Part I [Part I. Financial Information](index=4&type=section&id=Part%20I%2E%20Financial%20Information) Unaudited Q1 2022 financial statements show revenue up 31% to $6.3 million, net income at $342 thousand, and $452 thousand net cash used in operations [Item 1. Financial Statements](index=4&type=section&id=Item%201%2E%20Financial%20Statements) Unaudited Q1 2022 financial statements show revenue up 31% to $6.3 million, net income at $342 thousand, total assets at $25.9 million, and $452 thousand net cash used in operations [Condensed Statements of Operations](index=4&type=section&id=Condensed%20Statements%20of%20Operations) Q1 2022 revenues increased 31% to $6.3 million, with gross profit at $3.1 million, operating income at $464 thousand, and net income at $342 thousand Condensed Statements of Operations | Financial Metric | Three Months Ended March 31, 2022 ($) | Three Months Ended March 31, 2021 ($) | | :--- | :--- | :--- | | **Revenues** | $6,293,002 | $4,812,979 | | **Gross Profit** | $3,127,662 | $2,574,043 | | **Operating Income** | $463,704 | $242,010 | | **Net Income** | $341,933 | $202,902 | | **Diluted EPS** | $0.04 | $0.03 | [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) As of March 31, 2022, total assets reached $25.9 million, total liabilities decreased to $5.4 million, and stockholders' equity increased to $20.5 million Condensed Balance Sheets | Balance Sheet Item | March 31, 2022 (Unaudited) ($) | December 31, 2021 ($) | | :--- | :--- | :--- | | **Total Current Assets** | $14,724,100 | $14,380,788 | | **Total Assets** | $25,893,255 | $25,575,101 | | **Total Current Liabilities** | $5,336,440 | $5,389,357 | | **Total Liabilities** | $5,357,096 | $5,528,638 | | **Total Stockholders' Equity** | $20,536,159 | $20,046,463 | [Condensed Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity increased to $20.5 million by March 31, 2022, driven by $342 thousand net income and $223 thousand stock-based compensation - Key changes in stockholders' equity for the three months ended March 31, 2022, included net income of **$341,933**, stock-based compensation of **$223,446**, and a reduction of **$115,215** from restricted stock retired for tax withholding[17](index=17&type=chunk) [Condensed Statements of Cash Flows](index=8&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) Q1 2022 saw a net cash outflow of $673 thousand, primarily from $452 thousand used in operating activities and $135 thousand in investing activities Condensed Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2022 ($) | Three Months Ended March 31, 2021 ($) | | :--- | :--- | :--- | | **Net cash (used in) provided by operating activities** | ($452,413) | $291,236 | | **Net cash used in investing activities** | ($134,919) | ($163,379) | | **Net cash (used in) provided by financing activities** | ($85,468) | $2,711,658 | | **Net (decrease) increase in cash** | ($672,800) | $2,839,515 | [Notes to Condensed Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) Notes detail accounting policies, SpringCard intangible asset, inventory, bank financing, segment revenues, customer concentrations, and a subsequent share repurchase program - In February 2021, the company acquired a technology license from SpringCard SAS, resulting in an intangible asset with a carrying amount of **$1,782,137** as of March 31, 2022, which is being amortized over 15 years[34](index=34&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) Revenue by Geography | Revenue by Geography | Q1 2022 ($) | Q1 2021 ($) | | :--- | :--- | :--- | | United States | $4,882,773 | $3,563,055 | | Europe | $697,971 | $777,580 | | Asia and rest of world | $712,258 | $472,344 | - The company has significant customer concentration, with Ingram Micro, BlueStar, and ScanSource accounting for **27%**, **20%**, and **19%** of total revenues, respectively, in Q1 2022[53](index=53&type=chunk) - Subsequent to the quarter end, the company repurchased **90,913** shares of common stock at an average price of **$4.11**[75](index=75&type=chunk)[76](index=76&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2022 revenue growth of 31% driven by economic reopening, gross margin decline due to rising costs, increased operating expenses from hiring, and net cash outflow from operations - Total revenues for Q1 2022 increased **31%** to approximately **$6.3 million** compared to **$4.8 million** in Q1 2021, driven by the deployment of business applications in retail as the economy re-opens[92](index=92&type=chunk) - Gross profit margins decreased to **49.7%** in Q1 2022 from **53.5%** in Q1 2021, primarily due to rising component costs and higher freight costs[94](index=94&type=chunk) - Operating expenses increased year-over-year, with R&D expenses up **13%** and Sales & Marketing expenses up **36%**, mainly due to hiring[95](index=95&type=chunk)[96](index=96&type=chunk) - Net cash used in operating activities was **$452,413** in Q1 2022, a significant shift from the **$291,236** provided by operations in Q1 2021, mainly due to increases in accounts receivable and a security deposit for a new office lease[102](index=102&type=chunk)[103](index=103&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=27&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces market risks from interest rate fluctuations on variable-rate loans and foreign currency exposure from Euro and British pound sales, partially mitigated by hedging - Interest rate risk is tied to the company's bank term loan and credit lines, which have variable interest rates based on the lender's prime rate[111](index=111&type=chunk) - Foreign currency risk is primarily from European sales denominated in Euros and British pounds; a hypothetical **10%** adverse change in exchange rates would have decreased Q1 2022 net income by approximately **$34,000** if unprotected[112](index=112&type=chunk) [Controls and Procedures](index=28&type=section&id=Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[114](index=114&type=chunk) - No changes occurred in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[115](index=115&type=chunk) Part II [Part II. Other Information](index=29&type=section&id=Part%20II%2E%20Other%20Information) [Risk Factors](index=29&type=section&id=Item%201A%2E%20Risk%20Factors) The company identifies key risks including the COVID-19 pandemic, global economic conditions, supply chain reliance, competition, and intellectual property infringement - The business could be materially affected by the ongoing COVID-19 pandemic and deteriorating global economic conditions, which could reduce demand, disrupt manufacturing, and impact third-party suppliers[119](index=119&type=chunk)[121](index=121&type=chunk) - The company is dependent on a limited number of qualified suppliers for components, and shortages or delays could have a material adverse effect on financial results[134](index=134&type=chunk) - A significant portion of sales depends on a limited number of distributors; in Q1 2022, Ingram Micro® and BlueStar together represented approximately **47%** of worldwide sales[142](index=142&type=chunk) - The market is characterized by rapidly changing technology and short product life cycles, requiring successful and timely development of new products to compete effectively[135](index=135&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202%2E%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported during the period - There were no unregistered sales of equity securities or use of proceeds to report for the period[165](index=165&type=chunk) [Exhibits](index=40&type=section&id=Item%206%2E%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and the XBRL document - Exhibits filed with the report include certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act, as well as the XBRL Interactive Data File[165](index=165&type=chunk) [Signatures](index=41&type=section&id=Signatures) The report was signed on May 16, 2022, by Kevin J. Mills, President and CEO, and Lynn Zhao, CFO - The report is signed by Kevin J. Mills (President and CEO) and Lynn Zhao (CFO) on May 16, 2022[170](index=170&type=chunk)

Financial Data and Key Metrics Changes - In Q1 2022, revenue increased by 31% to $6.3 million compared to $4.8 million in Q1 2021 [5] - Gross margins decreased to 49.7% from 52.1% in Q1 2021 due to higher component and freight costs [5] - Earnings per share rose to $0.04 from $0.03 in Q1 2021 [5] - Operating income was $464,000, representing a 7% operating margin [18] - Adjusted EBITDA increased to $0.9 million, up 57% from the prior quarter [18] Business Line Data and Key Metrics Changes - Significant progress was made with the Capture SDK software tools, including the announcement of Capture SDK for Flutter, which is used by over 2 million developers [9] - The launch of the SocketCam C820, a new product that turns mobile devices into high-performance barcode scanners, was highlighted [10] - The company aims to expand its offerings to serve a wider audience, from price-sensitive to performance-sensitive customers [11] Market Data and Key Metrics Changes - The company is experiencing supply chain challenges, particularly with the availability of printers and cash stores for mobile point-of-sale deployments [6] - Inventory levels increased to $5.2 million from $3.7 million a year ago, enabling the company to meet customer demand despite supply constraints [19] Company Strategy and Development Direction - The company is focused on becoming a more comprehensive data capture company and is investing in the digital ID and mobile driver's license space [13] - The strategy includes reducing discounts and increasing sales in lower discount channels to recover margin losses [15] Management's Comments on Operating Environment and Future Outlook - Management expects supply chain issues to remain challenging for most of 2022 but believes the situation is stabilizing [6] - The company is building a solid foundation for future revenue growth, with expectations for stronger performance in 2023 and beyond [8] Other Important Information - The company ended Q1 with a cash balance of $5.4 million and a current ratio of 2.8 to 1, indicating a strengthened balance sheet [19] - A share buyback program was approved, targeting the repurchase of 91,000 shares in Q2, with 71,000 shares already repurchased at an average price of $4.15 [19] Q&A Session Summary Question: How will the free C820 product help increase revenue and earnings? - Management explained that the free C820 product aims to reduce the rework cycle for application developers by allowing them to integrate both camera-based and dedicated scanning solutions [22][24] Question: What was the total units sold during Q1? - The company sold 27,700 units in Q1, which is an increase from the previous quarter [27][28] Question: What is the purpose of the share buyback program? - Management stated that the share buyback is intended to show confidence in the stock and to reduce the number of shares outstanding, as they believe the stock is undervalued [42][43]

