Greetings and welcome to the Socket Mobile first quarter 2010 management conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jim Byers, with MKR Group. Thank you. You may begin.

Thank you, operator. Good afternoon and welcome to Socket's conference call to review the financial results for its 2010 first quarter ended March 31, 2010. Online today are Kevin Mills, President and CEO of Socket, and Dave Dunlap, CFO of Socket. Socket Mobile distributed its earnings release over the wire service at the close of the market 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's completion, and a transcript of this call will be posted on Socket’s website within a few days. We have 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 Exchange Act of 1934, as amended. Such forward-looking statements include, but are not limited to, statements regarding mobile computer, data collection and OEM products, including details on the timing, distribution and market acceptance of the products, and statements predicting trends, sales and market conditions and opportunities in the markets in which we sells our 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 our products may be delayed or not rollout as predicted, if ever, due to technological, market, or financial factors, including the availability of necessary working capital, the risk that market acceptance and sales opportunities may not happen as anticipated, the risk that our application partners and current distribution channels may choose not to distribute the products or may not be successful in doing so, the risk that acceptance of our products in vertical application markets may not happen as anticipated, and other risks described in our 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 forward-looking statements. With that said, I would now like to turn the call over to Socket's CEO, Kevin Mills.

Thanks, Jim. And thank you for joining us today. I will first provide an overview of our first quarter of 2010, followed by our current outlook for the markets and business for the rest of 2010. We generated a sequential improvement in revenue in the first quarter and saw continued progress in other key areas. This includes increases in activity in our sales pipeline, recent introduction of additional new products and enhancements that further expand our overall market, and continued progress in maintaining tight controls on our expenses with a focus on achieving profitable operating results. Our sequential increase in Q1 revenue reverses the trend we have seen over the past two years where Q1 has typically declined from Q4. Overall, while the general pace of business purchasing remains slow, we are seeing a slight uptick in strategic investments by businesses for deployment and expansion of systems for their mobile workers as a cost-effective means to enhance productivity during a period of economic slowdown. We remain very focused on converting opportunities in our growing sales pipeline into revenue growth. Yesterday we announced a two-year $3 million OEM agreement with Epocal, a leading provider of point of care blood diagnostic products, to supply unique version of our SoMo 650 handheld computer as a natural component of their blood analysis system. We have been working with Epocal for some time. And over the past 12 months, they have purchased approximately 1,000 of our standard SoMo units to serve their North American requirement. We believe this new agreement reflects the proven success of their blood analysis system, which is in daily operation in many hospitals. To give further color, Epocal has recently partnered with Inverness Medical, whereby Inverness has agreed to distribute the product via its worldwide distribution network, provide fund, and agree…

Thank you, Kevin. Our first quarter 2010 revenue was $3.8 million, an increase of 5% over our previous quarter’s revenue of $3.6 million. But a decline of 20% compared to first quarter revenue of $4.8 million a year ago. First quarter revenue growth compared to the previous quarter was primarily due to increases in the sales of our bar code scanning products. Bar code scanning product sales increased by $320,000 or 28% to $1.45 million and represented 38% of our first quarter revenue. Bar code scanner sales increased across all product categories, including plug-in scanners, cordless hand scanners, and our ring scanner. New product sales, including the newest version of our cordless ring scanner and our newest 2D bar code scanner model 7X were contributors to that growth. We also experienced increases in sales of our entry level bar code scanners, reflecting the introduction late last year of laser-based entry level products to replace imager technology based products. And we also experienced increases in our plug-in bar code scanner sales, as customers such as Epocal, which uses the plug-in scanner as part of its blood analysis system, increase their purchases of these products. Our handheld computer sales for the first quarter of 2010 were 1.5 million, flat with the previous quarter and down 4% from the first quarter a year ago. Handheld computer sales are very dependent upon the timing of product deployments. And although our sales pipeline is signaling significant growth in deployment, particularly in healthcare, our first quarter sales reflected lower hospital deployments in Europe compared to the previous quarter, with a number of hospitals expected to increase deployments in the second quarter. As Kevin noted, many of our application partners are also signaling growth, and our OEM agreement with Epocal announced yesterday is a good example with…

Thank you. (Operator instructions) Our first question is from Brian Swift with Security Research Associates. Please go ahead. Brian Swift – Security Research Associates: Thank you. Can you give us a little bit more color on how you expect this 3M association to roll out? You mentioned that they are in libraries. You mean book-type libraries or software library, what kind of library –?

