Socket Mobile Inc (SCKT) 2015 Q3 法說會逐字稿

Greetings and welcome to the Socket Mobile third-quarter 2015 management conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Jim Byers of MKR Group. Thank you, Mr. 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 ended September 30, 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. 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 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 in 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 risks that manufacture of Socket's products may be delayed or not rolled out as predicted due to the 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 recent Form 10-K and 10-Q reports filed with the Securities and Exchange Commission. Socket does not undertake any obligation to update any such forward-looking statements.

And now, with that said, I would like to turn the call over to Socket's President and CEO, Kevin Mills.

Thanks, Jim. Good afternoon, everyone, and thank you for joining us today. We are pleased to report a solid increase in operating profit for both third quarter and first nine months, both sequentially and compared to last year, reflecting the continued growth in revenue from our cordless scanning business.

We achieved net income for the quarter of $530,000 or $0.10 per share, which is up 23% year over year and up 32% sequentially from the preceding quarter. For the first nine months, we achieved net income of $859,000, which is almost double our net income from the same period last year.

During the third quarter, our barcode scanning business generated record revenue of more than $4 million. This is up slightly from both preceding quarter and from Q3 a year ago and represented 88% of our total revenue for the third quarter.

These results reflect growing demand for our cordless barcode scanners for mobile points-of-sale and other mobile applications marketed by our growing community of registered application developers and driven by the expanding mobile point-of-sale market.

The decrease in our total revenue for the third quarter and nine months was solely due to lower revenues from our SoMo business, which has been in decline over the past several years.

As I have noted before, the primary driver of our scanning revenue continues to be the smaller retailer locations. These customers deploy individual applications with mobile points-of-sale being the leader and purchase our data collection products as part of this deployment. Typically, we see customers purchasing one of our 7 Series scanners via one of our many online resellers, with Q2 and Q3 being our strongest quarters. This is what we saw in the third quarter.

There were two minor events in Q3 that caused our scanning revenue to be a little lighter than we expected. Apple made their annual iOS change during the quarter, and many companies ended the quarter on October 2. I want to note that both these minor events essentially amounted to a delay in revenue, which has already been picked up in October.

Apple's iOS changed in mid-September. As expected, we saw a decrease in sales activity between the time Apple first announced their planned announcement date and when they made the actual announcement.

During this time of uncertainty, when customers know the change is coming but are unsure of the actual details, there is a strong tendency to wait on any purchasing. We saw normal sales activities resume once the news became public and customers were able to confirm everything was still operating as before. Last year, this iOS change occurred in October, not September, which impacts the year-over-year comparison of our results.

While we obviously plan around this annual event, we cannot be certain of the actual timing. We released an updated SDK for iOS 9 about four days after the OS was available, thereby guaranteeing our development partners we would be able to use the latest and greatest for their development work.

The other minor event which impacted revenue in the third quarter was the fact that many companies ended their third quarter on October 2, which resulted in Socket missing out on some of the normal quarter-end push.

Neither of these minor events impacted the overall health of our business and amounted to a delay in our capturing this revenue. Aside from these events, our business operated very much as we outlined in our previous conference call.

From an operational standpoint, we have optimized our business model to support the data capture requirements of mobile applications used by businesses on mobile devices, which are marketed and distributed online. To maximize opportunities in this online and app-driven world we now live in, we have focused on our Web-centric marketing activities and have improved our website substantially over the past few quarters. We now have fully operational websites in Japanese, German, and French, making it easier for our app-driven customers to add scanners to their solutions in these regions.

In addition, we continue to maintain careful control of our expenses and improve our efficiencies so that a higher percentage of our revenue falls to the bottom line.

As we move into the fourth quarter, here is what we expect. We are seeing a strong October driven by our mobile point-of-sale scanning business. In November and December, we expect to experience the typical slowdown we see in mobile point-of-sale deployment that is related to the holiday season and which extends into mid-February. However, at the same time, we expect to see additional business activity this quarter that we believe will contribute to a much stronger Q4 than last year.

In Q4, we expect to see more activity from inventory-driven applications as companies get ready for their year-end processes. While this currently represents a much smaller portion of our overall scanning business, we expect to see growing revenue from this segment as developer activity in the inventory category continues to grow.

This added revenue will serve to counter the seasonal declines in mobile points-of-sale, which we typically experience during the winter months. In addition, we expect to see stronger demand in Q4 from many of our pharma-based customers, who have historically showed a preference to purchase in the fourth quarter.

