Socket Mobile, Inc.
Q3 2013 Earnings Call Transcript

Published: 29 Oct 2013

[Operator:]

Greetings. And welcome to the Socket Mobile Third Quarter 2013 Management 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) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jim Byers from MKR Group. Thank you, Mr. Byers. You may begin.

[Jim Byers:]

Thank you, Operator. Good afternoon. And welcome to Socket’s conference call today to review financial results for its 2013 third quarter and nine months ended September 30, 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. 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 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities and Exchange Act of 1934 as amended. Such forward-looking statements include, but are not limited to statements regarding mobile computer data collection and handheld computer products, including details on timing, distribution and market acceptance of products, and statements predicting trends of sales and market conditions and opportunities in the markets in which Socket sells its products. Such statements involve risks and uncertainties and actual results could differ materially from the results anticipated in such forward-looking statements, as a result of a number of factors including but not limited to the risk that manufacture of Socket’s products maybe 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 third quarter 2013 results and then discuss the business opportunities as in the fourth quarter. Today we report the third quarter revenue of $3.3 million. While this represents an increase of 18% over the same quarter last year, it is below our revenue in the previous quarter due to certain issues that impacted our product sales in the quarter, which have now been mostly resolved. Total revenue for Q3 consisted of $2.05 million of scanning-related products, $850,000 of SoMo products and $400,000 of service and accessories revenue. Our lower than expected product sales coupled with our lower expense levels resulted in a quarterly loss of $321,000 or $0.07 per share. I would now like to review our progress and outlook for both our cordless scanning and SoMo businesses starting with our cordless scanning business. Revenue from our cordless scanning business in the third quarter grew 72% over the same quarter last year. However, we saw sequential decline of 15% from the second quarter due to a major slowdown we experienced as a result of Apple product changes in September. Apple changes were not as expensive this year but it turned out that the new iOS 7 operating system had more issues than expected, resulting in several upgrades during September that resulted in Socket losing about two to three weeks of selling from this quarter. The good news is that we are seeing a recovery beginning in October rather than December as we experienced last year. It’s important to point out that both July and August were solid months for our cordless scanning business and while revenue for September in the U.S. would typically be 50% to 100% higher than August, we actually saw September cordless scanning revenue down 10% from August. For comparison, in EMEA, our cordless scanning revenue for September was 50% higher than August as it was not impacted by the Apple changes. Apple faces unavailability of their products around the world over a two months period. It’s also important to note that despite this hiccup the underlying health of our cordless scanning business remained very strong. We believe the majority of the iOS 7 impact is already behind us and will not drag into early December like last year and we expect to return to a solid growth level in our scanning business in the current fourth quarter. The underlying strength of our cordless scanning business continues to be driven by our developer community. Today, we have over 650 developers and over 120 applications in the Apple app store. In most cases our scanners are baked into these mobile solutions and our scanning sales will continue to increase as these solutions are deployed. The most exciting area continues to be mobile point of sales system. In this category we have well over 150 different mobile point of sales solutions supporting our scanners. While we strongly believe this will be a substantial contributor to our revenue in 2014. In the near-term what we have seen in this category so far this year, our numerous field trails and pilot deployments, which we remained focused on converting into larger deployment. Based on the feedback we have gathered. Most of the field trails and pilot deployments have been a success, although they have seen to take longer than expected. Our interaction with our customers and developers involve in these trials has been invaluable to enhancing our product and making them more compelling. For example, as part of this process, we introduced our 7Qi scanner during the quarter in response to customers request for less expensive 2D scanning solution. Retail customers are looking to future proof their deployment and also be in a position to read promotional coupon from mobile phone. The 7Qi provides these features within our colorful retail centric housing at a very attractive price point. We made significant progress in this market this year, but at this point, the