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 June 30, 2021

( )

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.)

39700 Eureka Drive, Newark, CA 94560

(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 August 10, 2021 was 7,174,213 shares.

INDEX

			PAGE NO.
Part I. Financial Information

Item 1. Financial Statements (Unaudited):

Condensed Statements of Operations – Three Months and Six Months Ended June 30, 2021 and 2020 (Unaudited)			1

Condensed Balance Sheets - June 30, 2021 (Unaudited) and December 31, 2020			2

Condensed Statements of Stockholders’ Equity – Three Months and Six Months Ended June 30, 2021 and 2020 (Unaudited)			3

Condensed Statements of Cash Flows - Six Months Ended June 30, 2021 and 2020 (Unaudited)			4

Notes to Condensed Financial Statements (Unaudited)			5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15

Item 3. Quantitative and Qualitative Disclosures about Market Risk			21

Item 4. Controls and Procedures			22

Part II. Other Information

Item 1A. Risk Factors			23

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

Item 6. Exhibits			34

Signatures			35


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020

Revenues	$	5,952,890		$	2,715,024		$	10,765,869		$	6,935,710

Cost of revenues		2,697,747			1,353,498			4,936,683			3,350,469

Gross profit		3,255,143			1,361,526			5,829,186			3,585,241

Operating expenses:
Research and development		972,292			859,510			1,903,326			1,740,148
Sales and marketing		734,026			722,160			1,394,488			1,489,956
General and administrative		734,490			589,730			1,475,027			1,255,846
Total operating expenses		2,440,808			2,171,400			4,772,841			4,485,950

Operating income (loss)		814,335			(809,874	)		1,056,345			(900,709	)

Interest expense, net		(51,428	)		(8,149	)		(100,129	)		(27,641	)
Other income		—			50,000			10,082			70,000

Net income (loss) before income taxes		762,907			(768,023	)		966,298			(858,350	)

Current income tax expense		(5,800	)		—			(6,289	)		—
Deferred income tax benefit		1,870,000			—			1,870,000			—

Net income (loss)	$	2,627,107		$	(768,023	)	$	2,830,009		$	(858,350	)

Net income (loss) per share:

Basic	$	0.34		$	(0.13	)	$	0.38		$	(0.14	)
Diluted	$	0.27		$	(0.13	)	$	0.31		$	(0.14	)

Weighted average shares outstanding:

Basic		7,128,768			6,009,383			6,808,339			6,011,695
Diluted		8,907,352			6,009,383			8,593,630			6,011,695


	June 30, 2021 (Unaudited)			December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	4,919,968		$	2,121,763
Accounts receivable, net		2,468,281			2,112,514
Inventories, net		4,019,510			3,195,842
Prepaid expenses and other current assets		775,392			335,386
Deferred cost on shipments to distributors		179,267			170,016
Total current assets		12,362,418			7,935,521

Property and equipment:
Machinery and office equipment		2,395,518			2,286,268
Computer equipment		1,597,771			1,412,030
Property and equipment, gross		3,993,289			3,698,298
Accumulated depreciation		(3,138,075	)		(2,850,635	)
Property and equipment, net		855,214			847,663

Intangible assets, net		1,877,609			—
Other long-term assets		135,076			159,039
Deferred tax assets		7,376,934			5,506,934
Operating lease right-of-use asset		413,810			609,331
Total assets	$	23,021,061		$	15,058,488


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	1,722,750		$	1,372,701
Accrued payroll and related expenses		648,352			375,511
Deferred revenue on shipments to distributors		529,973			450,591
Short term portion of deferred service revenue		20,344			25,522
Note Payable – current portion		500,000			—
Subordinated convertible notes payable, net of discount		141,566			169,619
Subordinated convertible notes payable, net of discount-related party		1,186,737			1,272,138
Operating lease – current portion		508,328			483,254
Total current liabilities		5,258,050			4,149,336

Long-term portion of deferred service revenue		20,450			28,794
Long-term portion of note payable		375,000			—
Long-term portion of operating lease		—			258,097
Total liabilities		5,653,500			4,436,227

Commitments and contingencies		—			—
Stockholders’ equity:

Common stock, $0.001 par value: Authorized – 20,000,000 shares, Issued and outstanding – 7,139,084 shares at June 30, 2021 and 6,102,630 shares at December 31, 2020		7,139			6,103
Additional paid-in capital		65,647,777			61,733,522
Accumulated deficit		(48,287,355	)		(51,117,364	)
Total stockholders’ equity		17,367,561			10,622,261
Total liabilities and stockholders’ equity	$	23,021,061		$	15,058,488