In total, we expect our net scanning revenue for Q4 to be down sequentially from Q3, but up compared to the fourth quarter last year. In Q4, we also expect to ship the first part of our $1.6 million SoMo order that we received in the second quarter. When combined with our normal SoMo shipments, we believe this will more than offset the declines we anticipate in our scanning business. As a result, we expect to see a much stronger fourth quarter this year than last year, and we expect to maintain profitability.

We have made solid progress this year establishing a strong position in the emerging mobile phone and tablet-driven data collection market, with mobile point-of-sale leading the way. We optimized our business model based on the new online app-driven deployment model, achieved solid profitability, and substantially increased our net worth. And we remain very focused on continuing these positive trends in 2016.

Looking ahead to 2016, we are very confident in the continued strength of our scanning business, driven by an increasing number of mobile application deployments. As part of our strategic plan, we also see a significant opportunity in the data capture market, representing an equally large opportunity for Socket as scanning.

To further leverage our capabilities and capitalize on this opportunity, we plan to broaden our product portfolio to include other data capture technologies such as RFID and NFC. We plan to announce these products starting later this year and into early 2016, enabling our development partners to support these electronic exchange data formats, which we believe will be used for loyalty programs, identification, and many other beneficial programs.

We expect to provide these products with the appropriate SDKs to our growing developer community, so they can deliver the applications their customers are demanding. And we look forward to making further announcement in the near future.

With that said, I would now like to turn the call over to Dave for his review of the financials. Dave?

Thank you, Kevin. As an overview, our third-quarter and nine-month financial results reflect sequential improvement in our operating results, including a third-quarter profit of $530,000 or $0.10 per share, up from a profit of $401,000 or $0.07 per share in the preceding quarter and a profit of $432,000 or $0.09 per share in the third quarter a year ago.

In the just-completed third quarter, our total revenue of $4.5 million was flat compared to the previous quarter, but with 2% growth in barcode scanning revenue sequentially and with 4% growth over the third quarter a year ago. Our SoMo handheld computer revenue continued its downward trend. We achieved higher margins of 49.5% from a combination of component price reductions and improved manufacturing efficiencies, up from margins of 47.2% in the previous quarter and margins of 43.6% a year ago.

We maintained operating expenses of $1.6 million in the current quarter, flat with the previous quarter and with the same quarter a year ago, and moderately reduced interest expense from $80,000 to $63,000 by reducing our debt balances outstanding during the quarter.

Stockholders' equity at September 30 increased from $1 million at last year end and $1.6 million at June 30 to $2.243 million at the end of Q3, with growth in net capital driven primarily by profitable operating results. We generated approximately $680,000 in positive cash flow from operations during the quarter.

We use the cash in multiple ways. A portion we use for working capital. We invested in a new accounting and operations management ERP software system that will further improve internal efficiencies and support future growth. We also invested in tooling for new products that will commence shipping in the first half of 2016, and we paid down a portion of our debt.

Now the details. Our third-quarter revenue was $4.5 million. Cordless barcode scanning revenue for the quarter was a little over $4 million or 89% of this total, with the balance attributed to sales of handheld computers and service.

Cordless barcode scanning revenue for the nine months was $11.4 million or 88% of our nine months' revenue of $13 million. Cordless barcode scanning revenue continues to grow, up 2% from the previous quarter and 4% from the same quarter a year ago. However, within these totals, we identify specific deployments, and we characterize the balance as run rate business, which is mostly smaller-quantity sales by many end users through online resellers. Our largest online reseller is Amazon.com.

The underlying growth of our run rate business in the third quarter was up nearly 16% from the third quarter a year ago and up more than 7% from the previous quarter, while deployments declined.

Our deployment-based revenue will vary from quarter to quarter, and we have a number of future deployments in our pipeline, and these will be additive to our run rate revenue as they happen.

Total revenue growth continues to be impacted by our SoMo handheld computer sales, which have been in decline over the past several years. Total Q3 revenue dropped from $4.9 million a year ago to $4.5 million in the third quarter of 2015, entirely due to declines in handheld computer revenue.

Handheld computer revenue in the third quarter of 2015 was $379,000, or a decline of $562,000 compared to the third quarter of 2014. Handheld computer revenue in the third quarter a year ago was $941,000 and included an order of $350,000 from a customer using the computer as a controller for a medical device.

