Socket Mobile, Inc.
Q1 2013 Earnings Call Transcript

Published: 26 Apr 2013

[Operator:]

Greetings and welcome to the Socket Mobile, first quarter 2013 conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). It is now my pleasure to introduce your host, Jim Byers of MKR Group. Thank you Mr. Byers; you may begin.

[Jim Byers:]

Great. Thank you operator. Good afternoon and welcome to Socket’s conference call today to review financial results for its 2013 first quarter ended March 31, 2013. 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 at the close of the market today. The release has also been posted on Socket’s website at www.socketmobile.com. And 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’ve 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 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 the product 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 and 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. Now with that said, I would like to turn the call over to Socket’s President and CEO, Kevin Mills.

[Kevin Mills:]

Thanks Jim. Good afternoon everyone and thank you for joining us today. In today’s call I will begin with a brief review of our first quarter 2013 results and then discuss the business opportunities we see ahead in 2013. We are pleased to report a strong sequential increase in revenue and profitability for the first quarter. Our revenue for Q1 was $4.3 million consisting of $2.4 million of cordless scanning related products, $1.4 million of SoMo related products and $500,000 from service OEM and legacy related products. Our higher product sale coupled with lower expense levels have enabled us to record a profit if $75,000 or $0.02 per share. Achieving profitability marks a major step in our effort to return socket mobile to being a financially stable, profitable and growing company. This achievement is a result of a tremendous amount of hard work and sacrifice on the part of our employees, coupled with excellent cooperation from our suppliers. We are pound of this important first milestone, but we remain diligently focused on the continued work ahead to fully capitalize on the significant market opportunity we see ahead. I would now like to review our progress and outlook for both our cordless scanning and SoMo businesses, starting with our cordless scanning business. Our cordless scanning business grew strongly in Q1, with revenues increasing more than 50% sequentially and by more than 60% over the same quarter last year. This strong growth has been driven by an increasing number of mobile applications that are starting to be deployed across a number of industries and this is a trend we expect to continue throughout 2013 and beyond. We are seeing significant changes in the retail industry that are positive. The point to sale terminal or cash register is becoming increasingly obsolete and is being replaced with a mobile version that not only can act as a transaction terminal, but can also be used as an integral part of the sales process. Historically when consumers made purchases in stores, whether with assistance from a sales person or more often without, they then completed that transaction at the cash register. However Apple changed that paradigm in their Apple stores with sales associates that can assist with buying decisions as well as completing transactions from anywhere in the store using a mobile handheld device. We believe the retail industry is now moving in this general direction. The traditional cash register is entering its final chapter and will go the way of the typewriter, to be replaced with a mobile point of sale solution. At portable device, most likely an Apple or android tablet will be used to assist the shopping process and be able to complete the transaction. There are five elements to the cash register with two being mandatory and three being optional. The mandatory elements are the tablets and the card swipe reader. The three optional elements are the printer, cash drawer and scanner. Today Socket is benefiting from this trend as our Apple certified cordless scanners have proven to be the best, the lightest and the most portable scanners in this category. In addition, we have excellent software support for both Apple and android tablets and are fast becoming the default scanner of choice. We already have industry heavyweights like NCR and Fujitsu using and deploying our scanners and are also seeing new entrants like Lightspeed, Shopkeep and other standardizing on our scanners. In all cases it is the application that is the critical point in determining the level of service that the mobile shopping experience delivers. Today Socket has over 100 developers in the mobile point of sale category and we believe we are just at the start of a new industry-wide trend. As an example of just how different and compelling the shopping experience can be with a mobile point of sale solution, I’d like to share the following. We have one customer in Europe who is using the iPad and our cordless scanner in a nursery, similar to an orchard supply hardware store here in the U.S. The scales associate scans the tree or shrub the customer is interested in purchasing and a picture of the tree is displayed in spring, autumn, winder and summer. The application also informs the customer about the ideal soil type, pruning and planting recommendations and also shows other flowers and shrubs that maybe complementary to this purchase. This represents as win-win scenario for both retailer and customer, as it enables the shopper to make an informed decision, which increases the chances of them making a good purchases and being a happy customer. The retailer benefits from both increased customer loyalty, along with an increased opportunity to sell additional products that are complementary. This is illustrative of where we see the market going, which we are strongly positioned to serve. Our decision two years ago to focus on this mobile market and to get our products IOS certified and improve our software developers kit has positioned our scanners as the perfect solution for this emerging market. Q1 represents a