PART I Details the company's business operations, risk factors, properties, and legal proceedings [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Socket Mobile provides mobile data capture solutions, focusing on cordless barcode scanners and RFID/NFC devices [General](index=4&type=section&id=General) The company provides data capture solutions for various sectors and trades on NASDAQ under the symbol 'SCKT' - Socket Mobile, Inc, founded in 1992, is a leading provider of data capture solutions for workforce mobilization across multiple sectors[14](index=14&type=chunk)[15](index=15&type=chunk) - The company's common stock trades on the NASDAQ Capital Market under the symbol **'SCKT'**[15](index=15&type=chunk) [Products](index=5&type=section&id=Products) The company's product portfolio includes cordless data capture devices, RFID/NFC readers, and a software developer kit - Primary products are cordless data capture devices connecting via Bluetooth, compatible with **Apple, Google, and Microsoft** operating systems[17](index=17&type=chunk) - The company offers a Software Developer Kit (Capture-SDK) for easy integration of advanced scanning features into mobile applications[17](index=17&type=chunk)[23](index=23&type=chunk) - Product lines include the Companion SocketScan (S700 series), durable Companion DuraScan (D700 series), and one-handed Attachable Family (DuraSled, SocketScan 800)[18](index=18&type=chunk)[19](index=19&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - Contactless RFID/NFC reader/writers (D600, S550) utilize 1356 MHz technology for smart card and NFC applications[23](index=23&type=chunk) - Products are designed in-house, manufactured by third parties, and distributed from the Newark, California facility[24](index=24&type=chunk) [Our Mission, Vision and Core Values](index=7&type=section&id=Our%20Mission%2C%20Vision%20and%20Core%20Values) The company aims to provide innovative data capture tools while managing complexity for its customers - **Mission**: To provide innovative and cost-effective data capture tools for businesses using mobile platforms[26](index=26&type=chunk) - **Vision**: To manage data capture and delivery complexity, allowing customers to focus on data applications[27](index=27&type=chunk) - **Core Values**: Accountability, Customer Focus, Excellence, Integrity, and Mutual Respect[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) [Marketing Dynamics](index=7&type=section&id=Marketing%20Dynamics) The company's marketing strategy focuses on supporting application providers and building a strong brand image - The company actively supports application providers with its Capture-SDK, training, and technical support[30](index=30&type=chunk) - Revenues are primarily driven by barcode scanner sales integrated into **mPOS (mobile Point of Sale)** applications[32](index=32&type=chunk) - Products are distributed through a worldwide network including major distributors like Ingram Micro®, ScanSource®, and Blue Star[35](index=35&type=chunk) - The company emphasizes its brand image for quality, standards-based connectivity, compact design, and ease of use[36](index=36&type=chunk) [Competition and Competitive Risks](index=9&type=section&id=Competition%20and%20Competitive%20Risks) The company differentiates itself through software in a competitive market and faces less competition in the RFID/NFC space - The mobile data capture market is competitive, with Socket Mobile differentiating its hardware via its **Capture-SDK software**[38](index=38&type=chunk)[39](index=39&type=chunk) - Competitors in cordless barcode scanning include Koamtec, Code Corporation, and camera-based apps, with Datalogic and Zebra offering more rugged devices[39](index=39&type=chunk) - For contactless RFID/NFC reader/writers, the company believes it is an early entrant with less direct competition[40](index=40&type=chunk) [Proprietary Technology and Intellectual Property](index=9&type=section&id=Proprietary%20Technology%20and%20Intellectual%20Property) The company protects its competitive position through a portfolio of patents, trademarks, and proprietary software - The company holds **56 U.S. patents**, 13 design patents, and registered trademarks including 'Socket' and 'DuraScan'[41](index=41&type=chunk) - Proprietary software enables unique data collection functions for Apple, Android, and Windows mobile devices[43](index=43&type=chunk) - Intellectual property protection relies on patents, copyrights, trademarks, and confidentiality agreements[44](index=44&type=chunk) [Personnel](index=10&type=section&id=Personnel) The company's employee headcount increased to 53 in 2021, distributed across key operational departments - Total employee headcount was **53 as of December 31, 2021**, up from 48 in 2020[45](index=45&type=chunk) - As of December 31, 2021, employees were distributed as follows: 14 in sales/marketing, 15 in engineering, 7 in finance/admin, and 17 in operations[45](index=45&type=chunk) [Item 1A. Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from the global economy, supply chain dependencies, technological changes, and competition - The **COVID-19 pandemic** and global economic conditions pose risks to demand, manufacturing, and third-party stability[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) - Failure to maintain profitability or secure additional capital could adversely affect operations and growth[51](index=51&type=chunk)[52](index=52&type=chunk) - Dependence on application providers for product integration means their failures could negatively impact sales[53](index=53&type=chunk) - Quarterly operating results are subject to **significant fluctuations**, making forecasting difficult[56](index=56&type=chunk)[59](index=59&type=chunk) - Reliance on a limited number of suppliers and distributors creates manufacturing and sales channel risks[62](index=62&type=chunk)[70](index=70&type=chunk) - The market is characterized by **rapidly changing technology** and short product life cycles, requiring continuous innovation[63](index=63&type=chunk)[64](index=64&type=chunk) - Intellectual property rights may be insufficient to protect the company's competitive position[75](index=75&type=chunk)[78](index=78&type=chunk)[82](index=82&type=chunk) - The loss of senior personnel or inability to attract skilled staff could harm the business[84](index=84&type=chunk)[86](index=86&type=chunk) - Export sales expose the company to economic, political, regulatory, and foreign currency risks[87](index=87&type=chunk) [Item 1B. Unresolved Staff Comments](index=21&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments from the SEC - No unresolved staff comments[93](index=93&type=chunk) [Item 2. Properties](index=22&type=section&id=Item%202.%20Properties) The company is relocating its headquarters from a leased facility in Newark to a new leased facility in Fremont, California - Current facility: 37,100 sq-ft office in Newark, CA, lease expires June 2022[94](index=94&type=chunk) - New facility: **35,913 sq-ft in Fremont, CA**, 87-month lease starting May 1, 2022[95](index=95&type=chunk) [Item 3. Legal Proceedings](index=22&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings - The company is not a party to any material legal proceedings[96](index=96&type=chunk) [Item 4. Mine Safety Disclosures](index=22&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[97](index=97&type=chunk) PART II Presents the company's stock market information, selected financial data, management's analysis, and financial statements [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on NASDAQ, with details on stockholders, dividend policy, and performance comparison - Common stock trades on NASDAQ Marketplace under symbol **'SCKT'**[99](index=99&type=chunk) - As of March 25, 2022, there were approximately **10,000 beneficial stockholders** and 7,273,051 shares outstanding[6](index=6&type=chunk)[99](index=99&type=chunk) - The company has not paid dividends and intends to retain earnings for business use[99](index=99&type=chunk) - A five-year performance graph compares stockholder return against the Russell 2000 and NASDAQ Computer & Data Processing indices[102](index=102&type=chunk) [Item 6. Selected Financial Data](index=24&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year summary of key income statement and balance sheet financial data Selected Financial Data (Years Ended December 31, in thousands) | Metric | 2017 | 2018 | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Income Statement Data:** | | | | | | | Revenues | $21,286 | $16,454 | $19,253 | $15,700 | $23,199 | | Gross profit | $11,390 | $8,456 | $10,101 | $8,335 | $12,436 | | Operating expenses | $8,972 | $9,042 | $9,494 | $12,686 | $9,739 | | Net income (loss) | $(880) | $(571) | $287 | $(3,279) | $4,466 | | Basic EPS | $(0.14) | $(0.09) | $0.05 | $(0.51) | $0.58 | | Diluted EPS | $(0.14) | $(0.09) | $0.05 | $(0.51) | $0.48 | | **Balance Sheet Data (At December 31):** | | | | | | | Cash and cash equivalents | $3,380 | $1,085 | $959 | $2,122 | $6,096 | | Total assets | $20,405 | $19,148 | $20,009 | $15,609 | $25,575 | | Total stockholders' equity | $17,781 | $12,956 | $13,785 | $11,173 | $20,046 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes the company's financial condition, liquidity, and results of operations for fiscal years 2021 and 2020 [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by operating cash flow, stock option exercises, and credit facilities Cash and Cash Flow Summary (in millions) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Cash balance (Dec 31) | $6.1 | $2.1 | | Net cash from operating activities | $2.1 | $0.8 | | Net cash used in investing activities | $0.7 | $0.5 | | Net cash from financing activities | $2.5 | $0.9 | - Financing activities in 2021 included **$1.9 million** from employee stock option exercises and **$625,000** net borrowing on the CalCap Loan[109](index=109&type=chunk) - The company has an existing **$2.5 million** revolving credit facility maturing January 31, 2023, with no outstanding drawings[110](index=110&type=chunk) [Critical Accounting Policies](index=26&type=section&id=Critical%20Accounting%20Policies) Key accounting policies involve significant estimates