SOCKET MOBILE, INC.

SOCKET MOBILE, INC.

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, 2025.

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. As of March 31, 2026, and December 31, 2025, all of the Company’s cash and cash equivalents consisted of amounts held in demand deposit accounts in banks. 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, and debt approximate fair value due to the relatively short period of time to maturity.

Revenue Recognition and Deferred Revenue

With the adoption of ASC 606 “Revenue from Contracts with Customers” in 2017, the Company recognizes revenue on sales to distributors when shipping of product is completed and title transfers to 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. On March 31, 2026, the deferred revenue and deferred cost on shipments to distributors were$345,793 and$125,247, respectively, compared to$335,874 and$122,480, respectively, on December 31, 2025.

The Company also earns revenue from its SocketCare extended warranty program, which provides extended warranty and accidental breakage coverage for selected products. Customers can purchase a SocketCare warranty at the time of product purchase, which provides coverage for a three-year or a five-year term. Revenues from SocketCare services are recognized ratably over the life of the extended warranty contract. For the quarters ended March 31, 2026 and 2025, SocketCare revenue was approximately$4,100 and$4,300, respectively. The amount of unrecognized SocketCare service revenue is classified as deferred service revenue and presented on the Company’s balance sheet in its short- and long-term components. On March 31, 2026, the balance of unrecognized SocketCare service revenue was$25,772, compared to$28,258 as of December 31, 2025.

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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 affect 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.

Leases

On May 1, 2022, the Company entered into a building lease agreement for its corporate headquarters located in Fremont, CA. On March 31, 2026, the balances of right-of-use assets and liabilities for the operating lease were$1,953,015 and$2,150,893, respectively, compared to$2,086,621 and$2,288,708, respectively, on December 31, 2025.

Recently Issued Financial Accounting Standards

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies and 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.

NOTE 3 — Intangible Assets

In 2021, the Company entered into the Technology Transfer Agreement with SpringCard SAS. The Unaudited Condensed Balance Sheets include the intangible assets of the acquired technology at the carrying amount, net of amortization of$1,272,953 as of March 31, 2026.

The intangible assets are amortized on a straight-line basis over their estimated useful lives of fifteen years, beginning on April 1, 2021. As of March 31, 2026, the estimated future amortization of these intangible assets is as follows:

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The amortization expense was$31,824 for the three months ended March 31 in both 2026 and 2025.

NOTE 4 — 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 on March 31, 2026 and December 31, 2025 were as follows:

NOTE 5 — Bank Financing Arrangements

The Company initially entered into a Business Financing Agreement with Western Alliance Bank (the “Bank”), an Arizona corporation, on February 27, 2014, and this agreement has been amended and extended through the years.

Sixth Business Financing Modification Agreement

On January 28, 2025, the Company entered into the Sixth Business Financing Modification Agreement with the Bank, extending the maturity date of both domestic and EXIM lines of credit to April 30, 2025.

Seventh Business Financing Modification Agreement

On April 21, 2025, the Company entered into the Seventh Business Financing Modification Agreement and Waiver of Default with the Bank. Under the terms of the agreement, the Bank renewed the$3.0 million domestic credit line, raised the advance rate to up to 80% of eligible domestic receivables, increased the allowance for subordinated debt to $5.5 million, and increased the credit card limit to $350,000. The maturity date of the domestic credit line is April 30, 2026.

Eighth Business Financing Modification Agreement

On January 20, 2026, the Company entered into the Eighth Business Financing Modification Agreement and Waiver of Default with the Bank. Under the terms of the agreement, the Bank waived the Company’s covenant defaults for the third quarter and the fourth quarter of 2025. The agreement also revised certain terms of the credit facilities, including: (i) modifying the covenant to require the Company to maintain a minimum cash balance of $1.0 million in accounts held with the Bank, measured as of the last day of each month; (ii) reducing the credit card limit to $0.2 million and the domestic credit line limit to$1.0 million; (iii) extending the maturity date of the facilities to July 31, 2026; and (iv) increasing the permitted amount of subordinated debt to an aggregate amount not to exceed $6.5 million.

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There wereno amounts borrowed on the Company’s bank credit lines as of March 31, 2026 and December 31, 2025.

NOTE 6 — Secured Subordinated Convertible Notes Payable

The Company has issued multiple series of secured subordinated convertible notes (collectively, the “Notes”) between 2020 and 2026. The Notes are secured by substantially all of the Company’s assets and are subordinated to the Company’s obligations under its senior credit facility with Western Alliance Bank.

All Notes bear interest at 10% per annum, payable quarterly in cash. Each series is convertible at the holder’s option into shares of the Company’s common stock at fixed conversion prices established at issuance. Beginning one year after issuance, holders may require the Company to repay principal and accrued interest. Failure to pay principal or interest when due (subject to a five-day grace period) constitutes an event of default.

Proceeds from the issuances were used for general working capital purposes.

