Lower Price Target To $4 (From $6); Near-Term Trends Are Less Favorable, But We Think Investment In Products Should Yield Benefits Over Time

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1 April 27, 2018 Company Sponsored Research Morning Meeting Note Lower Price Target; Lower Earnings Estimates Socket Mobile, Inc. (SCKT) Equity Research Lower Price Target To $4 (From $6); Near-Term Trends Are Less Favorable, But We Think Investment In Products Should Yield Benefits Over Time E 2019E OLD NEW OLD NEW OLD NEW Mar. $0.09 $0.05 $0.07 ($0.03)A $0.09 ($0.01) June Sep Dec (0.39) EPS $1.80 ($0.20) $0.29 $0.20 $0.37 $0.28 P/E 14.5x 10.4x Note: NR = Not Rated. Risk Ratings: H = Highly risky; M = Moderately risky GAAP EPS include $1.45 in one-time tax benefits, 2017 GAAP EPS include $0.36 one-time tax charge. GAAP EPS are based on a statutory tax rate of 42% in 2017 and 28% annually in Pro forma EPS assume a 5% cash tax rate in and a 15% rate in Sum of quarterly data may not equal full-year data due to rounding and/or changes in share count. NC = Not covered by. *EPS including amortization expense. Year E 2019E Rev.(Mil.) $13.5 $17.5 $13.6 $15.7 $17.0 $18.4 $20.8 $21.3 $20.4 $21.9 GAAP EPS ($1.05) ($0.56) ($0.68) ($0.13) $0.08 $0.31 $1.80 ($0.20) $0.20 $0.28 Description: Socket Mobile, Inc. ( offers wireless barcode scanners that connect to mobile devices over Bluetooth. Options include 1D, Laser, and 2D scanning engines, as well as IP54-rated durable for industrial use. Software supports integration to point of sale (POS) or other data capture applications. Headquarters are in Newark, CA. SCKT reported a 1Q:18 GAAP per share loss of $0.03 (adjusted loss of $0.04) on revenue of $4.0 million, which compared with our estimates for GAAP EPS of $0.07 (adjusted $0.09) on $5.6 million revenue. Revenue was hampered by several factors including a product delay, slower enterprise deployment activity, and slowing growth from U.S. retail point of sale. The product shipping delays were resolved in April, and we think impact on 2Q:18 should be minimal; however, slower demand prompts us to adjust our revenue growth estimates to a decline of 4.4% in 2018 and a gain of 7.6% in 2019, versus the roughly 10% growth rate we previously expected in both periods. Still, the company made strides with a more efficient product design that should support a pickup in growth over a longer-term period and allow quicker product refreshes. We think SCKT remains well ahead of competitors. We reduce our EPS estimates to $0.20 (from $0.29) in 2018 and $0.28 (from $0.37) in 2019, taking into account lower growth from the run rate scanner business and lower contribution from the corporate deployment business. We lower our price target to $4 (from $6), which is based on 12x our revised 2019 adjusted EPS estimate of $0.36. (Our previous $6 target was based on 13x our prior 2019 EPS estimate of $0.49.) This multiple is in line with our five-year EPS CAGR projection. Matthew Galinko (212) (mgalinko@sidoti.com) Key Statistics NR Price Target: $4 Price: $2.90 Risk Rating: M Analysts Covering 1 Market Cap (Mil) $20 Enterprise Value $15 52-Week Range (NASDAQ) Year EPS CAGR 12% Avg. Daily Trading Volume 60,000 Shares Out (Mil) Float Shares (Mil) Insider Ownership 19% Institutional Holdings 8% Annualized Dividend Dividend Yield Nil N/A FCF Per Share (2019E) $0.22 FCF Yield (2019E) 7.6% Net Cash Per Share (2019E) $0.31 Price to Book Value 1.2x Return on Equity (2019E) 11.0% Total Debt to Capital Nil Interest Coverage Ratio 30.4x Short Interest % 1.2% Short Interest Days To Cover 3.4 Russell ,562 Russell 2000 Last 12 Months 12.4% SCKT Last 12 Months -32.4% SCKT reported a weak start to 2018 demand for barcode scanners. Transient pressure from a product flaw in a new product line