Welcome to the Socket Mobile's Third Quarter 2016 Management Conference Call. My name is Adrian and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note this conference is being recorded. I will now turn the call over to Jim Byers, MKR Group. Jim Byers, you may begin.

Thank you, operator, good afternoon and welcome to Socket's conference call today to review financial results for its third quarter and nine months ended September 30, 2016. On the call today from Socket are Kevin Mills, President and CEO; James Lopez, Vice President of Marketing, Sales and Developers; 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 can be accessed on Socket's website by selecting About Us, Investor Relations, Conference Call Events and a transcript of this call will be posted on the Socket’s website within a few days. 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 risks 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.

Thank you, Jim. Good afternoon, everyone, and thank you for joining us today. We are pleased to report year-over-year growth in revenue and profits for the third quarter. Total revenue was $5.1 million, an increase of 13% over last year and net income was $669,000 or $0.11 per share, up 26% from $530,000, or $0.10 per share in Q3 last year. Our cordless scanning revenue reached a record $4.65 million for the third quarter, a 15% increase both sequentially and year-over-year. In Q3, we also had $450,000 of non-cordless scanning revenue that included legacy products, services and a one-time license fee from one of our legacy SoMo customers, who exercised their right to purchase a SoMo design license, so they could have additional units manufactured in the future. A record $4.6 million in cordless scanning revenue continue to powered by our strong application driven business model with mobile point of sale continuing to be the primary driver. During the quarter, we sold over 20,000 scanners, reflecting volume growth of 19% sequentially and 24% year-over-year. This growth is being driven by our many first time scanners customers with sales of our entry level scanner leading the way. As we increasingly serve this emerging markets engaged with our partners and observe the market trends, we are gaining greater inside to how this market will unfold in the coming years and a significant potential it holds for data capture in general and Socket Mobile in particular. We have been doing quite a bit of market research on this topic as such our industry research firms of BDC, the M2M market intelligence and advisory firm for technology suppliers. We believe we are well positioned to capitalize on the potential opportunity ahead of us. To give more detail on this, James Lopez, our Vice President of Marketing, Sales and Developers, will share his market analysis observations. James?

Thank you, Kevin. As we stated our opportunities in markets for cordless handheld scanning, we initially viewed our market from the perspective of traditional use cases. What we have gained is that while traditional use cases are increasingly leveraging mobile devices and there is some overlap, we’re getting far more traction in unserved and underserved areas where there was previously little scanning taking place. The rapid growth of a very mobilized work force and the resulting enablement of small business are extending our data capture opportunities into new and complementary uses generated from the activity of our developer community. We have over 550 socket SDK enabled applications and counting in the Apple App store and we continue to see a lot of activity in mobile point of sale and in particular inventory application. We expect mobile point of sale applications to continue to drive our barcode scanning sales as our application partners add storeroom inventory modules, expanding barcode scanning to business such as bars and restaurants. In addition, we are also seeing our application developers focusing more and more on areas outside of mobile point of sale including manufacturing, field service and transportation. These are emerging as growth areas for Socket as investments in smartphones and tables used in line of business applications are gaining traction and growing year-over-year. During the third quarter, we expanded our product line with the introduction of a new family of products to serve these new emerging markets outside of mobile point of sale. These include our DuraScan durable 2D and laser barcode scanners and our upcoming 1D version releasing this quarter. These products were designed with the weather-proof IP54 rating and level of durability and usability to match the specific demands of the mobile point of sale, manufacturing, field service and transportation markets. During Q3, we also began shipping our new DuraCase solution, which creates a flexible sled-based one-handed barcode scanner that combines one of our 800 series 1D or 2D attachables with an iPod touch. This is a scanning solution that is designed to work together, charge together and stay together as one unit in a single handed package. Variations of our DuraCase for Android devices are already in development for release early next year. These products are expected to add some more revenue in 2017. And I will hand the call back over to Kevin.

Thank you, James. Looking ahead to Q4, we expect a solid finish to the year with continued growth. As we have seen over the past few years, we expect our mobile point of sale driven portion of the business to slow in late November and December as new mobile point of sale systems are rarely deployed during the busy holiday season. At the same time, however, we also expect to see greater strength in Q4 from corporate deployments as companies meet annual corporate commitments and use up their budgets as they prepare for 2017. The net results should be continued growth in Q4. We are very pleased with the positive market perception to our new DuraCase series of scanners that are now shipping. And we expect these new products to be solid contributors to our revenue in 2017 and beyond. Market reaction has also been very strong for our new DuraCase solution, which is opening up a lot of new opportunities for Socket Mobile, especially in non-mobile point of sale areas. In Q4, we expect to begin distributing our products in China, which will enable our development partners there to begin designing our solutions into their applications knowing that the products will be available when their customers deploy. In summary, we expect a solid finish to 2016. With our transition this year into a pure data capture business, we are focused on maximizing the significant opportunities within the emerging smartphone, tablets, mobile workforce market. We believe new applications supporting worker mobility will be the growth driver for Socket Mobile in the future. Smartphones and tablets used in line-of-business applications are expanding the addressable markets for data capture and delivery solutions well beyond the traditional scanning use cases we have addressed in the past. We are looking forward to an exciting 2017 and remain committed to delivering quality products and continued profitable growth in the years ahead. With that said I will now turn the call over to Dave for his review of the financials. Dave?

