10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2020

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	94-3155066
(State of incorporation)	(IRS Employer Identification No.)

39700 Eureka Drive, Newark, CA 94560

(Address of principal executive offices including zip code)

(510) 933-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 Par Value per Share	SCKT	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [ X ] NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ]

Smaller reporting company [X] Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

The number of shares of Common Stock ($0.001 par value) outstanding as of August 7, 2020 was 6,050,655 shares.

INDEX

	PAGE NO.
Part I.  Financial Information
Item 1.  Financial Statements (Unaudited):
Condensed Statements of Operations - Three Months and Six Months Ended June 30, 2020 and 2019	1
Condensed Balance Sheets - June 30, 2020 and December 31, 2019	2
Condensed Statements of Stockholders’ Equity - Three Months and Six Months Ended June 30, 2020 and 2019	3
Condensed Statements of Cash Flows - Six Months Ended June 30, 2020 and 2019	4
Notes to Condensed Financial Statements (Unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.  Quantitative and Qualitative Disclosures about Market Risk	20
Item 4.  Controls and Procedures	21
Part II.  Other Information
Item 1A.  Risk Factors	22
Item 6.  Exhibits	33
Signatures	34
Index to Exhibits	35

PART I

Item 1. Financial Statements

SOCKET MOBILE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
	Three Months Ended June 30,									Six Months Ended June 30,
	2020			2019			2020			2019
Revenues	$	2,715,024		$	5,060,105		$	6,935,710		$	9,688,696
Cost of revenues		1,353,498			2,430,464			3,350,469			4,659,213
Gross profit		1,361,526			2,629,641			3,585,241			5,029,483
Operating expenses:
Research and development		859,510			997,483			1,740,148			1,891,219
Sales and marketing		722,160			771,097			1,489,956			1,527,011
General and administrative		589,730			643,215			1,255,846			1,346,397
Total operating expenses		2,171,400			2,411,795			4,485,950			4,764,627
Operating income (loss)		(809,874	)		217,846			(900,709	)		264,856
Interest expense, net		(8,149	)		(29,307	)		(27,641	)		(57,808	)
Other income		50,000			—			70,000			—
Net income (loss) before income taxes		(768,023	)		188,539			(858,350	)		207,048
Income tax expense		—			(68,749	)		—			(75,419	)
Net income (loss)	$	(768,023	)	$	119,790		$	(858,350	)	$	131,629
Net income (loss) per share:
Basic	$	(0.13	)	$	0.02		$	(0.14	)	$	0.02
Diluted	$	(0.13	)	$	0.02		$	(0.14	)	$	0.02
Weighted average shares outstanding:
Basic		6,009,383			5,999,159			6,011,695			5,969,666
Diluted		6,009,383			6,271,507			6,011,695			6,203,889

See accompanying notes to condensed financial statements.

1

SOCKET MOBILE, INC. CONDENSED BALANCE SHEETS
	June 30, 2020 (Unaudited)			December 31, 2019
ASSETS
Current assets:
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
Prepaid expenses and other current assets		255,339			312,127
Deferred cost on shipments to distributors		153,793			233,823
Total current assets		6,359,936			7,520,724
Property and equipment:
Machinery and office equipment		2,271,539			2,195,405
Computer equipment		1,279,482			1,336,445
		3,551,021			3,531,850
Accumulated depreciation		(2,699,040	)		(2,667,340	)
Property and equipment, net		851,981			864,510
Goodwill		4,427,000			4,427,000
Other long-term assets		180,825			202,611
Deferred tax assets		5,506,934			5,506,934
Operating lease right-of-use assets		794,735			936,708
Total assets	$	18,121,411		$	19,458,487
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	1,831,685		$	2,084,848
Accrued payroll and related expenses		458,178			566,350
Deferred revenue on shipments to distributors		432,506			611,029
Short term portion of deferred service revenue		28,086			32,900
Bank lines of credit		450,000			1,412,449
Notes payable – current portion		578,259			333,333
Operating lease – current portion		455,928			419,288
Finance lease – current portion		—			8,291
Total current liabilities		4,234,642			5,468,488
Long-term portion of operating lease		508,328			715,062
Long-term portion of deferred service revenue		33,382			40,711
Long-term portion of notes payable		713,774			—
Total liabilities		5,490,126			6,224,261
Commitments and contingencies		—			—
Stockholders’ equity:
Common stock, $0.001 par value: Authorized – 20,000,000 shares,
Issued and outstanding – 6,009,109 shares at June 30, 2020 and 6,017,674 shares at December 31, 2019		6,009			6,018
Additional paid-in capital		61,322,389			61,066,971
Accumulated deficit		(48,697,113	)		(47,838,763	)
Total stockholders’ equity		12,631,285			13,234,226
Total liabilities and stockholders’ equity	$	18,121,411		$	19,458,487

See accompanying notes to condensed financial statements.

2

SOCKET MOBILE, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
							Additional						Total
	Common Stock						Paid-In			Accumulated			Stockholders’
	Shares			Amount			Capital			Deficit			Equity
Balance at December 31, 2019		6,017,674		$	6,018		$	61,066,971		$	(47,838,763	)	$	13,234,226
Repurchase of common stock		(4,967	)		(5	)		(8,491	)		—			(8,496	)
Cancellation of restricted stock		(3,200	)		(3	)		3			—			—
Stock-based compensation		—			—			132,065			—			132,065
Net loss		—			—			—			(90,327	)		(90,327	)
Balance at March 31, 2020		6,009,507		$	6,010		$	61,190,548		$	(47,929,090	)	$	13,267,468
Cancellation of restricted stock		(398	)		(1	)		472			—			471
Stock-based compensation		—			—			131,369			—			131,369
Net loss		—			—			—			(768,023	)		(768,023	)
Balance at June 30, 2020		6,009,109		$	6,009		$	61,322,389		$	(48,697,113	)	$	12,631,285

SOCKET MOBILE, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
						Additional						Total
					Additional						Total
	Common Stock				Paid-In			Accumulated			Stockholders’
	Shares		Amount		Capital			Deficit			Equity
Balance at December 31, 2018		5,883,109	$	5,883	$	60,523,901		$	(48,125,349	)	$	12,404,435
Restricted stock grants		116,050		116		(116	)		—			—
Stock-based compensation		—		—		121,965			—			121,965
Net income		—		—		—			11,839			11,839
Balance at March 31, 2019		5,999,159	$	5,999	$	60,645,750		$	(48,113,510	)	$	12,538,239
Stock-based compensation		—		—		137,035			—			137,035
Net income		—		—		—			119,790			119,790
Balance at June 30, 2019		5,999,159	$	5,999	$	60,782,785		$	(47,993,720	)	$	12,795,064

See accompanying notes to condensed financial statements.

3

SOCKET MOBILE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
	Six Months Ended June 30,
	2020			2019
Operating activities
Net income (loss)	$	(858,350	)	$	131,629
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation		263,434			259,000
Depreciation and amortization		290,498			217,664
Deferred tax expenses (benefits)		—			74,619
Changes in operating assets and liabilities:
Accounts receivable		1,066,894			(550,425	)
Inventories		(74,801	)		(123,005	)
Prepaid expenses and other current assets		56,788			(278,629	)
Accounts payable and accrued expenses		(253,163	)		(110,835	)
Accrued payroll and related expenses		(108,172	)		133,808
Net deferred revenue on shipments to distributors		(98,493	)		107,166
Deferred service revenue		(12,143	)		20,766
Net change in operating lease		(28,121	)		(19,099	)
Net cash provided by (used in) operating activities		244,371			(137,341	)
Investing activities
Purchases of equipment		(256,183	)		(187,458	)
Net cash used in investing activities		(256,183	)		(187,458	)
Financing activities
Payments on finance leases		(8,291	)		(7,680	)
Common stock repurchase and related expenses		(8,025	)		—
Proceeds from borrowings under bank line of credit agreement		4,630,000			8,754,000
Repayments of borrowings under bank line of credit agreement		(5,592,449	)		(8,240,804	)
Repayments of bank term loan		(250,000	)		(250,000	)
Proceeds from notes payable		1,208,700			—
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 beginning of period		958,860			1,084,991
Cash and cash equivalents at end of period	$	926,983		$	1,015,708
Supplemental disclosure of cash flow information
Cash paid for interest	$	30,640		$	54,528

See accompanying notes to condensed financial statements.

4

SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2020

NOTE 1 — Basis of Presentation

The accompanying unaudited condensed financial statements of Socket Mobile, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals considered necessary for fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future period. These financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

NOTE 2 — Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements.

Cash Equivalents and Fair Value of Financial Instruments

The Company considers all highly liquid investments purchased with a maturity date of 90 days or less at date of purchase to be cash equivalents. At June 30, 2020 and December 31, 2019, all of the Company’s cash and cash equivalents consisted of amounts held in demand deposit accounts in banks. The aggregate cash balance on deposit in these accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance on deposit in these accounts may, at times, exceed the federally insured limits. The Company has never experienced any losses in such accounts.

The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, debt and foreign exchange contracts approximate fair value due to the relatively short period of time to maturity.

Revenue Recognition and Deferred Revenue

On January 1, 2017, the Company adopted ASC 606 “Revenue from Contracts with Customers” and implemented a new revenue recognition policy. Instead of deferring 100% of revenue and cost of revenue until products are sold by distributors, the new policy recognizes revenue on sales to distributors when shipping of product is completed and title transfers to the distributor, less a reserve for estimated product returns (sales and cost of sales). The reserves are based on estimates of future returns calculated from actual return history, primarily from stock rotations, plus knowledge of pending returns outside of the norm. At June 30, 2020, the deferred revenue and deferred cost on shipments to distributors were $432,506 and $153,793, respectively, compared to $611,029 and $233,823, respectively, at December 31, 2019.

5

SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2020

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to recognize a liability representing future lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For operating leases, a lessee is required to recognize at inception a right-of-use asset and a lease liability equal to the net present value of the lease payments, with lease expense recognized over the lease term on a straight-line basis. For leases with a term of twelve months or less, ASU 2016-02 allows a reporting entity to make an accounting policy election to not recognize a right-of-use asset and a lease liability, and to recognize lease expense on a straight-line basis. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company adopted ASU 2016-02 effective January 1, 2019, which had no impact on the Company’s Statements of Operations. The most significant impact was the recognition of right-of-use assets and liabilities for the office space lease.

Recently Issued Financial Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequent amendments to the initial guidance: ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, ASU 2019-05 “Financial Instruments-Credit Losses”, ASU 2019-11 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (collectively, “Topic 326”) and ASU 2020-02 Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842). The effective date of Topic 326 for public filers that are considered small reporting companies ("SRC") as defined by the Securities and Exchange Commission for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 on the Company's financial statements and disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU is effective as of March 12, 2020 through December 31, 2022. The Company doesn’t expect the ASU will have an impact on its financial statements.

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position, results of operations or cash flows upon adoption.

6

SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2020

NOTE 3 — Inventories

Inventories consist principally of raw materials and sub-assemblies, which are stated at the lower of cost (first-in, first-out) or market. Inventories at June 30, 2020 and December 31, 2019 were as follows:

	June 30,			December 31,
	2020			2019
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

Sixth Financing Agreement

On June 14, 2019, the Company entered into the Sixth Amended and Restated Business Financing Agreement with the Bank. The Bank waived the default which occurred for the month ended April 30, 2019 when the Company’s Asset Coverage Ratio was 1.13 to 1.00, instead of the required 1.25 to 1.00. The Bank also increased the Eligible Receivable threshold for Ingram Micro from 50% to 60% of domestic receivables, and from 35% to 50% of all receivables (including both domestic and foreign receivables).

Seventh Financing Agreement

On January 8, 2020, the Company entered into the Seventh Amended and Restated Business Financing Agreement with the Bank which extends the maturity date of the Company’s revolving line of credit to January 31, 2022.

The Asset Coverage Ratio was 1.5 to 1.0 on June 30, 2020. During the six months ended June 30, 2020, total repayments of the term loan was $250,000. Total amount borrowed under the domestic and international lines was $4,630,000 and the total repayments was $5,592,449. At June 30, 2020, the available borrowing capacity was approximately $687,000. Amounts outstanding under the term loan and bank credit facilities at June 30, 2020 are as follows:

	June 30, 2020
Long-term portion of term loan		—
Current-portion of term loan		83,333
Term loan	$	83,333

7

SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2020

	June 30, 2020
Lines of credit -domestic line		450,000
Lines of credit -EXIM line		—
Total lines of credit	$	450,000

Interest expense on the term loan for three and six months ended June 30, 2020 was $1,896 and $5,922, respectively. Interest expense on the amounts drawn under the Company’s bank credit lines during the three and six months ended June 30, 2020 was $3,783 and $19,384. Accrued interest payable related to the amounts outstanding under the term loan and bank credit facilities at June 30, 2020 was $9,360.

