Socket Mobile Inc (SCKT) 2007 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Socket Communications, Inc. doing business as Socket Mobile, Inc., Second Quarter Management Conference Call. At this time, all participants are in a listen-only mode.

(OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

It's now my pleasure to introduce your host, Mr. Jim Byers with MKR Group. Thank you; Mr. Byers, you may begin.

Thank you, Operator; good afternoon and welcome to Socket's conference call to review financial results for its 2007 second quarter. Online today are Kevin Mills, President and Chief Executive Officer of Socket, and Dave Dunlap, Chief Financial Officer.

After the market closed today, Socket distributed its earnings release over the wire service and has also posted the release on their website at www.socketmobile.com. In addition, a replay of today's call will be available at vcall.com shortly after the completion of this call, and a transcript of this call will be posted on Socket's website, typically by this Friday. We have also posted replay numbers in today's press release for those wishing to replay this call by phone. The phone replays will be available for one week.

Before we begin, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933 as amended, and Section 21(e) of the Securities Exchange Act of 1934 as amended.

Such forward-looking statements include, but are not limited to, statements with respect to the introduction, volume shipments, distribution, timing and market acceptance of Socket's new handheld mobile computer products, statements regarding Socket's ability to be a one-stop provider of hardware systems in its markets, and other statements predicting trends, sales and market opportunities in the markets in which Socket sell 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 the introduction or volume shipment of Socket's new product may be delayed or not happen as predicted, if ever, due to technological, market or financial factors, including the availability of necessary working capital, the risk that market acceptance and sales opportunities may not happen as anticipated, the risk that the Company's integrator program and current distribution channels may not choose to distribute the new product or may not be successful in doing so, the risk that acceptance of Socket's new product in vertical application markets may not happen as anticipated and other risks described in Socket's most recent Form 10-K and 10-Q reports filed with the Securities and Exchange Commission.

With that said, I will now turn the call over to Socket's CEO, Kevin Mills.

Thanks Jim. We made solid progress in the second quarter with our strategic transition from a peripheral supplier to a one-stop supplier of mobile computing systems, and we continue on track with our planned rollout of our new SoMo 650 handheld computer.

We achieved our primary objective in Q2, which was to move the SoMo out of the development phase and into the volume production and shipping phase. Earlier this month, we announced that we began shipping units to customers and are pleased with the strong initial demand. This included pre-orders in excess of 1,000 units placed prior to general availability.

Socket has targeted New Life as a systems company, and we are now shipping the SoMo as the primary focus on moving shipments into the sales distribution channels.

While the initial market response to the SoMo has been extremely positive, it's important to note that our sales rollout is now entering the first stage of the customer evaluation phase. Initial orders have primarily been from companies seeking to evaluate the handheld device and determine its suitability as a solution for their business mobility needs. The initial 300 units that were shipped at the end of June fall under this category, and most of the units we will ship in Q3 will also be in this category.

To give some color on this process, while the evaluation period varies between companies, we expect the average evaluation period to be approximately 90 days in the current environment. During this time, customers will test the device to determine if the SoMo is the right handheld for their mobile applications. This is not an overnight process. as corporate mobility purchasing decisions generally require pilot programs, software development, and field trials. The purchase decision is made after testing and verifying the overall system.

We are very much aware that as part of the first step in the evaluation process, many customers want to walk a mile in the shoes prior to committing themselves and/or their organizations to a particular device. However, the evaluation process and adoption cycle is working well and proceeding as planned, and we are encouraged by the high level of customer excitement we are seeing.

We are also encouraged by the current favorable market environment. The introduction of the SoMo 650 coincides with the vacuum created by Dell's decision to phase out their Axim handheld device. As a result, existing Axim customers are accelerating their normal evaluation timeframe, which we believe will make their evaluation periods shorter than usual. While we expect to see a shorter-term benefit by many of these customers, we expect it will take a minimum of two quarters for the overall SoMo evaluation phase to run its course.

