Greetings and welcome to the Socket Mobile Third Quarter 2011 Management Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jim Byers with MKR Group.

Thank you, operator. Good afternoon and welcome to Socket’s conference call to review financial results for its 2011 third quarter. On the call today from Socket Mobile are Kevin Mills, President and CEO; and Dave Dunlap, CFO. 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 www.vcall.com shortly after the call’s 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 replay 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 27-A of the Securities Act of 1933 as amended and Section 21-E 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 OEM 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 number factors including, but not limited to, the risk that manufacture of Socket’s products may be delayed or not rolled out as projected 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 the company’s products and vertical application markets may not happen as anticipated, and other risks described in Socket’s most recent form 10-K and 10-Q reports with the Securities and Exchange Commission. Socket does not undertake any obligation to update any such forward-looking statements. Now with that said, I’d like to turn the call over to Socket’s President and CEO, Kevin Mills.

Thanks, Jim, and thank you for joining us today. In today’s call, we will begin with a short review of Q3, and then outline the business opportunities we see for the rest of this year. We are pleased to report for Q3, our second consecutive quarter of positive EBITDA, and continued sequential growth in revenue. Our increase in positive EBITDA was achieved through a combination of increased revenue, increased margins and continued tight management of expenses. Remaining EBITDA positive is clearly important to achieving our goal of profitability, which we hope to reach in Q4. I’ll begin with a review of our current handheld computing business, and then provide a going forward outlook. Our handheld computing related sales, which include our handheld computers and plug-in barcode scanner grew to $2.8 million for the third quarter, a 9% sequential increase over the preceding quarter. While this is a solid increase, sales in the third quarter were still constricted by limited supply, an issue we have mentioned before. I am pleased to note that the LCD supply issues were resolved in Q3, but unfortunately it was a few weeks later in the quarter than originally anticipated. The results of these few weeks is that over 1,000 SoMos, which were shipped in Q3 did not get recognized as revenue in the quarter as there was not enough time to peer the distribution channels before the quarter ended. The positive news is that our many customers did receive their units in early Q4, which is very important to the health of both our businesses. We believe the LCD supply problems are behind us, and we continue to catch up during Q4. On the demand side, we are continuing to see good demand driven by several factors. Currently, the impact of HP’s exit from the…

Thank you, Kevin. Our third quarter 2011 revenue was $4.7 million, a 37% increase over third quarter revenue a year ago, and an 8% increase over second quarter’s revenue of $4.4 million. We’re pleased to report our second consecutive quarter of positive earnings before interest, taxes, depreciation and amortization or EBITDA, which totaled $142,000 or $0.03 per share from the third quarter, up from $73,000 or $0.02 per share in the second quarter. And although, our revenues in the third quarter only grew by $323,000 or 8% over the previous quarter, we shipped an additional $800,000 of product that is now clear to distribution channel by the end of the quarter, an increased shipping pace of 25% quarter-over-quarter. We defer revenue recognition until our products clear distribution, and many of our products shipped too late in the quarter to clear the channel by quarter end and will qualify as revenue in the fourth quarter. We resolved our LCD screen shortage in the latter part of August and our contract manufacturer has been steadily manufacturing our SoMo 650 handheld computers since that time. We entered the quarter with an order backlog of $3.4 million and exited the quarter with an order backlog of nearly $3 million. We expect to significantly reduce that backlog as our shipments continue to catch up with customer demand during the fourth quarter. New orders received during the third quarter were $5.7 million, up from $5 million in the second quarter. As Kevin mentioned, the pace of handheld computer orders continues to benefit from Hewlett-Packard discontinuing its classic PDA model 200 series. Our handheld computer, the SoMo 650 is a logical replacement running the same Windows Mobile operating system in a similar size computer and designed for use by mobile workers who are mobile. Our barcode scanner…

Thank you. We’ll now be conducting the question-and-answer session. (Operator Instructions) Our first question comes from the line of Brian Swift with Security Research Associates. Please go ahead. Brian Swift – Security Research Associates: Thank you. A couple of things. Can you elaborate a little bit on how are you progressing in terms of your sell through distribution, and how are you contacting some of the Hewlett-Packard customers that you are going to try to make the transition from the HP product line into the SoMo?

