Socket Communications Reports 33 Percent Increase in Quarterly Revenue and Second Consecutive Quarter of Net Income

Business Wire, July 21, 2004

NEWARK, Calif. -- Company Expects Second Half Revenue Growth and Increased Profitability

Socket Communications, Inc. (Nasdaq:SCKT) announced financial results for its second quarter ended June 30, 2004. The Company reported revenue of $6.7 million, an increase of 33 percent compared to revenue of $5.1 million for the same quarter a year ago. The company reported net income applicable to common stockholders for the quarter ended June 30, 2004 of $43,000 or $0.00 per share compared to a net loss of ($0.5) million or ($0.02) per share for the same quarter a year ago. The second quarter represented the Company's second consecutive quarter of net income.

Revenue for the six months ended June 30, 2004 was $13.5 million, an increase of 35 percent compared to revenue of $10.0 million for the same period one year ago. Net income applicable to common stockholders for the six months ended June 30, 2004 was $83,000, or $0.00 per share, compared to a net loss of ($1.6) million or ($0.06) per share for the comparative period one year ago.

Revenue and earnings for the second quarter were flat in comparison to the previous quarter due to the timing of the receipt of orders. Backlog (orders received as of the end of the quarter that are shippable in the following quarter) increased from $1.4 million at the end of the first quarter of 2004 to $1.6 million at the end of the second quarter of 2004. Since July 1st, the Company has received an additional $1.5 million in orders, a fast start for the third quarter, bringing its total shippable orders as of today to $3.1 million.

The balance sheet at June 30, 2004 included cash of $7.6 million, a current ratio of 1.7 to one, equity of $16.7 million and no long term debt. Inventory balances at June 30, 2004 increased to $2.7 million, compared to $1.7 million at March 31, 2004 and December 31, 2003, in anticipation of the orders that the Company has received for shipment in July.

"Our results this quarter demonstrates growing demand for our products, and would have been stronger except for order delays," said Kevin Mills, president and chief executive officer of Socket Communications. "We expect that during the second half of this year we will be able to improve profitability through revenue growth, while maintaining our product margins and closely managing our expenses."

"We have also been devoting considerable attention over the past several years to the support of software developers and value-added resellers who are creating mobile software applications using our data collection products," continued Mills. "Our revenue growth rate of 77 percent for our data collection products for the first six months of this year, compared to the same period a year ago, is due in large part to the availability of software applications that use our growing family of data collection products. We have listed more than 40 companies on our website that are offering application software, and there are many more applications under development. We value the relationships we have built with value-added resellers and third party software vendors whose software becomes an important part of enterprise mobile computing solutions that use our products. These relationships, coupled with new products and broader platform support, should enable us to continue this growth."

"We are particularly pleased with the pace of our new product development and the market acceptance of recently developed data collection products. We have sold more than $2 million of our SDIO bar code scanners since their introduction in September 2003. We began shipping our cordless hand scanner with Bluetooth wireless technology at the end of the second quarter of 2004. During the second quarter we also released new cordless software for tablets, laptops, notebooks and desktops to allow our cordless products to be used with all Windows based computers, and we will soon add the cordless hand scanner to that software. We also announced a CompactFlash RFID reader to address the needs for mobile RFID readers as this technology becomes more widely adopted."

"Our branded connectivity product business continues to benefit from growth in revenue from our family of cordless products for handheld computers using Bluetooth wireless technology and growth of revenue from our wireless LAN plug-in products. These cordless products include a standalone GPS receiver, a standalone modem, a plug-in serial adapter, plug-in CompactFlash and SDIO cards, and embedded modules. Approximately $2.7 million, or 40 percent of our total revenue in the second quarter of 2004 was from cordless and wireless products, compared to approximately 34 percent of our total revenue from these products in the first quarter of 2004."

Other Financial Information

The Company's balance sheet at June 30, 2004 included a cash balance of $7.6 million, reflecting a net increase of $1.1 million from the cash balance at December 31, 2003. Sources of cash for the six month period included increased borrowings on the Company's bank line of credit of $1.4 million, proceeds from the exercise of stock options and warrants of $0.1 million, and positive cash from operations of $0.3 million, including working capital changes. Cash was used to complete repayment of a note payable to Nokia Corporation of $0.5 million and investment in property and equipment of $0.2 million. The current ratio (current assets divided by current liabilities) at June 30, 2004 was 1.7 to 1.0.