Hello and welcome to the Q4 2019 Management Conference Call. My name is Johnny, and I'll be the operator for today's call. On today’s call we have Kevin Mills, Socket Mobile’s CEO and Lynn Zhao, Socket Mobile’s CFO. Before we begin, we'd 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 data collection and mobile data collection products, including details on timing, distribution and market acceptance of products and statements predicting the trends, sales and market practice and opportunities in the markets in which Socket Mobile sells its products. Such statements involve risks and uncertainties, and actual results may differ materially from the results anticipated in such forward-looking statements because of a number of factors, including, the market acceptance of sales opportunities may not happen as anticipated; the risk of Socket Mobile's application partners and current distribution channels may choose to not 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. At this time all participants are in a listen-only mode, later we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. And now I will turn the call over to Kevin Mills, Socket Mobile’s CEO. Kevin, you may begin.

Thank you, Johnny. Good afternoon, everyone, and thank you for joining us today. Our 2019 revenue was $19.3 million an increase of 17% over our 2018 revenue of $16.5 million. Our improved revenue combined with slightly better gross margins resulted in net operating profit before tax for 2019 of $500,000 compared to a net operating loss of $700,000 in 2018. Earnings per share based on net income $0.05 per share for 2019 compared to a net loss of $0.09 per share in 2018. 2019 was the turnaround year we expected and we were able to return to profitable operating levels in each quarter. As we look back at the entire year it is easy see where we were able to grow and where there is still opportunities for improvements and I'd like to provide the following overview of the business. Socket Mobile operates in two different market segments and has product families targeted at each market segment. Our SocketScan family of products which come in a variety of colors are primarily used by iPad based point-of-sale system providers and other indoor centric applications. In 2019, the SocketScan family of products represented 65% of revenue and grew 22%, driven by our partners like Shopify, Square and ShopKeep, to name a few. In 2019, the SocketScan family of products recovered all the ground we lost during the product transitions in 2018. We expect to see continued growth in 2020 in this category driven by increasing strength of Shopify and others. We believe we already have very substantial market share in this category. Our DuraScan family of products are weatherproof and ruggedized and primarily targeted at commercial industrial warehousing and outdoor applications and their associated customers. In 2019 the DuraScan family of products represented about 21% of our revenue but only grew at…

Thank you, Kevin. Revenue for the fourth quarter of 2019 was $4.6 million, with the gross margins of 53.1%, operating expenses of $2.2 million and a net income before income tax of $0.2 million. Revenue in the fourth quarter of 2018 was $4.1 million, with the gross margins of 50.3%, operating expenses of $2.2 million and the net loss before tax of $0.2 million. Net income after tax for the fourth quarter of 2019 was $0.1 million or $0.01 per share compared to a net loss for the fourth quarter of 2018 of $0.2 million or $0.03 per share. We continue to benefit from net operating loss carryforwards and paid zero state and the federal taxes in 2019. Net income before tax for 2019 was $0.5 million compared to a net loss before tax of $0.7 million in 2018. The non-cash stock option expenses increased our taxable income for 2019 and we recorded $0.2 million income tax, which was sheltered by net operating loss carryforward and they required the no cash payment. Our remaining net operating loss carryforwards at December 31, 2019, are expected to shelter future income of approximately $20.6 million for federal tax and $11 million for state tax. Our cash flow has improved as a result of the profitable growth. Our balance sheet at December 31, 2019, included cash of $1.0 million compared to $1.1 million at December 31, 2018. In 2019, we paid down the term loan from $0.8 million as of December 31, 2018 to $0.3 million at December 31, 2019. The current ratio, current assets divided by current liability was 1.4 at December 31, 2019 compared to a current ratio of 1.3 at December 31, 2018. Shareholders’ equity at December 31, 2019 was $13.2 million compared to $12.4 million at December 31, 2018. In early January, we’ve renewed the revolving credit facilities with our bank and extended the maturity date to January 31, 2022. Our credit facilities and profitability will provide the working capital we need to support future growth. Now I will turn the call over to the operator for your questions. Johnny?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question is from Alan Troy.

Hello.

