Greetings and welcome to the Socket Mobile Third Quarter 2014 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 now begin.

Thanks, Jim. Good afternoon, everyone, and thank you for joining us today. I will begin today's call with a review of our third quarter results and then discuss the business opportunities we are seeing as we move into the fourth quarter of 2014. We are pleased to report solid profitable operating levels for both the third quarter and the first nine months of this year. We also achieved our fourth consecutive quarter of sequential revenue growth. Total revenue for the third quarter was $4.9 million which was up 50% over the third quarter last year and up 14% sequentially from the preceding quarter. We also achieved continued margin improvement both sequentially and year-over-year. These increases enabled us to record a third quarter profit of $431,000 or $0.09 per share and positive EBITDA for the quarter of $612,000 or $0.12 per share. While we are delighted with our higher total revenue for Q3, we believe we benefited from a change in timing as Apple’s new iPad introduction was moved from September to October. As a result we did not see weeks of interruption to our business in September that we have typically experienced the past three years. The lack of this disruption in September helped us to achieve growth in Q3 well in excess of our expectations. However with the new iPad introduction now taking place in October, we are seeing the expect slowdown in our sales in Q4 and are moderating our revenue expectations for the fourth quarter to reflect this. Let me now discuss the dynamics of our business in Q3, then outline our expectations for the remainder of the year charting with our cordless barcode scanning business. While the business interruption of Apple’s annual product refresh is a reality we must contend with it does not match the…

Thank you Kevin. Socket’s third quarter 2014 revenue of $4.9 million was 50% higher than revenue in the third quarter a year ago and up 12% sequentially over last quarter. Cordless barcode scanner revenue grew to $3.7 million, up 80% over the third quarter a year ago and represented 75% of our 2014 third quarter revenue. Our SoMo handheld computer revenue in the 2014 third quarter was $845,000, representing 17% of our third quarter revenue, consisting of 10% of standard product sales and 7% from sales of SoMo components to an original equipment manufacturer for use as a controller in their OEM product. Service and accessories revenue in the 2014 third quarter was $377,000 or 8% of our revenue for the quarter. The third quarter was our fourth consecutive quarter of revenue growth, reflecting increasing market adoption of our cordless barcode scanners for use with smartphones and tablets, particularly in mobile point-of-sale and commercial service applications. Unlike to past two years we did not experience slowdowns this year in September, which have been associated with new product announcements by Apple. That may be because Apple deferred their iPad announcement for this year into October and the slowdown effect may have shifted into the fourth quarter. The largest use of our cordless barcode scanners are with tablet products. The growth in barcode scanning revenue is been driven by our growing number of registered software developers, particularly developers that are creating software applications with smartphones and tablets that use barcode scanning. Apple’s recent launch in Europe promoting selected mobile point-of-sale applications through their online Apple store includes three of our cordless barcode scanners, which may be purchased through the store and reflects the growing adoption of our barcode scanners for mobile point of sale application. Our margin on sales also continued to…

Thank you. [Operator Instructions]. Our first question comes from Brian Swift with Security Research Associates. Please proceed with your question.

First question is having to do with the margin on the nice quarter that you reported for September. I would have thought that with that much of an increase in the top-line, that the margin increase would have been more so. Did you have some -- you talked about large order -- OEM order on SoMo side. Was that a lower margin type of thing or were there some issues there in the quarter that would positively affect the top-line but maybe and lower than overall margins?

Brian, each quarter we do take a look at inventory reserves and we account for any manufacturing variances described [ph]. So I think this quarter our overhead was a little bit higher because as we have been evolving some of these newer products and getting it in the market, we thought it prudent to ensure that we radically reserved in some of these areas. So I think your observation is correct. We did elect to improve our reserves a bit relative to any risk in and exposures that we saw out there. And when you turn that around, obviously in the fourth quarter if we are adequately reserved you will some increases in margin, just because those overhead costs will be lower.

