Value Microcaps Zip Code Changers

[southacresdave]

Matt...SCKT... to make a long story short, I know that the following website (through a lot of research and making phone calls to distributors and asking dumb questions) is real-time connected only to Ingram Micro's Distributors inventory. That makes it easy to track those numbers. The plus here is that it shows not only what's in stock, but also what's coming into stock.

http://www.shopblt.com/cgi-bin/shop/shop.cgi?action=thispage&thispage=01100U01U0520L.shtml&sitem=BNV7343&order_id=109796882

For Scansource and BlueStar, I use the following link (the Canadian website shows for just these two distributors). If you click on the actual number "in stock", it will break it down to Hebron, KY---which is Bluestar and Southaven, MS ---which is Scansource.

I then combine and double check all of this with a 3rd site that shows all 3 combined (it allows me to check for errors):

http://store.immediasys.com/socket-1/

Ingram is real-time, Scansource updates the end of the day, Bluestart is one day behind, but by the end of the week they all match up. All of this give me # of scanners sold per unit type. I know how much each distributor gets roughly and so I use the $ amount that Socket receives x # of scanners to give me a daily, weekly, monthly total. I've tracked everything for quite awhile now. I also do the Somo pda's too.

All this tracking shows what is coming in/out of the distributors. A true "sale" occurs when the final customer pays for it (the type of accounting Socket uses). As such, 50 scanners could go from Ingram Micro to Amazon and then it takes a week for those to sell out. Other orders could go to the final customer from the distributor. It's why I really say a true quarter is not April 1 to June 30th, but more March 22nd to June 22nd (gives it time to clear the final leg).

The analyst who is a shareholder of Socket (and who is always on the cc call) is someone I correspond with directly and share info. His firm is privately looking at $4.6M to $5.0M and 4 cents to 6 cents/share in 3Q. I know he personally bought a lot of shares under $1 when no one else was believing. Two of his clients are some of the largest shareholders in the company.

I know the OEM buyer for the Somo will be back with a large order in 3Q, that the (2) 1000+ scanner orders discussed in the cc call are actually ongoing orders that carry in to 3Q, that there are other large orders on hand and building in number but no details given on when they will be processed, and that they see international orders picking up (in the cc call they mention 2 large shipments in July and the CFO told me recently that they expect international % of sales will start to expand going forward).

A NY investor who runs an investment partnership is flying out to the west coast mid-Sept to meet for dinner with the CEO. I'll get his summary of what's going on after that.

The risk of this company failing anymore is pretty much diminished. If they didn't go under with their ugly balance sheet before, they sure aren't going to do it as revenue and net income growth and cash flow increase quarterly. The only question is where can it go to in the next 24 months? The answer to that lies more with the partners. Where does Verifone, NCR, Fujitsu, Shopify, Lightspeed, etc plan on going with their tablet software POS systems for small & mid-size businesses in the future?

I used to say it was the best investment I've ever found (that was when I thought the Somo division was going to hold at around $2M+/qtr). If it had, they never would of had the financial difficulties of the past 2 years. It's been frustrating watching the scanners start to grow but be hidden in the results of the diminishing Somo division. On the other hand, the scanner side is finally building. The number of developers keeps growing and growing---that's the key. I'd like to see more exponential growth start to happen rather than just steady sequential growth. The company needs to get to $5M/qtr to be solid and $7M to really get the gas going on this stock. I primarily track "day-to-day" smaller sales in N.A. As those grow, international sales continue to grow, and the larger deals (defined as 1000+ scanners) grow in number also, it should start to add up. Investors haven't seen it yet, but their margins will keep going up as they buy scanners in bulk more from their suppliers (and get their price per unit down) and their operating expenses are more fixed than people realize.

As for the Somo.....I know they are trying to line up more OEM buyers for the internals of it. I've heard hints that there are things happening for the future(along the lines of old customers returning and other OEM buyers), but nothing definite. In the cc call, the CEO said they would like to get it back to $1M/qtr in revenue in 2015. I think that's probably the best that can happen there. It's remnant technology for the most part. The future is the scanners and that's where their emphasis needs to be on.

I know 2 microcap newsletters that are starting to track the company. Nothing has been written up, but it's only a matter of time before the word spreads. If 3Q grows sequentially again as expected then it will start to happen.

Dave