Socket Mobile, Inc. (SCKT) NR Price Target: $6 Price: $4.04 Risk Rating: M. Sidoti & Company, LLC

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1 October 27, 2017 Company Sponsored Research Morning Meeting Note Earnings Release Socket Mobile, Inc. (SCKT) Equity Research Maintain $6 Price Target; Robust Demand From Application Developer, Despite Disruptions From Natural Disasters, Reflects Solid Growing Business; Estimate A 13% EPS CAGR In E 2018E 2019E OLD NEW OLD NEW OLD NEW Mar. $0.08 $0.08A $0.11 $0.12 June A Sep $0.10A Dec $ EPS $0.34 $0.38 $0.40 $0.44 $0.49 P/E 10.1x 9.2x 8.2x Note: NR = Not Rated. Risk Ratings: H = Highly risky; M = Moderately risky exclude $1.45 in one-time tax benefits. 2017E-2018E reflect a 5% cash tax rate, while 2019E reflect a 15% cash tax, resulting in a $0.21, $0.16, and $0.12 benefit, respectively. Sum of quarterly data may not equal full-year data due to rounding and/or changes in share count. NC = Not covered by. Year E 2018E 2019E Rev.(Mil.) $13.5 $17.5 $13.6 $15.7 $17.0 $18.4 $20.8 $22.9 $25.5 $28.1 GAAP EPS ($1.05) ($0.56) ($0.68) ($0.13) $0.08 $0.31 $1.80 $0.24 $0.28 $0.32 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 3Q:17 EPS of $0.10 on revenue of $5.5 million, compared to our estimates for EPS of $0.10 on revenue of $5.9 million. Hurricanes that hit the U.S. in September seemingly delayed some orders, muting the revenue growth rate in 3Q:17; management confirmed orders picked up in the second half of September and October. Several initiatives give us confidence in our forecast for low double-digit revenue growth in , including distribution expansion into China, the launch of contactless scanners (near field communication and RFID), and form factors that apply to other uses cases. Moreover, SCKT s application partners are pushing into new market segments; SCKT is a derivative beneficiary of those efforts. Management noted developer interest in contactless scanners in numerous use cases; developer efforts is a leading indicator for demand for Socket Mobile products. We apply a 13x multiple to our 2019 EPS estimate of $0.49 to derive a $6 price target. This multiple is in line with our 5-year EPS CAGR projection. SCKT reported in line profitability and light revenue for 3Q:17, as margins expanded. SCKT faced pressure in the first half of September, presumably related to the hurricanes that hit the U.S. Management cited a return to normal demand by the second half of the month and perhaps a bounce back in October; however with September the largest traditional month for orders in the third quarter, the slow start was unrecoverable. Nevertheless, the gross margin of 55.6% was up from 53.6% sequentially and 51.5% in 3Q:16, as scale and engineering enhanced profitability. We model a gross margin of 53% from 4Q:17 through 2019 as the company could lower prices for new products. EPS of $0.10 were flat year over year and down a penny sequentially. Matthew Galinko (212) (mgalinko@sidoti.com) Key Statistics NR Price Target: $6 Price: $4.04 Risk Rating: M Analysts Covering 0 Market Cap (Mil) $30 Enterprise Value $30 52-Week Range (NASDAQ) Year EPS CAGR 13% Avg. Daily Trading Volume 19,000 Shares Out (Mil) Float Shares (Mil) Insider Ownership 19% Institutional Holdings 8% Annualized Dividend Dividend Yield Nil N/A FCF Per Share (2019E) $0.39 FCF Yield (2019E) 9.7% Net Cash Per Share (2019E) $1.21 Price to Book Value 1.3x Return on Equity (2019E) 11.2% Total Debt to Capital Nil Interest Coverage Ratio N/A Short Interest % 0.5% Short Interest Days To Cover 0.7 Russell ,497 Russell 2000 Last 12 Months 19.3% SCKT Last 12 Months 47.8% We view the addressable market as robust, with Socket expanding the tools to