SOCKET MOBILE INC
For the period ended Jun 30, 2024. Filed Aug 13, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 13, 2024
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-14.
0000944075-24-000026
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-13.
0000944075-24-000053
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 49 previous paragraphs and 52 current paragraphs.
38 unchanged; 4 reworded; 10 added; 7 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 1 previous and 1 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (10)
Current report
Total revenues for the quarter ended June 30, 2024, were approximately $5.08 million, a slight decrease of 0.7% compared to the same period in 2023, which reported $5.12 million. For the six-month period, revenue increased by 6.7% to approximately $10.06 million from $9.43 million in the prior year. Revenue growth over the past six months was primarily driven by increases in both run rate and deployment business during the first quarter of 2024 compared to the same period in 2023.
Current report
We have maintained a gross profit margin exceeding 50%. For the quarter ended June 30, 2024, our gross profit margin was 50.9%, compared to 51.8% in the prior year. For the six-month period, the margin was 50.6%, up from 50.1% in 2023. The improvement in the gross margin is primarily attributed to the effective management of manufacturing overhead costs.
Current report
Research and development expense in the three and six months ended June 30, 2024, were approximately $1,232,000 and $2,440,000, respectively, representing an increase of 4% and 0.12% compared to expenses of approximately $1,190,000 and $2,437,000 in the corresponding periods a year ago. The increase is primarily attributed to the cost-of-living adjustments implemented in Q2 2024. We recognize the critical importance of accelerating time-to-market for new products to drive revenue growth. As a result, we will continue to invest significantly in research and development as our revenue expands. We anticipate a modest increase in R&D expenses for the remainder of the year.
Current report
Sales and marketing expense in the three and six months ended June 30, 2024, were approximately $1,154,000 and $2,186,000, respectively, representing an increase of 15% and 9% compared to expense of approximately $1,005,000 and $2,011,000 in the corresponding periods a year ago. The increase is primarily attributed to new hires and the cost-of-living adjustments implemented in Q2 2024. We anticipate a modest increase for the remainder of the year.
Current report
General and administrative expense in the three and six months ended June 30, 2024 were approximately $733,000 and $1,484,000, respectively, representing a decrease of 2% and a decrease of 3% compared to expense of approximately $749,000 and $1,523,000 in the corresponding periods a year ago. The decrease is primarily attributed to reduced amortization of stock options. We anticipate a slight decrease in the general and administrative expenses for the remaining of the year.
Current report
Interest expense, net of interest income, in the three and six months ended June 30, 2024 was approximately $72,000 and $145,000, respectively, compared to approximately $55,000 and $93,000, respectively, in the same periods one year ago. Interest expense in the three and six months ended June 30, 2024, was related to interest on the secured subordinated convertible notes payable (see “NOTE 6 — Secured Subordinated Convertible Notes Payable” of the notes to consolidated financial statements for more information). Our credit lines had no outstanding balances during the three and six months ended June 30, 2024. Interest expense in the three and six months ended June 30, 2023, was related to interest on the secured subordinated convertible notes payable (see “NOTE 6 — Secured Subordinated Convertible Notes Payable” of the notes to consolidated financial statements for more information) and on the CalCap loan.
Current report
As reflected in our Statements of Cash Flows, net cash used in operating activities was approximately $638,000 in the first half of 2024, compared to net cash used in operating activities amounted to approximately $528,000 in the first half of 2023. We calculate net cash used in operating activities by adjusting our net loss (approximately a net loss of approximately $1,165,000 and a net loss of $1,506,000 in the first half of 2024 and 2023, respectively) with the items that did not require the use of cash. Those items include stock-based compensation expense, depreciation and amortization of equipment and intangible assets, amortization of debt discount and operating lease ROU assets, and deferred tax expenses (benefits). These amounts totaled approximately $1,314,000 and $1,437,000 in the first half of 2024 and 2023, 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.
Current report
In the first half of 2024, changes in operating assets and liabilities resulted in net cash used in operating activities of approximately $787,000 which were primarily from increased accounts receivable levels driven by higher shipment levels at the end of the quarter and operating lease payments. The uses of cash were partially offset by reduction in inventory and increase in accounts payable.
Current report
In the first half of 2023, changes in operating assets and liabilities resulted in net cash used in operating activities of approximately $459,000 which were primarily from increased accounts receivable levels driven by higher shipment levels at the end of the quarter and operating lease payments. The uses of cash were partially offset by increases in net deferred revenue on shipments to distributors and an increase in accounts payable.
Removed paragraphs (7)
Previous report
Total revenues for the first quarter of 2024 was approximately $5.0 million, representing a 15% increase compared to the revenue of approximately $4.3 million for the same quarter a year ago. Alongside the growth in our run rate business, we observed an increase in deployment business.
