SOCKET MOBILE, INC.

The supplementary information required by this item is included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Socket Mobile, Inc.:

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Socket Mobile, Inc. (“the Company”) as of December 31, 2025 and 2024, the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.

/s/Sadler, Gibb & Associates, LLC

We have served as the Company’s auditor since 2013

Draper, UT

March 30, 2026

Auditor Firm ID:3627

SOCKET MOBILE, INC.

BALANCE SHEETS

SOCKET MOBILE, INC.

STATEMENTS OF OPERATIONS

SOCKET MOBILE, INC. STATEMENTS OF STOCKHOLDERS’ EQUITY

SOCKET MOBILE, INC.

STATEMENTS OF CASH FLOWS

NOTE 1 — Organization and Summary of Significant Accounting Policies

Organization and Business

Socket Mobile, Inc. (the “Company”) is a leading provider of data capture and delivery solutions for mobile applications used in Retail, Commercial Services, Industrial & Manufacturing, Transportation & Logistics, and Health Care. Our products include data capture devices that utilize Bluetooth or RFID/NFC technology, designed to interface with applications running on smartphones, tablets and mobile computers. These applications operate on diverse operating systems, including Apple® (iOS), Google™ (Android™) and Microsoft® (Windows®). Additionally, the Company offers camera-based barcode scanning software. The Company focuses on serving the needs of software app providers, with our sales primarily driven by the deployment of barcode and RFID/NFC enabled mobile applications.

The Company designs its own products and subcontracts the manufacturing of product components to independent third-party contract manufacturers who are in the U.S., Mexico, Singapore, China, Malaysia and Taiwan and who have the equipment, know-how and capacity to manufacture products to the Company’s specifications. Final products are assembled, tested, packaged, and distributed at and from its Fremont, California facility. In addition to its own online stores, the Company offers its products worldwide through two-tier distribution, allowing customers to purchase from numerous online resellers worldwide, including some app providers. The geographic regions served by the Company include the Americas, Europe, Asia Pacific and Africa.

The Company was founded in March 1992 as Socket Communications, Inc. and reincorporated in Delaware in 1995 prior to the Company’s initial public offering in June 1995. The Company began doing business as Socket Mobile, Inc. in January 2007 to better reflect its market focus on the mobile business market, and changed its legal name to Socket Mobile, Inc. in April 2008. The Company’s common stock trades on the NASDAQ Marketplace under the symbol “SCKT.” The Company’s principal executive offices are located at 40675 Encyclopedia Circle, Fremont, CA 94538.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity date of 90 days or less at date of purchase to be cash equivalents. As of December 31, 2025, and December 31, 2024, all of the Company’s cash and cash equivalents consisted of amounts held in demand deposit accounts in banks. The Company has never experienced any losses in such accounts.

Fair Value of Financial Instruments

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

The hierarchy consists of:

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

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

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

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

Foreign Currency

The functional currency for the Company is the U.S. dollar. However, the Company requires European distributors to purchase products in Euros and British pounds and pays the expenses of European employees in Euros and British pounds. In 2025, the total net adjustment for the effects of changes in foreign currency on cash balances, collections, and payables was a net gain of$44,000 compared to a net loss of$26,700 in 2024.

Accounts Receivable Allowances

Trade accounts receivables are recorded at the net invoice value and are not interest bearing. The Company estimates the amount of uncollectible accounts receivable at the end of each reporting period based on the aging of the receivable balance, current and historical customer trends, and communications with its customers. Amounts are written off only after considerable collection efforts have been made and the amounts are determined to be uncollectible. The following table describes the activity in the allowance for doubtful accounts for the years ended December 31, 2025 and 2024:

Inventories

Inventories consist principally of raw materials and sub-assemblies stated at the lower of standard cost, which approximates actual costs (first-in, first-out method), or market. Market is defined as replacement cost, but not in excess of estimated net realizable value or less than estimated net realizable value less a normal margin. We purchase or have manufactured the component parts by our engineering bill of materials. The timing and quantity of our purchases are based on order forecast, the lead time requirements of our vendors, and economic order quantities. At the end of each reporting period, the Company compares its inventory on hand to its forecasted requirements for the next twelve-month period and reserves the cost of any inventory that is surplus, less any amounts that the Company believes it can recover from the disposal of goods or that the Company specifically believes will be saleable past a twelve-month horizon. The Company’s sales forecasts are based upon historical trends, communications from customers, and marketing data regarding market trends and dynamics. Changes in the amounts recorded for surplus or obsolete inventory are included in cost of revenue.

