Socket Mobile, Inc. (NASDAQ:SCKT) Q3 2020 Results Conference Call October 22, 2020 5:00 PM ET Company Participants Kevin Mills - President and Chief Executive Officer Lynn Zhao - Chief Financial Officer Operator Welcome to the Socket Mobile Q3 Management Conference Call. My name is Karen. I will be your operator for today's call. Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as a ...

```markdown Part I. Financial Information [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Socket Mobile's unaudited condensed financial statements and detailed notes for Q2 2020 and 2019... [Condensed Statements of Operations](index=4&type=section&id=Condensed%20Statements%20of%20Operations) For the three and six months ended June 30, 2020, Socket Mobile, Inc. reported significant declines in revenue and a shift from net income to net loss compared to the prior year, primarily due to the impact of COVID-19 Condensed Statements of Operations | Metric | Three Months Ended June 30, 2020 (USD) | Three Months Ended June 30, 2019 (USD) | Six Months Ended June 30, 2020 (USD) | Six Months Ended June 30, 2019 (USD) | | :--------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Revenues | $2,715,024 | $5,060,105 | $6,935,710 | $9,688,696 | | Gross profit | $1,361,526 | $2,629,641 | $3,585,241 | $5,029,483 | | Operating income (loss) | $(809,874) | $217,846 | $(900,709) | $264,856 | | Net income (loss) | $(768,023) | $119,790 | $(858,350) | $131,629 | | Basic Net income (loss) per share | $(0.13) | $0.02 | $(0.14) | $0.02 | | Diluted Net income (loss) per share| $(0.13) | $0.02 | $(0.14) | $0.02 | [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) As of June 30, 2020, the company's total assets and liabilities decreased compared to December 31, 2019, with a notable reduction in current assets, particularly accounts receivable and bank lines of credit Condensed Balance Sheets | Metric | June 30, 2020 (Unaudited) (USD) | December 31, 2019 (USD) | | :--------------------------------- | :------------------------ | :------------------ | | Cash and cash equivalents | $926,983 | $958,860 | | Accounts receivable, net | $1,770,112 | $2,837,006 | | Inventories, net | $3,253,709 | $3,178,908 | | Total current assets | $6,359,936 | $7,520,724 | | Total assets | $18,121,411 | $19,458,487 | | Total current liabilities | $4,234,642 | $5,468,488 | | Bank lines of credit | $450,000 | $1,412,449 | | Total liabilities | $5,490,126 | $6,224,261 | | Total stockholders' equity | $12,631,285 | $13,234,226 | [Condensed Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased from **$13.23 million** at December 31, 2019, to **$12.63 million** at June 30, 2020, primarily due to a net loss of **$768,023** in Q2 2020, partially offset by stock-based compensation Condensed Statements of Stockholders' Equity | Metric | December 31, 2019 (USD) | June 30, 2020 (USD) | | :----------------------- | :---------------- | :-------------- | | Total Stockholders' Equity | $13,234,226 | $12,631,285 | | Net Loss (Q2 2020) | N/A | $(768,023) | | Stock-based compensation | N/A | $131,369 | [Condensed Statements of Cash Flows](index=8&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2020, the company generated net cash from operating activities, a significant improvement from cash used in the prior year, largely due to decreases in accounts receivable Condensed Statements of Cash Flows | Activity | Six Months Ended June 30, 2020 (USD) | Six Months Ended June 30, 2019 (USD) | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $244,371 | $(137,341) | | Net cash used in investing activities | $(256,183) | $(187,458) | | Net cash (used in) provided by financing activities | $(20,065) | $255,516 | | Net decrease in cash and cash equivalents | $(31,877) | $(69,283) | | Cash and cash equivalents at end of period | $926,983 | $1,015,708 | - Net cash provided by operating activities in H1 2020 was primarily due to decreases in accounts receivable driven by lower shipments in Q2 2020[95](index=95&type=chunk) [Notes to Condensed Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Financial%20Statements%20(Unaudited)) The notes provide essential context to the financial statements, detailing the basis of presentation, accounting policies, inventory, financing, segment information, stock-based compensation, and commitments... [NOTE 1 — Basis of Presentation](index=9&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 footnotes required for complete financial statements[20](index=20&type=chunk) [NOTE 2 — Summary of Significant Accounting Policies](index=9&type=section&id=NOTE%202%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) - The company recognizes revenue on sales to distributors upon product shipment and title transfer, less a reserve for estimated returns. Deferred revenue on shipments to distributors was **$432,506** at June 30, 2020, down from **$611,029** at December 31, 2019[24](index=24&type=chunk) - The company adopted ASU 2016-02 (Leases) effective January 1, 2019, recognizing right-of-use assets and lease liabilities for office space, with no impact on the Statements of Operations[26](index=26&type=chunk) - As a smaller reporting company (SRC), the implementation of ASU 2016-13 (Credit Losses) is not required until January 1, 2023[27](index=27&type=chunk) [NOTE 3 — Inventories](index=11&type=section&id=NOTE%203%20%E2%80%94%20Inventories) NOTE 3 — Inventories | Inventory Component | June 30, 2020 (USD) | December 31, 2019 (USD) | | :------------------------ | :------------ | :---------------- | | Raw materials and sub-assemblies | $3,545,065 | $3,767,588 | | Finished goods | $356,283 | $241,681 | | Inventory reserves | $(647,639) | $(830,361) | | Inventory, net | $3,253,709 | $3,178,908 | [NOTE 4 — Bank Financing Arrangements](index=11&type=section&id=NOTE%204%20%E2%80%94%20Bank%20Financing%20Arrangements) - The company entered into the Seventh Amended and Restated Business Financing Agreement on January 8, 2020, extending the revolving line of credit maturity to January 31, 2022[33](index=33&type=chunk) - As of June 30, 2020, the Asset Coverage Ratio was **1.5 to 1.0**, exceeding the required **1.25 to 1.0**[34](index=34&type=chunk) NOTE 4 — Bank Financing Arrangements | Debt Type | June 30, 2020 (USD) | | :---------------------- | :------------ | | Term loan | $83,333 | | Lines of credit - domestic line | $450,000 | | Total lines of credit | $450,000 | [NOTE 5 — Term loans](index=12&type=section&id=NOTE%205%20%E2%80%94%20Term%20loans) - On