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, 2024

( )

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 1, 2024 was 7,605,270 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, 2024 and 2023 (Unaudited)			1

Condensed Balance Sheets - September 30, 2024 (Unaudited) and December 31, 2023			2

Condensed Statements of Stockholders’ Equity – Three Months and Nine Months Ended September 30, 2024 and 2023 (Unaudited)			3

Condensed Statements of Cash Flows - Nine Months Ended September 30, 2024 and 2023 (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 September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023

Revenues	$	3,872,336		$	3,205,893		$	13,931,531		$	12,635,228

Cost of revenues		1,975,151			1,787,696			6,945,258			6,492,981

Gross profit		1,897,185			1,418,197			6,986,273			6,142,247

Operating expenses:
Research and development		1,162,025			1,206,452			3,602,060			3,643,501
Sales and marketing		1,122,261			1,002,206			3,307,777			3,013,577
General and administrative		644,175			608,094			2,128,030			2,130,691
Total operating expenses		2,928,461			2,816,752			9,037,867			8,787,769

Operating loss		(1,031,276	)		(1,398,555	)		(2,051,594	)		(2,645,522	)

Interest expense, net		(84,164	)		(76,440	)		(228,892	)		(169,709	)

Net loss before income taxes		(1,115,440	)		(1,474,995	)		(2,280,486	)		(2,815,231	)

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

Net loss	$	(1,115,440	)	$	(1,324,995	)	$	(2,280,486	)	$	(2,831,231	)

Net loss per share:

Basic	$	(0.15	)	$	(0.18	)	$	(0.30	)	$	(0.39	)
Diluted	$	(0.15	)	$	(0.18	)	$	(0.30	)	$	(0.39	)

Weighted average shares outstanding:

Basic		7,601,071			7,319,782			7,541,591			7,197,371
Diluted		7,601,071			7,319,782			7,541,591			7,197,371


	September 30, 2024 (Unaudited)			December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	2,913,339		$	2,826,630
Accounts receivable, net		1,441,258			1,699,696
Inventories, net		5,250,413			5,409,047
Prepaid expenses and other current assets		471,776			440,730
Deferred cost on shipments to distributors		265,463			322,580
Total current assets		10,342,249			10,698,683

Property and equipment:
Machinery and office equipment		2,826,675			2,700,759
Computer equipment, software and website development		3,829,895			3,631,945
		6,656,570			6,332,704
Accumulated depreciation		(3,832,515	)		(3,299,503	)
Property and equipment, net		2,824,055			3,033,201

Intangible assets, net		1,463,897			1,559,369
Other long-term assets		248,715			249,715
Deferred tax assets		10,112,419			10,112,419
Operating lease right-of-use asset		2,729,479			3,088,087
Total assets	$	27,720,814		$	28,741,474


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	1,358,104		$	1,605,231
Accrued payroll and related expenses		758,041			579,974
Deferred revenue on shipments to distributors		688,230			825,670
Short term portion of deferred service revenue		19,243			19,885
Subordinated convertible notes payable, net of discount		150,000			150,000
Subordinated convertible notes payable, net of discount-related party		3,829,604			2,835,864
Operating lease – current portion		516,609			483,161
Total current liabilities		7,319,831			6,499,785
Long-term portion of deferred service revenue		14,718			12,813
Operating lease - long-term portion		2,424,805			2,808,872
Total liabilities		9,759,354			9,321,470

Commitments and contingencies		—			—
Stockholders’ equity:
Common stock, $0.001 par value: authorized 20,000,000 shares, 7,963,720 issued and 7,604,470 outstanding at September 30, 2024, and 7,695,371 shares issued and 7,336,121 shares outstanding at December 31, 2023		7,605			7,336
Additional paid-in capital		69,204,903			68,383,230
Treasury stock		(1,037,988	)		(1,037,988	)
Accumulated deficit		(50,213,060	)		(47,932,574	)
Total stockholders’ equity		17,961,460			19,420,004
Total liabilities and stockholders’ equity	$	27,720,814		$	28,741,474


