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NOTE 11 — Commitments and Contingencies

3 Months Ended

Mar. 31, 2024

Commitments and Contingencies Disclosure [Abstract]

NOTE 11 — Commitments and Contingencies

NOTE 11 — Commitments and Contingencies

Operating Lease Obligations

On February 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 1^st 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 January 2024, the Company renewed its equipment operating lease agreement. The lease term expires on December 31, 2026. The Company accounted for the lease as an operating lease under ASC 842 using the bank loan interest rate in effect on January 1, 2024 at 9.25%.

The operating lease expense under the existing agreement was allocated in cost of goods sold and operating costs based on department headcount and amounted to $161,682 and $162,108 for the three-month periods ended March 31, 2024 and 2023, respectively.

SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

March 31, 2024

On March 31, 2024, the balances of right-of-use assets and liabilities for the operating lease were approximately $2.98 million and $3.18 million, respectively, compared to approximately $3.09 million and $3.29 million, respectively, on December 31, 2023.

Cash payments included in the measurement of the Company’s operating lease liabilities were $156,430 and $153,181 for the three months ended March 31, 2024 and 2023, respectively.

Future minimum lease payments under the operating lease on March 31, 2024 are shown below:


Annual minimum payments:		Amount
2024 (April 1 through December 31, 2024)			481,718
2025			657,164
2026			676,751
2027			692,644
2028			713,423
2029			425,646
Total minimum payments			3,647,346
Less: Present value factor			(462,622	)
Total operating lease liabilities			3,184,724
Less: Current portion of operating lease			(494,390	)
Long-term portion of operating lease		$	2,690,334

Purchase Commitments

As of March 31, 2024, the Company has non-cancelable purchase commitments for inventory to be used in the ordinary course of business of approximately $5,403,000.

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.