Socket Mobile, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Socket Mobile develops mobile barcode-scanning and RFID/NFC data-capture products and software used with smartphones, tablets, and mobile computers. Sales are primarily through distributors and resellers.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $4.813 million | $4.221 million; up 14% |
| Gross profit / margin | $2.574 million / 53.5% | $2.224 million / 52.7% |
| Operating income (loss) | $242,010 | $(90,835) |
| Net income (loss) | $202,902; $0.03 per diluted share | $(90,327); $(0.01) per diluted share |
| Operating cash flow | $291,236 provided | $50,790 used |
| Capital expenditures | $163,379 | $154,681 |
At March 31, cash and cash equivalents were $4.961 million, versus $2.122 million at year-end 2020. Current assets were $11.660 million and current liabilities $5.438 million (current ratio approximately 2.14). Total assets were $20.595 million, liabilities $6.093 million, and stockholders’ equity $14.503 million.
Debt included a $1.0 million CalCap loan and subordinated convertible notes with a combined carrying value of approximately $1.320 million. No amounts were drawn on the bank term loan or credit lines during Q1. The convertible notes bear 10% interest, mature August 2023, and may be put to the Company after August 31, 2021; $130,000 of principal converted to stock during the quarter. Cash increased by $2.840 million, driven mainly by $1.712 million from exercised stock options and $1.0 million borrowed under the CalCap loan.
Changes and management commentary
- Revenue growth was attributed primarily to business-application deployments, particularly in retail as the economy reopened following easing of COVID-19 restrictions.
- Gross margin improved modestly, which management attributed mainly to lower manufacturing overhead. Operating results moved from a loss to a profit.
- R&D expense increased to $931,000 from $881,000. Management expects continued significant R&D investment as revenue grows.
- Sales and marketing expense fell 14% to $660,000 due to temporarily lower headcount. Management expects it to increase during the rest of 2021, including investment in the website and online shopping experience.
- G&A increased 11% to $741,000, reflecting compensation-plan fluctuations and professional fees related to a shelf registration. Net interest expense rose to approximately $49,000, mainly due to the convertible notes.
- Operating working capital used cash, chiefly through higher inventory and receivables; inventory was built to address supply constraints and longer component lead times.
Acquisition, outlook, and risks
In February, the Company acquired a perpetual, royalty-free license to SpringCard contactless technology for its D600 and S550 products. Consideration included 184,332 shares valued at $1.909 million and a 10-year warrant for up to 50,000 shares at $10.85. The technology is to be amortized over 15 years beginning April 1, 2021. On April 20, the Company agreed to pay SpringCard $192,293 to resolve implementation issues, with no further financial obligation under the agreement.
The filing provides no specific revenue or earnings guidance. Management’s outlook includes continued R&D investment and higher sales and marketing spending for the remainder of the year. The Company cited uncertainty around COVID-19, economic conditions, product demand, component availability and supplier concentration, dependence on application developers and a small number of distributors, competition, and its ability to sustain profitability or obtain capital. Q1 sales were concentrated: Ingram Micro represented 25% and BlueStar 29% of revenue. Non-cancelable inventory purchase commitments totaled approximately $8.689 million. The Company reported no material legal proceedings or off-balance-sheet arrangements.
Important facts for investors to verify
- Whether revenue growth and the return to profitability continue, particularly as retail activity and customer deployments evolve.
- Whether component supply constraints ease and the $8.689 million purchase commitments can be matched to demand without excess or obsolete inventory.
- Distributor concentration, including the combined 54% of Q1 revenue from Ingram Micro and BlueStar, and the effect of distributor returns or price protection.
- Debt terms, quarterly principal payments on the CalCap loan, the convertible-note put rights and conversion dilution, and remaining availability under bank facilities.
- The final accounting and cash impact of the SpringCard settlement, and the commercial contribution of the licensed technology.
- Whether the $5.507 million deferred tax asset remains realizable, given its dependence on future taxable profitability.