April 20, 2020, the company received a **$1,058,700** PPP loan under the CARES Act, with a **1%** interest rate and a two-year maturity, primarily used for payroll, rent, and utilities[37](index=37&type=chunk)[38](index=38&type=chunk) - On June 26, 2020, the company secured a **$150,000** EIDL loan at **3.75%** interest for working capital, with payments deferred for 12 months and a 30-year term[40](index=40&type=chunk) - The company also received a **$10,000** EIDL grant on June 23, 2020, which was recorded as other income in Q2[41](index=41&type=chunk) [NOTE 6 — Segment Information and Concentrations](index=13&type=section&id=NOTE%206%20%E2%80%94%20Segment%20Information%20and%20Concentrations) - The company operates in the mobile barcode scanning and RFID/NFC data capture market, distributing products globally through distributors, resellers, and online channels[42](index=42&type=chunk) NOTE 6 — Segment Information and Concentrations | Geographic Area | Three Months Ended June 30, 2020 (USD) | Three Months Ended June 30, 2019 (USD) | Six Months Ended June 30, 2020 (USD) | Six Months Ended June 30, 2019 (USD) | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Americas | $2,242,225 | $3,975,771 | $5,385,634 | $7,653,571 | | Europe | $200,012 | $604,931 | $815,541 | $1,097,923 | | Asia Pacific | $272,787 | $479,403 | $734,535 | $937,202 | | Total revenues | $2,715,024 | $5,060,105 | $6,935,710 | $9,688,696 | NOTE 6 — Segment Information and Concentrations | Customer | % of Total Revenues (3 Months Ended June 30, 2020) (%) | % of Total Revenues (3 Months Ended June 30, 2019) (%) | % of Total Revenues (6 Months Ended June 30, 2020) (%) | % of Total Revenues (6 Months Ended June 30, 2019) (%) | | :--------------- | :------------------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Ingram Micro Inc. | 29% | 41% | 33% | 42% | | BlueStar, Inc. | 25% | 18% | 20% | 19% | | ScanSource, Inc. | 14% | * | 10% | * | - At June 30, 2020, **38%** of accounts payable was concentrated in the top supplier, and the top two suppliers accounted for **54%** of inventory purchases for the three months ended June 30, 2020[47](index=47&type=chunk) [NOTE 7 — Stock-Based Compensation](index=15&type=section&id=NOTE%207%20%E2%80%94%20Stock-Based%20Compensation) - Total stock-based compensation expense for the three and six months ended June 30, 2020, was **$131,369** and **$263,434**, respectively[52](index=52&type=chunk) - **293,000 shares** of restricted stock were awarded for the six months ended June 30, 2020, compared to **116,050 shares** in the prior year, with **394,506 shares** outstanding as of June 30, 2020[51](index=51&type=chunk) [NOTE 8 — Net Income (Loss) Per Share Applicable to Common Stockholders](index=15&type=section&id=NOTE%208%20%E2%80%94%20Net%20Income%20(Loss)%20Per%20Share%20Applicable%20to%20Common%20Stockholders) NOTE 8 — Net Income (Loss) Per Share Applicable to Common Stockholders | Metric | Three Months Ended June 30, 2020 (USD) | Three Months Ended June 30, 2019 (USD) | Six Months Ended June 30, 2020 (USD) | Six Months Ended June 30, 2019 (USD) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income (loss) | $(768,023) | $119,790 | $(858,350) | $131,629 | | Basic EPS | $(0.13) | $0.02 | $(0.14) | $0.02 | | Diluted EPS | $(0.13) | $0.02 | $(0.14) | $0.02 | | Basic Weighted average shares outstanding | 6,009,383 (Shares) | 5,999,159 (Shares) | 6,011,670 (Shares) | 5,969,666 (Shares) | | Diluted Weighted average shares outstanding | 6,009,383 (Shares) | 6,271,507 (Shares) | 6,011,670 (Shares) | 6,203,889 (Shares) | - **2,259,937** stock options and **394,506** restricted stocks were excluded from diluted net loss per share calculation for the three and six months ended June 30, 2020, due to their anti-dilutive effect[56](index=56&type=chunk) [NOTE 9 — Taxes](index=17&type=section&id=NOTE%209%20%E2%80%94%20Taxes) - No deferred tax benefit was recorded for losses in the three and six months ended June 30, 2020. In contrast, deferred tax expenses of **$68,749** and **$75,419** were recorded for the comparable periods in 2019[57](index=57&type=chunk) [NOTE 10 — Commitments and Contingencies](index=17&type=section&id=NOTE%2010%20%E2%80%94%20Commitments%20and%20Contingencies) - Operating lease expense for office space was **$103,208** and **$206,416** for the three and six-month periods ended June 30, 2020, respectively[59](index=59&type=chunk) - As of June 30, 2020, the company had non-cancelable purchase commitments for inventory totaling approximately **$3,651,000**[66](index=66&type=chunk) NOTE 10 — Commitments and Contingencies | Annual Minimum Payments | Amount (USD) | | :------------------------ | :----- | | 2020 (July 1 - Dec 31) | $249,994 | | 2021 | $515,822 | | 2022 | $262,789 | | Total minimum payments | $1,028,605 | | Total operating lease liabilities | $964,256 | | Current portion of operating lease | $(455,928) | | Long-term portion of operating lease | $508,328 | [NOTE 11 — Subsequent Events](index=18&type=section&id=NOTE%2011%20%E2%80%94%20Subsequent%20Events) - As of August 7, 2020, **5,000** restricted stocks at **$1.49** per share were granted from the 2004 Equity Incentive Plan subsequent to June 30, 2020[68](index=68&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, highlighting product offerings, revenue trends, cost of sales, operating expenses, and liquidity... [The Company and its products](index=19&type=section&id=The%20Company%20and%20its%20products) - Socket Mobile, Inc. is a leading innovator of data capture and delivery solutions, primarily offering cordless barcode scanners (SocketScan® 700 Series, DuraScan® 700 Series) and RFID/NFC reader/writers (D600, S550)[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk)[76](index=76&type=chunk) - The company also provides DuraSled products that combine iPhones with scanners for single-handed solutions and a Software Developer Kit (Capture SDK) to integrate data capture capabilities into mobile applications[74](index=74&type=chunk)[75](index=75&type=chunk)[77](index=77&type=chunk) [Revenues](index=21&type=section&id=Revenues) - Total revenues for the three and six months ended June 30, 2020, decreased by **46%** and **28%** respectively, to **$2.7 million** and **$6.9 million**, primarily due to lower sales resulting from COVID-19[79](index=79&type=chunk) [Cost of Sales and Gross Margins](index=21&type=section&id=Cost%20of%20Sales%20and%20Gross%20Margins) - Gross margins on sales for the