10-Q 1 q1-2021.htm FORM 10-Q

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, 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 May 10, 2021 was 7,128,384 shares.

INDEX

	PAGE NO.
Part I. Financial Information

Item 1. Financial Statements (Unaudited):

Condensed Statements of Operations - Three Months Ended March 31, 2021 and 2020 Unaudited)	1

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

Condensed Statements of Stockholders’ Equity - Three Months Ended March 31, 2021 and 2020 (Unaudited)	3

Condensed Statements of Cash Flows - Three Months Ended March 31, 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	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	34

Signatures	35


	Three Months Ended March 31,
	2021			2020

Revenues	$	4,812,979		$	4,220,686

Cost of revenues		2,238,936			1,996,971

Gross profit		2,574,043			2,223,715

Operating expenses:
Research and development		931,034			880,638
Sales and marketing		660,462			767,796
General and administrative		740,537			666,116
Total operating expenses		2,332,033			2,314,550

Operating income (loss)		242,010			(90,835	)

Interest expense, net		(48,701	)		(19,492	)
Other income		10,082			20,000

Net income (loss) before income taxes		203,391			(90,327	)
Income tax expense		489			—

Net income (loss)	$	202,902		$	(90,327	)

Net income (loss) per share:

Basic	$	0.03		$	(0.01	)
Diluted	$	0.03		$	(0.01	)

Weighted average shares outstanding:

Basic		6,484,391			6,014,007
Diluted		7,305,988			6,014,007

	March 31, 2021 (Unaudited)			December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	4,961,278		$	2,121,763
Accounts receivable, net		2,407,313			2,112,514
Inventories, net		3,724,916			3,195,842
Prepaid expenses and other current assets		388,156			335,386
Deferred cost on shipments to distributors		178,834			170,016
Total current assets		11,660,497			7,935,521

Property and equipment:
Machinery and office equipment		2,327,214			2,286,268
Computer equipment		1,524,841			1,412,030
		3,852,055			3,698,298
Accumulated depreciation		(2,994,137	)		(2,850,635	)
Property and equipment, net		857,918			847,663

Intangible assets, net		1,909,433			—
Other long-term assets		148,146			159,039
Deferred tax assets		5,506,934			5,506,934
Operating lease right-of-use asset		512,472			609,331
Total assets	$	20,595,400		$	15,058,488


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	2,031,934		$	1,372,701
Accrued payroll and related expenses		542,749			375,511
Deferred revenue on shipments to distributors		524,872			450,591
Short term portion of deferred service revenue		22,704			25,522
Note Payable – current portion		500,000			—
Subordinated convertible notes payable, net of discount		140,593			169,619
Subordinated convertible notes payable, net of discount-related party		1,179,437			1,272,138
Operating lease – current portion		495,695			483,254
Total current liabilities		5,437,984			4,149,336

Long-term portion of deferred service revenue		24,636			28,794
Long-term portion of note payable		500,000			28,794
Long-term portion of operating lease		130,047			258,097
Total liabilities		6,092,667			4,436,227

Commitments and contingencies		—			—
Stockholders’ equity:
Common stock, $0.001 par value: Authorized – 20,000,000 shares,
Issued and outstanding – 7,125,371 shares at March 31, 2021 and 6,102,630 shares at December 31, 2020		7,125			6,103
Additional paid-in capital		65,410,070			61,733,522
Accumulated deficit		(50,914,462	)		(51,117,364	)
Total stockholders’ equity		14,502,733			10,622,261
Total liabilities and stockholders’ equity	$	20,595,400		$	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 stocks		38,775			39			(39	)		—			—
Cancellation of restricted stock		(2,755	)		(3	)		3			—			—
Exercise of stock option		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		—			—			—			202,902			202,902
Balance at March 31, 2021		7,125,371		$	7,125		$	65,410,070		$	(50,914,462	)	$	14,502,733

Fiscal Year		Amount
	2021 (April 1, 2021 to December 31, 2021)	$	95,472
	2022		127,296
	2023		127,296
	2024		127,296
	2025		127,296
	Thereafter		1,304,777
		$	1,909,433

	March 31,			December 31,
	2021			2020
Raw materials and sub-assemblies	$	4,087,028		$	3,642,377
Finished goods		393,831			281,104
Inventory reserves		(755,943	)		(727,639	)
Inventory, net	$	3,724,916		$	3,195,842

	March 31, 2021
Long-term portion of CalCap loan	$	500,000
Current portion of CalCap loan		500,000
CalCap loan	$	1,000,000

	Three Months Ended March 31,
Revenues:	2021		2020
United States	$	3,563,055	$	3,143,409
Europe		777,580		615,529
Asia and rest of world		472,344		461,748
Total revenues	$	4,812,979	$	4,220,686

Annual minimum payments:	Amount
2021 (April 1 to December 31, 2021)		389,305
2022 (through June 30, 2022)		262,789
Total minimum payments		652,094
Less: Present value factor		(26,352	)
Total operating lease liabilities		625,742
Less: Current portion of operating lease		(495,695	)
Long-term portion of operating lease	$	130,047

			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	$	8,689,000	$	8,421,000	$	268,000	$	—	$	—
Operating lease		652,000		521,000		131,000		—		—
Total contractual obligations	$	9,341,000	$	8,942,000	$	399,000	$	—	$	—

		Incorporation by Reference
Exhibit Number	Exhibit Description	Form	Exhibit No.	Filing Date
3.1	Certificate of Amendment to Restated Certificate, as filed June 20, 2013	S-3	3.2	April 12, 2021
4.1	Form of Secured Subordinated Convertible Note issued August 31, 2020	8-K	10.1	September 1, 2020
10.1	Form of Executive Employment Agreement	8-K	10.1	January 27, 2021
10.2	Business Financing Modification Agreement dated January 29, 2021 by and between the Company and Western Alliance Bank, an Arizona corporation	8-K	10.1	February 4, 2021
10.3	2021 Technology Transfer Agreement, dated as of February 26, 2021, by and between the Company and SpringCard SAS	8-K	9.1	March 4, 2021
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

	March 31,			December 31,
	2021			2020
Ingram Micro Inc.		30	%		34	%
BlueStar, Inc.		30	%		29	%
ScanSource, Inc.		12	%		13	%
Bluestar Europe Distribution BV		*			11	%
*Customer accounted for less than 10% of the Company’s accounts receivable balances


Date: May 14, 2021	/s/ Kevin J. Mills
	Kevin J. Mills
	President and Chief Executive Officer
	(Duly Authorized Officer and Principal Executive Officer)


Date: May 14, 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.