for revenue recognition, inventory valuation, and goodwill - Key accounting policies requiring significant estimates include Revenue Recognition, Inventory Valuation, and Goodwill[113](index=113&type=chunk) - Revenue from distributors is recognized upon shipment, less a reserve for estimated returns[116](index=116&type=chunk) Deferred Revenue and Cost on Shipments to Distributors | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Deferred revenue | ~$407,000 | ~$451,000 | | Deferred cost | ~$159,000 | ~$170,000 | - Inventory is valued at the lower of cost or market, with reserves for surplus or obsolete items[122](index=122&type=chunk) - **Goodwill was fully written off ($4.4 million)** as of September 30, 2020, due to a stock price drop[125](index=125&type=chunk)[193](index=193&type=chunk) - Deferred tax assets are recognized based on the likelihood of future profitability, with a valuation allowance applied if uncertain[127](index=127&type=chunk) [Results of Operations for Years Ended December 31, 2021 and 2020](index=28&type=section&id=Results%20of%20Operations%20for%20Years%20Ended%20December%2031%2C%202021%20and%202020) Revenue grew significantly in 2021 due to strong demand, leading to improved profitability compared to 2020 Key Financial Results (Years Ended December 31, in millions) | Metric | 2021 | 2020 | Change YoY | | :--- | :--- | :--- | :--- | | Revenues | $23.2 | $15.7 | +48% | | Gross Margins | 53.6% | 53.1% | +0.5 pp | | Research and Development Expense | $4.0 | $3.1 | +26% | | Sales and Marketing Expense | $3.0 | $2.8 | +5% | | General and Administrative Expense | $2.8 | $2.3 | +22% | | Interest Expense, net | $0.20 | $0.10 | +100% | | Net income (loss) before income taxes | $2.56 | $(3.33) | N/A | | Income tax benefit (expense) | $1.90 | $0.05 | N/A | | Net income (loss) | $4.47 | $(3.28) | N/A | - The **48% revenue increase** in 2021 was driven by strong application-driven demand, particularly in retail[129](index=129&type=chunk) - Companion SocketScan products represented **69% of 2021 revenue**, increasing 58% YoY[129](index=129&type=chunk) - R&D expenses increased due to higher personnel costs, incentive compensation, and amortization of new intangible assets[132](index=132&type=chunk) - The 2021 effective tax rate was **negative 45.6%**, including a **$9.2 million** tax benefit from stock option dispositions[139](index=139&type=chunk) [Quarterly Results of Operations](index=30&type=section&id=Quarterly%20Results%20of%20Operations) Quarterly results show significant fluctuations driven by order timing, product mix, and operating expense levels Summary Quarterly Data (in thousands) | Metric | Mar 31, 2020 | Jun 30, 2020 | Sep 30, 2020 | Dec 31, 2020 | Mar 31, 2021 | Jun 30, 2021 | Sep 30, 2021 | Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $4,221 | $2,715 | $4,109 | $4,655 | $4,813 | $5,953 | $6,319 | $6,114 | | Gross profit | $2,224 | $1,361 | $2,274 | $2,476 | $2,574 | $3,255 | $3,423 | $3,185 | | Total operating expenses | $2,315 | $2,171 | $6,252 | $1,948 | $2,332 | $2,441 | $2,469 | $2,497 | | Net income (loss) | $(90) | $(768) | $(4,003) | $1,583 | $203 | $2,627 | $644 | $993 | | Basic net income (loss) per share | $(0.01) | $(0.13) | $(0.62) | $0.24 | $0.03 | $0.34 | $0.08 | $0.13 | | Fully diluted net income (loss) per share | $(0.01) | $(0.13) | $(0.62) | $0.22 | $0.03 | $0.27 | $0.07 | $0.11 | - Quarterly results fluctuate significantly due to order volume, new product introductions, competition, and supply shortages[143](index=143&type=chunk) [Contractual Obligations](index=31&type=section&id=Contractual%20Obligations) The company's primary contractual obligations consist of unconditional purchase obligations and operating leases Contractual Obligations as of December 31, 2021 (in thousands) | Contractual Obligations | Total | 1 year | 2 to 3 years | 4 to 5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Unconditional purchase obligations with contract manufacturers | $12,624 | $11,911 | $713 | $— | $— | | Operating leases | $263 | $263 | $— | $— | $— | | Total contractual obligations | $12,887 | $12,174 | $713 | $— | $— | [Off-Balance Sheet Arrangements](index=31&type=section&id=Off-Balance%20Sheet%20Arrangements) The company had no off-balance sheet arrangements as of December 31, 2021 - As of December 31, 2021, the company had no off-balance sheet arrangements[145](index=145&type=chunk) [Recent Accounting Pronouncements](index=32&type=section&id=Recent%20Accounting%20Pronouncements) The company adopted a new accounting standard for income taxes in 2021 with no material impact - The company adopted ASU 2019-12 for income taxes effective January 1, 2021, with no material impact on financial statements[225](index=225&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=33&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risks are interest rate fluctuations and foreign currency exchange rate changes [Interest Rate Risk](index=33&type=section&id=Interest%20Rate%20Risk) Interest rate risk exposure is related to variable-rate bank term loans and credit facilities - Exposure to interest rate risk relates to bank term loan and credit line facilities with variable rates based on the prime rate[148](index=148&type=chunk) - The term loan bears interest at **prime plus 1.75%**, while revolving credit facilities are at **prime plus 0.75%**[148](index=148&type=chunk) [Foreign Currency Risk](index=33&type=section&id=Foreign%20Currency%20Risk) The company is exposed to foreign currency risk from Euro-denominated sales, which are partially hedged - Primary foreign currency exposure is from **Euro-denominated sales** and British pound expenses[149](index=149&type=chunk) - A significant portion of European receivables is hedged to mitigate foreign currency risk[149](index=149&type=chunk) - A **10% adverse change** in exchange rates would have resulted in a **$71,900 decrease** in net income for Q4 2021 if unhedged[149](index=149&type=chunk) - The net adjustment for foreign currency effects in Q4 2021 was a net loss of **$31,100**[149](index=149&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=34&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited financial statements, independent auditor's report, and detailed notes for 2021 and 2020 [Report of Independent Registered Public Accounting Firm](index=34&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The independent auditor provided an unqualified opinion on the financial statements for 2021 and 2020 - Sadler, Gibb & Associates, LLC, served as the independent auditor, providing an **unqualified opinion** on the 2021 and 2020 financial statements[151](index=151&type=chunk)[161](index=161&type=chunk) - The critical audit matter identified was the **Deferred Tax Asset Valuation Allowance Assessment** due to significant management estimates[155](index=155&type=chunk)[157](index=157&type=chunk) [Balance Sheets](index=37&type=section&id=Balance%20Sheets) The balance sheets detail the company's assets, liabilities, and stockholders' equity as of year-end 2021 and 2020 Balance Sheet Data (As of December 31) | Asset/Liability | 2021 | 2020 | | :--- | :--- | :--- | | **ASSETS** | | | | Cash and cash equivalents | $6,095,886 | $2,121,763 | | Accounts receivable, net | $2,576,240 | $2,112,514 | | Inventories, net | $5,154,524 | $3,195,842 | | Total current assets | $14,380,788 | $7,935,521 | | Property and equipment, net | $1,068,813 | $847,663 | | Intangible assets, net | $1,813,961 | $— | | Deferred tax assets | $7,960,419 | $6,057,690 | | Total assets | $25,575,101 | $15,609,244 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Accounts payable and accrued expenses | $2,169,055 | $1,372,701 | | Total current liabilities | $5,389,357 | $4,149,336 | | Total liabilities | $5,528,638 | $4,436,227 | | Total stockholders' equity | $20,046,463 | $11,173,017 | [Statements of Operations](index=39&type=section&id=Statements%20of%20Operations) The statements of operations present the company's revenues, expenses, and net income for 2021 and 2020 Statements of Operations (Years Ended December 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenues | $23,199,061 | $15,700,036 | | Cost of revenues | $10,762,617 | $7,365,135 | | Gross profit | $12,436,444 | $8,334,901 | | Total operating expenses | $9,739,063 | $12,685,472 | | Operating income (loss) | $2,697,381 | $(4,350,571) | | Net income (loss) before income taxes | $2,563,528 | $(3,329,359) | | Income tax benefit (expense) | $1,902,729 | $50,578 | | Net income (loss) | $4,466,257 | $(3,278,601) | | Basic Net income (loss) per share | $0.58 | $(0.51) | | Fully diluted Net income (loss) per share | $0.48 | $(0.51) | | Weighted average shares outstanding (Basic) | 6,991,194 | 6,036,310 | | Weighted average shares outstanding (Fully diluted) | 8,923,487 | 6,036,310 | [Statements of Stockholders' Equity](index=40&type=section&id=Statements%20of%20Stockholders'%20Equity) This statement shows changes in stockholders' equity resulting from net income, stock transactions, and other activities Statements of Stockholders' Equity (Years Ended December 31) | Metric | Dec 31, 2019 | Dec 31, 2020 | Dec 31, 2021 | | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $13,784,982 | $11,173,017 | $20,046,463 | | Common Stock Shares | 6,017,674 | 6,102,630 | 7,183,874 | | Additional Paid-In Capital | $61,066,971 | $61,733,522 | $66,139,630 | | Accumulated Deficit | $(47,288,007) | $(50,566,608) | $(46,100,351) | | Net income (loss) | — | $(3,278,601) | $4,466,257 | | Stock-based compensation | — | $507,051 | $693,425 | | Exercise of stock options | $168,065 | $168,065 | $1,899,561 | | Issuance of common stock for intangible assets | — | — | $1,687,140 | [Statements of Cash Flows](index=41&type=section&id=Statements%20of%20Cash%20Flows) This statement details the cash inflows and outflows from operating, investing, and financing activities Statements of Cash Flows (Years Ended December 31) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,144,270 | $804,445 | | Net cash used in investing activities | $(691,771) | $(536,481) | | Net cash provided by financing activities | $2,521,624 | $894,939 | | Net increase (decrease) in cash and cash equivalents | $3,974,123 | $1,162,903 | | Cash and cash equivalents at end of year | $6,095,886 | $2,121,763 | | Cash paid for interest | $176,091 | $94,417 | | Cash paid for income taxes | $6,289 | $4,918 | | Acquisition of intangible assets (non-cash) | $1,909,433 | — | [Notes to Financial Statements](index=43&type=section&id=Notes%20to%20Financial%20Statements) Provides detailed disclosures on accounting policies, financial