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NOTE 1 — Organization and Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2023
Accounting Policies [Abstract] |
NOTE 1 — Organization and Summary of Significant Accounting Policies | NOTE 1 — Organization and Summary of Significant Accounting Policies Organization and Business Socket Mobile, Inc. (the “Company”) is a leading provider of data capture and delivery solutions for mobile applications used in Retail, Commercial Services, Industrial & Manufacturing, Transportation & Logistics, and Health Care. Our products include data capture devices that utilize Bluetooth or RFID/NFC technology, designed to interface with applications running on smartphones, tablets and mobile computers. These applications operate on diverse operating systems, including Apple® (iOS), Google™ (Android™) and Microsoft® (Windows®). Additionally, the Company offers camera-based barcode scanning software. The Company focuses on serving the needs of software application providers, with our sales primarily driven by the deployment of barcode and RFID/NFC enabled mobile applications. The Company designs its own products and subcontracts the manufacturing of product components to independent third-party contract manufacturers who are in the U.S., Mexico, Singapore, China, Malaysia and Taiwan and who have the equipment, know-how and capacity to manufacture products to the Company’s specifications. Final products are assembled, tested, packaged, and distributed at and from its Fremont, California facility. In addition to its own online stores, the Company offers its products worldwide through two-tier distribution, allowing customers to purchase from numerous online resellers worldwide, including some application providers. The geographic regions served by the Company include the Americas, Europe, Asia Pacific and Africa. The Company was founded in March 1992 as Socket Communications, Inc. and reincorporated in Delaware in 1995 prior to the Company’s initial public offering in June 1995. The Company began doing business as Socket Mobile, Inc. in January 2007 to better reflect its market focus on the mobile business market, and changed its legal name to Socket Mobile, Inc. in April 2008. The Company’s common stock trades on the NASDAQ Marketplace under the symbol “SCKT.” The Company’s principal executive offices are located at 40675 Encyclopedia Circle, Fremont, CA 94538. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements as well as 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 and Cash Equivalents 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. In March 2023, the Company entered into an Insured Cash Sweep (“ICS”) Deposit Placement Agreement with IntraFi Network LLC through its bank, Bridge Bank – a division of Western Alliance Bank. The ICS program allows the Company’s demand or savings products to benefit from unlimited FDIC insurance, which helps the Company maintain the entire deposit on its balance sheet and provides additional security during times of market uncertainty. As of December 31, 2023, the Company’s cash was held in demand deposit accounts under FDIC insurance through the ICS program. The Company has never experienced any losses in its funds in bank accounts. SOCKET MOBILE, INC. NOTES TO FINANCIAL STATEMENTS Fair Value of Financial Instruments The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable and foreign exchange contracts is close to their fair value due to the relatively short period of time to maturity. Foreign Currency The functional currency for the Company is the U.S. dollar. However, the Company requires European distributors to purchase products in Euros and British pounds and pays the expenses of European employees in Euros and British pounds. In 2023, the total net adjustment for the effects of changes in foreign currency on cash balances, collections, and payables was a net gain of $12,550 compared to a net loss of $41,300 in 2022. Accounts Receivable Allowances Trade accounts receivables are recorded at the net invoice value and are not interest bearing. The Company estimates the amount of uncollectible accounts receivable at the end of each reporting period based on the aging of the receivable balance, current and historical customer trends, and communications with its customers. Amounts are written off only after considerable collection efforts have been made and the amounts are determined to be uncollectible. The following table describes the activity in the allowance for doubtful accounts for the years ended December 31, 2023 and 2022:
Year |  | Balance at Beginning of Year |  | Charged to Costs and Expenses |  | Amounts Written Off |  | Balance at End of Year
| 2023 |  |  | $ | 40,651 |  |  | $ | — |  |  | $ | — |  |  | $ | 40,651 |
| 2022 |  |  | $ | 40,651 |  |  | $ | — |  |  | $ | — |  |  | $ | 40,651 |