NOTE 5 — Term loans

PPP Loan

On April 20, 2020, the Company received $1,058,700 of loan proceeds under the Paycheck Protection Program (“PPP”) which was established as part of the Coronavirus Aid, Relief, and Economic Act (“CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The application for these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to take into account the current business activity and the ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria. The loan has a fixed interest rate of 1% and matures in two years. Payments of principal and interest are deferred for a period of six months from the date on which the PPP loan is distributed. As of June 30, 2020, pursuant to the existing loan agreement, all of the payments expected between July 1, 2020 and June 30, 2021, or $494,926, are classified as the current portion of the note payable and the remaining balance $563,774 is classified as the long-term note payable.

The PPP loan was primarily used to cover payroll costs, rent, and utility costs during the 8-week period from April 20^th through June 12^th. Pursuant to the CARES Act and implementing rules and regulations, the Company will apply to its bank, Western Alliance for the PPP loan to be forgiven in part as soon as SBA has its forgiveness process prepared. The Company has used the proceeds of the PPP loan for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, the Company cannot assure that it will be eligible for forgiveness of the loan. Any PPP loan balance remaining following forgiveness by the SBA will be fully re-amortized over the remaining term of the loan.

8

SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2020

Economic Injury Disaster Loan (EIDL)

On June 26, 2020, the Company executed the standard loan documents required for a securing loan of $150,000 offered by the U.S. Small Business Administration under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. Proceeds of the EIDL are being used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue from the date of inception. Installment payments, including principal and interest, are due monthly beginning June 26, 2021 (twelve months from the date of the EIDL) in the amount of $731. The balance of principal and interest is payable 30 years from the date of the EIDL. The EIDL is secured by a security interest on all of the Company’s assets. An immaterial amount of interest expense related to the loan during the three months ended June 30, 2020 was recognized.

On June 23, 2020, the Company received $10,000 from US Small Business Administration as part of Economic Injury Disaster Loan (“EIDL”). This was a grant and does not need to be repaid. The Company recorded it as other income in Q2.

NOTE 6 — Segment Information and Concentrations

Segment Information

The Company operates in the mobile barcode scanning and RFID/NFC data capture market. Mobile scanning typically consists of mobile devices such as smartphones or tablets, with mobile scanning or NFC peripherals for data collection, and third-party vertical applications software. The Company distributes its products in the United States and foreign countries primarily through distributors, resellers, and online. The Company markets its products primarily through application developers whose applications are designed to work with Company’s products.

Revenues for the geographic areas for three months ended June 30, 2020 and 2019 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenues:
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

Export revenues are attributable to countries based on the location of the Company’s customers. The Company does not hold long-lived assets in foreign locations.

9

SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2020

Major Customers

Customers who accounted for at least 10% of the Company’s total revenues for the three and six months ended June 30, 2020 and 2019 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Ingram Micro Inc.		29	%		41	%		33	%		42	%
BlueStar, Inc.		25	%		18	%		20	%		19	%
ScanSource, Inc.		14	%		*			10	%		*

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk include cash, cash equivalents and accounts receivable. The Company invests its cash in demand deposit accounts in banks. To date, the Company has not experienced losses on the investments. The Company’s trade accounts receivables are primarily with distributors. The Company performs ongoing credit evaluations of its customers’ financial condition but generally requires no collateral. Reserves are maintained for potential credit losses, and such losses have been within management’s expectations. Customers who accounted for at least 10% of the Company’s accounts receivable balances at June 30, 2020 and December 31, 2019 were as follows:

	June 30,			December 31,
	2020			2019
Ingram Micro Inc.		31	%		49	%
BlueStar, Inc.		32	%		26	%
ScanSource, Inc.		21	%		*
*Customer accounted for less than 10% of the Company’s accounts receivable balances

Concentration of Suppliers

Several of the Company’s component parts are produced by a sole or limited number of suppliers. Shortages could occur in these essential materials due to increased demand, or to an interruption of supply. Suppliers may choose to restrict credit terms or require advance payments causing delays in the procurement of essential materials. If the Company were unable to procure certain of such materials, it could have a material adverse effect upon its results. At June 30, 2020, 38% of the Company’s accounts payable balances was concentrated in the top supplier. For the three months ended June 30, 2020, the top two suppliers accounted for 54% of the inventory purchases.

10

SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2020

NOTE 7 — Stock-Based Compensation

The Company recognizes the compensation cost in the financial statements for all stock-based awards to employees, including grants of stock options and restricted stocks, based on the fair value of the awards as of the date that the awards are issued. Compensation cost for stock-based awards is recognized on a straight-line basis over the vesting period.

The fair values of stock options are generally determined using a binomial lattice valuation model which incorporates assumptions about expected volatility, risk-free interest rate, dividend yield, and expected life. There were 37,000 stock options granted for the six months ended June 30, 2020, compared to 165,600 shares granted to executive officers, selected employees and consultants for the six months ended June 30, 2019.

The restricted stocks are issued to employees and consultants and are held in escrow by the Company until the shares vest on the schedule of 15% after year one, 20% after year two, 25% after year three and 40% after year four, subject to the employees and consultants being a continuing service provider on the vesting dates. If the service or employment is terminated, unvested shares revert to the Company. Shares are registered at grant, so share owners may vote at the annual stockholder meeting. Restricted stocks are granted at zero cost basis. Compensation cost of the restricted stocks is recognized on a straight-line basis over the 4-year vesting period. For the six months ended June 30, 2020 and 2019, the Company awarded 293,000 and 116,050 shares of restricted stock, respectively, leaving a balance of 394,506 shares of restricted stock as of June 30, 2020. Due to the existence of restrictions on sale or transfer until the stocks vest, the Company does not count the restricted stocks as issued and outstanding shares until they vest.

Total stock-based compensation expense for the three and six months ended June 30, 2020 and 2019, was $131,369 and $263,434, respectively.

NOTE 8 — Net Income (Loss) Per Share Applicable to Common Stockholders

The following table sets forth the reconciliation of basic shares to diluted shares and the computation of basic and diluted net income (loss) per share:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
Numerator:
Net income (loss)	$	(768,023	)	$	119,790	$	(858,350	)	$	131,629
Denominator:
Weighted average shares outstanding used in computing net income (loss) per share:
Basic		6,009,383			5,999,159		6,011,670			5,969,666
Effect of dilutive stock options		—			272,348		—			234,223
Diluted		6,009,383			6,271,507		6,011,670			6,203,889
Net income (loss) per share applicable to common stockholders:
Basic	$	(0.13	)	$	0.02	$	(0.14	)	$	0.02
Diluted	$	(0.13	)	$	0.02	$	(0.14	)	$	0.02

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SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2020

In the three and six months ended June 30, 2020, 2,259,937 stock options and 394,506 restricted stocks were excluded in the calculation of diluted net loss per share because their effect would be anti-dilutive. In the three and six months ended June 30, 2019, 2,185,351 and 2,223,476, respectively, stock options were excluded in the calculation of diluted net loss per share because their effect would be anti-dilutive. 

NOTE 9 — Taxes

The Company recorded no deferred tax benefit for the losses in the three and six months ended June 30, 2020. In the three and six months ended June 30, 2019, the Company recorded deferred tax expenses of $68,749 and $75,419, respectively.

NOTE 10 — Commitments and Contingencies

Operating Leases

The Company adopted ASU 2016-02, Leases (Topic 842) effective January 1, 2019 and restated its reported results in January 2018, including the recognition of additional operating lease right-of-use assets and liabilities. On January 1, 2018, the Company recorded operating lease right-of-use assets and operating lease liabilities in the amount of approximately $1.57 million and $1.85 million, respectively.

The Company leases office space under a non-cancelable operating lease that provides the Company approximately 37,100 square feet in Newark, California. The lease agreement expires on June 30, 2022. Monthly base rent increases four percent per year annually on July 1^st of each year. We recognize operating lease expense on a straight-line basis over the lease term. The operating lease expense was $103,208 and $206,416 for the three and six-month periods ended June 30, 2020 and 2019, respectively. 

In June 2020, the Company signed a new two-year equipment lease agreement. The Company will pay $1,519 in monthly installments starting in September of 2020 through June 2022. On June 30, 2020, the balances of right-of-use assets and liabilities for the operating leases were approximately $0.79 million and $0.96 million, respectively, compared to approximately $0.94 million, and $1.13 million, respectively, at December 31, 2019.

Cash payments included in the measurement of our operating lease liabilities were $117,268 and $234,537 for the three- and six-month periods ended June 30, 2020, respectively, compared to $112,758 and $225,516, respectively, for the same periods a year ago.

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SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2020

Future minimum lease payments under the operating leases of the office and copier at June 30, 2020 are shown below:

Annual minimum payments:	Amount
2020 (July 1, 2020 to December 31, 2020)	$	249,994
2021		515,822
2022		262,789
Total minimum payments		1,028,605
Less: Present value factor		(64,349	)
Total operating lease liabilities		964,256
Less: Current portion of operating lease		(455,928	)
Long-term portion of operating lease	$	508,328

Finance Leases

The new standard, ASU 2016-02 classifies lessee leases into two types, operating and finance. The Company leases certain of its equipment under finance leases. The leases are collateralized by the underlying assets. At June 30, 2020, the Company has no equipment subject to financing arrangement, compared to equipment with a cost of $100,584 at December 31, 2019. The accumulated depreciation of the assets associated with the finance leases as of June 30, 2020 and December 31, 2019, amounted to zero and $92,571 respectively.

Purchase Commitments

As of June 30, 2020, the Company has non-cancelable purchase commitments for inventory to be used in the ordinary course of business of approximately $3,651,000.

Legal Matters

The Company is subject to disputes, claims, requests for indemnification and lawsuits arising in the ordinary course of business. Under the indemnification provisions of the Company’s customer agreements, the Company routinely agrees to indemnify and defend its customers against infringement of any patent, trademark, copyright, trade secrets, or other intellectual property rights arising from customers’ legal use of the Company’s products or services. The exposure to the Company under these indemnification provisions is generally limited to the total amount paid for the indemnified products. However, certain indemnification provisions potentially expose the Company to losses in excess of the aggregate amount received from the customer. To date, there have been no claims against the Company by its customers pertaining to such indemnification provisions, and no amounts have been recorded. The Company is currently not a party to any material legal proceedings.

NOTE 11 — Subsequent Events

As of August 7, 2020, 5,000 restricted stocks at the price of $1.49 per share have been granted from the 2004 Equity Incentive Plan subsequent to June 30, 2020.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements forecasting our future financial condition and results, our future operating activities, market acceptance of our products, expectations for general market growth of mobile computing devices, growth in demand for our data capture products, expansion of the markets that we serve, expansion of the distribution channels for our products, and the timing of the introduction and availability of new products, as well as other forecasts discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Words such as “may,” “will,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements are based on current expectations, estimates, and projections about our industry, management’s beliefs, and assumptions made by management. These forward-looking statements are no guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward looking statements. Factors that could cause actual results and outcomes to differ materially include, but are not limited to: volatility in the world economy generally and in the markets we serve in particular; the risk of delays in the availability of our products due to technological, market or financial factors including the availability of product components and necessary working capital; our ability to successfully develop, introduce and market future products; our ability to effectively manage and contain our operating costs; the availability of third-party hardware and software that our products are intended to work with; product delays associated with new model introductions and product changeovers by the makers of products that our products are intended to work with; continued growth in demand for barcode scanners; market acceptance of emerging standards such as RFID/Near Field Communications and of our related data capture products; the ability of our strategic relationships to benefit our business as expected; our ability to enter into additional distribution relationships; or other factors described in this Form 10-Q including “Item 1A. Risk Factors” and recent Form 8-K and Form 10-K reports filed with the Securities and Exchange Commission. We assume no obligation to update such forward-looking statements or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.

You should read the following discussion in conjunction with the interim condensed financial statements and notes included elsewhere in this report, the Company’s annual financial statements in form 10-K, and other information contained in other reports and documents filed from time to time with the Securities and Exchange Commission.

