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Basis of Presentation
9 Months Ended
Sep. 30, 2014
Disclosure Text Block [Abstract]  
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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted.

 

These condensed 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, 2013. The financial statements in the Company’s annual report on Form 10-K were prepared on a going concern basis.

 

Liquidity and Going Concern

The Company was profitable in the quarter and nine months ended September 30, 2014. The Company was profitable in the quarter ended June 30, 2014, but unprofitable in the quarter ended March 31, 2014. The Company was profitable in each of the first two quarters in 2013, but unprofitable in the third and fourth quarters, and unprofitable in total for fiscal 2013 in the amount of $620,493. As of September 30, 2014, the Company has an accumulated deficit of $60,670,164. The Company’s cash balances at September 30, 2014 were $739,560, including $815,820 advanced on its bank lines of credit. At September 30, 2014, the Company had additional unused borrowing capacity of approximately $333,000 on its bank lines of credit. The Company’s balance sheet at September 30, 2014 has a current ratio (current assets divided by current liabilities) of 0.5 to 1.0, and a working capital deficit of $2,985,620 (current assets less current liabilities). These circumstances raise substantial doubt about the Company’s ability to continue as a going concern.

 

In the last three years the Company has taken actions to reduce its expenses and to align its cost structure with economic conditions. The Company has the ability to reduce expenses if necessary. Steps taken by the Company to reduce operating losses and achieve profitability include reduction of headcount to manage payroll costs, the introduction of new products, and continued close support of the Company’s application development partners as they establish their mobile applications in key vertical markets. The Company believes it will be able to further improve its liquidity and secure additional sources of financing by managing its working capital balances, use of its bank lines of credit, and raising additional capital as needed including development funding from development partners, exercise of outstanding warrants and stock options, and the issuance of additional equity securities. However, there can be no assurance that additional capital will be available on acceptable terms, if at all, and any such terms may be dilutive to existing stockholders. The Company’s bank lines of credit may be terminated by the bank or by the Company at any time. If the Company cannot maintain profitability, it will not be able to support its operations from positive cash flows, and would use its existing cash to support operating losses. If the Company is unable to secure the necessary capital for its business, it may need to suspend some or all of its current operations.

 

If the Company can maintain revenue growth and attain ongoing profitability, it anticipates requirements for cash will include funding of higher receivable and inventory balances, and increased expenses, including an increase of costs relating to new employees to support our growth and increases in salaries, benefits, and related support costs for employees.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the Company’s inability to continue as a going concern.

 

Reclassification of Financial Statement Accounts

Certain amounts in the December 31, 2013 financial statements have been reclassified to conform to the presentation in the September 30, 2014 financial statements.