discovered just before shipment to distributors weighed on orders in 1Q:18. The flaw was repaired and product launch completed earlier this week. However, management discussed less activity around corporate scanner deployments, which accounted for about $2.2 million in annual revenue on average over the past two years. We see no specific reason for the slowdown in pipeline and think that a recovery is likely over time, particularly as SCKT launches new and improved products. In addition to weakness in corporate deployments, the revenue generated as a result of application partner sales has struggled under shifting partner priorities (from new customer Required disclosures appear in the Appendix Member FINRA & SIPC 1212 Avenue of the Americas 15 th Floor New York, NY Phone:

2 SOCKET MOBILE, INC. acquisition to customer retention). Near-term pressure on the business prompts us to reduce our revenue and earnings estimates. However, we think the outlook is significantly better than results over the past two quarters. Revenue from markets beyond the mobile point of sale is growing rapidly, although still small in the mix. Furthermore, international expansion for mobile point of sale could begin to make up for slower U.S. growth over time. SCKT s investment in product enhancements and software tools to ease the implementation of advanced scanner features could entice the current install base to purchase new, higher priced scanners, as well as lead more new customers to a higher price scanner from their initial purchase. In other words, when application partners were in rapid customer growth mode, SCKT benefitted from the wave. Now, although SCKT does not directly own the customer relationship, it is rolling out features that make it easier for the application developer and end user to use more advanced features that may induce a replacement or additional barcode scanner sale. SCKT invests significantly in R&D and is becoming more flexible and responsive to customer and end market demands, which we think will serve the company over the long run. We continue to see SCKT s scale in the mobile barcode scanner market as a benefit that likely prevents new competitors from gaining traction. Lastly, management noted that the low interest in corporate deployment of scanners does not follow a cyclical or historical pattern; it also does not reflect competitive losses as no business is being floated to compete for. We think this topic is subject to further exploration, and note that for now, our estimates do not include corporate deployments. We lower our price target to $4 (from 6) on Socket Mobile. We obtain our target by applying a 12x multiple to our revised 2019 adjusted EPS estimate of $0.36. (Our previous $6 target was based on 13x our prior 2019 EPS estimate of $0.49.) We lower the multiple to account for the slower projected revenue growth. We think this multiple is a fair reflection of the strength of the core strategy despite near-term challenges. SCKT shares have retreated from the 52-week high of $4.59 each and stock tender price of $3.90. Projected growth in the core barcode scanner business effectively accounts for all of our revenue projections in 2018 and 2019, and we think strong customer uptake of refreshed products, international expansion, and a return of enterprise revenue could produce revenue gains beyond our estimates. We caution that with more than 96% of revenue generated from barcode scanner sales, market weakness or significantly increased competition could diminish the company s results and the stock s valuation. Also note that about 20% of scanner revenue is historically generated by large corporate deployments, with most of the remainder from first-time scanner buyers, presumably small retailers. Large deployments