validation of our strategy and we expect the market to continue to move in this direction, helping drive our revenue growth. We are also seeing an increasing number of successes with our scanners in the commercial services area. The commercial services category includes field service, technicians, auditing and other activities that a commercial sales person would do in the normal course of their job and they are now adding scanning to this. Many of our customers in the commercial services area are scanning for the first time and are using their existing iPhones or Android phones and scanning into an application to enhance the experience. We are seeing opportunities with large companies such as Medtronic, TE Medical and Smith & Nephew, which are our traditional types of customers. We are also seeing new customers like United Van Lines and others that are coming to the market with full-blown application and are using the iPhone and our cordless scanner to enhance the experience and level of service they can provide to customers who are moving. This is a scenario where we are seeing increasing activity and we expect this to continue to grow. The engine behind all these market changes is the developers. We now have over 400 developers in our developer community and they are writing applications that are driving these productivity improvement. Typically we see a six to nine month lag between developers signing up for the program and then producing a product that can drive sales and enhance service in the market. We have signed up in excess of 100 new developers in the last 60 days and we are excited that this trend is continuing. The developer breakdown into about 60% Apple centric developers, about 38% android developers, we also have some 14% Windows developers and obviously there is some overlap, so the total numbers add up to more than 100. We continue to foster this very important community and continue to enhance our software developer kits to make it easier and easier to develop for our solutions. For these reasons we feel that the market is just beginning to grow and we have at the moment a first movers advantage. We will be working hard to turn that first mover advantage into a larger and larger business as we see more and more of these products being deployed. Looking forward on our scanning business, we believe there is a large market opportunity ahead. We sold approximately 10,000 scanners in the first quarter. We believe that we will be able to continue to sell at an increasing rate, as the applications that are currently being developed are deployed into the market. This is an exciting opportunity for us and we believe it will allow us to grow our revenues substantially over the next 12 to 18 months. Turning our attention to the SoMo. The SoMo product rebounded strongly in Q1. We saw a lot of our customers come back, which is very encouraging. Its interesting to note that we did not really have any large deployments, so the increase this quarter is more reflective of a broad based acceptance than any one large deal. We believe the fundamental difference in Q1 is a lot of the uncertainty associated with Windows Mobile Embedded Handheld 6.5 was eliminated from the market when Microsoft announced in early January that Windows Embedded 8, which they announced in late Q3 last year would be a non-compatible software upgrade and that Windows Embedded 6.5 will be available until 2020, which provides the longevity and stability that our customers are asking for. This gives customers a pretty solid roadmap in terms of purchasing decisions and with the uncertainty removed they returned. In fact more and more have made the decision that Windows 6.5 is very suitable for their applications and that the SoMo is a solid device in this category. The results have been a renewed interest in the SoMo, which we expect will continue throughout the year. Again, we are working closely with developers in this area and have seen over 80 unique companies download our STK for the SoMo since October 2012 and we view that as a sign that application software is being done and that programs are being updated, which are precursors to sales. Certainly we did loose a lot of momentum towards the end of last year due to the transition from the SoMo 650 to 655, coupled with the uncertainty about the future of the Windows Embedded Handheld 6.5 operating system. We are pleased that these uncertainties have been removed. People have tested the SoMo 655 and we see a significant opportunity ahead. While I’m not prepared to say that we are firing in all cylinders with the SoMos, I think we have turned the corner and the future for the SoMo is looking substantially stronger than just one quarter ago. Overall, things have improved substantially over the past few months. We have made tremendous progress, both in our scanning and our SoMo product line. In addition we have continued to be very cost conscious and achieved a further sequential reduction in expenses in Q1 to a new low of under $1.6 million. The combination of improved sales and reduced costs has enabled us to turn profitable and we believe we are well positioned for continued profitability going forward. In terms of our outlook for the second quarter, we expect continued growth and a profitable quarter. Cash flow will remain our primary concern in Q2, as we will need to both fund growth and continue to pay down our suppliers. However, based on our excellent support we have received from our suppliers, we expect this to be a manageable problem. We do expect our expenses to be higher in Q2 as we will have everyone back to work on a fulltime basis. This will add about $200,000 to our expenses, which we have kept unsustainably low for the past six months through a series of salary reductions and forced time off. Certainly things have changed for the better over the past quarter and I would again like to thank our employees for their dedication and hard work and our suppliers who also helped to make it happen and we look ahead with a lot of hope and excitement. With that said, I would now like to turn the call over to Dave for his comments.