Okay. So I think, well, we’ve done a number of things. And one is that, we have acquired a number of AdWords and others for people who are searching on Google or other search engines are able to find the SoMo even if they start out in their search looking for HP. And that alone has increased our traffic by about 5% to our sites, where people actually start out looking for a HP device, whether it would be the device with a battery and end up coming to our site, and finding the alternative. We’ve also worked with our distributor partners. And today, we haven’t worked as aggressively in all countries as we need to because we didn’t have enough supply. But it’s our intention as we enter Q4 and we fix our supply problems that we would retail to the many customers who did buy from distribution. We have access to those lists, and now that were I would say (inaudible) infringing on any of HP business, our distribution partners are happy to work with us to make sure customers find the device that will work for them and their application. In certain countries, Japan is a best example. Obviously, we have done more because we had supply and we had good relationship. And then, I think the last, which is not insignificant is that HP sales people have been quietly recommending the SoMo to a number of their customers, and many of the calls that come in to Socket now, when we ask the question how did they hear about the SoMo? And the response is that, they were advised by HP or HP representatives to contact Socket. So I would say there’s still more activity to be done to get HP customers across to Socket, and we’ll pickup the pace of that in Q4, now that we’re better able to service the business. Brian Swift – Security Research Associates: And can you just add on to that, what are the alternatives for these HP customers besides switching over to Socket? Last man standing is a…

You’re never the last man standing, and people always have choices. But I think that most people are married to their software. And they have a big investment in their software application. And if they have made that proper application on a Windows Mobile platform, there are limited supply choices available going forward. Certainly Motorola, Intermec, [Scientech Logic] and still make and sell many Windows Mobile centric devices as do we as an HP. I think the difficulty many people have is the price point, HP had a very attractive price point at around $400, and we have a very attractive price point at around $500 maybe $520, and we are certainly close as to what HP had in the markets. And we believe we have enough benefits and features to cover this additional $100 and expect. Most of the ruggedized devices whether it would be from Motorola or Intermec or Scientech Logic start above the $1,000, and people simply don’t have the money. And so, the first choice is, do you want to stick with Windows Mobile? And a lot of people do, because getting mobile applications up and going is quite difficult, and once you have it up and going you’re not anxious to change it. You’ve heard them and so you decide to rewrite your application into the Apple world or into the Google world et cetera. And with all these, there are trade-offs and in many of the applications for example you need to change the battery during the shift or during the work. And if you need to change the battery that eliminates all the Apple devices that you’re not allowed to change battery. On the Google Android devices, I would say there is still a lot of development work being done and the rates…

I think our primary objective in Q4 is to get profitable. So, I think that, we will ship, again I think we have to fill up our distribution channels and we are continuing to ship well in October and we expect November to be equally strong. And I would say I will be pleased with a profitable Q4 and certainly based on where we started the year. I think a lot will have been achieved if we exit 2011 profitable with our bank lines in place and no debts and I think that would be a very good result for the year and I think that’s within our graph right now. Brian Swift – Security Research Associates: All right, and something little over $5 million is your break even level?

Yes, something over $5 million is our break even level probably something in the region of about $5.5 million price and I think that’s well within our scope in Q4. So, it would be a very good year for Socket to go from where we started at the beginning of 2011 to exit the year profitable and with the ability to grow the business rapidly now that we have bank clients in place.

Yeah, and interesting Brian, our third quarter was a loss of $0.16 a share, but $0.13 of that was that discount amortization, which now that the notes are converted goes away. So, we were at essentially $0.03 a share loss. So our...

About $125,000.

Yes. So, our ability to move it up – move up quickly, but we also have – typically our third quarter is one of our least expensive quarters, we start to incur more audit related costs when we get into the fourth quarter, our development programs vary quarter to quarter. So, there are still always some fluctuations, but certainly $5.5 million is probably a good target for breakeven and of course we’d like to beat that. Brian Swift – Security Research Associates: Yeah, you would, it seems like your expenses would have to go up quite a bit to push the breakeven to $5.5 million, are there other areas that you expect to, are you going to bring back some more people and now that you...