are difficult to predict, prone to volatility, and likely subject to greater competition, compared with the core business, in our view. Key Risks End-market demand Elevated competition Timing of large orders Exhibit 1: SCKT 1Q:18 Variance Chart ($ in millions, except per share amounts) 1Q:18E 1Q:18A Variance 1Q:17A $ Change Y/Y% Change Revenue $5.6 $4.0 ($1.6) $5.6 ($1.6) -29.2% Gross Profit $3.0 $2.1 ($0.9) $2.9 ($0.8) -29.1% Gross Margin 53.6% 51.8% 51.8% Operating Income $0.8 ($0.3) NM $0.7 NM NM Operating Margin 14.3% -7.2% 11.9% Net Income $0.7 ($0.3) NM $0.6 NM NM Net Margin 12.5% -6.3% 10.8% GAAP EPS $0.07 ($0.03) ($0.10) $0.05 ($0.08) NM Adjusted EPS $0.09 ($0.04) ($0.13) $0.08 NM NM Source: Company reports and estimates. 2

3 Table 1: Socket Mobile Inc. Income Statement ($ in millions, except per share data) SOCKET MOBILE, INC. Mar June Sept Dec 2016 Mar June Sept Dec 2017 MarA JuneE SeptE DecE 2018E March June Sept Dec 2019E Revenue $5.0 $5.2 $5.1 $5.4 $20.8 $5.6 $5.8 $5.5 $4.4 $21.3 $4.0 $5.8 $5.7 $4.8 $20.4 $4.2 $6.1 $6.3 $5.3 $21.9 Cost of revenue Gross profit Research and development Sales and marketing General and administrative Total operating expenses Operating income (0.3) (0.0) EBITDA (0.2) Interest expense and other (0.0) (0.1) (0.1) (0.1) (0.2) Net income before taxes (0.3) (0.0) Provision for income tax (9.8) (9.7) (0.1) (0.0) Net income (2.7) (1.5) (0.2) (0.0) Adjusted net income (0.1) 2.1 (0.3) (0.0) GAAP EPS basic $0.10 $0.09 $0.11 $1.78 $2.10 $0.07 $0.08 $0.07 ($0.39) ($0.23) ($0.03) $0.10 $0.10 $0.04 $0.20 ($0.01) $0.10 $0.11 $0.07 $0.28 GAAP EPS diluted $0.09 $0.07 $0.10 $1.40 $1.80 $0.05 $0.07 $0.06 ($0.39) ($0.20) ($0.03) $0.10 $0.10 $0.04 $0.20 ($0.01) $0.10 $0.11 $0.07 $0.28 Adjusted EPS diluted $0.08 $0.07 $0.10 $0.08 $0.34 $0.08 $0.11 $0.10 ($0.01) $0.28 ($0.04) $0.13 $0.13 $0.05 $0.26 ($0.01) $0.14 $0.14 $0.09 $0.36 Basic shares outstanding Diluted shares outstanding % yoy change Revenue 25.9% 16.2% 12.9% 0.7% 13.0% 11.5% 11.4% 7.3% -19.3% 2.4% -29.2% 0.0% 5.0% 10.0% -4.4% 5.0% 5.0% 10.0% 10.0% 7.6% Gross profit 38.6% 22.0% 17.5% -2.0% 16.8% 16.2% 20.5% 15.8% -14.6% 9.2% -29.1% -1.1% 0.0% 10.1% -5.7% 7.3% 5.0% 10.0% 10.0% 8.1% R&D 14.3% 34.7% 22.2% 26.7% 24.4% 21.3% 15.9% 24.1% 19.9% 20.2% 18.8% 1.4% -1.3% -3.0% 3.5% -11.7% 5.0% 10.0% -7.4% -1.4% S&M 11.1% 12.1% 13.8% 7.7% 11.1% 10.5% 8.6% 6.2% 0.6% 6.4% -2.8% 5.7% 5.3% 1.1% 2.3% 2.0% 2.7% 7.6% 2.7% 3.7% G&A -6.8% 23.6% 13.8% 19.1% 11.1% 22.6% 4.3% 28.6% 7.4% 15.4% -3.6% 10.1% 0.2% 9.2% 3.6% 0.7% 1.3% 5.2% -2.2% 1.3% Op Ex 6.1% 23.0% 16.8% 17.5% 15.6% 17.8% 10.1% 18.8% 9.8% 14.0% 4.6% 5.2% 1.3% 1.6% 3.1% -3.9% 3.2% 7.8% -2.7% 1.1% Operating income NM 18.5% 19.5% -35.2% 20.4% 11.3% 56.8% 7.9% -90.1% -5.7% % -16.2% -3.6% NM -38.4% -85.3% 10.6% 16.8% 120.0% 51.6% EBITDA NM 20.3% 22.2% -31.8% 22.1% 12.4% 52.5% 7.2% -80.4% -3.9% % -14.8% -2.8% NM -35.1% % 10.1% 16.1% 97.7% 44.5% EBT NM 34.3% 28.2% -34.1% 31.5% 14.7% 58.5% 9.4% NM -5.0% % -7.0% 5.7% NM -28.2% -84.2% 3.8% 9.4% 85.1% 36.0% Net income NM 28.9% 22.6% NM NM -29.6% -6.4% -38.1% NM NM % 20.6% 38.7% NM NM -83.7% 3.8% 9.4% 85.1% 35.4% Adjusted net income NM 28.9% 24.4% -36.8% 28.2% 10.6% 60.1% 7.1% NM -12.3% % -7.0% 5.7% NM -23.2% -84.2% 3.8% 9.4% 85.1% 36.0% Adjusted EPS NM 4.8% 7.5% -45.9% 11.7% -7.4% 49.4% 4.0% NM -19.4% % 26.2% 30.9% NM -5.1% -81.7% 1.7% 6.8% 79.8% 38.9% % of revenue Gross margin 49.7% 49.5% 51.5% 50.1% 50.2% 51.8% 53.6% 55.6% 53.0% 53.5% 51.8% 53.0% 53.0% 53.0% 52.8% 53.0% 53.0% 53.0% 53.0% 53.0% R&D 13.0% 14.2% 13.8% 14.5% 13.9% 14.2% 14.8% 16.0% 21.5% 16.3% 23.8% 15.0% 15.0% 19.0% 17.7% 20.0% 15.0% 15.0% 16.0% 16.2% S&M 13.6% 13.1% 13.6% 13.1% 13.3% 13.5% 12.8% 13.5% 16.3% 13.9% 18.5% 13.5% 13.5% 15.0% 14.8% 18.0% 13.2% 13.2% 14.0% 14.3% G&A 11.1% 11.1% 10.1% 10.2% 10.6% 