Greetings and welcome to the Socket Mobile First Quarter 2015 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 with MKR Group. Thank you. You may now begin.

Thank you, operator. Good afternoon and welcome to Socket’s conference call today to review financial results for its first quarter ended March 31, 2015. 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. 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 may be delayed or not rolled out as predicted due to technological market or financial factors, including the availability of product components and necessary working capital, the risk that market acceptance and sales opportunities may not happen as anticipated, the risk that Socket’s application partners and current distribution channels may choose not to distribute the products or may not be successful in doing so, the 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, 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 both sequential and year over year revenue growth for Q1. While we reported a $0.01 per share loss for the quarter, this bottom line results reflects the impact of certain one-time expense events during the quarter, including the euro depreciation and some restructuring charges. Revenue from our barcode scanning business in the first quarter grew 22% year over year and 13% sequentially, and continued to be driven by our mobile point of sale partners. We were especially pleased to achieve this solid revenue growth, despite Q1 being seasonally slower as typically fewer customers purchase new mobile point of sale systems during this timeframe. As we have noted previously, mobile point of sale activity is typically lowest in the fourth and first quarters. And our primary selling season for deployment of mobile point of sale application have been in the second and third quarters. As such, we continue to expect that the bulk of our mobile point of sale driven business for this year will happen in Q2 and Q3, and this expectation is reinforced by our ongoing discussions with our mobile point of sale partners as well as our increased bookings rate in April. The primary driver of this business continues to be the smaller retail locations that are replacing their Casio-style cash registers with an iPad or tablet-based solution. Demand continues to primarily be driven by many smaller sized customers as opposed to a few larger deals and our forecast is based on the run rate trends we’re expecting. The mobile point of sale market continues to be driven by well-funded and rapidly growing companies like Shopify, ShopKeep, LightSpeed and Vend to name a few. One of these companies, Shopify, recently filed…

Thank you, Kevin. Socket’s cordless barcode scanning revenue growth in 2014 of 41% was driven by mobile point of sale deployments by our registered developers to small and medium businesses, with the strongest growth occurring in the second and third quarters of 2014. As Kevin noted, our registered mobile point of sale developers which include ShopKeep, Shopify, LightSpeed, Vend, NCR, Square and others continue to expand their mobile point of sale product offerings and continue growing their mobile point of sale customer base in 2015. Socket’s mobile point of sale activity last year was strongest in our second and third quarters and this is the likely pattern that will recur in 2015 as indicated by feedback from our developers and a strong April start. Our first quarter revenue was $4 million, an increase of 6% compared to revenue of $3.6 million for the first quarter a year ago and an increase of 2% sequentially from revenue of $3.9 million in the immediately preceding quarter. Sales of our cordless barcode scanning products increased 22% over the first quarter of last year and 13% sequentially. Revenue from cordless barcode scanning in the first quarter was $3.5 million of our $4 million total, or 86% of our first quarter revenue compared to 78% in the immediately preceding quarter and 75% in the first quarter a year ago. Total revenue growth was partially offset by lower SoMo handheld computer sales, which declined in the first quarter by $274,000 over the previous quarter and represented 11% of our first quarter revenue. This product is on the downside of its life cycle as businesses move to smartphones and tablets for mobile applications. The products work well for our current customers and are positive contributor of cash and margin to the company. Service revenue accounted for the…

[Operator Instructions] And our first question comes from Brian Swift of Security Research Associates.

Sorry, I have cold, so might sound little different. The last couple of years your sequential changed in the second and third quarters like about $0.5 million. And I think is the issue is there’s so much of the SoMo sales were in the second, third quarters last year which are not going to be there this year [indiscernible] I’m trying to model, just how much of a sequential increase we might expect in those coming quarters?

Brian, in the second and third quarters last year, we had about $1.5 million of SoMo sales. We’re running at about half that level right now.

Is that each quarter or...

No, in total. I think we had $560,000 in the second quarter of 2014 and SoMo sales of $941,000 in the third quarter. The third quarter last year did include SoMo components that we are selling on an OEM.