Inventories, net of write-downs, at December 31, 2025 and 2024 consisted of the following:

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of various payments that the Company has made in advance for goods or services to be received in the future. Prepaid expenses and other current assets at December 31, 2025 and 2024 consisted of the following:

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method, over the estimated useful lives of the assets ranging from one to five years. Computer software and hardware are amortized over two to three years, while machinery and equipment are typically amortized over three years. Manufacturing tooling is amortized over a span of two to three years, and improvements to leasehold are amortized over the remaining lease term. Assets under finance leases are amortized in a manner consistent with the Company’s normal depreciation policy for owned assets, or the remaining lease term as applicable. Depreciation expenses in the years ended December 31, 2025 and 2024, were$1,199,601 and$961,425, respectively.

Intangible Assets

The Company’s intangible assets consist of completed technologies and acquired license rights. Intangible assets are amortized over their estimated useful lives based upon the estimated economic value derived from the related intangible assets. Amortization is computed using the straight-line method over the estimated useful lives of the assets. For the years ended December 31, 2025 and 2024, the amortization expenses of intangible assets were$127,296.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset. If such assets are impaired, the impairment recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. For the years ended December 31, 2025 and 2024, we did not recognize any impairment loss of its long-lived assets.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk include cash, cash equivalents and accounts receivable. The Company invests its cash in demand deposit accounts in banks. To date, the Company has not experienced losses on investments.

The Company’s trade accounts receivable is primarily with distributors. The Company performs ongoing credit evaluations of its customers’ financial condition, but the Company generally requires no collateral. Reserves are maintained for potential credit losses, and such losses have been within management’s expectations. Customers who accounted for at least 10% of the Company’s accounts receivable balances as of December 31, 2025 and December 31, 2024 were as follows:

Concentration of Suppliers

Several of the Company’s component parts are produced by a sole or limited number of suppliers. Shortages could occur in these essential materials due to increased demand, or to an interruption of supply. Suppliers may choose to restrict credit terms or require advance payments causing delays in the procurement of essential materials. If the Company were unable to procure certain of such materials, it could have a material adverse effect upon its results. As of December 31, 2025,33% of the Company’s accounts payable balances were concentrated with the top two suppliers. For the years ended December 31, 2025 and 2024,63% of inventory purchases, respectively, were from top four suppliers.

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, 2025, the deferred revenue and deferred cost on shipments to distributors were$335,874 and$122,480 respectively, compared to$392,543 and$142,939, respectively, as of December 31, 2024.

The Company generally recognizes revenues on sales to customers other than distributors upon shipment provided that contract with the customer is identified, performance obligations in the contract are satisfied, and the price is determined. Most of our customers other than distributors do not have a right of return except under warranty.

The Company also generates revenue through its SocketCare services program, which offers extended warranty and accidental breakage coverage for select products. For the years ended December 31, 2025 and 2024, the SocketCare revenues were approximately$16,100 and$19,300, respectively. The service, which can be purchased at the time of product acquisition, provides coverage for three-year and five-year terms. Revenue from the SocketCare services program is recognized ratably over the duration of the extended warranty contract. The amount of unrecognized SocketCare service revenue is classified as deferred service revenue and presented on the Company’s balance sheet in both short-term and long-term components. As of December 31, 2025 and 2024, the balances of unrecognized SocketCare service revenue were$28,258 and$30,725, respectively.

Cost of Sales and Gross Margins

Cost of sales primarily consists of the costs to manufacture our products, including the costs of materials, contract manufacturing, shipping costs, personnel and related expenses including stock-based compensation, equipment and facility expenses, warranty costs and inventory excess and obsolete provisions. The factors that affect our gross margins are the cost of materials, the mix of products and the extent to which we are able to efficiently utilize our manufacturing capacity.

Leases

The Company adopted ASU 2016-02 effective January 1, 2019. On May 1, 2022, the Company entered into a building lease agreement for its corporate headquarters located in Fremont, CA. As of December 31, 2025, the balances of right-of-use assets and liabilities for the operating leases were approximately$2.10 million and$2.30 million, respectively, compared to approximately$2.60 million and$2.80 million, respectively, as of December 31, 2024.

