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Stock-Based Compensation | 12 Months Ended
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Dec. 31, 2012
Stock-Based Compensation [Abstract] |
Stock-Based Compensation |
10. | Stock-Based Compensation
We have several approved stock option plans for which stock options and restricted stock awards are available to grant to employees, consultants and directors. All employee and director stock options granted under our stock option plans have an exercise price equal to the market value of the underlying common stock on the grant date. There are no vesting provisions tied to performance conditions for any options, as vesting for all outstanding option grants was based only on continued service as an employee, consultant or director. All of our outstanding stock options and restricted stock awards are classified as equity instruments. Amortization of Fair Value of Stock Issued to Related Parties for Purchase of Neonode Technologies AB On December 29, 2008, we entered into a Share Exchange Agreement with Neonode Technologies AB and the stockholders of Neonode Technologies AB: Iwo Jima SARL, Wirelesstoys AB, and Athemis Ltd (the “Neonode Technologies AB Stockholders”), pursuant to which we agreed to acquire all of the issued and outstanding shares of Neonode Technologies AB in exchange for the issuance of 19,800 shares of the Company’s Series A Preferred stock. Pursuant to the terms of the Share Exchange Agreement, upon the closing of the transaction, Neonode Technologies AB became a wholly owned subsidiary of the Company. The Neonode Technologies AB Stockholders are or were employees of us and/or Neonode AB, and as such are related parties. The fair value of the conversion feature of the 19,800 shares of Series A Preferred shares issued to the related parties to acquire Neonode Technologies AB that was converted to a total of 9,516,447 shares of our common stock was $9.5 million based on our stock price on March 31, 2009, the date our shareholders approved the increased conversion ratio. Because this transaction was essentially the issuance of shares to key employees for their continued service to enhance the Company, the $9.5 million revised fair value of the common stock has been amortized to compensation expense at the rate of $1.6 million per quarter for six quarters beginning January 1, 2009. The amortization of the $9.5 million in compensation expense related the value of the stock issued to the related parties to acquire Neonode Technologies AB was completed on June 30, 2010. For the year ended December 31, 2010 $3.2 million has been recorded as compensation expense in our consolidated statement of operations. Stock Options As of December 31, 2012, we had three equity incentive plans:
| ● | The 1996 Stock Option Plan (the “1996 Plan”), which expired in January 2006;
| ● | The 1998 Non-Officer Stock Option Plan (the “1998 Plan”), which expired in June 2008; and
| ● | The 2006 Equity Incentive Plan (the “2006 Plan”).
We also have one non-employee director stock option plan as of December 31, 2012:
| ● | The 2001 Non-Employee Director Stock Option Plan (the “Director Plan”), which expired in March 2011.
The following table summarizes information with respect to all options to purchase shares of common stock outstanding under the 1996 Plan, the 1998 Plan, the 2006 Plan and the Director Plan at December 31, 2012:
Options Outstanding |  | Options Exercisable |
Range of Exercise Price |  | Number Outstanding at 12/31/12 |  | Weighted Average Remaining Contractual Life (years) |  | Weighted Average Exercise Price |  | Number Exercisable at 12/31/12 |  | Weighted Average Exercise Price |
$ 4.25 |  |  | 1,475,000 |  | 6.3 |  | $ | 4.25 |  | 814,028 |  | $ | 4.25 |
$ 4.26 - $ 7.00 |  |  | 229,000 |  | 6.9 |  | $ | 5.05 |  | 30,751 |  | $ | 5.27 |
$ 7.01 - $ 125.00 |  |  | 11,200 |  | 1.7 |  | $ | 108.75 |  | 11,200 |  | $ | 108.75 |
|  |  | 1,715,200 |  | 6.4 |  | $ | 5.04 |  | 855,979 |  | $ | 5.65 |
A summary of the combined activity under all of the stock option plans is set forth below:
|  | Weighted Average Number of Shares |  |  | Exercise Price Per Share |  |  | Weighted-Average Exercise Price |
Outstanding at January 1, 2010 |  |  | 19,884 |  |  | $ | 35.39 – 687.50 |  |  | $ | 103.63 |
Granted |  |  | -- |  |  | $ | -- |  |  | $ | -- |
Cancelled or expired |  |  | (80 | ) |  | $ | 348.75 |  |  | $ | 348.75 |