And anymore color you can give on the enterprise side of it, I mean, as you have pointed out bulk of your sales are on the handheld scanners are coming from small business users, but there have always been some large accounts out there which I think in the last conference call you indicated that we might be seeing some of those this summer, any update on that?

Not a specific update. I think what we’ve seen certainly over the last few quarters is we see a reasonable lag between when we interact with a developer and they get the program or their application into the market. We certainly have seen a change where we’re interacting with a lot more developers who are not focused on mobile point of sale, but in other enterprise mobility type applications. We haven’t seen any, I would say, significant deployments, but we are seeing an increasing number of deployments in those categories. And we will be happy to update people as they happen. I think we have learned over time this, we don’t have great control over the timing, so speculating doesn’t really help, but we definitely have seen a change in terms of the developers. And that change is a leading indicator of where our revenue will come from. So we’re seeing an increasing level of activity there and some of the deals are starting to come in and we’ll update you when they do come in maybe in the next conference call.

And the gross margin, you talked about 45% level, is that sustainable going forward, I mean if you’re going to have higher revenues you expect the margins to improve, but it looks like there was something non-recurring there?

First of all, I think the 45% level is sustainable. We had a number of puts and takes in the mix in Q1, even over the last two quarters. Obviously the margins were impacted by the declining euro as we sell in euros. This has been addressed, as we adjust to price in April to reduce our exposure to the euro. And the other – when we have increased volume, we have increased efficiency, because we are not at full capacity in terms of manufacturing. So again, in the short term, I think 45% is maintainable and over time we have a combination of pricing pressure as volume goes up and some productivity improvement as volume goes up. So we’re comfortable we can hold that line.

And we find, Brian, the increases we saw last year in the second and third quarter were weighted in the direction of our entry level products and those products have a lower margin than 2D and more sophisticated products. So that’s part of your increase in the first quarter, even though the increase in revenues was not as dramatic as we found going from first to second quarter and we expect to do with the second quarter this year. On the other hand, some of the growth, if we follow last year’s pattern, will be on the entry level products and that will tend to be offset by the benefits of the higher levels of revenue. So again, reinforcing Kevin’s conclusion that we think 45% is a sustainable gross margin right now.

Our next question comes from [Steve], a private investor.

Kevin, you mentioned 1400 developers at the end of Q1, what was our developer count at the end of 2014?

I have to look at that, but I’d say approximately 1200.

And what’s our expectation going forward to the end of Q2, I know with the hiring we’ve done, the two individuals we hired, I know they were focusing in that area, what’s our target we’re trying to achieve for the end of Q2?

Let me just clarify, I think that the target of developers is really not the best metric of how to measure our progress. What we’ve been doing I think over the last six months is really cleaning up the developer base so that we could have a better and deeper understanding and better serve the developer community. At the end of the day, a developer only contributes to our revenue once they have completed their application and published it and they are selling the application which in turn is driving scanner sales. Today, we have approximately 350 applications on the Apple public store, okay. And we believe based on our survey, we have probably twice that in the private equivalent of iTunes et cetera. So we probably have close to 1,000 on various applications. That is really the metric that we should be looking at, how many of those will drive revenue for us. And I think what James Lopez has done internally and you will start seeing a lot of the benefits starting to be in the public domain with our new webpage and a lot of the developer portals et cetera will be we’ll have a better handle on our developer community. So we haven’t seen any slowdown in the number of developers coming in, but I don’t think that’s the metric people should be looking at or focusing on over time, we really should be focusing on how many apps are driving our revenues.

That’s great. I understand that that should be the leading indicator we should take a look at. So what was that indicator of applications at the end of 2014 so I can understand what we’ve increased over the terms of the first quarter?

We’ve basically seen probably 15 new apps entering the app store over the first quarter [indiscernible] 300 apps in the public app store to about 315.

I am seeing we got a big push on this part of work, is that how we’re measuring, this value to the organization is the number of apps that we’re going to get pushed out there?