Thank you, Kevin. The third quarter was Socket’s sixth consecutive quarter of profitable operating results and our seventh consecutive quarter of positive cash flows. Since January 1, 2016, we've increased our stockholders equity from $3.3 million to $5.6 million and increased our working capital by $1.9 million primarily due to profitable operations. Our cordless barcode scanning revenue reached a new quarterly record of $4,635,000, representing sales out of more than 20,000 units. Cordless barcode scanning revenue increased 15% over both the previous quarter and the same quarter a year ago. Cordless barcode scanning units sold increased 18.9% over the previous quarter and 23.7% over the same quarter a year ago. Entry level linear imageries were our fastest growing product category as they are the favorite category with new mobile point of sale customers that need an entry level system for indoor use, which explains why our cordless unit growth rate is higher than our revenue growth rate. Total revenue for the third quarter was $5.1 million. Cordless barcode scanning of $4,635,000 was 91% of that total. The total includes increases in identifiable deployments which increased over the previous quarter from $250,000 to $540,000 and run rate increases small quantity sales, but lots of them increasing over the same period a year ago by 8.4%. We suspect our cordless barcode scanning revenues to continue to grow as the number of developer applications in the market grows as our pipeline of potential deployment grows and as new products sales of our new recently introduced DuraScan and DuraCase products strengthen our product offerings in non-mobile point of sale markets. Third quarter revenue also included $467,000 of legacy product sales, service and the SoMo design license fee to enable our legacy OEM customer to manufacture additional units of their OEM device in the future.…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from [indiscernible]. Please go ahead.

Good afternoon guys. Just a question in terms of different end markets – maybe you can elaborate a little bit further on which ones you're having than most assessed with which verticals particularly in?

Mobile point of sale is still our main driver today, but we are seeing a lot more growth worldwide across verticals, but in particular in manufacturing and transportation.

So when you say mobile point of sale though, I was looking for a little bit more color. Is that restaurants, retail within those what categories apparel like I’m just a little bit breaking down that end market?

So it typically is retail, so it’s the movement of goods anything that can have a barcode on it. We haven't had a lot of traction in restaurants or in quick service type retail point of sale. So with inventory applications, we are going to get more traction there because the inventory in the backroom is now a scannable element for us.

Okay. It looks like from the balance sheet or from the income statement, there was some increased investment in sales and marketing. I am just wondering your plans there, it looks your margins were 14% which were pretty impressive for your sized company, but I was wondering if you were to ramp up that investment, would we see a lot more in the terms of top-line or is there sort of a governor?

Well, you have to go back, William, to our business model. We sell in conjunction with mobile point of sale partners and they actually do most of the heavy lifting in terms of acquiring customers. So, we would not see a lot of expense increase. And depending on what partner we’re working with, we work with people like ShopKeep and Shopify, LightSpeed and the list goes on. Each of them seems to have a slightly different focus on where their strengths are, but there we’re seeing high fashion retail or wines, bicycles et cetera. So we have a lot of leverage in our system, but we don't actually acquire the customers. They acquire the customers and then the application tells those customers if they have items to scan with barcodes then to use our scanner because that's the scanner that’s baked into the application. So I think to answer your question, we would not expect to see an increase in our expenses as we expand there to acquire more customers.

Okay. So the incremental margin from here should be sort of would you say north of 30% or something like?

Well, I mean, there's a lot of moving parts. I don't think it's the simple fact continue to invest in new technologies like RFID, NFC. We continue to invest in software tools et cetera. But yeah I think that we have a leverage model that will continue to deliver good results to the bottom line.

Okay. Last question for me just you indicated growth, continued growth in the fourth quarter; you do faced a more tougher comparison. I was wondering if you could break down that Q4 2015, which was like $5.4 million. How much of that was cordless sales?

About $4.2 million off the top of my head.

You’re correct.

Okay.

$4.2 million, okay, and…

So, again, we would expect – I mean this year has been a transition year. We have exited our business, our handheld computers. There was about 1.3 and that in Q4. So again I think we'll be building off our base of $4.65 million.

Okay, thank you.

You’re welcome.

[Operator Instructions] And we have [indiscernible] online with question. Please go ahead. David you’re queued up. Your line is open.