Exercised |  |  | -- |  |  | $ | -- |  |  | $ | -- |
Outstanding at December 31, 2010 |  |  | 19,804 |  |  | $ | 35.39 – 687.50 |  |  | $ | 101.36 |
Granted |  |  | -- |  |  | $ | -- |  |  | $ | -- |
Cancelled or expired |  |  | (480 | ) |  | $ | 135.00- 687.50 |  |  | $ | 523.23 |
Exercised |  |  | -- |  |  | $ | -- |  |  | $ | -- |
Outstanding, vested and expected to vest at December 31, 2011 |  |  | 19,324 |  |  | $ | 35.39 – 368.75 |  |  | $ | 92.19 |
Granted |  |  | 1,704,000 |  |  | $ | 4.02 -6.28 |  |  | $ | 4.35 |
Cancelled or expired |  |  | (8,124 | ) |  | $ | 35.39- 368.75 |  |  | $ | 69.36 |
Exercised |  |  | -- |  |  | $ | -- |  |  | $ | -- |
Outstanding, vested and expected to vest at December 31, 2012 |  |  | 1,715,200 |  |  | $ | 4.02 – 125.00 |  |  | $ | 5.04 |
The assumptions used to value stock options granted to directors, employees and consultants during the year ended December 31, 2012 are as follows:
|  | For the year |
|  | ended December 31, 2012 |
Annual dividend yield |  |  | - |
Expected life (years) |  |  | 3.8 – 4.3 |
Risk-free interest rate |  |  | 0.43% - 0.62 | %
Expected volatility |  |  | 169% - 187 | %
The aggregate intrinsic value of the 1,715,200 stock options that are outstanding, vested and expected to vest at December 31, 2012 is $909,800. During the years ended December 31, 2012, 2011 and 2010, the Company recorded $3.4 million, $87,000 and $142,000, respectively, of compensation expense related to the vesting of stock options. The fair value of the stock-based compensation was calculated using the Black-Scholes option pricing model as of the grant date of the stock option. The 1996 Plan terminated effective January 17, 2006, and the 1998 Plan terminated effective June 15, 2008. Although we can no longer issue stock options out of the plans, the outstanding options at the date of termination will remain outstanding and vest in accordance with their terms. Options granted under the Director Plan vest over a one to four-year period, expire five to seven years after the date of grant and have exercise prices reflecting market value of the shares of our common stock on the date of grant. Stock options granted under the 1996, 1998 and 2006 Plans are exercisable over a maximum term of ten years from the date of grant, vest in various installments over a one to four-year period and have exercise prices reflecting the market value of the shares of common stock on the date of grant. On January 30, 2012, the Board of Directors of Neonode Inc. (“Board”) adopted an amendment to the 2006 Plan to increase the number of shares of common stock authorized for issuance under the 2006 Plan by an additional two million (2,000,000) shares. We granted 169,000 stock options to purchase shares of our common stock to a consultant during the year ended December 31, 2012. We also granted 1,175,000 stock options to purchase shares of our common stock to our employees and 360,000 stock options to purchase shares of our common stock to members of our Board during the year ended December 31, 2012. We did not grant any options to purchase shares of our common stock to employees, consultants or members of our Board during the years ended December 31, 2011 and 2010. Warrants During 2012, certain warrant holders exercised their warrants under the cash and net cash provisions, as defined in the agreements. See Note 9 for details of such exercises and number of common stock shares issued. On December 3, 2010, we issued 120,000 warrants at an exercise price of $1.63 per share to an employee. The fair value of the warrants was $198,000 on the date of grant, using the Black-Scholes option pricing model, which has been amortized to expense over 24 months. During the years ended December 31, 2012, 2011 and 2010, we recorded $91,000, $99,000 and $8,000, respectively, of stock based compensation expense related to vesting of such warrants. We issued 80,000 five-year stock purchase warrants at an exercise price of $2.50 per share to our legal advisor during the year ended December 31, 2011. We also issued 20,000 three-year stock purchase warrants at an exercise price of $2.00 per share to one of our U.S. based employees during the year ended December 31, 2011. In addition, we issued 20,000 three-year stock purchase warrants at an exercise price or $4.05 per share to an engineering consultant during the year ended December 31, 2011. These warrants to purchase an aggregate of 120,000 