capture share. SCKT s ascension in the mobile barcode scanner market began at the small retail 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. point of sale, but evolved into an array of use cases. Ease of use and quality at a reasonable price make SCKT scanners applicable to one-off purchases and larger deployments. SCKT s software application partners do the heavy lifting of customer acquisition. Broadening the geographic reach into China, deployment of new form factors and scanning engines, and application partner expansion into new use cases and customer segments should support ongoing double-digit revenue growth. SCKT s model is highly leveragable as its primary focus is product development, maintaining brand awareness and supporting developers. We also argue SCKT s growing investment in R&D will expand product availability and ease end user and application developer experience with the scanners. This focus from a first mover that industry research suggests is a category leader, in our view, should keep competitors at bay as there is little incentive to switch. Further, management noted new products will be launched in 2018 with attractive price points, suggesting there is room for product price cuts. SCKT routinely reduced the cost to make products; this supported both lower selling prices and higher margins. SCKT is well capitalized to invest in the business. Strong demand for mobile barcode scanners and increasing gross margin produced steady profitability and positive cash flow for SCKT. A debt-free and cash rich balance sheet is a valuable qualifier for some of SCKT s customers, and we think the $2.9 million ($0.40 per share) in net cash and investments at the end of 3Q:17 afford flexibility. The company was in a net debt position as recently as 1Q:16. We maintain a $6 price target on Socket Mobile. We apply a 13x multiple to our 2019 EPS estimate of $0.49 to derive an unchanged $6 price target. Note that we set the multiple in line with our 5-year EPS CAGR projection. We do not think the valuation accorded the shares fairly reflects SCKT s market opportunity and improving fundamentals. We think consistent revenue growth in the low single digits will draw investors to the name and lift the shares over time. Key Risks End market demand Elevated competition Exhibit 1: SCKT 3Q:17 Variance Chart ($ in millions, except per share amounts) 3Q:17E 3Q:17A Variance 3Q:16A $ Change Y/Y% Change Revenue $5.9 $5.5 ($0.4) $5.1 $ % Gross Profit $3.1 $3.0 ($0.1) $2.6 $ % Gross Margin 52.5% 55.6% 51.5% Operating Income $0.9 $0.8 NM $0.7 NM NM Operating Margin 15.3% 14.2% 14.1% Net Income $0.8 $0.7 NM $0.7 NM NM Net Margin 13.6% 13.1% 13.1% Diluted EPS $0.10 $0.10 NM $0.10 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 MarA JuneA SeptA DecE 2017E MarE JuneE SeptE DecE 2018E 2019E Revenue $5.0 $5.2 $5.1 $5.4 $20.8 $5.6 $5.8 $5.5 $6.0 $22.9 $6.2 $6.4 $6.2 $6.7 $25.5 $28.1 Cost of revenue Gross profit Research and development Sales and marketing General and administrative Total operating expenses Operating income EBITDA Interest expense and other Net income before taxes Provision for income tax (9.8) (9.7) Net income Adjusted net income GAAP EPS basic $0.10 $0.09 $0.11 $1.78 $2.10 $0.07 $0.08 $0.07 $0.07 $0.28 $0.07 $0.07 $0.07 $0.08 $0.29 $0.32 GAAP EPS diluted $0.08 $0.07 $0.10 $1.40 $1.80 $0.05 $0.06 $0.06 $0.07 $0.24 $0.07 $0.07 $0.07 $0.07 $0.28 $0.32 Adjusted EPS diluted $0.08 $0.07 $0.10 $0.08 $0.34 $0.08 $0.11 $0.10 $0.11 $0.40 $0.11 $0.11 $0.11 $0.12 $0.44 $0.49 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% 10.0% 10.0% 10.0% 10.0% 14.0% 12.0% 11.5% 10.2% Gross profit 38.6% 22.0% 17.5% -2.0% 16.8% 16.2% 20.6% 15.8% 16.4% 17.3% 12.5% 