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NOTE 5 — Commitments and Contingencies
 12 Months Ended
Dec. 31, 2022
Commitments and Contingencies Disclosure [Abstract]  
NOTE 5 — Commitments and Contingencies

NOTE 5 — Commitments and Contingencies

 

Operating Lease Obligations

The Company’s lease agreement for the office space in Newark, California expired on June 30, 2022. On May 1, 2022, the Company commenced a lease agreement for approximately 35,913 square feet at 40675 Encyclopedia Circle in Fremont, California. This serves as the location for the Company’s Corporate Headquarters, including office space and manufacturing. The Company will pay a base monthly rent in the amount of $50,278 commencing on the first day of the fourth full month of the lease term. Base monthly rent will increase annually on May 1st of each year by 3%.

 

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 July 2022, the Company also signed a two-year equipment operating lease agreement and the future lease payments are discounted at the interest rate of 5.5%.

 

As of December 31, 2022, the balances of right-of-use assets and liabilities were approximately $3.56 million and $3.74 million, respectively, compared to approximately $0.21 million and $0.26 million, respectively, on December 31, 2021.

 

The operating lease expense under existing agreement was allocated in cost of goods sold and operating costs based on department headcount and amounted to $646,821 and $428,873 for the twelve-month periods ended December 31, 2022 and 2021, respectively.

 

Cash payments included in the measurement of our existing operating lease liabilities were $517,174 and $515,822 for the twelve-month periods ended December 30, 2022 and 2021, respectively.

 

 

SOCKET MOBILE, INC.

NOTES TO FINANCIAL STATEMENTS

 

Future minimum lease payments under the existing operating lease as of December 31, 2022 are shown below:

 

         
Annual minimum payments:   Amount
2023     621,394  
2024     636,861  
2025     652,883  
2026     672,470  
2027     692,644  
Thereafter     1,139,070  
Total minimum payments     4,415,322  
Less: Present value factor     (678,758 )
Total operating lease liabilities     3,736,564  
Less: Current portion of operating lease     (444,529 )
Long-term portion of operating lease   $ 3,292,035

 

 

Purchase Commitments

On December 31, 2022, the Company’s non-cancelable purchase commitments for inventory to be used in the ordinary course of business during 2023 were approximately $8,674,000.

 

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.