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What changed in SOCKET MOBILE, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SOCKET MOBILE, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+144 added−150 removedSource: 10-K (2024-03-25) vs 10-K (2023-03-31)

Top changes in SOCKET MOBILE, INC.'s 2023 10-K

144 paragraphs added · 150 removed · 110 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeD S820 provides a basic and affordable option for those who wish to upgrade to 2D scanning. Contactless RFID/NFC reader writer. Our contactless product line includes D600, S550 and S370. The D600, an ergonomically handheld model with IP54-rated outer casing, can read and write many different types of electronic SmartTags or transfer data with near-field communication.
Biggest changeThe D600 is an ergonomically handheld model with an IP54-rated outer casing that can read and write various types of electronic SmartTags or transfer data with near-field communication. The S550 is a contactless membership card reader/writer designed for tap-and-go smart card and Near Field Communication (“NFC”) applications. The S370 supports both barcode scanning and NFC reading and writing technologies.
We offer an easy-to-use software developer kit (CaptureSDK) to application providers, which enables them to provide their consumers with our advanced barcode scanning features. Our products are integrated by the application providers and are marketed by the application providers or their resellers. The number of application providers supporting our data capture solutions continues to grow. SocketScan family .
We offer an easy-to-use software developer kit (CaptureSDK) to application providers, which enables them to provide their consumers with our advanced barcode scanning features. Our products are integrated by the application providers and are marketed by the application providers or their resellers. The number of application providers supporting our data capture solutions continues to grow. XtremeScan family .
We believe that our brand name identifies our products as durable, dependable, ergonomic, and easy to use, all features designed for a mobile worker while mobile, and the breadth of our product offerings, including the extensively advanced features of our software and software developer kit, will continue to differentiate us relative to our competitors. 5 Table of Contents Cordless Barcode Scanning.
We believe that our brand name identifies our products as durable, dependable, ergonomic, and easy to use, all features designed for a mobile worker while mobile, and the breadth of our product offerings, including the extensively advanced features of our software and software developer kit, will continue to differentiate us relative to our competitors. Cordless Barcode Scanning.
We were founded in March 1992 as Socket Communications, Inc. and reincorporated in Delaware in 1995 prior to our initial public offering in June 1995. We have financed our operations since inception primarily from the sale of equity capital or convertible debt, receivables-based revolving lines of credit and term loans with our bank.
We were founded in March 1992 as Socket Communications, Inc. and reincorporated in Delaware in 1995 prior to our initial public offering in June 1995. We have financed our operations since inception primarily from selling equity capital or convertible debt, receivables-based revolving lines of credit and term loans with our bank.
Our barcode scanning hardware products compete with similar hardware products in all our markets in the United States, Europe and Asia, and we differentiate our products with our software developer kit and our underlying data capture software designed to work with smartphones, tablets, and other mobile computers running the Apple, Android and Windows operating systems.
Our products compete with similar products in all our markets in the United States, Europe and Asia, and we differentiate our products with our software developer kit and our underlying data capture software designed to work with smartphones, tablets, and other mobile computers running the Apple, Android and Windows operating systems.
Personnel Our future success will depend in significant part upon the continued service of certain of our key technical and senior management personnel, and our continuing ability to attract, assimilate and retain highly qualified technical, managerial, and sales and marketing personnel. Our total employee headcount was 56 and 53 as of December 31, 2022 and 2021, respectively.
Personnel Our future success will depend in significant part upon the continued service of certain of our key technical and senior management personnel, and our continuing ability to attract, assimilate and retain highly qualified technical, managerial, and sales and marketing personnel. Our total employee headcount was 61 and 56 as of December 31, 2023 and 2022, respectively.
We spend extensive engineering time and resources to ensure that our cordless data capture products are compatible with a wide variety of the most popular smartphones, tablets, and mobile computers running a variety of operating systems.
We spend extensive engineering time and resources to ensure that our products are compatible with a wide variety of the most popular smartphones, tablets, and mobile computers running a variety of operating systems.
Our DuraScan® family consists of 700 Series (D700, D720, D730, D740, D745, D750, D755, D760) companion scanners and 800 Series (D800, D820, D840, D860) attachable scanners, which are designed to be durable barcode scanners with IP54-rated outer casing to withstand tougher environments.
Our DuraScan® family consists of 700 Series (D700, D720, D730, D740, D745, D755, D760) companion scanners, 800 Series (D800, D820, D840, D860) attachable scanners and Wearable (DW930, DW940), which are designed to be durable barcode scanners with IP54-rated outer casing to withstand tougher environments.
Our data capture solutions are incorporated into mobile applications used in point of sale (POS), commercial services (field workers), asset tracking, manufacturing process and quality control, transportation and logistics (goods tracking and movement), event management (ticketing, entry, access control, and identification), medical and education.
Our solutions are incorporated into mobile applications used in point of sale (POS), commercial services (field workers), asset tracking, manufacturing and quality control processes, transportation and logistics (goods tracking and movement), event management (ticketing, entry, access control, and identification), medical and education.
Our principal executive offices are located at 40675 Encyclopedia Circle, Fremont, CA 94538, and our phone number is (510) 933-3000. Our Internet home page is located at http://www.socketmobile.com; however, the information on, or that can be accessed through, our home page is not part of this Annual Report.
Our principal executive offices are located at 40675 Encyclopedia Circle, Fremont, CA 94538, and our phone number is (510) 933-3000. 1 Table of Contents Our Internet home page is https://www.socketmobile.com; however, the information on or that can be accessed through it is not part of this Annual Report.
Our employees are not represented by a union, and we consider our employee relationships to be good. As of December 31, 2022, we had 15 persons in sales, marketing, and customer service, 16 persons in development engineering, 8 persons in finance and administration, and 17 persons in operations. 7 Table of Contents
Our employees are not represented by a union, and we consider our employee relationships to be good. As of December 31, 2023, we had 19 persons in sales, marketing, and customer service, 16 persons in development engineering, 8 persons in finance and administration, and 18 persons in operations. 7 Table of Contents
D740 is priced competitively with a 1D barcode scanner, making it the affordable 2D option available in the market. D820, which was launched recently, provides a basic and affordable option for those who wish to upgrade to 2D scanning. D745 and D755 are medical-grade, universal scanners.
The D720 is priced competitively with a 1D barcode scanner, making it the affordable 2D option available in the market. The D820 provides a basic and affordable option for those who wish to upgrade to 2D scanning. The D745 and D755 are medical-grade, universal scanners.
Mobility requires products that are compact and designed to be handled while mobile, with low power consumption to extend the time between charges, and are easy to use. We strive to offer high-performance products at a wide range of competitive prices.
We stress to customers the design of our products for the markets they serve, emphasizing quality and standards-based connectivity. Mobility requires products that are compact and designed to be handled while mobile, with low power consumption to extend the time between charges and are easy to use. We strive to offer high-performance products at a wide range of competitive prices.
The CaptureSDK uses tools integrated with software building environments such as Swift Package Manager, Maven and NuGet, adds support for high-level frameworks such as MAUI, ReactNative, Java, JavaScript and Flutter, and adds other features to make it easier for App providers to integrate our data capture software into their applications.
The CaptureSDK uses tools integrated with software building environments such as Swift Package Manager, Maven and NuGet, adds support for high-level frameworks such as MAUI, ReactNative, Java, JavaScript, and Flutterand adds other features to make it easier for App providers to integrate our data capture software into their applications. 3 Table of Contents We design our own products and are responsible for all associated test equipment.
For example, our data collection software enables our barcode scanning products to scan a variety of barcodes and to route the data to many different types of data files on operating systems used in Apple, Android, and Windows mobile devices. We use Bluetooth technology to provide a completely functional Bluetooth solution enabling connections and data transfers between Bluetooth-enabled devices.
We have developed software programs that provide unique functions and features for our data collection products. For example, our data collection software enables our barcode scanning products to scan a variety of barcodes and to route the data to many different types of data files on operating systems used in Apple, Android, and Windows mobile devices.
We design our own products and are responsible for all associated test equipment. We subcontract the manufacturing of all our product components to independent third-party contract manufacturers located in the United States, Mexico, Taiwan, Singapore, Malaysia and China that have the equipment, know-how and capacity to manufacture products to our specifications.
We subcontract the manufacturing of all our product components to independent third-party contract manufacturers located in the United States, Mexico, Taiwan, Singapore, Malaysia and China that have the equipment, know-how and capacity to manufacture products to our specifications. We perform final product assembly, testing and packaging at, and distribute our products from, our Fremont, California facility.
We comply with the standards set by the standard-setting bodies whose technologies are used in our products such as Bluetooth SIG, NFC Forum, GS1, and AIM Global. 4 Table of Contents Mobile Markets . Our revenues are primarily driven by sales of barcode scanners integrated into mPOS (mobile Point of Sale) applications used with Apple tablets and other mobile devices.
We comply with the standards set by the standard-setting bodies whose technologies are used in our products such as Bluetooth SIG, NFC Forum, GS1, AIM Global, CIPURSE, and FeliCa. 4 Table of Contents Mobile Markets .