three and six-month periods ended June 30, 2020, were **50%** and **52%**, respectively, slightly down from **52%** in the corresponding periods a year ago[81](index=81&type=chunk) [Research and Development Expense](index=22&type=section&id=Research%20and%20Development%20Expense) - Research and development expenses decreased by **14%** and **8%** for the three and six months ended June 30, 2020, respectively, primarily due to a reduction in employee compensation as a COVID-19 cost-saving initiative[84](index=84&type=chunk) [Sales and Marketing Expense](index=22&type=section&id=Sales%20and%20Marketing%20Expense) - Sales and marketing expenses decreased by **6%** and **2%** for the three and six months ended June 30, 2020, respectively, mainly due to reduced employee compensation as a COVID-19 cost-saving measure[86](index=86&type=chunk) [General and Administrative Expense](index=22&type=section&id=General%20and%20Administrative%20Expense) - General and administrative expenses decreased by **8%** and **7%** for the three and six months ended June 30, 2020, respectively, primarily due to a reduction in employee compensation as a COVID-19 cost-saving initiative[88](index=88&type=chunk) [Interest Expense, Net of Interest Income](index=22&type=section&id=Interest%20Expense,%20Net%20of%20Interest%20Income) - Net interest expense decreased significantly to approximately **$8,100** and **$27,600** for the three and six months ended June 30, 2020, respectively, from **$29,300** and **$57,800** in the prior year, mainly due to a lower average outstanding balance of bank term loans and credit lines[89](index=89&type=chunk) [Income Taxes](index=23&type=section&id=Income%20Taxes) - The company did not record a deferred tax benefit for losses in the three and six months ended June 30, 2020, but recorded deferred tax expenses in the comparable 2019 periods[92](index=92&type=chunk)[93](index=93&type=chunk) - Deferred tax assets, primarily from net operating loss carryforwards, were valued at approximately **$5,506,000** at June 30, 2020[92](index=92&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) - Net cash provided by operating activities was approximately **$244,000** in the first half of 2020, a significant improvement from net cash used of **$137,000** in the prior year, driven by decreases in accounts receivable[94](index=94&type=chunk)[95](index=95&type=chunk) - Net cash used in financing activities was approximately **$20,000** in the first half of 2020, compared to net cash provided of **$256,000** in the prior year, influenced by PPP and EIDL loan proceeds offset by bank line repayments[98](index=98&type=chunk) [Contractual Obligations](index=24&type=section&id=Contractual%20Obligations) Contractual Obligations | Contractual Obligations | Total (USD) | Less than 1 year (USD) | 1 to 3 years (USD) | 4 to 5 years (USD) | More than 5 years (USD) | | :------------------------ | :----------- | :--------------- | :----------- | :----------- | :---------------- | | Unconditional purchase obligations with contract manufacturers | $3,651,000 | $3,651,000 | $— | $— | $— | | Operating lease for office | $996,000 | $447,000 | $549,000 | $— | $— | | Operating lease for copier | $33,000 | $15,000 | $18,000 | $— | $— | | Total contractual obligations | $4,680,000 | $4,113,000 | $567,000 | $— | $— | [Off-Balance Sheet Arrangements](index=24&type=section&id=Off-Balance%20Sheet%20Arrangements) - As of June 30, 2020, the company had no off-balance sheet arrangements[100](index=100&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section outlines the company's exposure to market risks, specifically interest rate risk and foreign currency risk, and the strategies employed to mitigate them [Interest Rate Risk](index=25&type=section&id=Interest%20Rate%20Risk) - The company's bank term loan and credit line facilities have variable interest rates, making them susceptible to interest rate increases. A **1%** increase in interest rates would have increased Q2 2020 borrowing costs by approximately **$1,061**[102](index=102&type=chunk) [Foreign Currency Risk](index=25&type=section&id=Foreign%20Currency%20Risk) - The company hedges a significant portion of its European receivables denominated in Euros to reduce foreign currency risk. An adverse **10%** change in exchange rates would have resulted in a net income decrease of approximately **$9,000** for Q1 2020 if unhedged[103](index=103&type=chunk) - For Q2 2020, the net adjustment for foreign currency effects on cash, collections, payables, and derivatives resulted in a net loss of **$5,580**[103](index=103&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes in internal control over financial reporting during the quarter [Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures](index=26&type=section&id=Conclusion%20Regarding%20the%20Effectiveness%20of%20Disclosure%20Controls%20and%20Procedures) - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2020, ensuring timely and accurate reporting[105](index=105&type=chunk) [Changes in Internal Control Over Financial Reporting](index=26&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - There were no material changes in internal control over financial reporting during the quarter ended June 30, 2020[106](index=106&type=chunk) Part II. Other Information [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) This section details various risks that could materially affect the company's business, financial condition, and operating results, including global economic conditions (especially COVID-19 impacts), ability to return to profitability, need for additional capital, dependence on application developers, internal control failures, cybersecurity threats, quarterly operating fluctuations, compliance with credit covenants, reliance on deferred tax assets and goodwill, supplier dependence, product development challenges, customer and distributor concentration, intellectual property protection, and personnel retention... - Global economic conditions, particularly the COVID-19 pandemic, have reduced sales and pose significant challenges, with future impacts highly uncertain[110](index=110&type=chunk) - The company may not return to profitability and may require additional capital, which might not be available on reasonable terms or without substantial dilution[111](index=111&type=chunk)[112](index=112&type=chunk) - Dependence on application developers for product integration and sales, and a limited number of