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].

FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 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 94-3155 ...

Socket Mobile, Inc. (NASDAQ:SCKT) Q1 2019 Earnings Conference Call April 24, 2019 5:00 PM ET Company Participants David Dunlap - Chief Financial Officer Kevin Mills - President & Chief Executive Officer Conference Call Participants Brian Swift - Sutter Securities Operator Welcome to the First Quarter 2019 Management Conference Call. My name is Adrian, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) Socket Mobile provides cordless data capture devices like barcode scanners and RFID/NFC readers, supporting mobile applications through its SDK, with manufacturing outsourced and final assembly in Newark, California - The company's core business is providing cordless data capture devices (barcode scanners, RFID/NFC readers) for mobile applications across various industries like retail POS, logistics, and healthcare[14](index=14&type=chunk) - A key strategy is supporting software application developers with a Software Developer Kit (Capture SDK), which integrates Socket Mobile's hardware into the developers' applications, making the hardware an ingredient of the overall solution[14](index=14&type=chunk)[20](index=20&type=chunk)[29](index=29&type=chunk) - The company outsources component manufacturing to third parties in the US, Mexico, and Asia, but performs final product assembly, testing, and distribution from its facility in Newark, California[22](index=22&type=chunk)[27](index=27&type=chunk) - Primary product lines include the durable DuraScan® series, the standard SocketScan® series, the attachable SocketScan 800 series, and the D600 Contactless RFID/NFC Reader/Writer[16](index=16&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk) - As of December 31, 2018, the company had **56 employees**[44](index=44&type=chunk) [Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks including profitability challenges, reliance on third-party developers and key distributors, intense competition, supply chain disruptions, and the need for continuous innovation - The company may not return to profitability and may require additional capital, which might not be available on reasonable terms[46](index=46&type=chunk)[47](index=47&type=chunk) - Sales are highly dependent on application developers successfully integrating, marketing, and selling applications that incorporate Socket Mobile's products[48](index=48&type=chunk) - A significant portion of revenue comes from a limited number of distributors; in 2018, Ingram Micro®, ScanSource®, and BlueStar represented approximately **63% of worldwide revenues**[63](index=63&type=chunk) - The company faces competition from similar hardware products, camera-based scanning applications (e.g., Scandit), and more rugged integrated devices from larger competitors like Honeywell and Zebra Technologies[37](index=37&type=chunk)[65](index=65&type=chunk) - Dependence on a limited number of suppliers for certain components exposes the company to risks of shortages or delays[59](index=59&type=chunk) - The market is characterized by rapidly changing technology and short product life cycles, requiring constant and successful new product development to remain competitive[61](index=61&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[94](index=94&type=chunk) [Properties](index=22&type=section&id=Item%202.%20Properties) Socket Mobile leases a 37,100 square foot facility in Newark, California, which serves as its headquarters and manufacturing operations, with the lease expiring in June 2022 - The company leases a **37,100 square foot facility** in Newark, California under a lease expiring in **June 2022**[95](index=95&type=chunk) [Legal Proceedings](index=23&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently 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=23&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=24&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under 'SCKT', with approximately 2,500 beneficial stockholders, and does not anticipate paying dividends, retaining earnings for business use - The company's common stock trades on the NASDAQ under the ticker symbol **"SCKT"**[101](index=101&type=chunk) - The company has a policy of retaining future earnings for business use and does not anticipate paying dividends[101](index=101&type=chunk) [Selected Financial Data](index=26&type=section&id=Item%206.%20Selected%20Financial%20Data) This section summarizes five years of financial performance, showing a revenue decline to **$16.5 million** in 2018, a net loss of **$571,000**, and decreased total assets Selected Financial Data (2014-2018) | (Amounts in thousands) | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $16,454 | $21,286 | $20,788 | $18,400 | $17,021 | | **Gross profit** | $8,456 | $11,390 | $10,434 | $8,935 | $7,413 | | **Net income (loss)** | $(571) | $(1,431) | $12,147 | $1,817 | $432 | | **Total assets** | $17,331 | $19,854 | $21,587 | $9,688 | $8,370 | | **Total stockholders' equity** | $12,405 | $17,230 | $16,170 | $3,343 | $1,029 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2018, revenue decreased **23%** to **$16.5 million** due to product transition delays, resulting in a net loss and reduced liquidity, with critical accounting policies and cash flow impacts