instruments, commitments, and other supplementary information [NOTE 1 — Organization and Summary of Significant Accounting Policies](index=43&type=section&id=NOTE%201%20%E2%80%94%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) Outlines the company's business, basis of presentation, and key accounting policies for financial reporting - The company manufactures data capture products for mobile applications in Retail, Commercial Services, and Health Care[177](index=177&type=chunk) - Products connect over Bluetooth and work with Apple (iOS), Google (Android), and Microsoft (Windows) operating systems[177](index=177&type=chunk) - The company subcontracts manufacturing globally and performs final assembly and distribution from its Newark, California facility[178](index=178&type=chunk) - The functional currency is the U.S. dollar, but the company hedges Euro-denominated receivables[185](index=185&type=chunk) Accounts Receivable Allowances Activity | Year | Balance at Beginning of Year | Charged to Costs and Expenses | Amounts Written Off | Balance at End of Year | | :--- | :--- | :--- | :--- | :--- | | 2021 | $40,651 | $— | $— | $40,651 | | 2020 | $40,651 | $— | $— | $40,651 | Inventories, net of write-downs (As of December 31) | Category | 2021 | 2020 | | :--- | :--- | :--- | | Raw materials and sub-assemblies | $5,757,869 | $3,642,377 | | Finished goods | $277,598 | $281,104 | | Inventory reserves | $(880,943) | $(727,639) | | Inventory, net | $5,154,524 | $3,195,842 | Major Customers' Share of Accounts Receivable (As of December 31) | Customer | 2021 | 2020 | | :--- | :--- | :--- | | Ingram Micro, Inc | 28% | 34% | | ScanSource, Inc | 24% | 13% | | BlueStar, Inc | 21% | 29% | | Bluestar Europe Distribution BV | <10% | 11% | - Top three suppliers accounted for **54% of inventory purchases** in 2021[197](index=197&type=chunk) SocketCare Service Revenue and Deferred Revenue | Metric | 2021 | 2020 | | :--- | :--- | :--- | | SocketCare revenue | $26,000 | $35,000 | | Unrecognized SocketCare service revenue (Dec 31) | $31,409 | $54,316 | Product Warranty Costs Activity | Year | Balance at Beginning of Year | Additional Warranty Reserves | Amounts Charged to Reserves | Balance at End of Year | | :--- | :--- | :--- | :--- | :--- | | 2021 | $78,871 | $13,910 | $(13,910) | $78,871 | | 2020 | $78,871 | $73,734 | $(73,734) | $78,871 | - Amortization expense on capitalized software development costs was **$43,572** for both 2021 and 2020[208](index=208&type=chunk) - Advertising costs incurred were **$13,627 in 2021** and $19,863 in 2020[209](index=209&type=chunk) Major Customers' Share of Total Revenues (Years Ended December 31) | Customer | 2021 | 2020 | | :--- | :--- | :--- | | Ingram Micro, Inc | 30% | 31% | | BlueStar, Inc | 23% | 23% | | ScanSource, Inc | 11% | <10% | [NOTE 2 — Acquisition of Intangible Assets](index=53&type=section&id=NOTE%202%20%E2%80%94%20Acquisition%20of%20Intangible%20Assets) The company acquired a perpetual license to contactless technology in exchange for common stock and warrants - On February 26, 2021, the company acquired a perpetual, non-exclusive license to **SpringCard SAS's Contactless Technology Package**[227](index=227&type=chunk)[228](index=228&type=chunk) - Consideration included **184,332 shares of common stock** and a 10-year warrant to purchase up to 50,000 shares[228](index=228&type=chunk) - The acquired intangible assets, net of amortization, were **$1,813,961** as of December 31, 2021, and will be amortized over fifteen years[229](index=229&type=chunk)[232](index=232&type=chunk) [NOTE 3 — Bank Financing Arrangements](index=54&type=section&id=NOTE%203%20%E2%80%94%20Bank%20Financing%20Arrangements) The company maintains a financing agreement with Western Alliance Bank, including a revolving credit line and a term loan - The company has a financing agreement with Western Alliance Bank, increasing its Domestic Line of Credit to **$3.0 million**[236](index=236&type=chunk) - The **$1.0 million CalCap Loan** was advanced on February 16, 2021, with maturity extended to January 31, 2023[236](index=236&type=chunk) CalCap Loan Outstanding (As of December 30, 2021) | Portion | Amount | | :--- | :--- | | Current portion | $500,000 | | Long-term portion | $125,000 | | Total CalCap Loan | $625,000 | - Interest expense on the CalCap Loan for 2021 was **$36,302**[239](index=239&type=chunk)[241](index=241&type=chunk) [NOTE 4 — Secured Subordinated Convertible Notes Payable](index=55&type=section&id=NOTE%204%20%E2%80%94%20Secured%20Subordinated%20Convertible%20Notes%20Payable) The company issued secured subordinated convertible notes in 2020, with a portion converted to stock in 2021 - On August 31, 2020, the company completed a secured subordinated convertible note financing of **$1,530,000**[242](index=242&type=chunk) - Notes have a three-year term, accrue interest at **10% per annum**, and are convertible into common stock at **$1.46 per share**[243](index=243&type=chunk) - Total issuance costs of $96,515 are amortized over three years[244](index=244&type=chunk) - Total interest expenses related to convertible notes were **$174,842 in 2021** and $62,172 in 2020[246](index=246&type=chunk) - In 2021, two noteholders converted **$130,000 of note principal** into common stock[246](index=246&type=chunk) [NOTE 5 — Commitments and Contingencies](index=56&type=section&id=NOTE%205%20%E2%80%94%20Commitments%20and%20Contingencies) The company has commitments related to operating leases for its facilities and non-cancelable purchase orders for inventory - The company entered a new 87-month operating lease in Fremont, CA, for its new headquarters starting May 2022[247](index=247&type=chunk) Operating Lease Liabilities (As of December 31, 2021) | Metric | Amount | | :--- | :--- | | Right-of-use assets | $210,839 | | Operating lease liabilities | $258,097 | | Future minimum lease payments (2022) | $262,789 | - Non-cancelable purchase commitments for inventory for 2022 were approximately **$11,911,000** as of December 31, 2021[250](index=250&type=chunk) - The company is not currently a party to any material legal proceedings[252](index=252&type=chunk) [NOTE 6 — Stock-Based Compensation Plan](index=57&type=section&id=NOTE%206%20%E2%80%94%20Stock-Based%20Compensation%20Plan) The company grants stock options and restricted stock to employees and directors under its 2004 Equity Incentive Plan - The 2004 Equity Incentive Plan allows for grants of stock options and restricted stock, expiring April 23, 2024[253](index=253&type=chunk) - The plan provides for an annual increase in authorized shares, with **244,105 shares added in 2021**[254](index=254&type=chunk) Stock-Based Compensation Expense by Classification | Income Statement Classification | 2021 | 2020 | | :--- | :--- | :--- | | Cost of revenues | $96,254 | $86,649 | | Research and development | $218,559 | $137,537 | | Sales and marketing | $166,266 | $121,802 | | General and administrative | $212,346 | $161,063 | | Total stock-based compensation expenses | $693,425 | $507,051 | - Remaining unamortized stock-based compensation expense was **$1,843,981** as of December 31, 2021[257](index=257&type=chunk) Stock Option Activity Summary (Years Ended December 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Weighted-average estimated fair value of options granted | $4.46 | $0.50 | | Total intrinsic value of stock options exercised | $9,985,639 | $167,882 | | Cash received from stock option exercises | $1,899,561 | $168,065 | | Options outstanding (Dec 31) | 1,378,122 | 1,994,806 | | Weighted average exercise price (Dec 31) | $2.81 | $2.42 | Restricted Stock Activity Summary (Years Ended December 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Unvested restricted stocks (Dec 31) | 646,125 | 442,200 | | Weighted average price per share (Dec 31) | $3.32 | $1.58 | | Granted | 312,112 | 392,680 | | Vested | (59,659) | (17,306) | | Forfeited | (48,528) | (43,245) | - Remaining unamortized restricted stock compensation expense was **$1,004,664** as of December 31, 2021[267](index=267&type=chunk) [NOTE 7 — Shares Reserved](index=61&type=section&id=NOTE%207%20%E2%80%94%20Shares%20Reserved) This note details the common stock reserved for future issuance under various plans and agreements Common Stock Reserved for Future Issuance (As of December 31) | Category | 2021 | 2020 | | :--- | :--- | :--- | | Stock option grants outstanding | 1,378,122 | 1,994,806 | | Secured subordinated convertible notes | 958,904 | 1,047,945 | | Stock warrants issued to SpringCard SAS | 50,000 | — | | 2004 Equity Incentive Plan | 208,681 | 393,351 | | Total | 2,595,707 | 3,436,102 | [NOTE 8 — Retirement Plan](index=61&type=section&id=NOTE%208%20%E2%80%94%20Retirement%20Plan) The company offers a 401(k) plan with a matching contribution for qualified employees - The company offers a 401(k) Plan for qualified employees, with a company match of **3% of employee contributions** up to $100 per month[269](index=269&type=chunk) [NOTE 9 — Income Taxes](index=61&type=section&id=NOTE%209%20%E2%80%94%20Income%20Taxes) This note provides a detailed breakdown of the company's income tax components, effective tax rate, and deferred tax assets Income Tax Components (Years Ended December 31) | Category | 2021 | 2020 | | :--- | :--- | :--- | | Current Federal | $— | $(55,676) | | Current State | $— | $4,918 | | Total Current | $— | $(50,758) | | Deferred Federal | $(1,354,991) | $— | | Deferred State | $(547,738) | $— | | Total Deferred | $(1,902,729) | $— | | Income tax (benefit) expense | $(1,902,729) | $— | Reconciliation of Statutory Federal Income Tax Rate to Effective Tax Rate | Item | 2021 | 2020 | | :--- | :--- | :--- | | Income at US statutory rate | 21.0% | 21.0% | | State taxes, net of federal benefit | -11.2% | -1.9% | | Goodwill impairment | 0.0% | -27.9% | | PPP loan forgiveness | 0.0% | 6.7% | | Valuation allowance | 0.7% | 2.4% | | Stock compensation | -50.2% | -1.8% | | NOL true up | -1.2% | 0.0% | | Tax credits | -2.5% | 1.0% | | Other | -2.2% | -0.5% | | Provision for taxes | 45.6% | 0% | Deferred Tax Assets and (Liabilities) (As of December 31) | Category | 2021 | 2020 | | :--- | :--- | :--- | | Net operating loss carryforwards | $6,390,000 | $4,330,000 | | Tax credits | $1,032,000 | $948,000 | | Total deferred tax assets | $8,599,000 | $6,215,000 | | Valuation allowance | $(577,000) | $(545,000) | | Net deferred tax assets | $8,022,000 | $5,670,000 | | Net deferred tax asset (liability) | $7,960,000 | $5,507,000 | - As of December 31, 2021, the company had U.S. federal NOL carryforwards of **$25.2 million** and state NOL carryforwards of **$15.7 million**[275](index=275&type=chunk) - The company maintains a full valuation allowance against U.S. federal R&D tax credits[277](index=277&type=chunk) Unrecognized Tax Benefits Activity | Metric | Amount | | :--- | :--- | | Balance as of January 1, 2020 | $1,019,000 | | Balance as of December 31, 2020 | $1,064,000 | | Balance as of December 31, 2021 | $1,153,000 | [NOTE 10 — Subsequent Events](index=65&type=section&id=NOTE%2010%20%E2%80%94%20Subsequent%20Events) Subsequent to year-end, the company authorized a share repurchase program and entered a new headquarters lease - In January 2022, the Board authorized a share repurchase program of up to **$1.8 million**[283](index=283&type=chunk) - In February 2022, the company entered into an operating lease for a new **35,913 sq-ft facility** in Fremont, CA[284](index=284&type=chunk) - As of February 1, 2022, **233,800 shares of restricted stock** were granted from the 2004 Equity Incentive Plan[285](index=285&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=66&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in or disagreements with accountants on accounting and financial disclosure - Not Applicable[286](index=286&type=chunk) [Item 9A. Controls and Procedures](index=66&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Disclosure controls and procedures were evaluated and deemed **effective** as of December 31, 2021[287](index=287&type=chunk) - Management assessed internal control over financial reporting using the COSO 2013 framework and concluded it was **effective**[289](index=289&type=chunk)[290](index=290&type=chunk) - The company is a non-accelerated filer and is exempt from the auditor's attestation report on internal control[291](index=291&type=chunk) - No material changes in internal control over financial reporting occurred during the last fiscal quarter[293](index=293&type=chunk) [Item 9B. Other Information](index=67&type=section&id=Item%209B.%20Other%20Information) There is no other information to report under this item - None[294](index=294&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=67&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[295](index=295&type=chunk) PART III Incorporates by reference information on directors, executive compensation, security ownership, and related party transactions [Item 10. Directors, Executive Officers and Corporate Governance](index=68&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement - Information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders on June 15, 2022[298](index=298&type=chunk) [Item 11. Executive Compensation](index=68&type=section&id=Item%2011.%20Executive%20Compensation) Information is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement - Information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders on June 15, 2022[299](index=299&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=68&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership is incorporated by reference, with details on equity compensation plans provided - Information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders on June 15, 2022[300](index=300&type=chunk) Equity Compensation Plan Information (As of December 31, 2021) | Metric | Amount | | :--- | :--- | | Number of securities to be issued upon exercise of outstanding options | 1,378,122 | | Weighted average exercise price of outstanding options | $2.81 | | Number of securities remaining available for future issuance under equity compensation plans | 208,681 | - An additional **287,355 shares** became available for grant under the 2004 Equity Incentive Plan on January 1, 2022[302](index=302&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=68&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement - Information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders on June 15, 2022[303](index=303&type=chunk) [Item 14. Principal Accounting Fees and Services](index=69&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement - Information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders on June 15, 2022[305](index=305&type=chunk) PART IV Contains a list of exhibits, financial statement schedules, and the report's signatures [Item 15. Exhibits, Financial Statement Schedules](index=69&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements and exhibits filed as part of the 10-K report - The report includes all financial statements and an index to exhibits[307](index=307&type=chunk)[308](index=308&type=chunk) - Financial statement schedules are omitted as they are not applicable or the required information is included elsewhere[308](index=308&type=chunk) [SIGNATURES](index=70&type=section&id=SIGNATURES) The report was signed by principal executive officers and directors on March 30, 2022 - The report was signed on March 30, 2022, by Kevin J Mills (President and CEO), Charlie Bass (Chairman), Lynn Zhao (VP of Finance and CFO), and other directors[311](index=311&type=chunk)[312](index=312&type=chunk) [Index to Exhibits](index=71&type=section&id=Index%20to%20Exhibits) This section provides a comprehensive list of exhibits filed with the Form 10-K - The index lists various exhibits, including organizational documents, financing agreements, and the Technology Transfer Agreement[314](index=314&type=chunk)[315](index=315&type=chunk)[318](index=318&type=chunk) - Certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act are included[315](index=315&type=chunk)

Financial Data and Key Metrics Changes - In 2021, the company achieved a revenue growth of 48% to $23.1 million, with a gross margin maintained in the 53% range and reported operating income of $2.7 million [4][10] - For Q4, revenue grew by 31% to $6.1 million, with gross margins slightly lower at 52.1% due to increased supply chain costs, resulting in an operating income of $700,000 for the quarter [5][10] - The net income for Q4 was $1.1 million, down from $1.9 million in the prior year, while the annual net income was $4.5 million compared to a loss of $3.3 million in 2020 [12][13] Business Line Data and Key Metrics Changes - The company focused on the data capture markets, benefiting from the success of application partners, which contributed to the revenue growth [5][10] - The introduction of the SocketCam C820 is aimed at expanding the product offerings to meet diverse data capture needs, enhancing the company's market position [7][9] Market Data and Key Metrics Changes - The company noted that approximately 70% of end-users transitioned from keyboard or camera-based scanning to Socket scanners, indicating a growing market for performance-sensitive data capture solutions [8][9] Company Strategy and Development Direction - The company aims to strengthen its position as a comprehensive data capture company, with a focus on enhancing its product offerings and go-to-market strategy [4][7] - Continued investment in technology and talent is deemed essential for developing new products and better servicing development partners [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating supply constraints and meeting customer needs despite ongoing industry-wide electronic component shortages [10][11] - The company plans to increase outreach to institutional investors to stabilize stock prices and enhance market perception [20] Other Important Information - The company generated a record $2.1 million in cash from operations in 2021, ending the year with a cash balance of $6.1 million [13][14] - A stock repurchase program was approved by the Board of Directors, indicating confidence in the company's financial health and future prospects [15] Q&A Session Summary Question: Consideration of listing on the New York Stock Exchange - Management acknowledged market instability and the impact of retail trading platforms on stock price volatility, indicating no immediate plans for a second exchange listing but a focus on attracting institutional investors [19][20] Question: Details on the share repurchase program - The company will enter a 10b5 plan for the share repurchase program, which will be executed by brokers following a 45-day waiting period [31]

Part I. Financial Information [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) Presents unaudited condensed financial statements, including operations, balance sheets, equity, and cash flows, highlighting a turnaround to net income [Condensed Statements of Operations](index=4&type=section&id=Condensed%20Statements%20of%20Operations) | Metric | Three Months Ended Sep 30, 2021 (USD) | Three Months Ended Sep 30, 2020 (USD) | Nine Months Ended Sep 30, 2021 (USD) | Nine Months Ended Sep 30, 2020 (USD) | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues | $6,319,044 | $4,108,738 | $17,084,913 | $11,044,448 | | Gross profit | $3,422,721 | $2,273,405 | $9,251,907 | $5,858,646 | | Operating income (loss) | $953,773 | $(3,978,122) | $2,010,118 | $(4,878,831) | | Net income (loss) | $643,626 | $(4,002,786) | $3,473,635 | $(4,861,136) | | Basic Net income (loss) per share | $0.08 | $(0.62) | $0.46 | $(0.76) | | Diluted Net income (loss) per share| $0.07 | $(0.62) | $0.37 | $(0.76) | - Revenues increased by **54%** for the three months and **55%** for the nine months ended September 30, 2021, compared to the prior year periods[9](index=9&type=chunk) - The company achieved a significant turnaround from an **operating loss of $(3,978,122)** to an **operating income of $953,773** for the three months ended September 30, 2021, and from **$(4,878,831)** to **$2,010,118** for the nine months ended September 30, 2021[9](index=9&type=chunk) [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) | Asset/Liability/Equity | September 30, 2021 (Unaudited, USD) | December 31, 2020 (USD) | | :--------------------------------- | :----------------------------- | :---------------- | | Cash and cash equivalents | $5,352,738 | $2,121,763 | | Accounts receivable, net | $2,703,127 | $2,112,514 | | Inventories, net | $4,434,536 | $3,195,842 | | Total current assets | $13,244,455 | $7,935,521 | | Intangible assets, net | $1,845,785 | $0 | | Deferred tax assets | $7,116,934 | $5,506,934 | | Total assets | $23,622,640 | $15,058,488 | | Total current liabilities | $5,076,359 | $4,149,336 | | Total liabilities | $5,344,056 | $4,436,227 | | Total stockholders' equity | $18,278,584 | $10,622,261 | - Total assets increased by approximately **56.8%** from **$15.06 million** at December 31, 2020, to **$23.62 million** at September 30, 2021[11](index=11&type=chunk) - Cash and cash equivalents more than doubled, from **$2.12 million** to **$5.35 million**, indicating improved