During Q2, we also made solid progress in strengthening our sales team, another initiative that will support our rollout of the SoMo and better position Socket for long-term success. We significantly strengthened our sales team with both sales management and sales engineering resources in North America and Europe by adding experienced mobile system professionals with significant relevant expertise. We are very pleased with the excellent sales background of the individuals we have brought on board, and believe our strengthened systems sales team is optimally aligned with our new and emerging systems focus.

Our sales team will be able to work closely with our numerous potential and existing customers during this early SoMo evaluation phase. The team we have in place has considerable experience and a proven track record that will help us grow and manage the business while the SoMo enters volume production.

We also recently announced two new partner programs to support authorized resellers. We officially launched our Vertical Industry Partners Program, our VIP Program, in late Q2 to coincide with the launch of the SoMo 650. The focus of this program is to strengthen our relationship and level of support for our key vertical software providers. The combination of our SoMo handheld and our VIP Partner software will enable end-user corporate customers to drive the mobility productivity gains they are seeking.

We also announced our Socket Care Program, which is a service program that provides customers with quicker technical support levels and generally accelerated responsiveness. This is a crucial element in business-critical mobile applications.

Moving to Q3, we expect to ramp up production of the SoMo unit, continue to deliver evaluation units, and work closely with customers to demonstrate the value of the SoMo 650 as the solution supply for their mobile application needs. Put simply, we're moving into the second half of the year to close business and enhance the revenues through the sales of complete systems, which we expect to be a significant contributor to revenue in the second half of the year.

In conclusion, we are on track with our transition to a systems-centric Company and believe we are well positioned to capitalize on the emerging business mobility market. Our modest improvement in Q2 revenue was in line with our expectations, and we have an improved outlook for the remainder of 2007.

With that, I would now like to turn the call over to Dave for his comments.

Thank you Kevin. Our revenue for the second quarter of 2007 was $6.3 million, up 14% compared to revenue of $5.5 million in the preceding quarter, but was down 7% from revenue of $6.8 million for the same quarter a year ago.

Data collection peripheral sales were at a record quarterly revenue level of $3.3 million, or 52% of total revenue with our compact flash plug-in laser bar code scanner and our cordless hand scanner with Bluetooth wireless technology continuing to be the largest-selling products.

The primary growth driver in the quarter was our OEM business. We sell Bluetooth and wireless LAN modules and cards to OEM customers to be built into industrialized mobile handheld computers and other mobile electronic devices. OEM sales in the quarter increased to $1.8 million from $1.1 million in the previous quarter, and represented 28% of our quarterly revenue.

Many of you will recall that our OEM sales dropped in the two previous quarters due to the detrimental effects of price competition that affected sales volumes of several of our OEM customers. This condition stabilized by year-end and was recovering in Q1. Looking forward, we expect our OEM product family to continue to grow from the availability of new wireless LAN modules and cards and a new generation of Bluetooth wireless modules.

Looking forward to the second half of this year, we believe that our most promising revenue growth opportunity will come from sales of our new SoMo 650 and Dell mobile computer. As Kevin mentioned, we achieved our objective in the second quarter of completing development of our handheld computer and moving initial products into our distribution channels. Handheld computer revenue in the second quarter was less than $100,000, or about 1% of revenue, as expected, and we are now ramping up production to fill the growing demand for this product.

Finally, our connectivity and serial product family revenue in the quarter was $1.1 million, or 19% of total quarterly revenue, which was similar to our first quarter revenue levels for these product categories. Our serial and connectivity products support specific customer needs, and results will fluctuate from quarter to quarter as those needs require.

Our revenue backlog as we entered the third quarter, which consists of orders on hand at the end of the quarter that are shippable in the following quarter was also at record levels of $1.9 million, reflecting SoMo handheld computer orders and growing OEM orders.