Yeah, but not aggressively, I mean I think we will continue to manage our expenses very tightly. We are spending a little more in R&D; it has been our trend for the last year. I mean if you look at our expenses for the last nine months versus nine months of a year ago, eventually, we have reduced our expenses by over $550,000 in sales and marketing and put some of that expense into R&D. I think that we are comfortable now that we have the structure in place to be very efficient in the sales and marketing area and we need to just finish a few projects in the R&D areas, so that we have new products like the 7C continue to come out and in the 2012 as we start 2012. Brian Swift – Security Research Associates: Okay. I’ll let somebody else ask some questions and I will come back…

Okay, thank you very much, Brian.

Thank you, our next question is from Laura Engel with Stonegate Securities. Please go ahead. Laura Engel – Stonegate Securities Inc.: Hey, good afternoon thanks for taking my questions.

Hey, hello, Laura. Laura Engel – Stonegate Securities Inc.: Hello, you mentioned the overall increase in gross margins, did you give a gross margin number that I missed or can you give us a ballpark figure on the margin?

The gross margin in the third quarter was 42.7%, up from 42% even in the second quarter. The things that affect gross margin of course are both product mix, as well as volume because we have a large fixed component to our cost of service and sales revenue area representing the people who are processing and moving inventory and that group is fairly steady, but as volumes go up, you can spread those cost over a much larger base. So we did see about a – it’s about 42.7% and with growth we generally tend to improve that. On the other hand some of our fastest growth right now is in some of the newer product areas and typically our newer products have a slightly lower gross margin and then as we cost reduce them they come back up to more of our norms. So, it’s always a balancing act, but we’ve been fairly consistent over the last couple of quarters in the low-to-mid 40% range. Laura Engel – Stonegate Securities Inc.: Okay and then we turn back to the topic of operating expenses, you mentioned they were flat, was there any variation quarter-over-quarter between the categories or were they generally in line with the previous quarter?

Now we are talking third quarter compared to the previous quarter, yeah, research and development was up about $50,000; sales and marketing was up about $60,000 or $70,000. We did add some additional people in sales to help respond to the increasing call volume and interest that we are seeing from HP and other customers. And then our R&D area again some of the projects that we have going call for some additional expenditures. General and administrative cost were down, again the things that drive those tend to be things like the audit, which starts to pick back up together in the fourth quarter. So, overall increase. We had operating costs in the second quarter were $2,038,000, we were $2,139,000 in the third quarter.

It’s about $100,000.

About $100,000. Laura Engel – Stonegate Securities Inc.: All right, okay. And then as far as the top line, how do you guys start internally the areas that we are driving growth by industry or by acquisition of the additional HP customers, is there a way they kind of give us, I guess broader ways to look at that and what’s driving that within this additional unit?

Yeah, so I think that well, we are continuing to see a lot of interest on the handheld side both from the healthcare and the hospitality market. And in the healthcare it’s a number of apps including things like lab work, taking orders from patients for their meals in hospitals and various types of medication dispensing, as well as long-term care. And I think that, if I look at Japan is a good example. The main driver is long-term healthcare where HP had a pretty large installed base and we are picking up both the replenishment of units that are failing or being dropped or destroyed coupled with new deployments, we are seeing similar situations in Australia. A lot it is what I would describe as long-term healthcare or clinical work. On the cordless scanning side, it’s a huge mix and we already have a lot of industries looking to use the iPhones and Andriod phones or Tablets to improve efficiency. And I think what stands out is that the pharmaceutical companies whether they be Cook Medical, Smith & Nephew, Johnson & Johnson, Abbott Labs, they seem to be the leaders in having solutions ready for their sales people whether using a iPhone or Andriod phone coupled with our scanners to monitor the progress of assets, the sell by date hasn’t been violated and no recalls et cetera. So we have a lot of sales people who are adding a auditing/inventory and an asset management function to their job in conjunction with mobile phones. We are seeing a lot of outside sales people who are using the scanning stuff, whereas most of the handheld stuff is in-building. I don’t know if that gives a better flavor and we can certainly go through in great detail now that we have reasonable numbers out there from our registration databases et cetera, we can see what people are doing with these devices and that certainly helps us to plot our strategy going forward to better serve the markets we’re already doing well. Laura Engel – Stonegate Securities Inc.: Right. Okay, and just one last question on the SocketCare program, what are the expectations for increasing those revenues, or is this, is the way you (inaudible) to look at that by offering that, that’s going to be driving the unit, basically the program cover. So what’s the outlook for that program, and extending that offering to your customers?