detailed [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) In 2018, liquidity weakened with cash decreasing to **$1.1 million**, offset by **$1.3 million** in credit lines and a **$0.8 million** term loan, with future liquidity dependent on profitability Liquidity Position (Year-End) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Cash | $1.1 million | $3.4 million | | Bank Lines of Credit | $1.3 million | $0 | | Term Loan | $0.8 million | $0 | - Sources of liquidity include cash on hand, cash from operations, and a revolving credit facility with approximately **$0.2 million** of unused capacity at year-end 2018[108](index=108&type=chunk) [Critical Accounting Policies](index=27&type=section&id=Critical%20Accounting%20Policies) Key accounting policies include Revenue Recognition (ASC 606 adoption in 2017), Inventory Valuation, Stock-Based Compensation, and annual Goodwill impairment testing, all requiring significant estimates - On January 1, 2017, the company adopted ASC 606, which changed revenue recognition for distributor sales from a sell-through basis to recognizing revenue upon shipment, net of a reserve for estimated returns[114](index=114&type=chunk) - Inventory is valued by comparing stock on hand to a nine-month forecast, with reserves created for any surplus[119](index=119&type=chunk) - Goodwill is tested for impairment annually on September 30th; the test as of September 30, 2018, indicated no impairment[122](index=122&type=chunk)[124](index=124&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) In 2018, revenue decreased **23%** to **$16.5 million** due to product transition delays, gross margin declined to **51.4%**, R&D increased **5%**, S&M remained flat, and G&A decreased **5%** Year-over-Year Financial Performance | Metric | 2018 | 2017 | Change | | :--- | :--- | :--- | :--- | | Revenue | $16.5 million | $21.3 million | -23% | | Gross Margin | 51.4% | 53.5% | -2.1 p.p. | | R&D Expense | $3.6 million | $3.5 million | +5% | | S&M Expense | $3.0 million | $3.0 million | 0% | | G&A Expense | $2.4 million | $2.5 million | -5% | - The 2018 revenue decline was caused by a longer than expected transition to new SocketScan products, which were released four months behind schedule[125](index=125&type=chunk) - Geographically, 2018 revenue from the Americas decreased by **24%** and from Europe by **29%**, while Asia Pacific revenue increased by **25%**[126](index=126&type=chunk) [Quarterly Results of Operations](index=31&type=section&id=Quarterly%20Results%20of%20Operations) Unaudited quarterly data for 2017-2018 shows a consistent decline in revenue from **$5.8 million** (Q2 2017) to approximately **$4.1 million** (2018), transitioning from net income to consistent net losses Quarterly Revenue (in thousands) | Quarter | 2018 | 2017 | | :--- | :--- | :--- | | Q1 | $3,981 | $5,622 | | Q2 | $4,192 | $5,806 | | Q3 | $4,137 | $5,475 | | Q4 | $4,144 | $4,383 | Quarterly Net Income (Loss) (in thousands) | Quarter | 2018 | 2017 | | :--- | :--- | :--- | | Q1 | $(225) | $386 | | Q2 | $(138) | $490 | | Q3 | $(45) | $414 | | Q4 | $(163) | $(2,721)* | - *Q4 2017 net loss was primarily driven by a one-time **$2.6 million** deferred tax revaluation expense due to the Tax Cuts and Jobs Act of 2017[137](index=137&type=chunk)[140](index=140&type=chunk) [Cash Flows and Contractual Obligations](index=32&type=section&id=Cash%20Flows%20and%20Contractual%20Obligations) In 2018, operating cash flow decreased to **$0.75 million**, investing activities used **$0.4 million**, and financing activities used **$2.6 million** due to a **$5.0 million** stock repurchase, with total contractual obligations of **$7.6 million** Cash Flow Summary (in millions) | Activity | 2018 | 2017 | | :--- | :--- | :--- | | Net Cash from Operations | $0.75 | $2.38 | | Net Cash used in Investing | $(0.4) | $(0.4) | | Net Cash from (used in) Financing | $(2.6) | $0.3 | - The primary use of cash in financing activities in 2018 was a **$5.0 million** repurchase of company stock[146](index=146&type=chunk) Contractual Obligations at Dec 31, 2018 | Contractual Obligations | Total | Due in 1 year | | :--- | :--- | :--- | | Unconditional purchase obligations | $5,922,000 | $5,922,000 | | Operating leases | $1,690,000 | $460,000 | | Capital leases | $24,000 | $16,000 | | **Total** | **$7,636,000** | **$6,398,000** | [Quantitative and Qualitative Disclosures about Market Risk](index=34&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces market risks from variable interest rates on its bank loans and foreign currency fluctuations from European sales, with Euro receivables partially hedged - Interest rate risk exists due to variable interest rates on the bank term loan and credit lines, which are tied to the lender's prime rate[152](index=152&type=chunk) - Foreign currency risk is present as European sales are transacted in Euros and British pounds; the company hedges a significant portion of its Euro receivables[153](index=153&type=chunk) [Financial Statements and Supplementary Data](index=34&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2018 and 2017, including the Independent Auditor's Report, Balance Sheets, Statements of Operations, Stockholders' Equity, Cash Flows, and detailed Notes to Financial Statements Key Financial Statement Data (2018 vs 2017) | (Amounts in thousands) | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | **Balance