As a general comment on revenue, our annual revenue for the past two years have been flat at about $25 million per year, in large measure due to delays in product availability and uncertainties caused by model and operating system changes to handheld computer by third-party handheld computer manufacturers. Handheld computers are an essential part of many of the productivity-enhancing solutions that VARs and integrators offer their customers. These solutions have historically consisted of a handheld computer, our data collection and network connectivity peripherals, and vertical application software.

We began the first half of 2006 with two consecutive record revenue quarters, but the second half of last year was impacted by declining handheld computer availability as Dell commenced the phase-out of their Axim handheld computer. The availability of our SoMo 650 handheld computer should return stability to the underserved handheld computer market space, enabling businesses to move forward with their deployment.

We were further impacted in the fourth quarter of 2006, and that impact carried over into the first quarter of 2007 by price competition and the industrialized, ruggedized handheld market to the detriment of some of our OEM customers. Market conditions have now returned to normal, and our OEM business is growing.

Our quarterly gross margin in sales has historically fluctuated within narrow ranges from 47% to 51%, largely determined by product sales mix and the levels of discounting built into our volume pricing structures. Our gross margin in the second quarter was in the middle of this range at 49%. As is typical with new products, our gross margins on the SoMo product, which is above 40%, should improve over time, but any significant growth in this product category as part of the overall revenue mix may reduce our overall margins by a few percentage points.

Our second quarter expense of $3.8 million compared favorably to our first quarter expense of $4.1 million, and to our second quarter expense a year ago of $3.9 million. Compared to the first quarter, our research and development expense is down as we substantially completed development of our SoMo 650 handheld computer in the first quarter, and general and administrative expense is down as the first quarter contains most of the cost of our annual audits and also some expenses of our first quarter move into new expanded facilities.

Our sales and marketing expense in the second quarter is up, reflecting growth in our sales force and some increased marketing expense as we ramp up sales and marketing activities for the SoMo 650 and other Socket products.

Our balance sheet at the end of June remains strong. Cash at June 30, 2007 was $5.9 million, up from $5.2 million at March 31, 2007. Despite our operating loss, we generated cash from operations in the second quarter of nearly $300,000 and have generated $1.5 million in cash from operations over the past ten quarters, primarily from working capital management. Our cash at June 30, 2007 includes a bank-line draw of $2.3 million and a $500,000 term loan with our bank that we completed in June that will amortize over 36 months. We believe we have adequate cash and working capital to launch and support our handheld computer and to expand our sales.

Socket has highly-leveraged business models; 80% of our business flows through general distribution channels. We have in place the infrastructure needed to manage our distribution channels, so much of the contribution from higher sales volume will flow through tot the bottom line.

We also contract with third-party contract manufacturers to build the major components of our products, and so higher volumes generally reduce our product unit cost. Our objectives and our expectations are to continue to ramp up sales with the objective of a return to profitability and positive cash flow over the next several quarters.

We continue to take opportunities to present our evolving story to investors. Earlier this month, we presented at the C.E. Unterberg, Towbin Emerging Growth Conference in New York City. The webcast of this presentation remains available on Socket's website. Next week, on July 30, we will be presenting at the Security Research Associates Growth Stock Conference in San Francisco, and on September 20, we will be presenting at the America's Growth Capital Emerging Growth Conference in Boston. We look forward to updating investors as our progress continues.

Now let me turn the call back to the Operator for your questions; Operator?

Thank you sir. (OPERATOR INSTRUCTIONS).

Dick Siracusa, Merrill Lynch.

Hey Dave and Kevin, in looking forward, when you look at your distributors and your vertically integrated partners, which ones, what are your expectations from let's say the top three or four, and what sectors are they in?

Okay, first of all I mean the primary drive of the business is coming from our VARs and integrators. I would say the main sectors we are seeing right now is a combination of retain merchandising, which covers a number of people we are already serving.