Okay. But I noticed your inventory level was down. So that might be reflective of what you were just describing. Also can you give us a little color on the products being on the Apple iStore? You said it’s only in the foreign countries and not the U.S. Is there a kind of like an anticipation that -- I just don’t understand why they would it this way? Why they wouldn’t just.

If you could figure it out with Apple you can let us know. But we're delighted to be working with them. And they have driven this project primarily out at their EMEA group. Yes we hope that it was a global initiative driven by the EMEA group, but the information flow from Apple is not very complete in terms of we're focused on doing it in EMEA and we have done it now in EMEA. And we will keep you updated as soon as we know. But we were delighted and we put many months of work into meeting all the requirements, setting up distribution and other facilities with them and it just happened this week. But it's the culmination of many months of work.

Okay. And what’s the percentage of your revenues that come historically from the EMEA market?

Historically I would say, we have been typically 30%; maybe as high as 33% and as low as probably 25%. We see the EMEA market somewhat behind the U.S. market. But we do see a little more strength over there in the last few quarters. I believe we had -- approximately 30% of our revenue in the third quarter was from EMEA

And so, are your expectations that this could be significant as far as incremental revenue or just would it change the -- where people are buying them, whether they are buying them distribution and through the.

Well I think I have that the feel effect. I would think that is -- in terms of providing exposure to us, is significantly important because obviously Apple and their marketing organization, web pages et cetera are hugely important. I think it will bring more people into the game. So I would say it will be primarily incremental. The other thing I hate that is not insignificant for us is that certainly we’ve had a very thin financial base to be operating on and certain number of customers have expressed their worry about selecting Socket products because financially we were not terribly strong. I think having Apple select you would mitigate a lot of those concerns and therefore potentially have some knock on effect in terms of people being more comfortable going with new products.

Okay and you talked about the SoMo OEM customer. Could you remind me; I didn’t quite hear how much of the quarter revenue came from that kind of one time deal.

Well, it’s not a one-time deal. Essentially it's a deal we expect to happen, that continue to happen going forward. It was approximately about 300,000 products at one customer. So the SoMo revenue was slightly above Q2 revenue with our traditional customers. The OEM customer is taking a piece of medical equipments. They’ve taken the initial batch. They are going through some testing and approval cycles and then we expect them to come back and add to our revenue in 2015.

Okay, and would you expect it to be kind a lumpy in 2015 or?

It would depend but I would say once they get going, it will be pretty steady. So I think probably realistically Q2 we will see more orders but that largely depends on their approval. The customer is selling in a few overseas markets right now and going through the approvals to sell in the U.S, approvals as expected. The numbers could be quite nice for us over the next two or three years.

Okay and one last one before I let some other people ask questions. In the past you kind give us a little color on the amount of large orders that happened during the quarter. Could you elaborate a little bit on the September quarter in terms of how that compared with the previous quarter or two?

Yeah I think in the September quarter we had only one deal that was in excess of 1000 [ph], which was in the UK. We had I think more 300 - 400 unit deals or we didn’t really have any large deal that stands out, which is actually quite good in that the base continues to strengthen here as opposed to being driven by large deals. So I hope that covers it.

Yeah I know, that's good. It's healthy that we -- aside from the -- to see how long the new iPad release has an impact on your customers. It looks like it should -- looks like outlook should be pretty good for next year.

Yes, I would agree with that.

Thank you. Our next question comes from the line of Al Troy, Private Investor. Please proceed with your question.

Could you give us some idea as far as the Hudson Bay warrants go, how many have been exercised so far, because it’s an overhang on the stuck and I was just wondering what the status is of that!

Well, the overhang has come down substantially. There have been a series of exercises over the past couple of months and today the remaining warrant for them is $280,000.

That’s all we have left out of the million?

That’s correct.

That’s wonderful. And could you give me some idea, what it would take to get back on the NASDAQ and what your plans are as far as that goes?