distributors (Ingram Micro and BlueStar accounted for **53%** of H1 2020 revenues), poses significant business risks[113](index=113&type=chunk)[126](index=126&type=chunk) - Risks include quarterly operating result fluctuations due to order timing and product mix, potential failure to maintain effective internal controls, and dependence on a limited number of suppliers for component parts[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[114](index=114&type=chunk)[122](index=122&type=chunk) - The company faces intense competition, the need to rapidly develop new products in a fast-changing technology market, and challenges in protecting its intellectual property[124](index=124&type=chunk)[125](index=125&type=chunk)[128](index=128&type=chunk)[137](index=137&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act of 2002 - Exhibits include certifications from the CEO (31.1, 32.1) and CFO (31.2, 32.1) pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[157](index=157&type=chunk)[164](index=164&type=chunk) [Signatures](index=39&type=section&id=Signatures) The report is duly signed on behalf of Socket Mobile, Inc. by Kevin J. Mills, President and Chief Executive Officer, and Lynn Zhao, Vice President of Finance and Administration and Chief Financial Officer, on August 12, 2020 - The report was signed by Kevin J. Mills, President and CEO, and Lynn Zhao, VP of Finance and Administration and CFO, on August 12, 2020[161](index=161&type=chunk) ```

Socket Mobile, Inc. (NASDAQ:SCKT) Q2 2020 Earnings Conference Call July 31, 2020 5:00 PM ET Company Participants Kevin Mills – President and Chief Executive Officer Lynn Zhao – Chief Financial Officer Conference Call Participants Operator Welcome to the Q2 2020 Management Conference Call. My name is Daryl, and I will be your operator for today's call. Before we begin, I'd like to remind everyone that this conference may contain forward-looking statements within the meaning of Section 27A of the Securities A ...

[Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed financial statements for the three months ended March 31, 2020, show a decrease in revenue to $4.2 million from $4.6 million in the prior-year period, resulting in a net loss of $90,327 compared to a net income of $11,839 in Q1 2019, with total assets slightly increasing to $19.6 million and net cash used in operating activities improving to ($50,790) from ($406,101) year-over-year, and a significant subsequent event being the receipt of a $1.06 million SBA loan in April 2020 Condensed Statements of Operations (Three Months Ended March 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | **Revenues** | $4,220,686 | $4,628,592 | | **Gross Profit** | $2,223,715 | $2,399,843 | | **Operating Income (Loss)** | ($90,835) | $47,010 | | **Net Income (Loss)** | ($90,327) | $11,839 | | **Diluted EPS** | ($0.01) | $0.00 | Condensed Balance Sheet Highlights | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | $7,775,556 | $7,520,724 | | **Total Assets** | $19,634,717 | $19,458,487 | | **Total Current Liabilities** | $5,727,681 | $5,468,488 | | **Total Liabilities** | $6,367,249 | $6,224,261 | | **Total Stockholders' Equity** | $13,267,468 | $13,234,226 | Condensed Statements of Cash Flows (Three Months Ended March 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | **Net cash used in operating activities** | ($50,790) | ($406,101) | | **Net cash used in investing activities** | ($154,681) | ($100,318) | | **Net cash provided by financing activities** | $389,436 | $350,698 | | **Net increase (decrease) in cash** | $183,965 | ($155,721) | | **Cash and cash equivalents at end of period** | $1,142,825 | $929,270 | - Subsequent to the quarter end, on April 20, 2020, the Company received a U.S. Small Business Administration (SBA) loan of **$1,058,700** pursuant to the Paycheck Protection Program (PPP) under the CARES Act[59](index=59&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 9% year-over-year revenue decline in Q1 2020 to the COVID-19 pandemic, which severely impacted its retail-centric business segment, resulting in an operating loss of approximately $91,000 despite stable gross margins and slightly lower operating expenses, with liquidity managed through bank credit lines and significantly improved net cash used in operations compared to Q1 2019 - Q1 2020 revenue was approximately **$4.2 million**, a **9% decrease** from Q1 2019, primarily impacted by the COVID-19 pandemic as over **70%** of the company's business is driven by retail-centric applications[71](index=71&type=chunk) - Gross profit margins were **53%** in Q1 2020, a slight improvement from **52%** in Q1 2019[72](index=72&type=chunk) - Operating expenses for Q1 2020 were **$2.31 million**, a slight decrease from **$2.35 million** in Q1 2019, with reductions in R&D and G&A expenses partially offset by a small increase in Sales and Marketing[9](index=9&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) - Net cash used in operating activities was **$50,790** in Q1 2020, a significant improvement from **$406,000** used in Q1 2019. Net cash from financing activities was approximately **$390,000**, primarily from net borrowings on bank lines of credit[81](index=81&type=chunk)[84](index=84&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=23&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risks are interest rate risk on its variable-rate bank loans and foreign currency risk from sales denominated in Euros and British pounds, with a 1% interest rate increase estimated to raise Q1 2020 borrowing costs by only $3,500, and an unprotected 10% adverse change in foreign exchange rates estimated to decrease Q1 2020 net income by approximately $20,000, though hedging mitigates a significant portion of European receivables currency risk - Exposure to interest rate risk is primarily from the bank term loan and credit line facilities, which have variable rates. A hypothetical **1% increase** in the interest rate would have increased Q1 2020 borrowing costs by approximately **$3,500**[87](index=87&type=chunk) - The company is exposed to foreign currency risk as it requires European distributors to purchase in Euros and pays European employees in Euros and British pounds. An adverse **10% change** in exchange rates would have resulted in a decrease in net income of approximately **$20,000** for Q1 2020 if left unprotected[88](index=88&type=chunk) [Controls and Procedures](index=24&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation as of March 31, 2020, the company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective, with no material changes in the company's internal control over financial reporting during the first quarter of 2020 - Management, including the CEO and CFO, concluded that as of the end of the period covered by the report, the company's disclosure controls and procedures were effective[90](index=90&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, internal controls[91](index=91&type=chunk) [Part II. Other Information](index=25&type=section&id=Part%20II.