{"url_path":"/sec/sckt/10-q/2026/item-1","section_key":"item-1","section_title":"Item 1 Financial Statements**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-13","source_url":"https://www.sec.gov/Archives/edgar/data/944075/0000944075-26-000040-index.html","accession_number":"0000944075-26-000040","cik":"0000944075","ticker":"SCKT","issuer_name":"SOCKET MOBILE, INC.","edgar_url":"https://www.sec.gov/Archives/edgar/data/944075/0000944075-26-000040-index.html","primary_entity_key":"0000944075","primary_entity_name":"SOCKET MOBILE, INC."},"word_count":3982,"has_tables":true,"body_markdown":"** **\n\n**Item 1. Financial Statements**\n\n** **\n\n** **\n\n** **\n\n**SOCKET MOBILE, INC.**\n\nCONDENSED STATEMENTS OF OPERATIONS\n\n(Unaudited)\n\n \n\n  \n \n \n \n \n \n \n \n\n  \nThree Months Ended March 31,\n\n  \n2026 \n2025\n\n  \n  \n \n\nRevenues \n$3,700,309  \n$3,965,920 \n\n  \n    \n   \n\nCost of revenues  \n 1,802,790  \n 1,968,026 \n\n  \n    \n   \n\nGross profit \n 1,897,519  \n 1,997,894 \n\n  \n    \n   \n\nOperating expenses: \n    \n   \n\n   Research and development \n 1,090,161  \n 1,131,715 \n\n   Sales and marketing \n 901,645  \n 1,106,432 \n\n   General and administrative \n 665,380  \n 653,420 \n\n      Total operating expenses \n 2,657,186  \n 2,891,567 \n\n  \n    \n   \n\nOperating loss \n (759,667) \n (893,673)\n\n  \n    \n   \n\nInterest expense, net \n (139,909) \n (100,467)\n\n  \n    \n   \n\nNet loss \n$(899,576) \n$(994,140)\n\n  \n    \n   \n\nNet loss per share: \n    \n   \n\n  \n    \n   \n\n     Basic \n$(0.11) \n$(0.13)\n\n     Diluted \n$(0.11) \n$(0.13)\n\n  \n    \n   \n\nWeighted average shares outstanding: \n    \n   \n\n  \n    \n   \n\n     Basic \n 8,135,728  \n 7,829,484 \n\n     Diluted \n 8,135,728  \n 7,829,484 \n\n  \n    \n   \n\n** **\n\n \n\nSee\naccompanying notes to condensed financial statements.\n\n 1 \n\n[Index](#Index) \n\n \n\n \n\n** **\n\n** **\n\n**SOCKET MOBILE, INC.**\n\nCONDENSED BALANCE SHEETS\n\n \n\n \n \n \n  \n \n \n \n\n \nMarch 31,\n2026\n(Unaudited) \nDecember 31, 2025\n\nASSETS\n\nCurrent assets:\n    \n   \n\n   Cash and cash equivalents\n$1,710,280  \n$2,032,468 \n\n   Accounts receivable, net\n 2,197,349  \n 1,711,047 \n\n   Inventories, net\n 3,870,200  \n 4,220,822 \n\n   Prepaid expenses and other current assets\n 566,951  \n 548,379 \n\n   Deferred cost on shipments to distributors\n 125,247  \n 122,480 \n\n      Total current assets\n 8,470,027  \n 8,635,196 \n\n \n    \n   \n\nProperty and equipment:\n    \n   \n\n   Machinery and office equipment\n 3,125,288  \n 3,101,647 \n\n   Computer equipment\n 3,816,571  \n 3,786,880 \n\n \n 6,941,859  \n 6,888,527 \n\n   Accumulated depreciation\n (5,023,208) \n (4,763,692)\n\n      Property and equipment, net\n 1,918,651  \n 2,124,835 \n\n \n    \n   \n\nIntangible assets, net\n 1,272,953  \n 1,304,777 \n\nOther long-term assets\n 285,911  \n 285,911 \n\nOperating lease right-of-use asset\n 1,953,015  \n 2,086,621 \n\n      Total assets\n$13,900,557 \n$14,437,340\n\n \n    \n   \n\n \n    \n   \n\nLIABILITIES AND STOCKHOLDERS’ EQUITY\n\nCurrent liabilities:\n    \n   \n\n   Accounts payable and accrued expenses\n$1,299,202  \n$1,309,675 \n\n   Accrued payroll and related expenses\n 543,154  \n 713,205 \n\n   Deferred revenue on shipments to distributors\n 345,793  \n 335,874 \n\n   Short term portion of deferred service revenue\n 17,081  \n 18,091 \n\n   Subordinated convertible notes payable, net of discount\n 500,000  \n 400,000 \n\n   Subordinated convertible notes payable, net of discount-related party\n 5,486,652  \n 5,083,007 \n\n   Operating lease – current portion\n 586,322  \n 575,172 \n\n      Total current liabilities\n 8,778,204  \n 8,435,024 \n\n \n    \n   \n\nLong-term portion of deferred service revenue\n 8,691  \n 10,167 \n\nLong-term portion of operating lease\n 1,564,571  \n 1,713,536 \n\n   Total liabilities\n 10,351,466  \n 10,158,727 \n\n \n    \n   \n\nCommitments and contingencies\n\n —    \n —   \n\nStockholders’ equity:\n    \n   \n\n   Common stock, $0.001 par value: Authorized – 20,000,000 shares, Issued\n8,582,208 and outstanding 8,222,958 at March 31, 2026; Issued 8,336,193 and outstanding 7,976,943 at December 31, 2025\n 8,223  \n 7,977 \n\n   Additional paid-in capital\n 70,031,894  \n 69,862,086 \n\n   Treasury stock\n (1,037,988) \n (1,037,988)\n\n   Accumulated deficit\n (65,453,038) \n (64,553,462)\n\n      Total stockholders’ equity\n 3,549,091  \n 4,278,613 \n\n         Total liabilities and stockholders’ equity\n$13,900,557 \n$14,437,340\n\n \n\n \n\n \n\nSee\naccompanying notes to condensed financial statements.\n\n 2 \n\n[Index](#Index) \n\n \n\n \n \n \n \n \n \n \n \n \n \n \n \n \n\n**SOCKET MOBILE, INC.**\n\n**CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY**\n\n(Unaudited)\n\n \n\n \n \n \n \n \n \n \n  \n \n \n  \n \n \n  \n \n \n  \n \n \n  \n \n \n \n\n \n  \n  \nAdditional \n  \n  \n  \nTotal\n\n \nCommon\nStock \nPaid-In \nTreasury\nStock \nAccumulated \nStockholders’\n\n \nShares \nAmount \nCapital \nShares \nAmount \nDeficit \nEquity\n\nBalance at December 31, 2025\n 7,976,943  \n$7,977  \n$69,862,086  \n 359,250  \n$(1,037,988) \n$(64,553,462) \n$4,278,613 \n\nVesting of restricted stocks\n 324,355  \n 324  \n (324) \n —    \n —    \n —    \n —   \n\nRestricted stock retired for\ntax withholding\n (78,340) \n (78) \n 78  \n —    \n —    \n —    \n —   \n\nStock-based compensation\n —    \n —    \n 170,054  \n —    \n —    \n —    \n 170,054 \n\nNet loss\n —    \n —    \n —    \n —    \n —    \n (899,576)  \n (899,576) \n\nBalance at March 31, 2026\n 8,222,958  \n$8,223  \n$70,031,894  \n 359,250  \n$(1,037,988)  \n$(65,453,038)  \n$3,549,091 \n\n** **\n\n** **\n\n \n \n \n \n \n \n \n  \n \n \n  \n \n \n  \n \n \n  \n \n \n  \n \n \n \n\n \n  \n  \nAdditional \n  \n  \n  \nTotal\n\n \nCommon Stock \nPaid-In \nTreasury Stock \nAccumulated \nStockholders’\n\n \nShares \nAmount \nCapital \nShares \nAmount \nDeficit \nEquity\n\nBalance at December 31, 2024\n 7,605,631  \n$7,606  \n$69,365,801  \n 359,250  \n$(1,037,988) \n$(50,174,924) \n$18,160,495 \n\nVesting of restricted stocks\n 421,190  \n 421  \n (421) \n —    \n —    \n —    \n —   \n\nRestricted stock retired for tax withholding\n (73,833) \n (74) \n 74  \n —    \n —    \n —    \n —   \n\nStock-based compensation\n —    \n —    \n 70,625  \n —    \n —    \n —    \n 70,625 \n\nNet loss\n —    \n —    \n —    \n —    \n —    \n (994,140) \n (994,140)\n\nBalance at March 31, 2025\n 7,952,988  \n$7,953  \n$69,436,079  \n 359,250  \n$(1,037,988) \n$(51,169,064) \n$17,236,980 \n\n \n\n \n\nSee accompanying notes to condensed financial statements.\n\n 3 \n\n[Index](#Index) \n\n \n\n \n\n \n\n \n\n \n\n**SOCKET MOBILE, INC.**\n\n**CONDENSED STATEMENTS OF CASH FLOWS**\n\n(Unaudited)\n\n \n\n \n \n \n  \n \n \n \n\n \nThree Months Ended March 31,\n\n \n2026 \n2025\n\nOperating activities\n    \n   \n\n  Net loss\n$(899,576) \n$(994,140)\n\n  Adjustments to reconcile net loss to net cash used in operating activities:\n    \n   \n\n      Stock-based compensation\n 170,054  \n 70,625 \n\n      Depreciation and amortization\n 291,340  \n 338,927 \n\n      Amortization of debt discount\n 3,645  \n 3,646 \n\n      Amortization of operating lease ROU asset\n 133,606  \n 126,919 \n\n \n    \n   \n\n  Changes in operating assets and liabilities:\n    \n   \n\n      Accounts receivable\n (486,302) \n (473,199)\n\n      Inventories\n 350,622  \n (339,530)\n\n      Prepaid expenses and other current assets\n (18,572) \n (187,938)\n\n      Accounts payable and accrued expenses\n (10,473) \n 884,178 \n\n      Accrued payroll and related expenses\n (170,051) \n 2,878 \n\n      Net deferred revenue on shipments to distributors\n 7,152  \n (38,705)\n\n      Deferred service revenue\n (2,486) \n (304)\n\n      Net change in operating lease liability\n (137,815) \n (126,327)\n\n         