We offer a full range of handheld cordless barcode scanners connecting to smartphones, tablets, and other computing devices over Bluetooth and SocketCam product, C820, a software-based barcode scanner. Our Software Developer Kit (CaptureSDK) enables application providers to integrate the features of our Data Capture software into their applications and helps differentiate our products.
We offer a full range of cordless barcode scanners designed to connect to smartphones, tablets, and other computing devices via Bluetooth. Our Software Developer Kit (CaptureSDK) empowers application providers to integrate the capabilities of our Data Capture software into their applications, setting our products apart.
Litigation could be brought against us that could result in significant additional expense or compel us to discontinue or redesign some of our products.
From time to time, we receive communications from third parties asserting that our products infringe, or may infringe, their proprietary rights. Litigation could be brought against us that could result in significant additional expense or compel us to discontinue or redesign some of our products.
The goal is for customers to view Socket Mobile as a primary source for their mobile data capture needs. Our products include stand-alone barcode scanners in both durable and standard cases, attachable barcode scanners, and RFID/NFC reader/writer. We provide a software developer kit to application providers to enable our advanced data capture software to be easily integrated into applications.
Our products include stand-alone barcode scanners in both durable and standard cases, attachable barcode scanners, RFID/NFC reader/writer and camera-based scanning software. We provide a software developer kit to application providers to enable our advanced data capture software to be easily integrated into applications. See “Item 1 Business. The Company and its Products” for a more detailed description of our products.
This image closely associates us with business mobility solutions and to reflect this image, we began doing business as Socket Mobile, Inc. in January 2007 and changed our legal name to Socket Mobile, Inc. in April 2008. We stress to customers the design of our products for the markets they serve, emphasizing quality and standards-based connectivity.
We are building a brand image focused on business mobility. This image closely associates us with business mobility solutions and to reflect this image, we began doing business as Socket Mobile, Inc. in January 2007 and changed our legal name to Socket Mobile, Inc. in April 2008.
Many of these devices are not Apple certified. Many connect to Apple devices over Bluetooth in keyboard emulation mode and do not offer extensive tools for application providers such as our software developer kit (CaptureSDK) to integrate features of our sophisticated data collection scanning software and hardware needed to meet the consumer’s requirement. Contactless RFID/NFC Reader/Writer .
They may not offer extensive tools for application providers, such as our software developer kit (CaptureSDK), to integrate the features of our sophisticated data collection scanning software and hardware. This could potentially limit their ability to meet the consumer’s requirements fully. NFC & RFID Contactless Reader/Writer .
Many mPOS application providers develop software for smaller retailers using tablets as cash registers. Other mobile markets addressed by application providers include commercial services (field workers), asset tracking, manufacturing process and quality control, transportation and logistics (goods tracking and movement), event management (ticketing, entry, access control, and identification), medical and education.
Other mobile markets addressed by application providers include commercial services (field workers), asset tracking, manufacturing process and quality control, transportation and logistics (goods tracking and movement), event management (ticketing, entry, access control, and identification), medical and education. We expect these markets to increase the use of mobile applications and the demand for barcode scanners. Expanded and improved product offerings.
Patent and Trademark Office for the mark “Socket”, our logo, DuraScan, and SocketScan. We have developed technological building blocks that enhance our ability to design new hardware and software products, offer products that run on multiple software and hardware platforms, and manufacture and package products efficiently.
We have developed technological building blocks that enhance our ability to design new hardware and software products, offer products that run on multiple software and hardware platforms, and manufacture and package products efficiently. We own and control the design of our products, enabling us to modify its features or software to meet specific customer requirements.
We expect these markets to increase the use of mobile applications and the demand for barcode scanners. Expanded and improved product offerings. We offer a wide range of products that enable application providers and their consumers to design their mobile systems to meet their specific requirements, and we encourage our distributors to support the full range of our products.
We offer a wide range of products that enable application providers and their consumers to design their mobile systems to meet their specific requirements, and we encourage our distributors to support the full range of our products. The goal is for customers to view Socket Mobile as a primary source for their mobile data capture needs.
We distribute our products through a worldwide distribution network that places products into geographic regions to shorten purchasing time and provides a credit shield to us. Our largest distributors are Ingram Micro®, ScanSource® and Blue Star, and they support a worldwide network of online resellers including Shopify®, Amazon.com, and CDW®. We also offer products in our own online stores.
Our largest distributors are Ingram Micro®, ScanSource® and Blue Star, and they support a worldwide network of online resellers including Shopify®, Amazon.com, and CDW®. We also offer products in our own online stores. Strong Brand Name . We believe that our products make a difference in the daily work life of mobile workers and the people they serve.
We offer our products worldwide through two-tier distribution enabling customers to purchase from large numbers of online resellers around the world including application providers who resell their own solutions along with our data capture products. 3 Table of Contents We believe growth in mobile applications and the mobile workforce resulting from technical advances in mobile technologies, cost reductions in mobile devices and the growing adoption by businesses of mobile applications for smartphones and tablets, builds a growing demand for our products.
We offer our products worldwide through two-tier distribution enabling customers to purchase from large numbers of online resellers around the world including application providers who resell their own solutions along with our data capture products. Our products are also available on our online stores.
Through our developer support program, we work closely with application providers who are developing productivity-enhancing applications for the mobile workforce. Our overall company brand identity and positioning goal is to be a leading provider of easy-to-deploy business mobility data capture systems to the business mobility market.
Our overall company brand identity and positioning goal is to be a leading provider of easy-to-deploy business mobility data capture systems to the business mobility market. 5 Table of Contents Competition and Competitive Risks The overall market for mobile handheld data capture solutions is both complex and competitive.
Our SocketScan family consists of the 700 Series (S700, S720, S730, S720, S740) companion scanners and 800 Series (S800, S820, S840, S860) attachable scanners. 700 Series are available in multiple vivid colors: blue, green, red, white, yellow and black. S720 reads both 1D and 2D barcodes on paper and screen.
The 700 Series are available in multiple vivid colors: blue, green, red, white, yellow and black. The S720 reads both 1D and 2D barcodes on paper and screen, serving as a drop-in replacement for our previously popular S700 model while also adding QR code functionality.
We have designed our products to be priced competitively although we are subject to changes in component pricing by our suppliers. We update our products from time to time and work with our vendors to achieve reductions in component pricing. Worldwide product availability.
We design our products to comply with the regulations of the many worldwide agencies that regulate the safety, performance, and use of electronic products. Competitive pricing. We have designed our products to be priced competitively although we are subject to changes in component pricing by our suppliers.
Users may choose a barcode scanner that connects directly to an Apple tablet, iPhone or a computer such as offered by Infinite Peripherals and Honeywell. Users also may choose more rugged barcode scanners as an alternative, some of which are integrated into computing devices from manufacturers such as Datalogic, Honeywell®, and Zebra Technologies.
Our cordless barcode scanners face competition from similar products by Koamtec, Code Corporation and Opticon (Japan). Users may choose a barcode scanner that connects directly to an Apple tablet, iPhone or a computer, as offered by Infinite Peripherals and Honeywell.
As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our employees, distributors and strategic partners, and limit access to our software, documentation and other proprietary information. Despite these precautions, it may be possible for a third-party to copy or otherwise obtain and use our products or technology without authorization, or to develop similar technology independently.
We rely on a combination of patent, copyright, trademark and trade secret laws, and confidentiality procedures to protect our proprietary rights. As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our employees, distributors and strategic partners, and limit access to our software, documentation and other proprietary information.
Item 1. Business General We are a leading provider of data capture and delivery solutions for enhanced productivity in workforce mobilization.
Item 1. Business General We are a leading provider of data capture and delivery solutions, enhancing productivity for a mobile workforce through innovative technology and tailored applications. Historically, we began as a hardware peripheral company but have transitioned into a comprehensive data capture organization.
Our companion applications assist Apple iOS, Android and Windows users with the proper setup and use of our data capture products. 6 Table of Contents We rely on a combination of patent, copyright, trademark and trade secret laws, and confidentiality procedures to protect our proprietary rights.
We use Bluetooth technology to provide a completely functional Bluetooth solution enabling connections and data transfers between Bluetooth-enabled devices. Our companion applications assist Apple iOS, Android and Windows users with the proper setup and use of our data capture products.
It’s a drop-in replacement for our most sold S700 while adding QR code functionality. 800 Series, 1D linear imaging (S800) and 2D (S820, S840, S860) are attachable to smartphones, tablets and other mobile devices with an easily detachable clip or DuraCase, creating a one-handed solution.
The 800 Series comprises 1D linear imaging (S800) and 2D (S820, S840, S860), which can be easily clipped onto smartphones, tablets and other mobile devices using an easily detachable clip or DuraCase, creating a one-handed solution. The S860 includes MRZ (machine-readable zone) support, allowing it scan passports, visas, and other travel documents in addition to barcodes.
D760 and D860 include MRZ (machine-readable zone) support, making it capable of scanning passports, visas, and other travel documents. D820 provides a basic and affordable option for those who wish to upgrade to 2D scanning. DuraSled Family . Our DuraSled (DS800, DS820, DS840, DS860) is a barcode scanning sled designed for durability.