Mobile point-of-sale customers are the largest purchases of our cordless barcode scanning products, with the peak season happening between late February and early November each year. Offsetting this seasonality, we have in shippable backlog this year, as Kevin mentioned, a nonrecurring handheld computer order of $1.6 million, with 60% expected to be shipped in Q4 and 40% to be shipped in the first quarter. As a result, we expect to maintain profitability in both our fourth and first quarters.

Our higher margins of 49.5% reflect a number of positive trends, which we believe are sustainable. Average margins on our cordless barcode scanners are higher than margins on our handheld computers, and our revenue has been trending upward as the percentage of cordless barcode scanning products increases.

We continue to benefit from supplier cost reductions due to our higher volumes for cordless barcode scanner sales. And we continue to reduce our overhead by improving the management of our inventories and reducing creation of waste costs, including managing excess or obsolete inventories. We expect that higher handheld computer sales in the fourth quarter of 2015 will only decrease our average margins for the quarter by less than 1%.

We carefully manage our operating costs and kept them flat at $1.6 million in comparison to the previous quarter and to the same quarter a year ago. Our employees are our biggest expense. We have held our headcount flat while supporting the development of new products. We are supporting our growing base of registered developers by expanding the features of our software developer kit and keeping it current with operating system changes from Apple, Google, and Microsoft. And we have completed a major upgrade of our website at socketmobile.com, including international localized versions in Japanese, German, and French.

We expect moderate future growth in fourth-quarter operating expenses as we have added a key marketing resource to better support an active and growing developer community and a key engineering resource to improve our capacity to more quickly update and expand the features of our software developer kit and barcode scanning software.

In the third quarter of 2015, we generated cash from operations of approximately $640,000 and added an additional $40,000 from working capital changes for a total cash flow from operations of approximately $680,000. Within our working capital balances, we used cash to fund higher receivables, funded the higher inventories needed to support our fourth-quarter planned shipments, and paid down our payables by $150,000.

We generated cash to cover these investments with paid increases in deferred income of over $900,000, and we expect to recognize this revenue over the next two quarters. We invested $200,000 of the cash generated by operations into tooling for new products and into licenses for a new general ledger and operations management ERP software system, which we plan to activate in January.

The tooling is for new products that will be announced this and next quarter and will begin shipping during the first and second quarters of 2016. The new ERP system replaces the system we have used for more than 20 years and will ensure that our future growth is not limited by the internal systems that we use.

We also applied some of the additional cash generated by operations to reduce our bank credit line balance by $400,000 and to repay $100,000 of subordinated notes payable. We keep the credit line available to assure our suppliers that we will have the capital to timely pay for larger orders.

Our net capital balance at September 30, 2015, increased to $2.2 million, up from $1.6 million at June 30 and up from $1 million at December 31 of 2014. The increase in capital in the third quarter of 2015, which totaled $624,000, was generated by profits of $530,000, plus stock option compensation expense, which is added back to capital in the amount of $55,000, and by stock option exercises during the quarter of $39,000.

At September 30, 2015, we had outstanding vested and in-the-money stock options of $1.4 million and $170,000 in exercisable warrants. We also have additional vested but out-of-the-money stock options and unvested stock options totaling $2.9 million, which may be a source of capital in the future. Included in the total warrants are 75,000 warrants held by Hudson Bay Master Fund exercisable at $1.25, with proceeds to the Company of approximately $94,000. These warrants expire on May 20, 2016.

Our stock trades on the over-the-counter QB exchange. At September 30, 2015, our net capital was $2.2 million. We plan to apply for a return to NASDAQ listing when we meet the minimum capital requirements for such listing of $4 million for a profitable company.

I would like to wrap up my remarks with a thank-you to our stakeholders for their continued support, including our investors, our suppliers, our distributors and resellers, and our employees.

Now let me turn the call back to our operator for your questions.

(Operator Instructions). Brian Swift, Security Research Associates.

When I listen to your description of this year versus last year in terms of the timing with Apple and also the delivery on that $1.6 million SoMo order, I come up with about $5.2 million for the December quarter. And I know you're not giving a forecast or whatever, but it would be a long time since you have exceeded $5 million, so that would be a nice way to finish the year.

I did have a question about your sales and marketing number for the December quarter. Last year, even though you had a relatively low quarter, for reasons that you have already explained, the sales and marketing was around $650,000. So, is there -- would we expect that that number would approximate that again this year, or would you expect it to be any higher?

Well, I think the fourth quarter this year will be comparable to the fourth quarter last year.