[David Dunlap:]

Thank you Kevin. We are pleased with the strong order taste we reported in our February 12 management call, continued through the balance of the first quarter, resulting in revenue of $4.3 million, an increase of 54% over the previous quarter. In combination with reduced operating expenses, we achieved profitability of $75,000 or $0.02 per share. A more traditional measure of profitability is EBITDA, Earnings Before Interest, Taxes, Depreciation and Amortization. Our EBITDA profitability for the quarter was $324,000 or $0.07 per share. Another measure of the pace of order growth is our backlog, which are orders on hand at the beginning of the quarter, shippable during the quarter. We ended the first quarter with a backlog of $1.1 million, a typical backlog level. We ended the second quarter with a backlog of $1.9 million, giving us a strong start for the second quarter. As Kevin noted, the first quarter revenue increased in both of our primary product lines, cordless barcode scanning and handheld computing. Our cordless barcode scanning revenues increased 60% over the fourth quarter from $1.5 million to $2.4 million or approximately 10,000 units sold in the first quarter. The number of software application developers registering to use our barcode scanning software developer kit is now above 350. When a developer inserts our socket scan application programming interface calls into their application, then any of our barcode scanning products may be used with that application, providing easy to use tools to edit and process linear and 2D barcode scanned information. We are benefiting from the growing adoption by businesses of Smartphones and tablets for barcode scanning applications and our compatibility with the popular Smartphone and tablet operating systems, including Apple, Android, Blackberry and Windows Mobile. The worldwide availability of our products, the ease of use and sophisticated editing capabilities offered by our socket scan software; the lightweight durable economic design; the wide range of product and price offerings and the product quality backed by our warranty programs have all been factors sited by customers in selecting our products. Based on our backlog entering the quarter, the pace of orders to date and a view of opportunities in the sales pipeline, we insist the pace continued sequential growth in orders and sales of our cordless barcode scanners in the second quarter and beyond. Revenue from our family of SoMo model 655 Handheld computers, SoMo is derived from socket mobile, increased 28% over the fourth quarter from $900,000 to over $1.1 million. The model 655 replaces our model 650, which was discontinued last year and sold out during the third quarter of 2012. As an additional feature, we introduced in the fourth quarter a SoMo software developer kit, to provide tools to application developers to customize features of the Windows Embedded Handheld 6.5 operating system to improve its use with our products. As mentioned by Kevin, Microsoft clarified during the first quarter that the Windows Embedded Handheld 6.5 operating system will be supported through 2020. With the product roadmap now defined by Microsoft, we now expect the pace of growth of our SoMo 655 Handheld computer to accelerate, particularly in mobile applications within healthcare and hospitality. We are an excellent replacement for the now discontinued classic handheld computers from Hewlett Packard, which were widely adopted by businesses over the past decade and we offer the opportunity for business using HP units to extend the life of their existing applications by adding our SoMo 655 to their systems, as they look to update or replace their HP hardware. Our product revenue mix has now shifted strongly in the direction of cordless barcode scanning. With 56% of the first quarter revenue coming from sales of cordless barcode scanners, 32% of our first quarter revenue coming from sales of handheld computer products, and 12% of our revenue coming from sales of custom products to original equipment manufacturers, legacy products and customer service. Revenue growth generally improves our gross margins as the contribution from higher product sales better covers our fixed cost of sales. Our margins in the first quarter of 2013 increased to 40%, up from 37.5% in the previous quarter. We expect our margins in the second quarter and beyond to benefit from a combination of anticipated revenue growth and product cost reductions, particularly for our cordless barcode scanners. Socket buys its key inventory components from well established contract manufacturers that have the capacity to increase production levels by running the manufacturing line a bit longer, which allows us to benefit from improving economies of scale, without requiring us to make major capital equipment purchases or significantly increase our resources in response to growth. Managing our operating expenses was another key component of our quest to reach profitability. Compared to the first quarter a year ago, our operating expenses were reduced by 34%. Our employees are our largest expense and compared to a year ago we reduced our employee headcount from 66 employees to 50 employees and we’ve learned to prioritize and improve our effectiveness at a lower cost. We also asked our employees during the revenue downturn in the second half of last year and during the first quarter of this year to take unpaid time off to further reduce our expenses. We have now faced out that on paid time off program as of the end of the first quarter, as our improving sales volumes increased our workload. Other cost reductions were achieved by curtailing major discretionary expenses. Our expenses also declined because we completed major product development projects in the first half of last year, such as the completion release of our SoMo 655 Handheld computer. Even though our first quarter operating expense, which traditionally increases with most of our annual audit cost incurred in the first quarter, it was reduced this year over our fourth quarter operating expenses by 3%, helped in part by a change in auditors to a local auditing firm at a substantial cost savings. Looking forward we will continue to closely manage our operating expenses in line with our desire to grow the business and achieved sustained quarterly profitability. The order report on our 2012 results was unqualified, but refer to our explanations in note 1 to our annual financial statements of our need for capital. Sustained profitability will help reduce this need. We also commended our long-term vendors for continuing to support us, many with extended credit terms. Our receivables based bank line of credit of up to $2.5 million provides us with the ability to borrow more capital to pay our vendors as our shipping pace increases. We also addressed our first quarter short-term capital needs to enable us to respond to the higher first quarter order pace, such as with higher inventory purchases, with the short term subordinated line of credit from selective investors of $550,000. We expect to continue to use those funds during the second quarter, but to repay them prior to the line expiration date of August 1, 2013 as our working capital of cash flows improve. Our annual meeting of stockholders is scheduled for Wednesday, June 5, at 10

