[Started Abruptly] … 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, Mr. Byers. You may now begin.

Thank you, Operator. Good afternoon. And welcome to Socket's conference call today to review Financial Results for its 2014 Fourth Quarter and Year Ended December 31, 2014. On the call today from Socket are Kevin Mills, President and CEO; and Dave Dunlap, Chief Financial Officer. 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. And 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 the Socket 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 and the phone replays will be available for one week. Now before we begin, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities and Exchange Act of 1934 as amended. Such forward-looking statements include, but are not limited to statements regarding mobile computer data collection and handheld computer products, including details on timing, distribution and market acceptance of products, and statements predicting trends of sales and market conditions and opportunities in the markets in which Socket sells its products. Such statements involve risks and uncertainties, and actual results could differ materially from the results anticipated in such forward-looking statements, as a result of a number of factors including but not limited to the risk that manufacture of Socket's products maybe 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 risk 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.

Thanks, Jim. Good afternoon, everyone, and thank you for joining us today. We are pleased to report a profitable year achieving one of our key objectives for 2014. For 2014, we increased our revenue and margins without increasing our costs, resulting in an annual profit of $0.09 per share. This represents a year-over-year improvement of $0.21 to the bottomline, compared to the $0.13 loss we reported for 2013. In addition to our improved financial performance, we also made significant progress understanding the dynamics and requirements of the mobile point-of-sale market and optimizing our solutions to better serve this emerging market, and we look forward to generating continued growth. When look at what drove our sales this past year, while our developer partners were targeting both large and small clients, our sales growth was primarily due to demand from smaller businesses replacing their Casio-style cash registers and excel spreadsheet with tablet-based mobile point-of-sale applications. This demand was and continues to be serviced by a number of well-funded and rapidly growing software solution companies like Shopify, ShopKeep, LightSpeed and Vend that provide mobile point-of-sale applications. The customers primary purchase is the mobile point-of-sale application, which is selected based on what features and business analytics are needed, and in all cases, Socket is the recommended barcode scanner, which the app provider promotes and ourselves. In 2014, the engine behind our revenue growth was mobile point-of-sale, developer partners, serving small businesses and we expect they will continue to be a significant revenue engine for Socket 2015. With our increasing experience and understanding of the usage of barcode scanners in this emerging markets segment, we were able to further optimize our products this past year to meet this growing demand. For example, we introduced a hands-free barcode scanning solution with auto-detect capabilities enabling smaller businesses…

Thank you Kevin. 2014 was a positive turnaround year for the company. Cordless barcode scanning revenue for the year grew 41% or $3.9 million over 2013, which followed similar revenue growth of $3.8 million in 2013. Barcode scanning revenue in 2014 represented 79% of total revenue, up from 61% from 2013 and 42% in 2012. Our margins on 2014 sales increased over 2013 by 3.3% to 43.6%. We held our year-over-year operating expenses flat and we improved our bottomline by $1 million from a loss of $619,000 in 2013 to again $433,000 in 2014. The EBITDA, earnings before interest, taxes, depreciation and amortization improved from a positive $400,000 in 2013 to $1.4 million in 2014. Our stockholder equity increased from $135,000 at December 31, 2013 to over $1 million at December 31, 2014. And our market capitalization reflected these positive results rising from $3.7 million or $0.76 per share at the end of 2013 to $12.8 million or $2.37 per share at the end of 2014. As Kevin noted, the revenue growth driver in 2014 for cordless barcode scanning was a growth in mobile point-of-sale applications adopted by businesses and running on Apple iPads. Our registered development community has continued to grow over the past two years, rising from 300 developers at the beginning of 2013 to 800 developers at the beginning of 2014 and over 1200 developers today, all focused on mobile applications running on Apple, Android and Windows based smartphones and tablets. Our products serve these markets well. Our model 7 series of linear, laser and 2D service barcode scanners are typically paired with tablets and generated most of our 2014 cordless barcode scanning revenue. We introduced at the end of 2013, the phone attachable linear barcode scanner, the first of our model 8 series and followed it…

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

Yes. Just to follow-on your comments, first on the SoMo, could you characterize how that product line did in Q4 versus Q3 and then I have a follow-on after that?