Okay. You mentioned some deferred revenue that was coming in over the next couple of quarters, and I didn't hear the source. Could you give us an idea of what that is about, so I -- I need to know whether or not there is something else to factor in here.

Well, I think the increase in deferred revenue balance, because the $1.6 million order is a customized order, we do ask for a substantial upfront payment, which we received. And, so the --

Okay, so you have already been -- you have been paid for some of that order, and so it is just showing up in your deferred revenue. Okay. So, it all relates to the same thing we were talking about.

Correct.

All right. Okay. And I guess lastly would be you referred to some new products coming down the road in the NFC or FID areas. Can you elaborate in terms of what would you be -- what types of products, just different scanners, or -- in other words, different features on the existing product line? Or do you envision some new type of products or accessories type things coming down the road?

It will be a combination of both an extension and some new products. As you know, we have a pretty substantial portion of our business in the mobile points-of-sale area. And with all the activity that is happening in that area with people arriving with smartphones, NFC, loyalty tags, et cetera, we believe there is a good opportunity to read those as part of a mobile point-of-sale solution. And we would like to be in that portion of the business. So, we will add products to, I would say, enable a lot of these activities with our partners over 2016, but they will kick off at NRF.

So, this would be what I would describe as an expansion of our business. Currently, we have no business in this area, and we are anxious to be more than just a scanning company. We really believe that there is an opportunity to be a data capture company and to be agnostic over the type of electronic exchange the customers want. Therefore, we need to be able to read other methods equally well with SDKs provided to our developers. So, we're in a position to, I would say, roll with the punches as these markets evolve.

Okay. More recently, we have seen the credit card company or the banks that issue credit cards going to the chip cards. And there has been a bit of publicity, at least in the hospitality business, restaurants and such, as to I guess somewhat of a -- they are kind of in a dilemma. The either have to shift the way they charge or whether they include service and tips and stuff. And I guess under the new system, you can't go back and add a tip and then they get to punch it in. Apparently they got one shot at it.

I'm just -- since retail and hospitality, whatever, has been part of your business, how do you see -- I mean, the small businesses are just not adopting to it. I guess they take their chances in terms of having to absorb the --

The extra charges.

The fraudulent uses or extra charges or whatever that they're doing. When do you see that on your business?

Well, first of all, we are not directly involved in payments. And payment is a very complicated business that we are adjacent to, but not directly involved in. We think that the complexity and all of these regulations make it even more compelling for people to switch to mobile phone-based payments and other types of in-cloud payments, and that there is a big shift coming in this area.

From our point of view, we don't want to be in the payments category, but we would like to facilitate what we would call the token exchange. And that's part of why we are doing some of these new products. I think for many years, small businesses have paid a disproportionally high percentage on the transactions, and with these newer methods they will be able to get much more competitive rate.

So, I just think this is an area in flux. It really hasn't affected our business, because most of the hospitality-driven business, scanning is not part of it at this stage. If we are involved in hospitality, it is often in the inventory at the end-of-the-evening aspects, not in the point of transaction.

But I think this is just an indication of how dynamic this market is, how much it is going to change. There is a lot of money involved in the transactions and transaction fees. And I think we would like to be in this environment, but we don't necessarily want to be directly in the payment portion.

Okay, thank you. I will let somebody else.

Al Troy, private investor.

Congratulations, gentlemen, on an excellent quarter. $0.10 per share is very good. I'm very pleased with the guidance going forward and the excellent new products that will be coming out.

My question is, what are you doing to get investors interested in the Company? There was no trade today and very little interest in general. The volume is very light, so people should be excited about the Company. It's doing well. The future looks very bright, and yet nobody seems to be interested.

Well, yes, I think that we had this somewhat discussion on the last call. I think one of the things is we want to get more of a track record under our belt, which we are continuing to do. We will pick up the pace a little bit of investor outreach, but I think that our main objective is to get back on NASDAQ, which I believe we are on track to do sometime middle to end of next year. And that would actually allow a lot more investors to come into the stock.

I think we have a lot of people watching, and again, we will see if the fact that we report $0.10 a share makes a difference. We will be attending some conferences later in the year. But I really feel that the story is building. We have spoken to a lot more analysts and interested people over the last 60 days, so I think there are people watching. We can't make them buy and sell, but I don't think we're that far away anymore.

Okay. I think it's very important for the existing shareholders to generate some more interest, because the price is relatively low in comparison to where it should be, and I think the price should be much higher. And I think if people knew about it and more people were involved, it would definitely spike the price up.

