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, 2023

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 August 9, 2023 was 7,323,442 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, 2023 and 2022 (Unaudited)			1

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

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

Condensed Statements of Cash Flows - Six Months Ended June 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			23

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 June 30,						Six Months Ended June 30,
	2023			2022			2023			2022

Revenues	$	5,117,157		$	6,045,982		$	9,429,335		$	12,338,984

Cost of revenues		2,465,594			3,010,300			4,705,285			6,175,640

Gross profit		2,651,563			3,035,682			4,724,050			6,163,344

Operating expenses:
Research and development		1,189,930			1,121,116			2,437,049			2,174,722
Sales and marketing		1,004,579			964,434			2,011,371			1,864,314
General and administrative		748,609			760,848			1,522,597			1,471,320
Total operating expenses		2,943,118			2,846,398			5,971,017			5,510,356

Operating income (loss)		(291,555	)		189,284			(1,246,967	)		652,988

Interest expense, net		(55,261	)		(45,005	)		(93,269	)		(90,611	)

Net income (loss) before income taxes		(346,816	)		144,279			(1,340,236	)		562,377

Income tax benefit (expense)		(166,000	)		(40,320	)		(166,000	)		(116,485	)

Net income (loss)	$	(512,816	)	$	103,959		$	(1,506,236	)	$	445,892

Net income (loss) per share:

Basic	$	(0.06	)	$	0.01		$	(0.18	)	$	0.06
Diluted	$	(0.06	)	$	0.01		$	(0.18	)	$	0.05

Weighted average shares outstanding:

Basic		7,163,608			7,219,646			7,135,149			7,225,641
Diluted		7,163,608			7,643,315			7,135,149			7,687,980


	June 30, 2023 (Unaudited)			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	3,431,037		$	3,623,469
Accounts receivable, net		3,200,422			2,659,861
Inventories, net		5,509,150			5,601,691
Prepaid expenses and other current assets		617,734			617,188
Deferred cost on shipments to distributors		412,490			266,327
Total current assets		13,170,833			12,768,536

Property and equipment:
Machinery and office equipment		2,194,521			1,533,087
Computer equipment		3,157,278			2,715,121
		5,351,799			4,248,208
Accumulated depreciation		(2,938,637	)		(2,590,999	)
Property and equipment, net		2,413,162			1,657,209

Intangible assets, net		1,623,017			1,693,927
Other long-term assets		274,528			250,239
Deferred tax assets		8,502,419			8,668,419
Operating lease right-of-use asset		3,326,655			3,559,658
Total assets	$	29,310,614		$	28,597,988


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	1,838,429		$	1,665,028
Accrued payroll and related expenses		600,297			742,541
Deferred revenue on shipments to distributors		942,170			594,793
Short term portion of deferred service revenue		20,508			22,599
Note Payable – current portion		—			125,000
Subordinated convertible notes payable, net of discount		149,356			147,409
Subordinated convertible notes payable, net of discount-related party		2,828,068			1,230,530
Operating lease – current portion		465,009			444,529
Total current liabilities		6,843,837			4,972,429

Long-term portion of deferred service revenue		12,029			11,767
Long-term portion of operating lease		3,055,088			3,292,035
Total liabilities		9,910,954			8,276,231

Commitments and contingencies		—			—
Stockholders’ equity:
Common stock, $0.001 par value: authorized 20,000,000 shares, 7,666,783 issued and 7,307,533 outstanding at June 30, 2023, and 7,355,967 shares issued and 7,089,676 shares outstanding at December 31, 2022		7,308			7,090
Additional paid-in capital		67,949,996			67,157,650
Treasury stock		(1,037,988	)		(829,563	)
Accumulated deficit		(47,519,656	)		(46,013,420	)
Total stockholders’ equity		19,399,660			20,321,757
Total liabilities and stockholders’ equity	$	29,310,614		$	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


							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


	Six Months Ended June 30,
	2023			2022
Operating activities
Net income (loss)	$	(1,506,236	)	$	445,892
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation		602,249			474,980
Depreciation and amortization		418,549			394,287
Amortization of debt discount		17,033			16,546
Amortization of operating lease ROU Asset		233,003			297,069
Deferred tax expenses (benefits)		166,000			116,485

Changes in operating assets and liabilities:
Accounts receivable		(540,561	)		(815,172	)
Inventories		92,541			(732,996	)
Prepaid expenses and other current assets		(546	)		(359,891	)
Other assets		(24,289	)		(222,248	)
Accounts payable and accrued expenses		173,401			1,137,335
Accrued payroll and related expenses		(142,244	)		(4,595	)
Net deferred revenue on shipments to distributors		201,214			82,156
Deferred service revenue		(1,829	)		6,169
Net change in operating lease liability		(216,467	)		(237,253	)
Net cash (used in) provided by operating activities		(528,182	)		598,764

Investing activities
Purchases of equipment and intangible assets		(1,103,592	)		(560,079	)
Net cash used in investing activities		(1,103,592	)		(560,079	)

Financing activities
Common stocks repurchased and related expenses		(208,425	)		(377,950	)
Proceeds from note payable		1,582,452			—
Repayments of note payable		(125,000	)		(250,000	)
Proceeds from stock options exercised		190,315			81,531
Net cash provided by (used in) financing activities		1,439,342			(546,419	)
Net decrease in cash and cash equivalents		(192,432	)		(507,734	)

Cash and cash equivalents at beginning of period		3,623,469			6,095,886
Cash and cash equivalents at end of period	$	3,431,037		$	5,588,152

Supplemental disclosure of cash flow information
Cash paid for interest	$	70,934		$	81,386
Supplemental disclosure of non-cash activities
Payroll tax liability for retired restricted stock	$	—		$	115,215
Property acquired under operating lease	$	—		$	3,851,195


Fiscal Year	Amount
2023 (July 1, 2023 to December 31, 2023)	$ 63,648
2024	127,296
2025	127,296
2026	127,296
2027	127,296
Thereafter	1,050,185
Total	$ 1,623,017


	June 30,			December 31,
	2023			2022
Raw materials and sub-assemblies	$	6,034,232		$	6,193,453
Finished goods		355,861			289,181
Inventory reserves		(880,943	)		(880,943	)
Inventory, net	$	5,509,150		$	5,601,691


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues:
Americas	$	3,840,276	$	4,480,812	$	6,978,929	$	9,363,585
Europe		677,761		952,965		1,220,288		1,650,935
Asia Pacific		599,120		612,205		1,230,118		1,324,464
Total revenues	$	5,117,157	$	6,045,982	$	9,429,335	$	12,338,984


Annual minimum payments:	Amount
2023 (July 2023 through December 31, 2023)		313,713
2024		636,861
2025		652,883
2026		672,470
2027		692,644
Thereafter		1,139,071
Total minimum payments		4,107,642
Less: Present value factor		(587,545	)
Total operating lease liabilities		3,520,097
Less: Current portion of operating lease		(465,009	)
Long-term portion of operating lease	$	3,055,088

	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	$	7,939,000	$	7,451,000	$	488,000	$	—	$	—
Operating lease		4,108,000		631,000		1,306,000		1,385,000		786,000
Total contractual obligations	$	12,047,000	$	8,082,000	$	1,794,000	$	1,385,000	$	786,000


	June 30,			December 31,
	2023			2022
Ingram Micro Inc.		36	%		14	%
BlueStar, Inc.		26	%		46	%
ScanSource, Inc.		12	%		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: August 14, 2023	/s/ Kevin J. Mills
	Kevin J. Mills
	President and Chief Executive Officer
	(Duly Authorized Officer and Principal Executive Officer)


Date: August 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.