shares of our common stock vested on the date of grant. The vested warrant granted to our legal advisor has a fair value on the date of grant of $193,000 and is included in general and administrative expense for the year ended December 31, 2011. The vested warrant granted to our employee has a fair value on the date of grant of $37,000 and is included in product research and development expense for the year ended December 31, 2011. The vested warrant granted to our engineering consultant has a fair value on the date of grant of $73,000 and is included in product research and development expense for the year ended December 31, 2011. We issued 20,000 three-year stock purchase warrants at an exercise price of $3.90 per share with a vesting period over 24 months to an employee during the year ended December 31, 2011. The unvested warrant granted to an employee has a fair value on the date of grant of $75,000. This amount will be expensed over the vesting period and $38,000 and $11,000 of expense related to this warrant is included in product research and development expense for the year ended December 31, 2012 and 2011, respectively. The fair value of stock-based compensation related to the issuance of warrants is calculated using the Black-Scholes option pricing model as of the grant date of the underlying warrant. The stock-based compensation expense for the years ended December 31, 2012, 2011 and 2010 reflects the fair value of the vested portion of options and warrants granted to directors, employees and non-employees. Stock-based compensation expense for the year ended December 31, 2010 also includes $3.2 million of amortization of the value of stock issued to related parties for the purchase of Neonode Technologies AB. Stock-based compensation expense in the accompanying consolidated statements of operations is as follows (in thousands):
|  | Year ended |
|  | December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Product research and development |  | $ | 315 |  |  | $ | 11 |  |  | $ | - |
Sales and marketing |  |  | 1,407 |  |  |  | 99 |  |  |  | 140 |
General and administrative |  |  | 1,777 |  |  |  | 440 |  |  |  | 5,290 |
Stock compensation expense |  | $ | 3,499 |  |  | $ | 550 |  |  | $ | 5,430 |
|  | Remaining unamortized expense at December 31, 2012 |
Stock-based compensation |  | $ | 3,568 |
The remaining unamortized expense related to stock options and warrants will be recognized on a straight line basis monthly as compensation expense over the remaining vesting period which approximates 1.9 years. A summary of all warrant activity is set forth below:
Outstanding and exercisable |  | Warrants |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Life
January 1, 2011 |  |  | 5,139,489 |  |  | $ | 1.27 |  |  |  | 3.23 |
Issued |  |  | 809,543 |  |  |  | 3.08 |  |  |  | - |
Expired/forfeited |  |  | - |  |  |  | - |  |  |  | - |
Exercised |  |  | (543,426 | ) |  | $ | 1.04 |  |  |  | - |
December 31, 2011 |  |  | 5,405,606 |  |  | $ | 1.57 |  |  |  | 2.45 |
Issued |  |  | - |  |  |  | - |  |  |  | - |
Expired/forfeited |  |  | (232) |  |  |  | 31.75 |  |  |  | - |
Exercised |  |  | (700,738 | ) |  | $ | 1.18 |  |  |  | - |
Outstanding and exercisable, December 31, 2012 |  |  | 4,704,636 |  |  | $ | 1.61 |  |  |  | 1.41 |
During the year ended December 31, 2010, we issued additional convertible debt with warrants and also warrants to a broker. Prior to December 13, 2010, we did not have sufficient unissued authorized shares to settle all outstanding equity instruments, and the warrants were classified as liabilities (see Notes 6 and 7). As a result of the issuance of convertible notes in early October 2009, we no longer had enough unissued authorized shares to settle all outstanding equity instruments, including convertible preferred stock, convertible debt, options and warrants. Therefore, in accordance with the applicable accounting guidance, all non-employee warrants were required to be recorded as liabilities from that point and marked-to-market at each period until we had sufficient unissued authorized shares to settle all outstanding equity instruments. As a result, we reclassified the fair value of all non-employee warrants not already recorded as liabilities totaling $837,000 as of October 1, 2009 from additional paid-in-capital to embedded derivatives of convertible debt and warrants. The warrants issued to the holders in financings were originally