It’s mainly book-type libraries, Brian. And they essentially have an asset tracking solution, targeted small business where you can track a number of assets. They list a whole slew of them on the web page, but it’s designed for people who need to track either books in the library situation or critical assets in a small business, etc. You subscribe to the service. It’s an annual type service. And then you can either use the SoMo or you can use a tethered bar code scanner in conjunction with a notebook to scan the assets and then put them in your database. They support both 1D, 2D and RFID tags. So then based on the type of assets you are tracking, you would scan it into your database and then basically maintain it over a period of time. So they have just started to promote it. They are basically beginning to sell us. If you go to their web page or you go to their brochures, they essentially give people two choices. They give them a stationery-type solution that’s based on our desktop and tethered scanner, or they give them a mobile-based solution, which is based on the thermal – with our plug-in RFID scanner combination card. Brian Swift – Security Research Associates: Okay. And is this primarily public library or –?

I would say it’s primarily school and small libraries. I’m sure they cover public libraries, but the vast majority of the business seems to be for organizations that don’t have a lot of their own in-house IT support. So again, I think in smaller public libraries, that may be the case. If you get to bigger libraries, often they will have their own IT facility and maybe do things like you differently. But the software package is designed for small business and on the assumption that you are not going to have a lot of in-house expertise. Brian Swift – Security Research Associates: Well, certainly in this economic state, funding for those types of entities is rather scary. So what is their anticipation of how quickly this can ramp? This doesn’t seem like just a product that public libraries go for and –?

Well, again, it’s an existing product. So it’s not a new product. And essentially what they did was they upgraded the product to allow people to go mobile. And I would say today the product is primarily a stationery based product. And the new version that’s coming out this year includes this mobile option. And as they sell it as more of a subscription, I think that it won’t be a new purchase. It can be an upgrade to an existing install. And we are still working closely with 3M together arms around and the exact rollout schedule. But they intend to sell this product worldwide. So I think we’d have a better answer over the next four or five weeks. We have a meeting scheduled with them, I think, in the next two weeks where our sales representatives will be sitting down and going over the plan. So I don’t really have all the answers right now other than they have rolled out the product. They have basically selected the SoMo as their mobile, and we get more color and details going forward. And this is one of the situations where we didn’t have a lot of, I would say, interaction with 3M as they developed this product. And they came to us really when the product was fully developed and operational. And we’ve got involved with them over the last six weeks. And obviously, the fact that people can spend a year developing a product, testing is going to certain customers kind of under the radar mix forecasting, somewhat more difficult. Right? But also kind of suggests that there is a lot more going on. I think people have generally slow rules. There are new developments into the market because there is not a lot of virus. And I think we are saying in a few situations people changing that attitude. So they are moving them out, as I pointed out in the case with Hospira, where I think they sat on the program and did very little promotion or activity for almost 14 months. And just having re-entered the markets at the HIMSS show to re-market the product because of changes in the environment. Brian Swift – Security Research Associates: Maybe you can elaborate a little bit more on what the – there are some incentives that the government through their –

Reimbursement mechanisms. Brian Swift – Security Research Associates: Yes. Those types kind of (inaudible).

Yes. So I mean, in our discussion with Hospira and one of the things that I would – we convinced them to re-engage with the market more definitely was the fact that the government has mandated that everyone needs to have a closed loop medication dispensing system in place, I believe, by January the 1st, 2013. Okay? And as an incentive to have those in place, they are providing, I think it’s an extra 2% on all expense reimbursements in 2010, an extra 1% in 2011 and ’12. And then if you don’t have a system in place, you get deducted I think 1% in 2013 and 2% in 2014. So there is both tariff and stick kind of approach. Obviously medication dispensing errors is a big problem and causes a great deal of cost as well as it can have serious consequences for everyone involved. It’s been targeted as an area of improvement. And Hospira, if you remember, purchased the (inaudible) software, which is this VeriScan software with (inaudible) to medication. Hospira is an organization of about 14,000 people. Their primary business is IV pump, and they have something in the region of 0.5 million installed. And then they are enhancing this with the VeriScan system. And they are just starting again. And I think I pointed out that they will be at the clinical show in Las Vegas in May 4th and 5th. Brian Swift – Security Research Associates: Okay. Well, I’ll let somebody else ask you question and I’ll come back and –

Thank you very much, Brian.

