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 March 31, 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, 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 May 9, 2023 was 7,130,853 shares.

INDEX

		PAGE NO.
Part I. Financial Information

Item 1. Financial Statements (Unaudited):

Condensed Statements of Operations – Three Months Ended March 31, 2023 and 2022 (Unaudited)		1

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

Condensed Statements of Stockholders’ Equity – Three Months Ended March 31, 2023 and 2022 (Unaudited)		3

Condensed Statements of Cash Flows - Three Months Ended March 31, 2023 and 2022 (Unaudited)		4

Notes to Condensed Financial Statements (Unaudited)		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3. Quantitative and Qualitative Disclosures about Market Risk		20

Item 4. Controls and Procedures		21

Part II. Other Information

Item 1A. Risk Factors		22

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		33

Item 6. Exhibits		33

Signatures		34

PART I

Item 1. Financial Statements

SOCKET MOBILE, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended March 31,
	2023			2022

Revenues	$	4,312,178		$	6,293,002

Cost of revenues		2,239,691			3,165,340

Gross profit		2,072,487			3,127,662

Operating expenses:
Research and development		1,247,119			1,053,606
Sales and marketing		1,006,792			899,880
General and administrative		773,988			710,472
Total operating expenses		3,027,899			2,663,958

Operating income (loss)		(955,412	)		463,704

Interest expense, net		(38,008	)		(45,606	)
Other income		—			—

Net income (loss) before income taxes		(993,420	)		418,098
Income tax expense		—			76,165

Net income (loss)	$	(993,420	)	$	341,933

Net income (loss) per share:

Basic	$	(0.12	)	$	0.04
Diluted	$	(0.12	)	$	0.04

Weighted average shares outstanding:

Basic		7,106,746			7,234,163
Diluted		7,106,746			7,724,357

See accompanying notes to condensed financial statements.


	March 31, 2023 (Unaudited)		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	2,963,308	$	3,623,469
Accounts receivable, net		2,494,713		2,659,861
Inventories, net		5,659,930		5,601,691
Prepaid expenses and other current assets		556,352		617,188
Deferred cost on shipments to distributors		273,718		266,327
Total current assets		11,948,021		12,768,536

Property and equipment:
Machinery and office equipment		1,842,599		1,533,087
Computer equipment		2,871,714		2,715,121
Property, plant, and equipment, gross		4,714,313		4,248,208
Accumulated depreciation		(2,752,101)		(2,590,999)
Property and equipment, net		1,962,212		1,657,209

Intangible assets, net		1,654,841		1,693,927
Other long-term assets		250,239		250,239
Deferred tax assets		8,668,419		8,668,419
Operating lease right-of-use asset		3,443,826		3,559,658
Total assets	$	27,927,558	$	28,597,988


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	2,180,911	$	1,665,028
Accrued payroll and related expenses		598,501		742,541
Deferred revenue on shipments to distributors		647,977		594,793
Short term portion of deferred service revenue		21,816		22,599
Note Payable – current portion		—		125,000
Subordinated convertible notes payable, net of discount		148,382		147,409
Subordinated convertible notes payable, net of discount - related party		1,237,830		1,230,530
Operating lease – current portion		454,660		444,529
Total current liabilities		5,290,077		4,972,429

Long-term portion of deferred service revenue		12,183		11,767
Long-term portion of operating lease		3,175,848		3,292,035
Total liabilities		8,478,108		8,276,231

Commitments and contingencies		—		—
Stockholders’ equity:
Common stock, $0.001 par value: Authorized – 20,000,000 shares; Issued - 7,489,201 shares and Outstanding – 7,129,951 shares at March 31, 2023; Issued - 7,355,967 shares and Outstanding - 7,089,676 shares at December 31, 2022		7,130		7,090
Additional paid-in capital		67,487,148		67,157,650
Treasury stock		(1,037,988)		(829,563)
Accumulated deficit		(47,006,840)		(46,013,420)
Total stockholders’ equity		19,449,450		20,321,757
Total liabilities and stockholders’ equity	$	27,927,558	$	28,597,988


							Additional											Total
	Common Stock						Paid-In			Treasury Stock					Accumulated			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

Fiscal Year		Amount
	2023 (April 1, 2023 to December 31, 2023)	$	95,472
	2024		127,296
	2025		127,296
	2026		127,296
	2027		127,296
	Thereafter		1,050,185
	Total	$	1,654,841

	March 31,			December 31,
	2023			2022
Raw materials and sub-assemblies	$	6,346,897		$	6,193,453
Finished goods		193,976			289,181
Inventory reserves		(880,943	)		(880,943	)
Inventory, net	$	5,659,930		$	5,601,691


	Three Months Ended March 31,
Revenues:	2023		2022
United States	$	3,138,653	$	4,882,773
Europe		542,527		697,971
Asia and rest of world		630,998		712,258
Total revenues	$	4,312,178	$	6,293,002


Annual minimum payments:	Amount
2023 (April 1 through December 31, 2023)		469,062
2024		636,860
2025		652,883
2026		672,470
2027		692,644
Thereafter		1,139,070
Total minimum payments		4,262,989
Less: Present value factor		(632,481	)
Total operating lease liabilities		3,630,508
Less: Current portion of operating lease		(454,660	)
Long-term portion of operating lease	$	3,175,848

	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	$	9,095,000	$	8,554,000	$	541,000	$	—	$	—
Operating lease		4,263,000		626,000		1,298,000		1,375,000		964,000
Total contractual obligations	$	13,358,000	$	9,180,000	$	1,839,000	$	1,375,000	$	964,000


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: May 15, 2023	/s/ Kevin J. Mills
	Kevin J. Mills
	President and Chief Executive Officer
	(Duly Authorized Officer and Principal Executive Officer)


Date: May 15, 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)


	Three Months Ended March 31,
	2023			2022
Ingram Micro, Inc.		23	%		27	%
BlueStar, Inc.		20	%		20	%
ScanSource, Inc.		*			19	%

*Customer accounted for less than 10% of the Company’s total revenue


	March 31,			December 31,
	2023			2022
Ingram Micro Inc.		28	%		14	%
BlueStar, Inc.		27	%		46	%
ScanSource, Inc.		15	%		11	%
Nippon Primex, Inc.		*			14	%

*Customer accounted for less than 10% of the Company’s accounts receivable balances

SEC Form 10-Q filed by Socket Mobile Inc.