UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2023

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period ___________________ to _____________________.

Commission file number 1-13810

SOCKET MOBILE, INC.

(Exact name of registrant as specified in its charter)

Delaware		94-3155066
(State of incorporation)		(IRS Employer Identification No.)

40675 Encyclopedia Circle, Fremont, CA 94538

(Address of principal executive offices including zip code)

(510) 933-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 Par Value per Share	SCKT	NASDAQ

Indicate by check mark whether the registrant (1) has ﬁled all reports required to be ﬁled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to ﬁle such reports), and (2) has been subject to such ﬁling requirements for the past 90 days. YES [ X ] NO [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ X ] NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

Smaller reporting company [X] Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

The number of shares of Common Stock ($0.001 par value) outstanding as of November 9, 2023 was 7,323,121 shares.

INDEX

			PAGE NO.
Part I. Financial Information

Item 1. Financial Statements (Unaudited):

Condensed Statements of Operations – Three Months and Nine Months Ended September 30, 2023 and 2022 (Unaudited)			1

Condensed Balance Sheets - September 30, 2023 (Unaudited) and December 31, 2022			2

Condensed Statements of Stockholders’ Equity – Three Months and Nine Months Ended September 30, 2023 and 2022 (Unaudited)			3

Condensed Statements of Cash Flows - Nine Months Ended September 30, 2023 and 2022 (Unaudited)			5

Notes to Condensed Financial Statements (Unaudited)			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16

Item 3. Quantitative and Qualitative Disclosures about Market Risk			22

Item 4. Controls and Procedures			23

Part II. Other Information

Item 1A. Risk Factors			24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34

Item 6. Exhibits			34

Signatures			35


	Three Months Ended Sept 30,						Nine Months Ended Sept 30,
	2023			2022			2023			2022

Revenues	$	3,205,893		$	3,727,871		$	12,635,228		$	16,066,855

Cost of revenues		1,787,696			2,073,012			6,492,981			8,248,652

Gross profit		1,418,197			1,654,859			6,142,247			7,818,203

Operating expenses:
Research and development		1,206,452			1,096,400			3,643,501			3,271,122
Sales and marketing		1,002,206			864,702			3,013,577			2,729,016
General and administrative		608,094			641,184			2,130,691			2,112,504
Total operating expenses		2,816,752			2,602,286			8,787,769			8,112,642

Operating loss		(1,398,555	)		(947,427	)		(2,645,522	)		(294,439	)

Interest expense, net		(76,440	)		(43,092	)		(169,709	)		(133,703	)

Net loss before income taxes		(1,474,995	)		(990,519	)		(2,815,231	)		(428,142	)

Income tax benefit (expense)		150,000			116,485			(16,000	)		—

Net loss	$	(1,324,995	)	$	(874,034	)	$	(2,831,231	)	$	(428,142	)

Net loss per share:

Basic	$	(0.16	)	$	(0.11	)	$	(0.34	)	$	(0.05	)
Diluted	$	(0.16	)	$	(0.11	)	$	(0.34	)	$	(0.05	)

Weighted average shares outstanding:

Basic		7,319,782			7,153,210			7,197,371			7,202,239
Diluted		7,319,782			7,153,210			7,197,371			7,202,239


	Sept 30, 2023 (Unaudited)			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	3,093,555		$	3,623,469
Accounts receivable, net		1,559,679			2,659,861
Inventories, net		5,529,143			5,601,691
Prepaid expenses and other current assets		617,280			617,188
Deferred cost on shipments to distributors		246,700			266,327
Total current assets		11,046,357			12,768,536

Property and equipment:
Machinery and office equipment		2,415,339			1,533,087
Computer equipment, software and website development		3,302,095			2,715,121
		5,717,434			4,248,208
Accumulated depreciation		(3,159,811	)		(2,590,999	)
Property and equipment, net		2,557,623			1,657,209

Intangible assets, net		1,591,193			1,693,927
Other long-term assets		250,715			250,239
Deferred tax assets		8,652,419			8,668,419
Operating lease right-of-use asset		3,208,084			3,559,658
Total assets	$	27,306,391		$	28,597,988


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	1,268,399		$	1,665,028
Accrued payroll and related expenses		642,322			742,541
Deferred revenue on shipments to distributors		595,975			594,793
Short term portion of deferred service revenue		20,334			22,599
Note Payable – current portion		—			125,000
Subordinated convertible notes payable, net of discount		150,000			147,409
Subordinated convertible notes payable, net of discount-related party		2,834,402			1,230,530
Operating lease – current portion		474,030			444,529
Total current liabilities		5,985,462			4,972,429