Yeah. We had $711,000 in revenue in Q4, $941,000 in Q3. But that included $210,000 of an OEM sale, so essentially was flat.

Okay. And going forward, since last year 2014 meaning that you had the impact of the Apple iPad announcement happened in October where traditionally had been done in September. You kind of had a double whammy there from a standpoint of impact on the first part of the quarter, as well as your usual impact till the last part of the quarter. So if you go back to a year ago, your first quarter is usually a little better than Q4. And of course was -- with that phenomena I just described you should be -- I think you will be significantly better although you in your comments you talked about how January was seasonally weak. But is it more than the usual January weak seasonality than you’ve had in say last year or two?

No. It wasn’t unusual. It was what we saw in 2013. It was equal and maybe even just a tad stronger. But we don’t see a loss of activity in January because people are cleaning up after the year end and there is a Big Show in New York, NRF, which is the primary, I would say selling mechanism for many of the retailers that go and look as what's available there before they make their decision. And with the benefit of hindsight and looking back, we really have a selling season that begins in late February and runs to mid-January -- mid-October I should say. And again, with the benefit of hindsight and we went back and looked at how the year played out and we did see a lot of activity in September and early October that allowed us to have a peak there that represented 30% of our annual sales. And I think in 2014, as we mentioned previously, Q3 was probably a little stronger because of that move by Apple and Q4 was a little bit weaker.

Okay. And could you give us a little bit more color on the enterprise network? You mentioned a few customers historically, any kind of update on when you expect some of these rollouts to be taking place? I know you had a van line type run in a Japanese company that you’ve talked about in the past. Could you give us a little bit of a color on where you see those kind of going forward, any others that have been added to the picture?

Well, I think one of the things we have learned over the years is that our ability to predict the timing of these things is quite poor. We have to really look at the trends. So the projects that we talked about, particularly the one in Japan, I would say we would take it off the table now due to the currency variations that have happened in Japan since we first are talking about it. Our effective price in Japan has increased by 50% over the last year based on the currency exchange where the yen went from 80-ish to the $1 to 120 to the $1. We are selling in dollar. So that is quite difficult. We believe that, well, I hate that, what we are able to see is that the mobile point of sale has lot of momentum. We have seen and followed developers, who have completed applications for design movers etcetera and the application is fully deployed working. We’ve talked to end-users that are very happy with this. It’s not mandated by the parent company, yes. But we believe that they are getting more and more strict with their associates to follow and to be on a single system. We would expect that to happen during the year, but it’s a bit like tax day. If the company, the holder of the franchise says, look, we will give you a little time, everybody takes this, but we have a number of that. But I think what’s more enlightening is that we are seeing a shift in our developers to more traditional enterprise mobility applications. And we started to see that towards the end of last year. And based on what these developers are focused on, we can kind of project where they are going. And that’s what we are seeing right now is that we have a lot of developers who starts to create applications in the hospitality and enterprise mobility market that currently are not in the market, but we would expect to start entering the market this year and change our profile from being a 100% or 65%, I should say mobile point of sale centric to may be being hopefully 40% mobile point of sale centric, but still higher mobile point of sale. So it’s not that we are losing mobile point of sales, but it’s being diluted by people doing other things.

Okay. I will let somebody ask the question and then I will come back with some of my financial ones, okay.

Okay. Thanks, Brian.

Our next question comes from the line of [Al Troy] [ph], a Private Investor. Please proceed with your question.

Congratulations gentlemen on turning loss into a profit in 2014. It’s nice to see that.

Thank you.

My question is, on the market capitalization to get listed back on NASDAQ, how much worth are we?

Well, it’s not a market capitalization item, it’s a capital requirement. So as a profitable company, we need to have $4 million of capital.

How much do we have now?

We are right over at $1 million. At the end of the year, we are right over $1 million.

So…

Okay. Now I don’t have reports on this to get on NASDAQ for the price of the stock and also for the company. So did you ever consider doing a secondary? I think by announcing a secondary [indiscernible] which would give you listing on the NASDAQ, I think it would boost the stock price up and I think it would be easy to do a secondary.