%20Other%20Information) [Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) The company identifies significant risks that could adversely affect its business, including the negative impact of global economic conditions such as the COVID-19 pandemic on product demand, high dependence on application developers and a limited number of distributors (Ingram Micro and BlueStar), potential inability to return to profitability, reliance on a limited number of component suppliers, intense market competition, and the need to rapidly develop new products to keep pace with changing technology - The COVID-19 pandemic has reduced product purchases due to worldwide business curtailments and could restrict access to capital markets if conditions worsen[94](index=94&type=chunk) - The company is dependent on application developers to integrate its products into their solutions and successfully market them. Delays or failures by these developers would adversely affect revenue[97](index=97&type=chunk) - A significant portion of revenue comes from a limited number of distributors. In Q1 2020, Ingram Micro and BlueStar represented approximately **53%** of worldwide revenues[110](index=110&type=chunk) - Several component parts are sourced from a limited number of suppliers, exposing the company to risks of shortages or supply interruptions that could materially harm financial results[106](index=106&type=chunk) - The market is characterized by rapidly changing technology and short product life cycles, requiring successful and timely new product introductions to compete effectively[107](index=107&type=chunk) [Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, which consist of the certifications by the Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 - The exhibits filed with this report include: * 31.1: Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act * 31.2: Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act * 32.1: Certification of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act[142](index=142&type=chunk) [Signatures](index=37&type=section&id=Signatures) [Signatures](index=37&type=section&id=Signatures) The quarterly report was duly signed and authorized on May 15, 2020, by the company's principal executive and financial officers - The report is signed by Kevin J. Mills, President and Chief Executive Officer, and Lynn Zhao, Vice President of Finance and Administration and Chief Financial Officer[145](index=145&type=chunk)

Socket Mobile, Inc. (NASDAQ:SCKT) Q1 2020 Earnings Conference Call April 29, 2020 5:00 PM ET Company Participants Kevin Mills - CEO Lynn Zhao - CFO Conference Call Participants Operator Welcome to the Q1 2020 Management Conference Call. My name is Darryl, and I'll be the operator for today's call. Before we begin, I would like to remind everybody that this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of t ...

PART I [Business](index=4&type=section&id=Item%201.%20Business) Socket Mobile provides cordless barcode scanners and RFID/NFC readers, integrating with mobile applications via its Capture SDK and global distribution - The company's core business is providing data capture solutions like **barcode scanners** and **RFID/NFC readers** for mobile applications across various industries[14](index=14&type=chunk) - A key strategy involves supporting application developers with the **Capture SDK** to integrate hardware into their solutions[14](index=14&type=chunk)[22](index=22&type=chunk)[31](index=31&type=chunk) - The company uses third-party contract manufacturers for components, with final assembly and distribution managed from its Newark, California facility[23](index=23&type=chunk)[29](index=29&type=chunk) - Products are sold globally through a network of major distributors including **Ingram Micro®**, **ScanSource®**, and **Blue Star**, and online resellers[36](index=36&type=chunk) [The Company and its Products](index=4&type=section&id=The%20Company%20and%20its%20Products) The company offers a range of cordless data capture devices, including barcode scanners and RFID/NFC readers, all supported by the Capture SDK - **DuraScan® 700 Series** are durable barcode scanners with IP54 rating for harsh environments, capable of reading 1D, 2D, postal codes, and MRZ[16](index=16&type=chunk) - **SocketScan® 700 Series** are standard 1D and 2D barcode scanners available in multiple colors[17](index=17&type=chunk) - **DuraSled** and **SocketScan 800 Series** are attachable scanners that clip onto smartphones for single-handed scanning solutions[18](index=18&type=chunk)[19](index=19&type=chunk) - Contactless **RFID/NFC Readers** include the D600 and S550 for tap-and-go applications like ticketing and identification[20](index=20&type=chunk) [Marketing Dynamics](index=7&type=section&id=Marketing%20Dynamics) The marketing strategy focuses on software developer relationships, with significant revenue from retail POS barcode scanners and global distribution - The primary marketing focus is on supporting software application developers through the **registered developer program** and **Capture SDK**[31](index=31&type=chunk) - Revenues in **2018 and 2019** were primarily driven by barcode scanner sales for **retail POS applications** using Apple tablets[33](index=33&type=chunk) - Products are distributed globally through major distributors like **Ingram Micro®**, **ScanSource®**, and **Blue Star**, supporting online resellers[36](index=36&type=chunk) [Competition and Competitive Risks](index=9&type=section&id=Competition%20and%20Competitive%20Risks) The company differentiates its hardware via the Capture SDK in a competitive market, facing barcode scanner rivals and alternative solutions, with limited direct RFID/NFC competition - The company's main differentiator is its **Software Developer Kit (Capture SDK)**, offering advanced features and easy integration for developers[39](index=39&type=chunk)[40](index=40&type=chunk) - Direct