reality of retail is that most retailers will not deploy any new technology after early November for fear will impact their busy selling season. We now expect many anticipated deployments to be pushed out into 2014 and don’t expect to see any large mobile point of sales deployments in Q4. We have made significant progress this year in becoming the Bluetooth scanner of choice for mobile point of sales solutions and we expect to see a significant portion of our business coming from mobile point of sales in 2014. In Q4, our scanning business will be more driven by customers in the commercial services category. Commercial services is the general category used to subscribe sales force and field force type application such as pharmaceutical reps, field technician, retail merchandising and others in the service industry that use scanning to improve their process and/or collect data as a compliment to their primary function. Commercial services has long been a cornerstone of our scanning business but has been given less mention lately due to the excitement associated with mobile point of sales. However, these customers typically expand their budgets in the fourth quarter and have historically been solid contributors to our Q4 business. We expect this to happen again this year which combined with the underlying strength and momentum in the business, should result in solid sequential growth in Q4. So in summary, while our scanning business was impacted by the Apple hiccup in September, it continues to have a very strong base and we expect will enable us to see solid growth in Q4 and more rapid growth in 2014 as the mobile point of sale solution begin to hit their stride. Now, let me update you on our SoMo handheld product. SoMo revenue for Q3 declined sequentially to $850,000 from $1.5 million, partly due to lower sales in Japan. Our Japanese distributor had delayed delivery of the majority of the required SoMo product for Japan in Q3. But this issue is now largely corrected and we expect to resume normal supply to Japan in Q4. In addition, we have some other supply issues that impacted revenue, all of which have now been corrected. Additionally, our new large OEM customer who purchased products in the second quarter was not schedule to take any products in the third quarter. But they are now in the final stages of completing product certification, which will enable them to enter their deployment phase. The rest of SoMo business remains stable but still faces the headwind I -- the headwinds I discussed last quarter. The underlying difficulty in SoMo markets continues to be the lack of excitement for the Windows mobile operating system, coupled with excitement for Android and Apple. However, the recent changes to iOS7 continue to highlight the impact of not having critical elements like the operating system under one’s control in a mobile solution. One of the most positive elements of the Windows mobile continues to be its stability and the fact the operating system is unlikely to change without the user’s active intervention. It is for this reason that Windows mobile is being reconsidered by people who value stability. The SoMo remains an excellent choice for those going to Windows mobile route. Overall, this process is taking its time but we continue to see slow and steady progress and believe the SoMo will show improvements in the coming quarters and return to being a key contributing product. In conclusion, while we experience issues this quarter that impacted revenue, we have made substantial progress over the first nine months of the year. We see continued positive overall momentum in our cordless scanning opportunity. For example, during the third quarter we released our series 8Ci smartphone attachable scanner that enables 100 barcode scanning with smartphone. This is a major strategic step forward in supplying a 100 barcode scanning solution for Apple and Android smartphones. Our scanning products are become the default solution. They are rapidly emerging mobile point of sale segment which continues to look like a very big market opportunity even if it is taking somewhat longer than expected to hit its stride and we saw for the occasion interruption, courtesy of Apple. While our handheld business is still not strong, it should improve once our new OEM customer starts using the SoMo as an integral part to their product. We also believe there is still applications for the SoMo is the best product for the job and hope to get it back on track in the coming quarters. Looking to Q4, we expect to see a solid quarter and return to solid growth. Our cumulative losses for our 2013 year-to-date is 230 -- $203,000, a tremendous improvement over the loss of $2.6 million we reported for the same period of 2012. We remain very focused on achieving sustainable profitable growth going forward. The substantial improvements we’ve achieved over the past nine months are the results of a great team work by everyone here at Socket and continued support from our suppliers. We believe we are well positioned in the right markets with the right product, the right time and remain diligently focused on the work ahead to capitalize on the opportunity. With that said, I will now like to turn the call over to Dave for his review of the financials. Dave?