[Operator:]

Thank you. (Operator Instructions). Our first question comes from the line of David Savory a Private Investor. Please proceed with our question.

[David Savory:]

Hi, good afternoon gentlemen. I wanted to start off by saying a very good quarter.

[Kevin Mills:]

Thank you.

[David Savory:]

I got a couple of questions here. Can you just for a little information, can you tell me how many of the 70 iScanners you sold for the quarter.

[Kevin Mills:]

Approximate 6,000.

[David Savory:]

6,000 okay. And can you elaborate a bit on how international sales are gong, especially Japan?

[Kevin Mills:]

Yes, well the deal we had in Japan was for 3,200 units, which was delivered in the quarter. So that obviously skewed the Asia Pac region in this quarter and it did better than it traditionally does. So other than that, I think our revenue was pretty evenly spaced. U.S. was a little bit stronger. So maybe we were at 65% at domestically and 35% internationally. Europe was a little bit weaker than we expected and the economy over there seems to still be suffering greatly, but nothing too extraordinary.

[David Savory:]

Okay, thank you. I was so surprised that you did $0.5 million on service OEM legacy. Is that something we should see going forward or is it jut kind of an anomaly with it being a little high.

[Kevin Mills:]

Well, Q1 was really a clean up of some end of life products, but we will have more products in this category starting in Q2. So even though it won’t be the same products per say, it will be in that range. As you may know we have discontinued our bluetooth modules and wireless LAN and we provided last time by opportunities to customers and those were delivered in Q1. We have some, as I said new opportunities starting in Q2. So the number should be reasonably in that area going forward.

[David Savory:]

Okay nice, nice. On your SoMo, can you tell me how many for the revenue of $1.4 million, how many units you sold?

[Kevin Mills:]

Approximately 1,600.

[David Savory:]

1,600, okay. And I know over the last year you started selling fewer of the barcode scanners that’s accessory attachment. Have you seen any pickup in this at all?