Inventories Inventories consist principally of raw materials and sub-assemblies stated at the lower of standard cost, which approximates actual costs (first-in, first-out method), or market. Market is defined as replacement cost, but not in excess of estimated net realizable value or less than estimated net realizable value less a normal margin. We purchase or have manufactured the component parts by our engineering bill of materials. The timing and quantity of our purchases are based on order forecast, the lead time requirements of our vendors, and economic order quantities. At the end of each reporting period, the Company compares its inventory on hand to its forecasted requirements for the next twelve-month period and reserves the cost of any inventory that is surplus, less any amounts that the Company believes it can recover from the disposal of goods or that the Company specifically believes will be saleable past a twelve-month horizon. The Company’s sales forecasts are based upon historical trends, communications from customers, and marketing data regarding market trends and dynamics. Changes in the amounts recorded for surplus or obsolete inventory are included in cost of revenue. Inventories, net of write-downs, at December 31, 2023 and 2022 consisted of the following:
|  | December 31,
|  | 2023 |  | 2022
Raw materials and sub-assemblies |  | $ | 5,839,176 |  |  | $ | 6,193,453 |
Finished goods |  |  | 500,814 |  |  |  | 289,181 |
Inventory reserves |  |  | (930,943 | ) |  |  | (880,943 | )
Inventory, net |  | $ | 5,409,047 |  |  | $ | 5,601,691 |
SOCKET MOBILE, INC. NOTES TO FINANCIAL STATEMENTS Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of various payments that the Company has made in advance for goods or services to be received in the future. Prepaid expenses and other current assets at December 31, 2023 and 2022 consisted of the following:
|  | December 31,
|  | 2023 |  | 2022
Prepaid insurance |  | $ | 75,626 |  |  | $ | 92,644 |
Product certification costs |  |  | 75,604 |  |  |  | 87,293 |
Prepaid inventory purchases |  |  | 123,736 |  |  |  | 196,512 |
Prepaid maintenance contracts and other prepaid expenses |  |  | 165,764 |  |  |  | 240,739 |
Prepaid expenses and other current assets |  | $ | 440,730 |  |  | $ | 617,188 |
Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method, over the estimated useful lives of the assets ranging from one to five years. Computer software and hardware are amortized over two to three years, while machinery and equipment are typically amortized over three years. Manufacturing tooling is amortized over a span of two to three years, and improvements to leasehold are amortized over the remaining lease term. Assets under finance leases are amortized in a manner consistent with the Company’s normal depreciation policy for owned assets, or the remaining lease term as applicable. Depreciation expenses in the years ended December 31, 2023 and 2022, were $787,881 and $594,793, respectively. Intangible Assets The Company’s intangible assets consist of completed technologies and acquired license rights. Intangible assets are amortized over their estimated useful lives based upon the estimated economic value derived from the related intangible assets. Amortization is computed using the straight-line method over the estimated useful lives of the assets. For the years ended December 31, 2023 and 2022, the amortization expenses of intangible assets were $127,296, respectively. Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset. If such assets are impaired, the impairment recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. For the years ended December 31, 2023 and 2022, we did not recognize any impairment loss of its long-lived assets. 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. To date, the Company has not experienced losses on investments. SOCKET MOBILE, INC. NOTES TO FINANCIAL STATEMENTS The Company’s trade accounts receivable is 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 as of December 31, 2023 and December 31, 2022 were as follows:
|  | December 31,
|  | 2023 |  | 2022
Ingram Micro Inc. |  |  | 20 | % |  |  | 14 | %
Synnex Corporation |  |  | 14 | % |  |  | * |
ScanSource, Inc. |  |  | 13 | % |  |  | 11 | %
Nippon Primex, Inc. |  |  | 11 | % |  |  | 14 | %
Bluestar, Inc. |  |  | * |  |  |  | 46 | %
* Customer accounted for less than 10% of the Company’s accounts receivable balances
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 to an interruption of supply. Suppliers may choose to restrict credit terms or require advance payments causing delays in the procurement of essential materials. If the Company were unable to procure certain of such materials, it could have a material adverse effect upon its results. As of December 31, 2023, 27% of the Company’s accounts payable balances were concentrated with the top supplier. For the years ended December 31, 2023 and 2022, 55% and 56% of inventory purchases, respectively, were from top three suppliers. 