Warranty

The Company’s products typically carry a one-year warranty. The Company reserves for estimated product warranty costs at the time revenue is recognized based upon the Company’s historical warranty experience, and additionally for any known product warranty issues. If actual costs differ from initial estimates, the Company records the difference in the period they are identified. Actual claims are charged against the warranty reserve. The following table describes activity in the reserves for product warranty costs for the years ended December 31, 2025 and 2024:

Research and Development

Research and development expenditures are charged to operations as incurred. The major components of research and development costs include salaries and employee benefits, stock-based compensation expense, third party development costs including consultants and outside services, and allocations of overhead and occupancy costs. In 2025, these costs amounted to approximately$4.35 million, a decrease from approximately$4.72 million in 2024.

Software Development Costs

Costs incurred to develop computer software to be sold or otherwise marketed are expensed as incurred until technological feasibility has been established. Once technological feasibility is established, qualifying development costs are capitalized and amortized on a product-by-product basis using the straight-line method over the estimated economic life of the product, generally three to five years. Amortization of capitalized software development costs is included in the cost of revenues.

The Company did not capitalize any software development costs during the years ended December 31, 2025 or 2024. Accordingly, amortization expense was$0 for both periods, and there were no unamortized capitalized software development costs as of December 31, 2025 and 2024.

Advertising Costs

Advertising costs are charged to sales and marketing as incurred. The Company incurred$24,125 and$29,370, in advertising costs during 2025 and 2024, respectively.

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

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

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Shipping and Handling Costs

Shipping and handling costs are included in the cost of revenues in the statement of operations.

Earnings (Loss) Per Share

The basic computation of earnings (loss) per share is based on the weighted average number of shares outstanding during the period presented in accordance with Accounting Standards Codification (“ASC”) 260, “Earnings Per Share”. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the period. Common stock equivalents are not included in the diluted earnings per share calculation when their effect is anti-dilutive.

The following table sets forth the reconciliation of basic shares to diluted shares and the computation of basic and diluted net loss per share:

In 2025, the shares used in computing net loss per share do not include 1,132,700 stock options,1,116,491 shares of unvested stocks,50,000 warrants, and 4,605,775 shares for convertible notes as their effects are anti-dilutive. In 2024, the shares used in computing net loss per share do not include 1,130,260 stock options,1,078,841 shares of unvested restricted stocks,50,000 warrants, and 3,203,906 shares for convertible notes as their effects are anti-dilutive.

Stock-Based Compensation Expense

The Company has incentive plans that reward employees with stock options and shares of restricted stocks. The 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. Compensation cost for stock-based awards is recognized on a straight-line basis over the vesting period, which is usually the service period.

Segment Information

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

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

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

Revenues by geographic region for the years ended December 31, 2025 and 2024, are as follows:

Export revenues are attributable to countries based on the location of the Company’s customers. The Company does not hold long-lived assets in foreign locations.

Major Customers

Customers accounted for at least 10% of total revenues for the years ended December 31, 2025 and 2024 were as follows:

Recently Issued Financial Accounting Standards

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that all other recently issued accounting standards are not expected to have a material impact on the Company’s financial position or results of operations upon adoption.

NOTE 2 — Intangible Assets

In 2021, the Company entered into the Technology Transfer Agreement with SpringCard SAS (“SpringCard”), a market leader at the forefront of innovative electronic design and development. Its contactless and wireless solutions support a wide range of customers, ranging from large multinational corporations to locally focused businesses. As of December 31, 2025, our Balance Sheets reflect the intangible assets of the acquired technology at a net carrying amount of$1,304,777, after accumulated amortization.

The anticipated future amortization of these intangible assets as of December 31, 2025, is as follows:

NOTE 3 — Bank Financing Arrangements

The Company maintains a credit facility with Western Alliance Bank (the “Bank”), which, as amended, provides for borrowings of up to $1.0 million at a variable rate equal to the lender’s prime rate plus 0.75% (subject to a 4.25% minimum). The facility matures in July 2026.

Fourth Business Financing Modification Agreement and Waiver of Defaults

On April 8, 2024, the Company entered into the Fourth Business Financing Modification Agreement and Waiver of Default with the Bank. Under the terms of the agreement, the Bank agreed to waive the default arising from the Company’s failure to meet the minimum adjusted EBITDA requirement in the quarter ended December 31, 2023. Additionally, the Bank amended the Agreement to include minimum quarterly adjusted EBITDA for 2024 and decreased the advanced rate to up to 75% in the case of both domestic eligible receivables and EXIM eligible receivables.