No, absolutely not. At the end of the day, what we’re focused on is making it easy for developers to develop with our products and making sure that we have the products that they need to service their customers. So there is two things to it. One is you need to be able to categorize the developers and I can take the example of mobile point of sale, which we’ve introduced a stand, a presentation stand into the mobile point of sale market. We did this because we have developers who want to have a presentation mode, we had to modify the scanner so that it can auto-switch between regular mode and presentation mode. But those, I would say, the stand itself that’s primarily targeted at the mobile point of sale market. There were other markets that we can serve better. So we’re doing a combination of interacting with developers to understand where they are going and what elements they need to support this and improved on to be successful. So there’s a combination going on here of you need to understand your developers and he has to build the products support. And James is basically responsible for both those activities and they work in tandem. Part of what we needed to get fixed and you will see this is we’ve improved our webpage and launched a new webpage this quarter and we’ve also launched a Japanese webpage. We now can do multiple languages, you will see more portals and more tools to interact with our developers and that will help us to fill the right products for these markets going forward.

Steve, let me add, the number of applications by itself isn’t the whole picture. As an example, you’ll see most of the mobile point of sale developers have been increasing their deployments. Kevin talked about it with Shopify which made it public with their going public filings. But increasing deployments and then adding modules, they don’t typically start with all the modules they intend to have at the end, because they want to get their sales processes started. Where we benefit particularly are on modules that require barcode scanning, particularly inventory management modules. So those are both factors that may not change rapidly the dynamics of the number of applications out there, but will certainly dramatically change in a positive direction the results. And of course, then with the product feedback that we’re getting, we’re very sensitive to making sure that we keep stock very relevant in supporting our developers in the direction that we’re going and also assisting them in understanding what their opportunities will be with Socket products going forward. So we do have a roadmap that we’re able to share with our developers and we’re all excited about the opportunities here.

And just maybe one last thing to add, there is a tremendous lag between interacting with the developer and then actually getting a product, maybe historically I’ve said that at least six months, but as we look back I think it’s probably closer to a year, right. So again, that gives us sufficient time to build the pieces that they need to be successful. I think the hardest part of this business is getting up to critical mass and I feel we’re basically reaching that level now and we have a lot of momentum.

Dave, you had mentioned $88,000 restructuring charge for the first quarter relative to the first quarter of the prior year. Which bucket is that going to show up, is it in the R&D, the sales and marketing, G&A?

That’s in G&A.

And so we got a delta about 250, I guess [indiscernible] quarter over quarter, where is this, is it $88,000, I guess, I’m understanding was restructuring charge we took in the first quarter which likely is not going to recur in the second quarter. The other delta, are those new charges going to remain going forward or there is some other one-off that we should think about in that manner as well.

The other item I mentioned in the first quarter of each of the comparative years is that our audit cost primarily fall in the first quarter. So when you look forward to what will our G&A be in the second quarter, most of the audit fees which we recorded happen to be the same number, $88,000, in this first quarter this year. Those will be much smaller just reflecting the quarterly review activity in the second quarter. So we typically see our G&A in the second quarter lower than we would see in the first quarter. I think it will be more pronounced in this year than it was last year because of the restructuring charges that don’t recur.

The other thing, Steve, is we were impacted by the euro depreciation and that obviously [inaudible] one-time charge, maybe a charge over the last two quarters. We’ve addressed that. So it will show up in gross margin, but that would help in terms of things going forward as an improvement.

That wouldn’t be in the R&D, that will be in the cost of revenue?

Yeah, you’ll see it – for example, if we hadn’t seen a decline in the euro in the first quarter, we would had an additional $40,000. That would have increased our margins and increased our bottom line [indiscernible]. So that will be back based on the pricing and the second quarter we will be back to higher levels than we were enjoying before we saw the declines.

I appreciate that, but that’s – in my mind, that’s kind of on the top line, I’m more focused on the below the line and the R&D, on the G&A, and those are still about $160,000 delta between one quarter to the other from the prior year, and I was just trying to get my head around the increases now, I know we had the restructuring charge that we talked about which is about a third, but just wondering the other two-thirds, about $160,000 difference, how do I need to think about that?

I think that we had our expenses somewhat artificially lower this time last year in Q1, we had people who were not working full five-day weeks and we had other extraordinary cost reducing measures that we’re no longer under in terms of expense.