liquidity[11](index=11&type=chunk) [Condensed Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Statements%20of%20Stockholders%27%20Equity) | Item | Balance at Dec 31, 2020 (USD) | Balance at Sep 30, 2021 (USD) | | :-------------------------- | :---------------------- | :---------------------- | | Total Stockholders' Equity | $10,622,261 | $18,278,584 | | Common Stock Shares | 6,102,630 | 7,174,363 | | Additional Paid-In Capital | $61,733,522 | $65,915,139 | | Accumulated Deficit | $(51,117,364) | $(47,643,729) | - Total stockholders' equity increased by approximately **72%** from **$10.62 million** at December 31, 2020, to **$18.28 million** at September 30, 2021[15](index=15&type=chunk)[16](index=16&type=chunk) - Key contributors to the increase in equity include net income, exercise of stock options, issuance of common stock for intangible assets, and conversion of convertible notes[15](index=15&type=chunk) [Condensed Statements of Cash Flows](index=9&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) | Activity | Nine Months Ended Sep 30, 2021 (USD) | Nine Months Ended Sep 30, 2020 (USD) | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $3,473,635 | $(4,861,136) | | Net cash provided by operating activities | $1,183,013 | $386,745 | | Net cash used in investing activities | $(562,910) | $(374,538) | | Net cash provided by financing activities | $2,610,872 | $803,778 | | Net increase in cash and cash equivalents | $3,230,975 | $815,985 | | Cash and cash equivalents at end of period | $5,352,738 | $1,774,845 | - Net cash provided by operating activities significantly increased to **$1.18 million** in the first nine months of 2021, up from **$0.39 million** in the comparable period of 2020[18](index=18&type=chunk) - Financing activities provided **$2.61 million** in cash, primarily from stock option exercises and the CalCap Loan, contributing to a substantial increase in cash and cash equivalents[18](index=18&type=chunk)[111](index=111&type=chunk) [Notes to Condensed Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) [NOTE 1 — Basis of Presentation](index=11&type=section&id=NOTE%201%20%E2%80%94%20Basis%20of%20Presentation) - The unaudited condensed financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, not including all disclosures required for complete financial statements[21](index=21&type=chunk) - The company continues to monitor the COVID-19 pandemic, acknowledging its uncertain impact on business, operating results, cash flows, liquidity, and financial condition due to factors beyond its control[22](index=22&type=chunk) [NOTE 2 — Summary of Significant Accounting Policies](index=11&type=section&id=NOTE%202%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) - Revenue from sales to distributors is recognized upon product shipment and title transfer, net of estimated returns, while SocketCare extended warranty revenue is recognized ratably over the contract life[27](index=27&type=chunk)[28](index=28&type=chunk) - The company performs an annual goodwill impairment test as of September 30th, with the entire goodwill of **$4.4 million** written off as of September 30, 2020[34](index=34&type=chunk) - The company adopted ASU 2016-02 (Leases) effective January 1, 2019, recognizing right-of-use assets and lease liabilities for operating leases[30](index=30&type=chunk) [NOTE 3 — Acquisition of Intangible Assets](index=13&type=section&id=NOTE%203%20%E2%80%94%20Acquisition%20of%20Intangible%20Assets) - On February 26, 2021, Socket Mobile acquired an irrevocable, perpetual, non-exclusive, transferable, worldwide, unlimited, unrestricted, royalty-free, fully paid-up right and license to SpringCard SAS's Contactless Technology Package for its D600 and S550 products[36](index=36&type=chunk)[37](index=37&type=chunk) - The consideration for the acquisition included **184,332 shares** of the Company's common stock and a 10-year warrant to purchase up to **50,000 shares**[37](index=37&type=chunk) Estimated Future Amortization (USD) | Fiscal Year | Estimated Future Amortization | | :------------------------------------ | :---------------------------- | | 2021 (Oct 1 - Dec 31) | $31,824 | | 2022 | $127,296 | | 2023 | $127,296 | | 2024 | $127,296 | | 2025 | $127,296 | | Thereafter | $1,304,777 | | **Total** | **$1,845,785** | [NOTE 4 — Inventories](index=14&type=section&id=NOTE%204%20%E2%80%94%20Inventories) Inventory Components (USD) | Inventory Component | September 30, 2021 | December 31, 2020 | | :-------------------------- | :----------------- | :---------------- | | Raw materials and sub-assemblies | $4,880,494 | $3,642,377 | | Finished goods | $359,985 | $281,104 | | Inventory reserves | $805,943 | $727,639 | | **Inventory, net** | **$4,434,536** | **$3,195,842** | - Net inventories increased by approximately **38.7%** from **$3.20 million** at December 31, 2020, to **$4.43 million** at September 30, 2021, primarily due to an increase in raw materials and sub-assemblies[41](index=41&type=chunk) [NOTE 5 — Bank Financing Arrangements](index=14&type=section&id=NOTE%205%20%E2%80%94%20Bank%20Financing%20Arrangements) - On January 29, 2021, the company amended its financing agreement with Western Alliance Bank, increasing its Domestic Line of Credit to **$3.0 million**, comprising a **$2.0 million** revolving facility and a **$1.0 million** nonformula CalCap Loan[46](index=46&type=chunk) - The maturity date for both the Domestic Line of Credit and EXIM Line of Credit was extended to January 31, 2023[46](index=46&type=chunk) CalCap Loan Components (USD) | CalCap Loan Component | September 30, 2021 | | :---------------------------- | :----------------- | | Current portion | $500,000 | | Long-term portion | $250,000 | | **Total CalCap Loan** | **$750,000** | [NOTE 6 — Secured Subordinated Convertible Notes Payable](index=15&type=section&id=NOTE%206%20%E2%80%94%20Secured%20Subordinated%20Convertible%20Notes%20Payable) - On August 31, 2020, the company completed a **$1.53 million** secured subordinated convertible note financing, with **$1.35 million** from related parties[50](index=50&type=chunk) - The notes have a three-year term, accrue interest at **10% per annum**, mature on August 30, 2023, and are convertible into common stock at **$1.46 per share**[51](index=51&type=chunk) - During the nine months ended September 30, 2021, **$130,000** of note principal was converted into common stock[55](index=55&type=chunk) [NOTE 7 — Segment Information and Concentrations](index=17&type=section&id=NOTE%207%20%E2%80%94%20Segment%20Information%20and%20Concentrations) Revenues by Geographic Area (USD) | Geographic Area | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Americas | $4,641,767 | $3,290,992 | $12,958,256 | $8,676,626 | | Europe | $967,752 | $567,977 | $2,621,278 | $1,383,518 | | Asia Pacific | $709,525 | $249,769 | $1,505,379 | $984,304 | | **Total revenues**| **$6,319,044** | **$4,108,738** | **$17,084,913** | **$11,044,448** | Revenues by Major Customer (Percentage) | Major Customer | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Ingram Micro Inc.| 33% | 30% | 29% | 32% | | BlueStar, Inc. | 15% | 29% | 25% | 23% | | ScanSource, Inc. | 14% | –* | 11% | –* | - The top three suppliers accounted for **56%** of inventory purchases for the three months ended September 30, 2021, indicating a concentration of supplier risk[61](index=61&type=chunk) [NOTE 8 — Stock-Based Compensation](index=19&type=section&id=NOTE%208%20%E2%80%94%20Stock-Based%20Compensation) - Total stock-based compensation expense for the nine months ended September 30, 2021, was **$504,676**, an increase from **$392,985** in the prior year period[66](index=66&type=chunk) - The company granted **182,000 stock options** and awarded **306,425 shares** of restricted stock during the nine months ended September 30, 2021[64](index=64&type=chunk)[65](index=65&type=chunk) [NOTE 9 — Net Income (Loss) Per Share](index=19&type=section&id=NOTE%209%20%E2%80%94%20Net%20Income%20%28Loss%29%20Per%20Share) Net Income (Loss) Per Share (USD) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic EPS | $0.08 | $(0.62) | $0.46 | $(0.76) | | Diluted EPS | $0.07 | $(0.62) | $0.37 | $(0.76) | | Basic Weighted Average Shares | 7,162,924 (Shares) | 6,037,559 (Shares) | 6,927,837 (Shares) | 6,020,363 (Shares) | | Diluted Weighted Average Shares | 8,939,384 (Shares) | 6,037,559 (Shares) | 8,932,395 (Shares) | 6,020,363 (Shares) | - Diluted net income per share for the nine months ended September 30, 2021, was **$0.37**, a significant improvement from a diluted net loss per share of **$(0.76)** in the prior year, which included goodwill impairment charges[68](index=68&type=chunk) [NOTE 10 — Income Taxes](index=21&type=section&id=NOTE%2010%20%E2%80%94%20Income%20Taxes) - The company recorded a net income tax benefit of approximately **$1.61 million** for the first nine months of 2021, primarily due to a tax deduction from the disqualified disposition of incentive stock options[71](index=71&type=chunk) - As of September 30, 2021, the deferred tax asset, representing future income tax savings from net operating loss carryforwards, was valued at **$7.1 million**[105](index=105&type=chunk) [NOTE 11 — Commitments and Contingencies](index=21&type=section&id=NOTE%2011%20%E2%80%94%20Commitments%20and%20Contingencies) - The company leases office space in Newark, California, under a non-cancelable operating lease expiring on June 30, 2022[73](index=73&type=chunk) Annual Minimum Payments (USD) | Annual Minimum Payments | Amount | | :---------------------------- | :----- | | 2021 (Oct 1 - Dec 31) | $131,395 | | 2022 (through June 30) | $262,789 | | **Total minimum payments** | **$394,184** | - As of September 30, 2021, the company had non-cancelable purchase commitments for inventory totaling approximately **$9.7 million**[78](index=78&type=chunk) [NOTE 12 — Subsequent Events](index=23&type=section&id=NOTE%2012%20%E2%80%94%20Subsequent%20Events) - Subsequent to September 30, 2021, the company granted **5,687 shares** of restricted stock and issued **4,692 shares** of common stock upon the exercise of stock options[82](index=82&type=chunk)[83](index=83&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, condition, and results, highlighting revenue growth, expense changes, liquidity, and critical accounting estimates [The Company and its Products](index=24&type=section&id=The%20Company%20and%20its%20Products) - Socket Mobile is a leading innovator in data capture and delivery solutions, primarily offering cordless barcode scanning and RFID/NFC devices for mobile applications in various sectors like POS, field services, and logistics[87](index=87&type=chunk) - The product