Fifth Business Financing Modification Agreement

On October 30, 2024, the Company entered into the Fifth Business Financing Modification Agreement with the Bank. This agreement amended the minimum quarterly adjusted EBITDA covenants to negative $600,000 for Q3 2024 and negative $200,000 for Q4 2024.

Sixth Business Financing Modification Agreement

On January 28, 2025, the Company entered into the Sixth Business Financing Modification Agreement with the Bank, extending the maturity date of both domestic and EXIM lines of credit to April 30, 2025.

Seventh Business Financing Modification Agreement

On April 21, 2025, the Company entered into the Seventh Business Financing Modification Agreement and Waiver of Default with the Bank. Under the terms of the agreement, the Bank renewed the$3.0 million domestic credit line, raised the advance rate to up to 80% of eligible domestic receivables, increased the allowance for subordinated debt to $5.5 million, and increased the credit card limit to $350,000. The maturity date of the domestic credit line is April 30, 2026.

Eighth Business Financing Modification Agreement

On January 20, 2026, the Company entered into the Eighth Business Financing Modification Agreement and Waiver of Default with the Bank. Under the terms of the agreement, the Bank waived the Company’s covenant defaults for the third quarter and the fourth quarter of 2025. The agreement also revised certain terms of the credit facilities, including: (i) modifying the covenant to require the Company to maintain a minimum cash balance of $1.0 million in accounts held with the Bank, measured as of the last day of each month; (ii) reducing the credit card limit to $0.2 million and the domestic credit line limit to$1.0 million; (iii) extending the maturity date of the facilities to July 31, 2026; and (iv) increasing the permitted amount of subordinated debt to an aggregate amount not to exceed $6.5 million.

There wereno amounts borrowed at year end on the Company’s bank credit facilities as of December 31, 2025 and December 31, 2024.

NOTE 4 — Secured Subordinated Convertible Notes Payable

The Company has issued multiple series of secured subordinated convertible notes (collectively, the “Notes”) between 2020 and 2025. The Notes are secured by substantially all of the Company’s assets and are subordinated to the Company’s obligations under its senior credit facility with Western Alliance Bank.

All Notes bear interest at 10% per annum, payable quarterly in cash. Each series is convertible at the holder’s option into shares of the Company’s common stock at fixed conversion prices established at issuance. Beginning one year after issuance, holders may require the Company to repay principal and accrued interest. Failure to pay principal or interest when due (subject to a five-day grace period) constitutes an event of default.

Proceeds from the issuances were used for general working capital purposes.

In connection with certain issuances involving related parties, the transactions were reviewed and approved in accordance with the Company’s related-party transaction policies. The Company filed and obtained effectiveness of registration statements under the Securities Act of 1933, as amended, covering the resale of shares issuable upon conversion of the applicable Notes.

Summary of Secured Subordinated Convertible Notes

Total amortization of debt discount related to all convertible notes was$14,583 and$8,761 for the year ended December 31, 2025 and 2024, respectively. As of December 31, 2025, the remaining debt discount balance was$16,993.

Total interest expenses related to the convertible note were$502,939 and$336,491 for the years ended December 31, 2025 and 2024, respectively.

NOTE 5 — Commitments and Contingencies

Operating Lease Obligations

In February 2022, the Company entered into a lease agreement for approximately 35,913 square feet at 40675 Encyclopedia Circle in Fremont, California. This location serves as the Company’s Corporate Headquarters, including office space and manufacturing. The current monthly rent is $54,940.

The Company accounted for the lease as an operating lease under ASC 842 using the bank loan interest rate in effect on May 1, 2022 at 5.0% to discount future lease payments. The lease term expires on July 31, 2029, with a one-time option to renew for a period of five years. The renewal period is not included in the measurement of the leases as the Company is not reasonably certain of exercising it.

In January 2024, the Company renewed its equipment operating lease agreement, extending it through the end of 2026, with lease payments discounted at an interest rate of 9.25%.

As of December 31, 2025, the balances of right-of-use assets and liabilities were approximately$2.09 million and$2.29 million, respectively, compared to approximately$2.60 million and$2.82 million, respectively, on December 31, 2024.

The operating lease expense under the existing agreement was allocated in cost of goods sold and operating costs based on department headcount and amounted to$646,726 for the twelve-month periods ended December 31, 2025 and 2024, respectively.

Cash payments included in the measurement of our existing operating lease liabilities were$657,164 and$638,148 for the twelve-month periods ended December 30, 2025 and 2024, respectively.