Net cash used in operating activities\n (768,856) \n (732,970)\n\n \n    \n   \n\nInvesting activities\n    \n   \n\n  Purchases of equipment and intangible assets\n (53,332) \n (52,304)\n\n       Net cash used in investing activities\n (53,332) \n (52,304)\n\n \n    \n   \n\nFinancing activities\n    \n   \n\n  Proceeds from subordinated convertible notes payable\n 100,000  \n —   \n\n  Proceeds from subordinated convertible notes payable – related party\n 400,000  \n —   \n\n       Net cash provided by financing activities\n 500,000  \n —   \n\nNet decrease in cash and cash equivalents\n (322,188) \n (785,274)\n\n \n    \n   \n\nCash and cash equivalents at beginning of period\n 2,032,468  \n 2,491,964 \n\nCash and cash equivalents at end of period\n$1,710,280 \n$1,706,690\n\n \n    \n   \n\nSupplemental disclosure of cash flow information\n    \n   \n\n  Cash paid for interest\n$133,151  \n$99,125 \n\n \n\n \n\nSee accompanying notes to condensed financial\nstatements.\n\n 4 \n\n[Index](#Index) \n\n \n\n \n\n**SOCKET MOBILE, INC.**\n\n**NOTES TO CONDENSED FINANCIAL STATEMENTS**(Unaudited)\n\nMarch 31, 2026\n\n \n\nNOTE 1 —\nBasis of Presentation\n\n \n\nThe accompanying unaudited condensed financial statements\nof Socket Mobile, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the\nUnited States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they\ndo not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete\nfinancial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals considered necessary\nfor fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the operating\nresults for the full fiscal year or any future period. These financial statements should be read in conjunction with the audited financial\nstatements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.\n\n \n\n**NOTE 2 — Summary of Significant Accounting Policies**\n\n** **\n\n*Use of Estimates*\n\nThe preparation of financial statements in conformity\nwith accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the\nreported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements,\nand the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates, and such\ndifferences may be material to the financial statements.\n\n \n\n*Cash Equivalents and Fair Value of Financial Instruments*\n\nThe Company considers all highly liquid investments\npurchased with a maturity date of 90 days or less at date of purchase to be cash equivalents. As of March 31, 2026, and December 31, 2025,\nall of the Company’s cash and cash equivalents consisted of amounts held in demand deposit accounts in banks. The Company has never\nexperienced any losses in such accounts.\n\n \n\nThe carrying value of the Company’s cash and\ncash equivalents, accounts receivable, accounts payable, and debt approximate fair value due to the relatively short period of time to\nmaturity.\n\n \n\n*Revenue Recognition and Deferred Revenue*\n\nWith the adoption of ASC 606 “Revenue from\nContracts with Customers” in 2017, the Company recognizes revenue on sales to distributors when shipping of product is completed\nand title transfers to distributor, less a reserve for estimated product returns (sales and cost of sales). The reserves are based on\nestimates of future returns calculated from actual return history, primarily from stock rotations, plus knowledge of pending returns outside\nof the norm. On March 31, 2026, the deferred revenue and deferred cost on shipments to distributors were $345,793 and $125,247, respectively,\ncompared to $335,874 and $122,480, respectively, on December 31, 2025.