The next question is from Bernard Fidel [ph], private investor. Please go ahead with your question.

Hello, guys. Kevin?

Hi, Dr. Fidel, how are you?

You were just speaking about 3M, and I think you emphasized the libraries. But the way I understand is, it isn’t solely for library. It’s for small and medium businesses to keep track of their inventory or items, whatever it is. Am I correct in that assumption?

Absolutely. I think that they actually have three segments in their literature of what they do. And two of them are not libraries. Libraries is one. And obviously it allows people to track books in and out of a library situation. But I think as you correctly point out, it also allows people to track any valuable assets they have on their business, both (inaudible), demo tools, various other types of assets that they are viewed as critical for their business.

Yes. And I understand. But the nice thing about it is that this is not even come and get from scratch. It is not an expensive system for the small and medium businesses versus having to do with themselves. I think it’s only a couple of thousands bigger than this [ph].

I don’t think it’s even a couple of thousand. I think it’s a relatively inexpensive system. And again, I think software developed as a solution, becomes very attractive because you get to leverage the investment in the sulfur to many, many different people. And again this is not a new product. This is a product area that 3M has been involved and the market leader. And they have upgraded an existing product to basically add the mobile capabilities. So again, not only do you get new customers, but you also get to re-sell or to sell to the installed base.

I think it’s very interesting that 3M told Socket because they are a very large operation. They probably did a lot of research, and this had held computer probably came out the best. And so therefore that’s a positive workflow. I think – and see if you could correct me on this – is that the 3M could be a relatively substantial assorts of income for us because we can go into a program for just a couple of hundreds. If it’s worldwide, the potential to give 10 of thousands of these type of systems.

Yes. I mean, obviously we hope so. And as I mentioned when Brian Swift was on the line a minute ago, we do have a meeting set up and we will have more details probably in the next two or three weeks. But yes, large companies generally when they invest in something need a reasonable return and essentially when you are talking about companies like 3M that’s already got billions in this category. They don’t do it for the sake of a small number of units. And also it tends to be for the long-term. I think that just with 3M and with others, we are seeing that when we engage with someone and they do test the SoMo, I do feel that in this category of products for at durable, dependable, reliable platforms that won software. The SoMo continues to do better and better and we continue to win deals like this. Similarly, with Epocal, I mean, they worked closely with us for two years. We have addressed all of their issues. The SoMo has continued to get better and better as a product, more stable, more dependable. We’ve continued to upgrade it with the latest and greatest from Microsoft and others. We are up to 65.1 where we will be able to go six five. And I think it’s our commitment to also the same that has helped people to, I would say, standardize is probably too stronger word here. But really select SoMo as their spectrum of choice.

On Epocal, you mentioned that that is slightly over 3 million over two years. Am I correct?

That’s correct.

That’s undoubtful approximately, an additional 400,000 every quarter assume it’s an even thing, you know?

Yes. Again, that’s I mean on what’s nice at Epocal is not only do we get the benefit of their sales organization, but we also get the benefit of the planning. And so at the beginning of each quarter starting in Q3, we will know basically how to count on for Epocal. One of the things that’s been a real challenge for the last, I would say, four or five quarters has been the fact that the business has been so lumpy. And the fact that you can start with 0.5 million or 600,000 or 700,000 in the quarter as a known certainly helps, for planning purposes, for smooth of operations purposes, and just basically for comfort of revenue purposes.

Yes. By the way, that $3 million you mentioned before, that to be increased. Am I correct?

Yes, Dr. Fidel. That’s based on just the minimum expected quantities for that contract over the initial two-year period. So not only do we expect it will be renewed over multiple additional years, but my sense is that they were being cautious in trying to set minimums. I would love to see their business do substantially more than that over this next two years. And in the second quarter, are we going to start with (inaudible) or something?

Well, again, it will depend on partly how much we sell and what Epocal’s desires are. We continue and love to highlight the activities of our partners where they are becoming significant to our operations. So I’m anticipating we will be addressing progress with Epocal as we go forward. And they are just in the gearing up mode now. They are looking to increase their business around the world, and we will certainly be behind that process as we move forward. We’ve already gone the past year substantial improvements that helped the system work more effectively. And I think it’s been a very close and a very excellent partnering arrangement.

Okay. Couple more questions. April was almost over, Kevin. How are we doing? Is it that you expected or –?