There's several as you know ways to get back on, but all of them involve more equity on the balance sheet than we have today. Some of the options will let you get on it with profitable operations at $4 million in net equity and the worst case is $5 million in net equity. So for us the key as we grow is to remain profitable and to build our net equity. We have a substantial stock option as outstanding along with remaining warrants, which some sales could bring in over time as if the stock price continues to move up, several million dollars of capital. There are convertible notes on our books, which again as the stock moves up, that could be converted into equity. And obviously operations, if you look, we have added more than $700,000 of equity since the first quarter just over the last two quarters from operating profitably. So if we can continue to grow and continue that pace, again in a year, if we do that again in the fourth quarter, you are looking at over $1 million of equity being added from just operating results themselves. So the combination of those very much is tied to our growth and our success. We think there is lot of potential in the market if we're able to capitalize on that and continue to show positive growth. This last quarter was the fourth consecutive growth quarter that we have had. Then the equity I think will accumulate from the various sources that we have already just talked about. But we will need to get to the at least $4 million equity level in order to get back on. I think we will meet requirements on everything else.

That’s great. You guys have a great story to tell. Do you plan on going to any conferences with investors and mutual funds and stuff like that and showing a presentation of how well you guys are doing?

Yes, we're actually scheduled to join the LD Micro conference in Southern California on December 2nd through 4th. Kevin will be presenting on one of those days. That hasn’t been scheduled yet. We'll have a webcast. His presentation will be webcasted and we'll update everybody through that presentation on how things are going in the quarter, as well as the other things that investors are really interested in, including our product direction and the like. So that’s our next conference. And we'll put out more information about that prior to the conference to let people know how to get hold of the webcast.

Our next question comes from the line of Steve Swanson Private Investor. Please proceed with your question.

Dave, what was the cash from operations for the third quarter?

You are talking about the net contribution. It comes out pretty even the way we're managing it. As you know it's impacted by also working capital and we are certainly working to pay down some of our outstanding debts. I'm just pulling to it. But before working capital changes a little over $0.5 million, the differences there were stock option grants and depreciation. And then we had about $500,000 of changes in working capital, pay down of payables being the largest one. So we came out almost breakeven on cash flow from operations.

Kevin, we're adding nearly $400,000 as far as I can figure, with the hiring of Jim Lopez on a yearly basis, when you take in salary bonus benefits and stock grant over the four years. It’s kind of up $400,000 a year and that we're going to be adding on expense side. I guess the question I have for you is how are you as management going to judge whether that’s the successful hire and how long until we determine whether that's a successful hire?

I think first of all, it takes a little time for anybody to settle in, but I think James brings a level of expertise that we require to build the organization. We have been operating on a very, very light management structure, if you will. And we just don’t have the expertise to really move the Company up into the hopefully $50 million to $100 million range without these type of experienced people. So every hire is an investment. And hopefully you are hoping that that investment returns five to 10 times to the organization. It takes at least six months to probably a year to determine effectiveness of a person, particularly in our business, because the sales are not driven by what we do today. We've pointed this out many times. We are benefitting from the very hard work we did a year, maybe even two years ago by getting developers, using our scanners, producing the scanners, keeping them up to date with SDKs, taking away their worry about the software integration and we're trying to expand that reach and the impact of that takes a year to 18 months to happen. So the expectation is this is an investment in the future and that we now have enough momentum to make those type of investments so we can build the Company.

I also note that as I mentioned, we’ve kept our head count level sort of this past year. So we’ve learned handled the growth without needing to add employees and we’re capable, we’re very leverages on both the sales side, because we have in place the infrastructure to manage our distribution channel and we can run more volume through the channel without needing to increase that infrastructure. On the manufacturing side we use contract manufacturers for components and again volume generally means lower unit cost. So by maintaining that pattern what you’re seeing here is the addition of James as a key leader in helping us not only now plan to move the business forward, but also overseeing the developer program, which we think we can do a lot more with and also overseeing the marketing communications activities, which if I’ve got any comments back from investors, it's when are you going to work to improve your visibility in the investor community. So we don’t expect to see a lot of growth from Socket but this is a key investment that we believe was very important for our moving forward and particularly our longer term success.

