NOTE 6 — Secured Subordinated Convertible Notes Payable

On August 31, 2020, the Company completed a secured subordinated convertible note financing of $1,530,000, including $1,350,000 from officers, directors, and family members. Because the Financing involved such parties related to the Company, a special committee of the Board comprising the Board’s disinterested directors approved the Financing.

Proceeds from the financing were used to increase the Company’s working capital. The notes have a three-year term, accrue interest at an annual rate of 10%, and were initially scheduled to mature on August 30, 2023. Interest is payable quarterly in cash. Beginning August 31, 2021, each noteholder had the right to demand repayment of principal and accrued interest. The principal amount of each note is convertible, at the holder’s option, into shares of the Company’s common stock at a conversion price of $1.46 per share, which was the market closing price on August 28, 2020, the financing’s closing date. The notes did not include a beneficial conversion feature, as the conversion price exceeded the market price on the issuance date. The notes are secured by Company assets and subordinated to obligations under the Company’s working capital line of credit with Western Alliance Bank.

In 2021, two noteholders converted $130,000 of principal into shares of the Company’s common, resulting in a remaining outstanding note balance of $1,400,000. 

The Company and the requisite noteholders have executed a series of Secured Subordinated Convertible Note Extension Agreements to extend the maturity date of the 2020 notes. The first agreement, dated November 16, 2022, extended the maturity date to August 30, 2024. A second extension, executed on May 1, 2024, further extended the maturity date to August 30, 2025. Most recently, on July 31, 2025, a third extension agreement was executed, extending the maturity date to August 30, 2027. All other terms and conditions of the notes remain unchanged and in full force and effect.

SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

June 30, 2025

On May 26, 2023, the Company completed a secured subordinated convertible note financing of $1,600,000. The proceeds from the financing are used to increase the Company’s working capital balances. The secured subordinated convertible notes have a three-year term and mature on May 26, 2026. The interest rate on the Notes is 10% per year, payable quarterly in cash. The holder of each Note may require the Company to repay the principal amount of the Note plus accrued interest at any time after May 26, 2024. The Notes are secured by the assets of the Company and are subordinated to the Company’s debts with Western Alliance Bank, its senior lender. The principal amount of each Note is convertible at any time, at the option of the holder, into shares of the Company’s common stock at a conversion price of $1.34 per share. Failure to pay the principal payment or any interest payment (with 5 days delinquency) when due are events of default under the Notes. The Company filed and caused to be declared effective pursuant to the Securities Act of 1933, as amended, in June 2023 a Registration Statement to provide for resales of the shares of Common Stock issuable upon conversion of the Notes.

On August 21, 2024, the Company completed a secured subordinated convertible note financing of $1,000,000. The proceeds of the Financing are used to increase the Company’s working capital balances. The secured subordinated convertible notes have a three-year term and mature on August 21, 2027. The interest rate on the Notes is 10% per year, payable quarterly in cash. The holder of each Note may require the Company to repay the principal amount of the Note plus accrued interest at any time after August 21, 2025. The Notes are secured by the assets of the Company and are subordinated to the Company’s debts with Western Alliance Bank, its senior lender. The principal amount of each Note is convertible at any time, at the option of the holder, into shares of the Company’s common stock at a conversion price of $0.9515 per share. Failure to pay the principal payment or any interest payment (with 5 days delinquency) when due are events of default under the Notes. The Company filed and caused it to be declared effective pursuant to the Securities Act of 1933, as amended, in November 2024 a Registration Statement to provide for resales of the shares of Common Stock issuable upon conversion of the Notes.

On May 30, 2025, the Company completed a secured subordinated convertible note financing of $1,500,000, with $1,250,000 raised from related parties, including board directors and employees, and $250,000 from non-related party outside investors. The proceeds of the Financing are used to increase the Company’s working capital balances. The secured subordinated convertible notes have a three-year term and mature on May 30, 2028. The interest rate on the Notes is 10% per year, payable quarterly in cash. The holder of each Note may require the Company to repay the principal amount of the Note plus accrued interest at any time after May 30, 2026. The Notes are secured by the assets of the Company and are subordinated to the Company’s debts with Western Alliance Bank, its senior lender. The principal amount of each Note is convertible at any time, at the option of the holder, into shares of the Company’s common stock at a conversion price of $1.07 per share. Failure to pay the principal payment or any interest payment (with 5 days delinquency) when due are events of default under the Notes. The Company filed and caused it to be declared effective pursuant to the Securities Act of 1933, as amended, in November 2024 a Registration Statement to provide for resales of the shares of Common Stock issuable upon conversion of the Notes.

SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

June 30, 2025

The amortization of debt discount was $3,646 and $1,463 for the quarter ended June 30, 2025 and 2024, respectively.

Total interest expense recognized related to the convertible note was $116,112 and $218,388 for the three and six months ended June 30, 2025, respectively, compared to $76,257 and $152,514 for the same periods in 2024.