12.3% 10.4% 12.1% 13.6% 12.0% 16.7% 11.4% 11.5% 13.5% 13.0% 16.0% 11.0% 11.0% 12.0% 12.2% Op Ex 37.8% 38.4% 37.5% 37.8% 37.9% 39.9% 37.9% 41.5% 51.4% 42.2% 59.0% 39.9% 40.0% 47.5% 45.5% 54.0% 39.2% 39.2% 42.0% 42.7% Op Income 11.9% 11.1% 14.1% 12.3% 12.3% 11.9% 15.6% 14.2% 1.5% 11.4% -7.2% 13.1% 13.0% 5.5% 7.3% -1.0% 13.8% 13.8% 11.0% 10.3% EBITDA 13.2% 12.4% 15.6% 13.5% 13.7% 13.3% 17.0% 15.6% 3.3% 12.8% -5.8% 14.5% 14.4% 6.9% 8.7% 0.4% 15.2% 15.2% 12.4% 11.7% Adjusted net income 1.7% 1.4% 1.9% 1.5% 1.6% 1.4% 1.8% 1.8% -0.3% 1.3% -0.9% 2.3% 2.3% 1.1% 1.3% -0.2% 2.2% 2.2% 1.8% 1.7% Sources: Company reports and estimates 3

4 SOCKET MOBILE, INC. Table 2: Socket Mobile Inc. Cash Flow Statement ($ in millions, except per share data) 2015 March June Sept Dec 2016 Mar June Sept Dec E 2019E Net income $1.8 $0.5 $0.5 $0.7 $10.7 $12.4 $0.4 $0.5 $0.4 ($2.7) ($1.4) $1.2 $1.6 Stock-based compensation Depreciation Changes in deferred taxes (10.0) (10.0) Accounts receivable (0.5) (0.0) (0.1) (0.2) 0.1 (0.2) (0.5) 0.3 (0.3) (0.4) (0.6) Inventory (0.4) (0.2) 0.6 (0.3) (0.4) (0.2) (0.3) (0.4) (0.0) 0.0 (0.7) 0.7 (0.2) Prepaid expenses and other current 0.0 (0.0) (0.1) (0.0) 0.0 (0.1) (0.1) (0.2) (0.1) (0.4) (0.5) Other assets (0.0) (0.0) (0.0) Accounts payable and accrued expenses (0.8) 0.1 (0.7) (0.0) (0.4) (1.0) 0.4 (0.4) (0.0) (0.1) (0.1) (0.1) 0.1 Accrued payroll and related expenses 0.1 (0.0) (0.1) (0.0) (0.0) (0.1) 0.0 Customer deposit 0.6 (0.3) 0.5 (0.8) (0.8) (1.5) (0.1) Net deferred revenue on shipments to distributors 0.0 (0.1) (0.6) (0.0) 0.1 (0.0) 0.1 (0.1) 0.0 Deferred service revenue (0.1) (0.0) (0.0) (0.0) (0.0) (0.1) (0.0) 0.0 (0.0) (0.0) (0.0) (0.1) 0.0 Change in deferred rent (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.3) 0.0 Net cash provided by operating activities Purchase of equipment (0.4) (0.1) (0.0) (0.1) (0.1) (0.3) (0.1) (0.0) (0.1) (0.2) (0.4) (0.3) (0.3) Capitalized software costs (0.2) (0.2) Net cash provided by investing activities (0.4) (0.1) (0.0) (0.1) (0.1) (0.3) (0.1) (0.0) (0.1) (0.4) (0.6) (0.3) (0.3) Payments on capital leases (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.1) (0.4) Proceeds from borrowing under bank line of credit agreement (2.0) Repayments of borrowing under bank line of credit agreement (1.0) (0.5) (0.4) Proceeds from term loan Payment on term loan (3.0) (0.8) Repurchase of common stock (4.0) 0.0 Stock options exercised Warrants exercised Repayment of related party and short-term credit line payable (0.1) 0.0 (0.5) (0.5) Net cash provided by financing activities (0.7) 0.1 (0.3) (0.0) 0.1 (0.2) (1.1) (3.2) Net increase in cash and equivalents (1.5) Cash and equivalents, beginning of period Cash and equivalents, end of period FCF FCF/share $0.16 $0.01 $0.04 $0.01 $0.01 $0.07 $0.02 $0.06 $0.09 $0.10 $0.26 $0.22 $0.29 FCF less share-based compensation (SBC) 0.8 (0.0) (0.1) FCF less SBC / share $0.13 ($0.00) $0.03 $0.00 ($0.01) $0.02 $0.01 $0.04 $0.08 $0.08 $0.21 $0.16 $0.22 Sources: Company reports and estimates 4

5 Table 3: Socket Mobile Inc. Balance Sheet ($ in millions, except per share data) SOCKET MOBILE, INC. Mar June Sept 2016 Mar June Sept E 2019E Cash and equivalents $1.0 $1.1 $1.1 $1.3 $1.6 $2.1 $2.9 $3.4 $3.6 $2.1 Accounts receivable Inventory Prepaid expenses and other Total current assets Property and equipment Machinery and office equipment Computer equipment Accumulated depreciation Goodwill Other assets Deferred tax assets Total assets Accounts payable and accrued expenses Accrued payroll and related expenses Net deferred revenue on shipments to distributors Customer deposits Related party and other short-term credit line notes payable Related party convertible payable Short-term portion of deferred service revenue Total current liabilities Related party convertible note payable Term loan Long-term portion of capital leases and deferred rent Deferred tax liability Total liabilities Total stockholders' equity Total liabilities and stockholders' equity DSO Inventory days Total debt to capital 19.9% 12.4% 16.3% 6.3% 5.8% 5.5% 1.4% 1.6% 0.0% 0.0% Net cash (debt) ($0.0) $0.4 $0.1 $0.2 $0.6 $1.1 $2.9 $3.1 $0.6 $1.9 Net cash (debt) per share ($0.00) $0.05 $0.01 $0.03 $0.07 $0.14 $0.40 $0.44 $0.11 $0.31 Return on equity NM NM NM NM NM NM 92.2% NM 7.6% 11.0% Sources: Company reports and estimates 5