I don’t regret that. I realize you need to invest in the business. I'm just concerned around the optics of it. You guys have gotten off to a fairly good 2014 from a P&L and a sales perspective and last thing I think we’d like to do is to have that come crashing back down to loss because we -- our expenses are up on a relative basis and we didn’t bring in more revenue to cover what the addition is. So I just wanted to understand a little bit better and I appreciate your comments.

Thank you. Our next question comes from the line of [indiscernible]. Please proceed with your question.

Kevin, I wondered if you could provide any color -- any more color on what sub segments of the retail marketplace you are seeing success in, if there was any concentration to these multi hundred unit accounts that you had this quarter? Is there any update to the number of applications that are shipping that use the scanner and just any other color you can provide on kind of sub segments of the retail market that seem to be adopting the product faster than others.

Yes. I’ll be happy to discuss. So in the retail sector mobile point-of-sale, which we define as using an iPad based solution with potentially a stand cash through our printer scanner as being the primary. We look at the revenue in two ways. We have worked closely with the application providers. These are the people who have written the application and are now selling it and there's a long list of people varying from people like to Shopify, ShopKeep, LightSpeed, Vens [ph]. The list goes on quite a ways and many of those have become resellers out of distribution. So we can get some understanding on how they are doing and because they provide a facility on their web pages where people could buy the hardware required for the software. And often we will see shipments to Joe Café or to a bicycle shop and the number of scanners involved is two or three but you could aggregate up to see how many are coming from that application and this is an area we’re trying to work on to better understand the penetration in the market. I estimate and this is an estimate that retail related, and we would also include assisted shopping, where the iPad is used without a cash register as a way to facilitate the shopping experience and examples may be that it's kind of assisted shopping where the item is scanned and it brings up complementary items. An easy example is a women shopping for a dress and the appropriate shoes or bags or other accessories might be displayed as part of the process but they would still use a traditional cash register to check people out. So that has been I would say the driving force. Today I think we have somewhere in the region of 120 different mobile point-of-sale applications out there that are Apple certified and selling. But I also think that we are beginning to see other towers of business if you will. I don’t think the number of people entering mobile point-of-sale business is going to increase dramatically. However we have seen a lot more developers now doing inventory type applications, commercial service type applications. So those markets are starting to expand. So hopefully that gives you kind of a color on this. The market is changing. And I think today we have just shy of 300 -- I think we have about 285 different applications now on the Apple App Store.

Okay. And the Series 8 scanner, you mentioned the delay in I guess one of the units. Can you just expand a little bit on that? Is it just one and when do you guys expect to have that squared away?

Yes, so we had hoped to ship it at the end of Q3. We ran into some technical difficulties now that have been resolved and understood and we just want to go through the testing process. And we hope to start getting it in the market in the coming weeks. There is a lot of testing that goes on and we're very I would say proud of the quality of the products. And if we fall at a late hurdle, then we are I think strong enough to make the decision to defer the shipments and get it right. And this is such a case. So we will get it right, we will get it in the market this quarter.

Okay. So is there any feedback? I know that the ticket scanning application was one that you guys had high hopes for, for that product. Is there any more color you can provide on in terms of interest at that -- from those kind of customers?

The interest has certainly stayed very strong from those types of customers. But I really don’t have a lot more color until they've kind of walked a few miles in the shoes and we're not there yet.

Thank you. At this time there are no further questions. I would now like to turn the call over to management for any closing remarks.

Thank you operator. I would just like to thank everyone for participating in today’s call and to wish you all a good day. Thank you.