\n\n \n\nThe Company also earns revenue from its SocketCare\nextended warranty program, which provides extended warranty and accidental breakage coverage for selected products. Customers can purchase\na SocketCare warranty at the time of product purchase, which provides coverage for a three-year or a five-year term. Revenues from SocketCare\nservices are recognized ratably over the life of the extended warranty contract. For the quarters ended March 31, 2026 and 2025, SocketCare\nrevenue was approximately $4,100 and $4,300, respectively. The amount of unrecognized SocketCare service revenue is classified as deferred\nservice revenue and presented on the Company’s balance sheet in its short- and long-term components. On March 31, 2026, the balance\nof unrecognized SocketCare service revenue was $25,772, compared to $28,258 as of December 31, 2025.\n\n \n\n 5 \n\n[Index](#Index) \n\n \n\n**SOCKET MOBILE, INC.**\n\n**NOTES TO CONDENSED FINANCIAL STATEMENTS**(Unaudited)\n\nMarch 31, 2026\n\n* *\n\n*Cost of Sales and Gross Margins*\n\n Cost of sales primarily consists of the costs\nto manufacture our products, including the costs of materials, contract manufacturing, shipping costs, personnel and related expenses\nincluding stock-based compensation, equipment and facility expenses, warranty costs and inventory excess and obsolete provisions. The\nfactors that affect our gross margins are the cost of materials, the mix of products and the extent to which we are able to efficiently\nutilize our manufacturing capacity.\n\n \n\n*Leases*\n\nOn May 1, 2022, the Company entered into a building\nlease agreement for its corporate headquarters located in Fremont, CA. On March 31, 2026, the balances of right-of-use assets and liabilities\nfor the operating lease were $1,953,015 and $2,150,893, respectively, compared to $2,086,621 and $2,288,708, respectively, on December\n31, 2025.\n\n* *\n\n*Recently Issued Financial Accounting Standards*\n\nFrom time to time, new accounting pronouncements are\nissued by the FASB or other standards setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed,\nmanagement believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s\nfinancial position, results of operations or cash flows upon adoption.\n\n* *\n\n* *\n\n**NOTE 3 — Intangible Assets**\n\n** **\n\nIn 2021, the Company entered into the Technology Transfer\nAgreement with SpringCard SAS. The Unaudited Condensed Balance Sheets include the intangible assets of the acquired technology at the\ncarrying amount, net of amortization of $1,272,953 as of March 31, 2026.\n\n** **\n\nThe intangible assets are amortized on a straight-line\nbasis over their estimated useful lives of fifteen years, beginning on April 1, 2021. As of March 31, 2026, the estimated future amortization\nof these intangible assets is as follows:\n\n \n\n \n \n \n \n\nFiscal Year\nAmount\n\n2026 (April 1, 2026 to December 31, 2026) \n 95,472 \n\n2027 \n 127,296 \n\n2028 \n 127,296 \n\n2029 \n 127,296 \n\n2030 \n 127,296 \n\nThereafter \n 668,297 \n\n  \n$1,272,953 \n\n** **\n\n 6 \n\n[Index](#Index) \n\n \n\n**SOCKET MOBILE, INC.**\n\n**NOTES TO CONDENSED FINANCIAL STATEMENTS**(Unaudited)\n\nMarch 31, 2026\n\n \n\nThe amortization expense was $31,824 for the three\nmonths ended March 31 in both 2026 and 2025.\n\n** **\n\n**NOTE 4 — Inventories**\n\n \n\nInventories consist principally of raw materials and\nsub-assemblies, which are stated at the lower of cost (first-in, first-out) or market. Inventories on March 31, 2026 and December 31,\n2025 were as follows:\n\n \n\n  \n \n \n  \n \n \n \n\n  \nMarch 31, \nDecember 31,\n\n  \n2026 \n2025\n\nRaw materials and sub-assemblies \n$4,758,278  \n$5,006,124 \n\nFinished goods \n 277,865  \n 350,640 \n\nInventory reserves \n (1,165,943) \n (1,135,942)\n\nInventory, net \n$3,870,200 \n$4,220,822\n\n** **\n\n** **\n\n**NOTE 5 — Bank Financing Arrangements**\n\n** **\n\nThe Company initially entered into a Business Financing\nAgreement with Western Alliance Bank (the “Bank”), an Arizona corporation, on February 27, 2014, and this agreement has been\namended and extended through the years.\n\n \n\n*Sixth Business Financing Modification Agreement*\n\nOn January 28, 2025, the Company entered into the\nSixth Business Financing Modification Agreement with the Bank, extending the maturity date of both domestic and EXIM lines of credit to\nApril 30, 2025.