							Additional						Total
	Common Stock						Paid-In			Accumulated			Stockholders’
	Shares			Amount			Capital			Deficit			Equity
Balance at December 31, 2020		6,102,630		$	6,103		$	61,733,522		$	(51,117,364	)	$	10,622,261
Vesting of restricted stock		38,775			39			(39	)		—			—
Cancellation of restricted stock		(2,755	)		(3	)		3			—			—
Exercise of stock options		713,349			713			1,710,945			—			1,711,658
Issuance of common stock for intangible assets		184,332			184			1,686,956			—			1,687,140
Conversion of convertible note		89,040			89			129,911			—			130,000
Stock-based compensation		—			—			148,772			—			148,772
Net income (loss)		—			—			—			202,902			202,902
Balance at March 31, 2021		7,125,371		$	7,125		$	65,410,070		$	(50,914,462	)	$	14,502,733
Vesting of restricted stock		900			1			(1	)		—			—
Repurchase and retirement of common stock		—			—			(1,176	)		—			(1,176	)
Cancellation of restricted stock		(3,250	)		(3	)		3			—			—
Exercise of stock options		16,063			16			66,873			—			66,889
Stock-based compensation		—			—			172,008			—			172,008
Net income (loss)		—			—			—			2,627,107			2,627,107
Balance at June 30, 2021		7,139,084		$	7,139		$	65,647,777		$	(48,287,355	)	$	17,367,561


	Six Months Ended June 30,
	2021			2020
Operating activities
Net income (loss)	$	2,830,009		$	(858,350	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation		320,780			263,434
Depreciation and amortization		352,849			290,498
Amortization of debt discount		16,546			—
Deferred tax benefits		(1,870,000	)		—

Changes in operating assets and liabilities:
Accounts receivable		(355,767	)		1,066,894
Inventories		(823,668	)		(74,801	)
Prepaid expenses and other current assets		(440,006	)		56,788
Accounts payable and accrued expenses		127,756			(253,163	)
Accrued payroll and related expenses		272,841			(108,172	)
Net deferred revenue on shipments to distributors		70,131			(98,493	)
Deferred service revenue		(13,522	)		(12,143	)
Net change in operating lease		(37,502	)		(28,121	)
Net cash provided by (used in) operating activities		450,447			244,371

Investing activities
Purchases of equipment		(304,613	)		(256,183	)
Net cash used in investing activities		(304,613	)		(256,183	)

Financing activities
Payments on finance leases		—			(8,291	)
Repurchase and retirement of common stock		(1,176	)		(8,025	)
Proceeds from borrowings under bank line of credit agreement		—			4,630,000
Repayments of borrowings under bank line of credit agreement		—			(5,592,449	)
Proceeds from note payable		1,000,000			1,208,700
Repayments of note payable		(125,000	)		(250,000)
Stock options exercised		1,778,547			—
Net cash provided by (used in) financing activities		2,652,371			(20,065	)
Net increase (decrease) in cash and cash equivalents		2,798,205			(31,877	)

Cash and cash equivalents at beginning of period		2,121,763			958,860
Cash and cash equivalents at end of period	$	4,919,968		$	926,983


Supplemental disclosure of cash flow information
Cash paid for interest	$	90,933		$	30,640
Non-cash investing and financing activities
Conversion of note payable	$	130,000		$	—
Acquisition of intangible assets	$	1,909,433		$	—

Fiscal Year	Amount
2021 (July 1, 2021 to December 31, 2021)	$	63,648
2022		127,296
2023		127,296
2024		127,296
2025		127,296
Thereafter		1,304,777
Total	$	1,877,609

	June 30,		December 31,
	2021		2020
Raw materials and sub-assemblies	$	4,429,107	$	3,642,377
Finished goods		396,346		281,104
Inventory reserves		805,943		727,639
Inventory, net	$	4,019,510	$	3,195,842


	June 30, 2021
Current portion of CalCap loan	$	500,000
Long-term portion of CalCap loan		375,000
CalCap loan	$	875,000


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues:
Americas	$	4,753,436	$	2,242,225	$	8,316,490	$	5,385,634
Europe		875,945		200,012		1,653,526		815,541
Asia Pacific		323,509		272,787		795,853		734,535
Total revenues	$	5,952,890	$	2,715,024	$	10,765,869	$	6,935,710


Annual minimum payments:	Amount
2021 (July 1 to December 31, 2021)		262,789
2022 (through June 30, 2022)		262,789
Total minimum payments		525,578
Less: Present value factor		(17,250	)
Total operating lease liabilities		508,328
Less: Current portion of operating lease		(508,328	)
Long-term portion of operating lease		—

	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	$	10,858,000	$	10,625,000	$	233,000	$	—	$	—
Operating lease		526,000		526,000		—		—		—
Total contractual obligations	$	11,384,000	$	11,151,000	$	233,000	$	—	$	—


		June 30,			December 31,
		2021			2020
BlueStar, Inc.			33	%		29	%
Ingram Micro Inc.			26	%		34	%
ScanSource, Inc.			26	%		13	%
Bluestar Europe Distribution BV			—	*		11	%
*	Customer accounted for less than 10% of the Company accounts receivable balances


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: August 13, 2021	/s/ Kevin J. Mills
	Kevin J. Mills
	President and Chief Executive Officer
	(Duly Authorized Officer and Principal Executive Officer)


Date: August 13, 2021	/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.