Okay, I am sorry. I am sorry. I got a question. Can you expand a little bit on your enterprise orders? I know you don't want to give specifics on them, but are they coming from retail, non-retail in-house developers? Are they using other software? And what kind of companies are your side companies you’re dealing with? I'm just trying to get an idea of – may be you can expand on that there is more here beside just telling the mom-and-pop stores?

Yes, I mean, applications come from all different types. I think though in Q3 we had some what we call merchandizing related applications where people have are using an iPhone and one of our barcode scanners to go into logo stores and merchandise goods on behalf of other people. So this is an area where we've done very well in the past. Our SoMo product was used in that category. A lot of people [indiscernible] dedicated devices, some of them are coming back. The companies we deal with are all over the place. We have plenty of large customers. I think that they take a long time to deploy. And we view the difference between the mom-and-pop stores and a deployment as that there is a coordinated deployment effort to companies often buying the material on behalf of the employees and then rolling it out. So we get a lot more visibility. And we're seeing this from all walks. We just started throwing names around, but it doesn't really help the calls rise. But I would say many companies we deal with are north of a billion dollars in revenue.

Okay, okay, thank you. A question on the DuraCase, so you were talking about expanding on the product line, could you elaborate a little bit more on that?

Yes, the DuraCase is a semi-captive solution that today we've built around on iPod simply because it’s the lowest cost iOS interface for deployments. We're getting a lot of interest in similar devices for Android. Because of the flavors and sizes of Android, the requests vary, but the interest is high.

Okay. And you can determine now with RAM Mount Systems doing a model for than the Android phones also?

Yes, we use some technology for RAM Mount for our connector and they are a partner, but we will be doing one for an Android form factor device by the beginning of next year.

Okay. And one more question is with your application partner starting to add store room inventory modules, do you see the DuraCase playing into this or it will be more the 7 Series scanners?

I think both.

Okay.

I think that we have different partners who are evaluating the DuraCase now that they have it in their hands. We have a lot of different interests coming from them on building interfaces for the smaller screen that are particular to doing inventory. So not just the application, but now that they know what screen they're targeting, targeting the application to the screen for the handheld inventory scenario.

Okay. And one more follow up on that is some of your retail point of sale partners I think they're quite large a billion dollar company, when we're talking the application partners [indiscernible] store room inventory models. Are these are ones revealing with where like I said as you might see it with some of the big name ones or are you looking at with some of the smaller ones?

We're dealing with the same mobile point of sale partners that we're working with today, who are expanding into inventory modules. So they’re getting the model business guy that inventory tool that he has been missing.

Maybe just to add to that David, I mean today there are people who I will say disassembled our cash register and reused our iPads and our scanner to do inventory. But you can imagine this gets old and then with the DuraCase there is a tendency to maybe leave that device in the store room and to do inventory in a more real time basis. So that would be a good expansion for us.

Okay. Well like I said I know you guys got some just really great partners with some of your more significant mobile point of sale developers. And if you can just get exactly, do you can get them to adding, so you get them into bars and restaurants and similar things you’re pushing a little bit more, if you open up some new markets for you?

Yes and that's the kind of layering that we're seeing now.

Okay, okay, thank you very much and congratulations on the quarter.

Thank you.

Thank you.

[Operator Instructions] And your next question comes from Al Troy [Private Investor]. Please go ahead.

Kevin, Dave, and James congratulations on a great quarter. I think everybody was a little bit surprised how well everything went. There was a lot of pessimism going into the quarter, but you guys surprised everybody and I am very pleased Kevin with the guidance that you have going forward in the fourth quarter and into next year, which sounds great for the company and growth going forward. Question is, there’s a couple of questions, one is there’s been tremendous increased volume in the stock that was trading over 100,000 two days in a row, do you guys have any idea where the buying is coming from?

The short answer is no.

That’s the shortest I get, okay.

Yeah, that’s the shortest you get. We could make it much longer, but the end result would still be no.

Okay, I understand that. And I suspect that there is some funds getting involved and if so that’s good…

Obligation to report…

Well…

So that…

On November 15 they have to report for the last quarter, so we will take a look and see what increased positions these people have. One other question I have is you mentioned that if all the shares are converted and there’s going to be like $5 million extra cash. So I think there’s possibility that there might be a dividend declare on the stock on the circumstances that everything is exercised and the company is loaded up in cash?

We would like to think that our growth will simply will need that for working capital.

Okay, also possibly long suffering shareholders might be good idea to have a little dividend and make everybody very happy, but congratulations. You guys did a great job this quarter. I’m very pleased.

Thank you, Al.

Thank you very much, Al.

And we have no further questions at this time.

Okay. We would just like to thank everyone for participating in today's call and wish you all a good afternoon. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation and you may disconnect.