An example I might give you, we have one customer who has purchased over the years something in the region of 4,000-plus scanners; the application is rather simple. It's an inventory control application; they get their employees to do at the end of every day in every store they operate. And the main purpose is to reduce shrinkage or loss either by public theft or employee theft. So that scenario they're looking at the SoMo obviously as a replacement; they're currently a Dell customer. And healthcare is an area where we continue to have a lot of strength as is the automotive area where people are using bar codes and VIN numbers to control cars.

And overall Dick, I would say we're still early in the process. We have a lot of units out now in evaluation. Of the 300 units we shipped in Q2, none of them were really for deployment, so we believe that we have over 200 different companies looking at the SoMo who have bought one or maybe two, and we expect during Q3 to get their feedback and people will proceed with SoMo after their initial testing.

Has the enthusiasm at St. Clair Hospital by the nurses and the people who are putting that system in, has that enthusiasm expanded interest in the hospital market in general?

I would actually say it has not. I would say what we have, though, is we've got very enthusiastic report back from a number of different sources, and I think that the word is spreading that the device is very well accepted. But I think because a lot of these companies are putting a lot at stake and they view other people's opinion rather skeptically, and they want to basically test and verify themselves. But we've got excellent reviews from a number of different sources, particularly with our wireless LAN and the available memory and the speed of the processor, so we are quite pleased with where we are in the process. But I would point out that it is a process.

Do we have proposals out there in the hospital market?

We aren't the ones that would get the proposals-- .

I know, I mean your VIP's?

Yes, our partners have a number of proposals, and again, those proposals some of them have been updated, some of them are being updated to propose the SoMo as the handheld of choice.

Okay, thank you.

Thank you very much Dick.

(OPERATOR INSTRUCTIONS).

Kevin Dede, Morgan Joseph.

Hi Kevin.

Hi Kevin, how are you?

I'm great; thanks for taking my question. I apologize, I may have missed the initial comments regarding this topic, but I just wanted to hear from you on how well new products are being received as you see it versus your initial expectations.

I would actually say the product is being better received than our initial expectations. I, we shipped about, we shipped 300 units in Q2, and those went primarily to people doing the evaluations. I would say that 200 individual companies, so we're getting feedback. The feedback is extremely positive. We got a great opportunity to expose it at the Microsoft Partners Conference.

So overall, I would say we are very pleased. Our timing is good in that there is a number of highly-motivated customers who had standardized on the Dell Axim that are aggressively looking for a replacement device. But I think we need to be cautious. People have businesses running on these types of devices, and they tend to be cautious, so we think it will take one or two quarters before we get up to full speed here, but I would describe our position as being, if it was golf, we were in the fairway, off the tee, and we're off to a good start, head start, and we're probably in terms of our initial expectations, I would say the market reaction is more positive than we expected.

Oh very good, that's good to hear. Can you just review for me the product roadmap as you plan to increase its functionality? I remember you talking to designing a product that you could ensure your customers would be in the market at status quo for a long time so they knew there would be long-term support for it. I just want to understand exactly how you plan on completing the product line.

Well, we continue to make what we call a base product, and the SoMo 650 is the first in a family of products. That means people would have the option to add peripherals, whether it's the RFID or 2D scanning or 1D scanning, etc., as they need to service their mobile application.

The plan is that the SoMo 650 with Windows Mobile 5.0 would be available for three to five years. We would expect in the beginning of next year to have a version of the same platform with maybe Windows Mobile 6.0, and then we will have follow-on products next year. I think one of the things that will be a marked difference in our approach to market is that we will allow customers to migrate their applications at their pace rather than at the manufacturer's pace, which has been historically a problem.

If you start on a 5.0 device, as we have customers now evaluating, and their customers in turn have selectives, and they want to run with that 5.0 that run, everything is tabled for three to five years, we continue to be able to shift that device with that OS. And we'll also provide a migration package 6.0 so if they did want to switch to 6.0 that would be possible but it won't be forced upon them.