competitors for cordless barcode scanners include **Koamtec**, **Code Corporation**, and **Opticon**[40](index=40&type=chunk) - Alternative solutions include camera-based scanning apps (Scandit, Manatee Works) and rugged integrated devices (Datalogic, Honeywell, Zebra)[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 patents, trademarks, copyrights, and trade secrets, including 41 U.S. and 13 design patents - The company holds **41 U.S. patents** and **13 design patents**[42](index=42&type=chunk) - Proprietary assets include the hardware design of its scanners and specialized data collection software compatible with **iOS**, **Android**, and **Windows**[44](index=44&type=chunk)[45](index=45&type=chunk) - Protection methods include patents, copyrights, trademarks, trade secret laws, and confidentiality agreements[46](index=46&type=chunk) [Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces various risks including economic downturns, capital needs, dependence on developers and suppliers, rapid product development, competition, and retaining key personnel - Economic and market risks include sensitivity to global economic conditions like the **Covid-19 pandemic** and **Brexit** uncertainty for European distribution[48](index=48&type=chunk)[54](index=54&type=chunk) - Financial risks involve potential need for additional capital, maintaining profitability, and compliance with bank credit agreement covenants for liquidity[49](index=49&type=chunk)[50](index=50&type=chunk)[58](index=58&type=chunk) - Dependency risks include reliance on application developers, a limited number of component suppliers, and a few major distributors like **Ingram Micro®** and **BlueStar** (59% of 2019 revenue)[51](index=51&type=chunk)[61](index=61&type=chunk)[65](index=65&type=chunk) - Product and competition risks involve the need for rapid new product development and potential price reductions or market share loss due to increased competition[62](index=62&type=chunk)[67](index=67&type=chunk) - Personnel risks depend on retaining key senior management and technical personnel[85](index=85&type=chunk)[87](index=87&type=chunk) [Unresolved Staff Comments](index=22&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[95](index=95&type=chunk) [Properties](index=22&type=section&id=Item%202.%20Properties) Socket Mobile leases a **37,100 sq ft** facility in Newark, California, serving as headquarters and manufacturing, with its lease expiring in June 2022 - The company leases a **37,100 sq ft** facility in Newark, CA for its headquarters and manufacturing operations[96](index=96&type=chunk) - The lease for this facility expires in **June 2022**[96](index=96&type=chunk) [Legal Proceedings](index=22&type=section&id=Item%203.%20Legal%20Proceedings) As of the filing date, the company is not a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[97](index=97&type=chunk) [Mine Safety Disclosures](index=22&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[98](index=98&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=23&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under SCKT, with no dividends paid or anticipated, as earnings are retained for business use - The company's common stock is traded on **NASDAQ** under the symbol **SCKT**[101](index=101&type=chunk) - The company has not paid dividends and does not plan to in the foreseeable future[101](index=101&type=chunk) [Selected Financial Data](index=25&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year summary of key financial data from **2015 to 2019**, highlighting trends in revenues, profitability, and balance sheet items Five-Year Selected Financial Data (Years Ended December 31, in thousands) | Indicator | 2015 | 2016 | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $18,400 | $20,788 | $21,286 | $16,454 | $19,253 | | **Gross Profit** | $8,935 | $10,434 | $11,390 | $8,456 | $10,101 | | **Net Income (Loss)** | $1,817 | $12,147 | $(1,431) | $(571) | $287 | | **Diluted EPS** | $0.30 | $1.80 | $(0.23) | $(0.09) | $0.05 | | **Total Assets** | $9,688 | $21,587 | $19,854 | $18,597 | $19,458 | | **Total Stockholders' Equity** | $3,343 | $16,170 | $17,230 | $12,405 | $13,234 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In **2019**, the company returned to profitable growth with **17% revenue increase** to **$19.3 million**, driven by SocketScan, managing liquidity via operations and credit lines - The company returned to profitable growth in **2019** after a net loss in **2018**, with revenue growing **17%** to **$19.3 million** and net income before tax of **$0.5 million**[107](index=107&type=chunk) - Liquidity is maintained through operating cash flow and bank credit lines, with **$1.0 million** cash as of **Dec 31, 2019**, including **$1.4 million** advanced on bank lines[107](index=107&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Revenue increased **17%** to **$19.3 million** in **2019**, driven by SocketScan growth, with gross margin improving and operating income turning positive from a prior year loss Revenue by Product Line (2019) | Product Line | % of 2019 Revenue | YoY Growth vs 2018 | | :--- | :--- | :--- | | SocketScan | 58% | 22% | | DuraScan | 19% | 1% | | DuraSled & Attachable | 12% | 5% | Key Operating Metrics (2018 vs 2019, in millions) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Revenue | $19.3M | $16.5M | +17% | | Gross Margin | 52.5% | 51.4% | +1.1 p.p. | | R&D Expense | $3.9M | $3.6M | +7% | | S&M Expense | $3.0M | $3.0M | 0% | | G&A Expense | $2.6M | $2.4M | +7% | | Operating Income (Loss) | $0.6M | ($0.6M) | +$1.2M | [Quarterly Results of Operations](index=30&type=section&id=Quarterly%20Results%20of%20Operations) Quarterly results show improving performance in **2019**, moving from losses in **2018** to consistent net income, with revenue peaking in **Q2 2019** and influenced by order timing Quarterly Net Income (Loss) (in thousands) | Quarter | 2018 | 2019 | | :--- | :--- | :--- | | Q1 | $(225) | $12 | | Q2 | $(138) | $120 | | Q3 | $(45) | $94 | | Q4 | $(163) | $61 | - Quarterly results can fluctuate significantly due to the timing of orders, with substantial revenue often recognized in the last month of the quarter[137](index=137&type=chunk) [Cash Flows and Contractual Obligations](index=31&type=section&id=Cash%20Flows%20and%20Contractual%20Obligations) In **2019**, net cash from operations was **$0.87 million**, with investing and financing activities using cash, and total