Hweb2...SCKT:
I like posting primarily in the Value Zip Code site because I think this stock really could be a zip code changer. They have issues (the balance sheet) and hurdles to cross, but they can grow revenue here such to take care of it. If this company had a pristine balance sheet and was on the Nasdaq still, it wouldn't be $1.75 (more like 3x this).
The use of tablets for point of sale systems (and cash registers) by small businesses is undergoing a revolution. Like one of my posts commented on, NCR ($5.17B company) just teamed up this week with Vantiv ($3.6B company) to go after this market aggressively. They are doing it because Square (multi-billion dollar IPO later this year) already has a head start (Square just upped the challenge by introducing new hardware). Fujitsu ($8B) is going after the world market. The ironic thing is, Socket is a $10M company whose barcode scanners are used by them all. All of them chose it independently because of the quality and, especially, the software development kit. Socket has some incredible software engineers!
The honesty of this little company:
1. They know the opportunity that exists. When they ran low on funds last year (they spent too much in product development and the transition slow downs hurt them badly. It's what put them on the OTC market from the Nasdaq as sharholder equity dropped), the Board (especially the Chairman and founder) raised funds by doing a debt conversion with their own money rather than let some vulture capitalist fund steal shares cheap. Rather then do it at market prices, they did the August deal at $2 (price that day) if all the warrants to Hudson Bay are gone when the conversion expires in August 2014, $2.44 if they still exist. The deal in October was $1.12 (price that day) if all the warrants to Hudson Bay are gone by August 2014, $2.44 if they are not. This is the important part: Hudson Bay holds 500K warrants exercisable at $2.44 that don't expire till 2016. If management sells shares under $2.44, those warrants are lowered to that stock sell price. In all likelihood, there is no way all the warrants will be exercised by August 2014. If management wanted to steal this company and screw shareholders (like most OTC stocks), they could of sold themselves shares at the current stock price that day and let the warrants drop in price too. What would they care, they got what they wanted. Instead, the end result is they will pay $2.44 for their shares most likely (even when the stock was less than 1/2 that price) so that way they prevent Hudson Bay from getting their warrants cheaper (and Socket getting less money in the conversion). The CFO has told me that vulture capitalist funds are offering plenty of money at horrible terms, but they aren't biting. Cash flow is positive and they can make it work till the stock price is significantly higher. He told my friend just yesterday that they have no immediate need for additional capital. The Chairman, CEO, and Roy Rogers Trust Fund (which holds 375K shares) are loaning the company $500k right now (at higher interest rates then they should but it's better than selling more shares and dilution). Cash flow is building which increases their line of credit with the bank. They are not going to screw themselves and everyone else when the opportunity they have dreamed of is building.
2. To tell you how honest the CFO is: I have a coalition of minority shareholders that make us the largest shareholder in Socket. We are pooling that power to put a representative on the Board of Directors at the Board meeting on June 5th (I'm doing this because I intend to make a lot of money here and I want someone on the Board to push my agenda of keeping expenses low and taking care of shareholders finally. This candidate is very well qualified). Rather than fight us or make it difficult, the CFO respects the fact we have been able to build a coalition of minority shareholders large enough to make a difference and is actually giving us step by step directions on how to cumulate our shares and vote him in for certain (even though it means 1 of the company's choices will lose).
On a different note, the CEO is going to Japan at the end of this month. He is there to check on how Socket's scanners are doing with the trial order that Fujitsu signed with a Japanese conglomerate in 1rst Q (that Socket provided 3200 scanners for). If Fujitsu closes the rest of the deal (most likely), Socket will be getting an order for 28K more scanners to be delivered in 3rd and 4th Q. That's $5.6M on top of whatever expected growth is already going to occur from the normal process (which should be 10-15% sequential from Q2 already). Socket's expenses barely go up with increased scanner sales. No more sales people added, no more execs, no more engineers, really it's just another Mexican lady or two added to the 5 they have in the warehouse who snap the scanner parts from Asia together (and those parts actually get cheaper per unit as more are ordered). If Socket gets this Japanese deal, this company will do 15 cents/share or better in 3rd Q imo. At that point they can sell 1M shares to institutions at $4-5, regain Nasdaq listing, and clean up there balance sheet in one fell swoop. They can then gear up for the real growth as this industry explodes in the next year or two. The are the market leader here.
One last thing: Later this year Square will do their $4-5B IPO. Wall Street is going to be buzzing about it and the retail use of tablets. This is the nanocap play on it. This stock will move up just on their association alone with Square let alone all the other partners.
Dave