The D760 and D860 include MRZ (machine-readable zone) support, making it capable of scanning passports, visas, and other travel documents.
It combines a phone with a scanner to create a one-handed solution. DuraSled protects phones from impact damage and provides a robust charging solution for all environments. It is easy-to-use and ideal for delivery services, stock counting, ticketing and other App-driven mobile solutions. The DuraSled products are compatible with Apple, Samsung and Windows devices.
It is easy-to-use and ideal for delivery services, stock counting, ticketing and other App-driven mobile solutions. The DuraSled products are compatible with Apple and Samsung devices. The D S820 provides a basic and affordable option for those who wish to upgrade to 2D scanning. NFC & RFID Contactless Reader/Writer. The product line consists of the D600, S550 and S370.
In addition, we may not be able to effectively protect our intellectual property rights in certain foreign countries. From time to time, we receive communications from third parties asserting that our products infringe, or may infringe, their proprietary rights.
Despite these precautions, it may be possible for a third-party to copy or otherwise obtain and use our products or technology without authorization, or to develop similar technology independently. In addition, we may not be able to effectively protect our intellectual property rights in certain foreign countries.
End-users whose data capture requirements exceed the capabilities of the free camera-based scanners will have the choice of purchasing a Socket Scanner or using an advanced version of the camera-based scanner which is expected to be available in 2023. Software Developer Kit (CaptureSDK) .
The C820 and C860 enable App providers to service a wide range of customers with various data capture requirements, from price-sensitive to performance-sensitive. End-users whose data capture requirements exceed the capabilities of the free camera-based scanners will have the choice of upgrading to an advanced camera-based scanner, C860, or purchase a Socket hardware scanner. DuraScan® Family .
S370 can also read credentials following ISO 18013-5, the Mobile Driver’s License (mDL) standard being adopted in many states and countries. SocketCam family .
It provides App providers the ability to read both QR code-based and NFC-based credentials, enabling them to accept multiple formats with just one device. Additionally, the S370 can read credentials following ISO 18013-5, the Mobile Driver’s License (mDL) standard being adopted in some states and countries. Software Developer Kit (CaptureSDK) .
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S860 includes MRZ (machine-readable zone) support, making it capable of scanning passports, visas, and other travel documents in addition to barcodes. SocketScan 800 Series scanners may be used stand-alone as well. S820, which was launched recently, provides a basic and affordable option for those who wish to upgrade to 2D scanning. 2 Table of Contents DuraScan® Family .
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Our evolution has enabled us to generate revenue through software solutions, as well as hardware solutions like barcode scanners and NFC/RFID readers. Initially building our foundation on hardware, we later expanded into software, creating a robust, integrated offering that covers all aspects of data capture for our customers.
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The S550, a contactless membership card reader/writer, is designed to facilitate tap-and-go smart card and NFC applications. S370 supports both barcode scanning and Near Field Communication (NFC) reading and writing technologies. It provides App providers the ability to read both QR code-based and NFC-based credentials, allowing App providers to accept multiple formats with one device.
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In August 2023, the Company made entry into the industrial barcode scanning market with the XtremeScan family. XtremeScan combines the versatility and user-friendliness of iPhones with the ruggedness and top-of-the-line protection required for extreme, industrial work environments. XtremeScan Case XC100 offers ultimate iPhone protection with its rugged outer shell and fully enclosed, rubberized shielding for maximum durability.
Removed
In Q1 2022, we announced our SocketCam product, C820, a software-based barcode scanner, which offers a free, flexible, quick, and reliable data capture solution to our App partners who can include the C820 in their applications to provide free scanning to their end-users.
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It's the toughest iPhone case on the market, offering military-grade protection against drops, dirt, water, and even more unpredictable elements found in harsh industrial environments. XtremeScan XS930 & XS940 are built upon the XtremeScan Case and provide the same rugged iPhone protection, adding a high-performance Socket Mobile data reader.
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The SocketCam C820 is the first member of the SocketCam family and turns any mobile device into a high-performance barcode scanner. App providers are challenged to service a wide range of customers with various data capture requirements, from price-sensitive to performance-sensitive, and even multiple data types. The addition of the C820 seamlessly enables these diverse requirements.
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With both 1D (XS930) and powerful 1D/2D (XS940) options, these data readers can scan through various types of packaging materials under different lighting conditions. They provide the perfect solution for users who wish to utilize iPhones for data capture within rough, industrial settings.
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We perform final product assembly, testing and packaging at, and distribute our products from, our Fremont, California facility.
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XtremeScan Grip XG930 & XG940 provides 1D or 1D/2D barcode scanning capabilities and builds even further on the XS by providing an added pistol grip handle. The ergonomic grip enables an easy point-and-shoot approach and comfort during extended scanning sessions. SocketCam family . Our camera-based barcode scanning software includes SocketCam C820 and C860 for both iOS and Android.
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See “Item 1 Business. The Company and its Products” for a more detailed description of our products. We design our products to comply with the regulations of the many worldwide agencies that regulate the safety, performance, and use of electronic products. Competitive pricing.
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The C820 is a free, easily integrated camera scanning solution. The C860 offers a significant upgrade for users with advanced scanning needs. It stands out due to its swift and accurate reading of damaged barcodes, coupled with exceptional performance in poor lighting conditions, setting it apart from others in the industry.
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Strong Brand Name . We believe that our products make a difference in the daily work life of mobile workers and the people they serve. We are building a brand image focused on business mobility.
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Additionally, the 800 Series scanners may be used as stand-alone devices as well. 2 Table of Contents DuraScan Wear DW930 & DW940 are the first wearable additions to the DuraScan Product Family, introducing a new era of innovative scanning technologies for the Company. The DW930 offers 1D laser scanning technology, while the DW940 provides powerful 1D/2D barcode scanning functionality.
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Competition and Competitive Risks The overall market for mobile handheld data capture solutions is both complex and competitive.
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Their glove-like, wearable design allows workers to use both hands freely, enhancing speed and flexibility. This makes them perfect for scanning in industries such as warehousing, manufacturing, and distribution. SocketScan family . Our SocketScan family consists of the 700 Series (S700, S720, S730, S740) companion scanners and 800 Series (S800, S820, S840, S860) attachable scanners.
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Our Cordless Barcode Scanners face competition from similar products from Koamtec, Code Corporation and Opticon (Japan). Barcodes may also be scanned using the built-in camera in smartphones or tablets with applications from Scandit or Manatee Works.
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Additionally, the 800 Series scanners may be used as stand-alone devices as well. DuraSled Family . Our DuraSled (DS800, DS820, DS840, DS860) is a barcode scanning sled designed for durability. It combines a phone with a scanner to create a one-handed solution. DuraSled protects phones from impact damage and provides a robust charging solution for all environments.
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We developed and commenced sales in 2017 of a Contactless RFID/NFC Reader/Writer, D600 that can read and write many different types of electronic SmartTags used in many applications today, like digital wallet applications for loyalty cards, identification cards, payment cards, coupons and event tickets.
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We believe growth in mobile applications and the mobile workforce resulting from technical advances in mobile technologies, cost reductions in mobile devices and the growing adoption by businesses of mobile applications for smartphones and tablets, builds a growing demand for our products.
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In 2020, we launched a Contactless Membership Card Reader/Writer, S550 which enables us to expand our business into the emerging market for tap-and-go solutions that have traditionally been limited to payment solutions, such as Apple Pay, but can now be used for ticketing, access, and identification applications.
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Our revenues are primarily driven by sales of barcode scanners integrated into mPOS (mobile Point of Sale) applications used with Apple tablets and other mobile devices. Many mPOS application providers develop software for smaller retailers using tablets as cash registers.
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The S550 was chosen as a finalist for the NFC Innovation Award i n 2022. In 2022, we also launched S 370, a universal NFC & QR Code Mobile Wallet Reader to enable our app partners to support eWallet-centric opportunities like mobile driver licenses and digital healthcare cards.
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We update our products from time to time and work with our vendors to achieve reductions in component pricing. Worldwide product availability. We distribute our products through a worldwide distribution network that places products into geographic regions to shorten purchasing time and provides a credit shield to us.
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We believe we are an early entrant into this market and do not face significant head-to-head competition from alternative reader/writer devices. Proprietary Technology and Intellectual Property We have been granted U.S. patents and design patents and have other patent applications under review. We have registered trademarks with the U.S.
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Through our developer support program, we work closely with application providers who are developing productivity-enhancing applications for the mobile workforce.
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We own and control the design of our barcode scanners, enabling us to modify its features or software to meet specific customer requirements. We have developed software programs that provide unique functions and features for our data collection products.
Added
Alternatively, users may choose more rugged barcode scanners, with some integrated into computing devices from manufacturers such as Datalogic, Honeywell®, and Zebra Technologies. Many of these devices lack Apple certification and connect to Apple devices via Bluetooth in keyboard emulation mode.