Long-term portion of deferred service revenue		12,757			11,767
Operating lease - long-term portion		2,932,748			3,292,035
Total liabilities		8,930,967			8,276,231

Commitments and contingencies		—			—
Stockholders’ equity:
Common stock, $0.001 par value: authorized 20,000,000 shares, 7,682,443 issued and 7,323,193 outstanding at September 30, 2023, and 7,355,967 shares issued and 7,089,676 shares outstanding at December 31, 2022		7,323			7,090
Additional paid-in capital		68,250,740			67,157,650
Treasury stock		(1,037,988	)		(829,563	)
Accumulated deficit		(48,844,651	)		(46,013,420	)
Total stockholders’ equity		18,375,424			20,321,757
Total liabilities and stockholders’ equity	$	27,306,391		$	28,597,988


	Common Stock						Additional Paid-In			Treasury Stock						Accumulated			Total Stockholders’
	Shares			Amount			Capital				Shares		Amount			Deficit			Equity
Balance at December 31, 2022		7,089,676		$	7,090		$	67,157,650				266,291	$	(829,563	)	$	(46,013,420	)	$	20,321,757
Vesting of restricted stocks		147,972			148			(148	)			—		—			—			—
Restricted stock retired for tax withholding		(53,647	)		(54	)		54				—		—			—			—
Exercise of stock option		38,909			39			33,666				—		—			—			33,705
Stock-based compensation		—			—			295,833				—		—			—			295,833
Treasury shares purchased		(92,959	)		(93	)		93				92,959		(208,425	)		—			(208,425	)
Net loss		—			—			—				—		—			(993,420	)		(993,420	)
Balance at March 31, 2023		7,129,951		$	7,130		$	67,487,148				359,250	$	(1,037,988	)	$	(47,006,840	)	$	19,449,450
Vesting of restricted stocks		93,180			93			(93	)			—		—			—			—
Restricted stock retired for tax withholding		(598	)		—			—				—		—			—			—
Exercise of stock option		85,000			85			156,525				—		—			—			156,610
Stock-based compensation		—			—			306,416				—		—			—			306,416
Net loss		—			—			—				—		—			(512,816	)		(512,816	)
Balance at June 30, 2023		7,307,533		$	7,308		$	67,949,996				359,250	$	(1,037,988	)	$	(47,519,656	)	$	19,399,660
Vesting of restricted stocks		1,035			1			(1	)			—		—			—			—
Restricted stock retired for tax withholding		(375	)		(1	)		1				—		—			—			—
Exercise of stock option		15,000			15			22,485				—		—			—			22,500
Stock-based compensation		—			—			278,259				—		—			—			278,259
Net loss		—			—			—				—		—			(1,324,995	)		(1,324,995	)
Balance at September 30, 2023		7,323,193		$	7,323		$	68,250,740				359,250	$	(1,037,988	)	$	(48,844,651	)	$	18,375,424


							Additional											Total
	Common Stock						Paid-In			Treasury Stock					Accumulated			Stockholders’
	Shares			Amount			Capital			Shares		Amount			Deficit			Equity
Balance at December 31, 2021		7,183,874		$	7,184		$	66,139,630			—	$	—		$	(46,100,351	)	$	20,046,463
Vesting of restricted stocks		91,134			91			(91	)		—		—			—			—
Restricted stock retired for tax withholding		(26,157	)		(26	)		(115,189	)		—		—			—			(115,215	)
Exercise of stock option		24,200			24			39,508			—		—			—			39,532
Stock-based compensation		—			—			223,446			—		—			—			223,446
Net income		—			—			—			—		—			341,933			341,933
Balance at March 31, 2022		7,273,051		$	7,273		$	66,287,304			—	$	—		$	(45,758,418	)	$	20,536,159
Vesting of restricted stocks		1,200			1			(1	)		—		—			—			—
Restricted stock retired for tax withholding		(387	)		—			30			—		—			—			30
Exercise of stock option		19,390			19			41,950			—		—			—			41,969
Stock-based compensation		—			—			251,534			—		—			—			251,534
Treasury shares purchased		(90,913	)		(91	)		91			90,913		(377,950	)		—			(377,950	)
Net income		—			—			—			—		—			103,959			103,959
Balance at June 30, 2022		7,202,341		$	7,202		$	66,580,908			90,913	$	(377,950	)	$	(45,654,459	)	$	20,555,701
Exercise of stock option		24,800			25			29,399			—		—			—			29,424
Stock-based compensation		—			—			260,398			—		—			—			260,398
Treasury shares purchased		(90,029	)		(90	)		90			90,029		(275,734	)		—			(275,734	)
Net loss		—			—			—			—		—			(874,034	)		(874,034	)
Balance at September 30, 2022		7,137,112		$	7,137		$	66,870,795			180,942	$	(653,684	)	$	(46,528,493	)	$	19,695,755