The Company and its products

We are a leading innovator of data capture and delivery solutions for enhanced productivity in workforce mobilization. Our products are incorporated into mobile applications used in point of sale (POS), commercial services (field workers), asset tracking, manufacturing process and quality control, transportation and logistics (goods tracking and movement), event management (ticketing, entry, access control, and identification), medical and education. Our primary products are cordless data capture devices incorporating barcode scanning or RFID/Near Field Communications (NFC) technologies that connect over Bluetooth. All products work with applications running on smartphones, mobile computers and tablets using operating systems from Apple® (iOS), Google™ (Android™) and Microsoft® (Windows®). We offer an easy-to-use software developer kit (Capture SDK) to application developers, which enables them to provide their users with our advanced barcode scanning and RFID/NFC features. Our products are integrated in their application solutions and are marketed by the application developers or the resellers of their applications. The number of our registered developers for data capture applications continues to grow.

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Standard companion cordless barcode scanners. Our SocketScan® 700 Series include 1D linear imaging (S700), 1D laser (S730) and 2D (S740) barcode scanners, available in five vivid colors: blue, green, red, white and yellow. S740 reads all common 1D, stacked, 2D and postal codes.

Durable companion cordless barcode scanners. Our DuraScan® 700 Series Linear Barcode Scanner (D700), Laser Barcode Scanner (D730) and Universal Barcode Scanner (D740, D750, D760), are designed to be durable barcode scanners with IP54-rated outer casing to withstand tougher environments. Universal Barcode Scanners (D740, D750, D760) read all common 1D, stacked, 2D and postal codes. D740 is priced competitively with a 1D barcode scanner, making D740 the affordable 2D option available in the market. D760 includes MRZ (machine-readable zone) support, making it capable of scanning passports, visas, and other travel documents. In July, we announced a new medical-grade, universal scanner, the D755, which was designed and built for healthcare environment.

DuraSled and Attachable cordless barcode scanners. Our SocketScan 800 Series cordless barcode scanners, 1D linear imaging (S800) and 2D (S840, S860) are attachable to smartphones, tablets and other mobile devices with an easily detachable clip or DuraCase, creating a one-handed solution. DuraCase models support iPhone 6/7/8, iPhone 6/7/8 Plus, iPod touch, Samsung J3/J5 and Samsung S7. New DuraCase models are introduced from time to time as new mobile phones are released. S860 includes MRZ (machine-readable zone) support, making it capable of scanning passports, visas, and other travel documents in addition to barcodes. SocketScan 800 Series scanners may be used stand-alone as well.

In 2019, we expanded our product line with a new family of products; DuraSled for the iPhone models 6,7,8, X and 11. The DuraSled combines the iPhone and a scanner to make a single-handed solution. The DuraSled both protects the phones from impact damage and provides a robust charging solution for all environments. The DuraSled is easy-to-use and ideal for delivery services, stock counting, ticketing and other application-driven, mobile solutions. In July 2020, we announced DuraSled compatibility for the Samsung XCover Pro. There are two versions of the XCover Pro DuraSled: the DS800 XCover Pro for 1D barcode scanning and the DS840 XCover Pro for 1D and 2D barcode scanning, respectively.

Contactless RFID/NFC reader writer. Our contactless product line includes the D600 Contactless Reader/Writer and the S550 Contactless Membership Card Reader/Writer. The D600, an ergonomically handheld model with IP54-rated outer casing, can read and write many different types of electronic SmartTags or transfer data with near field communication. The S550 enables us to expand our business into the emerging market for tap-and-go solutions that have traditionally been limited to payment solutions, such as Apple Pay, but can now be used for ticketing, access and identification applications. S550 is currently available for the developers.

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Software Developer Kit (Capture SDK). Our Software Developer Kit (Capture SDK) supports all our data capture devices with a single installation, making it easy for a developer to integrate our data capture capabilities into their application. With the installation of our data capture software, the developers’ customers can choose any of our products that work best for them. Our Capture SDK enables the developer to modify captured data, control the placement of the barcoded or RFID data in their application, and control the feedback to the user that the transaction and transmission was successfully completed. Our Capture SDK also supports the built-in camera in a customer’s smartphone or tablet to be used for occasional or lower volume data collection requirements. The Capture SDK uses tools integrated with software build environments such as CocoaPods, Maven and NuGet, adds support for high level frameworks such as Xamarin, Cordova and Java, and adds other features to make it easier for developers to integrate our data capture software into their applications.

We design our own products and are responsible for all associated test equipment. We use third party contract manufacturers to make many components. We perform final product assembly, test, package and distribute our products at and from our Newark, California facility. We offer our products worldwide through two-tier distribution enabling customers to purchase from large numbers of on-line resellers around the world including application developers who resell their own solutions along with our data capture products. We believe growth in mobile applications and the mobile workforce are resulting from technical advances in mobile technologies, cost reductions in mobile devices and the growing adoption by businesses of mobile applications for smartphones and tablets, building a growing demand for our products. Our data capture products address the need for speed and accuracy by today’s mobile workers and by the systems supporting those workers, thereby enhancing their productivity and allowing them to exploit time sensitive opportunities and improve customer satisfaction.

Revenues

Total revenues for the three and six months ended June 30, 2020 were approximately $2.7 million and $6.9 million, respectively, a decrease of 46% and 28%, respectively, from revenues of $5.1 million and $9.7 million, respectively, in the comparable periods one year ago.  The decrease for the three and six months ended June 30, 2020 was primarily due to lower sales as a result of COVID-19.

Cost of Sales and Gross Margins

 Cost of sales primarily consists of the costs to manufacture our products, including the costs of materials, contract manufacturing, shipping costs, personnel and related expenses including stock-based compensation, equipment and facility expenses, warranty costs and inventory excess and obsolete provisions.

The factors that impact our gross margins are the cost of materials, the mix of products and the extent to which we are able to efficiently utilize our manufacturing capacity. Our gross margins on sales for the three and six-month periods ended June 30, 2020 were 50% and 52%, respectively, compared to gross margins of 52% for the corresponding periods a year ago.

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Research and Development Expense

Research and development expenses consist of the personnel and related expenses including stock-based compensation of our research and development teams, and materials and supplies, consulting services, third party testing services and equipment and facility expenses related to our research and development activities. All research and development costs are expensed as incurred. 

Research and development expense in the three and six months ended June 30, 2020 were approximately $860,000 and $1,741,000, a decrease of 14% and 8% compared to expenses of approximately $997,000 and $1,891,000 in the corresponding periods a year ago. Decreases in the level of research and development expense was primarily due to a reduction in employee compensation, a short-term cost saving initiative implemented by the Company to cope with COVID-19 impacts.

Sales and Marketing Expense

Sales and marketing expenses consist primarily of salaries and stock-based compensation for our sales and marketing personnel, fees for sales consultants, fees for professional services, marketing programs, advertising costs and travel expenses.

Sales and marketing expense in the three and six months ended June 30, 2020 were approximately $722,000 and $1,490,000, a decrease of 6% and 2% compared to the expense of approximately $771,000 and $1,527,000 in the corresponding periods a year ago.  The decrease was primarily due to a reduction in employee compensation, a short-term cost saving initiative implemented by the Company to cope with COVID-19 impacts.

General and Administrative Expense

General and administrative expenses consist primarily of general corporate costs, including personnel expenses, financial reporting, corporate governance and compliance and outside legal, audit and tax fees.

General and administrative expense in the three and six months ended June 30, 2020 were approximately $589,000 and $1,256,000, a decrease of 8% and 7% compared to the expense of approximately $643,000 and $1,346,000 in the corresponding periods a year ago. The decrease was primarily due to a reduction in employee compensation, a short-term cost saving initiative implemented by the Company to cope with COVID-19 impacts.

Interest Expense, Net of Interest Income

Interest expense, net of interest income, in the three and six months ended June 30, 2020 was approximately $8,100 and $27,600, respectively, compared to approximately $29,300 and $57,800, respectively, in the same periods one year ago. Interest expense in 2020 was primarily related to interest on bank term loan and credit line facilities (see “NOTE 4 — Bank Financing Arrangements” for more information). Average outstanding balance of bank term loan and credit lines during Q2 2020 was $0.42 million. Interest expense in 2019 was also primarily related to interest on bank term loan and credit line facilities. Average outstanding balance of bank term loan and credit lines during the Q2 2019 was $1.69 million.

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Interest income reflects interest earned on cash balances. Interest income was nominal in each of the comparable first quarters, reflecting low average cash balances combined with low average rates of return.

Income Taxes

The Tax Cuts and Jobs Act of 2017, effective on January 1, 2018, eliminates alternative minimum taxes and lowers the U.S. federal corporate income tax rate from 34% to 21%. California corporate net income tax rate is 6.98% after allowing for federal deductibility.

We didn’t record deferred tax benefit for the loss in the three and six months ended June 30, 2020. Our deferred tax asset, primarily representing future income tax savings from the application of net operating loss carry forwards, was valued at approximately $5,506,000 at June 30, 2020.

In the first six months of 2019, our stock-based compensation of $259,000 is the primary permanent difference between financial and tax expense which increased our taxable income. We estimated our federal and state effective tax rate to be 36% in 2019. In the three and six months ended June 30, 2019, we recorded a deferred tax expense of approximately $69,000 and $75,400, respectively, with the expectation of a return to profitable operating results and full utilization of our net operating loss carryforwards

 We have determined that utilization of existing net operating losses against future taxable income is not limited by Section 382 of the Internal Revenue Code. Future ownership changes, however, may limit our ability to fully utilize the existing net operating loss carryforwards against any future taxable income. We will continue to monitor the likelihood to realize the value of deferred tax assets in the future.

Liquidity and Capital Resources

As reflected in our Statements of Cash Flows, net cash provided by operating activities was approximately $244,000 in the first half of 2020, compared to net cash used in operating activities of approximately $137,000 in the comparable period a year ago. We calculate net cash used in or provided by operating activities by decreasing our net loss (approximately $858,000 in the first half of 2020) or increasing our net income (approximately $132,000 in the first half of 2019) by the expenses, such as stock-based compensation expense, depreciation, and deferred tax expense, that did not require the use of cash. These amounts totaled approximately $554,000 and $551,000 in the first half of 2020 and 2019, respectively. In addition, we report increases in assets and reductions in liabilities as uses of cash and decreases in assets and increases in liabilities as sources of cash, together referred to as changes in operating assets and liabilities.

In the first half of 2020, changes in operating assets and liabilities resulted in net cash provided by operating activities of approximately $549,000 which was primarily due to decreases in accounts receivable driven by the lower shipments in Q2 2020. In the first six months of 2019, changes in operating assets and liabilities resulted in a net use of cash of $820,000 which was primarily due to increases in accounts receivable driven by the higher shipments in the second half of Q2 2019, the buildup of inventories to accommodate rising sales, and prepayments for insurance policies and inventories.

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In the first half of 2020 and 2019, we invested approximately $256,000 and $187,000, respectively, in manufacturing tooling costs and computer software development costs.

Net cash used in financing activities was approximately $20,000 in the first half of 2020, compared to net cash provided by financing activities of approximately $256,000 in the comparable period a year ago. Financing activities in the first half of 2020 consisted of proceeds of a loan of $1.06 million under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and a loan of $150,000 from the SBA under its Economic Injury Disaster (“EIDL”) assistance program, offset by repayments of borrowings under our bank lines of credit and by $250,000 repayment on our term loan. Financing activities in the first half of 2019 consisted primarily of approximately $513,000 borrowed on our bank lines of credit, partially offset by $250,000 repayment on our term loan.

Contractual Obligations

Our contractual cash obligations at June 30, 2020 are outlined in the table below:

			Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 to 3 years		4 to 5 years		More than 5 years
Unconditional purchase obligations with contract manufacturers	$	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

As of June 30, 2020, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our bank term loan and credit line facilities. Amounts outstanding under the term loan bear interest at lender's prime rate (minimum of 4.25%) plus 1.75%. Our bank credit line facilities of up to $2.5 million have variable interest rates based upon the lender's prime rate (minimum of 4.25%) plus 0.75%, for both the domestic line (up to $2.0 million) and the international line (up to $0.5 million). Accordingly, interest rate increases could increase our interest expense on outstanding term loan and credit line balances. Based on a sensitivity analysis during the three months ended June 30, 2020, an increase of 1% in the interest rate would have increased our second quarter borrowing costs by approximately $1,061.