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We offer products that are certified by Apple Pay® Value Added Service (VAS), Google Wallet Smart Tap, NFC Forum, FeliCa®, and Bluetooth SIG. Additionally, we provide a combo NFC & QR code mobile wallet reader, which combines NFC contactless technology with Bluetooth barcode scanning data capture. These devices are compatible with Android, Apple iOS and Windows.
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They support all NFC Forum tag types and devices compliant with the ISO 18092 standard, as well as ISO 14443 Type A and B smart cards, ISO 15693 tags, MIFARE®, FeliCa®, NXP, and STMicro tags. They can also read Digital ID / mDL (Mobile Driver’s License).
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We face challenges with the limitations on NFC usage in iPhones, although Apple has opened up some NFC capabilities to developers. We are exploring new markets while working with current App developers to adopt our NFC reader/writer, giving us an advantage against competitors. Camera Barcode Scanning.
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We offer two camera-based barcode scanning products: the C820, a free and easily integrated camera scanning solution, and the C860, an upgraded and advanced scanning solution. The C860's standout feature is its ability to read damaged barcodes swiftly and accurately, even in poor lighting conditions, setting it apart from others in the industry.
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Our camera-scanning solutions face competition from applications provided by Scandit or Manatee Works. However, our business model ensures affordability and flexibility, making our camera-scanning solutions accessible to a wide range of businesses. Our App partners receive camera scanning solutions at no charge, which encourages them to adopt our solutions.
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Users of their apps pay for the solutions only if the C860 is selected. For end users, most of their needs can be met with our free camera scanning solution, except for a small percentage of needs requiring the advanced solution, C860.
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This makes our camera scanning solution ideal for end users as well. 6 Table of Contents Proprietary Technology and Intellectual Property We have been granted U.S. patents and design patents and have other patent applications under review. We have registered trademarks with the U.S. Patent and Trademark Office for the mark “Socket”, our logo, DuraScan, SocketScan, SocketCam, and XtremeScan.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

24 edited+3 added−8 removed84 unchanged
Biggest changeWe may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our business, operating results and financial condition. 15 Table of Contents The COVID-19 pandemic has affected and could continue to have a material adverse impact on our financial condition and the results of operations.
Biggest changeIn addition, we may be affected by health epidemic or pandemics, such as the current COVID-19 pandemic, or geopolitical instability, such as Russia’s military action against Ukraine. We may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our business, operating results and financial condition.
The expensing of options and restricted stocks will continue to reduce our operating results such that we may find it necessary to change our business practices to attract and retain employees. We have been using stock options and restricted stocks as key components of our employee compensation packages.
The expensing of stock options and restricted stocks will continue to reduce our operating results such that we may find it necessary to change our business practices to attract and retain employees. We have been using stock options and restricted stocks as key components of our employee compensation packages.
In addition, the stock markets in general, and the markets for high technology stocks in particular, have experienced high volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. 17 Table of Contents Item 1B. Unresolved Staff Comments None.
In addition, the stock markets in general, and the markets for high technology stocks in particular, have experienced high volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. 16 Table of Contents Item 1B. Unresolved Staff Comments None.
Further, if production is increased rapidly, manufacturing yields could decline, which may also lower operating results. 11 Table of Contents We rely primarily on distributors to distribute our products, and our sales would suffer if any of these distributors stops distributing our products effectively.
Further, if production is increased rapidly, manufacturing yields could decline, which may also lower operating results. 11 Table of Contents We rely primarily on distributors to distribute our products, and our sales would suffer if any of these distributors stopped distributing our products effectively.
If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly. Despite security protections, our business records and information could be hacked by unauthorized personnel.
If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly. 9 Table of Contents Despite security protections, our business records and information could be hacked by unauthorized personnel.
We are aware that unauthorized efforts to access our business records and information with sophisticated tools could bypass our controls and procedures and we remain alert to that possibility. 9 Table of Contents Deferred tax assets comprise a significant portion of our assets and are dependent upon future tax profitability to realize the benefits.
We are aware that unauthorized efforts to access our business records and information with sophisticated tools could bypass our controls and procedures and we remain alert to that possibility. Deferred tax assets comprise a significant portion of our assets and are dependent upon future tax profitability to realize the benefits.
This could adversely affect our ability to retain existing employees or attract qualified candidates, and also could increase the cash compensation we would have to pay to them. 14 Table of Contents If we are unable to attract and retain highly skilled sales and marketing and product development personnel, our ability to develop and market new products and product enhancements will be adversely affected.
This could adversely affect our ability to retain existing employees or attract qualified candidates, and also could increase the cash compensation we would have to pay to them. If we are unable to attract and retain highly skilled sales and marketing and product development personnel, our ability to develop and market new products and product enhancements will be adversely affected.
During the twelve months ended December 31, 2022 and 2021, Ingram Micro® and BlueStar together represented approximately 50% and 53%, respectively, of our worldwide sales. We expect that a significant portion of our sales will continue to depend on sales to a limited number of distributors.
During the twelve months ended December 31, 2023 and 2022, Ingram Micro® and BlueStar together represented approximately 44% and 50%, respectively, of our worldwide sales. We expect that a significant portion of our sales will continue to depend on sales to a limited number of distributors.
Failure to attract and retain such key personnel will adversely affect our ability to develop and market new products and product enhancements. Our operating results could be harmed by economic, political, regulatory and other risks associated with export sales.
Failure to attract and retain such key personnel will adversely affect our ability to develop and market new products and product enhancements. 14 Table of Contents Our operating results could be harmed by economic, political, regulatory and other risks associated with export sales.
In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including weakening our ability to develop potential businesses and a decreased ability to raise additional capital when needed on acceptable terms, if at all. We may not return to profitability.
In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including impairing our ability to pursue potential opportunities and limiting our ability to raise additional capital when needed on acceptable terms, if at all. We may not return to profitability.
During the period from January 1, 2022 through the date of the report, our common stock price fluctuated between a high of $35.00 and a low of $0.76. We have experienced low trading volumes in our stock, and thus relatively small purchases and sales can have a significant effect on our stock price.
During the period from January 1, 2023 through the date of the report, our common stock price fluctuated between a high of $2.48 and a low of $0.90. We have experienced low trading volumes in our stock, and thus relatively small purchases and sales can have a significant effect on our stock price.
We will be unable to introduce new products and services into the market on a timely basis and compete successfully if we fail to: • invest significant resources in research and development, sales and marketing, and customer support; • identify emerging trends, demands and standards in the field of mobile computing products; • enhance our products by adding additional features; • maintain superior or competitive performance in our products; and • anticipate our end users’ needs and technological trends accurately. 10 Table of Contents We cannot be sure that we will have sufficient resources to make adequate investments in research and development or that we will be able to identify trends or make the technological advances necessary to be competitive.
We will be unable to introduce new products and services into the market on a timely basis and compete successfully if we fail to: • invest significant resources in research and development, sales and marketing, and customer support; • identify emerging trends, demands and standards in the field of mobile computing products; • enhance our products by adding additional features; • maintain superior or competitive performance in our products; and • anticipate our end users’ needs and technological trends accurately.
A deterioration in global economic conditions may have adverse impacts on our business and financial condition in ways that we currently cannot predict and may limit our ability to raise additional funds. If global economic conditions continue to deteriorate, it may further impact our business and our financial condition.
A deterioration in global economic conditions may have adverse impacts on our business and financial condition in ways that we currently cannot predict and may limit our ability to raise additional funds. If global economic conditions deteriorate, it may impact our business and our financial condition. We may face significant challenges if conditions in the financial markets worsen.
Our operating results may also fluctuate due to factors such as: • the demand for our products; • the size and timing of customer orders; • unanticipated delays or problems in our introduction of new products and product enhancements; • the introduction of new products and product enhancements by our competitors; • the timing of the introduction and deployment of new applications that work with our products; • changes in the revenues attributable to royalties and engineering development services; • product mix; • timing of software enhancements; • changes in the level of operating expenses; • competitive conditions in the industry including competitive pressures resulting in lower average selling prices; • timing of distributors’ shipments to their customers; • delays in supplies of key components used in the manufacturing of our products; and • general economic conditions and conditions specific to our customers’ industries.
Our operating results may also fluctuate due to factors such as: • the demand for our products; • the size and timing of customer orders; • unanticipated delays or problems in our introduction of new products and product enhancements; • the introduction of new products and product enhancements by our competitors; • the timing of the introduction and deployment of new applications that work with our products; • changes in the revenues attributable to royalties and engineering development services; • product mix; • timing of software enhancements; • changes in the level of operating expenses; • competitive conditions in the industry including competitive pressures resulting in lower average selling prices; • timing of distributors’ shipments to their customers; • delays in supplies of key components used in the manufacturing of our products; and • general economic conditions and conditions specific to our customers’ industries. 15 Table of Contents Because we base our staffing and other operating expenses on anticipated revenues, unanticipated declines or delays in the receipt of orders can cause significant variations in operating results from quarter to quarter.
If our products are not in compliance with prevailing industry standards for a significant period of time, we would miss opportunities to sell our products for use with new hardware components from mobile computer manufacturers and OEMs, thus affecting our business. Undetected flaws and defects in our products may disrupt product sales and result in expensive and time-consuming remedial action.