Sheet** | | | | Total Current Assets | $6,197 | $8,855 | | Total Assets | $17,331 | $19,854 | | Total Current Liabilities | $4,356 | $2,323 | | Total Liabilities | $4,927 | $2,624 | | Total Stockholders' Equity | $12,404 | $17,230 | | **Income Statement** | | | | Revenues | $16,454 | $21,286 | | Gross Profit | $8,456 | $11,390 | | Operating Income (Loss) | $(586) | $2,418 | | Net Loss | $(571) | $(1,431) | [NOTE 1 — Organization and Summary of Significant Accounting Policies](index=41&type=section&id=NOTE%201%20%E2%80%94%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note details the company's business, basis of presentation, and key accounting policies, including ASC 606 revenue recognition, inventory valuation, goodwill impairment, foreign currency, and concentrations of credit risk with major distributors Revenue by Geographic Area (in thousands) | Region | 2018 | 2017 | | :--- | :--- | :--- | | United States | $12,562 | $16,621 | | Europe | $2,526 | $3,572 | | Asia and rest of world | $1,366 | $1,093 | | **Total** | **$16,454** | **$21,286** | Major Customer Revenue Concentration | Customer | 2018 | 2017 | | :--- | :--- | :--- | | Ingram Micro Inc. | 32% | 37% | | BlueStar, Inc. | 21% | 17% | | ScanSource, Inc. | 10% | 16% | [NOTE 3 — Bank Financing Arrangements](index=49&type=section&id=NOTE%203%20%E2%80%94%20Bank%20Financing%20Arrangements) In January 2018, the company secured a **$2.5 million** revolving credit line and a **$4.0 million** term loan, subsequently breaching financial covenants which were later waived after loan modification and partial paydown, with **$833,333** term loan and **$1,316,778** credit lines outstanding at year-end 2018 - Entered into a financing agreement for a **$2.5 million** revolving credit line and a **$4.0 million** term loan in January 2018[225](index=225&type=chunk) - The company breached two financial covenants for the quarter ended March 31, 2018; the bank agreed to forbear and later permanently waived the defaults after the loan agreement was modified and the term loan was paid down to **$1.0 million**[231](index=231&type=chunk)[234](index=234&type=chunk) Outstanding Debt at Dec 31, 2018 | Debt Instrument | Amount Outstanding | | :--- | :--- | | Term Loan | $833,333 | | Lines of Credit | $1,316,778 | [NOTE 4 — Commitments and Contingencies](index=53&type=section&id=NOTE%204%20%E2%80%94%20Commitments%20and%20Contingencies) The company has future commitments including an operating lease for its Newark, CA facility totaling approximately **$1.7 million** through June 2022, and non-cancelable inventory purchase commitments of approximately **$5.9 million** due in 2019 - Future minimum lease payments under the operating lease for its headquarters total **$1,689,777** through June 2022[240](index=240&type=chunk) - As of December 31, 2018, the company had non-cancelable inventory purchase commitments of approximately **$5,922,000** for 2019[244](index=244&type=chunk) [NOTE 5 — Stock-Based Compensation Plan](index=54&type=section&id=NOTE%205%20%E2%80%94%20Stock-Based%20Compensation%20Plan) The company's 2004 Equity Incentive Plan resulted in **$487,806** in stock-based compensation expense in 2018, with **2,374,124** options outstanding at a weighted average exercise price of **$2.54**, and **$906,605** in remaining unamortized expense Stock-Based Compensation Expense | Year | Total Expense | | :--- | :--- | | 2018 | $487,806 | | 2017 | $426,950 | - As of December 31, 2018, there were **2,374,124** stock options outstanding and **1,894,933** options exercisable[249](index=249&type=chunk) - Total remaining unamortized stock-based compensation expense was **$906,605** as of year-end 2018[253](index=253&type=chunk) [NOTE 8 — Income Taxes](index=57&type=section&id=NOTE%208%20%E2%80%94%20Income%20Taxes) The company recorded a **$143,000** income tax benefit in 2018, contrasting with a **$3.77 million** expense in 2017, significantly impacted by a **$2.6 million** deferred tax asset write-down from the Tax Cuts and Jobs Act, and holds **$21.6 million** in federal NOL carryforwards - The Tax Cuts and Jobs Act of 2017 resulted in a one-time tax expense of **$2.6 million** in 2017 from the re-measurement of deferred tax assets[258](index=258&type=chunk) Net Deferred Tax Assets | Date | Amount | | :--- | :--- | | Dec 31, 2018 | $5,781,000 | | Dec 31, 2017 | $5,637,000 | - As of December 31, 2018, the company had federal net operating loss carryforwards of approximately **$21.6 million** and California NOLs of **$12.0 million**[262](index=262&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=60&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[269](index=269&type=chunk) [Controls and Procedures](index=60&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures, and internal control over financial reporting (based on COSO framework), were effective as of December 31, 2018, with no material changes reported - Management concluded that disclosure controls and procedures were effective as of December 31, 2018[270](index=270&type=chunk) - Management assessed internal control over financial reporting based on the COSO framework and concluded it was effective as of December 31, 2018[272](index=272&type=chunk)[273](index=273&type=chunk) [Other Information](index=61&type=section&id=Item%209B.