Foreign Currency Risk

A substantial majority of our revenue, expense and purchasing activities are transacted in U.S. dollars. However, we require our European distributors to purchase our products in Euros and we pay the expenses of our European employees in Euros and British pounds. We may enter into selected future purchase commitments with foreign suppliers that may be paid in the local currency of the supplier. We hedge a significant portion of our European receivables balance denominated in Euros to reduce the foreign currency risk associated with these assets, and we have not been subject to significant losses from material foreign currency fluctuations. Based on a sensitivity analysis of our net foreign currency denominated assets at the end of the quarter ended June 30, 2020, an adverse change of 10% in exchange rates would have resulted in a decrease in our net income for the first quarter of 2020 of approximately $9,000 if left unprotected. For the second quarter of 2020, the total net adjustment for the effects of changes in foreign currency on cash balances, collections, payables, and derivatives used to hedge foreign currency risks, was a net loss of $5,580. We will continue to monitor, assess, and mitigate through hedging activities, our risks related to foreign currency fluctuations.

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Item 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by the last fiscal quarter ended June 30, 2020 and this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1A. Risk Factors

The risks described in this Quarterly Report on Form 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results.

Global economic conditions may have a negative impact on our business and financial condition in ways that we currently cannot predict and may further limit our ability to raise additional funds.

Global economic conditions may have an impact on our business and our financial condition. We may face significant challenges if global economic growth slows down and conditions in the financial markets worsen. The current COVID-19 pandemic has reduced our sales due to worldwide curtailment of business activities to slow down the spread of the coronavirus. The future developments and the impact of COVID-19 on our business are highly uncertain and cannot be predicted. If the overall economy is impacted for an extended period, our results of operations, financial position and cash flows may be materially adversely affected. We are not able to estimate the duration of the pandemic and potential impact on the business if disruptions or delays in business developments and shipments of product occur. In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including weakened our ability to develop potential businesses and a decreased ability to raise additional capital when needed on acceptable terms, if at all. As the situation continues to evolve, we will continue to closely monitor market conditions and respond accordingly.

We may not return to profitability.

To return to profitability, we must accomplish numerous objectives, including continued growth in our business, ongoing support to registered developers whose applications support the use of our data capture products, and the development of successful new products. We cannot foresee with any certainty whether we will be able to achieve these objectives in the future. Accordingly, we may not generate sufficient revenue or control our expenses to maintain ongoing profitability. If we cannot maintain ongoing profitability, we will not be able to support our operations from positive cash flows, and we would use our existing cash to support operating losses. If we are unable to secure the necessary capital to replace that cash, we may need to suspend some or all of our current operations.

We may require additional capital in the future, but that capital may not be available on reasonable terms, if at all, or on terms that would not cause substantial dilution to investors’ stock holdings.

We may need to raise capital to fund our growth or operating losses in future periods. Our forecasts are highly dependent on factors beyond our control, including market acceptance of our products and delays in deployments by businesses of applications that use our data capture products. Even if we maintain profitable operating levels, we may need to raise capital to provide sufficient working capital to fund our growth. If capital requirements vary materially from those currently planned, we may require additional capital sooner than expected. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us, if at all.

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If application developers are not successful in their efforts to develop, market and sell their applications into which our software and products are incorporated, we may not achieve our sales projections.

We are dependent upon application developers to integrate our scanning and software products into their applications designed for mobile workers using smartphones, tablets and mobile computers, and to successfully market and sell those application products and solutions into the marketplace. We focus on serving the needs of application developers as sales of our data capture products are application driven. However, these developers may take considerable time to complete development of their applications, may experience delays in their development timelines, may develop competing applications, may be unsuccessful in marketing and selling their application products and solutions to customers, or may experience delays in customer deployments and implementations, which would adversely affect our ability to achieve our revenue projections.

Failure to maintain effective internal controls could have a material adverse effect on our business, operating results and stock price.

We have evaluated and will continue to evaluate our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires an annual management assessment of the design and effectiveness of our internal control over financial reporting. If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition and access to assets, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.

Despite security protections, our business records and information could be hacked by unauthorized personnel

We protect our business records and information from access by unauthorized personnel and are not aware of any instances where such data has been compromised. We maintain adequate segregation of duties in safeguarding our assets and related records and monitor our systems to detect any attempts to bypass our controls and procedures which we evaluate and update from time to time. We are aware that unauthorized efforts to access our business records and information with sophisticated tools could bypass our controls and procedures and we remain alert to that possibility.

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Our quarterly operating results may fluctuate in future periods, which could cause our stock price to decline.

We expect to experience quarterly fluctuations in operating results in the future. We generally ship orders as received, and as a result we may have little backlog. Quarterly revenues and operating results therefore depend on the volume and timing of orders received during the quarter, which are difficult to forecast. Historically, we have often recognized a substantial portion of our revenue in the last month of the quarter. This subjects us to the risk that even modest delays in orders or in the manufacture of products relating to orders received, may adversely affect our quarterly operating results. Our operating results may also fluctuate due to factors such as:

• the demand for our products;

• the size and timing of customer orders;

• unanticipated delays or problems in our introduction of new products and product enhancements;

• the introduction of new products and product enhancements by our competitors;

• the timing of the introduction and deployments of new applications that work with our products;

• changes in the revenues attributable to royalties and engineering development services;

• product mix;

• timing of software enhancements;

• changes in the level of operating expenses;

• competitive conditions in the industry including competitive pressures resulting in lower average selling prices;

• timing of distributors’ shipments to their customers;

• delays in supplies of key components used in the manufacturing of our products; and

• general economic conditions and conditions specific to our customers’ industries.

Because we base our staffing and other operating expenses on anticipated revenues, unanticipated declines or delays in the receipt of orders can cause significant variations in operating results from quarter to quarter. As a result of any of the foregoing factors, or a combination, our results of operations in any given quarter may be below the expectations of public market analysts or investors, in which case the market price of our common stock would be adversely affected.

In order to maintain the availability of our bank lines of credit we must remain in compliance with the covenants as specified under the terms of the credit agreements and the bank may exercise discretion in making advances to us.

Our credit agreements with our bank requires us to maintain compliance with an asset coverage ratio of no less than 1.25 to 1.0, measured monthly. The agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, grant liens, make investments, incur indebtedness, merge or consolidate, dispose of assets, make acquisitions, pay dividends or make distributions, repurchase stock, enter into transactions with affiliates and enter into restrictive agreements, in each case subject to customary exceptions for a credit facility of this size and type. The agreement also contains customary events of default including, among others, payment defaults, breaches of covenants, bankruptcy and insolvency events, cross defaults with certain material indebtedness, judgment defaults, and breaches of representations and warranties. Upon an event of default, our bank may declare all or a portion of our outstanding obligations payable to be immediately due and payable and exercise other rights and remedies provided for under the agreement. During the existence of an event of default, interest on the obligations could be increased. The agreement may be terminated by us or by our bank at any time. Upon such termination, our bank would no longer make advances under the credit agreement and outstanding advances would be repaid as receivables are collected. All advances are at our bank’s discretion and our bank is not obligated to make advances.

24

Deferred tax assets comprise a significant portion of our assets and are dependent upon future tax profitability to realize the benefits.

We have recorded deferred tax assets on our balance sheet because we believe that it is more likely than not that we will generate sufficient tax profitability in the future to realize the tax savings our deferred tax assets represent. If we do not achieve and maintain sufficient profitability, the tax savings represented by our deferred tax assets may never be realized and we would need to recognize a loss for those deferred tax assets.

Goodwill comprises a significant portion of our assets and may be subject to impairment write-downs in future periods which would substantially increase our losses, make it more difficult to achieve profitability, and could cause our stock price to decline.

We review our goodwill for impairment at least annually as of September 30th, and more often if factors suggest potential impairment. Many factors are considered in evaluating goodwill including our market capitalization, comparable companies within our industry, our estimates of our future performance, and discounted cash flow analysis. Many of these factors are highly subjective and may be negatively impacted by our financial results and market conditions in the future. We may incur goodwill impairment charges in the future and any future write-downs of our goodwill would adversely affect our operating results, make it more difficult to maintain profitability, and as a result the market price of our common stock could be adversely affected.

We may be unable to manufacture our products because we are dependent on a limited number of qualified suppliers for our components.

Several of our component parts are produced by one or a limited number of suppliers. Shortages or delays could occur in these essential components due to an interruption of supply or increased demand in the industry. Suppliers may choose to restrict credit terms or require advance payment causing delays in the procurement of essential materials. If we are unable to procure certain component parts, we could be required to reduce our operations while we seek alternative sources for these components, which could have a material adverse effect on our financial results. To the extent that we acquire extra inventory stocks to protect against possible shortages, we would be exposed to additional risks associated with holding inventory, such as obsolescence, excess quantities, or loss.

25

If we fail to develop and introduce new products rapidly and successfully, we will not be able to compete effectively, and our ability to generate sufficient revenues will be negatively affected.

The market for our products is prone to rapidly changing technology, evolving industry standards and short product life cycles. If we are unsuccessful at developing and introducing new products and services on a timely basis that include the latest technologies, conform to the newest standards, and that are appealing to end users, we will not be able to compete effectively, and our ability to generate significant revenues will be seriously harmed.

The development of new products and services can be very difficult and requires high levels of innovation. The development process is also lengthy and costly. Short product life cycles for smartphones and tablets expose our products to the risk of obsolescence and require frequent new product upgrades and introductions. We will be unable to introduce new products and services into the market on a timely basis and compete successfully, if we fail to:

• invest significant resources in research and development, sales and marketing, and customer support;

• identify emerging trends, demands and standards in the field of mobile computing products;

• enhance our products by adding additional features;

• maintain superior or competitive performance in our products; and

• anticipate our end users’ needs and technological trends accurately.

We cannot be sure that we will have sufficient resources to make adequate investments in research and development or that we will be able to identify trends or make the technological advances necessary to be competitive.

A significant portion of our revenue currently comes from a limited number of distributors, and any decrease in revenue from these distributors could harm our business.

A significant portion of our revenue comes from a limited number of distributors. In the first half of 2020 and 2019, Ingram Micro® and BlueStar together represented approximately 53% and 61%, respectively, of our worldwide revenues. We expect that a significant portion of our revenue will continue to depend on sales to a limited number of distributors. We do not have long-term commitments from our distributors to carry our products, and any of our distributors may from quarter to quarter comprise a significant concentration of our revenues. Any of our distributors could choose to stop selling some or all of our products at any time, and each of these companies also carries our competitors’ products. If we lose our relationship with any of our significant distributors, we would experience disruption and delays in marketing our products.

We may not be able to collect receivables from customers who experience financial difficulties.

Our accounts receivables are derived primarily from distributors. We perform ongoing credit evaluations of our customers’ financial conditions but generally require no collateral from our customers. Reserves are maintained for potential credit losses, and such losses have historically been within such reserves. However, many of our customers may be thinly capitalized and may be prone to failure in adverse market conditions. Although our collection history has been good, from time to time a customer may not pay us because of financial difficulty, bankruptcy or liquidation. If global financial conditions have an impact on our customers’ ability to pay us in a timely manner, and consequently, we may experience increased difficulty in collecting our accounts receivable, and we may have to increase our reserves in anticipation of increased uncollectible accounts.

26

We could face increased competition in the future, which would adversely affect our financial performance.

The market in which we operate is very competitive. Our future financial performance is contingent on a number of unpredictable factors, including that:

• some of our competitors have greater financial, marketing, and technical resources than we do;

• we periodically face intense price competition, particularly when our competitors have excess inventories and discount their prices to clear their inventories; and

• certain manufacturers of tablets and mobile phones offer products with built-in functions, such as Bluetooth wireless technology or barcode scanning, that compete with our products.

Increased competition could result in price reductions, fewer customer orders, reduced margins, and loss of market share. Our failure to compete successfully against current or future competitors could harm our business, operating results and financial condition.

If we do not correctly anticipate demand for our products, our operating results will suffer.

The demand for our products depends on many factors and is difficult to forecast as we introduce and support more products, and as competition in the markets for our products intensifies. If demand is lower than forecasted levels, we could have excess production resulting in higher inventories of finished products and components, which could lead to write-downs or write-offs of some or all of the excess inventories, and reductions in our cash balances. Lower than forecasted demand could also result in excess manufacturing capacity at our third-party manufacturers and in our failure to meet minimum purchase commitments, each of which may lower our operating results.