We’re expecting to see our service revenues grow as an overall percentage of our total revenue. Our total revenues that we’re recognizing are somewhere in the 4% to 5% of revenue range. We have not been shipping the quantities of SoMos, particularly the handheld computers that are excellent candidates for that type of extended warranty coverage. And so, as you start to improve the shipment volumes, you get a natural increase in the amount of SocketCare services that are being purchased at the same time.

And just maybe to add, if you look at other customers, Motorola or Intermec they will have between 20% and 30% of their revenue come from services. And I think as Dave mentioned, we’re probably in the 5% range right now, and also people generally purchase these contracts as part of the deployment. And as we see deployments pick up, we’ve optimized the program to better suit and what we feel the market is asking for. So the announcement of this new program makes us a little more competitive, a little more coverage and we feel we’ll be able to move that percentage from the 5% range up hopefully into 10% to 15% range, which would be more like what other people who deploy handhelds are getting.

And we have two categories of coverage, the SocketCare program itself, we will amortize the revenue over the life of the warranty coverage, so typically that’s three years. But we also provide repairs and upgrades for top warranty products, and customers pay for those as they go, and that tends to also be a major part of our service revenue category. The announcement, I think you saw earlier this quarter reflected some nice improvements in our SocketCare program to cover more products, to extend the coverage with more variations for customers to tailor to their own needs, and the ability to extend the program beyond the initial three years. So we’ve always focused on providing good customer care and customer support for our products, and we’re fine with quality of the products and the durability of the products that these extended warranty programs work well for both us, and as well as for the customer that’s able to build the coverage into their initial budgeting and planning cycle, they’d not have to worry about ongoing cost as they go throughout the cycle of those products. Laura Engel – Stonegate Securities Inc.: Okay. Thank you for taking my questions today. I appreciate it, and again talk with you in fourth quarter. Thanks so much.

Nice work.

Thank you. Our next question is from Richard Siragusa with Merrill Lynch. Please go ahead. Richard Siragusa – Merrill Lynch: Congratulations on what appears to be the training quarter.

Yes. Richard Siracusa – Merrill Lynch: Kevin, you had mention that you’d be entering 2012, and I think you refer to it as a manageable backlog?

Yes. Richard Siracusa – Merrill Lynch: And I wasn’t sure if that was, hoping it would be manageable or confident it would be manageable?

We’re confident it would be manageable. I think one of the painful lessons that we learnt in this whole supply issue is that, in some ways, we were shipping very aggressively against orders, which resulted in our distribution channel, particularly overseas having very little inventory. And then, when we went into a shortage situation as can happen occasionally, there was no buffer in the channel. Whereas when I look at the U.S., they generally carry four weeks of inventory, and therefore, you have a little bit of time to recover. Our going forward strategy is to basically operate to a four weekly time, and to be consistent and to that lead time where people can absolutely count on getting their products in the four weeks, and to have our distribution partners carry a little more inventory. Today, I don’t think we’re at that point. I would say, today, well certainly for the first nine months of the year, our lead times have probably been closer to 12 weeks than they have been to four weeks. I think right now, we are probably between eight and six weeks, and we will get to four weeks before the end of the year. What I want to make sure is, people understand we’re going to try and keep a manageable backlog, which I would say is four weeks of orders on hand, and then use distribution to service our customers. And this gives us enough flexibility, and also allows us a little safety margin in the events were delayed for a week because of a component or other unforeseen issue. So, ideally I would like our backlog to be about $2 million maybe a little bit less maybe $1.8 million at the end of the year, and I think we’re on track to achieve that. Richard Siracusa – Merrill Lynch: Thank you. And secondly I don’t know if you can answer the question, but is there anyway to quantify the software developments that are going on with Apple as far as market potential, market size et cetera.