Well, you won't have any argument on that score from us.

Okay, well, I hope you guys get a little bit more aggressive in that area.

All right, thanks a lot, Al.

Thank you.

David Sevory, private investor.

Congratulations on the quarter. I think you have definitely proven your business model is working. As the standards grow, if the margins stay strong or improve and you can really leverage your fixed expenses, a lot of money flows to the bottom line.

The question I have, and probably every shareholder has, is when are revenues going to bump up higher? So, the question I have -- okay, go ahead.

So I think that it is a question that I think that we answer in the following way. The revenues will bump up as more people adopt a mobile point-of-sale Apple-based or app-based application and roll it into their business. I think what we have done over the last two years is to seed the market for this activity. And we continue to see a growing interest in these applications, and we are continuing to see growth rise.

We continue to seed more and more applications. But at the end of the day, people buy the applications, not the scanners. Okay?

A lot of our partners aren't what I will describe as fully supporting scanning yet. I just answered a question to Brian Swift about the hospitality market, where we have a lot of customers, potential customers, but not a lot of traction, because the programs haven't extended into supporting inventory counting and cycle counting. So, we believe it's coming, and we are I would say facilitating that, but at the end of the day, people buy the apps.

And I think as you go around and see more and more people using iPads as cash registers and iPads for process control, all of that bodes well for what we have done. But we are not in a position to actually accelerate the sales ourselves.

Yes, I understand that. You kind of follow what the software developers are doing.

Correct.

And they know for retail point-of-sale, there is an incredible amount of venture capital funding flowing into it. I think two of your partners just raised over $50 million each this last summer to expand their operations.

Correct.

And I know your run rate was up 16% year over year, which is primarily small business, retail point-of-sale. And without a doubt, I believe that will extend and continue on in 2016. Question I have is, what about larger project-based deployments? Because you were only up so much versus last year. I take it, then, compared to year over year, your larger deployments was down?

Yes, they are. And I think that's both the beauty and somewhat the dilemma of our current business model. The business model has been optimized, I would say, for the smaller retailer who buys online. Our margins go up because we don't get a lot of discount requests.

I think that what's happening is that what we call the Tier 2 and Tier 3 people are seeing the success below. I think that one of our areas we have to work on is how we better suit our products to the larger deployments. That's something we're working on.

I don't think that they are ready yet, but I think there's a lot of them kicking the tires and doing evaluations. We have been involved in a lot of these evaluations. They move slowly. They take time, and they haven't deployed.

We have some feedback from some of them to say we should modify some of our products, which we are in the process of doing. So, I still think that's ahead of us, but they are not ready yet, I think is the big problem. But we are involved in many of the trials.

Okay. Do you think that in 2016 they start to increase in number, or is it something that is going to be more of 2017?

Well, I think it is probably a 2016. I think a lot of the Tier 3, Tier 2 guys, nobody wants to go first, right? And often they go in bunches. So, I think that we will see a lot more activity in that what I would call Tier 2/Tier 3 category in 2016, based on the success people have had in Tier 4, right?

Okay. Another question is on international sales for scanners. How have they done year over year, especially with the effect of the US dollar?

Well, I think that on the scanning side, they are relatively flat. I think that internationally, they have not had the benefit of, as you mentioned earlier, the VC money, where people are throwing investments of $50 million into software companies. But we have over, I would say, the last quarter seen a lot of green shoots in terms of European-based developers who now have products in the market.

I would say generally speaking, they are 12 months behind the US, and that's largely based on the funding that is available to them and the fact that these programs tend to be complex. The European taxation and VAT system is complex, so they have a reasonably difficult program to write. But we see them coming now. We don't have a lot of sales from them yet, but we're pretty confident we are on a good path with them now also.

Okay, that sounds good. And I've got one more question and then I will get off the line. I know on the SoMo, you talked on the last conference call about certain components are end-of-life. I know you've got fourth quarter, first quarter are going to be rewarded by larger orders of customers taking possession of large numbers.

How long do you think you can support the SoMo going forward? Should we look for SoMo revenue in third quarter next year, fourth quarter, or how long can you stockpile components up to keep offering the product?

I think third quarter next year would be optimistic, but I think that we are in a phase-down mode. We will certainly have Q1, and Q2 will depend on Q3, and also it depends on what our customers do. In the event that customers come to us with larger orders during this, I would say, phase-out mode, then, depending on the availability of these components in the market, we may be able to get more and build more.