\n\n \n\n*Seventh Business Financing Modification Agreement*\n\nOn April 21, 2025, the Company entered into the Seventh\nBusiness Financing Modification Agreement and Waiver of Default with the Bank. Under the terms of the agreement, the Bank renewed the\n$3.0 million domestic credit line, raised the advance rate to up to 80% of eligible domestic receivables, increased the allowance for\nsubordinated debt to $5.5 million, and increased the credit card limit to $350,000. The maturity date of the domestic credit line is April\n30, 2026.\n\n \n\n*Eighth Business Financing Modification Agreement*\n\nOn January 20, 2026, the Company entered into the\nEighth Business Financing Modification Agreement and Waiver of Default with the Bank. Under the terms of the agreement, the Bank waived\nthe Company’s covenant defaults for the third quarter and the fourth quarter of 2025. The agreement also revised certain terms of\nthe credit facilities, including: (i) modifying the covenant to require the Company to maintain a minimum cash balance of $1.0 million\nin accounts held with the Bank, measured as of the last day of each month; (ii) reducing the credit card limit to $0.2 million and the\ndomestic credit line limit to $1.0 million; (iii) extending the maturity date of the facilities to July 31, 2026; and (iv) increasing\nthe permitted amount of subordinated debt to an aggregate amount not to exceed $6.5 million.\n\n \n\n 7 \n\n[Index](#Index) \n\n \n\n**SOCKET MOBILE, INC.**\n\n**NOTES TO CONDENSED FINANCIAL STATEMENTS**(Unaudited)\n\nMarch 31, 2026\n\n \n\nThere were no amounts borrowed on the Company’s\nbank credit lines as of March 31, 2026 and December 31, 2025.\n\n \n\n**NOTE 6 — Secured Subordinated Convertible Notes Payable**\n\n** **\n\nThe Company has issued multiple series of secured\nsubordinated convertible notes (collectively, the “Notes”) between 2020 and 2026. The Notes are secured by substantially all\nof the Company’s assets and are subordinated to the Company’s obligations under its senior credit facility with Western Alliance\nBank.\n\n \n\nAll Notes bear interest at 10% per annum, payable\nquarterly in cash. Each series is convertible at the holder’s option into shares of the Company’s common stock at fixed conversion\nprices established at issuance. Beginning one year after issuance, holders may require the Company to repay principal and accrued interest.\nFailure to pay principal or interest when due (subject to a five-day grace period) constitutes an event of default.\n\n \n\nProceeds from the issuances were used for general\nworking capital purposes.\n\n \n\nIn connection with certain issuances involving related\nparties, the transactions were reviewed and approved in accordance with the Company’s related-party transaction policies. The Company\nfiled and obtained effectiveness of registration statements under the Securities Act of 1933, as amended, covering the resale of shares\nissuable upon conversion of the applicable Notes.\n\n \n\n**Summary of Secured Subordinated Convertible Notes**\n\n** **\n\n****\n\n  \n  \n  \n  \n \n\nIssuance Year \nPrincipal Issued \nPrincipal Outstanding* \nMaturity Date \nConversion Price\n\n 2020  \n$1,400,000  \n$1,400,000  \nAugust 30, 2027 \n$1.46 \n\n 2023  \n$1,600,000  \n$1,600,000  \nMay 26, 2028 \n$1.34 \n\n 2024  \n$1,000,000  \n$1,000,000  \nAugust 21, 2027 \n$0.9515 \n\n 2025  \n$1,500,000  \n$1,500,000  \nMay 30, 2028 \n$1.07 \n\n 2026  \n$500,000  \n$500,000  \nMarch 27, 2029 \n$0.90 \n\n *Principal\noutstanding as of March 31, 2026.\n\n \n\nThe amortization of debt discount was $3,645 and $3,646\nfor the quarter ended March 31, 2026 and 2025, respectively.\n\n \n\nTotal interest expense related to the convertible\nnote was $140,687 and $102,276 for the three months ended March 31, 2026 and 2025, respectively.