contractual obligations at year-end reaching **$4.79 million** Cash Flow Summary (in millions) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash from Operations | $0.87 | $0.75 | | Net Cash used in Investing | ($0.60) | ($0.42) | | Net Cash used in Financing | ($0.40) | ($2.62) | Contractual Obligations at Dec 31, 2019 (in thousands) | Obligation Type | Total | Due in 1 Year | | :--- | :--- | :--- | | Unconditional purchase obligations | $3,554 | $3,554 | | Operating leases | $1,230 | $479 | | Financing leases | $8 | $8 | | **Total** | **$4,792** | **$4,041** | [Quantitative and Qualitative Disclosures about Market Risk](index=33&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to market risks from interest rate fluctuations on variable-rate loans and foreign currency exchange rates from Euro and British pound sales, partially mitigated by hedging - Interest rate risk stems from variable-rate bank term loans and credit lines; a **1%** increase would have raised **Q4 2019** borrowing costs by approximately **$3,000**[146](index=146&type=chunk) - Foreign currency risk arises from sales to European distributors denominated in **Euros** and **British pounds**, with a significant portion of Euro-denominated receivables hedged[147](index=147&type=chunk) [Financial Statements and Supplementary Data](index=33&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited financial statements for **2019** and **2018**, including Balance Sheets, Statements of Operations, Stockholders' Equity, Cash Flows, and accompanying Notes [Financial Statements](index=34&type=section&id=Financial%20Statements) The audited financial statements show **$19.5 million** in total assets, **$19.3 million** revenue, and **$287 thousand** net income for **2019**, reflecting a recovery from **2018** losses Balance Sheet Highlights (as of Dec 31, 2019, in thousands) | Account | Amount | | :--- | :--- | | Total Current Assets | $7,521 | | Total Assets | $19,458 | | Total Current Liabilities | $5,468 | | Total Liabilities | $6,224 | | Total Stockholders' Equity | $13,234 | Statement of Operations Highlights (Year ended Dec 31, 2019, in thousands) | Account | Amount | | :--- | :--- | | Revenues | $19,253 | | Gross Profit | $10,101 | | Operating Income | $606 | | Net Income | $287 | | Diluted EPS | $0.05 | [Notes to Financial Statements](index=40&type=section&id=Notes%20to%20Financial%20Statements) The notes detail accounting policies, including revenue recognition, bank financing, lease obligations, stock-based compensation, and income taxes, with **$20.6 million** in federal net operating loss carryforwards - Revenue recognition (ASC 606) on sales to distributors is upon shipment, net of returns, with deferred revenue of **$611,000** at year-end **2019**[188](index=188&type=chunk) - Bank financing includes a revolving line of credit and term loan with **Western Alliance Bank**, amended multiple times due to covenant issues, with the revolving line extended to **January 2022**[216](index=216&type=chunk)[220](index=220&type=chunk)[227](index=227&type=chunk) - As of **Dec 31, 2019**, the company had federal net operating loss (NOL) carryforwards of approximately **$20.6 million**, expiring starting in **2023**[259](index=259&type=chunk) - Stock-based compensation under the **2004 Equity Incentive Plan** totaled **$519,891** in **2019** for stock options and restricted stock grants[240](index=240&type=chunk)[242](index=242&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=62&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable, indicating no changes in or disagreements with the company's accountants - Not Applicable[265](index=265&type=chunk) [Controls and Procedures](index=62&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of **December 31, 2019**, with no material changes reported - Management concluded that disclosure controls and procedures were effective as of the end of the period[266](index=266&type=chunk) - Management assessed internal control over financial reporting using the **COSO framework** and concluded it was effective as of **December 31, 2019**[269](index=269&type=chunk)[270](index=270&type=chunk) [Other Information](index=63&type=section&id=Item%209B.%20Other%20Information) The company reports no other information under this item - None[273](index=273&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=64&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders on **May 27, 2020** - Information is incorporated by reference from the Registrant's Proxy Statement[276](index=276&type=chunk) [Executive Compensation](index=64&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders on **May 27, 2020** - Information is incorporated by reference from the Registrant's Proxy Statement[277](index=277&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=64&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section provides information on the company's equity compensation plans as of **December 31, 2019**, with other details incorporated by reference from the Proxy Statement Equity Compensation Plan Information (as of Dec 31, 2019) | Plan Category | Securities to be issued upon exercise of outstanding options | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 2,392,786 | $2.40 | 308,871 | [Certain Relationships and Related Transactions, and Director Independence](index=64&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information for this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders on **May 27, 2020** - Information is incorporated by reference from the Registrant's Proxy Statement[281](index=281&type=chunk) [Principal Accounting Fees and Services](index=65&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information for this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders on **May 27, 2020** - Information is incorporated by reference from the Registrant's Proxy Statement[282](index=282&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=65&type=section&id=Item%2015.%20Exhibits,%20Financial%20Statement%20Schedules) This section lists documents filed as part of the **Form 10-K** report, including an index to financial statements and exhibits, noting the omission of inapplicable schedules - This section contains the index to financial statements and an index to all exhibits filed with the report[285](index=285&type=chunk)[286](index=286&type=chunk)