If demand increases beyond forecasted levels, we would have to rapidly increase production at our third-party manufacturers. We depend on suppliers to provide additional volumes of components, and suppliers might not be able to increase production rapidly enough to meet unexpected demand. Even if we were able to procure enough components, our third-party manufacturers might not be able to produce enough of our devices to meet our customer demand. In addition, rapid increases in production levels to meet unanticipated demand could result in higher costs for manufacturing and supply of components and other expenses. These higher costs could lower our profit margins. Further, if production is increased rapidly, manufacturing yields could decline, which may also lower operating results.

27

We rely primarily on distributors to sell our products, and our sales would suffer if any of these distributors stops selling our products effectively.

Because we sell our products primarily through distributors, we are subject to risks associated with channel distribution, such as risks related to their inventory levels and support for our products. Our distribution channels may build up inventories in anticipation of growth in their sales. If such growth in their sales does not occur as anticipated, the inventory build-up could contribute to higher levels of product returns. The lack of sales by any one significant participant in our distribution channels could result in excess inventories and adversely affect our operating results and working capital liquidity.

Our agreements with distributors are generally nonexclusive and may be terminated on short notice by them without cause. Our distributors are not within our control, are not obligated to purchase products from us, and may offer competitive lines of products simultaneously. Sales growth is contingent in part on our ability to enter into additional distribution relationships and expand our sales channels. We cannot predict whether we will be successful in establishing new distribution relationships, expanding our sales channels or maintaining our existing relationships. A failure to enter into new distribution relationships, to expand our sales channels, or to maintain our existing relationships could adversely impact our ability to grow our sales.

We allow our distribution channels to return a portion of their inventory to us for full credit against other purchases. In addition, in the event we reduce our prices, we credit our distributors for the difference between the purchase price of products remaining in their inventory and our reduced price for such products. Actual returns and price protection may adversely affect future operating results and working capital liquidity by reducing our accounts receivable and increasing our inventory balances, particularly since we seek to continually introduce new and enhanced products and are likely to face increasing price competition.

We depend on alliances and other business relationships with third parties, and a disruption in these relationships would hinder our ability to develop and sell our products.

We depend on strategic alliances and business relationships with leading participants in various segments of the mobile applications market to help us develop and market our products. Our strategic partners may revoke their commitment to our products or services at any time in the future or may develop their own competitive products or services. Accordingly, our strategic relationships may not result in sustained business alliances, successful product or service offerings, or the generation of significant revenues. Failure of one or more of such alliances could result in delay or termination of product development projects, failure to win new customers, or loss of confidence by current or potential customers.

We have devoted significant research and development resources to design products to work with a number of operating systems used in mobile devices including Apple® (iOS), Google™ (Android™) and Microsoft® (Windows®). Such design activities have diverted financial and personnel resources from other development projects. These design activities are not undertaken pursuant to any agreement under which Apple, Google or Microsoft is obligated to collaborate or to support the products produced from such collaboration. Consequently, these organizations may terminate their collaborations with us for a variety of reasons, including our failure to meet agreed-upon standards or for reasons beyond our control, such as changing market conditions, increased competition, discontinued product lines, and product obsolescence.

28

Our intellectual property and proprietary rights may be insufficient to protect our competitive position.

Our business depends on our ability to protect our intellectual property. We rely primarily on patent, copyright, trademark, trade secret laws, and other restrictions on disclosure to protect our proprietary technologies. We cannot be sure that these measures will provide meaningful protection for our proprietary technologies and processes. We cannot be sure that any patent issued to us will be sufficient to protect our technology. The failure of any patents to provide protection to our technology would make it easier for our competitors to offer similar products. In connection with our participation in the development of various industry standards, we may be required to license certain of our patents to other parties, including our competitors that develop products based upon the adopted standards.

We also generally enter into confidentiality agreements with our employees, distributors, and strategic partners, and generally control access to our documentation and other proprietary information. Despite these precautions, it may be possible for a third-party to copy or otherwise obtain and use our products, services, or technology without authorization, develop similar technology independently, or design around our patents.

Effective copyright, trademark, and trade secret protection may be unavailable or limited in certain foreign countries.

We may become subject to claims of intellectual property rights infringement, which could result in substantial liability.

In the course of operating our business, we may receive claims of intellectual property infringement or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties. Many of our competitors have large intellectual property portfolios, including patents that may cover technologies that are relevant to our business. In addition, many smaller companies, universities, and individuals have obtained or applied for patents in areas of technology that may relate to our business. The industry is moving towards aggressive assertion, licensing, and litigation of patents and other intellectual property rights.

If we are unable to obtain and maintain licenses on favorable terms for intellectual property rights required for the manufacture, sale, and use of our products, particularly those products which must comply with industry standard protocols and specifications to be commercially viable, our results of operations or financial condition could be adversely impacted.

In addition to disputes relating to the validity or alleged infringement of other parties’ rights, we may become involved in disputes relating to our assertion of our own intellectual property rights. Whether we are defending the assertion of intellectual property rights against us or asserting our intellectual property rights against others, intellectual property litigation can be complex, costly, protracted, and highly disruptive to business operations by diverting the attention and energies of management and key technical personnel. Plaintiffs in intellectual property cases often seek injunctive relief, and the measures of damages in intellectual property litigation are complex and often subjective or uncertain. Thus, any adverse determinations in this type of litigation could subject us to significant liabilities and costs.

29

New industry standards may require us to redesign our products, which could substantially increase our operating expenses.

Standards for the form and functionality of our products are established by standards committees. These independent committees establish standards, which evolve and change over time, for different categories of our products. We must continue to identify and ensure compliance with evolving industry standards so that our products are interoperable and we remain competitive. Unanticipated changes in industry standards could render our products incompatible with products developed by major hardware manufacturers and software developers. Should any major changes, even if anticipated, occur, we would be required to invest significant time and resources to redesign our products to ensure compliance with relevant standards. If our products are not in compliance with prevailing industry standards for a significant period of time, we would miss opportunities to sell our products for use with new hardware components from mobile computer manufacturers and OEMs, thus affecting our business.

Undetected flaws and defects in our products may disrupt product sales and result in expensive and time-consuming remedial action.

Our hardware and software products may contain undetected flaws, which may not be discovered until customers have used the products. From time to time, we may temporarily suspend or delay shipments or divert development resources from other projects to correct a particular product deficiency. Efforts to identify and correct errors and make design changes may be expensive and time consuming. Failure to discover product deficiencies in the future could delay product introductions or shipments, require us to recall previously shipped products to make design modifications, or cause unfavorable publicity, any of which could adversely affect our business and operating results.

The loss of one or more of our senior personnel could harm our existing business.

A number of our officers and senior managers have been employed for more than twenty years by us, including our President, Chief Financial Officer, Vice President of Operations and Vice President of Engineering/Chief Technical Officer. Our future success will depend upon the continued service of key officers and senior managers. Competition for officers and senior managers is intense, and there can be no assurance that we will be able to retain our existing senior personnel. The loss of one or more of our officers or key senior managers could adversely affect our ability to compete.

The expensing of options and restricted stocks will continue to reduce our operating results such that we may find it necessary to change our business practices to attract and retain employees.

We have been using stock options and restricted stocks as a key component of our employee compensation packages. We believe that stock options and restricted stocks provide an incentive to our employees to maximize long-term stockholder value and, through the use of vesting, encourage valued employees to remain with us. The expensing of employee stock options and restricted stocks adversely affects our net income and earnings per share, will continue to adversely affect future quarters, and will make profitability harder to achieve. In addition, we may decide in response to the effects of expensing stock options on our operating results to reduce the number of stock options or restricted stocks granted to employees or to grant to fewer employees. This could adversely affect our ability to retain existing employees and attract qualified candidates, and also could increase the cash compensation we would have to pay to them.

30

If we are unable to attract and retain highly skilled sales and marketing and product development personnel, our ability to develop and market new products and product enhancements will be adversely affected.

We believe our ability to achieve increased revenues and to develop successful new products and product enhancements will depend in part upon our ability to attract and retain highly skilled sales and marketing and product development personnel. Our products involve a number of new and evolving technologies, and we frequently need to apply these technologies to the unique requirements of mobile products. Our personnel must be familiar with both the technologies we support and the unique requirements of the products to which our products connect. Competition for such personnel is intense, and we may not be able to attract and retain such key personnel. In addition, our ability to hire and retain such key personnel will depend upon our ability to raise capital or achieve increased revenue levels to fund the costs associated with such key personnel. Failure to attract and retain such key personnel will adversely affect our ability to develop and market new products and product enhancements.

Our operating results could be harmed by economic, political, regulatory and other risks associated with export sales.

Our operating results are subject to the risks inherent in export sales, including:

• longer payment cycles;

• unexpected changes in regulatory requirements, import and export restrictions and tariffs;

• difficulties in managing foreign operations;

• the burdens of complying with a variety of foreign laws;

• greater difficulty or delay in accounts receivable collection;

• potentially adverse tax consequences; and

• political and economic instability.

Our export sales are primarily denominated in Euros for our sales to European distributors and in British pounds for our sales to UK distributors. Accordingly, an increase in the value of the United States dollar relative to Euro or British pound could make our products more expensive and therefore potentially less competitive in European markets. Declines in the value of the Euro or pound relative to the United States dollar may result in foreign currency losses relating to collection of receivables denominated if left unhedged.

31

Our facilities or operations could be adversely affected by events outside out control, such as natural disasters or health epidemics.

Our corporate headquarters is located in a seismically active region in Northern California. If major disasters such as earthquakes occur, or our information system or communications network breaks down or operates improperly, our headquarters and production facilities may be seriously damaged, or we may have to stop or delay production and shipment of our products. In addition, we may be affected by the current health epidemic, COVID-19 if such an epidemic persists for an extended period of time. We may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our business, operating results and financial condition.

The sale of a substantial number of shares of our common stock could cause the market price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market could adversely affect the market price for our common stock. The market price of our common stock could also decline if one or more of our significant stockholders decided for any reason to sell substantial amounts of our common stock in the public market.

As of August 7, 2020, we had 6,050,655 shares of common stock outstanding. Substantially all of these shares are freely tradable in the public market, either without restriction or subject, in some cases, only to S-3 prospectus delivery requirements and, in other cases, only to manner of sale, volume, and notice requirements of Rule 144 under the Securities Act.

As of August 7, 2020, we had 2,128,061 shares of common stock subject to outstanding options under our stock option plans, and 373,251 shares of common stock were available for future issuance under the plans. We have registered the shares of common stock subject to outstanding options and reserved for issuance under our stock option plans. Accordingly, the shares of common stock underlying vested options will be eligible for resale in the public market as soon as the options are exercised.

Volatility in the trading price of our Common Stock could negatively impact the price of our Common Stock.

During the period from January 1, 2019 through August 7, 2020, our common stock price fluctuated between a high of $4.15 and a low of $0.76. We have experienced low trading volumes in our stock, and thus relatively small purchases and sales can have a significant effect on our stock price. The trading price of our common stock could be subject to wide fluctuations in response to many factors, some of which are beyond our control, including general economic conditions and the outlook of securities analysts and investors on our industry. In addition, the stock markets in general, and the markets for high technology stocks in particular, have experienced high volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.

32

Item 6. Exhibits

Exhibits

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SOCKET MOBILE, INC.

Registrant

Date: August 12, 2020	/s/ Kevin J. Mills
	Kevin J. Mills
	President and Chief Executive Officer
	(Duly Authorized Officer and Principal Executive Officer)

Date: August 12, 2020	/s/ Lynn Zhao
	Lynn Zhao
	Vice President of Finance and Administration and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

34

Index to Exhibits

Exhibit Number Description

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

35

EX-31

Exhibit 31.1

CERTIFICATION

I, Kevin J. Mills, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Socket Mobile, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 12, 2020	By:	/s/ Kevin J. Mills
		Name:	Kevin J. Mills
		Title:	President and Chief Executive Officer (Principal Executive Officer)

EX-31

Exhibit 31.2

CERTIFICATION

I, Lynn Zhao, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Socket Mobile, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 12, 2020	By:	/s/ Lynn Zhao
		Name:	Lynn Zhao
		Title:	Vice President of Finance and Administration and Chief Financial Officer (Principal Financial Officer)

EX-32

Exhibit 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin J. Mills, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Socket Mobile, Inc. on Form 10-Q for the quarter ended June 30, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Socket Mobile, Inc.

By:	/s/ Kevin J. Mills
Name:	Kevin J. Mills
Title:	President and Chief Executive Officer (Principal Executive Officer)
Date:	August 12, 2020

I, Lynn Zhao, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Socket Mobile, Inc. on Form 10-Q for the quarter ended June 30, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Socket Mobile, Inc.