In connection with certain issuances involving related parties, the transactions were reviewed and approved in accordance with the Company’s related-party transaction policies. The Company filed and obtained effectiveness of registration statements under the Securities Act of 1933, as amended, covering the resale of shares issuable upon conversion of the applicable Notes.

Summary of Secured Subordinated Convertible Notes

The amortization of debt discount was$3,645 and$3,646 for the quarter ended March 31, 2026 and 2025, respectively.

Total interest expense related to the convertible note was$140,687 and$102,276 for the three months ended March 31, 2026 and 2025, respectively.

NOTE 7 — 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 and resellers. The Company markets its products primarily through application developers whose applications are designed to work with the Company’s products.

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Revenues by geographic areas for the three months ended March 31, 2026 and 2025 were as follows:

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 months ended March 31, 2026 and 2025 were as follows:

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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 and 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 the Company 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 on March 31, 2026 and December 31, 2025 were as follows:

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 due to an interruption of supply. Suppliers may choose to restrict credit terms or require advance payments causing delays in the procurement of essential materials. The Company’s inability to procure certain materials could have a material adverse effect on the Company’s results. For the three months ended March 31, 2026 and 2025, the top two suppliers accounted for 51% and 42%, respectively, of inventory purchases. As of March 31, 2026 and December 31, 2025,19% and 33%, respectively, of the Company’s accounts payable balances were concentrated with top two suppliers.

NOTE 8 — 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 stock, 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 232,045 stock options granted for the three months ended March 31, 2026 andno stock options granted for the three months ended March 31, 2025.

The shares of restricted stock are issued to employees and consultants and are held in escrow by the Company until the shares vest, subject to the employees and consultants being a continuing service provider on each of 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. Shares of restricted stock are granted on a zero cost basis. Compensation cost of the restricted stock is recognized on a straight-line basis over the life of vesting period. For the three months ended March 31, 2026 and 2025, the Company awarded 21,786 and 606,293 shares of restricted stock, respectively. As of March 31, 2026, there were 733,194 shares of restricted stock outstanding. Due to the existence of restrictions on sale or transfer until the shares vest, the Company does not count the shares of restricted stock as issued and outstanding shares until they vest. In Q1 2026,324,355 shares of restricted stock were issued to employees through vesting. Market value of the vested shares is subject to tax withholding.

Total stock-based compensation expenses for the three months ended March 31, 2026 and 2025, were$170,054 and$70,625, respectively.

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NOTE 9 — Net Loss Per Share

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

In the three months ended March 31, 2026, the shares used in computing diluted net loss per share do not include 1,296,635 stock options,50,000 warrants and 5,161,331 shares related to convertible notes payable as their effect would be anti-dilutive.

In the three months ended March 31, 2025, the shares used in computing diluted net loss per share do not include 1,114,698 stock options,50,000 warrants and 3,203,906 shares related to convertible notes payable as their effect would be anti-dilutive.

NOTE 10 — Income Taxes

The Company did not record any income tax expense in Q1 2026 and Q1 2025.

NOTE 11 — Commitments and Contingencies

Operating Lease Obligations

In February 2022, the Company entered into a lease agreement for approximately 35,913 square feet at 40675 Encyclopedia Circle in Fremont, California. This location serves as the Company’s Corporate Headquarters, including office space and manufacturing. The current monthly rent is$54,940.

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The Company accounted for the lease as an operating lease under ASC 842 using the bank loan interest rate in effect on May 1, 2022 at 5.0% to discount future lease payments. The lease term expires on July 31, 2029, with a one-time option to renew for a period of five years. The renewal period is not included in the measurement of the leases as the Company is not reasonably certain of exercising it.

In January 2024, the Company renewed its equipment operating lease agreement. The lease term expires on December 31, 2026. The Company accounted for the lease as an operating lease under ASC 842 using the bank loan interest rate in effect on January 1, 2024 at 9.25%.

The operating lease expense under the existing agreement was allocated in cost of goods sold and operating costs based on department headcount and amounted to$161,682 and$161,682 for the three-month periods ended March 31, 2026 and 2025, respectively.

On March 31, 2026, the balances of right-of-use assets and liabilities for the operating lease were approximately$1.95 million and$2.15 million, respectively, compared to approximately$2.09 million and$2.29 million, respectively, on December 31, 2025.

Cash payments included in the measurement of the Company’s operating lease liabilities were$165,891 and$161,091 for the three months ended March 31, 2026 and 2025, respectively.

Future minimum lease payments under the operating lease on March 31, 2026 are shown below:

Purchase Commitments

As of March 31, 2026, the Company has non-cancelable purchase commitments for inventory to be used in the ordinary course of business of approximately$2,835,000.

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 12 — Subsequent Events

Other than described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the audited financial statements.

On April 29, 2026, the Board of Directors was granted 18,000 shares of common stock in lieu of cash. This issuance serves as partial payment of the annual cash retainer, which is typically paid on a quarterly basis. The shares were valued at the closing market price of$0.8668 per share.

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