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 the 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. As of December 31, 2023, the deferred revenue and deferred cost on shipments to distributors were approximately $825,670 and $322,580 respectively, compared to approximately $594,793 and $266,327, respectively, as of December 31, 2022. The Company generally recognizes revenues on sales to customers other than distributors upon shipment provided that contract with the customer is identified, performance obligations in the contract are satisfied, and the price is determined. Most of our customers other than distributors do not have a right of return except under warranty. The Company also generates revenue through its SocketCare services program, which offers extended warranty and accidental breakage coverage for select products. For the year ended December 31, 2023 and 2022, the SocketCare revenues were approximately $21,400 and $22,000, respectively. The service, which can be purchased at the time of product acquisition, provides coverage for three-year and five-year terms. Revenue from the SocketCare services program is recognized ratably over the duration of the extended warranty contract. The amount of unrecognized SocketCare service revenue is classified as deferred service revenue and presented on the Company’s balance sheet in both short-term and long-term components. As of December 31, 2023 and 2022, the balances of unrecognized SocketCare service revenue were $32,698 and $34,366, respectively. SOCKET MOBILE, INC. NOTES TO FINANCIAL STATEMENTS 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 The Company adopted ASU 2016-02 effective January 1, 2019. On May 1, 2022, the Company entered into a building lease agreement for its corporate headquarters located in Fremont, CA. As of December 31, 2023, the balances of right-of-use assets and liabilities for the operating leases were approximately $3.09 million and $3.29 million, respectively, compared to approximately $3.56 million and $3.74 million, respectively, as of December 31, 2022. Warranty The Company’s products typically carry a one-year warranty. The Company reserves for estimated product warranty costs at the time revenue is recognized based upon the Company’s historical warranty experience, and additionally for any known product warranty issues. If actual costs differ from initial estimates, the Company records the difference in the period they are identified. Actual claims are charged against the warranty reserve. The following table describes activity in the reserves for product warranty costs for the years ended December 31, 2023 and 2022:
Year |  | Balance at Beginning of Year |  | Additional Warranty Reserves |  | Amounts Charged to Reserves |  | Balance at End of Year
| 2023 |  |  | $ | 78,871 |  |  | $ | 13,417 |  |  | $ | (13,417 | ) |  | $ | 78,871 |
| 2022 |  |  | $ | 78,871 |  |  | $ | 14,475 |  |  | $ | (14,475 | ) |  | $ | 78,871 |
Research and Development Research and development expenditures are charged to operations as incurred. The major components of research and development costs include salaries and employee benefits, stock-based compensation expense, third party development costs including consultants and outside services, and allocations of overhead and occupancy costs. In 2023, these costs amounted to $4.83 million, an increase from $4.36 million in 2022. Software Development Costs Costs incurred to develop computer software to be sold or otherwise marketed are charged to expense until technological feasibility of the product has been established. Once technological feasibility has been established, computer software development costs (consisting primarily of internal labor costs) are capitalized and reported at the lower of amortized cost or estimated realizable value. Purchased software development cost is recorded at cost. When a product is ready for general release, its capitalized costs are amortized on a product-by-product basis. The annual amortization is the straight-line method over the remaining estimated economic life (a period of three to five years) of the product. Amortization of capitalized software development costs is included in the cost of revenues line on the statements of operations. If the future revenue of a product is less than anticipated, impairment of the related unamortized development costs could occur, which could impact the Company’s results of operations. Amortization expense on software development costs included in costs of revenues for 2023 and 2022 were $7,262 and $43,572, respectively. The amount of unamortized capitalized software costs as of December 31, 2023 and 2022 were zero and $7,262, respectively. SOCKET MOBILE, INC. NOTES TO FINANCIAL STATEMENTS Advertising Costs Advertising costs are charged to sales and marketing as incurred. The Company incurred $23,827 and $31,146, in advertising costs during 2023 and 2022, respectively. Income Taxes We account for income taxes under the asset and liability method under ASC 740 which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Shipping and Handling Costs Shipping and handling costs are included in the cost of revenues in the statement of operations. SOCKET MOBILE, INC. NOTES TO FINANCIAL STATEMENTS Earnings (Loss) Per Share The basic computation of earnings (loss) per share is based on the weighted average number of shares outstanding during the period presented in accordance with Accounting Standards Codification (“ASC”) 260, “Earnings Per Share”. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the period. Common stock equivalents are not included in the diluted earnings per share calculation when their effect is anti-dilutive. The following table sets forth the reconciliation of basic shares to diluted shares and the computation of basic and diluted net income (loss) per share:
