Socket Mobile(SCKT) - 2020 Q4 - Annual Report

Part I Business Socket Mobile, Inc. develops Bluetooth-connected barcode scanners and RFID/NFC readers, integrating them into mobile applications for diverse sectors - The company's primary products are cordless data capture devices (barcode scanners, RFID/NFC readers) connecting via Bluetooth to mobile devices[17] Key Product Families | Product Family | Description | Models | | :--- | :--- | :--- | | Companion SocketScan | Ergonomic, independent scanners available in multiple colors | S700, S730, S740, S760 | | Companion DuraScan | Durable, IP54-rated scanners for tougher environments, including medical-grade options | D700, D730, D740, D745, D750, D755, D760 | | Attachable Scanners | Scanners that attach to mobile devices to create a one-handed solution | DuraSled, SocketScan 800 Series (S800, S840, S860) | | Contactless RFID/NFC | Handheld and membership card reader/writers for tap-and-go applications | D600, S550 | - The business strategy relies on a registered developer program and Capture SDK for easy integration into third-party mobile applications[17][32] - Products are manufactured by third-party contractors globally, with final assembly and distribution in Newark, CA[24][30] - In 2020, cost-containment measures were implemented due to COVID-19, including hiring freezes and reduced spending[14] - Total employee headcount decreased from 56 to 48 from 2019 to 2020[30][47] Risk Factors The company faces significant risks from the COVID-19 pandemic, profitability challenges, capital needs, and dependence on application developers - The COVID-19 pandemic poses significant risks, including demand volatility and supply chain disruptions[49][51] - Dependence on application developers for product integration and sales poses a risk to revenue projections[54] - A limited number of distributors account for a significant portion of revenue, with Ingram Micro and BlueStar representing 54% in 2020[65] - Competition from larger firms and devices with built-in scanning functions presents a challenge[68][72] - Reliance on a limited number of component suppliers creates risk of shortages or delays impacting financial results[62] - The market's rapidly changing technology and short product life cycles necessitate timely new product introductions[63] Unresolved Staff Comments The company reports no unresolved staff comments - None[97] Properties The company leases a 37,100 square-foot facility in Newark, California, serving as its headquarters - The company leases a 37,100 square-foot facility in Newark, California, with the lease expiring in June 2022[98] Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[99] Mine Safety Disclosures This item is not applicable to the company - Not applicable[100] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under 'SCKT,' with approximately 15,000 beneficial stockholders, and no dividends are anticipated - The company's common stock trades on NASDAQ under the symbol "SCKT"[103] - As of March 19, 2021, there were approximately 15,000 beneficial stockholders[103] - The company has not paid dividends and does not anticipate paying them in the foreseeable future[103] Selected Financial Data This section summarizes five years of key financial data, showing 2020 revenues of $15.7 million and a net loss of $3.3 million Selected Financial Data (2016-2020) | (Amounts in thousands except per share) | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Revenues | $16,454 | $19,253 | $15,700 | | Gross profit | $8,456 | $10,101 | $8,335 | | Operating expenses | $9,042 | $9,494 | $12,686* | | Net income (loss) | $(571) | $287 | $(3,279) | | Basic EPS | $(0.09) | $0.05 | $(0.51) | | Diluted EPS | $(0.09) | $0.05 | $(0.51) | | Total assets | $18,597 | $19,458 | $15,059 | | Total stockholders' equity | $12,405 | $13,234 | $10,623 | *Included a $4.4 million goodwill impairment charge Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, revenue decreased to $15.7 million, resulting in a $3.3 million net loss primarily from a goodwill impairment, while liquidity improved Results of Operations Revenue decreased 19% to $15.7 million in 2020, leading to a $3.3 million net loss primarily due to a $4.4 million goodwill impairment Comparison of Operations (2020 vs. 2019) | (Amounts in millions) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $15.7 | $19.3 | -19% | | Gross Profit | $8.3 | $10.1 | -18% | | Gross Margin | 53.1% | 52.5% | +0.6 p.p. | | R&D Expense | $3.1 | $3.9 | -19% | | Sales & Marketing Expense | $2.8 | $3.0 | -6% | | General & Admin Expense | $2.3 | $2.6 | -12% | | Goodwill Impairment | $4.4 | $0.0 | N/A | | Net Income (Loss) | ($3.3) | $0.3 | N/A | - Operating