That’s very helpful [indiscernible] we’ve had a little or unusually lower run rate in the first quarter of last year that as a result of the steps that you took to stay on top of expenses, you relaxed that this year, so expenses are more “normal” I would need to think about...

Another comparison you can do, Steve, is compare it to the fourth quarter as we did hire folks like James and some other marketing folks that were important to our growth picture for this year, those costs are in the fourth quarter. So if you take out the restructuring charges in Q1 and compare it to last year, you got a pretty good – and take out the audit fees, you got a pretty good comparison.

Our next question comes from [Al Choi], private investor.

Kevin and Dave, I’m very pleased to hear such optimistic guidance going forward. What I would like to know is that you doesn’t seem to be much interested in the stock right now as far as the trading those, I was wondering if you plan on doing any road shows in getting some interest from investors, maybe funds or stuff like that?

I think the short answer is yes. Dave said in his comments that we will be at LD Micro Conference which we were at in December and we will go to again in June. Yes, I think on the back of our better results in Q2 and Q3, we will make more concerted efforts to get out and tell people the story. Again, I think we did a lot of improvements last year, but it was still a turnaround story. I think Q1 maintains the possibility, until we’re showing a bit stronger in Q2 and Q3 hopefully, the story isn’t really we’re still turning as opposed to turned around. So the plan is yes, as the story gets stronger, we will get out to promote the company and naturally the stock are part of that. But we would expect that to be mid to late summer.

Al, Socket’s business model also is highly leveraged, so we benefit well from growth. The component manufacturing we contracted with folks typically in Asia, we have other locations where – a lot of capacity and volume increases, we have no capital expenditures or other things needed to be able to handle the higher volume. And on the distribution side, all of our products go through tier distribution, we have the management structure in place to manage that. So we can run a lot more volume through the structure without incurring a lot of additional cost. And so anxious to see the growth occurring and that will benefit the bottom line more than it would in any organization that we have to incur higher expenses to achieve it.

The results are as expected, I think there should be a lot of interest generated in the company and I think that would give rise to a substantial increase in the stock price. So I’m hoping for that.

[Operator Instructions] The next question comes from Brian Swift of Security Research Associates.

In your prepared comments you mentioned a couple of times about a strong April. I’m wondering if you could give us a little color on that, April versus April a year ago and the mix of the business relative to the discussions we’ve had about margins.

We’re three weeks into April, so the measurements are just that. We’re tracking substantially higher than first quarter. Our totals to date in terms of new orders are better than $1.5 million, $1.6 million. If you look at our average revenues in this last quarter, you’re looking at we’re already well past the average monthly total and we’ve got a week to go. So we’re expecting that April will be as strong, if not stronger than last April a year ago. For us, the run rate is moving up nicely. The thing that’s always to be determined of the amount of larger deployments that add to those totals and we’ve had some already in April, but that’s the area that when you add to the run rate will determine how well we do in the second quarter. So far, we are starting out very well.

Our next question comes from [David], private investor.

I got a question for you on the SoMo, have you heard anything about the OEM buyer, can you give us an update on that?

The OEM buyer is making a piece of equipment and currently in FDA approval mode, so if they get approved, there will be business and if they don’t they’ll have to go back and do a redo. We haven’t heard exactly. It’s well funded, well run engineered company where we believe they will get approval and there would be follow on business, but we don’t know when that will actually happen. Generally speaking, we meet with them once a quarter for a review meeting. And when we had with them last, they were in the review cycle. We hope that they’re out of it when we meet with them next.

And their products are selling in a number of international locations already. So they are just primarily focused right now on adding the US to bigger markets.

So even if the US is delayed, have they indicated in the third quarter they’d come back to buy for international orders, would you expect that to be occurring this year or again you’re unsure at this time?

No, we’re pretty sure they will not buy in the second and the third quarter. We don’t know if they will buy in the fourth quarter. So that’s where we are in that.

Okay, understandable. Congratulations on the 22% year over year growth from last year. Just trying to get a little clarification going forward, I know it’s hard for you to nail anything down because you tend to react to your customers, but is that type of indicative of what we could expect going forward as a growth rate?