recorded as derivative liabilities as we did not have sufficient authorized unissued shares of common stock to settle all outstanding equity instruments. On December 13, 2010, the Company increased its authorized shares of common stock to cover all potentially dilutive instruments outstanding. As a result, on December 9, 2010, the Company reclassified the fair value of the warrants on that date, totaling $4.3 million to additional paid-in capital, as warrants no longer qualified as derivative instruments. On September 22, 2010, we issued 5-year warrants to purchase 6,400 shares of our common stock at an exercise price of $1.00 per share to holders of our Senior Convertible Secured Notes – 2007 to extend the maturity date of the notes until April 26, 2011. The fair value of the warrants to purchase 6,400 shares of common stock was $28,000 on the date of issuance and was recorded as expense component of the loss on extinguishment of debt in the accompanying consolidated statement of operations for the year ended December 31, 2010. The warrants were valued using the Black-Scholes option pricing model. The assumptions used for the Black-Scholes option pricing model are a term of 4.98 years, volatility of 162.45%, and a risk-free interest rate of 1.95%. On September 24, 2010, we issued a warrant to purchase 6,933 shares of our common stock at an exercise price of $1.00 per share to an investor for services provided for the private placement of convertible notes and warrants in the 2010 financing transaction (see Note 6). On September 27, 2010, we issued a warrant to purchase 15,000 shares of our common stock at an exercise price of $1.00 per share to an investor for services provided for the private placement of convertible notes and warrants in the 2010 financing transaction (see Note 6). We granted 440,000 stock purchase warrants to our U.S. based employees or members of our Board during the year ended December 31, 2010. The stock purchase warrants have an exercise price equal to $1.38 to $1.63 per shares, which was the market price on the date of grant, October 15, 2010 and December 3, 2010. These stock purchase warrants have a three to five-year term. Warrants to purchase 320,000 shares of our common stock are vested on the date of grant and a warrant to purchase 120,000 shares of our common stock vests over 24 months at the rate of 5,000 shares per month, beginning December 2010. The vested warrants granted to employees had a fair value on the date of grant of $660,000. Approximately $470,000 and $99,000 of the fair value is included in general and administrative expense for the years ended December 31, 2010 and 2011, respectively, and the remaining $90,750 has been amortized to expense on a straight-line monthly basis over the year ended December 31, 2012. The fair value of stock-based compensation related to the employee warrants is calculated using the Black-Scholes option pricing model as of the grant date of the underlying warrant. We sold 1,200,000 stock purchase warrants to our Swedish based employees or members of our Board during the year ended December 31, 2010 for approximately $49,000. The stock purchase warrants have an exercise price equal to $1.38 per shares, which was the market price on the date of grant, October 15, 2010. These stock purchase warrants have a three-year term and were vested on the date of the sale. The stock underlying the stock purchase warrants granted to employees or members of our Board has not been registered for resale. The vested warrants granted to employees had a fair value on the date of grant of $1.7 million and is included in general and administrative expense for the year ended December 31, 2010. The fair value of stock-based compensation related to the employee warrants is calculated using the Black-Scholes option pricing model as of the grant date of the underlying warrant. During September and October 2010, we entered into two different types of amendments with the holders of the convertible notes and stock purchase warrants issued in the Fall of 2009 and Spring of 2010 financing transactions. All of the holders of the convertible notes entered into an amendment pursuant to which the due date of the convertible notes was extended until June 30, 2011. A majority of the holders of the stock purchase warrants entered into an amendment pursuant to which they exercised their previously granted warrants at a discounted exercise