[Kevin Mills:]

I’d have to go and look, but nothing I would say that stood out as being significantly up or significantly down. I think that just speaking briefly on the SoMo, I think the timing of our transition in hindsight was not the best, not that we could do anything about it, but the fact that we launched a new product in July 2012 and the uncertainty entered the markets in August 2012, and it kind of sat there for a few months until Microsoft clarified the situation in January. Essentially I would say it set us back four to six months on the introduction of this product. So Q1 was encouraging, but I think as I said, it was encouraging that we see a general uplift. I think as we now talk to customers and better understand their decision processes, we will know of what rate this uptake will continue at.

[David Savory:]

Okay, it was nice to see that most of the growth was broad based. Do you see any large deals coming forward and do you have any update on ethical (ph).

[Kevin Mills:]

We don’t see any large deals. I mean we are working on a number of large deals, but I don’t have a feeling that they are imminent. At this state we have not made any progresses with that account.

[David Savory:]

Okay, that will do it for me. Thank you very much and I look forward to the future.

[Kevin Mills:]

Thank you very much David.

[Operator:]

(Operator Instructions). Our next question comes from the line of Vinod Patel a Private Investor. Please proceed with out question.

[Vinod Patel:]

Good morning fellows.

[Kevin Mills:]

Hi Dr. Patel. How are you?

[Vinod Patel:]

Good, good. Nice to see them turn profitable.

[Kevin Mills:]

We share that view.

[Vinod Patel:]

Okay, with yearly sales going up, how many could we produce on a daily or weekly basis? If we have full production, well could we increase it or what?

[Kevin Mills:]

Certainly we can increase this. I mean literally infinite ability to increase if you know in advance. I think that generally speaking we can deliver out of here maybe 500 units a day price, maybe a little bit more at our current levels, but that’s really not the difficult part. The difficult part is the forecasting of the material. I’ll give you the example of how many hamburgers could you cook. Well, if you have them already in the pantry, its much easer to just start cooking them, and that’s the hard part in this is that our customers are coming and saying, can I have one now and we have to forecast. The lead times we deal with are items like the engines and other suppliers tend to be six to eight weeks minimum. So we have to make those commitments well in advance and then we work with our suppliers to bring in more as we need, but in terms of long-term capacity we really have no limitations. In terms of short term capacity, yes, we are managing our inventory very tightly and we are trying to bring in the right number that we believe we have sales for and because as I mentioned our cash position is tight and we can’t afford to have inventory sitting here for a month, because a customer delayed. So that has been part of the challenge of getting through this, but we really have no capacity per say in terms of volume of scanners we could produce. Just personally, when I stated with Logitech, we were doing a 1,000 mice a day. Within two years we were doing 14,000 and then six years 75,000 a day. So I know how to do that.

[Vinod Patel:]

All right, that sounds good. Okay, by the way with the SoMo anything to do with the cardio hospitals or in England with HP.

[Kevin Mills:]

Not really. I think as I said to David Savory previously, I think we’ve really lost a whole bunch of time due to the uncertainty and thus the market really stalled because people didn’t know what to do, so they did nothing. Most of the money thus is spent is on the software application, and not knowing whether you could reuse that investments caused people to do noting. This now has been clarified and we are seeing people come back, but I think it’s too early to start making predictions on the SoMo just jet.

[Vinod Patel:]

Okay. Now on the second quarter you anticipate that to be a profitable quarter.

[Kevin Mills:]

We do.

[Vinod Patel:]

Okay. You anticipate it to be more profitable than the first quarter or greater sales I would say.

[Kevin Mills:]

Yes. I mean one of the things we have to do is get people back on a full time basis, which we’ve done as of April 1. That will add additional expenses. We believe that there will be sufficient increase in sales to cover that expenses and still remain profitable.

[Vinod Patel:]

Okay. Well you have a big deal, maybe not eminent but working on it. Is that a fair statement?

[Kevin Mills:]

Absolutely. I mean absolutely. So I think we’ve seen larger deals come in, but I think the key thing to focus on is not the deals arriving, it’s the fact that developers are continuing to arrive and are writing applications that ultimately drive these sales and we are seeing a increasing number of developers and they seem to be working on larger and larger projects.

[Vinod Patel:]

Right, the developer for the SoMo, how many did you say that we have for those.

[Kevin Mills:]

We said we’d over 50.

[Vinod Patel:]

Over 50.

[Kevin Mills:]

Now we said that we’ve downloaded 80 as the case of different unique companies rise and both of those statements are true.