Again, I think you’re correct in saying it’s difficult to predict, but I think these companies are well funded and they do have, I would say, high expectation for growth. I think a lot of them would be disappointed if they are not in that range. And we will benefit from their growth. I think what’s interesting when you look at Shopify and again I think that as some of these well funded companies go public, they will be able to better articulate the growth that is available in this market. But we would not be surprised by that level of growth.

Our next question comes from [Bernard], private investor.

Just two questions I have. We haven’t heard much about the Vend line contract, what’s happening there?

They continue to roll out, it’s slow. But in our discussions with them they feel they have made good progress, not great progress, but good progress and it’s still happening. We have no control over the timing. I think to some degree with projects like this, I think we’ve learnt a lot and that it does take way longer than we expect. But also I think that until the franchise owner or holder puts in a deadline tax day and is willing to hold people to that date, probably that tends to be slow. They have a plan for this year, they feel comfortable with this, we are benefiting as promised. But it’s been small today.

Is the deadline the end of this year?

All I would say is we’ve had four deadlines already. So the current deadline is – but I think one of the things that happens with these type of projects is that if they don’t have a reasonable percentage already using the system, the deadlines become false deadlines because they are not able to implement it. I think that once you have 30% or 40% or 50% of the people already there, you can get the last 50% there much quicker by putting in a harder deadline in saying for all those people that don’t have the system by this date, we’re not going to give you any more jobs or any more business. But you can’t do that [indiscernible] people have them. So I think it will accelerate through the year, we are in contact with them, we’re working with them, we are being as patient as we can be. We will get the business, but the timing of it still remains uncertain.

Would the American dollar, you mentioned that you increased it on April 1 the price in Europe, where does that, from a margin point of view, where does that, profit margin that is, where does that bring us back to a year ago or will this be not only fill in the margin that we lost or will give even additional money, profit?

First of all, let me just say that as a company policy, we sell our products on a global basis for the same price. So regardless of where a customer is, if they are buying from us in Australia or in Europe, we don’t try to have price differences, right. So price out of the factory is the same. In the case of both Europe and Japan, historically we have sold in local currencies and then as a result our products were technically cheaper in Europe than they were in the US during Q1. Okay? All we did was readdress that balance so that the prices are now fair. So we’re using an exchange rate so that the dollar to euro exchange doesn’t allow people to have any advantage or disadvantage on our pricing. We’re not trying to be overly clever here, we’re just trying to make the system fair. If you do have a larger discrepancy in price, based on today’s world, you have great markets where people will import from the US into Europe because there is a price advantage and we don’t – that doesn’t help our customers and our partners. So we’re just trying to keep our pricing consistent. We no longer sell in Japanese yen, it was just too unstable. So we now sell into Japan in US dollars and as Dave pointed out this has impacted our price in yen as a result of bit of a headwind into the Japanese markets. But that’s just something that’s still under control.

Because we’ve got generally a good pricing relative to competitive alternatives, we do find that changes like this are not necessarily highly disruptive, they’re somewhat inelastic, if people get the benefit using our products which generally far outweigh the incremental cost, but we understand the incremental cost. So we aren’t anticipating that these changes are going to be disruptive, but they will bring us back in line with our worldwide pricing.

If we take the fourth quarter of last year and the first quarter of this year, were they both hurt by the strong American dollar?

Yes, it’s right, yes.

Okay. So therefore when we increase it, we’re just going back to our original profit margin that we had a year ago.

Correct and that’s the intent, yes.

Okay. Well, that’s good. That actually should be a positive thing for the second quarter anyhow.

With that you’re making the assumption that sales are not impacted by the increased price, which we believe is the case, but that’s an assumption.

I got you. But of course, I would imagine the competition would also increase their prices...

It depends. In Japan, we have Japanese local competition. They haven’t seen a price increase because of...

No, I’m talking about Europe now.

But in Europe, there is European competition. So again, it’s the global economy and you have to adjust to keep the price level which we’re doing. It makes our product less competitive against European competitor or less competitive against a Japanese competitor in those markets. Now, we don’t have many, we have some, we don’t have many, but we feel, as Dave pointed out, that they – even with this price increase, people still will expect our products based on the feature set.

We have no more further questions at this time. I’ll now hand the call back to management.

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

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation.