past, the delta between our investments and our return of those investments is two to three years. So if we want to see continued growth in '18 and '19, we have to invest now. Much of the investment we did last year was in the DuraScan product, the DuraCase product and the RFID developments. None of that generated any revenue for us, we expect to see some this year but a lot more next year. So we don't view investment in R&D as being a negative, it's a positive and I think historically we've been under-investing a little bit due to other constraints and now that we're less constraints, we think we can do more.

From the last quarter, I like that, that's a productive expense, so I agree with you there. I love this business model of yours, especially if you keep these expenses low and your revenue start to escalate. Your GP virtually is coming down to the bottom line which is extraordinary. It seems to me that your company is almost -- you know, the valuation is more like it's value as a hardware company when in actuality it's kind of like -- almost like a software company because here of course the fixed and the top line growth, a lot of it's going through bottom line. I guess it's more of an observation in the question. I just want to say it's a pleasant situation to be in and I enjoy being a shareholder watching this grow.

We appreciate it.

Last observation is that your balance sheet is spectacular; once you take in Q3, once the convertible notes come out, you're going to have 2:1 working capital if not even higher because right now you're cash flow positive going forward, and just keep up the great work, it's a great story.

All right, thank you very much Dominic.

And our next question comes from Brian Swift [ph]. Brian, your line is now open.

Thank you, and congratulations guys for another great quarter. Two questions; one would be you had an acceleration in your growth rate, second half of last year. Could you comment on what products contributed mostly to that? And then secondly, what are your expectations for the longer term for the new products, the accessories as they are introduced throughout the year including the one that you just announced this past week?

Okay, so on the acceleration. Like we pointed out repeatedly that our busier season tends to be -- I would say, August, September, October as a quarter because certainly today as were very -- mobile point-of-sale heavy at this stage in our developments, people tend to get their mobile point-of-sale systems in place prior to the busy holiday season. And therefore, it was across the board we saw the pickup in the second half, okay. In terms of the DuraScan products and the DuraCase products, in the case of the DuraScan products, really these products are designed to expand the reach of the applications that are already developed. Currently our products are -- I would say exceptionally well designed for indoor use but we don't do well with the current portfolio in harsh environments. We're seeing a greater demand for our people using the products in harsh environments plus you have to factor in that a lot of the phone companies whether it be Samsung or Apple are now providing water-proof and weather-proof phones. So the ability to take these phones out into the wind, and the rain, and the snow that didn't exist as little as two years ago, now exist and people want scanning product to accompany that and we have that family of products going forward. On the DuraCase, all of our solutions today, the vast majority of what we call two handed solutions, you have a tablet in one hand or nearby and a scanner in the other hand. We didn't have a strong solution for -- single-handed solution -- for single-handed scanning which is a particularly strong requirement in inventory or ticketing or other applications where you take an item in one hand and need to scan it with the other hand. The DuraCase solution…

The seasonality issue I assume was the same last year as this year and that was -- margins didn't see how you drew 20% year-over-year in the second half versus 9% in the first half whether that was something that contributed to that?

Not really, not really. And here is why, is that you know; Q1 last year we grew by -- I think it was 18%. And then Q2 we only grew by 2%, and then in Q3 we're back at 20%. So people would love it to be just as like a stairs, every step to be an equal size. I think it's just not that yes and we will see some ups and downs between the quarters but overall we're pretty comfortable that the underlying growth continues to be quite strong.

And I guess last that the larger sales or enterprise type of sales, how are they doing and what's the outlook there?

It continues to be good, we do guess -- in most quarters we do get some deployments as we like to call them and they've been steady and they obviously bring a little bit of lumpiness to the business at this stage but we're very comfortable the we're seeing an increasing trends towards deployments where larger companies are accepting the iPhone, Android phone-based solutions. So I think that also is adding to the underlying growth.

Thanks.

And our next question comes from David Savory [ph]. David, your line is now open.

Thank you. Congratulations guys on the strong quarter. Most of my questions have been answered but I just got a couple of little thanks. For baseline, from which the scanner revenue came from the DuraCase and DuraScan series for the fourth quarter; I'm sure it wasn't much but just curious.

Insignificant amounts, nothing major.

Okay, that's kind of expected.

We only have one, the D750, one solution that was out there and it went to a lot of developers who are designing in now and we release the others two DuraScan solutions towards the tail-end of the quarter. So we expect those to pick up this year.

Now what kind of feedback are you getting from the developers? Are they pretty excited with the product where they could see it being used with their software and the mix?

Absolutely, they really have taken to the durables very well, we've had a lot of them come back to us, wanted to change their orders to durables and the performance as far as the ruggedness and the weather-proofing has been great. The scan performance as well, the usability, it's just all around a lot of great feedback. Primarily, because what went into the design was their input, so we took what they told us, we turned it into a better product and now they are confirming that they like it.

Maybe just -- we are still supporting with the same STK. So far other than you know, verifying which is a much quicker process than developing. They basically can switch to the ruggedized with no work or no impact, they just need to get a few, make sure get comfortable with this and then they can switch over, and they don't need to recompile their apps or anything like this.

Exactly, that's instantly usable.

Excellent. I know you guys come through -- are coming out with the DuraCase for the Samsung J3 phone?

Yes.

Will you be expanding on additional Android phones for cases and are you still moving forward with the iPhone?

So we will be supporting the J3 and we believe the J5 which are very, very similar form factors. We are working on the Galaxy S7, and we have a case design for the iPhone but we are working through Apple to get it certified and that's kind of a unpredictable process.

I remember Kevin saying with the iPod Touch, it took a while for approval, yes.

Yes. The i5 was actually, believe it or not easier because it doesn't have a same [ph] radio in it and this other radio -- there is other test that go on there. So I couldn't tell you a date on that one but I can tell you we've got one already in the works and in evaluation, I just can't tell you when it will be done.

Okay. I'm glad -- it's exciting you guys are branching into additional data capture area of RFID. What about your RFID touch points stand, have you been continuing to work on that? Are you getting feedback on that?

Absolutely. It's all of the same model, it's -- the inner workings are very similar but rather than taking a scanner to a tag, you will bring an element to a scanner. So it's just sort of a compliment to the workflow that we're promoting with the handheld. But we're going after the handheld first because it's what was prioritized by our partners. The touch point concept brings in other elements like beacons and other things that are interesting but take a little bit more to develop whereas the handle reader can read any tag that's applied today right now.

Okay, excellent. Again a question for the fourth quarter; I'm glad to see 97% of the revenue came from scanners, I think that puts you almost 25% year-over-year growth from last year for fourth quarter. Can you break down the run rate versus the larger deployments for this quarter?

I don't have it at the top of my head but I would say both were up.

Okay.

So we saw a lot of run rate business and we did have some deployments but I think that's -- your assessment of 25% year-over-year is correct.

Okay. But run rate wasn't up, was up nicely because I mean that's kind of the key thing we're all looking for, that's like the meat and potatoes of the business.

Absolutely. And the run rate is -- basically was running up at those levels and I think that's much better barometer of the underlying health. It's always nice to get a deal but as we've seen, the timing of these things is difficult and I think we've got the point where we can live comfortably and grow the business comfortably on the run rate and then the deals are -- I would say you know, the cherry on top of the cake as opposed to the cake and that's so much better position. There was a time, not so long ago that we needed the deals to kind of make the number and you didn't have that control and obviously that's very stressful etcetera; today we're much stronger on the run rate side.

Excellent. Keep up the good work guys.

Thanks a lot.

Thank you.

[Operator Instructions] We have no additional questions at this time.

Okay. So we would just like to thank everyone for participating in today's call and to wish you all a good afternoon. Thank you.