[Dave Dunlap:]

Thank you, Kevin. Our third quarter revenue was $3.3 million, up 18% over our third quarter revenue a year ago but down sequentially from the revenue of $4.4 million in the previous quarter. Third quarter revenue was affected by a customer order slowdown in September, which we attributed to the timing of Apple’s new product announcement in mid-September whereas similar to last year, the customer’s slowed down their mobile deployment plan and purchases until very determinant what new products, Apple is offering. The Apple product changes and the related impact delaying customer purchasing were not as extensive this year. And we resumed upward order momentum with strong October bookings. Our margin contributions in the third quarter were 39% of revenue, up from 35% in the same quarter a year ago but down by nearly 2% from the previous quarter, primarily due to lower revenue in the third quarter, providing less coverage of our fixed cost of manufacturing. Our research, sales and marketing and general administrative expenses in the third quarter were $1.5 million, down by 22% over the third quarter, a year ago and down by 10% from the previous quarter. Operating as a leaner organization has made a substantial improvement to our bottom line results. In the third quarter, we incurred a net quarterly loss of $321,000 or $0.07 per share and a smaller EBITDA loss or earnings before interest, taxes, depreciation and amortization of $67,000. The previous two quarters of 2013 were profitable with GAAP net income of $118,000 and EBITDA net income of $623,000. Results from the nine months compared to the same period in the previous year reflect trends that are positive year-over-year. Revenue for the nine months of 2013 was $12 million compared to the revenue of $10.8 million from the nine months a year ago, an increase of 11%. Our gross margin contribution to the nine months of 2013 was 40% of revenue compared to 37% of revenue in 2012, an overall increase in margin contribution of 20%. At the same time, our nine months operating expenses declined 28% year-over-year. The result was a net loss of $203,000 for the first nine months of 2013, compared to a net loss of $2.6 billion for the first nine months of 2012. Our EBITDA profit for the nine months are measure of operating results was a profit of $556,000 compared to an EBITDA loss for the nine months of 2012 of $1.7 million. For our bookings picking up early in October, we expect to return to quarter-over-quarter revenue growth in the quarter while we continue to closely manage our operating costs. We expect our fourth quarter revenue to benefit from our two newest products, our model 8Ci barcode scanner attachable to a smart phone and our model 7Qi 2D barcode scanner which substantially lowers the price of the barcode scanner for those customers wanting to use 2D barcode scanning. Our objective is to return the quarterly profitability in the fourth quarter and to continue the positive trend that we established in the first nine months of 2013. Our revenue product mix in the third quarter of 2013 was 62% for cordless barcode scanning, 26% for mobile computer sale and 12% for service and accessories. These percentages reflect increasing sales of our barcode scanning products which have increased 72% for the nine months year-over-year, partially offset by 35% decline on our handheld computer revenues for the nine months year-over-year, which dropped to lower levels as we transition from the SoMo model 650 to the SoMo model 655 in the third quarter of 2012. Many of our customers purchased last time buys of the SoMo 650 which they are still utilizing. We now offer a full family of 1D and 2D cordless barcodes scan -- bluetooth scanners, designed to work with Apple, Android, Blackberry and Windows mobile devices. And we are focused over the past two years on serving the many application developers to the developing mobile applications for these devices. We have maintained compatibility with all of these devices to our software developer kit, making it easier for customers to operate their barcode scanners using the same applications, whether from an entry level barcode scanner to a more powerful model, from a linear barcode scanner to a 2D barcode scanner, or from a two-handed solutions, such as our seven series barcode scanners working with the tablet computer to a one-handed solution using a smartphone and attachable model 8Ci. Many of our registered developers only recommend the use of Socket barcode scanners. And we expect to continue to benefit from the successful deployment of their applications. Improving our balance sheet liquidity continues to receive our attention. We’ve indicated in our financial report over this past year, a need for capital. We’ve carefully managed our working capital cycle to provide operating liquidity, holding level -- holding level our inventories despite our growth, utilizing our revolving credit line agreement with our bank and managing our receipts and payments. We achieve positive cash flow from operations in the third quarter and we are looking to our operating result over time to be a positive source of working capital. Our bank line is scheduled for renewal in January 2014 and we expect the line to be renewed. I’d now like to open up the conference call to your questions. Operator.

[Operator:]

(Operator Instructions) Our first question comes from the line of Brian Swift from Security Research Associates. Please proceed with your question.

[Brian Swift:]

Thank you. Could you give us a little color, I think, on the new attachable scanners and (inaudible) of where do we expect to be seeing those sold, they are going to go to the same customers driven by the handheld scanners or do you think they might open up some new markets for you?

[Kevin Mills:]

Okay. So first of all we just launched this entire shipping in early September and the reaction today has been very positive. And we view this product as being, I would say, a largely complementary to our existing handheld scanners. And today we estimate that 85% to 90% of all our scanners, and our cordless scanners are sold in conjunction with tablets whether they be 7-inch tablets or 10-inch tablets, but that’s the majority of our sale. And we’ve not been able to, I would say participate in the single-handed solution and I will use the Apple store as the good example where the iPhone or iPod in conjunction with the sled has been used as a single-handed cash register. And that markets has been something, we’ve been never be able to penetrate and that we feel with the ace, this is the markets that we would be able to penetrate and take some good market share. I expect that customers who are using the 8Ci, will use as and more as a single handed cash register and we made the conscious decision not to put in Mag Stripe Readers. So we could partner with guys like Square and other people who are doing the payment. And it will take a little bit of time for this offer to be re-written even though its compatible because we don’t have market share in the phone-centric markets and -- but we believe that this phone-centric market is probably, equally big or bigger than the tablet-centric markets. So we think that the 8Ci will be a huge contributor to our revenue in 2014.