portfolio includes Companion SocketScan, DuraScan, Attachable (DuraSled, SocketScan 800 Series), and Contactless RFID/NFC reader/writer (D600, S550) families, all supported by a comprehensive Software Developer Kit (Capture SDK)[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) - The company distributes its products worldwide through a two-tier distribution model, leveraging application developers and resellers, and anticipates continued demand growth due to advancements in mobile technologies and business adoption of mobile applications[95](index=95&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) - Total revenues increased by **54%** for the three months and **55%** for the nine months ended September 30, 2021, driven by the distribution channel and large customer deployments, particularly in retail as the economy re-opened[96](index=96&type=chunk) - Gross profit margins were **54.2%** for both the three and nine months ended September 30, 2021, with the three-month margin decrease due to higher component and shipping costs, and the nine-month improvement attributed to higher revenues and fixed manufacturing overhead absorption[97](index=97&type=chunk) - Research and development expenses increased by **49%** (three months) and **21%** (nine months) due to higher personnel expenses, incentive-based compensation, amortization of newly acquired intangible assets, and increased contractor fees[98](index=98&type=chunk)[100](index=100&type=chunk) - Sales and marketing expenses rose by **20%** (three months) and **2%** (nine months), primarily due to the development of a new Return Merchandise Authorization portal, additional employee hires, and increased fees for website development and upgrades[101](index=101&type=chunk) - General and administrative expenses increased by **37%** (three months) and **23%** (nine months) due to the cessation of short-term cost reduction initiatives from 2020, higher employee incentive-based compensation, increased professional fees for a shelf registration statement, and higher proxy distribution and insurance costs[102](index=102&type=chunk) - Interest expense, net, increased to approximately **$50,000** (three months) and **$150,000** (nine months) in 2021, primarily related to secured subordinated convertible notes payable and the CalCap Loan[103](index=103&type=chunk) - The company recorded a **$1.6 million** income tax benefit for the nine months ended September 30, 2021, mainly from a tax deduction related to the disqualified disposition of incentive stock options[105](index=105&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) - Net cash provided by operating activities increased to approximately **$1.18 million** in the first nine months of 2021, compared to **$387,000** in the prior year, driven by net income and non-cash adjustments[107](index=107&type=chunk) - Changes in operating assets and liabilities resulted in a net cash use of approximately **$1.7 million** in 2021, primarily due to increased inventory levels to manage supply chain disruptions, higher accounts receivable from increased shipments, and increased prepaid expenses[108](index=108&type=chunk) - Net cash provided by financing activities was approximately **$2.6 million** in the first nine months of 2021, mainly from **$1.86 million** in proceeds from employee stock option exercises and a net borrowing of **$750,000** on the CalCap Loan[111](index=111&type=chunk) [Critical Accounting Estimates](index=29&type=section&id=Critical%20Accounting%20Estimates) - Critical accounting policies requiring significant estimates and judgments include Revenue Recognition and Accounts Receivable Reserves, Inventory Valuation, Stock-Based Compensation, Income Taxes, and Valuation of Goodwill[112](index=112&type=chunk) [Contractual Obligations](index=29&type=section&id=Contractual%20Obligations) Contractual Obligations (USD) | 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 | $9,697,000 | $9,619,000 | $78,000 | $0 | $0 | | Operating lease | $394,000 | $394,000 | $0 | $0 | $0 | | **Total contractual obligations** | **$10,091,000**| **$10,013,000** | **$78,000** | **$0** | **$0** | [Off-Balance Sheet Arrangements](index=30&type=section&id=Off-Balance%20Sheet%20Arrangements) - As of September 30, 2021, the company had no off-balance sheet arrangements as defined in Item 303 of Regulation S-K[115](index=115&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Details the company's exposure to market risks, specifically interest rate risk on bank loans and foreign currency risk on European receivables [Interest Rate Risk](index=31&type=section&id=Interest%20Rate%20Risk) - The company's exposure to interest rate risk primarily relates to its bank term loan and credit line facilities, which have variable interest rates based on the lender's prime rate[117](index=117&type=chunk) - Increases in interest rates could lead to higher interest expense on outstanding term loan and credit line balances[117](index=117&type=chunk) [Foreign Currency Risk](index=31&type=section&id=Foreign%20Currency%20Risk) - The company hedges a significant portion of its European receivables denominated in Euros to reduce foreign currency risk[118](index=118&type=chunk) - A **10%** adverse change in exchange rates would have resulted in an approximate **$49,000** decrease in net income for the third quarter of 2021 if left unprotected[118](index=118&type=chunk) - The total net adjustment for foreign currency effects on cash balances, collections, payables, and derivatives was approximately **$(15,000)** for the third quarter of 2021[118](index=118&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms the effectiveness of disclosure controls and procedures as of September 30, 2021, with no material changes in internal control over financial reporting [Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures](index=32&type=section&id=Conclusion%20Regarding%20the%20Effectiveness%20of%20Disclosure%20Controls%20and%20Procedures) - Management, with the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[120](index=120&type=chunk) - These controls ensure that required information is recorded, processed, summarized, and reported within specified time periods and communicated to management for timely disclosure decisions[120](index=120&type=chunk) [Changes in Internal Control Over Financial Reporting](index=32&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - There were no changes in internal control over financial reporting during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[121](index=121&type=chunk) Part II. Other Information [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) Outlines various risks and uncertainties, including COVID-19 impacts, operational challenges, profitability, capital needs, supply chain, competition, and intellectual property [COVID-19 Pandemic and Economic Conditions](index=33&type=section&id=COVID-19%20Pandemic%20and%20Economic%20Conditions) - The ongoing COVID-19 pandemic, including new variants, poses significant uncertainty regarding its extent and duration, potentially causing reductions or volatility in product demand, disruptions in manufacturing, and failures of third-party partners[125](index=125&type=chunk)[126](index=126&type=chunk) - A deterioration in global economic conditions could negatively impact the business and financial condition, limiting the ability to raise additional funds and affecting results of operations, financial position, and cash flows[127](index=127&type=chunk) [Profitability and Capital Needs](index=34&type=section&id=Profitability%20and%20Capital%20Needs) - The company may not maintain ongoing profitability due to challenges in achieving continued business growth, supporting registered developers, and developing successful new products[128](index=128&type=chunk) - Additional capital may be required in the future to fund growth or operating losses, but such capital may not be available on reasonable terms or without substantial dilution to investors' stock holdings[129](index=129&type=chunk) [Dependency on Application Developers](index=34&type=section&id=Dependency%20on%20Application%20Developers) - The company's sales projections are dependent on application developers successfully integrating, marketing, and selling their applications that incorporate Socket Mobile's products[130](index=130&type=chunk) - Delays in application development, competing applications, or unsuccessful marketing by developers could adversely affect revenue[130](index=130&type=chunk) [Internal Controls and Security](index=35&type=section&id=Internal%20Controls%20and%20Security) - Failure to maintain effective internal controls could materially harm the business, operating results, and stock price, potentially leading to unreliable financial reports or fraud[131](index=131&type=chunk) - Despite security protections, business records and information could be vulnerable to unauthorized access or hacking, which could bypass existing controls and procedures[132](index=132&type=chunk) [Operational and Market Fluctuations](index=35&type=section&id=Operational%20and%20Market%20Fluctuations) - Quarterly operating results are expected to fluctuate due to factors such as demand for products, timing of customer orders, delays in new product introductions, competitive pressures, and general economic conditions[133](index=133&type=chunk)[134](index=134&type=chunk)[139](index=139&type=chunk) - Unanticipated declines or delays in orders can cause significant variations in operating results, potentially leading to a decline in the common stock price[136](index=136&type=chunk) [Compliance with Bank Covenants and Deferred Tax Assets](index=36&type=section&id=Compliance%20with%20Bank%20Covenants%20and%20Deferred%20Tax%20Assets) - Maintaining bank lines of credit requires compliance with specified covenants, and the bank retains discretion in making advances, with potential for immediate repayment upon an event of default[137](index=137&type=chunk) - The realization of deferred tax assets, which comprise a significant portion of assets, is dependent on future tax profitability; failure to achieve this could result in recognizing a loss for these assets[138](index=138&type=chunk) [Supply Chain and Product Development](index=37&type=section&id=Supply%20Chain%20and%20Product%20Development) - Dependency on a limited number of qualified suppliers for component parts creates a risk of shortages or delays, which could disrupt manufacturing and materially affect financial results[140](index=140&type=chunk) - Failure to rapidly and successfully develop and introduce new products