Financial Data and Key Metrics Changes - In 2019, the company's revenue was $19.3 million, an increase of 17% from $16.5 million in 2018 [7] - The net operating profit before tax for 2019 was $500,000, compared to a net operating loss of $700,000 in 2018 [7] - Earnings per share for 2019 was $0.05, compared to a net loss of $0.09 per share in 2018 [7] - For Q4 2019, revenue was $4.6 million with gross margins of 53.1%, compared to $4.1 million and gross margins of 50.3% in Q4 2018 [22][23] - Net income after tax for Q4 2019 was $0.1 million or $0.01 per share, compared to a net loss of $0.2 million or $0.03 per share in Q4 2018 [24] Business Line Data and Key Metrics Changes - The SocketScan family of products represented 65% of revenue in 2019 and grew by 22% [10] - The DuraScan family of products accounted for 21% of revenue but only grew by 1% [11] - The DuraSled and Attachable Scanners made up the remaining 13% of revenue, growing at a modest 5% [15] Market Data and Key Metrics Changes - On an annual basis, 74% of revenue was domestic and 26% international, with Q4 reflecting a return to normal levels after a spike in Q3 due to Japan [50] Company Strategy and Development Direction - The company aims to continue growth driven by its strong family of scanning products, particularly the SocketScan products through partnerships with Shopify and Square [18] - The company has redesigned the DuraScan family of products to enhance durability and added a sealed upgradeable battery option, expecting significant growth in 2020 [14] - The S550, a new Contactless Membership Card Reader/Writer, is anticipated to be a significant contributor to long-term revenue goals, with expected traction in the second half of 2020 [19] Management's Comments on Operating Environment and Future Outlook - Management views 2019 as a turnaround year with revenue growth and a return to profitability, expecting continued growth in 2020 [17][20] - The company anticipates strong revenue growth in Q2 and Q3 of 2020, driven by mobile point-of-sale partners and improvements in product offerings [20] Other Important Information - The company has improved cash flow due to profitable growth, with cash of $1.0 million at the end of 2019 [26] - The remaining net operating loss carryforwards are expected to shelter future income of approximately $20.6 million for federal tax and $11 million for state tax [26] Q&A Session Summary Question: Plans to engage with the investment community - The company plans to continue outreach to the investment community, especially after a profitable 2019 [32] Question: Hiring plans for sales and technical staff - The company is actively hiring, particularly in digital marketing and software areas [33] Question: Status of S550 scanners shipped to developers - Fewer than 50 S550 scanners have been shipped to developers, with ongoing development before full engagement [37][38] Question: Inventory increase from Q3 to Q4 - The increase in inventory was planned, with additional products shipped and inventory held at fulfillment centers like Amazon [40][41] Question: Plans for cash savings after paying off the term loan - The company plans to maintain a cash buffer and will have a plan for cash generation in 2021 [42] Question: Revenue breakdown between foreign and American sales - The revenue was approximately 74% domestic and 26% international on an annual basis, with Q4 reflecting a return to normal [50] Question: Marketing implementation by Delfin - The marketing efforts are ongoing, with a focus on digital space and new initiatives [52][53] Question: Replacement for the marketing position - A new Director of Digital Marketing is set to start at the end of the month [55] Question: Expectations for revenue growth in 2020 - The company believes maintaining current momentum could lead to a target of around 20% revenue growth in 2020 [56][57]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2019 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- ...

10-Q 1 q2-2019.htm 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, 2019 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 ...

Financial Data and Key Metrics Changes - In Q2 2019, revenue increased by 19% compared to the same period last year, with gross margins on revenue at 52%, up from 51% in 2018 [10][12]. - The company received over $5 million in orders during Q2, adding to $5.4 million from Q1, indicating strong order pace [12]. Business Line Data and Key Metrics Changes - Retail sector sales fell to 66% of total revenue in Q2, down from 75% in Q1, although dollar sales remained flat [2]. - Revenue from commercial services applications rose to 16%, a 25% increase over Q1, indicating growth potential in this early-stage market [3]. - Healthcare contributed about 11% and transportation and logistics about 4% to revenue, with expectations for continued growth in these categories [8]. Market Data and Key Metrics Changes - The retail segment is expected to remain dominant in 2019, particularly due to government incentives in Japan for upgrading point-of-sale systems, which will expire at the end of Q3 [9]. Company Strategy and Development Direction - The company plans to enhance its market position and profitability by introducing new products and solutions tailored to customer needs, such as the DuraCase for iPhones and a vehicle holder charger [5][6]. - Management believes that addressing real-world customer issues will drive business growth [8]. Management Comments on Operating Environment and Future Outlook - Management expressed optimism about revenue strengthening in the second half of the year, supported by a recovery in the first half of 2019 [10]. - The company aims to increase outreach to improve its visibility on Wall Street, indicating plans for greater investor engagement in the latter half of the year [20]. Other Important Information - Lynn Zhao became the new CFO during Q2, replacing Dave Dunlap, who now serves on the Board of Directors [10][11]. - The company is currently out of compliance with NASDAQ Listing Rule 5605(B)(1) due to a board member's resignation, with a 180-day period to regain compliance [16][17]. Q&A Session Summary Question: Plans to improve visibility on Wall Street - Management acknowledged the need for better visibility and plans to increase outreach in the second half of the year as the company's story gains traction [20]. Question: Comments on the growth potential - Management agreed that the company has a strong narrative and that increased awareness could lead to substantial stock price appreciation [21].