Yes, I mean it’s – again, April is, I would say, reasonable. It’s not what I would have experienced (inaudible). I think we will end up being ahead of where we were in January, at the end of the April period. But again, I mean, most of the business happens in the second half of the quarter. And even on our SoMos, I mean, Q1 was a little bit strange and that we had a lot of our SoMo shipments towards the end of the quarter as deals happen. And overall, I would say, April is reasonable and solid. I wouldn’t say it’s way ahead or way behind our expectation. Yes. Orders are coming in each day. As of yesterday, I think our shippable orders that – the orders we have on hand that will ship during the quarter, now total somewhere in the $1.5 million to $1.6 million level. As we move each day, that number obviously increases.

That’s good. That’s especially the second half of the quarter is going to be usually the strongest. Am I correct?

I mean, that’s the usual trend. I mean, essentially when if I look at Q1, January was like – February was stronger, March was stronger still.

Okay. That’s a pretty good point. I’ll tell you that. Do you anticipate or can you be profitable in the second quarter? What‘s sort of the map you need to be profitable?

Well, we are targeting to bring down our operating costs in the second quarter. That happens because, one, the – some of the first quarter non-recurring costs like our audit fees and cost of publishing our annual materials doesn’t recur in the second quarter. And then we are continuing to very tightly manage our discretionary costs. And so we are looking to bring somewhere between $300,000 and $400,000 out of our operating cost in the second quarter. So you can calculate the breakeven point for us. The cash breakeven point is probably around $4.5 million, and we would hit profitability assuming we can hit those cost and our typical margins at around $5 million for the quarter.

Okay. So this is probably a good chance that you can lead the bank of an inside [ph] guess?

Well, I think it will depend on what we work out with the bank. Typically when we don’t meet the covenants, as happened in the first quarter, we will look to the bank to reset expectations for allowing us to continue using the bank line. And if the bank is amenable to that, typically we will set new covenants that we will provide them a basis for either simply a grain that we are meeting expectations, or if we are not, that gives them the opportunity to take another look to make sure that the risk that are associated with that bank line are reasonable for the bank. And we are very sensitive to that. But we will see – we will report probably in the middle of next week in a Form 8-K what the going forward plan with the bank is, and it should have all those details in there.

Yes. Going back to – if we have sales for the first half [ph] of 1.6 already, that’s an average of 5 million for the quarter, not counting the second year, which is usually stronger. So I think that we could easily do that. And there is a solid chance of being profitable. But we don’t have to comment on that anyhow.

Yes. Again, orders can vary in terms of their timing and the types of orders will vary as well. Our standard products, typically we see orders come in just a week or two before people are looking for delivery. But for our OEM products, you often see orders in on a much longer time period. So it’s always hard to equate based on your orders as to what you are going to get over the next couple of months. But I think the start that we have right now, as Kevin mentioned, is a bit stronger in the second quarter than we saw in the first.

Yes, okay. Now, have you people evaluated what you think that the 3M deals could possibly bring in?

We – as I said I think to Brian, I think we have a meeting set up in the next two weeks and we are meeting with the 3M people to basically assess their market potential and assess some expectation. So we don’t have a number right now, but we will have probably in the next two weeks.

Okay. Just two more questions, and I’ll let the others and I’ll go back. How is Europe going, in Germany, the deals in England for the hospitals that you announced with the handheld etc. etc.?

No. I think overall that we were a bit disappointed with the results in Q1 in Europe. We had a large deal that we were pretty confident that we had – and I think you asked the question and I answered in the last call, approximately 800 units. And we got to the point of the various parties sitting down to do signing of contracts. And when one of the parties changed their mind and the deal fell apart. This was a surprise that certainly weakened our sales in Europe. So basically the hospital stuff continues to proceed, but hospitals tend to be slow. Germany, we had expected one deployment in the first quarter that didn’t happen; in talking to our distributor, he saw it didn’t happen because of vacation and out-of-office related issues for personnel involved as opposed to any business decision not to do it. So we still think we have a very big opportunity. I’m actually going to Germany to meet the distributor and be there next Tuesday to actually go over the specifics of all the deals. So I don’t have the exact numbers, but I’ll be happy to report as we get more information about these deals.

Okay. That 800 units deal that you spoke to have was basically folks change.