And then based on the feedback we get, we are looking at follow-on products already that we would bring out in 2008 that would address other aspects of this market. But we're really focused on the business mobility market. We want to basically hold the position and enhance the position we have, which is between what has traditionally been the consumer markets and the industrial markets, and we believe there's a lot of business in there and we're going to stay focused on that.

Do your plans ever really include incorporating wide-area network functionality?

Well, there will be ways to provide some wide-area access, whether it is via Bluetooth, via mobile phone, or plug in an expansion card, and we already have customers who are looking to plug in a compact flash wide-area radio into the SoMo.

But in terms of our focus, we believe that the non-cellular based phone device market is somewhat abandoned, and it's our desire to service that. The difficulty with putting a wide-area radio is not that it's technically challenging.

You just have to go through a certification process which is-- .

Well no, but it changes your business more, and therefore now the expectation is people expect you to sell it as a subsidized device through a carrier channel, and that basically confuses the business model. And we're basically going after what we call [quality] in business who have dedicated applications, many of whom do not want the mobile phone because they're in a restaurant, in a hospital, they've got their own building coverage, and our device could support voice-over IP that a high-quality wireless LAN radio.

So again, we're not trying to make an all-singing, all-dancing device; we're going to be very targeted at the people at the moment that don't want the mobile phone, which we view as being a smaller market, but still a $1 billion market that we feel has largely been abandoned by the large players like H-P because the phone-centric market is $10 billion, $20 billion, and so their focus goes after the bigger price. We can live quite happily and do very well on $1 billion market that we feel that we could really, over time, take a leadership position.

What do you have to do on the software side to accommodate a wide-area radio? You mentioned, what is it, the [FT] slot?

Again, there is compact flash slots that you can plug in a wide-area radio into and get yourself a connection, and you can use that networking over a Bluetooth link and use your mobile phone as a battery-powered wireless modem, if you will, and get wide-area connection.

So there is no real technical issue; the issue is that people have a perceived value of a mobile phone costing $49 with a service plan. And they expect to buy it through a carrier and they expect it to be subsidized, and it's complicated. And again, we believe that there is more than enough business in the area of people who don't want the mobile phone, and if we run out of room there, we can readdress the question, but I think we'd be an awfully big company by the time we run out of room there.

Okay very good; well thanks for entertaining my questions Kevin, and congrats on your great acceptance.

All right, thanks.

[Steve Kruger, Foresight Investing].

Good afternoon; Kevin I wonder if you could provide a little more granularity on the $1 billion market opportunity; you mentioned several different vertical markets. Please give me an idea how you get to $1 billion and what portion of that you attribute to each of the three or four larger verticals that you've mentioned.

Okay, so how do we get to $1 billion; essentially, what -- we've been in the market quite some time and we agree with these numbers, but the numbers that we cite are actually from Gardner. Gardner explains that in 2007, there will be 20 million handheld devices, of which 70% or 14 million will have mobile phone capabilities built in and 6 million will not. Of the 6 million that are not mobile phone-centric, 50% are used in business applications, or 3 million units, which equate to about $1.2 billion. So that's where the number comes from to start with, all right.

And where do these units go; and I think that we've seen a number of small or dedicated industries where these go, areas like nursing is certainly a big area whether it be existing home healthcare, as well as other types of control processes. Today, we would estimate that retail merchandising is probably the single largest category, and in that you have people who are monitoring food supplies as well as promotional type activities, and restocking shelves, etc. But that alone is probably 500,000 or 600,000 pieces worldwide.

On an annual basis?

Yes.

Okay.

All right, and then there's a lot of other areas where we see handhelds going, but the general classification Steve, I would put these thing in is people are using them to control or monitor a process. I can give you many examples. We sell about 50,000 modems a year into the retail, or into the category of retail merchandising where the people are just going out, monitoring something, coming home to their homes, and then uploading the information.