So, it's a little bit dynamic. What we are not willing to do is to buy components on spec, because this market is weak. But we are more than happy to work with partners, as we have done with these larger orders, where the risk is reduced because we know that we have an end customer.

Okay.

But I think certainly maybe some small revenue in Q3. I would be surprised if we have revenue in Q4.

Okay. A follow-up question to that is, I know you had like a 600 SoMo order from Japan. Is that going to be primarily delivered fourth quarter/first quarter also?

Primarily, yes.

Okay. And so, as you are talking to your customers and telling them we got end-of-life components, put your larger orders in now if you want them made, would you expect there to be a possibility of more, say, midsize orders like the 600-unit order?

Yes, the possibility exists, because people have a lot of software written for Windows Mobile. But at the end of the day, they have to step up. I think I wouldn't expect huge orders, but we are flexible. And if we're in a position to support our customers, we certainly will.

Okay, okay. Thank you very much, guys.

Steve Swanson, private investor.

Dave, I realize we don't really have any control over the NASDAQ, what they do with our application once we put it in. But I just wanted to confirm that we are still on track, that we're going to meet the targets that we have set out through fiscal 2015, so that we can get our financial audit completed on 2015 and get our application input into NASDAQ. So, there were some certain targets you were trying to get completed by year end so that application process could begin as soon as we had audited financials for 2015. Are we still on track for that, or has this slipped a bit?

Well, I think it will slip in terms of the capital levels, Steve, for a couple of reasons. We have to get the $4 million to meet the NASDAQ requirement for a profitable company; otherwise, everything we do will meet their requirements.

But part of that growth potential was from stock option exercises, warrant exercises. And I think with the stock price being where it is, it ran up the early last year to a little over $3, but it's been mostly in the $2 to $2.50 range. Until we start seeing that go higher, I think the pace of option exercises and other things that add to capital will probably -- it just takes a little longer. We are not seeing the levels yet of option exercises that could drive us toward those totals.

So we will keep everybody posted, but clearly, as long as we remain profitable, we will clearly grow our capital. As soon as we get to the $4 million range, we will look to move forward with NASDAQ. I believe they will require audited results. But we certainly could accomplish a midyear audit if we needed to.

So, we will head down that path as quickly as the folks that are raising capital between our operations and option and warrant exercises, and, frankly, even the conversion of convertible notes. All of that would add to capital, so we will encourage all of that to happen as quickly as investors are willing.

So, Dave, what did the year-end audit -- what does it cost to get us a set of audited financials? So, in other words, if we -- sounds like there is no way in heck we are going to get there with the needed targets by year end financially. So, let's say we do it in May of 2016, and so the second quarter of 2016 is completed. What would it cost us to do a set of financials from an auditing perspective so we could make the application midyear instead of waiting until the end of 2016? Do you have a ballpark of what that might be?

Not really, Steve. I could guess, but the key is what NASDAQ requires and what the auditors are able to do for us. So, again, let's get ourselves up to the $4 million capital levels and we will take a look at the process from there.

But as you know, we over the last several years have been able to be very efficient in terms of supporting an audit, and we have worked with auditing companies who have reflected that in their billings to us, which we disclosed in our proxy. So, we believe it will all work. And the key for us is now getting to a solid $4 million-plus on our capital balances, and then we will go from there.

Okay, thanks. That's all I got.

(Operator Instructions). Brian Swift.

I just had something that came up today that was pointed out that -- as Microsoft reported, and that they now have -- 110 million people have upgraded to Windows 10. They finally have something that people are interested in.

And while I know it doesn't have anything to do with your SoMo, but the fellow that I was talking to was talking about the developers are now getting interested, because you've got 110 million people that weren't there before. So do you see any opportunities with your markets?

Absolutely. We have been interested in Microsoft from quite some time, even though they have been out of favor. In fact, they have included our scanners in their development kit for Windows 10. So, our Bluetooth cordless scanners are the default cordless scanners in Windows 10 development environments.

So, we are very interested. We like working with Microsoft. We like Windows 10. And, yes, I think that this will give us more opportunity going forward.

Okay, thanks.

[Tomer Cohen, Five Roads] Capital. I'm sorry, he took himself out of queue. I see no further questions in the queue at this time. I would like to hand the call back over to management for closing comments.

Okay, thank you very much. I would just like to thank everyone for participating in today's call and to wish you all a good day. Thank you.