	Nine Months Ended September 30,
	2023			2022
Operating activities
Net loss	$	(2,831,231	)	$	(428,142	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation		880,508			735,378
Depreciation and amortization		671,547			575,328
Amortization of debt discount		24,011			24,818
Amortization of operating lease ROU asset		351,574			399,177
Deferred tax expenses (benefits)		16,000			—
Changes in operating assets and liabilities:
Accounts receivable		1,100,182			764,047
Inventories		72,548			(995,403	)
Prepaid expenses and other current assets		(92	)		(181,024	)
Other assets		(476	)		(222,248	)
Accounts payable and accrued expenses		(396,629	)		(451,911	)
Accrued payroll and related expenses		(100,219	)		(46,731	)
Net deferred revenue on shipments to distributors		20,809			69,708
Deferred service revenue		(1,275	)		6,127
Net change in operating lease liability		(329,786	)		(279,306	)
Net cash used in operating activities		(522,529	)		(30,182	)
Investing activities
Purchases of PP&E including software and website development		(1,469,227	)		(910,603	)
Net cash used in investing activities		(1,469,227	)		(910,603	)
Financing activities
Common stocks repurchased		(208,425	)		(653,684	)
Proceeds from subordinated convertible notes payable, net of discount - related party		1,582,452			—
Repayments of note payable		(125,000	)		(375,000	)
Proceeds from stock options exercised		212,815			110,925
Net cash (used in) provided by financing activities		1,461,842			(917,759	)
Net decrease in cash and cash equivalents		(529,914	)		(1,858,544	)
Cash and cash equivalents at beginning of period		3,623,469			6,095,886
Cash and cash equivalents at end of period	$	3,093,555		$	4,237,342
Supplemental disclosure of cash flow information
Cash paid for interest	$	161,893		$	122,197
Supplemental disclosure of non-cash activities
Payroll tax liability for retired restricted stock	$	—		$	115,215
Property acquired under operating lease	$	—		$	3,862,511


Fiscal Year	Amount
2023 (October 1, 2023 to December 31, 2023)	$ 31,824
2024	127,296
2025	127,296
2026	127,296
2027	127,296
Thereafter	1,050,185
Total	$ 1,591,193


	September 30,			December 31,
	2023			2022
Raw materials and sub-assemblies	$	5,876,769		$	6,193,453
Finished goods		533,317			289,181
Inventory reserves		(880,943	)		(880,943	)
Inventory, net	$	5,529,143		$	5,601,691


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Americas	$	2,328,696	$	2,678,380	$	9,307,625	$	12,041,965
Europe		514,158		486,073		1,734,446		2,137,008
Asia Pacific		363,039		563,418		1,593,157		1,887,882
Total revenues	$	3,205,893	$	3,727,871	$	12,635,228	$	16,066,855


Annual minimum payments:	Amount
2023 (October 2023 through December 31, 2023)		156,857
2024		636,861
2025		652,883
2026		672,470
2027		692,644
Thereafter		1,139,070
Total minimum payments		3,950,785
Less: Present value factor		(544,007	)
Total operating lease liabilities		3,406,778
Less: Current portion of operating lease		(474,030	)
Long-term portion of operating lease	$	2,932,748

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 to 3 years		4 to 5 years		More than 5 years

Unconditional purchase obligations with contract manufacturers	$	7,162,000	$	6,701,000	$	461,000	$	—	$	—
Operating lease		3,952,000		634,000		1,316,000		1,396,000		606,000
Total contractual obligations	$	11,114,000	$	7,335,000	$	1,777,000	$	1,396,000	$	606,000


	September 30,			December 31,
	2023			2022
BlueStar, Inc.		31	%		46	%
Ingram Micro Inc.		17	%		14	%
ScanSource, Inc.		15	%		11	%


Exhibit Number		Exhibit Description

31.1	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	**	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		XBRL Document


Date: November 14, 2023	/s/ Kevin J. Mills
	Kevin J. Mills
	President and Chief Executive Officer
	(Duly Authorized Officer and Principal Executive Officer)


Date: November 14, 2023	/s/ Lynn Zhao
	Lynn Zhao
	Vice President of Finance and Administration and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

SEC Form 10-Q filed by Socket Mobile Inc.