If our products are not in compliance with prevailing industry standards for a significant period of time, we would miss opportunities to sell our products for use with new hardware components from mobile computer manufacturers and OEMs, thus affecting our business.
As a result of any of the foregoing factors, or a combination, our results of operations in any given quarter may be below the expectations of public market analysts or investors, in which case the market price of our common stock would be adversely affected. 16 Table of Contents The sale of a substantial number of shares of our common stock could cause the market price of our common stock to decline.
As a result of any of the foregoing factors, or a combination, our results of operations in any given quarter may be below the expectations of public market analysts or investors, in which case the market price of our common stock would be adversely affected.
As of March 24, 2023, we had 7,123,999 shares of common stock outstanding. Substantially all of these shares are freely tradable in the public market, either without restriction or subject, in some cases, only to S-3 prospectus delivery requirements and, in other cases, only to the manner of sale, volume, and notice requirements of Rule 144 under the Securities Act.
Substantially all of these shares are freely tradable in the public market, either without restriction or subject, in some cases, only to Form S-3 prospectus delivery requirements and, in other cases, only to the manner of sale, volume, and notice requirements of Rule 144 under the Securities Act.
We may not be able to collect receivables from customers who experience financial difficulties . Our accounts receivables are derived primarily from distributors. We perform ongoing credit evaluations of our customers’ financial conditions but generally require no collateral from our customers. Reserves are maintained for potential credit losses, and such losses have historically been within such reserves.
Our accounts receivable is derived primarily from distributors. We perform ongoing credit evaluations of our customers’ financial conditions but generally require no collateral from our customers. Reserves are maintained for potential credit losses, and such losses have historically been within such reserves.
This subjects us to the risk that even modest delays in orders or in the manufacture of products relating to orders received, may adversely affect our quarterly operating results.
Historically, we have recognized a substantial portion of our revenue in the last month of the quarter. This subjects us to the risk that even modest delays in orders or in the manufacture of products relating to orders received, may adversely affect our quarterly operating results.
Our hardware and software products may contain undetected flaws, which may not be discovered until customers have used the products. From time to time, we may temporarily suspend or delay shipments or divert development resources from other projects to correct a particular product deficiency. Efforts to identify and correct errors and make design changes may be expensive and time-consuming.
From time to time, we may temporarily suspend or delay shipments or divert development resources from other projects to correct a particular product deficiency. Efforts to identify and correct errors and make design changes may be expensive and time-consuming.
Sales of a substantial number of shares of our common stock in the public market could adversely affect the market price for our common stock. The market price of our common stock could also decline if one or more of our significant stockholders decided for any reason to sell substantial amounts of our common stock in the public market.
The market price of our common stock could also decline if one or more of our significant stockholders decided for any reason to sell substantial amounts of our common stock in the public market. As of March 22, 2024, we had 7,547,327 shares of common stock outstanding.
As of March 24, 2023, we had 1,267,528 shares of common stock subject to outstanding options under our stock option plans, 1,070,435 shares of restricted stock outstanding, and 424,212 shares of common stock available for future issuance under the plans.
As of March 22, 2024, we had 1,126,114 shares of common stock subject to outstanding options under our stock option plans, 1,127,207 shares of restricted stock outstanding, and 432,181 shares of common stock available for future issuance under the plans.
If the overall economy is negatively impacted for an extended period, our results of operations, financial position and cash flows may be materially adversely affected.
The impact of such future developments on our business, including the ongoing military action in Ukraine by Russia, is highly uncertain and cannot be predicted. If the overall economy continues to decline for an extended period, our results of operations, financial position and cash flows may be materially adversely affected.
Quarterly revenues and operating results depend on the volume and timing of orders received, which sometimes are difficult to forecast. Historically, we have recognized a substantial portion of our revenue in the last month of the quarter.
Our quarterly operating results may fluctuate in future periods, which could cause our stock price to decline. We expect to experience quarterly fluctuations in operating results in the future. Quarterly revenues and operating results depend on the volume and timing of orders received, which sometimes are difficult to forecast.
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We may face significant challenges if conditions in the financial markets worsen. The impact of such future developments on our business, including as a result of the COVID-19 pandemic and Russia’s military action against Ukraine, is highly uncertain and cannot be predicted.
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We cannot be sure that we will have sufficient resources to make adequate investments in research and development or that we will be able to identify trends or make the technological advances necessary to be competitive. 10 Table of Contents We may not be able to collect receivables from customers who experience financial difficulties .
Removed
In addition, we may be affected by health epidemic or pandemics, such as the current COVID-19 pandemic, or geopolitical instability, such as Russia’s military action against Ukraine.
Added
Undetected flaws and defects in our products may disrupt product sales and result in expensive and time-consuming remedial action Our hardware and software products may contain undetected flaws, which may not be discovered until customers have used the products.
Removed
The COVID-19 pandemic has impacted and may continue to impact our workforce and operations and those of our customers, partners, vendors and suppliers, and the unfavorable impacts we may experience include: • Reductions or volatility in demand for one or more of our products which may be caused by the temporary inability of consumers to purchase our products due to illness, business closures, or financial hardship; and shifts in demand away from one or more of our higher-priced products to lower-priced products.
Added
The sale of a substantial number of shares of our common stock could cause the market price of our common stock to decline. Sales of a substantial number of shares of our common stock in the public market could adversely affect the market price for our common stock.
Removed
If prolonged, such impacts can further increase the difficulty in planning our operations, which may adversely impact our results, liquidity, and financial condition. • Inability to meet our customers’ needs due to disruptions in our manufacturing operations. • Failure of third parties on which we rely, including our suppliers, contract manufacturers, and distributors, to meet their obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties, which may adversely impact our operations, liquidity, and financial condition.
Removed
We modified our business and workforce practices in response to COVID-19, including with respect to flexible work and social distancing measures, and we may take further actions as required by government regulations or in the best interests of our employees, customers, partners, and suppliers.
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These and other measures have caused and may in the future cause us to incur incremental expenses and costs. The extent of the impact of the COVID-19 pandemic on our operational and financial performance and our ability to timely execute our business strategies may continue to be difficult to measure and predict.
Removed
The impact of COVID-19 can also exacerbate other risks discussed in these risk factors. Our quarterly operating results may fluctuate in future periods, which could cause our stock price to decline. We expect to experience quarterly fluctuations in operating results in the future.
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Because we base our staffing and other operating expenses on anticipated revenues, unanticipated declines or delays in the receipt of orders can cause significant variations in operating results from quarter to quarter.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties In February 2022, the Company entered into an operating lease agreement for an approximately 35,913 square-foot facility in Fremont, California where we moved our office and manufacturing operations. The lease agreement is for a base term of 87 months and a monthly rent obligation of $50,278, subject to annual increases of 3%.
Biggest changeItem 2. Properties In February 2022, the Company entered into an operating lease agreement for an approximately 35,913 square-foot facility in Fremont, California, where our office and manufacturing operations are located. The lease agreement is for a base term of 87 months with a monthly rent obligation of $50,278, subject to annual increases of 3%.
Removed
The lease commenced on May 1, 2022 and the Company was provided with three months of free rent. Item 3. Legal Proceedings We are currently not a party to any material legal proceedings.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePurchases of Equity Securities by the Issuer and Affiliated Purchasers Shares repurchase activity during the twelve months ended December 31, 2022 was as follows: Periods Total Number of Shares Purchased Average Price Paid Per Share Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program April 11, 2022 to May 4, 2022 Open market purchases 90,913 $4.16 July 1, 2022 to August 10, 2022 Open market purchases 90,029 $3.06 October 1, 2022 to December 30, 2022 Open market purchases 85,349 $2.06 Total 266,291 $829,563 19 Table of Contents Performance Graph The performance graph shown below shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any filing of Socket Mobile, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.
Biggest changePurchases of Equity Securities by the Issuer and Affiliated Purchasers Shares repurchase activity during the twelve months ended December 31, 2023 was as follows: Periods Total Number of Shares Purchased Average Price Paid Per Share Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program January 3, 2023 to March 29, 2023 Open market purchases 92,959 $2.24 $0 Performance Graph As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, we have elected scaled disclosure reporting and therefore are not required to provide the stock performance graph.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock The Company’s common stock is traded on the NASDAQ Marketplace under the symbol “SCKT.” On March 24, 2023, the closing sales price for our common stock as reported on the NASDAQ Marketplace was $1.96.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock The Company’s common stock is traded on the NASDAQ Marketplace under the symbol “SCKT.” On March 22, 2024, the closing sales price for our common stock of 7,547,327 shares and approximately 8,490 beneficial shareholders of record, as reported on the NASDAQ Marketplace was $1.03.
Removed
The performance graph below shows a five-year comparison of cumulative total stockholder return, calculated on a dividend reinvestment basis and based on a $100 investment, from December 31, 2017 through December 31, 2022 comparing the return on the Company's common stock with the Russell 2000 Index and the NASDAQ Computer & Data Processing Index.