Again, there is no single homerun here. This is a number of, I would say, different verticals implemented in the 300 to 500, 1,000 to 1,500-type categories that add up to a big number. Our largest customers, we probably have a few customers -- I mean one I can cite operating a retail chain that has 4,500 of our scanners, and the only thing they use them for is checking inventory at the end of each day; the device is not used during the day, and there's lots of examples.

But it all comes down to small/medium deployments that are process control, where people are using it as a way of verifying price lookup, and verifying medications, etc.

I don't know if that gives you enough color, but it's not just one single market; it's all software driven as well.

Yes, that gives me a very good idea. I wonder if you could also give me a little bit of flavor on, for a couple of these larger pieces, retail merchandising and nursing medication monitoring, how do you sell the value proposition? How do your OEMs sell the value proposition of this solution How strong, give me a sense of how strong the value proposition is. Is this something that, "Well, we'll think about it", or "This looks good" or "This is fantastic; let's go into the bank and borrow the money to do this"?

All right, so I would say -- again, it's not just one size fits all in terms of an answer. I think the driving force in the healthcare market is the rate of errors and St. Clair Hospital, who I would describe as a leader in this have done a very good job of explaining both the benefits, the healthcare benefit and the financial benefit of a hospital that undertakes this initiative.

But just to give you some color, St. Clair, when they proposed this system two years ago, believed that they would find -- and they were making about 600 errors a year in terms of dispensing medication -- when they put in the system, they were making 5,000 errors. And that 5,000 errors, and a small hospital of 300 beds dispense about 1.3 million medications. And if you do a calculation of the 5,000 errors, about 3%, or 150, were causing what they call "serious complications" and the average cost to the hospital of correcting those complications was around $6,000. So it cost about, it would cost the hospital about $900,000 a year just to fix their own mistakes. The entire system cost them $600,000. In addition, they improved healthcare and they were able to go real time and they significantly improved the quality of care.

So that's a pretty easy one.

What evidence do they have on the error rate now? How significant was the reduction in the error rate? Have they gone back and sort of audited the performance of the system at this point in terms of errors?

Well, I think the error rate continues to fall, right? There are two reasons; one is that as you use these systems and people get used to it, you end up with more checks in the system, right? But they continue to have error rates that I think are falling, and they were named as one of I think 16 hospitals -- no, they were named as one of 16 hospitals that actually conformed to the (inaudible) medication that the government is trying to get every hospital to do over the next few years.

So there is strong evidence that what they are doing is making a significant difference, right, and I think part of what we want to happen is that is replicated in as many of the hospitals. But the decision to do that takes a little bit of time.

A lot of the other processes are actually driven by error elimination, and probably a good example is we have a lot of medical representatives -- not medical representatives -- wine and spirits representatives using our device. Someone like that has 4,000 to 6,000 SKUs. What happens is they make mistakes and the send the wrong bottles of wine or the wrong type of whiskey and then they have to deal with the RMAs. Then they find it's much cheaper to automate the input process using a PDA and a scanner to eliminate those errors.

So there are different driving forces, but the other things that I'd point out Steve is that there was a time not too long ago with the, where the response to a question, an acceptable response to a question was "I'll get back to you on that", and today in business, that really isn't an acceptable answer. Most people in a service, or a sales/service type of situation, the expectation is that they can get information or have information more readily and a PDA is a very convenient and motivating way of carrying that information around.

Steve, you might enjoy going to the partner section of our website. We've listed there about 100 of our partners with a brief description of their applications. All of these partners are selling their applications, along with Socket's peripherals, and many of them will add the SoMo device as part of the handheld solution. And there's also I think some 16 case studies we characterize as success stores that talk specifically about productivity enhancements and other benefits of those particular applications.

So you'll get more color if you -- and it's in the partner section under SocketMobile.com.

Okay, and what portion of the vertical industry partners that are promoting SoMo were already vertical industry partners of yours?

I would have to guess -- I haven't actually calculated that -- but let's say 80%-plus.

Okay.

Most of them are familiar with our products, and they were already selling our scanning peripherals prior to selling SoMo.

Yes, we're not changing solutions that customers are buying; we're simply providing the opportunity for our SoMo 650 handheld to become a second piece of that solution, and so instead of just our having the peripherals, we now can have the peripherals and the handheld.

At the same time, we're not leaving the, eliminating the support for other third-party handheld devices, so if customers are dedicated to an H-P unit, they can still buy our peripherals and use them with the H-P unit. So the SoMo is strictly additive, but there are a lot of advantages to people looking to a single vendor for an integrated product, plus we believe SoMo 650 compares very favorably to the units that are primarily designed and focused for consumer use. So we're expecting that businesses will like the SoMo on its own, regardless of the fact that it's from a single manufacturer.

Okay great, thank you very much.

Dick Siracusa, Merrill Lynch.

In the case study that you just mentioned, or in what you've seen so far, what timeframe are we talking about as far as ROI goes? General question.

Well, I don't know; whose ROI are you talking about? Are you talking about the end-user customers?

Yes, the actual, the St. Clair Hospital.

Their ROI is nine months, but we've done a number of case studies. I would say a better way to look at it is that we don't have exact numbers in ROI but what we have is we've been repeatedly told by customers when they implement the mobile solution, they see productivity gains that range between the high-20s and 40% in terms of the efficiencies that their current workforce is getting.

A lot of the issue is elimination of mistakes, or the ability to get something done quicker. And I give you just one example; we have one company that was auditing cars in a large dealership. It used to take three people basically almost three days, two-and-a-half days because they would have to write down all the 17-digit VIN numbers, and by the time you get to the end and people have errors in their transcriptions, etc., it was very difficult. Plus people then would start to move the cars because it was a long time. They got to a situation where they take a PDA and they walk, they scan all the cars and they consolidate in Excel and it takes them less than four hours.

So the productivity gain there is enormous; you've gone from a situation of basically putting something that was essentially six man-days into a half a man-day, which is 12 times, and we see lots of those, but it's really hard to say the exact ROI, but I would say most people are seeing an ROI in less than a year.

Yes okay, very good, thank you.

Thanks Dick.

Steve [Swanson], a private investor.

Yes hi Kevin; we've had a lot of R&D costs to ramp up to get the SoMo out the door. Are those R&D costs going to be ramping down over the next couple of quarters, or are they going to stay where they are?

Generally speaking, I think that we manage our R&D expenses reasonably well, I think that we bumped it up a little bit with the SoMo; we added about 300,000 or 400,000 in Q1 and Q4, and maybe a little bit more. I think that we would expect if we're going to do a follow-on product that the R&D levels would remain at those levels so that we could bring out more products in 2008.

So I don't think we're going to pull away from this; I think we're investing in this market segment. We believe there's a lot of headroom, and I think we will continue to be I think sensible with our R&D dollars, but I think we will continue to invest -- I wouldn't describe it as aggressively but I think with a good level of dollars behind our initiatives.

Okay thanks, and the other question on sales and marketing, are we as a sales organization trying to seek a purpose for this new SoMo and we're kind of where we need to be on sales or do we still have some reorganization and tweaking to go on with that?

No, I think we've made tremendous headway in the sales and marketing organization during Q2. I think Bob Zink came on board on April 1, and we have reorganized to be a system-centric type sales organization. We've managed to hire some very talented people, and I would say you're never done, done but I would say we're 90% of where we want to be, and that we have the major players that we want on board in the positions we want them. So in that score, I think we've done a tremendous job in Q2 and again, as the organization grows, as the revenues grow, so will the organization, but I think we're actually in pretty good shape on that score right now.

Okay, thank you very much.

We'll now turn the floor back to management.

Thank you very much. So I'd just like to close today by thanking everyone for joining us and for your continued interest in Socket Mobile, Inc. and wish you all a good day. This concludes our call; thank you.

Ladies and gentlemen, you may disconnect your lines at this time. Thank you for your participation.