Socket Mobile, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed March 9, 2012. The filing also reports quarterly results, including the quarter ended December 31, 2011. Socket Mobile makes mobile handheld computers and data-collection products for business users.
Financial performance and liquidity
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $17.51 million | $13.50 million |
| Gross profit / margin | $7.25 million / 41% | $5.40 million / 40% |
| Operating loss | $1.28 million | $3.71 million |
| Net loss | $2.42 million | $3.98 million |
| Basic and diluted loss per share | $0.56 | $1.05 |
| Cash used in operating activities | $1.19 million | $0.64 million |
Fourth-quarter revenue was $4.44 million, versus $2.62 million in Q4 2010; net loss narrowed to $375,000 from $1.59 million. The company reported $957,000 in cash at year-end, $1.11 million drawn on its receivables-based bank line, and about $901,000 of additional borrowing capacity. Its current ratio was 0.79 and working-capital deficit was $1.45 million. Stockholders’ equity was $3.13 million; the company reported no material long-term debt.
Interest expense rose to $1.12 million, including $1.05 million of non-cash charges associated with the convertible note. Operating cash use reflected, in part, a $1.98 million increase in accounts receivable. Net cash from financing was $1.86 million.
Changes versus the prior year
- Revenue increased 30%, led by mobile handheld computers (+32% to $8.75 million) and data-collection products (+54% to $7.61 million). Cordless scanners drove much of the data-collection growth.
- OEM embedded revenue fell 52% to $672,000 as customers phased out older products; legacy connectivity revenue was $478,000.
- Gross margin edged up to 41%. Operating expenses declined 6% to $8.52 million, with lower sales and marketing and general and administrative costs partly offset by higher research and development spending.
- Net loss improved, but the company remained loss-making. Weighted-average shares increased to 4.36 million from 3.80 million.
- LCD touch-screen supply shortages that constrained handheld-computer shipments from Q4 2010 through the first three quarters of 2011 were resolved in Q4 2011, according to management.
Outlook, risks and notable items
Management stated that available cash, expense controls, working-capital management and bank lines were expected to meet funding requirements at least through December 31, 2012. This is not quantified earnings guidance. Management warned that continued losses could consume cash and that additional capital might be needed; financing may be unavailable or dilutive, and inability to secure funding could require suspension of some or all operations.
- The October 2011 bank facility permits borrowing up to $2.5 million against eligible receivables, subject to availability, bank discretion and a 2.0-to-1 minimum liquidity ratio. The bank has a security interest in company assets.
- The company depends on a limited number of suppliers for key components and on a small number of distributors and OEM customers. In 2011, Ingram Micro and ScanSource represented 29% of revenue combined; Epocal represented 11%.
- Contractual obligations totaled $7.82 million, including $5.25 million of inventory purchase commitments due within one year and $2.55 million of operating lease payments.
- The company announced the SoMo 655 handheld computer, expected to be available in Q2 2012. Availability and customer adoption were forward-looking expectations, not assured outcomes.
- The $1.0 million convertible note was fully converted in 2011, with 721,009 shares issued for principal and accrued and additional interest. The company also issued 282,485 shares to its contract manufacturer to settle $500,000 of trade payables.
- Goodwill was $4.43 million; no impairment was recorded in 2011. The company recorded a $5.37 million goodwill impairment in 2009. No material legal proceedings were reported.
The financial statements received an unqualified audit opinion. Management concluded internal control over financial reporting was effective; the auditor did not provide an internal-control attestation.
Key facts for investors to verify
- Whether revenue growth and improved operating results continue without the benefit of resolving the 2011 supply constraint.
- Receivables collection, distributor sell-through and the increase in deferred income on distributor shipments, which reached $1.57 million on the balance sheet.
- Availability of receivables-based borrowing, compliance with the facility’s liquidity covenant and the company’s ability to fund its working-capital deficit.
- Execution and market acceptance of the SoMo 655, and ongoing declines in legacy OEM products.
- Potential dilution from outstanding options and warrants and whether losses or goodwill impairment could threaten the NASDAQ equity listing requirement.