Future minimum lease payments under the existing operating lease as of December 31, 2025 are shown below:

Purchase Commitments

On December 31, 2025, the Company’s non-cancelable purchase commitments for inventory to be used in the ordinary course of business during 2026 were approximately$2,869,000.

Legal Matters

The Company is subject to disputes, claims, requests for indemnification and lawsuits arising in the ordinary course of business. Under the indemnification provisions of the Company’s customer agreements, the Company routinely agrees to indemnify and defend its customers against infringement of any patent, trademark, copyright, trade secrets, or other intellectual property rights arising from customers’ legal use of the Company’s products or services. The exposure to the Company under these indemnification provisions is generally limited to the total amount paid for the indemnified products. However, certain indemnification provisions potentially expose the Company to losses in excess of the aggregate amount received from the customer. To date, there have been no claims against the Company by its customers pertaining to such indemnification provisions, and no amounts have been recorded. The Company is currently not a party to any material legal proceedings.

NOTE 6 — Stock-Based Compensation Plan

Stock-Based Compensation Program

The Company has one share-based compensation plan in effect for the two years presented: the 2004 Equity Incentive Plan (the “2004 Plan”). The plan allows for the grant of incentive stock options, non-statutory stock options, restricted stock, stock appreciation rights, and performance awards to employees, directors, and consultants. Stock options are granted at an exercise price per share equal to the fair market value per share of common stock on the date of grant. Restricted stocks are granted at zero cost. Vesting and exercise provisions are determined by the Board of Directors, with a maximum term of ten years. The 2004 Plan is set to terminate on April 23, 2034.

The 2004 Plan allows for an annual increase in the number of shares authorized under the plan to be added on the first day of each fiscal year equal to the least amount of 400,000 shares, 4% of the outstanding shares on that date, or an amount as determined by the Board of Directors. On January 1, 2026 and 2025, a total of 319,078 and 304,225 additional shares, respectively, became available for grant from the 2004 Plan.

Stock-Based Compensation Information

The stock-based compensation expense included in the Company’s statements of income for the years ended December 31, 2025 and 2024, consisted of the following:

As of December 31, 2025, the remaining unamortized stock-based compensation expense was$1,139,147 and is expected to be amortized over a weighted average period of 2.4 years.

**Stock Options –**Stock option awards have an exercise price equal to the closing price on the date of grant, expire ten years from the date of grant and vest over a four-year period at 25% per year. The Company calculates the value of each stock option grant, estimated on the date of grant, using binomial lattice option pricing model.

On October 1, 2025, the Company granted 25,000 stock options at a closing market price of $1.02.

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.

The weighted-average estimated fair value of stock options granted in 2025 was$0.581, determined using a binomial lattice valuation model with the following weighted-average assumptions:

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the dividend yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date of grant; the expected life is based on historical and expected exercise behavior; and volatility is based on the historical volatility of the Company’s stock price over the expected life of the option.

The table below presents the information related to stock option activity for the years ended December 31, 2025 and 2024:

The following summarizes stock option activity under the 2004 Plan as of and for the years ended December 31, 2025, and 2024:

Stock options outstanding as of December 31, 2025 are summarized below:

**Restricted stock –**The Company issues restricted stocks to employees, consultants and directors, and holds shares of such stock in escrow until the shares vest, subject to the employees, consultants and directors being a continuing service provider on 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 stocks are granted at zero cost basis. Compensation cost of the shares of restricted stocks issued by the Company is recognized on a straight-line basis over the 4-year vesting period.

The following summarizes information related to restricted stock activity under the 2004 Plan for the years ended December 31, 2025 and 2024:

NOTE 7 — Shares Reserved

Common stock reserved for future issuance was as follows:

NOTE 8 — Retirement Plan

The Company has a tax-deferred savings plan, the Socket Mobile, Inc. 401(k) Plan (“401(k) Plan”), for the benefit of qualified employees. The 401(k) Plan is designed to provide employees with an accumulation of funds at retirement. Qualified employees may elect to make contributions to the 401(k) Plan monthly. The Company provides a match to employees’ 401(k) savings at 3% of employees’ contribution, up to $100 per month. For the years ended December 31, 2025 and 2024, total company matching contributions amounted to$45,250 and$48,950, respectively. Administrative expenses relating to the 401(k) Plan are not significant.

NOTE 9 — Income Taxes

The Company's entire pretax income / (loss) for the years ended December 31, 2025 and December 31, 2024 was from its U.S. domestic operations.