By:	/s/ Lynn Zhao
Name:	Lynn Zhao
Title:	Vice President of Finance and Administration and Chief Financial Officer (Principal Financial Officer)
Date:	August 12, 2020

XML

Cover - shares	6 Months Ended
	Jun. 30, 2020	Aug. 07, 2020
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2020
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2020
Current Fiscal Year End Date	--12-31
Entity File Number	1-13810
Entity Registrant Name	Socket Mobile, Inc.
Entity Central Index Key	0000944075
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	39700 Eureka Drive
Entity Address, City or Town	Newark
Entity Address, State or Province	CA
Entity Address, Country	US
Entity Address, Postal Zip Code	94560
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		6,050,655

XML

Condensed Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Income Statement [Abstract]
Revenues	$ 2,715,024	$ 5,060,105	$ 6,935,710	$ 9,688,696
Cost of revenues	1,353,498	2,430,464	3,350,469	4,659,213
Gross profit	1,361,526	2,629,641	3,585,241	5,029,483
Operating expenses:
Research and development	859,510	997,483	1,740,148	1,891,219
Sales and marketing	722,160	771,097	1,489,956	1,527,011
General and administrative	589,730	643,215	1,255,846	1,346,397
Total operating expenses	2,171,400	2,411,795	4,485,950	4,764,627
Operating income (loss)	(809,874)	217,846	(900,709)	264,856
Interest expense, net	(8,149)	(29,307)	(27,641)	(57,808)
Other income	50,000		70,000
Net income (loss) before income taxes	(768,023)	188,539	(858,350)	207,048
Income tax expense		(68,749)		(75,419)
Net income (loss)	$ (768,023)	$ 119,790	$ (858,350)	$ 131,629
Net income (loss) per share:
Basic	$ (0.13)	$ 0.02	$ (0.14)	$ 0.02
Diluted	$ (0.13)	$ 0.02	$ (0.14)	$ 0.02
Weighted average shares outstanding:
Basic	6,009,383	5,999,159	6,011,670	5,969,666
Diluted	6,009,383	6,271,507	6,011,670	6,203,889

XML

Condensed Balance Sheets (Unaudited) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Current assets:
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
Prepaid expenses and other current assets	255,339	312,127
Deferred cost on shipments to distributors	153,793	233,823
Total current assets	6,359,936	7,520,724
Property and equipment:
Machinery and office equipment	2,271,539	2,195,405
Computer equipment	1,279,482	1,336,445
Property and equipment, gross	3,551,021	3,531,850
Accumulated depreciation	(2,699,040)	(2,667,340)
Property and equipment, net	851,981	864,510
Goodwill	4,427,000	4,427,000
Other long-term assets	180,825	202,611
Deferred tax assets	5,506,934	5,506,934
Operating lease right-of-use assets	794,735	936,708
Total assets	18,121,411	19,458,487
Current liabilities:
Accounts payable and accrued expenses	1,831,685	2,084,848
Accrued payroll and related expenses	458,178	566,350
Deferred revenue on shipments to distributors	432,506	611,029
Short term portion of deferred service revenue	28,086	32,900
Bank lines of credit	450,000	1,412,449
Notes payable – current portion	578,259	333,333
Operating lease – current portion	455,928	419,288
Finance lease – current portion		8,291
Total current liabilities	4,234,642	5,468,488
Long-term portion of operating lease	508,328	715,062
Long-term portion of deferred service revenue	33,382	40,711
Long-term portion of notes payable	713,774
Total liabilities	5,490,126	6,224,261
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value: Authorized – 20,000,000 shares, Issued and outstanding – 6,009,109 shares at June 30, 2020 and 6,017,674 shares at December 31, 2019	6,009	6,018
Additional paid-in capital	61,322,389	61,066,971
Accumulated deficit	(48,697,113)	(47,838,763)
Total stockholders’ equity	12,631,285	13,234,226
Total liabilities and stockholders’ equity	$ 18,121,411	$ 19,458,487

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Condensed Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2020	Dec. 31, 2019
LIABILITIES AND STOCKHOLDERS' EQUITY
Common stock par value	$ 0.001	$ 0.001
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	6,009,109	6,017,674
Common stock, shares outstanding	6,009,109	6,017,674

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Stockholders' Equity (Unaudited) - USD ($)	Common Stock	Additional Paid-In Capital	Retained Earnings / Accumulated Deficit	Total
Beginning Balance at Dec. 31, 2018	$ 5,883	$ 60,523,901	$ (48,125,349)	$ 12,404,435
Beginning Balance (in shares) at Dec. 31, 2018	5,883,109
Restricted stock grants	116	(116)
Restricted stock grants (in shares)	$ 116,050
Stock-based compensation		$ 121,965		121,965
Net gain (loss)			11,839	11,839
Ending Balance at Mar. 31, 2019	$ 5,999	60,645,750	(48,113,510)	12,538,239
Ending Balance (in shares) at Mar. 31, 2019	5,999,159
Beginning Balance at Dec. 31, 2018	$ 5,883	60,523,901	(48,125,349)	$ 12,404,435
Beginning Balance (in shares) at Dec. 31, 2018	5,883,109
Restricted stock grants				116,050
Net gain (loss)				$ 131,629
Ending Balance at Jun. 30, 2019	$ 5,999	60,782,785	(47,993,720)	12,795,064
Ending Balance (in shares) at Jun. 30, 2019	5,999,159
Beginning Balance at Mar. 31, 2019	$ 5,999	60,645,750	(48,113,510)	12,538,239
Beginning Balance (in shares) at Mar. 31, 2019	5,999,159
Stock-based compensation		137,035
Net gain (loss)			119,790	119,790
Ending Balance at Jun. 30, 2019	$ 5,999	60,782,785	(47,993,720)	12,795,064
Ending Balance (in shares) at Jun. 30, 2019	5,999,159
Beginning Balance at Dec. 31, 2019	$ 6,018	61,066,971	(47,838,763)	13,234,226
Beginning Balance (in shares) at Dec. 31, 2019	6,017,674
Repurchase of common stock	$ (5)	(8,491)		8,496
Repurchase of common stock (in shares)	(4,967)
Cancellation of restricted stocks	$ (3)	3
Cancellation of restricted stocks (in shares)	(3,200)
Stock-based compensation		132,065		132,065
Net gain (loss)			(90,327)	(90,327)
Ending Balance at Mar. 31, 2020	$ 6,010	61,190,548	(47,929,090)	13,267,468
Ending Balance (in shares) at Mar. 31, 2020	6,009,507
Beginning Balance at Dec. 31, 2019	$ 6,018	61,066,971	(47,838,763)	$ 13,234,226
Beginning Balance (in shares) at Dec. 31, 2019	6,017,674
Restricted stock grants				293,000
Stock-based compensation				$ 263,434
Net gain (loss)				(858,350)
Ending Balance at Jun. 30, 2020	$ 6,009	61,322,389	(48,697,113)	12,631,285
Ending Balance (in shares) at Jun. 30, 2020	6,009,109
Beginning Balance at Mar. 31, 2020	$ 6,010	61,190,548	(47,929,090)	13,267,468
Beginning Balance (in shares) at Mar. 31, 2020	6,009,507
Cancellation of restricted stocks	$ (1)	472		471
Cancellation of restricted stocks (in shares)	(398)
Stock-based compensation		131,369		131,369
Net gain (loss)			(768,023)	(768,023)
Ending Balance at Jun. 30, 2020	$ 6,009	$ 61,322,389	$ (48,697,113)	$ 12,631,285
Ending Balance (in shares) at Jun. 30, 2020	6,009,109

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Condensed Statements of Cash Flows (Unaudited) (USD $) - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Operating activities
Net income (loss)	$ (858,350)	$ 131,629
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation	263,434	259,000
Depreciation and amortization	290,498	217,664
Deferred tax expenses (benefits)		74,619
Changes in operating assets and liabilities:
Accounts receivable	1,066,894	(550,425)
Inventories	(74,801)	(123,005)
Prepaid expenses and other current assets	56,788	(278,629)
Accounts payable and accrued expenses	(253,163)	(110,835)
Accrued payroll and related expenses	(108,172)	133,808
Net deferred revenue on shipments to distributors	(98,493)	107,166
Deferred service revenue	(12,143)	20,766
Net change in operating lease	(28,121)	(19,099)
Net cash provided by (used in) operating activities	244,371	(137,341)
Investing activities
Purchases of equipment	(256,183)	(187,458)
Net cash used in investing activities	(256,183)	(187,458)
Financing activities
Payments on finance leases	(8,291)	(7,680)
Common stock repurchase and related expenses	(8,025)
Proceeds from borrowings under bank line of credit agreement	4,630,000	8,754,000
Repayments of borrowings under bank line of credit agreement	(5,592,449)	(8,240,804)
Repayments of bank term loan	(250,000)	(250,000)
Proceeds from notes payable	1,208,700
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 beginning of period	958,860	1,084,991
Cash and cash equivalents at end of period	926,983	1,015,708
Supplemental disclosure of cash flow information
Cash paid for interest	$ 30,640	$ 54,528

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Note 1 - Basis of Presentation

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Basis of Presentation

NOTE 1 — Basis of Presentation

The accompanying unaudited condensed financial statements of Socket Mobile, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals considered necessary for fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future period. These financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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Note 2 - Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Summary of Significant Accounting Policies

NOTE 2 — Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements.

Cash Equivalents and Fair Value of Financial Instruments

The Company considers all highly liquid investments purchased with a maturity date of 90 days or less at date of purchase to be cash equivalents. At June 30, 2020 and December 31, 2019, all of the Company’s cash and cash equivalents consisted of amounts held in demand deposit accounts in banks. The aggregate cash balance on deposit in these accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance on deposit in these accounts may, at times, exceed the federally insured limits. The Company has never experienced any losses in such accounts.

The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, debt and foreign exchange contracts approximate fair value due to the relatively short period of time to maturity.

Revenue Recognition and Deferred Revenue

On January 1, 2017, the Company adopted ASC 606 “Revenue from Contracts with Customers” and implemented a new revenue recognition policy. Instead of deferring 100% of revenue and cost of revenue until products are sold by distributors, the new policy recognizes revenue on sales to distributors when shipping of product is completed and title transfers to the distributor, less a reserve for estimated product returns (sales and cost of sales). The reserves are based on estimates of future returns calculated from actual return history, primarily from stock rotations, plus knowledge of pending returns outside of the norm. At June 30, 2020, the deferred revenue and deferred cost on shipments to distributors were $432,506 and $153,793, respectively, compared to $611,029 and $233,823, respectively, at December 31, 2019.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to recognize a liability representing future lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For operating leases, a lessee is required to recognize at inception a right-of-use asset and a lease liability equal to the net present value of the lease payments, with lease expense recognized over the lease term on a straight-line basis. For leases with a term of twelve months or less, ASU 2016-02 allows a reporting entity to make an accounting policy election to not recognize a right-of-use asset and a lease liability, and to recognize lease expense on a straight-line basis. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company adopted ASU 2016-02 effective January 1, 2019, which had no impact on the Company’s Statements of Operations. The most significant impact was the recognition of right-of-use assets and liabilities for the office space lease.

Recently Issued Financial Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequent amendments to the initial guidance: ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, ASU 2019-05 “Financial Instruments-Credit Losses”, ASU 2019-11 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (collectively, “Topic 326”) and ASU 2020-02 Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842). The effective date of Topic 326 for public filers that are considered small reporting companies ("SRC") as defined by the Securities and Exchange Commission for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 on the Company's financial statements and disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU is effective as of March 12, 2020 through December 31, 2022. The Company doesn’t expect the ASU will have an impact on its financial statements.

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position, results of operations or cash flows upon adoption.

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Note 3 - Inventories

6 Months Ended

Jun. 30, 2020

Inventory Disclosure [Abstract]

Inventories

NOTE 3 — Inventories

Inventories consist principally of raw materials and sub-assemblies, which are stated at the lower of cost (first-in, first-out) or market. Inventories at June 30, 2020 and December 31, 2019 were as follows:

	June 30,			December 31,
	2020			2019
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

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Note 4 - Bank Financing Arrangements

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Bank Financing Arrangements

NOTE 4 — Bank Financing Arrangements

Sixth Financing Agreement

On June 14, 2019, the Company entered into the Sixth Amended and Restated Business Financing Agreement with the Bank. The Bank waived the default which occurred for the month ended April 30, 2019 when the Company’s Asset Coverage Ratio was 1.13 to 1.00, instead of the required 1.25 to 1.00. The Bank also increased the Eligible Receivable threshold for Ingram Micro from 50% to 60% of domestic receivables, and from 35% to 50% of all receivables (including both domestic and foreign receivables).