\n\n** **\n\n**NOTE 7 — Segment Information and Concentrations**\n\n* *\n\n*Segment Information*\n\nThe Company operates in the mobile barcode scanning\nand RFID/NFC data capture market. Mobile scanning typically consists of mobile devices such as smartphones or tablets, with mobile scanning\nor NFC peripherals for data collection, and third-party vertical applications software. The Company distributes its products in the United\nStates and foreign countries primarily through distributors and resellers. The Company markets its products primarily through application\ndevelopers whose applications are designed to work with the Company’s products.\n\n \n\n 8 \n\n[Index](#Index) \n\n \n\n**SOCKET MOBILE, INC.**\n\n**NOTES TO CONDENSED FINANCIAL STATEMENTS**(Unaudited)\n\nMarch 31, 2026\n\n \n\nRevenues by geographic areas for the three months\nended March 31, 2026 and 2025 were as follows:\n\n \n\n  \n \n \n \n \n \n \n \n\n  \nThree Months Ended March 31,\n\nRevenues: \n2026 \n2025\n\n   United States \n$2,838,126  \n$3,060,782 \n\n   Europe \n 622,816  \n 546,078 \n\n   Asia and rest of world \n 239,367  \n 359,060 \n\n      Total revenues \n$3,700,309 \n$3,965,920\n\n \n\n \n\nExport revenues are attributable to countries based\non the location of the Company’s customers. The Company does not hold long-lived assets in foreign locations.\n\n* *\n\n*Major Customers*\n\nCustomers who accounted for at least 10% of the Company’s\ntotal revenues for the three months ended March 31, 2026 and 2025 were as follows:\n\n \n\n  \n \n \n \n \n \n \n \n\n  \nThree Months Ended March 31,\n\n  \n2026 \n2025\n\nBlueStar, Inc. \n 28% \n 31%\n\nSynnex Corporation \n 13% \n 10%\n\nIngram Micro, Inc. \n 12% \n 11%\n\nScansource, Inc. \n 12% \n * \n\n*Customer accounted for less than 10% of the Company’s total revenue\n\n \n\n**\n\n 9 \n\n[Index](#Index) \n\n* *\n\n**SOCKET MOBILE, INC.**\n\n**NOTES TO CONDENSED FINANCIAL STATEMENTS**(Unaudited)\n\nMarch 31, 2026\n\n* *\n\n*Concentration of Credit Risk*\n\nFinancial instruments that potentially subject the\nCompany to significant concentrations of credit risk include cash, cash equivalents and accounts receivable. The Company invests its\ncash in demand deposit accounts in banks and the Company has not experienced losses on the investments. The Company’s trade accounts\nreceivables are primarily with distributors. The Company performs ongoing credit evaluations of its customers’ financial condition,\nbut the Company generally requires no collateral. Reserves are maintained for potential credit losses, and such losses have been within\nmanagement’s expectations. Customers who accounted for at least 10% of the Company’s accounts receivable balances on March\n31, 2026 and December 31, 2025 were as follows: \n\n \n\n  \n \n \n  \n \n \n \n\n  \nMarch 31, \nDecember 31,\n\n \n2026 \n2025\n\nBlueStar, Inc. \n 28% \n 43%\n\nIngram Micro Inc. \n 21% \n * \n\nScanSource, Inc. \n 19% \n 19%\n\nSynnex Corporation \n 11% \n * \n\n* Customer accounted for less than 10% of the Company’s accounts receivable balances\n\n* *\n\n*Concentration of Suppliers*\n\nSeveral of the Company’s component parts are\nproduced by a sole or limited number of suppliers. Shortages could occur in these essential materials due to increased demand, or due\nto an interruption of supply. Suppliers may choose to restrict credit terms or require advance payments causing delays in the procurement\nof essential materials. The Company’s inability to procure certain materials could have a material adverse effect on the Company’s\nresults. For the three months ended March 31, 2026 and 2025, the top two suppliers accounted for 51% and 42%, respectively, of inventory\npurchases. As of March 31, 2026 and December 31, 2025, 19% and 33%, respectively, of the Company’s accounts payable balances were\nconcentrated with top two suppliers.