6 Appendix Required Disclosures Required Disclosures Socket Mobile, Inc. (SCKT-$2.90) NR Price Target: $4 Risk Rating: M Rating and Price Target History Table Action Date Px Rating PT Risk Rating Initiation 9/7/ NR 0 M Key Risks End-market demand Elevated competition Timing of large orders Valuation: We lower our price target to $4 (from 6) on Socket Mobile. We obtain our target by applying a 12x multiple to our revised 2019 adjusted EPS estimate of $0.36. (Our previous $6 target was based on 13x our prior 2019 EPS estimate of $0.49.) We lower the multiple to account for the slower projected revenue growth. We think this multiple is a fair reflection of the strength of the core strategy despite near-term challenges. SCKT shares have retreated from the 52-week high of $4.59 each and stock tender price of $3.90. Projected growth in the core barcode scanner business effectively accounts for all of our revenue projections in 2018 and 2019, and we think strong customer uptake of refreshed products, international expansion, and a return of enterprise revenue could produce revenue gains beyond our estimates. We caution that with more than 96% of revenue generated from barcode scanner sales, market weakness or significantly increased competition could diminish the company s results and the stock s valuation. Also note that about 20% of scanner revenue is historically generated by large corporate deployments, with most of the remainder from first-time scanner buyers, presumably small retailers. Large deployments are difficult to predict, prone to volatility, and likely subject to greater competition, compared with the core business, in our view. Sidoti & Company. is a licensed broker/dealer, and publishes research reports about some of the securities it follows. All research published by is based on public information, or on information from the company discussed in the report that that company is required to promptly make public. This report was prepared for market professionals and institutional investor customers. Market professionals and institutional investors should consider this report as only one factor in making their investment decisions. This report is for information purposes only and is not intended as an offer to sell or a solicitation to buy securities. This research report is not a substitute for the exercise of your independent judgment. Information contained herein is based on sources we believe to be reliable but we do not guarantee their accuracy. The stock rating on this report reflects the analyst s recommendation based on a 12-month period. It should be presumed that the analyst who authored this report has had discussions with the subject company to ensure factual accuracy prior to publication. Sidoti does NOT own securities of the issuers described herein, and Sidoti does not make a market in any securities. Sidoti does not engage in, or receive compensation from, any investment banking or corporate finance-related activities with the company discussed in the report. Sidoti s contracts with issuers protect Sidoti s full editorial control of all research, timing of release of reports, and release from liability for negative reports. To ensure further independence, the company discussed