The components of income taxes for the periods ended December 31, 2025 and 2024 are as follows:

A reconciliation of the statutory federal income tax rate to the Company's effective tax rate is as follows:

The principal components of deferred tax assets and (liabilities) are as follows for the period ended:

The Company has not generated taxable income in any jurisdiction over the prior 12 quarters. Based on the weight of available evidence, including the Company’s recent cumulative losses, management concluded that it is more-likely-than-not that the Company’s deferred tax assets will not be realized. Accordingly, as of December 31, 2025, the Company recorded a full valuation allowance against its deferred tax assets.

As of December 31, 2025, the Company had U.S. Federal net operating loss carryforwards of$24.8 million which includes $15.6 million that expire at various dates from 2026 through 2033, and $9.3 million that have an unlimited carryforward period. As of December 31, 2025, the Company had state net operating loss carryforwards of$24.5 million that will expire at various dates from 2029 through 2044.

As of December 31, 2025, the Company had U.S. Federal research and development credit carryforwards of$0.4 million that begin to expire at various dates through 2043. As of December 31, 2025, the Company had state research and development credit carryforwards of$0.6 million that have an unlimited carryforward period.

The future realization of the Company's net operating loss carryforwards and other tax attributes may also be limited by the change in ownership rules under the U.S. Internal Revenue Code Section 382. Under Section 382, if a corporation undergoes an ownership change (as defined), the corporation’s ability to utilize its net operating loss carryforwards and other tax attributes to offset income may be limited. The Company has not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes.

The following table summarizes the activity related to the Company's unrecognized tax benefits:

The Company files income tax returns in the U.S. federal jurisdiction and in California, and therefore subject to tax examination by couple taxing authorities. The Company is not currently under examination, and is not aware of any issues under review that could result in significant payments, accruals or material deviation from its tax positions. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state tax authorities to the extent utilized in a future period. As of December 31, 2025, the tax years from 2020 to present remain open to examination by relevant taxing jurisdictions to which the Company is subject. However, to the extent the Company utilizes net operating losses from years prior to 2020, the statute remains open to the extent of the net operating losses or other credits that are utilized.

The calculation and assessment of the Company's tax exposures generally involve the uncertainties in the application of complex tax laws and regulations for federal and state jurisdictions. A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation, on the basis of the technical merits. As of December 31, 2025, and 2024, the Company had approximately $1.0 million of unrecognized tax benefits for both years. In addition, the Company believes it is reasonably possible that its unrecognized tax benefits will not change significantly within the next twelve months. Additionally, as of December 31, 2025, and 2024, the Company has not accrued any interest and penalties related to its uncertain tax positions. The Company has elected to recognize accrued interest and penalties, if any, related to uncertain tax positions in tax expense in its financial statements.

NOTE 10 — Subsequent Events

Other than described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the audited financial statements.

On January 20, 2026, the Company entered into the Eighth Business Financing Modification Agreement and Waiver of Default with the Bank. Under the terms of the agreement, the Bank waived the Company’s covenant defaults for Q3 and Q4 2025. The agreement also revised certain terms of the credit facilities, including: (i) modifying the covenant to require the Company to maintain a minimum cash balance of $1.0 million in accounts held with the Bank, measured as of the last day of each month; (ii) reducing the credit card limit to $0.2 million and the domestic credit line limit to$1.0 million; (iii) extending the maturity date of the facilities to July 31, 2026; and (iv) increasing the permitted amount of subordinated debt to an aggregate amount not to exceed $6.5 million.

On February 27, 2026, the Board granted 232,045 stock options under the 2004 Equity Incentive Plan at an exercise price of$1.00 per share. These options were awarded to directors, employees, and a consultant to repay their voluntary compensation reductions in 2025. The options vest pro rata over four years, subject to the recipient’s continued service with the Company.

On March 27, 2026, the Company completed a secured subordinated convertible note financing of$500,000. The notes have a three-year term and will mature on March 27, 2029. The interest rate on the notes is 10%, payable quarterly in cash. The holder of each note may require the Company to repay the principal amount of the note plus accrued interest at any time after March 27, 2027. The notes are secured by the assets of the Company and are subordinated to the Company’s debts with Western Alliance Bank, its senior lender. The principal amount of each note is convertible at any time, at the option of the holder, into shares of the Company’s common stock at a conversion price of$0.90 per share, the closing price of the common stock on the Nasdaq Capital Market on March 27, 2026, and the most recent closing price as of the closing of the financing.