[Brian Swift:]

You are trying to get some business from Apple to use your device [convergence]?

[Kevin Mills:]

While I just use the -- I mean, most people are familiar with the Apple stores where each sales associate has a scanner and iPod and they are used together as being a mobile cash register. And we would see the 8Ci as an equivalent that could be used in other places. It’s unlikely that we will get the Apple business and -- but that’s really not their target. We are looking for others who want to replicate the Apple experience with the single-handed solution and that’s an area where historically we’ve been unable to play. And with the 8Ci, we believe, we will start to capture some market share for this opportunity.

[Brian Swift:]

Okay. Thanks.

[Operator:]

(Operator Instructions) Our next question is from the line of [Bernard Fidel], a private investor. Please proceed with your question.

[Unidentified Analyst:]

Okay. Hi folks. How are you doing?

[Kevin Mills:]

Hi, Dr. Bernard.

[Unidentified Analyst:]

Okay. How are internationally, how is Europe doing and I think you’ve mentioned about Japan, that’s coming back on line for the fourth quarter, what about Europe?

[Kevin Mills:]

Europe actually did quite well in Q3 and we saw our revenue essentially getting above Q2 levels and the business strengthening. So, overall, I think, Europe was not really impacted by the Apple transition and we saw a very good September as we typically see. And overall our business in Europe was stronger and we had some shortages which affected our numbers over there also as we had some product delays and but overall we were quite pleased with the Europe numbers in Q3. And in the case of Japan, the Asia-Pac, yes, we had some difficulty with our distributor in Japan, which resulted been unable to ship for most third quarter, that’s now been rectified and we expect to resume normal operations in Asia-Pac and particularly in Japan in the fourth quarter.

[Unidentified Analyst:]

Okay. The last conference call you mentioned something about a retailer in England equal to possible 1,200 scanners, do you recall what I’m saying there?

[Kevin Mills:]

I recall, I don’t remember mentioning 1,200 scanners, but I do recall that we…

[Unidentified Analyst:]

Yeah.

[Kevin Mills:]

… I mentioned on our last call that we were doing a field trial with the retailer in the U.K.

[Unidentified Analyst:]

Yeah.

[Kevin Mills:]

And that went quite well and it took a bit longer than expected and they have made decision to proceed and but -- and as part of their field trial and they have decided to add number of new features to the application and they basically won’t consider deploying it now until February, March of next year. And I think one other problem that has happened this year with the mobile point of sales solutions is that many of the field trials and pilot deployments took longer than people expected. They also found a number of areas where they could improve and as a result, a lot of them have simply run out of time to do anything this year and won’t pickup the projects again to early next year, because there is a more to fear in retail of doing anything late in the year and then having some hiccup in your system during the busy holiday season. So and it’s a bit of a double edge sword. I think the good news is that people are excited and there’s a lot of evidence to suggest that this is really a profitable way forward for retailers. I think the bad news is it took a bit longer and you are not going to see the benefit of that until 2014.

[Unidentified Analyst:]

Does that mean that they are going to -- they are going to deploy the one in England?

[Kevin Mills:]

Yeah. It does. I mean, well, I can only report what they have reported. What they have reported is that they felt the trial and pilot deployment was successful and in their review they are updating the application to incorporate a number of benefits and features that the employees requested and that’s off we won’t be ready now until I would say February of next year. I would imaging that they will do another little deployment to verify everything is working and then pull the trigger. But, yes, and the indications are that they are going forward based on the results they achieved in the pilot and they intend to deploy.

[Unidentified Analyst:]

Okay.

[Kevin Mills:]

But that’s all we know.

[Unidentified Analyst:]

Yeah.

[Kevin Mills:]

I am happy to share.

[Unidentified Analyst:]

The medical equipment company with the SoMo.

