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NOTE 1 — Organization and Summary of Significant Accounting Policies (Policies)
 12 Months Ended
Dec. 31, 2024
Accounting Policies [Abstract]  
Organization and Business

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 app 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 app 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

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

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, 2024, 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.
Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

As topic 820 “Fair Value Measurements and Disclosures” establishes a three-tier fair value hierarchy that prioritizes the inputs in measuring fair value based on their observability in the market.

 

The hierarchy consists of:

 

Level 1: Observable inputs, such as quoted prices in active markets.

 

Level 2: Inputs other than quoted prices in active markets that are either directly or indirectly observable. 

 

Level 3: Unobservable inputs in which little or no market data exists, requiring the entity to develop its own assumptions. 

 

The carrying value of the Company’s cash and cash equivalents, accounts receivable, and accounts payable approximates their fair value due to their relatively short time to maturity.
Foreign Currency

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 2024, the total net adjustment for the effects of changes in foreign currency on cash balances, collections, and payables was a net loss of $26,700 compared to a net gain of $12,550 in 2023.
Accounts Receivable Allowances

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, 2024 and 2023:

 

             
Year  Balance at
Beginning of Year		  Charged to
Costs and
Expenses		  Amounts
Written Off		  Balance at
End of
Year
             
 2024   $40,651   $—     $—     $40,651 
 2023   $40,651   $—     $—     $40,651 

 
Inventories

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, 2024 and 2023 consisted of the following:

  

                
   December 31,
   2024  2023
Raw materials and sub-assemblies  $5,716,202   $5,839,176 
Finished goods   221,241    500,814 
Inventory reserves   (995,943)   (930,943)
Inventory, net  $4,941,500  $5,409,047
Prepaid Expenses and Other Current Assets

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, 2024 and 2023 consisted of the following:

 

                
   December 31,
   2024  2023
Prepaid insurance  $73,008   $75,626 
Product certification costs   102,716    75,604 
Prepaid inventory purchases   113,340    123,736 
Prepaid maintenance contracts and other prepaid expenses   141,655    165,764 
Prepaid expenses and other current assets  $430,719  $440,730

 
Property and Equipment

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, 2024 and 2023, were $961,425 and $787,881, respectively.
Intangible Assets

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, 2024 and 2023, the amortization expenses of intangible assets were $127,296.

 

 

SOCKET MOBILE, INC.
NOTES TO FINANCIAL STATEMENTS

 

The anticipated future amortization of these intangible assets as of December 31, 2024, is as follows:

 

      
Fiscal Year  Amount
2025    127,296
2026    127,296
2027    127,296
2028    127,296
2029    127,296
Thereafter     795,593
    $1,432,073
Impairment of Long-Lived Assets

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, 2024 and 2023, we did not recognize any impairment loss of its long-lived assets.
Concentration of Credit Risk

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.

 

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, 2024 and December 31, 2023 were as follows:

 

                
   December 31,
   2024  2023
Bluestar, Inc.   32%   * 
ScanSource, Inc.   19%   13%
Ingram Micro Inc.   15%   20%
Synnex Corporation   *    14%
Nippon Primex, Inc.   *    11%
* Customer accounted for less than 10% of the Company’s accounts receivable balances
Concentration of Suppliers  
Revenue Recognition and Deferred Revenue

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, 2024, the deferred revenue and deferred cost on shipments to distributors were $392,543 and $142,939 respectively, compared to $825,670 and $322,580, respectively, as of December 31, 2023.

 

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 years ended December 31, 2024 and 2023, the SocketCare revenues were approximately $19,300 and $21,400, 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, 2024 and 2023, the balances of unrecognized SocketCare service revenue were $30,725 and $32,698, respectively.
Cost of Sales and Gross Margins

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

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, 2024, the balances of right-of-use assets and liabilities for the operating leases were approximately $2.60 million and $2.82 million, respectively, compared to approximately $3.09 million and $3.29 million, respectively, as of December 31, 2023.
Warranty

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, 2024 and 2023:

 

             
Year  Balance at
Beginning of Year		  Additional Warranty Reserves  Amounts
Charged to Reserves		  Balance at
End of
Year
             
 2024   $78,871   $10,038   $(10,038)  $78,871 
 2023   $78,871   $13,417   $(13,417)  $78,871 
Research and Development

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 2024, these costs amounted to approximately $4.72 million, a decrease from approximately $4.83 million in 2023. 
Software Development Costs

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 cost of revenues was $0 for 2024 and $7,262 for 2023. The unamortized capitalized software costs as of December 31, 2024 and 2023 were both $0.
Advertising Costs

Advertising Costs

Advertising costs are charged to sales and marketing as incurred. The Company incurred $29,370 and $23,827, in advertising costs during 2024 and 2023, respectively.
Income Taxes

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.

 

 

SOCKET MOBILE, INC.
NOTES TO FINANCIAL STATEMENTS

 

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

Shipping and handling costs are included in the cost of revenues in the statement of operations.
Earnings (Loss) Per Share

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.

 

In 2024, the shares used in computing net loss per share do not include 1,130,260 stock options, 1,078,841 shares of unvested restricted stocks, 50,000 warrants, and 3,203,906 shares for convertible notes as their effects are anti-dilutive. In 2023, the shares used in computing 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.
Stock-Based Compensation Expense  
Segment Information

Segment Information 

Operating segments are defined as components of a company that engage in business activities from which they may earn revenues and incur expenses, with separate financial information that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) to allocate resources and assess performance. The Company evaluated its operating segments under the management approach in accordance with ASC 280, Segment Reporting (ASC 280) and determined that it operates as a single reportable segment.

 

 

SOCKET MOBILE, INC.
NOTES TO FINANCIAL STATEMENTS

 

The CODM assesses financial performance based on revenue and operating income, while expenses are reviewed on a consolidated basis. Significant expense categories including cost of goods sold, selling, general and administrative expenses, and research and development costs, are reported in the consolidated statements of operations. 

 

The Company distributes its products in the United States and foreign countries primarily through distributors and resellers. It markets its products mainly through app providers whose applications are designed to work with Company’s products.

 

Revenues by geographic region for the years ended December 31, 2024 and 2023, are as follows:

 

                
   Years Ended December 31,
Revenues: (in thousands)  2024  2023
   United States  $13,863   $12,539 
   Europe   2,318    2,426 
   Asia and rest of world   2,582    2,069 
   Total  $18,763  $17,034

  

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

Major Customers

Customers who accounted for at least 10% of total revenues for the years ended December 31, 2024 and 2023 were as follows:

 

                
   Years Ended December 31,
   2024  2023
BlueStar, Inc.   32%   22%
Ingram Micro Inc.   16%   22%
ScanSource, Inc.   *    14%
*Customer accounted for less than 10% of total revenues
Recently Issued Financial Accounting Standards

Recently Issued Financial Accounting Standards

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. See Segment Information in Note 1.

 

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.