The short answer is, I think not at this time, but I can give a few examples, I think the fundamental thing that difference between the Apple environment and the rest of the world is that it is possible to do an application for a targeted market and I can give you one or two example. And one of the things I did in early October was, I went to see our customers in Europe, including the customer who developed the first Apple certified third party app to get answer some of the questions that, I think you’re asking and also we were asking them. They did hospitality application, but their target is for people who are running corporate events between I would say 100 and 350 people. Okay and they’ve done all the software that allows them to check them in, check them out as one marketing campaign and better service that group of people. I think one another thing that’s particularly exciting is that, this middle markets of people who are a group of 500 or 1,000 can write an app that’s custom to their requirements and then add scanning, and they don’t have to buy a new hardware. And so, I don’t know if it’s one big thing, I think its lots of little things, which is actually much better from our point of view. And as Dave mentioned, we shipped over 100 HP case distribution already. And the people are out there, and basically starting the development. It’s something we will definitely monitor and we can report on going forward. But today it’s still too early as developers tend to be very secretive until they have their product in the market. I think one another thing that’s particularly exciting is that, this middle markets of people who are a group of 500 or 1,000 can write an app that’s custom to their requirements and then add scanning, and they don’t have to buy a new hardware. And so, I don’t know if it’s one big thing, I think its lots of little things, which is actually much better from our point of view. And as Dave mentioned, we shipped over 100 HP case distribution already. And the people are out there, and basically starting the development. It’s something we will definitely monitor and we can report on going forward. But today it’s still too early as developers tend to be very secretive until they have their product in the market. Richard Siracusa – Merrill Lynch: Okay. Thank you.

You’re welcome.

Thank you. Our next question is from line of [Mike Schlinger], a Private Investor. Please go ahead.

Yes, I have two questions. First of all, to what extent beyond the 800k, where revenue is constrained by your production capability, are you slowing the mobile here, you are not actively going after customers or at least were in Q3, just because you have a difficulty in servicing that market, can you kind of characterize that?

Okay, interesting question. We were in addition to the 800 that we shipped, and didn’t recognize, we were probably constrained by at least another $1 million. And that we had orders that we didn’t have components part, and due to the fact of being a few weeks later in the quarter when we got our issues resolved. So, I would say there was another $1 million of shortages on top of the 800,000.

And I think that’s reflected in a couple of the comments you’ve already had on some of the pieces together for you. I mentioned that we left the third quarter with a backlog of about $3 million, and Kevin mentioned in answer to some of the question that he is leaving about $1.8 million, it’s about the right level of backlog for carrying. So the difference of your $1.2 million is the extent to which we’ll be catching up. And rest of it ends on the pace of orders coming in. We have seen orders increasing quarter-over-quarter. We did see orders of 5.7 million this third quarter, so we’ll have to see again whether we can see continued growth or flattened or whenever, but the backlog itself that we should be catching up will be in the $1 million range.

Okay.

To answer your question about how much of which we’re done, and we haven’t done the outage, all the outage we need to do to capture the HP customers. And we will pick up the pace of this in Q4, but we felt it was somewhat pointless to go and capture the customers unless we had product to deliver to them, when they were ready to go. We will be in that position, and I would say starting in November, and it’s our intention to reach out to those customers. We’re fortunate in that overseas in particular, and then actually in the U.S., many of our distributors were also distributing the iPAQ. And therefore, it’s not a huge reach to actually run some campaigns to reach out to the existing HP iPAQ customers and that they don’t know there are alternatives. We just haven’t done that yet.

Okay. Great. And my second question, as of the 800k, is that correct to assume if that’s in the $3 million of backlog or is that an addition of $3 million to backlog?

That would be in addition.

It’s not a backlog because we’ve shipped it.

Okay.

The way we work as with anyone, once we ship the product to the distributor, we create the receivable, they owe us the money and they will pay us under normal payment terms. But usually another side of that receivable become sales, we defer the sales, we also relieve the inventory to the other side, and that’s typically cost of sales. That gets deferred. So on our balance sheet, you’ll see a deferred...

Income on the shipments.

Income on shipments to distributors, and that’s the net of your sales, and cost of sales. Our total inventory in the channel at the end of September was about $2.4 million, up from about $1.5 million or $1.6 million at the end of the previous quarter. So that was the $800,000 bolds that you’re seeing. The question is, what is the right stockage level in the channels? It’s probably about right now as business picks up, but we expect that bolds will work, now it’s working its way through, and where it winds up at the end of December will be a function of what the stocking expectations and needs of our distributors are, probably much more so than availability of supply. We expect to be able to be back on a normal delivery schedule by the end of this quarter.

Okay, thank you. Great.

Thank you very much, Mike.

Thank you. We have no further questions on the queue at this time. So I’d just turn the call back over to management for closing comments.

Okay, thank you very much. We just like to thank everyone for their participation in the call today and wish you all a good afternoon. Thank you.

Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.