Well, it’s certainly one of the options that we have in our portfolio. Today we still find that the markets are still quite volatile. We are still experiencing warrant exercises, particularly. As you know many of our investors have been interested in the warrant overhang that was represented by warrants held by Hudson Bay Master Fund and those have been coming down substantially during the fourth quarter and continuing into the first quarter. So it’s very well maybe that market conditions would support a capital financing, but our view is that it’s still early at this point. The measurement for NASDAQ is done on an annual basis. So the capital measurement is done at the end of the year. So there is time for us to consider. And the other things I mentioned in my comments were we have a substantial number of convertible debt notes that can convert directly into capital. We have over $900,000. We have $1.5 million vest of stock options that could generate up to $3.4 million. Obviously, we don’t expect that many and then the remaining warrant. So there are lots of possibilities for capital. We still like operating results, profitable results as the major contributor to bottomline growth. So we will see how the year goes, but we do have a lot of options and hopefully improving operating results will be reflected in higher market capitalization and that will stimulate employees and warrant holders to exercise their shares as well.

Hopefully by the end of next year, we will qualify for NASDAQ.

Yes. That’s certainly our goal.

And there is nothing we can do to qualify soon, because as Dave mentioned we do need audited financials, which we will do at the end of the year. So even if we got converters right now and exceeded the $4 million capital, nothing can happen until this time next year.

Right. Well, I am glad to see that, it’s a goal to have it done by the end of next year. I think it’s very important.

Okay.

Also, how many warrants does Hudson Bay have last I think you mentioned that particularly, but I didn’t catch what Hudson Bay had?

Well, I mentioned we had a $169,000 warrants in total outstanding and that includes investors from earlier financings. And that their holdings currently are less than half. I wasn’t precise, but you can do that calculation and it’s less half of $169,000.

Okay. Also I know this year that you went on conference to investors and you made a very good presentation. I was wondering if you have any more plans to do that because I think it helped the stock price.

We are considering a couple of conferences that are being presented in the May and June timeframes. And of course in the fall, we will find other conferences, including the LD Micro Conference that we went to last year. So we expect we will be participating in additional conferences. We haven’t firmed up yet those plans.

Okay. Thank you.

Thank you.

[Operator Instructions] Our next comes from the line of [Steve Swanson] [ph], a Private Investor. Please proceed with your question.

We had an increase in revenue profits from ‘13 to ‘14, net income was up $850,000. As expected, they bit picked up in cash in the bank and it doesn’t seem to be the case. So where did all that money go?

We’re managing to improve and a lot of it went to paying down of liabilities, improving the balance sheet but using the cash to improve our accounts payable balances with vendors. So that we have full support of our vendors and it’s been long-term relationships that are working very well. But we do have an obligation to bring our accounts as current as we can, so we are using cash that we believe is accessed to our immediate needs for purposes of improving the balance sheet in that regard.

Yeah. I kind of notice that it’s what I wanted to hear but that’s where you actually put it. And so I was kind of wondering with the growth in business that you guys have been able to successfully have in 2014. I was expecting an increase in year-over-year in inventories and payables but they both fell. Inventories were down about a 150K and payables were down $710,000. And I was wondering typically, as try to hold up your vendors and pay them later than we’re receiving the money. And I’m just curious is that we’re getting pressure from our vendors to pay them more timely or -- and why aren’t the inventories building as we’re trying to increase -- as the business is actually increasing both from a revenue and sales perspective?

Well, actually inventories have been held down by what I believe is just ….

General management.

Good management of the timing of proceed of components and our ability to turn them around quickly and ship them out to distributors. And of course, the distribution channel provides an inventory buffer. So our customers, their customers just don’t ever see a break in available supply, unless for some reason we can’t fulfill the distributor’s replenishment orders in a timely manner. But we’ve been much more proficient in timing of proceed of components and I think that reflects the inventory story. On the payables that’s been a managed pay down program and I think you’ll see that continued -- I mean, on one hand which you’re growing, payables will tend to grow if you’re always current but because we’re also looking to bring more current some of the accounts, it will decline over time.

Are we getting better terms for paying these payables sooner than they do?

We’re not paying yet. We’re not ahead.

We’re actually behind.

We’ve got a very good extended terms from all of our vendors, everybody cooperates with us. We’re not seeing any undo pressure and we have no shortage or inability to get supply. So we’ll continue to maintain that. But there is an expectation on a part of our vendors as we do generate traditional cash that a portion of it will go in their direction.

Okay. So I think what I’m hearing is that maybe at year end 2013, we were in current with our payables but now we are in a better position to be current with our payables at the end of 2014?

Add a year to that. We’re still -- we’re better off than we were but we still have ways to go. So we would very much think we’d like to be current by the time we get to the later part of 2015. But again, the key is the relationship with the vendors. And our vendors will share in our success and they support us if we see any timing differences. And we do have a number of available mechanisms to bring additional financing in, such as our revolving bank line. So that if we do see a very large order coming through and we need to place a large order, our vendors have the comfort level that we have the capacity to pay them when it’s due. So I think we’re managing well and -- but do expect the payables, if we’re successful, we’ll be coming down as we also strengthened our cash levels.

Okay. Another question I had is around the revenue growth. You’ve attributed to on the cordless bar scanning. And you mentioned the three platforms, the Apple, Android, the Windows. I was just wondering, what’s the split on that? Is that like 70% Apple, 25% Android and 5% Windows or something different?

We would probably put us close to that. I mean, it’s probably 60 -- in the 60s for Apple and probably low 60s, maybe 30% for Android and 7% for other. But we are seeing that move around a bit. I think that we see more people coming to the Android at the moment but it’s very -- from our point of view we’re pretty agnostic, but...

Yeah. I realize that you guys would be agnostic. It’s good to hear that Android is picking from what you just, I think, what you said was, Android is picking up relative to where it’s been on the split there and it’s good to hear that we’re not really -- we’re not a 90% there with Apple, it’s more around the 60% to 65% range…

Yeah.

… picking up on android?

And what we see is that, people generally go with Apple first and because it’s very much protected guard in terms of getting stuff working. But then as they get larger customer basis, they have more price pressure and they than can expand it to Android and they can meet some of the price pressures but they come with some complexity. So there is a balance there.

But recognize those measurements are not precise. We sell through two tier distribution. Many of our distributors are fulfilling for the application providers. We know what business is being done by our major application providers. We know what platforms they support. So we can put a lot of that together and make some general estimates, but -- they are estimates and there is certainly not something that’s absolutely precise. We also can see the number of applications that are coming to the market for iOS -- the iOS platform, but we don't have the same visibility for Google Android-based platform. So we use what data we can and make our estimates accordingly, but recognizes just generally estimates.

Sure. Understood. Appreciated. One last question I have. You noted in the press release your primary goals for 2015 would to attract and support more mobile application developers and see continued growth and profitable operating results. And I was just hoping, I appreciate what you said earlier in the call. I was just hoping to go ride it, a bit more specifics about how we’re actually going to execute against those goals this year and I’ll just hung up and listen? Thanks.

Well, again, I had said, the main thing that we’re focused on is to make it easy for to developers to install and use our components for the barcode scanning needs. And then the more they do, the greater day market penetration you have. I think we have done a particularly good job in that area and we continue to get feedback and improvements into the marketplace to make it easier for the developers. Most developers have other problems beside barcode scanning and they’re focused on those, whether it's the tax in Singapore, something like that and they would like dependable, reliable, robust scanning, with a little work as possible. And that’s the approach we've taken and it’s for long haul. You don't generate sales overnight, but you do have a rolling thunder type increase in sales as more and more of those applications get in the market.

You also recall that as of the 1st of October, we added a key executive, James Lopez in the Vice President of Marketing and Business Development role. We’ve added some additional marketing personnel. We’ve upgraded our website. So all of those activities were to improve our ability to reach out to the key participants and as registered developers and to solicit their feedback on our products, to get their inputs on directions that they expect to be heading, so that we can ensure that our products are being responsive. So those are all -- we’ve added -- a few key people that we’ve added have been done specifically to improve our ability to support the developer community. Okay. Operator, I think we can go on to the next question.

Certainly. Our next question is a follow-up question from the line of Brian Swift from Security Research Associates. Please proceed with your question.

Yes. This question is for Dave in terms of margins. If you go back to the September quarter, I think we discussed in the last conference call that to use -- you would have thought that the margins would have been better, and I think you explained to use the big increase in revenues as an opportunity to write off some inventory or whatever that are -- maybe some discontinued items from the past. And now in December it’s almost the opposite impact from one would have expected your margin to be around the 43% level if you go back to what you did in March and June of last year. So could you -- I guess what I am really interested in is, what I should be plug it in for Q1 and going forward as to kind of like what a -- what’s your normalized margin would be at this revenue level?

Well, I think you’ve seen in general steady growth last year as overall margin was 40.3%, a little over to 40%. And this year, it’s up at the 43.6%. And as you know, it’s a combination of pricing, pricing discounts, cost of components. We do continue to receive excellent support from some of our component manufacturers in reducing some of their component pricing. Part of that’s volume related. And so that’s an element, where we’ve been systematically improving our product contributions and we’ve been focused on improving our efficiencies and our manufacturing group. So with those -- both of those tend to reduce what we call waste cost and allows us to reduce the impact we have on our fixed cost of operations. The only thing we‘ve done, you also have a vacation effect, you’ve got some time off with Christmas holidays and like, so people used to recruit vacation time. So those are all factors that impacted our margins in Q4 in a positive direction. I think going forward we are expecting to remain in the 43% to 44% range. And if we continue to grow, we should see that grow by a few percentage points as we go through the year.

Yeah. The other thing maybe just to your model Brian is that we do have some headwinds now as regard margin based on our overseas sales. The U.S. dollar has strengthened considerably against both the euro and the yen, and that did allow us to have a slightly higher price in those overseas markets. Now we have a slightly lower price. So there are some swings and roundabouts here.

Okay. Do have any -- Dave, do you have any targets for margins, say, when you ultimately get more closer to like $5 million quarter level? What would you expect with the leverage that would entail on the -- on your cost to sales? Do you have some targets in terms of what we might be shooting for?

Well. Yeah. I mean, as you are trying to model -- again at $5 million you are probably looking at, maybe a percentage point higher than the fourth quarter. But again, there is lots of variables that impact any particular quarter. So, I would say you are in that range. As you go higher, you can certainly go -- margin should improve in general as your revenues go up. Again, the fixed costs are becoming a smaller percentage of our cost of sales because of the production efficiencies associated with growth. We are able to hold reasonably level of the cost of the people that are involved with assembling and shipping out the products and the growths then leverages right through to the bottom line.

And just a little clarification of Kevin’s point, what is your international exposure? I’ve been asked about what international sales are as a percentage of your overall?

Well, international sales are currently around 30% of our overall. And now some of this is U.S. dollar based. We do sell in euros in Europe. Matter of fact, we don’t sell in yen anymore because it became too unstable. So, we sell in euros and certainly we’ve seen a strong erosion of the currency. We haven’t made the decision to adjust pricing. And so therefore, we are earning less on those sales than we were most of last year. And that impact is probably 10% and in terms of margin, it probably impacts us by two or three points. But their business is, I wouldn’t say fragile but it’s basically nascent over there. And as a result, we have a lot of people who’ve committed to trials and rollouts and just change in the price of this time. I don’t think it’s in the long-term interest of the business, but our roads a lot more we will have to.

Okay. So you are selling in euros in the European market?

Yeah . And then we -- when we sell those, we hedge against our contracts, so that we are not exposed after. So in that respect, we are impacted by the exchange rates when we sell, we don't gamble on what it may happen in the future.

The European revenues have traditionally been in the 20% give or take range and the Asian Pacific revenues have been in the 10% give or take range. So the biggest exposure for us, of course comes in the euro sales because we are selling in euros although we can control the pricing but as Kevin mentioned, we are reluctant to move too quickly in that regard. So, while we are selling in dollars in Asia Pacific, the effect is more likely to be a reduction in the percentage of revenue that we will do there until everybody adjust to those higher pricing. But alternatives for any of U.S. produced goods for customers are experiencing the same thing. So it’s a matter of more adjusting on your budgets to reflect the currency changes in places like Asia and we will see how well that moves forward.

Oh! Yeah. The euro has rebounded some, but it still lot lower than it was a historically for…

Yes. Yes.

Okay. That’s it for me. Thanks.

All right. Thank you very much, Brian.

There are no further questions in the queue. I’d like to hand the call back over to management for closing comments.

Thank you, Operator. I’d just like to thank everyone for joining us today and to wish you all happy day or good day. Take care. Bye-bye.

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.