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Recent Sales of Unregistered Securities. None. 19 Table of Contents
Removed
No dividends have been declared or paid on the common stock during such period. Historical stock price performance is not necessarily indicative of future stock price performance. 20 Table of Contents Recent Sales of Unregistered Securities. None.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeSelected Financial Data The following selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and the notes thereto in Item 8, “Financial Statements and Supplementary Data.” Years Ended December 31, (Amounts in thousands, except per share) 2018 2019 2020 2021 2022 Income Statement Data: Revenues $ 16,454 $ 19,253 $ 15,700 $ 23,199 $ 21,238 Gross profit $ 8,456 $ 10,101 $ 8,335 $ 12,436 $ 10,366 Operating expenses $ 9,042 $ 9,494 $ 12,686 $ 9,739 $ 10,812 Net income (loss) before income taxes $ (715 ) $ 506 $ (3,330 ) $ 2,564 $ (621 ) Income tax benefit (expense) $ 144 $ (219 ) $ 51 $ 1,903 $ 708 Net income (loss) $ (571 ) $ 287 $ (3,279 ) $ 4,466 $ 87 Net income (loss) per share: Basic $ (0.09 ) $ 0.05 $ (0.51 ) $ 0.58 $ 0.01 Diluted $ (0.09 ) $ 0.05 $ (0.51 ) $ 0.48 $ 0.01 Weighted average shares outstanding: Basic 6,095 5,984 6,036 6,991 7,185 Diluted 6,095 6,208 6,036 8,923 7,533 At December 31, 2018 2019 2020 2021 2022 Balance Sheet Data: Cash and cash equivalents $ 1,085 $ 959 $ 2,122 $ 6,096 $ 3,624 Total assets $ 19,148 $ 20,009 $ 15,609 $ 25,575 $ 28,598 Bank line of credit $ 1,317 $ 1,413 $ — $ — $ — Term loan $ 833 $ 333 $ — $ 625 $ 125 Related party convertible notes payable $ — $ — $ 1,272 $ 1,201 $ 1,231 Convertible notes payable $ — $ — $ 170 $ 144 $ 147 Operating lease $ 1,511 $ 1,134 $ 741 $ 258 $ 3,737 Total stockholders’ equity $ 12,956 $ 13,785 $ 11,173 $ 20,046 $ 20,322 21 Table of Contents
Biggest changeSelected Financial Data The following selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and the notes thereto in Item 8, “Financial Statements and Supplementary Data.” Years Ended December 31, (Amounts in thousands, except per share) 2019 2020 2021 2022 2023 Income Statement Data: Revenues $ 19,253 $ 15,700 $ 23,199 $ 21,238 $ 17,034 Gross profit $ 10,101 $ 8,335 $ 12,436 $ 10,366 $ 8,463 Operating expenses $ 9,494 $ 12,686 $ 9,739 $ 10,812 $ 11,584 Net income (loss) before income taxes $ 506 $ (3,330 ) $ 2,564 $ (621 ) $ (3,363 ) Income tax benefit (expense) $ (219 ) $ 51 $ 1,903 $ 708 $ 1,444 Net income (loss) $ 287 $ (3,279 ) $ 4,466 $ 87 $ (1,919 ) Net income (loss) per share: Basic $ 0.05 $ (0.51 ) $ 0.58 $ 0.01 $ (0.27 ) Diluted $ 0.05 $ (0.51 ) $ 0.48 $ 0.01 $ (0.27 ) Weighted average shares outstanding: Basic 5,984 6,036 6,991 7,185 7,230 Diluted 6,208 6,036 8,923 7,533 7,230 At December 31, 2019 2020 2021 2022 2023 Balance Sheet Data: Cash and cash equivalents $ 959 $ 2,122 $ 6,096 $ 3,624 $ 2,827 Total assets $ 20,009 $ 15,609 $ 25,575 $ 28,598 $ 28,742 Bank line of credit $ 1,413 $ — $ — $ — $ — Term loan $ 333 $ — $ 625 $ 125 $ — Related party convertible notes payable $ — $ 1,272 $ 1,201 $ 1,231 $ 2,836 Convertible notes payable $ — $ 170 $ 144 $ 147 $ 150 Operating lease $ 1,134 $ 741 $ 258 $ 3,737 $ 3,292 Total stockholders’ equity $ 13,785 $ 11,173 $ 20,046 $ 20,322 $ 19,420 20 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeQuarter Ended (unaudited) (Amounts in thousands, except per share amounts) Mar 31, 2021 Jun 30, 2021 Sep 30, 2021 Dec 31, 2021 Mar 31, 2022 Jun 30, 2022 Sep 30, 2022 Dec 31, 2022 Summary Quarterly Data: Revenue $ 4,813 $ 5,953 $ 6,319 $ 6,114 $ 6,293 $ 6,046 $ 3,728 $ 5,171 Cost of revenue 2,239 2,698 2,896 2,929 3,165 3,010 2,073 2,623 Gross profit 2,574 3,255 3,423 3,185 3,128 3,036 1,655 2,548 Operating expenses: Research and development 931 972 1,014 1,047 1,054 1,121 1,096 1,091 Sales and marketing 660 734 788 820 900 964 865 909 General and administrative 741 735 667 630 710 761 641 700 Total operating expenses 2,332 2,441 2,469 2,497 2,664 2,846 2,602 2,700 Extinguishment of debt income and other income 10 — — 55 — — — — Interest expense, net (49 ) (51 ) (50 ) (49 ) (46 ) (45 ) (43 ) (41 ) Income tax (expense) benefit — 1,864 (260 ) 299 (76 ) (40 ) 116 708 Net income (loss) $ 203 $ 2,627 $ 644 $ 993 $ 342 $ 104 $ (874 ) $ 515 Basic net income (loss) per share $ 0.03 $ 0.34 $ 0.08 $ 0.13 $ 0.04 $ 0.01 $ (0.11 ) $ 0.06 Fully diluted net income (loss) per share $ 0.03 $ 0.27 $ 0.07 $ 0.11 $ 0.04 $ 0.01 $ (0.11 ) $ 0.06 Our quarterly revenue and operating results depend on the volume and timing of orders received, which are difficult to forecast.
Biggest changeQuarter Ended (unaudited) (Amounts in thousands, except per share amounts) Mar 31, 2022 Jun 30, 2022 Sep 30, 2022 Dec 31, 2022 Mar 31, 2023 Jun 30, 2023 Sep 30, 2023 Dec 31, 2023 Summary Quarterly Data: Revenue $ 6,293 $ 6,046 $ 3,728 $ 5,171 $ 4,312 $ 5,117 $ 3,206 $ 4,399 Cost of revenue 3,165 3,010 2,073 2,623 2,240 2,466 1,788 2,078 Gross profit 3,128 3,036 1,655 2,548 2,072 2,651 1,418 2,321 Operating expenses: Research and development 1,054 1,121 1,096 1,091 1,247 1,190 1,207 1,188 Sales and marketing 900 964 865 909 1,006 1,004 1,002 1,003 General and administrative 710 761 641 700 774 749 608 605 Total operating expenses 2,664 2,846 2,602 2,700 3,027 2,943 2,817 2,796 Interest expense, net (46 ) (45 ) (43 ) (41 ) (38 ) (55 ) (76 ) (73 ) Income tax (expense) benefit (76 ) (40 ) 116 708 — (166 ) 150 1,460 Net income (loss) $ 342 $ 104 $ (874 ) $ 515 $ (993 ) $ (513 ) $ (1,325 ) $ 912 Basic net income (loss) per share $ 0.04 $ 0.01 $ (0.11 ) $ 0.06 $ (0.12 ) $ (0.06 ) $ (0.16 ) $ 0.11 Fully diluted net income (loss) per share $ 0.04 $ 0.01 $ (0.11 ) $ 0.06 $ (0.12 ) $ (0.06 ) $ (0.16 ) $ 0.08 25 Table of Contents Our quarterly revenue and operating results depend on the volume and timing of orders received, which are difficult to forecast.
Recent Accounting Pronouncements See Note 1, Organization and Summary of Significant Accounting Policies, of the Notes to Financial Statements included in this Annual Report on Form 10-K for additional information regarding the status of recent accounting pronouncements. 27 Table of Contents
Recent Accounting Pronouncements See Note 1, Organization and Summary of Significant Accounting Policies, of the Notes to Financial Statements included in this Annual Report on Form 10-K for additional information regarding the status of recent accounting pronouncements. 26 Table of Contents
Critical Accounting Policies Our significant accounting policies are described in Note 1, Organization and Summary of Significant Accounting Policies, of the Notes to Financial Statements included in our Annual Reports on Form 10-K for the years ended December 31, 2022 and 2021.
Critical Accounting Policies Our significant accounting policies are described in Note 1, Organization and Summary of Significant Accounting Policies, of the Notes to Financial Statements included in our Annual Reports on Form 10-K for the years ended December 31, 2023 and 2022.
We generally recognize 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 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.
Quarterly Results of Operations The following table sets forth a summary of quarterly statements of operations data for each of the quarters in 2021 and 2022.
Quarterly Results of Operations The following table sets forth a summary of quarterly statements of operations data for each of the quarters in 2022 and 2023.