\n\n \n\n \n\n**NOTE 8 — Stock-Based Compensation**\n\n** **\n\nThe Company recognizes the compensation cost in the\nfinancial statements for all stock-based awards to employees, including grants of stock options and restricted stock, based on the fair\nvalue of the awards as of the date that the awards are issued. Compensation cost for stock-based awards is recognized on a straight-line\nbasis over the vesting period.\n\n \n\nThe fair values of stock options are generally determined\nusing a binomial lattice valuation model which incorporates assumptions about expected volatility, risk-free interest rate, dividend yield,\nand expected life. There were 232,045 stock options granted for the three months ended March 31, 2026 and no stock options granted for\nthe three months ended March 31, 2025.\n\n \n\nThe shares of restricted stock are issued to employees\nand consultants and are held in escrow by the Company until the shares vest, subject to the employees and consultants being a continuing\nservice provider on each of the vesting dates. If the service or employment is terminated, unvested shares revert to the Company. Shares\nare registered at grant, so share owners may vote at the annual stockholder meeting. Shares of restricted stock are granted on a zero\ncost basis. Compensation cost of the restricted stock is recognized on a straight-line basis over the life of vesting period. For the\nthree months ended March 31, 2026 and 2025, the Company awarded 21,786 and 606,293 shares of restricted stock, respectively. As of March\n31, 2026, there were 733,194 shares of restricted stock outstanding. Due to the existence of restrictions on sale or transfer until the\nshares vest, the Company does not count the shares of restricted stock as issued and outstanding shares until they vest. In Q1 2026, 324,355\nshares of restricted stock were issued to employees through vesting. Market value of the vested shares is subject to tax withholding.\n\n \n\nTotal stock-based compensation expenses for the three\nmonths ended March 31, 2026 and 2025, were $170,054 and $70,625, respectively.\n\n \n\n 10 \n\n[Index](#Index) \n\n \n\n**SOCKET MOBILE, INC.**\n\n**NOTES TO CONDENSED FINANCIAL STATEMENTS**(Unaudited)\n\nMarch 31, 2026\n\n** **\n\n**NOTE 9 — Net Loss Per Share**\n\n \n\nThe following table sets forth the reconciliation\nof basic shares to diluted shares and the computation of basic and diluted net loss per share:\n\n \n\n \n \n \n \n \n \n \n \n\n \nThree Months Ended March 31,\n\n \n2026 \n2025\n\nNumerator:\n  \n \n\n   Net loss\n$(899,576) \n$(994,140)\n\n \n    \n   \n\n   Adjusted net loss before interest for diluted earnings per share\n$(899,576) \n$(994,140)\n\nDenominator: Weighted average shares outstanding used in computing net loss per\nshare:\n    \n   \n\n          Basic\n 8,135,728  \n 7,829,484 \n\n          Diluted\n 8,135,728  \n 7,829,484 \n\n   Net loss per share applicable to common stockholders:\n    \n   \n\n          Basic\n$(0.11) \n$(0.13)\n\n          Diluted\n$(0.11) \n$(0.13)\n\n \n\nIn the three months ended March 31, 2026, the shares\nused in computing diluted net loss per share do not include 1,296,635 stock options, 50,000 warrants and 5,161,331 shares related to convertible\nnotes payable as their effect would be anti-dilutive.\n\n \n\nIn the three months ended March 31, 2025, the shares\nused in computing diluted net loss per share do not include 1,114,698 stock options, 50,000 warrants and 3,203,906 shares related to convertible\nnotes payable as their effect would be anti-dilutive.\n\n** **\n\n**NOTE 10 — Income Taxes**\n\n \n\nThe Company did not record any income tax expense in\nQ1 2026 and Q1 2025.\n\n** **\n\n**NOTE 11 — Commitments and Contingencies**\n\n** **\n\n*Operating Lease Obligations*\n\nIn February 2022, the Company entered into a lease\nagreement for approximately 35,913 square feet at 40675 Encyclopedia Circle in Fremont, California. This location serves as the Company’s\nCorporate Headquarters, including office space and manufacturing. The current monthly rent is $54,940.\n\n \n\n 11 \n\n[Index](#Index) \n\n \n\n**SOCKET MOBILE, INC.