in the report has agreed to a minimum coverage term of one Initiation Report and three Update Reports, which that company cannot unilaterally terminate earlier. takes steps to ensure analyst independence including setting fees in advance and utilizing analysts who must abide by the CFA Institute Code of Ethics and Standards of Professional Conduct. Each Sidoti & Company, LLC analyst has full discretion on the rating and revenue target based on his or her own due diligence. Analysts are paid in part based on overall profitability of. Such profitability is derived from a variety of sources and includes payments received from issuers of securities covered by for services described below. No part 6

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8 APPENDIX CONTINUED receive investment banking income from the company discussed in the report in the next 12 months. Of securities rated in other Sidoti Company Sponsored Research reports, Sidoti has received investment banking income from 0 companies (0%) in the past 12 months. Investment banking services, as defined under FINRA Rule 2241, include, among other things, acting as an underwriter in, or as a member of the selling group in, a securities underwriting. Sidoti s role in any issuer s investment banking transaction can be viewed in that issuer s filings at Sidoti has non-research employees who will seek compensation for brokerage commission revenue in connection with market trading the securities of this company. has received compensation for non-investment banking services on the Small-Cap Universe, and expects to receive additional compensation for non-investment banking services on the Small- Cap Universe, paid by issuers of securities covered by analysts. These non-investment banking services include investor relations services and software, financial database analysis, advertising services, brokerage services, advisory services, investment research, investment management, non-deal road shows, and attendance fees for conferences sponsored or co-sponsored by. Sidoti Analysts. The research analyst certifies that this report accurately reflects his/her personal views about the subject securities and issuers and that none of the research analyst's compensation was, is or will be, directly or indirectly, related to the analyst's specific recommendations or views contained in this research report. Sidoti policy does not allow an analyst or a member of their household (i) to own, trade, or have any beneficial interest in any securities of any company that analyst covers, or (ii) serve as an officer or director of a covered company. Sidoti employees, including research analysts, receive compensation that is based in part upon the overall performance of the firm, including revenues generated by Sidoti s investment banking and brokerage activities, but compensation is not directly related to investment banking or brokerage revenues. Sidoti maintains and enforces written policies and procedures reasonably designed to prevent any controlling persons, officers (or persons performing similar functions), or employees of Sidoti from influencing the activities of research analysts and the content of research reports prepared by the research analyst. Sidoti research analysts seek to have management of their covered companies meet with investors during non-deal road shows. Analysts compensation may be related to their success in scheduling non-deal road shows. This approach could be viewed as presenting potential conflicts of interest. Reprints of reports are prohibited without permission. Additional information is available upon request. For any further questions, please contact the Chief Compliance Officer at Sidoti. Source Key Statistics data is sourced from FactSet Research Systems 8