Hi, Kevin. How you doing?

Good, Alan. You?

Okay, good. Thanks. Very happy to see a positive 2019, a nice turnaround with increased revenues and profitability, and I'm also very impressed with your guidance going forward for 2020. It sounds like it's going to be a good year. Do you have any plans to expose Socket to the investment community as far – I know you’ve hired a PR firm at the end of the year, so do you have any plans on that scale?

Yes, I think we’ll continue to reach out to the investment community. Obviously, telling the story on the back of a profitable 2019 is significantly easier than telling the story of when we were turning around and promising as opposed to having delivered. So, yes, we'll continue to outreach. Obviously, as part of the exercise, we want to get more associated with some of our customers like Shopify, who was doing very well in the markets and we provide a lot of scanners to them, right? But, yes, the plan is to continue to tell our story and see if we can see the benefits reflected in our share value.

That's great. I also saw on a Facebook post that you mentioned you're looking to hire more salespeople and technical people. Is that additional people you're hiring now?

Yes, I mean, again, I think that we continue to hire. We've been, I would say, optimizing our business model over the last few years so that we feel we're in a much stronger position and we continue to hire as we see the opportunity to add revenue. So, yes, we will continue to hire, particularly in digital marketing as well as in the software areas.

Okay. Okay. Thanks a lot.

Thank you.

Our next call is from Steve Swanson.

Good afternoon. Hey, Kevin, a couple of questions I had. The first one was how many of the S550 – how much of the S550 scanners have we actually shipped to developers? Is it 10? Is it 20? Is it a 1,000?

No, no, I would say, a number less than 50. So I think we're still at the stage where all of the hardware has to be working before you really engage with the developers. We do probably have what we'd call 20 highly technical developers that have been working with us to make sure the product will meet all the requirements. And some of these words and put them into programs that would drive sales. We're still very much in the end of the development phase. In today's world, nobody wants to write software unless the hardware is complete. In addition, we’re still, I would say, understanding all of the parameters associated with the Apple VAS and Google wallet based payment systems, which is all very new. And we have a lot of what I would describe as good technical partners, but I think that the number would be in the 50 range. And once we have that, any of those customers could drive demand for several hundreds, et cetera. So that gives you some scale of where we’re at.

Yes, thanks. I realize you've made an announcement that the device was ready and available to developers. And I was just kind of curious, was this something that's been – people have been clamoring for, but apparently not, it's early days of this, so this doesn't sound like a 2020 kind of a driver of anything. It's more maybe fourth quarter 2020 is when you might start selling some of these. So thanks for the feedback. Around 50 or less than 50 folks have actually got those in their hands, so I appreciate that. Thanks Next question I had was around inventory. It looks like we built inventory from the end of third quarter to the end of fourth quarter by about 26%. We went from about $2.5 million up to $3.2 million. Was that planned or is that – I was a little surprised that we went up that high in inventory.

Well, it's a combination. We did bring in some additional products from – and we are shipping a bit more by sea, so we do have more inventory. The other thing that's happening is that we do now have inventory ourselves at places like Amazon, where we can do fulfillment from our online shops. So the combination I think has added to the inventory. So we're comfortable with that. Even though it's not on our balance sheet, our inventory in standard distribution probably has fallen because we typically had $2 million in distribution that was not on our books, but – and that number is a bit lower. But, yes, we would keep inventory a little bit higher because the cost of shipping by sea is much less. Certainly, in today's, I would say, world, having a little bit more supply here is probably a good thing rather than a bad thing, especially due to supply constraints that seem to be more and more an issue on an ongoing basis.

Okay. All right, thanks. And I guess the last question I have for now is looks like we'll pay-off our term loan sometime in the middle of this year. And I'm wondering what we plan to do with the money thereafter that we're saving by having paid off this loan that we've had, we'll have extra cash hanging around and I'm wondering what we plan to do with it, if anything?

Well, we will certainly have a plan. I think that we used our reserves of cash back in 2018 when we bought back 18% of the company from the public markets. Basically we'd like to have some buffer, which I think we can generate this year and not be as lean on cash as we've been over the last few years. And certainly we will have a plan in 2021 as we start to generate a good amount of cash.

Okay. I assume we are not planning to make any stock buybacks in 2020.

That is a fair assumption. That is – we have no current plans to buy back any stock. I think …

I appreciate that and I hope that we did not do that. I don't think that's a wise move and so I'm glad to see or hear that we don't envision doing any of that in 2020. Okay. I appreciate that. I'll get back in the queue then. Thank you.

Yes, just let me maybe add one thing to the question on the S550, one of the things that is important to understand is that many of the things we're doing with the S550 were not possible prior to iOS 13. Because prior to iOS 13, the Apple Pay mechanism within an iPhone was exclusive to Apple. Apple have opened that up with iOS 13 so you could use it for various types of passes. So even though I think we have a locked on in the S550, we're still very early in this market, but we feel it will be a substantial market going forward. And that's why I don't think you'll see any revenue until the second half.

Okay. Appreciate that, Kevin. Thank you.

Thank you.

All right, our next question is from Allan Lines.

Hi. Good afternoon, Kevin, Lynn. A couple questions. Can you as far as revenue is concerned, how much this quarter was foreign versus American? I know it was very heavy last quarter because of Japan, but how did that shape up this quarter?

I think it was more back to normal. We had on the last call said that we might get some additional revenue from Japan because they extended the days and that really didn't happen. I would say on the annual basis, we were 74% domestic and 26% international. We were – probably along those lines in Q4, in Q3 we did have an additional I would say 4% to 6% international because of Japan and also because of Europe. But on an annual basis it's 74%, 26%, and we did international was weak in Q4 relative to Q3.

As far as some, I remember last quarter you mentioned that you were seeing some what caused maybe not to read what you were looking for, that there was weakness in small business purchases, says that weakness subsided in the fourth quarter. And how do you see a path forward?

Well, I think that we generally expect December and January to be the weakest months of the year relative to the mobile point of sale portion of the business. That's generally because people don't apply cash registers in that period of time. We do have some more color based on surveys and other stuff we've done. So now we understand that about 50% of our scanners are sold in conjunction with the point of sale system at the same time and 50%, sometime afterwards up to a year afterwards. We certainly lose out in December and January and certainly small businesses tend to be busy during this time. And I think that's a trend that will continue. It's not true of the other elements of the business. And I think as point of sale continues to fall as an overall percent, we'd have less of that seasonality. We have seen what I would describe as a typically week January and we do expect and are seeing a much better strength in February. So I think things are rolling out as we expect.

Could you talk a little bit about the marketing implementation by Delfin? How is that coming along?

It's okay. I mean, I think that we still struggle to get recognition. I think we've made a bigger effort to get recognized in the membership card reader because it's new and exciting. And they've outreached and we've had more interest from retail and magazines and retail organizations based on this. And I think that the plan is basically to continue to, I would say market in the digital space and get associated with some of these new initiatives. And I think that in turn will lead to people having an interest in the company and the stock. I think the story was certainly not as strong in AA in 2019 coming off the back of a week 2018. And it's an easier story to tell now and we'll work hard to do that.

Okay. Are you still pursuing our marketing person to replace James Lopez. I know.

Yes, So we've struggled this area. I'm happy to report that we have a new person starting as Director of Digital Marketing at the end of this month. It took us time to find the right person, but were happy with the person who will be on board and that will be a big focus for 2020.

All right. Okay. The last question. I guess, you talk about obviously and I think that's going to happen, improve the revenue and profit. Do you, is it unreasonable to expect that you could – it could mean at least a 20% revenue growth in 2020 or you're not going to talk about it yet?

I think that we would be, I think we can maintain our current momentum and I think that as a target, those are the type of ranges we would like to be in. So, but I think I'd be happier to talk about us middle of the year when certain things have happened. Right. So, but I – I don't think those are unrealistic expectations.

Okay. Okay. Well thank you. Looking forward, to a much improved to 2020.

Thank you.

At this time we don't have any further questions. [Operator Instructions] And it does not look like we have any further questions at this time.

So I'd just like to thank everyone for participating in today's call and to wish you all good afternoon. Thank you.