NOTE 8 — Stock-Based Compensation

The Company recognizes the compensation cost in the financial statements for all stock-based awards to employees, including grants of stock options and restricted stock, based on the fair value of the awards as of the date that the awards are issued. Compensation cost for stock-based awards is recognized on a straight-line basis over the vesting period.

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. There were no stock options granted for the three and six months ended June 30, 2025.

On June 25, 2024, the Company completed a one-time tender offer to exchange 613,936 stock options granted under its 2004 Equity Incentive Plan for current employees, executive officers, and directors. All surrendered options were cancelled as of the Exchange Offer’s expiration on June 25, 2024. The Company granted new options to purchase an aggregate of 613,936 shares of common stock pursuant to the terms of the Exchange Offer and 2004 Equity Incentive Plan. These new options were priced at the closing market price of $1.1197 on June 25, 2024, with monthly vesting over 4 years and a 10-year expiration date of June 25, 2034. The Company’s stockholders approved the stock option exchange program at the 2024 annual meeting on May 15, 2024. The Company accounted for the exchange as a modification of the options and calculated the incremental expense to be $187,117, which will amortized over the estimated life of the new options. Additionally, on June 26, 2024, the Company granted 75,000 stock options at a closing market price of $1.08.

SOCKET MOBILE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

June 30, 2025

The shares of restricted stock are issued to employees and consultants and are held in escrow by the Company until the shares vest, subject to the employees and consultants being a continuing service provider on each of the vesting dates. If the service or employment is terminated, unvested shares revert to the Company. Shares are registered at grant, so share owners may vote at the annual stockholder meeting. Shares of restricted stock are granted on a zero cost basis. Compensation cost of the restricted stock is recognized on a straight-line basis over the life of vesting period. For the six months ended June 30, 2025 and 2024, the Company awarded 643,793 and 500,750 shares of restricted stock, respectively. As of June 30, 2025, there were 1,172,617 shares of restricted stock outstanding. Due to the existence of restrictions on sale or transfer until the shares vest, the Company does not count the shares of restricted stock as issued and outstanding shares until they vest. During the first six months of 2025, 421,590 shares of restricted stock were issued to employees through vesting. The market value of the vested shares is subject to tax withholding.

Total stock-based compensation expenses for the three and six months ended June 30, 2025 were $230,690 and $301,315, respectively, compared to expenses of $274,734 and $547,434 in the corresponding periods a year ago.