Seventh Financing Agreement

On January 8, 2020, the Company entered into the Seventh Amended and Restated Business Financing Agreement with the Bank which extends the maturity date of the Company’s revolving line of credit to January 31, 2022.

The Asset Coverage Ratio was 1.5 to 1.0 on June 30, 2020. During the six months ended June 30, 2020, total repayments of the term loan was $250,000. Total amount borrowed under the domestic and international lines was $4,630,000 and the total repayments was $5,592,449. At June 30, 2020, the available borrowing capacity was approximately $687,000. Amounts outstanding under the term loan and bank credit facilities at June 30, 2020 are as follows:

	June 30, 2020
Long-term portion of term loan		—
Current-portion of term loan		83,333
Term loan	$	83,333

	June 30, 2020
Lines of credit -domestic line		450,000
Lines of credit -EXIM line		—
Total lines of credit	$	450,000

Interest expense on the term loan for three and six months ended June 30, 2020 was $1,896 and $5,922, respectively. Interest expense on the amounts drawn under the Company’s bank credit lines during the three and six months ended June 30, 2020 was $3,783 and $19,384. Accrued interest payable related to the amounts outstanding under the term loan and bank credit facilities at June 30, 2020 was $9,360.

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Note 5 - Term loans

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Term loans

NOTE 5 — Term loans

PPP Loan

On April 20, 2020, the Company received $1,058,700 of loan proceeds under the Paycheck Protection Program (“PPP”) which was established as part of the Coronavirus Aid, Relief, and Economic Act (“CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The application for these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to take into account the current business activity and the ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria. The loan has a fixed interest rate of 1% and matures in two years. Payments of principal and interest are deferred for a period of six months from the date on which the PPP loan is distributed. As of June 30, 2020, pursuant to the existing loan agreement, all of the payments expected between July 1, 2020 and June 30, 2021, or $494,926, are classified as the current portion of the note payable and the remaining balance $563,774 is classified as the long-term note payable.

The PPP loan was primarily used to cover payroll costs, rent, and utility costs during the 8-week period from April 20^th through June 12^th. Pursuant to the CARES Act and implementing rules and regulations, the Company will apply to its bank, Western Alliance for the PPP loan to be forgiven in part as soon as SBA has its forgiveness process prepared. The Company has used the proceeds of the PPP loan for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, the Company cannot assure that it will be eligible for forgiveness of the loan. Any PPP loan balance remaining following forgiveness by the SBA will be fully re-amortized over the remaining term of the loan.

Economic Injury Disaster Loan (EIDL)

On June 26, 2020, the Company executed the standard loan documents required for a securing loan of $150,000 offered by the U.S. Small Business Administration under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. Proceeds of the EIDL are being used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue from the date of inception. Installment payments, including principal and interest, are due monthly beginning June 26, 2021 (twelve months from the date of the EIDL) in the amount of $731. The balance of principal and interest is payable 30 years from the date of the EIDL. The EIDL is secured by a security interest on all of the Company’s assets. An immaterial amount of interest expense related to the loan during the three months ended June 30, 2020 was recognized.

On June 23, 2020, the Company received $10,000 from US Small Business Administration as part of Economic Injury Disaster Loan (“EIDL”). This was a grant and does not need to be repaid. The Company recorded it as other income in Q2.

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Note 6 - Segment Information and Concentrations

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Segment Information and Concentrations

NOTE 6 — Segment Information and Concentrations

Segment Information

The Company operates in the mobile barcode scanning and RFID/NFC data capture market. Mobile scanning typically consists of mobile devices such as smartphones or tablets, with mobile scanning or NFC peripherals for data collection, and third-party vertical applications software. The Company distributes its products in the United States and foreign countries primarily through distributors, resellers, and online. The Company markets its products primarily through application developers whose applications are designed to work with Company’s products.

Revenues for the geographic areas for three months ended June 30, 2020 and 2019 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenues:
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

Export revenues are attributable to countries based on the location of the Company’s customers. The Company does not hold long-lived assets in foreign locations.

Major Customers

Customers who accounted for at least 10% of the Company’s total revenues for the three and six months ended June 30, 2020 and 2019 were as follows: 

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Ingram Micro Inc.		29	%		41	%		33	%		42	%
BlueStar, Inc.		25	%		18	%		20	%		19	%
ScanSource, Inc.		14	%		*			10	%		*

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk include cash, cash equivalents and accounts receivable. The Company invests its cash in demand deposit accounts in banks. To date, the Company has not experienced losses on the investments. The Company’s trade accounts receivables are primarily with distributors. The Company performs ongoing credit evaluations of its customers’ financial condition but generally requires no collateral. Reserves are maintained for potential credit losses, and such losses have been within management’s expectations. Customers who accounted for at least 10% of the Company’s accounts receivable balances at June 30, 2020 and December 31, 2019 were as follows:

	June 30,			December 31,
	2020			2019
Ingram Micro Inc.		31	%		49	%
BlueStar, Inc.		32	%		26	%
ScanSource, Inc.		21	%		*
*Customer accounted for less than 10% of the Company’s accounts receivable balances

Concentration of Suppliers

Several of the Company’s component parts are produced by a sole or limited number of suppliers. Shortages could occur in these essential materials due to increased demand, or to an interruption of supply. Suppliers may choose to restrict credit terms or require advance payments causing delays in the procurement of essential materials. If the Company were unable to procure certain of such materials, it could have a material adverse effect upon its results. At June 30, 2020, 38% of the Company’s accounts payable balances was concentrated in the top supplier. For the three months ended June 30, 2020, the top two suppliers accounted for 54% of the inventory purchases.

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Note 7 - Stock-Based Compensation

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

NOTE 7 — Stock-Based Compensation

The Company recognizes the compensation cost in the financial statements for all stock-based awards to employees, including grants of stock options and restricted stocks, based on the fair value of the awards as of the date that the awards are issued. Compensation cost for stock-based awards is recognized on a straight-line basis over the vesting period.

The fair values of stock options are generally determined using a binomial lattice valuation model which incorporates assumptions about expected volatility, risk-free interest rate, dividend yield, and expected life. There were 37,000 stock options granted for the six months ended June 30, 2020, compared to 165,600 shares granted to executive officers, selected employees and consultants for the six months ended June 30, 2019.

The restricted stocks are issued to employees and consultants and are held in escrow by the Company until the shares vest on the schedule of 15% after year one, 20% after year two, 25% after year three and 40% after year four, subject to the employees and consultants being a continuing service provider on the vesting dates. If the service or employment is terminated, unvested shares revert to the Company. Shares are registered at grant, so share owners may vote at the annual stockholder meeting. Restricted stocks are granted at zero cost basis. Compensation cost of the restricted stocks is recognized on a straight-line basis over the 4-year vesting period. For the six months ended June 30, 2020 and 2019, the Company awarded 293,000 and 116,050 shares of restricted stock, respectively, leaving a balance of 394,506 shares of restricted stock as of June 30, 2020. Due to the existence of restrictions on sale or transfer until the stocks vest, the Company does not count the restricted stocks as issued and outstanding shares until they vest.

Total stock-based compensation expense for the three and six months ended June 30, 2020 and 2019, was $131,369 and $263,434, respectively.

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Note 8 - Net Income (Loss) Per Share Applicable to Common Stockholders

6 Months Ended

Jun. 30, 2020

Income Statement [Abstract]

Net Income (Loss) Per Share Applicable to Common Stockholders

NOTE 8 — Net Income (Loss) Per Share Applicable to Common Stockholders

The following table sets forth the reconciliation of basic shares to diluted shares and the computation of basic and diluted net income (loss) per share:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
Numerator:
Net income (loss)	$	(768,023	)	$	119,790	$	(858,350	)	$	131,629
Denominator:
Weighted average shares outstanding used in computing net income (loss) per share:
Basic		6,009,383			5,999,159		6,011,670			5,969,666
Effect of dilutive stock options		—			272,348		—			234,223
Diluted		6,009,383			6,271,507		6,011,670			6,203,889
Net income (loss) per share applicable to common stockholders:
Basic	$	(0.13	)	$	0.02	$	(0.14	)	$	0.02
Diluted	$	(0.13	)	$	0.02	$	(0.14	)	$	0.02

In the three and six months ended June 30, 2020, 2,259,937 stock options and 394,506 restricted stocks were excluded in the calculation of diluted net loss per share because their effect would be anti-dilutive. In the three and six months ended June 30, 2019, 2,185,351 and 2,223,476, respectively, stock options were excluded in the calculation of diluted net loss per share because their effect would be anti-dilutive.

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Note 9 - Taxes

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Taxes

NOTE 9 — Taxes

The Company recorded no deferred tax benefit for the losses in the three and six months ended June 30, 2020. In the three and six months ended June 30, 2019, the Company recorded deferred tax expenses of $68,749 and $75,419, respectively.

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Note 10 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

NOTE 10 — Commitments and Contingencies

Operating Leases

The Company adopted ASU 2016-02, Leases (Topic 842) effective January 1, 2019 and restated its reported results in January 2018, including the recognition of additional operating lease right-of-use assets and liabilities. On January 1, 2018, the Company recorded operating lease right-of-use assets and operating lease liabilities in the amount of approximately $1.57 million and $1.85 million, respectively.

The Company leases office space under a non-cancelable operating lease that provides the Company approximately 37,100 square feet in Newark, California. The lease agreement expires on June 30, 2022. Monthly base rent increases four percent per year annually on July 1^st of each year. We recognize operating lease expense on a straight-line basis over the lease term. The operating lease expense was $103,208 and $206,416 for the three and six-month periods ended June 30, 2020 and 2019, respectively. 

In June 2020, the Company signed a new two-year equipment lease agreement. The Company will pay $1,519 in monthly installments starting in September of 2020 through June 2022. On June 30, 2020, the balances of right-of-use assets and liabilities for the operating leases were approximately $0.79 million and $0.96 million, respectively, compared to approximately $0.94 million, and $1.13 million, respectively, at December 31, 2019.

Cash payments included in the measurement of our operating lease liabilities were $117,268 and $234,537 for the three- and six-month periods ended June 30, 2020, respectively, compared to $112,758 and $225,516, respectively, for the same periods a year ago.

Future minimum lease payments under the operating leases of the office and copier at June 30, 2020 are shown below:

Annual minimum payments:	Amount
2020 (July 1, 2020 to December 31, 2020)	$	249,994
2021		515,822
2022		262,789
Total minimum payments		1,028,605
Less: Present value factor		(64,349	)
Total operating lease liabilities		964,256
Less: Current portion of operating lease		(455,928	)
Long-term portion of operating lease	$	508,328

Finance Leases 

The new standard, ASU 2016-02 classifies lessee leases into two types, operating and finance. The Company leases certain of its equipment under finance leases. The leases are collateralized by the underlying assets. At June 30, 2020, the Company has no equipment subject to financing arrangement, compared to equipment with a cost of $100,584 at December 31, 2019. The accumulated depreciation of the assets associated with the finance leases as of June 30, 2020 and December 31, 2019, amounted to zero and $92,571 respectively.

Purchase Commitments

As of June 30, 2020, the Company has non-cancelable purchase commitments for inventory to be used in the ordinary course of business of approximately $3,651,000.

Legal Matters

The Company is subject to disputes, claims, requests for indemnification and lawsuits arising in the ordinary course of business. Under the indemnification provisions of the Company’s customer agreements, the Company routinely agrees to indemnify and defend its customers against infringement of any patent, trademark, copyright, trade secrets, or other intellectual property rights arising from customers’ legal use of the Company’s products or services. The exposure to the Company under these indemnification provisions is generally limited to the total amount paid for the indemnified products. However, certain indemnification provisions potentially expose the Company to losses in excess of the aggregate amount received from the customer. To date, there have been no claims against the Company by its customers pertaining to such indemnification provisions, and no amounts have been recorded. The Company is currently not a party to any material legal proceedings.

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Note 11 - Subsequent Events

6 Months Ended

Jun. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

NOTE 11 — Subsequent Events

As of August 7, 2020, 5,000 restricted stocks at the price of $1.49 per share have been granted from the 2004 Equity Incentive Plan subsequent to June 30, 2020. 

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements.