[Kevin Mills:]

Yes.

[Unidentified Analyst:]

Now, they are waiting to get certification in United States, am I correct on that?

[Kevin Mills:]

Yeah. I mean, there -- as you can imagine with medical equipments, there is a lot of certification. So the company is in the process of submitting there new and updated product which includes the SoMo motherboard and other SoMo element to the FDA for approval and that approval is ongoing as we speak.

[Unidentified Analyst:]

Oh! I see. They’ll expect to get it this year would you think or…

[Kevin Mills:]

We -- it's the FDA, so these things can take time -- while. But our understanding is, yes, they are working hard to get it as soon as possible. And then once they get it they can enter a deployment phase but they are not legally allowed to sell the product to customers until they have those certifications.

[Unidentified Analyst:]

Okay. And October is getting a longer as we covered from September I will mention that?

[Kevin Mills:]

Yeah. We’ve seen the pick-up, I mean, I think as Dave mentioned. And last year there seem to be a lot more confusion and the delay last September, October and much November. And I think Apple maybe iOS 7 software available in June which helped greatly and there was a number of unexpected hiccups and so far as Apple released 7 and then 7.01 and 7.02 in quick succession. And things seem to have stabilized and people are making their way forward again. And so, yes, we feel that the interruption is much shorter this year.

[Unidentified Analyst:]

Right. Anything you know on band line contract or where do you want to go…

[Kevin Mills:]

Well, there is nothing new, I mean, essentially there is belief that and this company has told people, but they intend to deploy before the end of the year and unless we don’t have any evidence that this is not going to happen. And our concern is that, if we get a rush of orders in late December we will be able to fulfill most but not all. And that we’re staying as close as we can to the company to make sure that the products are brought in in time to meet any demand they have. And but we’re reluctant just to bring in all our supplies in the hope that it happened because occasionally these things get delayed and as a result, we don’t want to get caught with the inventory. So we are monitoring the situation closely and we do expect them to deploy and the timing is always a challenge for us. And I think we’ll be in a position to react, but and we really need to see some orders before we commit to bringing in all that inventory.

[Unidentified Analyst:]

Right. Are there any large order contracts that have been considered now?

[Kevin Mills:]

Yeah. We’ve seen as I mentioned in my comments that our deployment associated with pharmaceutical and other, what I would describe is more commercial services and customers, and have as usual resurfaced in the fourth quarter and this companies seem to have a budgets that they need to spend and they are planning for 2014. So we would expect a number of those to pull the trigger in Q4.

[Unidentified Analyst:]

Okay. Well, I’ll tell you the two positive things actually today is that, you kept the expenses down, I was surprised that you even got it down even more? And number two, we had the worse at least we were cash flow positive which is positive in my mind?

[Kevin Mills:]

Yeah. No. I think that we have really tried to adjust our expenses and to keep them as low as possible, and we have done a good job on the expense control, and ultimately it’s the topline growth that we need to guess. But I think as Dave mentioned, and we are a much leaner organization now going forward. And there is a lot more leverage and with a small uptick in sales the return for share becomes quite interesting.

[Unidentified Analyst:]

Okay. Just one last thing and I will get off. In regard to basic, do you expect to have sequential growth in the fourth quarter? Now, when you see sequential growth, is that compared to the second quarter or to the third quarter?

[Kevin Mills:]

While sequential implies third that’s what…

[Unidentified Analyst:]

What?

[Kevin Mills:]

Sequential, it means than…

[Unidentified Analyst:]

Okay. Well, maybe I’m using the wrong term, okay. The third quarter was obviously extremely depressed, now could we do better than the sec -- in the second quarter and in the fourth quarter, of course the answer is (inaudible)?

[Kevin Mills:]

Yeah. Certainly we could. But I think I have to bring up your previous point and we have a number of deals and the band line deals which you previously alluded to is a big swinger.

[Unidentified Analyst:]

Yeah.

[Kevin Mills:]

And certainly if that comes in, we will do better. And I think if it doesn’t come in, we’ll do better. But how much better is hard to predict because there are so many variables.

[Unidentified Analyst:]

No, no. You have answered my question well, that even without the band line you expect to better.

[Kevin Mills:]

Correct. Yeah.

[Unidentified Analyst:]

Yeah. Okay. And of course, if the band line comes in, we -- we will do a hell of a lot better.

[Kevin Mills:]

Yeah. Yeah. Provided it comes in time that we can get the product out to them which at some point you run out of time and whereas we are very mindful to keep our expenses and inventory in line because the cash situation remains tights and those are difficult things that we are managing on a daily basis.

[Unidentified Analyst:]

Okay. Good. Okay. I’ve had it. Okay. Thanks a lot.

[Kevin Mills:]

Thank you.

[Operator:]

Our next question is a follow-up question from the line of Brian Swift. Please proceed with your question.

[Brian Swift:]

Yes. You mentioned Japan a couple of times has been one of the issues that depressed September verdict, could you elaborate more, I mean, I wonder is a demand issue or was this was a financially with your tight finances or was there some type of inventory work-off or what can you do to shed a little light on that? And also where they are now? And then, and additionally Europe you said was -- was a stronger quarter but typically in September, I mean in the September quarter? If you highlight any other strength in business in terms of geographically how the quarter went?

[Kevin Mills:]

Okay. So our Japan situation is quite clear. Our Japanese distributor have basically ran into some financially difficulty and wasn’t able to secure credits which resulted not being able to ship. We have subsequently added an alternative distributor and that really we don’t have any demand issues in Japan. The demand remained reasonably strong. It was our ability to service that demand and the logistics of us that went away. So and we have had people, our regional sales person in Japan for the last week and we are bringing a new distributor online to service the existing business we have there. And so I think that’s the long and the short of the Japanese situation. I would say it typically cost us somewhere in the region of 150 to 200,000, which we wouldn’t expected in Japan which we didn’t guess. And then in terms of other areas and I think that Europe has continued to be weak. It strengthened in Q3 and but I don’t really see southern Europe recovering much. Northern Europe has remained reasonably strong and stable, and the U.K. has come back a little bit and southern Spain whether it’s Italy, Spain, Portugal, et cetera has for the whole year been extremely weak and we expect it to stay that way and probably until the middle of next year. In terms of the U.S., I would actually say things were going along quite well for July and August. We essentially lost a few weeks while there was a great deal of uncertainty about the Apple situation and we have seen it come back. And nothing too extraordinary in terms of geographical dispersion, we didn’t see the same impact overseas and that’s partly because Apple don’t deliver new products around the world at the same time. And I think in Ireland, they were delivering the new iPhones in late October. So, it means that the 6.0 Operating System is still available for anyone who wants to deploy through mid-October and it’s the abrupt transition that causes the grief. You are delivering 6.0 Operating System on Wednesday and on Thursday you are delivering 7.0, and that causes people to just stop and hasten and halt their deployment. The situation in Europe is somewhat easier because they do get the benefit of longer runway to do these transitions. And generally speaking Apple and its good example, in September are able to do quick updates prior to going overseas. So the overseas customers don’t suffer the 7.0, 7.01, 7.02, they start at 7.02 and that makes life somewhat easier.

[Brian Swift:]

Well, I have 7.03 with my iPhone, so it seems like another one came out about a week ago?

[Kevin Mills:]

Well, yeah, I am sure, it’s -- I mean the -- there has been some rapid changes and I think from a consumer point of view they are all pretty benign and maybe some of them aren’t. But from running your business point of view and the impact of your application not working when you have sales people out there using it as their daily tool and it is dramatically different than if you can’t get your email for 45 minutes.

[Brian Swift:]

Right. But do you think that the movement to iOS 7 is pretty much run its course as far as your delays or do you think they are still more ahead?

[Kevin Mills:]

No. I think its run its course. I think that part -- but part of the dilemma here I think we have Brian is that the Windows is quite short from September through when somebody can put a new system into a retail store. And because of the delays I think that more of the deployments got pushed to 2014 than would have happened, had they are not been delayed.

[Brian Swift:]

Oh, I see.

[Kevin Mills:]

So there isn’t enough time, I mean, right now we are getting to stability but it’s the 28th of October. I think if we got the stability either 28th of September, people would still have had four to five weeks to push solutions into retail stores prior to Christmas, four to five days won’t get it done. So you are now going to see some those push off into early 2014.

[Brian Swift:]

Did you elaborate bit on your sales pipeline, now that’s going (inaudible) now and that’s split just (inaudible) in the SoMo and then just any kind of color on why you have a lot of trials going in your (inaudible) this quarter?