%20Other%20Information) The company reports no other information under this item - None[278](index=278&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=62&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement for the May 22, 2019 annual stockholders' meeting - Information is incorporated by reference from the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2019[8](index=8&type=chunk)[281](index=281&type=chunk) [Executive Compensation](index=62&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's Proxy Statement for the May 22, 2019 annual stockholders' meeting - Information is incorporated by reference from the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2019[8](index=8&type=chunk)[282](index=282&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=62&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference from the Proxy Statement, detailing **2,374,124** securities to be issued upon option exercise and **116,703** available for future issuance under equity compensation plans as of December 31, 2018 Equity Compensation Plan Information as of Dec 31, 2018 | 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 | 2,374,124 | $2.54 | 116,703 | [Certain Relationships and Related Transactions, and Director Independence](index=62&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information concerning related party transactions and director independence is incorporated by reference from the company's Proxy Statement for the May 22, 2019 annual stockholders' meeting - Information is incorporated by reference from the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2019[8](index=8&type=chunk)[286](index=286&type=chunk) [Principal Accounting Fees and Services](index=63&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's Proxy Statement for the May 22, 2019 annual stockholders' meeting - Information is incorporated by reference from the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2019[8](index=8&type=chunk)[288](index=288&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=63&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section provides an index to the financial statements and all exhibits filed with or incorporated by reference into the Form 10-K report, noting the omission of financial statement schedules as not applicable - This section contains the index to the financial statements and a list of all exhibits filed with the report[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk)

Financial Data and Key Metrics Changes - Revenue for 2018 was $16.5 million, a decrease of 23% from 2017's revenue of $21.3 million [5][24] - The company reported a loss of $571,000 or $0.09 per share in 2018, compared to a loss of $1.6 million or $0.23 per share in 2017 [5][25] - Operating expenses were held flat for the year, with a slight increase in R&D from $3.5 million to $3.6 million [33][25] Business Line Data and Key Metrics Changes - The transition from legacy products to the new SocketScan family significantly impacted sales revenue, causing confusion and loss of sales momentum [6][8] - Sales of cordless barcode scanning were down 21% in 2018, with overall sales down 23% [24] - The new Capture SDK transition went reasonably well, with many customers already transitioned [11] Market Data and Key Metrics Changes - The point-of-sale market is expected to grow due to government initiatives encouraging small merchants to switch to computerized systems [13] - In Japan, incentives and sales tax changes are anticipated to drive small merchants to adopt new point-of-sale systems [14] - In France, new anti-fraud laws will require small merchants to upgrade to compliant systems, which the company is well-positioned to benefit from [15] Company Strategy and Development Direction - The company aims to leverage new markets such as cannabis and government-driven initiatives to expand revenue [13][15] - The introduction of the iPhone DuraCase solution is expected to significantly contribute to revenue in 2019 [17] - The company is focused on maintaining a high level of R&D investment to stay current with mobile computing advancements [32][34] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2019, expecting stronger performance due to the completion of product transitions and new market opportunities [20][25] - The company anticipates benefiting from a more stable point-of-sale business and increased demand in specific regions [20] - Management noted that the transition challenges faced in 2018 are now behind them, allowing for a focus on growth [39] Other Important Information - The company has over 1,100 registered developer companies, indicating a healthy developer community [19] - Positive EBITDA results and free cash flow were achieved for the year, with a current balance sheet ratio of 1.42 [25] Q&A Session Summary Question: What are the plans to reduce R&D costs in 2019? - Management stated there is no plan to reduce R&D spending, as it is necessary to stay current with mobile technology [32][34] Question: Are there any new products in development for 2019? - Management confirmed ongoing development of the D600 token exchange product and other variations, with plans to ship new products by mid to late 2019 [36][37] Question: What strategies are being implemented to drive revenue growth in 2019? - The company has modified its organizational structure and increased outreach to smaller point-of-sale businesses to drive revenue [38][39]