expense reductions across R&D, Sales & Marketing, and G&A were due to employee compensation cuts from COVID-19 cost-saving initiatives[127][129][130] - A $4.47 million goodwill impairment charge in 2020 was the primary driver of the net loss[134] Liquidity and Capital Resources The company strengthened its financial position, ending 2020 with $2.1 million cash and an undrawn $2.5 million credit facility to fund operations - As of December 31, 2020, the company held approximately $2.1 million in cash[109] - A $2.5 million revolving credit facility, maturing January 31, 2023, was undrawn at year-end 2020[109] Cash Flows and Contractual Obligations In 2020, operating activities provided $0.80 million cash, while financing activities provided $0.89 million, resulting in total contractual obligations of $7.0 million Summary of Cash Flows (2020 vs. 2019) | (Amounts in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $0.80 | $0.87 | | Net cash used in investing activities | ($0.5) | ($0.6) | | Net cash provided by (used in) financing activities | $0.89 | ($0.40) | Contractual Obligations as of Dec 31, 2020 | Contractual Obligations | Total | Due within 1 year | | :--- | :--- | :--- | | Unconditional purchase obligations | $6,256,000 | $6,256,000 | | Operating leases | $779,000 | $516,000 | | Total | $7,035,000 | $6,772,000 | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are interest rate risk from variable-rate debt and foreign currency risk from Euro and British pound sales - Interest rate risk stems from variable-rate bank term loans and credit line facilities[145] - Foreign currency risk arises from Euro and British pound sales to European distributors, with Euro receivables partially hedged[146] Financial Statements and Supplementary Data This section presents audited financial statements for 2020 and 2019, including balance sheets, statements of operations, cash flows, and detailed notes Financial Statements Audited financial statements show total assets decreased to $15.1 million in 2020 due to a goodwill impairment, resulting in a $3.3 million net loss Balance Sheet Highlights (As of Dec 31) | (Amounts in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,122 | $959 | | Total current assets | $7,936 | $7,521 | | Goodwill | $0 | $4,427 | | Total assets | $15,058 | $19,458 | | Total current liabilities | $4,149 | $5,468 | | Total liabilities | $4,436 | $6,224 | | Total stockholders' equity | $10,622 | $13,234 | Statement of Operations Highlights (Year Ended Dec 31) | (Amounts in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Revenues | $15,700 | $19,253 | | Gross profit | $8,335 | $10,101 | | Total operating expenses | $12,685 | $9,494 | | Net income (loss) | $(3,279) | $287 | | Basic EPS | $(0.51) | $0.05 | Notes to Financial Statements Notes detail a $4.4 million goodwill impairment, revenue concentration with two major customers, PPP loan forgiveness, and new convertible note financing - A $4.427 million non-cash goodwill impairment charge was recorded in 2020 due to a stock price drop[193] - Revenue concentration remains, with Ingram Micro and BlueStar accounting for 31% and 23% of 2020 revenues, respectively[222] - A $1.0587 million PPP loan received in April 2020 was fully forgiven in December 2020, recorded as debt extinguishment income[234] - In August 2020, the company raised $1.53 million through secured subordinated convertible notes with a 10% annual interest rate[238][239] - Post-year-end, a technology license from SpringCard SAS was acquired for 184,332 shares of common stock (valued at $2 million) and a warrant[279] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable as there were no changes or disagreements with accountants - Not Applicable[282] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that disclosure controls and procedures were effective as of the report period end[283] - Internal control over financial reporting was deemed effective as of December 31, 2020, based on the COSO framework assessment[286] Other Information There is no other information to report for this item - None[289] Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, and Other Matters Information for Items 10 through 14 is incorporated by reference from the company's Proxy Statement for the May 26, 2021 annual meeting - Information for Items 10-14 is incorporated by reference from the Proxy Statement for the May 13, 2021 Annual Meeting[8] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements and an index to exhibits filed with or incorporated by reference into the Form 10-K - This section includes financial statements and an index to all exhibits filed with or incorporated into the Form 10-K[301][304]