[Kevin Mills:]

Yes. So the line is breaking up badly, Brian. So let me just reiterate. So you would like a little more color on the developers and both on scanning and on SoMo?

[Brian Swift:]

Right.

[Kevin Mills:]

Okay. So I think that in terms of the pipeline and what we really look at is where we are with the developers. And today I would say we have in excess of 120 mobile point of sales solutions which have been completed, gone through some type of field trial or test and are ready to be deployed where the cordless scanner -- our cordless scanner is the primary scanning solution. And you can see if you go to places like Shopify, they recently posted on their homepage their new mobile point of sales solutions listing of -- as is the case with Lightspeed and NCR and ShopKeep and Zend and there is a long list. And I think that many of them are still gaining traction as oppose to help traction. And as they get traction, they are pulling us into these deals. We estimate that 20% of all point of sales systems will need a scanner. And it’s not a 100% situation and largely depends on what you are selling. Obviously if you are selling coffee and cupcakes, there is no requirement for a scanner. And if you are selling clothes or shoes or other items, there is. And if you take situation of Square as an example, they have gone from selling a service which is where they started to selling items, but items that were picture items like coffee and cupcakes and pastries and other things to now to a point where their software has been upgraded to sell items and as part of this they’ve incorporated our scanners. And I think that the market is still evolving and that we somewhat run out of time this year due to the fact that the people underestimate the difficulty. And having that said we expect -- I mean I could give you a lot of customers who are looking at deal. But I think many of them will fall into next year, including the likes of Yamazaki who took the 3200 units as part of a trial this year and want to deploy their second phase until next year and that second phase is likely to be 27,000 to 30,000 units. So there is a good pipeline. I think on the SoMo side, we’ve had a 150 people download the SCKT. And I think that there are pockets of our potential success here and as people who value stability particularly in healthcare, in hospitality and has deal with the rapid changing world of Apple and Android are relooking at the SoMo. And there are some interesting opportunities but I don’t think there are far left alone, yes. And to get overly excited, we have seen our regular customers come back and they are maintaining the business during this transitionary period.

[Brian Swift:]

Okay. And just one last question on technology side, every time Apple and the Android guys come up with new phones, the camera will get better and sharper. The couple of times that I have used it for scanning, I haven’t noticed that being any easier, any faster, I might just being left at it. Do you have any color on how -- whether that’s proving because obviously down the road that seems to be what most have to worry about in terms of that they are able to scan so well with the handheld as they don’t need the scanner. But I haven’t seen that technology improving well as the clarity of the pictures that you get?

[Kevin Mills:]

Well, it’s a very interesting observation in fact as the cameras get better, the ability to scan barcodes actually gets reverse. And your ideal barcode scanner is a high contrast black and white camera. Because you want nice, crisp lines between your lines -- your white lines and your black lines. As you start getting very good cameras like the new Nokia with the 41 megapixel camera, it becomes increasingly difficult to scan barcodes for two reasons. One is that you don’t get those nice, sharp, black and white lines that the barcode scanner likes. And the second thing is that it’s quite difficult to maintain stability when you have a very sensitive camera to read the barcodes. So I have been to a number of customers and developers and the few of them as they operate with iOS 7 and the improved camera picture situation. As they find that they are unable to read barcodes anymore with the primary camera and recommending customers now read the barcodes with their face time camera or the camera that takes the picture of you are the poorer quality one. So even though it’s not obvious, I actually think as the camera gets better their ability to scan barcodes get worse which somewhat eliminates these thrash of your camera will read the barcodes quickly. And it’s actually quite the opposite. We like better pictures and worse barcode scanners because it makes our life easier. And ultimately I have to say that you still have a timing problem. Most of our customers are scanning 50 to 200-300 times a day. And I think most camera phones run out of scanning capability once you get past 10, 15 may be maximum of 20 scans a day. It gets very old, very quickly and so -- but I think actually it reduces as opposed to increases the thrash and going forward the camera is improved.

[Brian Swift:]

Okay. Glad to hear [it isn’t just negative] I am using the product. Okay. That’s it for me. Thank you.

[Kevin Mills:]

All right. Thank you very much, Brian. So I don’t know if we have any more questions and but I assume the silence indicates we don’t have any more. So I would 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.