The timing and quantity of our purchases are based on order forecasts, the lead time requirements of our vendors, and economic order quantities.
The timing and quantity of our purchases are based on order forecast, the lead time requirements of our vendors, and economic order quantities.
Interest expense in both 2022 and 2021 was primarily related to the subordinated convertible notes (see Note 4, Secured Subordinated Convertible Notes Payable, of the Notes to Financial Statements included in this Annual Report on Form 10-K for further information) and interest on the bank term loan. Interest income reflects the interest earned on cash balances.
Interest expense in both 2023 and 2022 was primarily related to the subordinated convertible notes (see Note 4, Secured Subordinated Convertible Notes Payable, of the Notes to Financial Statements included in this Annual Report on Form 10-K for further information). Interest income reflects the interest earned on cash balances.
Income Taxes The Company accounts 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.
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, the Company determined 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.
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.
Therefore, we expect to continue to make significant Research and Development investments in the future. The investment percentage is impacted by revenue levels and investing cycles. Sales and Marketing Expenses Sales and marketing expenses in 2022 were approximately $3.6 million, an increase of approximately 21% compared to $3.0 million in 2021.
Therefore, we expect to continue to make significant Research and Development investments in the future. The investment percentage is impacted by revenue levels and investing cycles. Sales and Marketing Expenses Sales and marketing expenses in 2023 were approximately $4.0 million, an increase of approximately 10% compared to $3.6 million in 2022.
In making such a determination, the Company considers 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.
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.
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. The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized.
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.
If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
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.
In 2022 and 2021, we invested approximately $1.2 million and $0.7 million, respectively, in computer software development, website development, and manufacturing tooling. We expect to continue our investing activities, including planned capital expenditures. Net cash used in financing activities during 2022 was approximately $1.2 million, compared to approximately $2.5 million of net cash provided by financing activities during 2021.
In 2023 and 2022, we invested approximately $2.2 million and $1.2 million, respectively, in computer software development, website development, and manufacturing tooling. We expect to continue our investing activities, including planned capital expenditures. Net cash provided by financing activities in 2023 was approximately $1.3 million, compared to approximately $1.2 million in net cash used for financing activities in 2022.
At the end of each reporting period, we compare our inventory on hand to our forecasted requirements for the next twelve-month period and reserve the cost of any inventory that is a surplus, less any amounts that we believe we can recover from the disposal of goods or that we specifically believe will be saleable past a nine-month horizon.
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.
Interest income was nominal in each of the comparable periods. Income Taxes We recorded an income tax benefit of $708,000 (an effective tax rate of 114.1%) in 2022, compared to $1.9 million (an effective tax rate of negative 45.6%) in 2021.
Interest income was nominal in each of the comparable periods. 24 Table of Contents Income Taxes We recorded an income tax benefit of $1.44 million (an effective tax rate of 42.9%) in 2023, compared to $708,000 (an effective tax rate of negative 114.1%) in 2022.
Our primary requirements for liquidity and capital arise from employee-related expenditures, inventory purchases, capital expenditures, leasing of facilities, general operating expenses, and interest and principal repayments related to our outstanding indebtedness. Net cash used in operating activities was $0.11 million for 2022 compared to net cash provided by operating activities of $2.1 million in 2021.
Our primary requirements for liquidity and capital arise from employee-related expenditures, inventory purchases, capital expenditures, leasing of facilities, general operating expenses, and interest and principal repayments related to our outstanding indebtedness. Net cash provided by operating activities was $48,562 for 2023, compared to net cash used of $111,415 for 2022.
The increase in expenses in 2022 was primarily due to the impact of our annual salary increase and the increase in the number of employees. We expect our compensation expense to increase as we selectively add new talent and adjust compensation to market conditions.
The increases in expenses in 2023 were primarily due to the impact of the increase in the number of employees and an annual salary increase. We anticipate that our compensation expense to increase as we selectively add new talent and adjust compensation to market conditions.
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.
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.
Our net operating loss carry-forwards will expire at various dates from 2023 through 2033. The Company’s deferred tax asset, primarily representing future income tax savings from the application of net operating loss carry-forwards, was valued at $8.67 million and $7.96 million as of December 31, 2022 and 2021, respectively.
The Company’s deferred tax asset, primarily representing future income tax savings from the application of net operating loss carryforwards, was valued at $10.1 million and $8.7 million as of December 31, 2023 and 2022, respectively.
The primary factors that influence our liquidity include the amount and timing of our revenues, cash collections from our customers, cash payments to our suppliers, capital expenditures, acquisitions, and share repurchases.
On December 31, 2023, the Company had no outstanding drawings against the revolving credit facility. The primary factors that influence our liquidity include the amount and timing of our revenues, cash collections from our customers, cash payments to our suppliers, capital expenditures, acquisitions, and share repurchases.
The Company recorded uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines 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, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
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. 23 Table of Contents Results of Operations for Years Ended December 31, 2023 and 2022 Revenues The revenue for 2023 was $17.0 million, a decrease of 20% compared to revenue of $21.2 million for 2022.
Impairment of Long-Lived Assets We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Amortization is computed using the straight-line method over the estimated useful lives of the 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.
Under the new policy, we recognize revenue on sales to distributors when shipping of product is completed and the title transfers to the distributor, less a reserve for estimated product returns (sales and cost of sales).
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, 2022, the deferred revenue and deferred cost on shipments to distributors were approximately $595,000 and $266,000, respectively, compared to approximately $407,000 and $159,000, respectively, as of December 31, 2021.
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.
Financing activities in 2021 consisted primarily of $1.9 million in proceeds from the exercise of stock options and a net borrowing of $625,000 on the CalCap Loan. We can also borrow under the existing $2.5 million revolving credit facility that matures on January 31, 2025. On December 31, 2022, the Company had no outstanding drawings against the revolving credit facility.
In 2022, net cash used in financing activities was primarily due to approximately $830,000 spent on repurchasing treasury stock and $500,000 in repayment of CalCap loan. These outflows were partially offset by proceeds from the exercise of stock options totaling approximately $152,000. We can borrow under the existing $2.5 million revolving credit facility that matures on January 31, 2025.
General and Administrative Expenses General and administrative expenses in 2022 was $2.81 million, an increase of approximately $40,000 or 1% compared to $2.77 million in 2021. Interest Expense, net of Interest Income Interest expense and other, net of interest income and other, was approximately $175,000 in 2022 compared to approximately $199,000 in 2021.
Interest Expense, net of Interest Income Interest expense and other, net of interest income and other, was approximately $242,000 in 2023 compared to approximately $175,000 in 2022.
Our sales forecasts are based upon historical trends, communications from customers, and marketing data regarding market trends and dynamics. Surplus or obsolete inventory can also be created by changes to our engineering bill of materials. Charges for the amounts we record as surplus or obsolete inventory are included in the cost of revenue.
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. Stock-Based Compensation Expense The Company has incentive plans that reward employees with stock options and shares of restricted stocks.
Because our staffing and other operating expenses are based on anticipated revenue, a substantial portion of which is not typically generated until the end of each quarter, delays in the receipt of orders can cause significant variations in operating results from quarter to quarter. 26 Table of Contents Contractual Obligations Our contractual obligations as of December 31, 2022 are outlined in the table shown below: Payments Due by Period Contractual Obligations Total 1 year 2 to 3 years 4 to 5 years More than 5 years Unconditional purchase obligations with contract manufacturers $ 8,674,000 $ 8,409,000 $ 265,000 $ — $ — Operating leases 4,415,000 621,000 1,290,000 1,365,000 1,139,000 Total contractual obligations $ 13,089,000 $ 9,030,000 $ 1,555,000 $ 1,365,000 $ 1,139,000 Off-Balance Sheet Arrangements As of December 31, 2022, we had no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.
Contractual Obligations Our contractual obligations as of December 31, 2023 are outlined in the table shown below: Payments Due by Period Contractual Obligations Total 1 year 2 to 3 years 4 to 5 years More than 5 years Unconditional purchase obligations with contract manufacturers $ 5,821,000 $ 5,734,000 $ 87,000 $ — $ — Operating leases 3,794,000 637,000 1,325,000 1,406,000 426,000 Total contractual obligations $ 9,615,000 $ 6,371,000 $ 1,412,000 $ 1,406,000 $ 426,000 Off-Balance Sheet Arrangements As of December 31, 2023, we had no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.
Accounts Receivable Allowance We estimate the amount of uncollectible receivables at the end of each reporting period based on the aging of the receivable balance, historical trends, and communications with our customers.
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.
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.
Compensation cost for stock-based awards is recognized on a straight-line basis over the vesting period, which is usually the service period. 22 Table of Contents 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.
We believe our critical accounting policies that are subject to these estimates are: Revenue Recognition and Accounts Receivable Reserves, Inventory Valuation, Stock-Based Compensation, and Income Taxes. 22 Table of Contents Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States “GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period.