that incorporate the latest technologies and conform to evolving industry standards would hinder competitive effectiveness and revenue generation[141](index=141&type=chunk)[142](index=142&type=chunk) [Customer Receivables and Competition](index=37&type=section&id=Customer%20Receivables%20and%20Competition) - The company faces risks in collecting receivables from customers, primarily distributors, who may experience financial difficulties, potentially leading to increased uncollectible accounts[143](index=143&type=chunk) - Increased competition, including from competitors with greater resources and products with built-in functions, could result in price reductions, fewer orders, reduced margins, and loss of market share[144](index=144&type=chunk)[147](index=147&type=chunk) - Inaccurate forecasting of product demand could lead to excess inventory and write-offs if demand is lower, or higher costs and declining yields if production must rapidly increase to meet unexpected demand[145](index=145&type=chunk)[146](index=146&type=chunk) [Distribution Channels and Strategic Alliances](index=39&type=section&id=Distribution%20Channels%20and%20Strategic%20Alliances) - Reliance on distributors for product distribution exposes the company to risks such as inventory build-up, product returns, and price protection, which can adversely affect operating results and working capital[148](index=148&type=chunk)[150](index=150&type=chunk) - The company's sales growth is contingent on maintaining existing and establishing new distribution relationships, as current agreements are generally nonexclusive and terminable on short notice[149](index=149&type=chunk) - Disruptions in strategic alliances with third parties, particularly those providing operating systems for mobile devices (Apple, Google, Microsoft), could hinder product development and sales, as these collaborations are not guaranteed[151](index=151&type=chunk)[152](index=152&type=chunk) [Intellectual Property and Industry Standards](index=40&type=section&id=Intellectual%20Property%20and%20Industry%20Standards) - The company's competitive position relies on intellectual property protection (patents, copyrights, trademarks, trade secrets), but these measures may not provide meaningful protection against unauthorized use or independent development by competitors[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk) - The company may face claims of intellectual property infringement, which could result in substantial liability, costly litigation, and disruption to business operations[156](index=156&type=chunk)[158](index=158&type=chunk) - New industry standards may necessitate product redesigns, requiring significant time and resources, and failure to comply could render products incompatible and affect sales opportunities[160](index=160&type=chunk) [Personnel and Export Sales Risks](index=41&type=section&id=Personnel%20and%20Export%20Sales%20Risks) - The loss of senior personnel could harm existing business operations, as the company's future success depends on their continued service and the ability to attract and retain highly skilled sales, marketing, and product development personnel[162](index=162&type=chunk)[165](index=165&type=chunk) - The expensing of stock options and restricted stocks adversely affects net income and EPS, potentially requiring changes in compensation practices to attract and retain employees[164](index=164&type=chunk) - Export sales are subject to various risks, including longer payment cycles, unexpected regulatory changes, difficulties in managing foreign operations, adverse tax consequences, and political/economic instability[166](index=166&type=chunk) [External Events and Stock Volatility](index=43&type=section&id=External%20Events%20and%20Stock%20Volatility) - Facilities and operations could be adversely affected by events outside the company's control, such as natural disasters (e.g., earthquakes in Northern California) or health epidemics[167](index=167&type=chunk) - The sale of a substantial number of common stock shares, including those from outstanding options and restricted stock, could cause the market price of the common stock to decline[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk) - The trading price of the common stock is subject to wide fluctuations due to general economic conditions, investor outlook, and low trading volumes, which can be unrelated to operating performance[171](index=171&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports no unregistered sales of equity securities or use of proceeds for the period - No unregistered sales of equity securities or use of proceeds were reported[172](index=172&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and the XBRL Document Exhibits Filed | 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 | [Signatures](index=37&type=section&id=Signatures) Contains duly authorized signatures of Socket Mobile, Inc.'s CEO and CFO, certifying the report filing on November 12, 2021 - The report was signed on November 12, 2021, by Kevin J. Mills, President and Chief Executive Officer, and Lynn Zhao, Vice President of Finance and Administration and Chief Financial Officer[177](index=177&type=chunk)

Socket Mobile, Inc. (NASDAQ:SCKT) Q3 2021 Earnings Conference Call October 21, 2021 5:00 PM ET Company Participants Kevin Mills - President and CEO Lynn Zhao - CFO Conference Call Participants Chris Sakai - Singular Research Robert Maltbie - Singular Research William Carroll - EMPOWER Sales Operator Welcome to the Socket Mobile Q3 2021 Management Conference Call. Today we have Kevin Mills, President and CEO; and Lynn Zhao, CFO. My name is Adrian, and I'll be your operator for today's call. Before we begin, ...

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 OR ( ) 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 94-31550 ...

Financial Data and Key Metrics Changes - The company's Q2 2021 revenue was $6 million, a 119% increase compared to $2.7 million in Q2 2020, driven by business applications in the retail industry [7] - Operating income for Q2 2021 was $814,000, compared to an operating loss of $810,000 in the prior year [8] - Q2 net income was $2.6 million, which included a $1.9 million tax benefit adjustment [8] - Gross margin increased to 55% in Q2 2021 from 50% in the same period last year and 53% sequentially from Q1 2021 [14] - Adjusted EBITDA in Q2 was $1.2 million, compared to a loss of $500,000 in Q2 2020 and earnings of $570,000 in Q1 2021 [16] Business Line Data and Key Metrics Changes - Revenue growth was primarily driven by retail-centric customers, particularly Shopify and Square [9] - The company expects continued strong demand in retail and improvements in Commercial Services, Logistics, and Healthcare segments [10] Market Data and Key Metrics Changes - The company is experiencing strong demand in the NFC market, which is currently payment-centric, with expectations for significant revenue growth from NFC-centric products in 2022 and beyond [11][12] Company Strategy and Development Direction - The company is investing in NFC-centric products and aims to provide comprehensive solutions to development partners [11][12] - The management is focused on navigating supply chain challenges through supplier diversification and inventory management [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the strong demand for products continuing throughout 2021, despite supply chain issues [13] - The company is pleased with its progress in the first half of the year and acknowledges the hard work of its employees [18] Other Important Information - The company has achieved operating profits for five consecutive quarters [14] - The current ratio as of June 30th was 3.2%, indicating a strong balance sheet [16] - Singular Research initiated coverage of the company's stock, promoting its app-driven business model [17] Q&A Session Summary Question: Why are there no options traded on Socket Mobile's stock? - Management clarified that they are listed on NASDAQ and are not aware of the specifics regarding options trading, which is managed by market makers and consumers [23]

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 OR ( ) 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 94-3155 ...

Financial Data and Key Metrics Changes - The company's Q1 2021 revenue was $4.8 million, representing a 14% increase from $4.2 million in Q1 2020 [6] - Net income for Q1 2021 was $203,000, or $0.03 per fully diluted share, compared to a net loss of $90,000, or a loss of $0.01 per fully diluted share in Q1 2020 [6] - Gross profit margin increased to 53.5%, up 2.8% from the first quarter of 2020 [13] Business Line Data and Key Metrics Changes - Revenue growth was driven by retail-centric customers, particularly Shopify and Square, benefiting from the easing of COVID restrictions [6] - There is a growing demand for mobile systems that support both indoor and outdoor operations, especially in hospitality [7] - The commercial services segment is expected to continue strong growth throughout the year [7] Market Data and Key Metrics Changes - The company is experiencing significant demand for contactless readers, particularly in the context of COVID health passports [10] - The S550 contactless reader has been successfully used in several COVID bubble trials, indicating its effectiveness [11] Company Strategy and Development Direction - The company entered into a technology transfer agreement with SpringCard SAS to acquire a perpetual royalty-free license for core technology in contactless products [10] - The focus is on completing development tools to support scanners and contactless readers, aiming to integrate these into partner solutions [11] - The company is working to mitigate supply chain issues that could impact product delivery [8][9] Management's Comments on Operating Environment and Future Outlook - Management expects strong demand for products as the world reopens, despite ongoing supply chain challenges [12] - The company is confident in having sufficient supply commitments for Q2 and is actively working to address potential issues for Q3 and Q4 [9] Other Important Information - The cash balance as of March 31 was $5 million, up from $2.8 million on December 31, 2020, attributed to profitable operations and other financial activities [13] - The acquisition of SpringCard technology is reported as an intangible asset valued at $1.9 million [14] - The company renewed its credit facilities, increasing the domestic line of credit to $3 million [14] Q&A Session Summary - There were no questions from participants during the Q&A session [17]