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NOTE 11 — Commitments and Contingencies
 3 Months Ended
Mar. 31, 2023
Commitments and Contingencies Disclosure [Abstract]  
NOTE 11 — Commitments and Contingencies

NOTE 11 — Commitments and Contingencies

 

Operating Lease Obligations

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 pays 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 increases 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%.

 

The operating lease expense under existing agreement was allocated in cost of goods sold and operating costs based on department headcount and amounted to $162,108 and $107,218 for the three-month periods ended March 31, 2023 and 2022, respectively.

 

On March 31, 2023, the balances of right-of-use assets and liabilities for the operating lease were approximately $3.44 million and $3.63 million, respectively, compared to approximately $3.56 million and $3.74 million, respectively, on December 31, 2022.

 

Cash payments included in the measurement of the Company’s operating lease liabilities were $153,181 and $132,010 for the three months ended March 31, 2023 and 2022, respectively.

 

Future minimum lease payments under the operating lease on March 31, 2023 are shown below:

 

    
Annual minimum payments:  Amount
2023 (April 1 through December 31, 2023)   469,062 
2024   636,860 
2025   652,883 
2026   672,470 
2027   692,644 
Thereafter   1,139,070 
Total minimum payments   4,262,989 
Less: Present value factor   (632,481)
Total operating lease liabilities   3,630,508 
Less: Current portion of operating lease   (454,660)
Long-term portion of operating lease  $3,175,848 

 

 

 

SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

March 31, 2023

 

 

Purchase Commitments

As of March 31, 2023, the Company has non-cancelable purchase commitments for inventory to be used in the ordinary course of business of approximately $9,095,000.

 

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.