[Vinod Patel:]

Okay. Now how was the Japanese order than we sent, the 3.2 I think it was. Are you getting feedback on that? Does that seem too successful?

[Kevin Mills:]

Well first of all we only sent this at the end of March, okay, so there is currently as best we can understand. They are in a training and deployment phase. I do plan to travel to Japan this quarter to meet with the customer and understand how things are going and what’s the long term potential. The customer has the ability to order many, many more scanners.

[Vinod Patel:]

How many would you say, if they may?

[Kevin Mills:]

Well, lets say that they have in excess of 50,000 retail outlets.

[Vinod Patel:]

50,000 outlets.

[Kevin Mills:]

Correct. So they are a big company.

[Vinod Patel:]

Okay, that could be 50,000 scanners.

[Kevin Mills:]

It could be three times that if they had more than one scanner per shop.

[Vinod Patel:]

Exactly, it would be a 100,000 scanners.

[Kevin Mills:]

So it could be a big number.

[Vinod Patel:]

Okay.

[Kevin Mills:]

But we shouldn’t specialty too much because – we should wait until we meet with them and then understand and once we do and then we understand, we’ll be happy to report as best we can.

[Vinod Patel:]

Okay you go over and be nice and friendly now.

[Kevin Mills:]

Okay Dr. Patel, thank you very much.

[Vinod Patel:]

Okay, I think believe or not I have nothing more to say. But another thing is that I’m very pleased. I think we turned the corner and we are profitable and things are going good now and I know your going to do this anyhow. Hopefully you keep all the expenses down, because that’s what causes the profitability.

[Kevin Mills:]

We understand. It’s been a hard tough road and it has taken us a long time to get here and we intend to stay on this side for as long as we possibly can.

[Vinod Patel:]

Okay.

[Kevin Mills:]

All right, thanks again.

[Vinod Patel:]

Right.

[Operator:]

Our next question comes from the line of Steve Swanson a Private Investor. Please proceed with your question.

[Steve Swanson:]

Sorry, I joined the call late. How is the cash situation looking at the end of quarter and how does it look for the next three months.

[Dave Dunlap:]

Well Steve, we reported over $600,000 on the balance sheet at the end of March, but we have still – our payables are extended beyond where we like them to be. So we have plenty of uses for that cash, but we’ve been building the working capital cycle with our higher levels of shipments sufficient to get us to the $4.3 million revenue number in Q1 and is best in growing; its increasing the cash flow from operations. Plus we have a bank line as you know in place that up to $2.5 million it’s based on receivables. So as our shipping increases we are able to increase the amount of cash we can borrow with the bank line and we’ve had good support from our investors in terms of short term needs to prime the pump and get that working capital cycle up and running. And so we have the ability to continue to meet customer demands, bring product in and continue to operate in a profitable operating fashion with the cash that we have or can get our hands on. But there is a need and a desire to catch up our payables faster than we might do from just the stage of growth. Particularly growth itself requires us to be able to financing growth and receivables and perhaps some inventory. So with the support we’ve had from our investors, its very helpful and we do intend to pay those short-term funds back. We’ve raised a total of $550,000 in the first quarter as a subordinated short-term line. We will use that during the second quarter, but we do expect to pay it back as quickly as we can thereafter.

[Kevin Mills:]

Yes, and Steve just to summarize. Cash remains extremely tight, but we have enough, but I think if we seek rapid growth we will have greater challenges responding that growth unless we can get some more cash.

[Steve Swanson:]

And so we were cash flow positive from operations in the first quarter.

[Dave Dunlap:]

Yes we were. Because the effects of working capital, but then with working capital we elected to pay down some of our vendors and the like. So we reapplied that cash back into the working capital cycle. But we were generating positive cash from operations throughout the quarter.

[Steve Swanson:]

Okay. So we don’t feel we are going to have any issues with cash going forward.

[Dave Dunlap:]

We think we can operate and meet our objectives with the cash that is being generated and the programs such as our bank line that are currently in place.

[Steve Swanson:]

Yes. Okay, thank you.

[Operator:]

There are no further questions in the queue. I’d like to hand the call back over to management for closing comments.

[Kevin Mills:]

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

[Operator:]

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.