Socket Mobile(SCKT) - 2022 Q1 - Quarterly Report

Part I Part I. Financial Information Unaudited Q1 2022 financial statements show revenue up 31% to $6.3 million, net income at $342 thousand, and $452 thousand net cash used in operations Item 1. Financial Statements Unaudited Q1 2022 financial statements show revenue up 31% to $6.3 million, net income at $342 thousand, total assets at $25.9 million, and $452 thousand net cash used in operations Condensed Statements of Operations Q1 2022 revenues increased 31% to $6.3 million, with gross profit at $3.1 million, operating income at $464 thousand, and net income at $342 thousand Condensed Statements of Operations | Financial Metric | Three Months Ended March 31, 2022 ($) | Three Months Ended March 31, 2021 ($) | | :--- | :--- | :--- | | Revenues | $6,293,002 | $4,812,979 | | Gross Profit | $3,127,662 | $2,574,043 | | Operating Income | $463,704 | $242,010 | | Net Income | $341,933 | $202,902 | | Diluted EPS | $0.04 | $0.03 | Condensed Balance Sheets As of March 31, 2022, total assets reached $25.9 million, total liabilities decreased to $5.4 million, and stockholders' equity increased to $20.5 million Condensed Balance Sheets | Balance Sheet Item | March 31, 2022 (Unaudited) ($) | December 31, 2021 ($) | | :--- | :--- | :--- | | Total Current Assets | $14,724,100 | $14,380,788 | | Total Assets | $25,893,255 | $25,575,101 | | Total Current Liabilities | $5,336,440 | $5,389,357 | | Total Liabilities | $5,357,096 | $5,528,638 | | Total Stockholders' Equity | $20,536,159 | $20,046,463 | Condensed Statements of Stockholders' Equity Stockholders' equity increased to $20.5 million by March 31, 2022, driven by $342 thousand net income and $223 thousand stock-based compensation - Key changes in stockholders' equity for the three months ended March 31, 2022, included net income of $341,933, stock-based compensation of $223,446, and a reduction of $115,215 from restricted stock retired for tax withholding[17] Condensed Statements of Cash Flows Q1 2022 saw a net cash outflow of $673 thousand, primarily from $452 thousand used in operating activities and $135 thousand in investing activities Condensed Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2022 ($) | Three Months Ended March 31, 2021 ($) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($452,413) | $291,236 | | Net cash used in investing activities | ($134,919) | ($163,379) | | Net cash (used in) provided by financing activities | ($85,468) | $2,711,658 | | Net (decrease) increase in cash | ($672,800) | $2,839,515 | Notes to Condensed Financial Statements Notes detail accounting policies, SpringCard intangible asset, inventory, bank financing, segment revenues, customer concentrations, and a subsequent share repurchase program - In February 2021, the company acquired a technology license from SpringCard SAS, resulting in an intangible asset with a carrying amount of $1,782,137 as of March 31, 2022, which is being amortized over 15 years[34][36][37] Revenue by Geography | Revenue by Geography | Q1 2022 ($) | Q1 2021 ($) | | :--- | :--- | :--- | | United States | $4,882,773 | $3,563,055 | | Europe | $697,971 | $777,580 | | Asia and rest of world | $712,258 | $472,344 | - The company has significant customer concentration, with Ingram Micro, BlueStar, and ScanSource accounting for 27%, 20%, and 19% of total revenues, respectively, in Q1 2022[53] - Subsequent to the quarter end, the company repurchased 90,913 shares of common stock at an average price of $4.11[75][76] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 revenue growth of 31% driven by economic reopening, gross margin decline due to rising costs, increased operating expenses from hiring, and net cash outflow from operations - Total revenues for Q1 2022 increased 31% to approximately $6.3 million compared to $4.8 million in Q1 2021, driven by the deployment of business applications in retail as the economy re-opens[92] - Gross profit margins decreased to 49.7% in Q1 2022 from 53.5% in Q1 2021, primarily due to rising component costs and higher freight costs[94] - Operating expenses increased year-over-year, with R&D expenses up 13% and Sales & Marketing expenses up 36%, mainly due to hiring[95][96] - Net cash used in operating activities was $452,413 in Q1 2022, a significant shift from the $291,236 provided by operations in Q1 2021, mainly due to increases in accounts receivable and a security deposit for a new office lease[102][103] Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rate fluctuations on variable-rate loans and foreign currency exposure from Euro and British pound sales, partially mitigated by hedging - Interest rate risk is tied to the company's bank term loan and credit lines, which have variable interest rates based on the lender's prime rate[111] - Foreign currency risk is primarily from European sales denominated in Euros and British pounds; a hypothetical 10% adverse change in exchange rates would have decreased Q1 2022 net income by approximately $34,000 if unprotected[112] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[114] - No changes occurred in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[115] Part II Part II. Other Information Risk Factors The company identifies key risks including the COVID-19 pandemic, global economic conditions, supply chain reliance, competition, and intellectual property infringement - The business could be materially affected by the ongoing COVID-19 pandemic and deteriorating global economic conditions, which could reduce demand, disrupt manufacturing, and impact third-party suppliers[119][121] - The company is dependent on a limited number of qualified suppliers for components, and shortages or delays could have a material adverse effect on financial results[134] - A significant portion of sales depends on a limited number of distributors; in Q1 2022, Ingram Micro® and BlueStar together represented approximately 47% of worldwide sales[142] - The market is characterized by rapidly changing technology and short product life cycles, requiring successful and timely development of new products to compete effectively[135] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - There were no unregistered sales of equity securities or use of proceeds to report for the period[165] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and the XBRL document - Exhibits filed with the report include certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act, as well as the XBRL Interactive Data File[165] Signatures The report was signed on May 16, 2022, by Kevin J. Mills, President and CEO, and Lynn Zhao, CFO - The report is signed by Kevin J. Mills (President and CEO) and Lynn Zhao (CFO) on May 16, 2022[170]