|  | Years Ended December 31,
|  | 2023 |  | 2022
Numerator: |  |  |  |
Net income (loss) |  | $ | (1,919,154 | ) |  | $ | 86,931 |
Net income (loss) allocated to restricted stock award |  |  | — |  |  |  | (8,820 | )
Adjusted net income (loss) for basic earnings per share |  | $ | (1,919,154 | ) |  | $ | 78,111 |
Convertible note interest |  |  | — |  |  |  | — |
Adjusted net income (loss) before interest for diluted earnings per share |  | $ | (1,919,154 | ) |  | $ | 78,111 |
Denominator: Weighted average shares outstanding used in computing net income (loss) per share: |  |  |  |  |  |  |  |
Basic |  |  | 7,230,074 |  |  |  | 7,184,847 |
Dilutive impact of stock compensation awards |  |  | — |  |  |  | 348,077 |
Fully diluted |  |  | 7,230,074 |  |  |  | 7,532,924 |
Net income (loss) per share applicable to common stockholders: |  |  |  |  |  |  |  |
Basic |  | $ | (0.27 | ) |  | $ | 0.01 |
Fully diluted |  | $ | (0.27 | ) |  | $ | 0.01 |
In 2023, the shares used in computing diluted net loss per share do not include 1,151,114 stock options, 991,199 shares of unvested restricted stocks, 50,000 warrants, and 2,152,934 shares for convertible notes as their effects are anti-dilutive. In 2022, the shares used in computing diluted net income per share do not include 342,765 stock options that were out of the money under the treasury stock method approach, along with 844,976 shares of unvested restricted stocks. Furthermore, 958,904 shares for convertible notes are excluded as their anti-dilutive effects, stemming from the convertible note interest exceeding the earnings per share. Stock-Based Compensation Expense The Company has incentive plans that reward employees with stock options and shares of restricted stocks. The amount of compensation cost for these stock-based awards is measured based on the fair value of the awards as of the grant date. 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. Compensation cost for stock-based awards is recognized on a straight-line basis over the vesting period, which is usually the service period. Segment Information Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief executive officer in deciding how to allocate resources and in assessing performance. The Company operates in the mobile barcode scanning and RFID reader/writer market. Mobile scanning typically consists of mobile devices such as smartphones or tablets, with mobile scanning 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 providers whose applications are designed to work with Company’s products. SOCKET MOBILE, INC. NOTES TO FINANCIAL STATEMENTS Revenues for the geographic areas for the years ended December 31, 2023 and 2022 are as follows:
|  | Years Ended December 31,
Revenues: (in thousands) |  | 2023 |  | 2022
United States |  | $ | 12,539 |  |  | $ | 15,765 |
Europe |  |  | 2,426 |  |  |  | 2,612 |
Asia and rest of world |  |  | 2,069 |  |  |  | 2,861 |
Total |  | $ | 17,034 |  |  | $ | 21,238 |
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 total revenues for the years ended December 31, 2023 and 2022 were as follows:
|  | Years Ended December 31,
|  | 2023 |  | 2022
Ingram Micro Inc. |  | 22% |  | 26%
BlueStar, Inc. |  | 22% |  | 24%
ScanSource, Inc. |  | 14% |  | 11%
*Customer accounted for less than 10% of total revenues
Recently Issued Financial Accounting Standards In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments," which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces the "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. For trade and other receivables, held-to-maturity debt securities, contract assets, loans and other instruments, entities are now required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowances for losses. The Company began reporting on topics required by ASU 2016-13 for the year ended December 31, 2023. The adoption did not have a material impact on the Company's financial position or results of operations. From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that all other recently issued accounting standards are not expected to have a material impact on the Company’s financial position or results of operations upon adoption.

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- Definition The entire disclosure for the business description and accounting policies concepts. Business description describes the nature and type of organization including but not limited to organizational structure as may be applicable to holding companies, parent and subsidiary relationships, business divisions, business units, business segments, affiliates and information about significant ownership of the reporting entity. Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 235 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//235/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 275 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//275/tableOfContent + Details
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