	Common Stock						Additional Paid-In			Treasury Stock					Accumulated			Total Stockholders’
	Shares			Amount			Capital			Shares		Amount			Deficit			Equity
Balance at December 31, 2023		7,336,121		$	7,336		$	68,383,230			359,250	$	(1,037,988	)	$	(47,932,574	)	$	19,420,004
Vesting of restricted stocks		256,787			257			(257	)		—		—			—			—
Restricted stock retired for tax withholding		(70,581	)		(71	)		71			—		—			—			—
Exercise of stock options		25,000			25			23,725			—		—			—			23,750
Stock-based compensation		—			—			272,700			—		—			—			272,700
Net loss		—			—			—			—		—			(557,415	)		(557,415	)
Balance at March 31, 2024		7,547,327		$	7,547		$	68,679,469			359,250	$	(1,037,988	)	$	(48,489,989	)	$	19,159,039
Vesting of restricted stock		50,300			50			(50	)		—		—			—			—
Restricted stock retired for tax withholding		(509	)		—			—			—		—			—			—
Stock-based compensation		—			—			274,734			—		—			—			274,734
Net loss		—			—			—			—		—			(607,631	)		(607,631	)
Balance at June 30, 2024		7,597,118		$	7,597		$	68,954,153			359,250	$	(1,037,988	)	$	(49,097,620	)	$	18,826,142
Vesting of restricted stock		8,032			8			(8	)		—		—			—			—
Restricted stock retired for tax withholding		(680	)		—			—			—		—			—			—
Stock-based compensation		—			—			250,758			—		—			—			250,758
Net loss		—			—			—			—		—			(1,115,440	)		(1,115,440	)
Balance at September 30, 2024		7,604,470		$	7,605		$	69,204,903			359,250	$	(1,037,988	)	$	(50,213,060	)	$	17,961,460


	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


	Nine Months Ended September 30,
	2024			2023
Operating activities
Net loss	$	(2,280,486	)	$	(2,831,231	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		798,192			880,508
Depreciation and amortization		796,258			671,547
Amortization of debt discount		4,691			24,011
Amortization of operating lease ROU asset		366,839			351,574
Deferred tax expenses (benefits)		—			16,000

Changes in operating assets and liabilities:
Accounts receivable		258,438			1,100,182
Inventories		158,634			72,548
Prepaid expenses and other current assets		(31,046	)		(92	)
Other assets		1,000			(476	)
Accounts payable and accrued expenses		(247,127	)		(396,629	)
Accrued payroll and related expenses		178,067			(100,219	)
Net deferred revenue on shipments to distributors		(80,323	)		20,809
Deferred service revenue		1,263			(1,275	)
Net change in operating lease liability		(358,850	)		(329,786	)
Net cash used in operating activities		(434,450	)		(522,529	)

Investing activities
Purchases of PP&E including software and website development		(564,440	)		(1,469,227	)
Proceeds from tenant improvements allowance		72,800			—
Net cash used in investing activities		(491,640	)		(1,469,227	)

Financing activities
Common stocks repurchased		—			(208,425	)
Proceeds from subordinated convertible notes payable, net of discount - related party		989,049			1,582,452
Repayments of note payable		—			(125,000	)
Proceeds from stock options exercised		23,750			212,815
Net cash provided by financing activities		1,012,799			1,461,842
Net increase (decrease) in cash and cash equivalents		86,709			(529,914	)
Cash and cash equivalents at beginning of period		2,826,630			3,623,469
Cash and cash equivalents at end of period	$	2,913,339		$	3,093,555

Supplemental disclosure of cash flow information
Cash paid for interest	$	266,164		$	161,893
Cash paid for income taxes	$	—		$	—
Supplemental disclosure of non-cash activities
Property acquired under operating lease	$	8,230		$	—


Fiscal Year	Amount
2024 (October 1, 2024 to December 31, 2024)	$ 31,824
2025	127,296
2026	127,296
2027	127,296
2028	127,296
Thereafter	922,889
Total	$ 1,463,897


	September 30,	December 31,
	2024	2023
Raw materials and sub-assemblies	$ 5,861,933	$ 5,839,176
Finished goods	384,423	500,814
Inventory reserves	(995,943)	(930,943)
Inventory, net	$ 5,250,413	$ 5,409,047


Annual minimum payments:	Amount
2024 (October 2024 through December 31, 2024)		161,091
2025		657,164
2026		676,750
2027		692,644
2028		713,423
2029		425,646
Total minimum payments		3,326,718
Less: Present value factor		(385,304	)
Total operating lease liabilities		2,941,414
Less: Current portion of operating lease		(516,609	)
Long-term portion of operating lease	$	2,424,805

	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	$	4,864,000	$	4,777,000	$	87,000	$	—	$	—
Operating lease		3,326,000		652,000		1,360,000		1,314,000		—
Total contractual obligations	$	8,190,000	$	5,429,000	$	1,447,000	$	1,314,000	$	—


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


	September 30,			December 31,
	2024			2023
BlueStar, Inc.		37	%		*
Ingram Micro Inc.		27	%		20	%
ScanSource, Inc.		12	%		13	%
EET UK Distribution Ltd.		10	%		*
Synnex Corporation		*			14	%
Nippon Primex, Inc.		*			11	%


Date: November 8, 2024	/s/ Kevin J. Mills
	Kevin J. Mills
	President and Chief Executive Officer
	(Duly Authorized Officer and Principal Executive Officer)


Date: November 8, 2024	/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.