SOCKET MOBILE, INC.

Current report

Effective December 31, 2025, the Company recorded a full valuation allowance of $10,663,419 against our deferred tax assets. In assessing the realizability of deferred tax assets, we considered all available positive and negative evidence, with significant weight given to objectively verifiable negative evidence, including cumulative losses in recent years. Based on this evaluation and in accordance with ASC 740, we concluded that it is more likely than not that our deferred tax assets will not be realized as of December 31, 2025.

Current report

The Company accounts for uncertain tax positions in accordance with ASC 740. We recognize the tax benefit from a tax position only if it is more likely than not that the position will be sustained upon examination by the relevant taxing authorities, based on the technical merits of the position. The amount of benefit recognized is measured as the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2025, the Company had unrecognized tax benefits of approximately $991,000.

Current report

Revenue for 2025 was $15.1 million, representing a decrease of 20% compared to revenue of $18.8 million for 2024. The decline was primarily attributable to a challenging macroeconomic environment, including reduced customer spending and longer sales cycles, as well as continued headwinds within our distribution channels, which resulted in lower order volumes.

Current report

The annual gross margins on revenue decreased to 49.7% in 2025 from 50.4% in 2024. The decline primarily reflects lower sales volumes, which reduced absorption of fixed costs, partially offset by disciplined cost management and operational efficiency initiatives. Despite these headwinds, our focus on optimizing production processes and controlling direct costs helped maintain resilient gross margins.

Current report

For the years ended December 31, 2025 and 2024, our research and development expenses were approximately $4.4 million and $4.7 million, respectively, representing a decrease of approximately $370,000, or 8%. The decrease was primarily driven by cost management initiatives, including reduced employee-related expenses, as we focused R&D efforts on high-priority projects and optimized resource allocation. These actions allowed us to maintain progress on key product development initiatives while improving operational efficiency.

Current report

Sales and marketing expenses in 2025 were approximately $4.0 million, a decrease of approximately 10% compared to $4.4 million in 2024. The decrease was primarily driven by reductions in employee-related costs, as we optimized the sales and marketing workforce and aligned resources with strategic priorities. These actions improved operational efficiency while continuing to support revenue growth initiatives.

Current report

General and administrative expenses in 2025 were $2.4 million, representing a decrease of approximately $413,000 or 15% compared to $2.8 million in 2024. The decrease was primarily driven by reductions in employee-related costs and professional services, as we optimized administrative resources and implemented cost management initiatives. These actions improved operational efficiency while maintaining the support necessary for critical business functions and corporate operations.

Current report

We recorded an income tax expense of $10.7 million in 2025, compared to an income tax benefit of $551,000 (an effective tax rate of 19.7%) in 2024. The change was primarily attributable to the establishment of a full valuation allowance against our deferred tax assets in 2025.

Previous report

We account for income taxes under the asset and liability method under ASC 740 which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

Previous report

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

Previous report

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.

Previous report

The revenue for 2024 was $18.8 million, an increase of 10% compared to revenue of $17.0 million for 2023 driven by the growth of our business serving retail POS app providers.

Previous report

The annual gross margins on revenue increased to 50.4% in 2024 from 49.7% in 2023. This rise is attributed to the allocation of manufacturing overhead costs across higher production volumes.

Previous report

For the years ended December 31, 2024 and 2023, our research and development expenses were approximately $4.7 million and $4.8 million, respectively. This represents an decrease of approximately $111,000, or 2%. The decrease in research and development expenses is primarily due to a reduction in consulting and professional services related to the development of new products in 2023.

Previous report

Sales and marketing expenses in 2024 were approximately $4.4 million, an increase of approximately 10% compared to $4.0 million in 2023. The increases in expenses in 2024 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.

Previous report

General and administrative expenses in 2024 were $2.78 million, marking an increase of approximately $44,000 or 2% compared to $2.74 million in 2023. The increase is attributed primarily to the net adjustment from foreign currency fluctuations, which affected cash balances, collections, and payables, reflecting the dynamic nature of exchange rates and their influence on our financial position.

Previous report

We recorded an income tax benefit of $551,000 (an effective tax rate of 19.7%) in 2024, compared to $1.44 million (an effective tax rate of 42.9%) in 2023. The Tax Cuts and Jobs Act of 2017 (“TCJA”), which was signed into U.S. law in December 2017, eliminated the option to immediately deduct research and development expenditures in the year incurred under Section 174 effective January 1, 2022. The amended provision under Section 174 requires us to capitalize and amortize these expenditures over five years (for U.S.-based research). We are monitoring legislation for any further changes to Section 174 and the potential impact on our financial statements in 2025.

Previous report

Our net operating loss carryforwards will expire at various dates from 2025 through 2033. The Company’s deferred tax asset, primarily representing future income tax savings from the application of net operating loss carryforwards, was valued at $10.7 million and $10.1 million as of December 31, 2024 and 2023, respectively.