**\n\n**NOTES TO CONDENSED FINANCIAL STATEMENTS**(Unaudited)\n\nMarch 31, 2026\n\n \n\nThe Company accounted for the lease as an operating\nlease under ASC 842 using the bank loan interest rate in effect on May 1, 2022 at 5.0% to discount future lease payments. The lease term\nexpires on July 31, 2029, with a one-time option to renew for a period of five years. The renewal period is not included in the measurement\nof the leases as the Company is not reasonably certain of exercising it.\n\n \n\nIn January 2024, the Company renewed its equipment\noperating lease agreement. The lease term expires on December 31, 2026. The Company accounted for the lease as an operating lease under\nASC 842 using the bank loan interest rate in effect on January 1, 2024 at 9.25%.\n\n \n\nThe operating lease expense under the existing agreement\nwas allocated in cost of goods sold and operating costs based on department headcount and amounted to $161,682 and $161,682 for the three-month\nperiods ended March 31, 2026 and 2025, respectively.\n\n \n\nOn March 31, 2026, the balances of right-of-use assets\nand liabilities for the operating lease were approximately $1.95 million and $2.15 million, respectively, compared to approximately $2.09\nmillion and $2.29 million, respectively, on December 31, 2025.\n\n \n\nCash payments included in the measurement of the Company’s\noperating lease liabilities were $165,891 and $161,091 for the three months ended March 31, 2026 and 2025, respectively.\n\n \n\nFuture minimum lease payments under the operating\nlease on March 31, 2026 are shown below:\n\n \n\n  \n \n \n \n\nAnnual minimum payments: \nAmount\n\n2026 (April 1 through December 31, 2026) \n 510,860 \n\n2027 \n 692,644 \n\n2028 \n 713,423 \n\n2029 \n 425,646 \n\nTotal minimum payments \n 2,342,573 \n\nLess: Present value factor \n (191,680)\n\nTotal operating lease liabilities \n 2,150,893 \n\nLess: Current portion of operating lease \n (586,322)\n\nLong-term portion of operating lease \n$1,564,571\n\n \n\n* *\n\n*Purchase Commitments*\n\nAs of March 31, 2026, the Company has non-cancelable\npurchase commitments for inventory to be used in the ordinary course of business of approximately $2,835,000.\n\n* *\n\n*Legal Matters*\n\nThe Company is subject to disputes, claims, requests\nfor indemnification and lawsuits arising in the ordinary course of business. Under the indemnification provisions of the Company’s\ncustomer agreements, the Company routinely agrees to indemnify and defend its customers against infringement of any patent, trademark,\ncopyright, trade secrets, or other intellectual property rights arising from customers’ legal use of the Company’s products\nor services. The exposure to the Company under these indemnification provisions is generally limited to the total amount paid for the\nindemnified products. However, certain indemnification provisions potentially expose the Company to losses in excess of the aggregate\namount received from the customer. To date, there have been no claims against the Company by its customers pertaining to such indemnification\nprovisions, and no amounts have been recorded. The Company is currently not a party to any material legal proceedings.\n\n \n\n 12 \n\n[Index](#Index) \n\n** **\n\n**SOCKET MOBILE, INC.**\n\n**NOTES TO CONDENSED FINANCIAL STATEMENTS**(Unaudited)\n\nMarch 31, 2026\n\n** **\n\n**NOTE 12 — Subsequent Events**\n\n** **\n\nOther than described below, the Company did not identify\nany subsequent events that would have required adjustment or disclosure in the audited financial statements.\n\n \n\nOn April 29, 2026, the Board of Directors was granted\n18,000 shares of common stock in lieu of cash. This issuance serves as partial payment of the annual cash retainer, which is typically\npaid on a quarterly basis. The shares were valued at the closing market price of $0.8668 per share.\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n 13 \n\n[Index](#Index)"}