8.8% 8.6% 12.0% 10.5% 10.2% R&D 14.3% 34.7% 22.2% 26.7% 24.4% 21.3% 15.9% 24.1% 8.5% 17.1% 16.4% 11.5% 7.1% 17.5% 13.0% 10.2% S&M 11.1% 12.1% 13.8% 7.7% 11.1% 10.5% 8.7% 6.2% 13.4% 9.7% 10.0% 16.2% 14.3% 12.0% 13.1% 7.6% G&A -6.8% 23.6% 13.8% 19.1% 11.1% 22.6% 4.2% 28.6% 18.4% 18.1% -1.3% 21.1% 4.0% 12.0% 8.6% 9.8% Op Ex 6.1% 23.0% 16.8% 17.5% 15.6% 17.8% 10.1% 18.8% 12.9% 14.8% 8.8% 15.7% 8.6% 14.0% 11.8% 9.2% Operating income NM 18.5% 19.5% -35.2% 20.4% 11.3% 56.7% 7.9% 27.4% 24.8% 25.0% -7.9% 8.7% 6.5% 6.8% 13.3% EBITDA NM 20.3% 22.2% -31.8% 22.1% 12.4% 52.5% 7.1% 27.0% 23.9% 23.4% -6.3% 9.2% 7.0% 7.3% 13.0% EBT NM 34.3% 28.2% -34.1% 31.5% 14.7% 59.6% 9.4% 30.8% 27.6% 28.5% -6.3% 9.8% 6.6% 8.2% 13.6% Net income NM 28.9% 22.6% NM NM -29.6% -5.2% -38.1% -95.1% -85.2% 28.5% 2.3% 21.9% 6.6% 13.7% 13.6% Adjusted net income NM 28.9% 24.4% -36.8% 28.2% 10.6% 61.2% 7.1% 30.8% 26.0% 28.5% -6.3% 9.8% 6.6% 8.2% 13.6% Adjusted EPS NM 4.8% 7.5% -45.9% 11.7% -7.4% 50.4% 4.0% 36.0% 15.2% 39.3% 1.5% 8.5% 5.4% 12.1% 11.5% % of revenue Gross margin 49.7% 49.5% 51.5% 50.1% 50.2% 51.8% 53.6% 55.6% 53.0% 53.5% 53.0% 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% 14.3% 14.8% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% S&M 13.6% 13.1% 13.6% 13.1% 13.3% 13.5% 12.8% 13.5% 13.5% 13.3% 13.5% 13.5% 13.5% 13.5% 13.5% 13.2% G&A 11.1% 11.1% 10.1% 10.2% 10.6% 12.3% 10.4% 12.1% 11.0% 11.4% 11.0% 11.4% 11.0% 11.0% 11.1% 11.1% Op Ex 37.8% 38.4% 37.5% 37.8% 37.9% 39.9% 37.9% 41.5% 38.8% 39.5% 39.5% 39.9% 39.5% 39.5% 39.6% 39.2% Op Income 11.9% 11.1% 14.1% 12.3% 12.3% 11.9% 15.6% 14.2% 14.2% 14.0% 13.5% 13.1% 13.5% 13.5% 13.4% 13.8% EBITDA 13.2% 12.4% 15.6% 13.5% 13.7% 13.3% 17.0% 15.6% 15.6% 15.4% 14.9% 14.5% 14.9% 14.9% 14.8% 15.2% Adjusted net income 1.7% 1.4% 1.9% 1.5% 1.6% 1.4% 1.8% 1.8% 1.9% 1.7% 1.8% 1.7% 1.7% 1.7% 1.7% 1.8% Sources: Company reports and estimates 3

4 Appendix Required Disclosures Required Disclosures Socket Mobile, Inc. (SCKT-$4.04) NR Price Target: $6 Risk Rating: M Rating and Price Target History Table Action Date Px Rating PT Risk Rating Initiation 9/7/ NR 0 M Socket Mobile, Inc. (SCKT) Volume (Thousands) 1/15 7/15 1/16 7/16 1/17 7/17 Volume Price (USD) Socket Mobile, Inc. Source: FactSet Prices Key Risks End market demand Elevated competition Valuation: We maintain a $6 price target on Socket Mobile. We apply a 13x multiple to our 2019 EPS estimate of $0.49 to derive an unchanged $6 price target. Note that we set the multiple in line with our 5-year EPS CAGR projection. We do not think the valuation accorded the shares fairly reflects SCKT s market opportunity and improving fundamentals. We think consistent revenue growth in the low single digits will draw investors to the name and lift the shares over time. 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 of analyst compensation was, or will be, directly or indirectly, related to the specific recommendations or views expressed in any report or article. All issuers to be considered for research obtain the approval of a stock selection committee comprised of the Director of Research, the Chief Compliance Officer, and an independent outside person for screening applicants. Sidoti Company Sponsored Research Rating System The Company Sponsored Research rating system consists of Moderately Risky (M) and Highly Risky (H) ratings. Moderately Risky suggests companies, that while still subject to relatively high price volatility, are characterized by more stable and predictable cash flow, a more established operating history, and an operating environment that is somewhat less competitive with a potential for loss of principal. Highly Risky 4

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