Yes, I mean, without going into all of the details, there were two parties involved, and there were both the franchisee and the fresh new loans, and the close relationship (inaudible) describing us. They didn’t reach an agreement, we believe, in 2011. The contract would be amended. So that’s our system or the system involving the SoMo will be possibly going forward plan. But as the contracts are awarded on an annual basis, we don’t think there is much opportunity for it to be revisited in 2010.

Okay. And last question right now, maybe I’ll get back one or two and to someone else. Where do you see the major growth in the second quarter?

Again, we are actually quite bullish on our scanning. We are seeing, I would say, a marked uptick in our scanning. I guess Dave pointed on his remarks, scanning was up 28% Q1 over Q4. Certainly scanning recovery can happen a lot quicker because the sales cycle is shorter. So I would actually say – I would expect scanning to lead the way in Q2. And with SoMo to be also growing that and closely aligned. I think those are the two main drivers. OEM, we expect to be, I would say, slightly up but again I think that Dave pointed out, we get more visibility in OEM because the lead-times are low.

Yes, as Kevin noted, we – in Europe – Europe was where sales of the SoMo were actually down in the first quarter. Sometimes you will see lows in terms of deployment planning and we were running at about twice the pace through the four quarters of 2009 in Europe on deployment of SoMo’s in the hospital environment. And we just hit a low. There was one deal that had slipped out, but it was going forward. But we were down by about $400,000 in total revenue. And the good part of that was the SoMo in Europe in the first quarter. You combine that with the 800-unit deal that Kevin talked about, which would have added to those totals. And so our expectations in Europe were significantly higher in the first quarter than we actually achieved. Now, with the hospital deployments coming back, I think that law was just a first quarter issue. Again, you will see growth there. There is a number of other – that our group is tracking down. The US grew by with bar-code scanning being the big driver, but the US grew by some 31% in the first quarter over the fourth quarter. So even though it was substantially offset by some decline in OEM and by European sales dropping, if we can simply see how you are picking up to the phase that was achieved in the United States in the first quarter, everyone will start to appreciate the results.

Okay. I’m going to let the other who wants to come back. I took off most of your time. And then I have another question also.

Okay. Thank you very much, Dr. Fidel.

Okay, take care.

(Operator instructions) The next question is from Brian Swift from Security Research Associates. Please go ahead. Brian Swift – Security Research Associates: Close enough? Getting back to the 3M, what do you get on revenues when they make a sale? I mean, they are renting this or leasing it or whatever, but you get paid.

Yes, we sell through standard distribution. I would say, we’d be in the $700 to $800 range per system. It included both the thermal and a combination RFID and bar code scanner, which looks like it would be their defaults and choice of equipment. Brian Swift – Security Research Associates: Okay. Thank you. That’s it for me.

Thank you.

Thank you very much, Brian.

We have another question from Bernard Fidel, a private investor. Please go ahead with your question.

Yes, hi. This is the last one. In England, Kevin mentioned before, there was something that the handheld was going to be used, possibly be introduced to all the hospitals for the physicians to take it around to be on call, etc. etc.

Yes –

How is that getting along?

And within that, there is about 160, what they call, trust funds. Each trust fund looking after four or five hospitals. And this solution has been deployed to a number of hospitals, and as it gains acceptance within a particular trust, then that trust can propose it to the national house servant [ph]. And it would be deployed by all hospitals. We are still, I would say, down the path to do that. And again, as I mentioned, I’m actually heading over to Europe this week so that I can catch up. So that deployment is still, I would say, on track moving a little less quickly than we’d like, but we are making good progress in that category.

Okay. Last question, then I’m finished. The large deals you announced, do we have only additional large deals in the pipeline or is there anything that’s trending for the near future?

Yes. I would say that we continue to have people approach us on an almost daily basis with opportunities and deals. So yes, we actually are quite busy, as a lot of people are, I would say, actively involved in the sales process. Not enough of them are purchasing really in the short-term, but we are seeing a marked improvement in that category.

Anything pending in the relatively near future, let’s go that way?

I don’t want to be given the kiss of debt like I did last quarter. I’d say that we gave the 800 units that seems to have killed in a hurry. So I’ll avoid doing the same this quarter.

Okay. Think that as a positive, but you don’t want to kill it. But listen, Kevin, you have a good trip in Europe.

All right. Thank you very much, Dr. Fidel.

Okay.

There are no further questions in queue. I’d like to turn the call back to management for closing remarks.

Okay. We would just like to thank everyone for participating in today’s call and wish you all a good day. Thank you very much.

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