Cash Equivalents and Fair Value of Financial Instruments

Cash Equivalents and Fair Value of Financial Instruments

The Company considers all highly liquid investments purchased with a maturity date of 90 days or less at date of purchase to be cash equivalents. At June 30, 2020 and December 31, 2019, all of the Company’s cash and cash equivalents consisted of amounts held in demand deposit accounts in banks. The aggregate cash balance on deposit in these accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance on deposit in these accounts may, at times, exceed the federally insured limits. The Company has never experienced any losses in such accounts.

The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, debt and foreign exchange contracts approximate fair value due to the relatively short period of time to maturity.

Revenue Recognition and Deferred Revenue

Revenue Recognition and Deferred Revenue

On January 1, 2017, the Company adopted ASC 606 “Revenue from Contracts with Customers” and implemented a new revenue recognition policy. Instead of deferring 100% of revenue and cost of revenue until products are sold by distributors, the new policy recognizes revenue on sales to distributors when shipping of product is completed and title transfers to the distributor, less a reserve for estimated product returns (sales and cost of sales). The reserves are based on estimates of future returns calculated from actual return history, primarily from stock rotations, plus knowledge of pending returns outside of the norm. At June 30, 2020, the deferred revenue and deferred cost on shipments to distributors were $432,506 and $153,793, respectively, compared to $611,029 and $233,823, respectively, at December 31, 2019.

Leases

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to recognize a liability representing future lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For operating leases, a lessee is required to recognize at inception a right-of-use asset and a lease liability equal to the net present value of the lease payments, with lease expense recognized over the lease term on a straight-line basis. For leases with a term of twelve months or less, ASU 2016-02 allows a reporting entity to make an accounting policy election to not recognize a right-of-use asset and a lease liability, and to recognize lease expense on a straight-line basis. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company adopted ASU 2016-02 effective January 1, 2019, which had no impact on the Company’s Statements of Operations. The most significant impact was the recognition of right-of-use assets and liabilities for the office space lease.

Recently Issued Financial Accounting Standards

Recently Issued Financial Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequent amendments to the initial guidance: ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, ASU 2019-05 “Financial Instruments-Credit Losses”, ASU 2019-11 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (collectively, “Topic 326”) and ASU 2020-02 Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842). The effective date of Topic 326 for public filers that are considered small reporting companies ("SRC") as defined by the Securities and Exchange Commission for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 on the Company's financial statements and disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU is effective as of March 12, 2020 through December 31, 2022. The Company doesn’t expect the ASU will have an impact on its financial statements.

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position, results of operations or cash flows upon adoption.

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Inventories (Tables)

6 Months Ended

Jun. 30, 2020

Inventory Disclosure [Abstract]

Inventory components

Inventories consist principally of raw materials and sub-assemblies, which are stated at the lower of cost (first-in, first-out) or market. Inventories at March 31, 2020 and December 31, 2019 were as follows:

	March 31,			December 31,
	2020			2019
Raw materials and sub-assemblies	$	3,706,834		$	3,767,588
Finished goods		235,524			241,681
Inventory reserves		(647,639	)		(830,361	)
Inventory, net	$	3,294,719		$	3,178,908

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Bank Financing Arrangements (Tables)

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Term loan and bank credit line balances

Amounts outstanding under the term loan and bank credit facilities at June 30, 2020 are as follows:

	June 30, 2020
Long-term portion of term loan		—
Current-portion of term loan		83,333
Term loan	$	83,333

	June 30, 2020
Lines of credit -domestic line		450,000
Lines of credit -EXIM line		—
Total lines of credit	$	450,000

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Segment Information and Concentrations (Tables)

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Revenue by geographic areas

Revenues for the geographic areas for three months ended June 30, 2020 and 2019 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenues:
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

Major customers accounted for at least 10% of total revenues

Customers who accounted for at least 10% of the Company’s total revenues for the three and six months ended June 30, 2020 and 2019 were as follows: 

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Ingram Micro Inc.		29	%		41	%		33	%		42	%
BlueStar, Inc.		25	%		18	%		20	%		19	%
ScanSource, Inc.		14	%		*			10	%		*

Major customers accounted for at least 10% of net accounts receivable balances

Customers who accounted for at least 10% of the Company’s accounts receivable balances at June 30, 2020 and December 31, 2019 were as follows:

	June 30,			December 31,
	2020			2019
Ingram Micro Inc.		31	%		49	%
BlueStar, Inc.		32	%		26	%
ScanSource, Inc.		21	%		*
*Customer accounted for less than 10% of the Company’s accounts receivable balances

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Net Income (Loss) Per Share Applicable to Common Stockholders (Tables)

6 Months Ended

Jun. 30, 2020

Net income (loss) per share:

Net Income (Loss) Per Shares Applicable To Common Stockholders

The following table sets forth the reconciliation of basic shares to diluted shares and the computation of basic and diluted net income (loss) per share:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
Numerator:
Net income (loss)	$	(768,023	)	$	119,790	$	(858,350	)	$	131,629
Denominator:
Weighted average shares outstanding used in computing net income (loss) per share:
Basic		6,009,383			5,999,159		6,011,670			5,969,666
Effect of dilutive stock options		—			272,348		—			234,223
Diluted		6,009,383			6,271,507		6,011,670			6,203,889
Net income (loss) per share applicable to common stockholders:
Basic	$	(0.13	)	$	0.02	$	(0.14	)	$	0.02
Diluted	$	(0.13	)	$	0.02	$	(0.14	)	$	0.02

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Future minimum payments for operating leases

Future minimum lease payments under the operating leases of the office and copier at June 30, 2020 are shown below:

Annual minimum payments:	Amount
2020 (July 1, 2020 to December 31, 2020)	$	249,994
2021		515,822
2022		262,789
Total minimum payments		1,028,605
Less: Present value factor		(64,349	)
Total operating lease liabilities		964,256
Less: Current portion of operating lease		(455,928	)
Long-term portion of operating lease	$	508,328

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Inventory Components (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Notes to Financial Statements
Raw materials and sub-assemblies	$ 3,545,065	$ 3,767,588
Finished goods	356,283	241,681
Inventory reserves	(647,639)	(830,361)
Inventories, net	$ 3,253,709	$ 3,178,908

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Bank Financing Arrangements (Details Narrative)	3 Months Ended	6 Months Ended
	Jun. 30, 2020 USD ($)	Jun. 30, 2020 USD ($)
Term Loan for Stock Repurchase
Amount repaid		$ 250,000
Interest expense	$ 1,896	5,922
Accrued interest payable	9,236	9,236
Domestic Line of Credit
Amount borrowed		3,865,000
Amount repaid		4,619,915
Interest expense	3,148	16,832
Accrued interest payable	62	62
Remaining borrowing capacity	549,856	549,856
Foreign Line of Credit
Amount borrowed		765,000
Amount repaid		972,534
Interest expense	635	2,552
Remaining borrowing capacity	$ 137,426	$ 137,426

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Amounts Outstanding under Bank Term Loan (Detail)	Jun. 30, 2020 USD ($)
Notes to Financial Statements
Long-term portion of term loan
Current-portion of term loan	83,333
Term loan balance	$ 83,333

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Amounts Outstanding under Bank Lines of Credit (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Notes to Financial Statements
Lines of credit - domestic line	$ 450,000
Lines of credit - EXIM line
Total lines of credit	$ 450,000	$ 1,412,449

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Term loans (Details) - USD ($)	Jun. 26, 2021	Jun. 26, 2020	Jun. 23, 2020	Apr. 20, 2020	Jun. 30, 2020
Paycheck Protection Program Loan
Loan proceeds				$ 1,058,700
Current portion of notes payable					$ 494,926
Long-term portion of notes payable					$ 563,774
Economic Injury Disaster Loan
Loan proceeds		$ 150,000
Monthly installment amounts due	$ 731
Grant proceeds			$ 10,000

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Revenues By Geographic Areas (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenues	$ 2,715,024	$ 5,060,105	$ 6,935,710	$ 9,688,696
United States
Revenues	2,242,225	3,975,771	5,385,634	7,653,571
Europe
Revenues	200,012	604,931	815,541	1,097,923
Asia Pacific
Revenues	$ 272,787	$ 479,403	$ 734,535	$ 937,202

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Major customers accounted for at least 10% of total revenues (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Ingram Micro Inc.
Percent of total revenues	29.00%	41.00%	33.00%	42.00%
Threshold percentage for disclosure	10.00%	10.00%	10.00%	10.00%
BlueStar, Inc.
Percent of total revenues	25.00%	18.00%	20.00%	19.00%
Threshold percentage for disclosure	10.00%	10.00%	10.00%	10.00%
ScanSource, Inc.
Percent of total revenues	14.00%		10.00%
Threshold percentage for disclosure	10.00%	10.00%	10.00%	10.00%

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Major Customers as a Percentage of Net Accounts Receivable Balances (Details)	Jun. 30, 2020	Dec. 31, 2019
Ingram Micro Inc.
Percent of net accounts receivable balances	31.00%	49.00%
Threshold percentage for disclosure	10.00%	10.00%
BlueStar, Inc.
Percent of net accounts receivable balances	32.00%	26.00%
Threshold percentage for disclosure	10.00%	10.00%
ScanSource, Inc.
Percent of net accounts receivable balances	21.00%
Threshold percentage for disclosure	10.00%	10.00%

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Concentration of Suppliers (Details Narrative)	3 Months Ended
	Jun. 30, 2020
Risks and Uncertainties [Abstract]
Accounts payable balances with a single supplier	38.00%
Percentage of inventory purchases from top two suppliers	54.00%

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Stock-Based Compensation (Details Narrative) - USD ($)	3 Months Ended			6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Notes to Financial Statements
Stock-based compensation expenses	$ 131,369	$ 132,065	$ 121,965	$ 263,434
Stock options granted				37,000	165,600
Restricted stock granted				293,000	116,050
Restricted stock remaining				394,506

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Net Income (Loss) per Share Applicable to Common Stockholders (Details) - USD ($)	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Numerator:
Net income (loss)	$ (768,023)	$ (90,327)	$ 119,790	$ 11,839	$ (858,350)	$ 131,629
Denominator: Weighted average common shares outstanding used in computing net income (loss) per share:
Basic	6,009,383		5,999,159		6,011,670	5,969,666
Effect of dilutive stock options			272,348			234,223
Diluted	6,009,383		6,271,507		6,011,670	6,203,889
Net income (loss) per share applicable to common stockholders:
Basic	$ (0.13)		$ 0.02		$ (0.14)	$ 0.02
Diluted	$ (0.13)		$ 0.02		$ (0.14)	$ 0.02

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Stock Options Excluded from Calculation of Diluted Net Loss Per Share (Details Narrative) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Number of Stock Options
Antidilutive Securities Excluded from Calculation of Diluted Net Income (Loss) Per Share	2,259,937	2,185,351	2,259,937	2,223,476
Number of Restricted Stock
Antidilutive Securities Excluded from Calculation of Diluted Net Income (Loss) Per Share	394,506		394,506

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Taxes (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Income Tax Disclosure [Abstract]
Income tax expense		$ (68,749)		$ (75,419)

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Commitments and Contingencies (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019	Jan. 01, 2018
Notes to Financial Statements
Rental expense for operating lease	$ 103,208	$ 206,416	$ 103,208	$ 206,416
Operating lease cash payments	117,268	$ 112,758	234,537	$ 225,516
Non-cancelable purchase commitments for inventory	3,651,000		3,651,000
Original cost of equipment under finance leases					$ 100,584
Finance lease accumulated depreciation					92,571
Operating lease right-of-use asset	794,735		794,735		936,708	$ 1,570,000
Operating lease right-of-use liabilities	$ 964,256		$ 964,256		$ 1,134,350	$ 1,850,000

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Future Minimum Payments For Operating Leases (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019	Jan. 01, 2018
Annual minimum payments:
2020 (July 1, 2020 to December 31, 2020)	$ 249,994
2021	515,822
2022	262,789
Total minimum payments	1,028,605
Less: Present value factor	(64,349)
Total operating lease liabilities	964,256	$ 1,134,350	$ 1,850,000
Less: Current portion of operating lease	(455,928)	(419,288)
Long term portion of operating lease	$ 508,328	$ 715,062

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Subsequent Events (Details Narrative)	6 Months Ended
	Jun. 30, 2020
Subsequent Events [Abstract]
Subsequent events	As of August 7, 2020, 5,000 restricted stocks at the price of $1.49 per share have been granted from the 2004 Equity Incentive Plan subsequent to June 30, 2020.