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NOTE 6 — Stock-Based Compensation Plan

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

NOTE 6 — Stock-Based Compensation Plan

Stock-Based Compensation Program

The Company has one share-based compensation plan in effect in the two years presented: the 2004 Equity Incentive Plan (the “2004 Plan”). The 2004 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock, stock appreciation rights, and performance awards to employees, directors, and consultants of the Company. Upon ratification of the 2004 Plan by the shareholders in June 2004, shares in the 1995 Plan that had been reserved but not issued, as well as any shares issued that would otherwise return to the 1995 Plan as a result of termination of options or repurchase of shares, were added to the shares reserved for issuance under the 2004 Plan. The Company grants incentive stock options and restricted stock at an exercise price per share equal to the fair market value per share of common stock on the date of grant. The vesting and exercise provisions are determined by the Board of Directors, with a maximum term of ten years. The 2004 Plan expires on April 23, 2024.

The 2004 Plan provides 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, 2021 and 2020, a total of 244,105 and 240,707 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, 2021 and 2020, consisted of the following:


	Years Ended December 31,
Income Statement Classification	2021		2020
Cost of revenues	$	96,254	$	86,649
Research and development		218,559		137,537
Sales and marketing		166,266		121,802
General and administrative		212,346		161,063
Stock-based compensation expenses	$	693,425	$	507,051

SOCKET MOBILE, INC.

NOTES TO FINANCIAL STATEMENTS

As of December 31, 2021, the remaining unamortized stock-based compensation expense was $1,843,981 and is expected to be amortized over a weighted average period of 3.2 years.

Stock Options – Stock option awards have an exercise price equal to the closing price on the date of grant, expire in 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. The weighted-average estimated fair value of stock options granted during 2021 and 2020 was $4.46 and $0.50, respectively, using the following weighted-average assumptions:


	Years Ended December 31,
	2021			2020
Risk-free interest rate (%)		1.64	%		0.68	%
Dividend yield		—			—
Volatility factor		102.26	%		43.62	%
Expected option life (years)		3.9			7.4

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, 2021 and 2020:


	Years Ended December 31,
	2021		2020
Total intrinsic value of stock options exercised	$	9,985,639	$	167,882
Cash received from stock option exercises	$	1,899,561	$	168,065

The following summarizes stock option activity under the 2004 Plan as of and for the years ended December 31, 2021 and 2020:


	Outstanding Options
	Number of Shares			Weighted Average Exercise Price Per Share	Remaining Contractual Term (in years)		Intrinsic Value
Balance as of December 31, 2019	2,392,786		$	2.40
Granted	37,000		$	1.08
Exercised	(100,239	)	$	1.68
Canceled	(334,741	)	$	2.84
Balance as of December 31, 2020	1,994,806		$	2.42
Granted	182,000		$	6.39
Exercised	(782,633	)	$	2.43
Canceled	(16,051	)	$	2.41
Balance as of December 31, 2021	1,378,122		$	2.81	4.50	$	2,174,052
Exercisable	1,027,508		$	2.36	9.92	$	1,824,936
Unvested	350,614		$	4.16	9.83	$	349,116

SOCKET MOBILE, INC.

NOTES TO FINANCIAL STATEMENTS

Stock options outstanding as of December 31, 2021 are summarized below:


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Options Outstanding	Weighted Average Remaining Life (Years)		Weighted Average Exercise Price	Number of Options Exercisable		Weighted Average Exercise Price
$0.95. - $1.25	226,438	2.67	$	1.07	218,730	$	1.07
$1.50 - $1.90	217,825	5.50	$	1.84	169,826	$	1.84
$2.00 - $2.32	359,196	6.50	$	2.29	246,921	$	2.28
$2.36 - $2.75	149,475	5.08	$	2.61	145,725	$	2.61
$2.92 - $2.93	116,824	6.25	$	2.93	101,650	$	2.93
$3.70 - $4.49	126,365	5.25	$	4.08	126,365	$	4.08
$5.00 - $8.58	182,000	9.92	$	6.39	18,292	$	6.47
$0.95 - $8.58	1,378,123	4.50	$	2.81	1,027,509	$	2.36

As of December 31, 2021, the remaining unamortized stock option compensation expense was $839,317 and is expected to be amortized over a weighted average period of 3.66 years.

Restricted stock – The Company issues restricted stocks to employees and consultants and holds shares of such stock in escrow until the shares vest on the schedule of 15% after year one, 20% after year two, 25% after year three and 40% after year four, subject to the employees and consultants 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.

SOCKET MOBILE, INC.

NOTES TO FINANCIAL STATEMENTS

The following summarizes information related to restricted stock activity under the 2004 Plan for the years ended December 31, 2021 and 2020:


	Number of Restricted Stocks			Weighted Average Price Per Share
Unvested as of December 31, 2019		110,071		$	1.94
Granted		392,680		$	1.50
Vested		(17,306	)	$	1.94
Forfeited		(43,245	)	$	1.65
Unvested as of December 31, 2020		442,200		$	1.58
Granted		312,112		$	2.89
Vested		(59,659	)	$	1.65
Forfeited		(48,528	)	$	2.00
Unvested as December 31, 2021		646,125		$	3.32

As of December 31, 2021, the remaining unamortized restricted stock compensation expense was $1,004,664 and is expected to be amortized over a weighted average period of 2.83 years.