Previous report
Our gross profit margins on sales reached 50.3% in Q1 2024, up from 48.1% in the same period a year ago. The margin increase was primarily due to the allocation of manufacturing overhead costs across higher production volumes.
Previous report
In the first quarter of 2024, engineering expenses were approximately $1,208,000, reflecting a 3% decrease compared to the approximately $1,247,000 spent in Q1 2023, during which efforts were concentrated on developing new products.
Previous report
Sales and marketing expenses in the first quarter of 2024 were approximately $1,031,000, marking a 2% increase compared to expenses of approximately $1,007,000 in the same quarter a year ago. The rise was primarily attributed to increases in employee compensation.
Previous report
In the first quarter of 2024, The Company incurred approximately $751,000 in general and administrative expenses, representing a 3% decrease from the expense of approximately $774,000 in the same quarter of 2023, during which there was a concentration on the cost of patent applications.
Previous report
Interest expense and other, net of interest income and other, was approximately $72,000 in the first quarter of 2024 compared to $38,000 in the first quarter of 2023. Interest expenses in the first quarter of both 2024 and 2023 were primarily related to interest on secured subordinated convertible notes payable (see “NOTE 6 — Secured Subordinated Convertible Notes Payable” for more information). There were no outstanding balances of credit lines during the first three months of 2024 or 2023.
Previous report
As reflected in our Condensed Statements of Cash Flows, we used net cash of $94,890 from operating activities in the first quarter 2024, compared to net cash provided by operating activities of $105,665 in the same period last year. To calculate our net cash (used in) provided by operating activities, we adjusted our net loss of $557,415 in the first quarter of 2024 and net loss of $993,420 in the first quarter of 2023 by adding back non-cash expenses such as stock-based compensation expense, depreciation and amortization, and deferred tax expenses and benefits, which amounted to $647,252 and $504,295 in the first quarters of 2024 and 2023, respectively. In addition, we analyze changes in operating assets and liabilities as a source or use of cash. In Q1 2024, changes in operating assets and liabilities used a net cash outflow of $184,727, mainly due to increases in accounts receivable resulting from higher shipments. In the first quarter of 2023, changes in operating assets and liabilities provided a net cash inflow of $478,958, mainly due to increases in accounts payable resulting from extended payment terms with vendors.
Reworded paragraphs (4)
Previous wording
We recorded income tax expense of zero for the first quarter of 2024 and 2023, respectively. Our deferred tax asset, primarily representing future income tax savings from the application of net operating loss carry forwards, was valued at $10,112,419 on March 31, 2024.
Current wording
In the three and six months ended June 30, 2024, we did not record any income tax expense. As of June 30, 2024, our deferred tax asset, primarily representing future income tax savings from the application of net operating loss carry forwards, was valued at $10,112,419. In the three and six months ended June 30, 2023, we recorded income tax expenses of $166,000. As of December 31, 2023, our deferred tax asset was valued at $10,112,419.
Previous wording
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.
Current wording
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. However, future ownership changes 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 of realizing the value of deferred tax assets in the future.
Previous wording
In the first quarters of 2024 and 2023, we invested $56,442 and $466,106, respectively, in leasehold improvements, computer software development costs, and manufacturing tooling costs. In Q1 2024, these investing activities were offset by proceeds from a tenant improvements allowance amounting to $72,800.
Current wording
In the first half of 2024 and 2023, we invested approximately $168,000 and $1,104,000, respectively, in leasehold improvements, computer software development costs, and manufacturing tooling costs. In Q1 2024, these investing activities were offset by proceeds from a tenant improvements allowance amounting to $72,800.
Previous wording
Net cash provided by financing activities for the three months ended March 31, 2024 was $23,750, compared to net cash used in financing activities of $299,720 in the comparable period a year ago. Financing activities in 2024 consisted of proceeds of employee stock options exercised. Financing activities in 2023 consisted primarily of common stock repurchased and the final repayment of our term loan, partially offset by the proceed of employee stock options exercised in the amount of $33,705.
Current wording
Net cash provided by financing activities was approximately $24,000 in the first half of 2024, compared to net cash used in financing activities was approximately $1,439,000 in the comparable period a year ago. Financing activities in 2024 consisted solely of proceeds from stock options exercised. In contrast, financing activities in 2023 consisted primarily of the completion of secured subordinated note financing of $1,582,000 and the proceeds of employee stock options in the amount of $190,315. These were partially offset by the repurchase of treasury stock amounting to approximately $208,000 and the final repayment of our term loan, which was $125,000.