We believe our critical accounting policies that are subject to these estimates are: Accounts Receivable Reserves, Revenue Recognition, Inventory Valuation, Stock-Based Compensation, Intangible Assets, Impairment of Long-Lived Assets and Income Taxes. 21 Table of Contents Accounts Receivable Allowances Trade accounts receivables are recorded at the net invoice value and are not interest bearing.
Research and Development Expenses For the years ended December 31, 2022 and 2021, we incurred approximately $4.4 million and $4.0 million, respectively, of research and development expenses, an increase of approximately $398,000, or 10%.
Research and Development Expenses For the years ended December 31, 2023 and 2022, our research and development expenses were approximately $4.8 million and $4.4 million, respectively. This represents an increase of approximately $470,000, or 11%. The rise in research and development expenses is primarily due to higher payroll-related expenses resulting from annual salary increases and an increase in headcount.
Financing activities in 2022 consisted primarily of approximately $830,000 repurchase of treasury stock, and $500,000 repayment of CalCap loan, partially offset by the proceeds from the exercise of stock options in the amount of approximately $152,000.
In 2023, financing activities primarily consisted of proceeds from related party notes convertible of approximately $1.6 million and proceeds from the exercise of stock options totaling approximately $213,000. These proceeds were partially offset by approximately $208,000 spent on repurchasing treasury stock and $125,000 in repayments of notes payable.
We are monitoring legislation for any further changes to Section 174 and the potential impact on our financial statements in 2023. 25 Table of Contents The 2021 effective tax was primarily attributed to the income tax benefit of $1.9 million resulting from the disqualifying disposition of incentive stock options.
We are monitoring legislation for any further changes to Section 174 and the potential impact on our financial statements in 2024. Our net operating loss carryforwards will expire at various dates from 2025 through 2033.
The increase in research and development expenses was primarily due to an increase of approximately $310,000 in payroll-related costs due to the impact of annual salary increase and headcount growth. Research and development expenses as a percentage of revenue were 21% in 2022 and 17% in 2021.
Additionally, a substantial amount has been accounted for in the amortization of software development costs related to our released products. Research and development expenses as a percentage of revenue were 28% in 2023 and 21% in 2022.
Removed
Actual results could differ from those estimates, and such differences may be material to the 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”.
Added
The Company also generates revenue through its SocketCare services program, which offers extended warranty and accidental breakage coverage for select products. 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.
Removed
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.
Added
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. 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.
Removed
Common stock equivalents are not included in the diluted earnings per share calculation when their effect is anti-dilutive. Revenue Recognition and Deferred Revenue On January 1, 2017, we adopted ASC 606 “Revenue from Contracts with Customers” and implemented a new revenue recognition policy.
Added
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.
Removed
We earn revenue from an extended warranty service program offered on select products. Revenues from the extended warranty service program are recognized ratably over the life of the extended warranty contract. The amount of unrecognized warranty service revenue is classified as deferred service revenue and presented on our balance sheet in its short and long-term components.
Added
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.
Removed
We also earn revenue from services performed in connection with consulting and engineering development arrangements. For those contracts that include contract milestones or acceptance criteria we recognize revenue as such milestones are achieved or as such acceptance occurs.
Added
However, we believe that the $17.0 million in reported revenue does not accurately reflect the underlying demand for our products and services. In 2023, our sales through distribution partners to resellers and end customers totaled $19.1 million, making a 2.8% decrease from the $19.7 million in sales through distributor partners to resellers and end customers in 2022.
Removed
In some instances, the acceptance criteria in the contract require acceptance after all services are complete and all other elements have been delivered, in which case revenue recognition is deferred until those requirements are met.
Added
While the demand softened in 2023, the timing of shipments to distributors in late 2022 had a positive impact on 2022 and a negative impact on 2023, contributing to the more dramatic decline. Additionally, reductions in distributor inventory and adjustments to distribution reserves also impacted the reported revenue for 2023.
Removed
If actual bad debts are significantly different from our estimates our operating results will be affected. 23 Table of Contents Inventory Valuation Our inventories primarily consist of component parts used to assemble our products after we receive orders from our customers. We purchase or have manufactured the component parts required by our engineering bill of materials.
Added
Gross Margins The annual gross margins on revenue increased to 49.7% in 2023 from 48.8% in 2022. This rise is attributed to decreased component costs, which contrasts with 2022 when we faced elevated costs due to shortages and extended lead times.
Removed
Stock-Based Compensation We account for share-based awards to employees, including grants of employee stock options and restricted stocks, in our financial statements based on the grant date fair values of the share-based awards. We use a binomial lattice valuation model to estimate the fair value of stock option grants.
Added
General and Administrative Expenses General and administrative expenses in 2023 was $2.74 million, marking a decrease of approximately $77,000 or 3% compared to $2.81 million in 2022. The decrease can be attributed primarily to the absence of expenses associated with a company event held in 2022 and the lack of management bonus due to unmet financial goals.
Removed
The binomial lattice model incorporates calculations for expected volatility, risk-free interest rates, employee exercise patterns and post-vesting employment termination behavior, and these factors affect the estimate of the fair value of the stock option grants. Intangible Assets Our intangible assets consist of completed technologies and acquired license rights.
Added
Because our staffing and other operating expenses are based on anticipated revenue, a substantial portion of which is not typically generated until the end of each quarter, delays in the receipt of orders can cause significant variations in operating results from quarter to quarter.
Removed
If such assets are considered to be 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, 2022 and 2021, we did not recognize any impairment loss of its long-lived assets.
Removed
Results of Operations for Years Ended December 31, 2022 and 2021 Revenues Revenue for 2022 was $21.2 million, a decrease of 8% compared to revenue of $23.2 million for 2021. Revenue of SocketScan series products represented 80% of our 2022 revenue and decreased by 4% compared to 2021.
Removed
Our DuraScan series products, which are weatherproof and ruggedized and primarily targeted at commercial, industrial, warehousing, and outdoor application and their associated customers, represented about 14% of 2022 revenue and decreased 22% compared to 2021.
Removed
The decrease in revenue was due to weak demand, particularly in retail, which is our primary revenue driver. 24 Table of Contents Gross Margins Annual gross margins on revenue decreased to 48.8% in 2022 from 53.6% in 2021.
Removed
The decrease in gross margin was driven by significant inflation and persistent higher component costs as well as the allocation of manufacturing overhead costs across lower production volumes.
Removed
As of December 31, 2022, we recorded an increase in taxable income of $3.95 million and an increase in net deferred tax asset of $1.1 million.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeForeign Currency Risk A substantial majority of our revenue, expense and purchasing activities are transacted in U.S. dollars. However, we require our European distributors to purchase our products in Euros and we pay the expenses of our European employees in Euros and British pounds.
Biggest changeConsequently, interest rate increases could theoretically increase our interest expense on term loans and credit line, but at the moment, there is no outstanding balances. Foreign Currency Risk A substantial majority of our revenue, expense and purchasing activities are transacted in U.S. dollars.
Based on a sensitivity analysis of our net foreign currency denominated assets and expenses at the beginning, during and at the end of the quarter ended December 31, 2022, an adverse change of 10% in exchange rates would have resulted in a decrease in our net income for the fourth quarter 2022 of approximately $24,000 if left unprotected.
Based on a sensitivity analysis of our net foreign currency denominated assets and expenses at the beginning, during and at the end of the quarter ended December 31, 2023, an adverse change of 10% in exchange rates would have resulted in a decrease in our net income for the fourth quarter 2023 of approximately $36,000 if left unprotected.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our bank term loan and credit line facilities. Amounts outstanding under the term loan bear interest at the lender's prime rate (minimum of 4.25%) plus 0.75%.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our bank term loan and credit line facilities. The term loan interest rate is the lender’s prime rate (minimum of 4.25%) plus 0.75%.
For the fourth quarter of 2022, the total net adjustment for the effects of changes in foreign currency on cash balances, collections, payables, and derivatives used to hedge foreign currency risks, was a net gain of $15,400. We will continue to monitor, assess, and mitigate through hedging activities, our risks related to foreign currency fluctuations. 28 Table of Contents
For the fourth quarter of 2023, the total net adjustment for the effects of changes in foreign currency on cash balances, collections, payables, and derivatives used to hedge foreign currency risks, was a net loss of $12,500. We will continue to monitor, assess, and mitigate through hedging activities, our risks related to foreign currency fluctuations.
Our bank credit line facilities of up to $2.5 million have variable interest rates based upon the lender's prime rate (minimum of 4.25%) plus 0.75%, for both the domestic line (up to $2.0 million) and the international line (up to $0.5 million). Accordingly, interest rate increases could increase our interest expense on outstanding term loans and credit line balances.
Our bank credit line facilities, with a total limit of $2.5 million, have variable interest rates based upon the lender’s prime rate (minimum of 4.25%) plus 0.75%, for both the domestic line (up to $2.0 million) and the international line (up to $0.5 million).
We may enter into selected future purchase commitments with foreign suppliers that may be paid in the local currency of the supplier.
However, we require our European distributors to purchase our products in Euros and we pay the expenses of our European employees in Euros and British pounds. We may enter into selected future purchase commitments with foreign suppliers that may be paid in the local currency of the supplier.

Other SCKT 10-K year-over-year comparisons