price of $0.88 per share and was granted a replacement three-year warrant for each original warrant exercised. A total of 2,766,857 of the original warrants were exercised at the discounted exercise price of $0.88 per share and a total of $2,384,554 was raised by the Company through these exercises of the original warrants. We issued a total of 2,766,857 shares of common stock and replacement warrants to the exercising warrant holders with an exercise price of $1.38 per share. In the year ended December 31, 2011, the Company issued 422,830 new five-year common stock purchase warrants, with an exercise price of 3.13 per share (see Note 6). In March 2011, the Company entered into a warrant agreement with investors who participated in the Company’s 2009 and 2010 financing transactions and who had been issued common stock purchase warrants with exercise prices of $0.50 per share, $1.00 per share, and $1.38 per share (the “2009 and 2010 Warrants”). Pursuant to the warrant agreement, each warrant holder who exercised some or all of its outstanding 2009 and 2010 Warrants at the applicable exercise price ($0.50 per share, $1.00 per share, and/or $1.38 per share), received a number of March 2011 Warrants equal to fifty percent (50%) of the number of 2009 and 2010 Warrants exercised by such warrant holder. The warrant holders exercised an aggregate of 493,426 outstanding 2009 and 2010 Warrants, for an aggregate investment of $515,000 and received 493,426 shares of common stock and 246,713 new five-year common stock purchase warrants, with an exercise price of $3.13 per share. The March 2011 Warrants may be exercised by cash payment or through cashless exercise by the surrender of warrant shares having a value equal to the exercise price of the portion of the warrants being exercised. On April 25, 2011, Davisa Ltd. (a related party) exercised warrants to purchase 50,000 shares of common stock. During the year ended December 31, 2011, the Company recorded an additional $50,000 as stock based compensation to compensate Davisa Ltd. by waiving the $1.00 exercise price, and issued 50,000 shares of our common stock to Davisa Ltd. for services provided for the private placement of convertible notes and warrants in the March 2011 financing transaction. The fair value of stock-based awards is calculated using the Black-Scholes option pricing model, even though this model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from our stock options. The Black-Scholes model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term and forfeiture rate of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior, as well as expected behavior on outstanding options and warrants. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. The expected volatility is based on the historical volatility of our stock price. These factors could change in the future, which would affect fair values of stock options granted in such future periods, and could cause volatility in the total amount of the stock-based compensation expense reported in future periods.
Below is a summary of Outstanding Warrants to Purchase Common Stock as of December 31, 2012: |
Description |  | Issue Date |  | Exercise Price |  | Shares |  | Expiration Date |
August 2009 Employee Warrants |  | 8/25/2009 |  | $ | 0.50 |  | 240,000 |  |  | 8/25/2016 |
January 2010 Investor Warrant |  | 1/28/2010 |  | $ | 1.00 |  | 40,000 |  |  | 1/28/2013 |
2007 Debt Extension Warrants |  | 9/22/2010 |  | $ | 1.00 |  | 16,000 |  |  | 9/22/2015 |
September 2010 Repricing Warrant |  | 9/28/2010 |  | $ | 1.38 |  | 4,000 |  |  | 9/28/2013 |
October 2010 Repricing Warrants |  | 10/18/2010 |  | $ | 1.38 |  | 2,137,593 |  |  | 10/18/2013 |
October 2010 Employee Warrants |  | 10/15/2010 |  | $ | 1.38 |  | 1,280,000 |  |  | 10/15/2013 |
December 2010 Employee Warrants |  | 12/3/2010 |  | $ | 1.63 |  | 200,000 |  |  | 12/3/2015 |
January 2011 Employee Warrant |  | 1/21/2011 |  | $ | 2.00 |  | 20,000 |  |  | 1/21/2014 |
February 2011 Legal Advisor Warrant |  | 2/22/2011 |  | $ | 2.50 |  | 80,000 |  |  | 2/22/2016 |
March 2011 Investor Warrants |  | 3/9/2011 |  | $ | 3.13 |  | 612,943 |  |  | 3/9/2016 |
March 2011 Investor Warrants |  | 4/7/2011 |  | $ | 3.13 |  | 34,100 |  |  | 4/7/2016 |
May 2011 Consultant Warrant |  | 5/17/2011 |  | $ | 4.05 |  | 20,000 |  |  | 5/17/2014 |
September 2011 Employee Warrant |  | 9/12/2011 |  | $ | 3.90 |  | 20,000 |  |  | 9/12/2014 |
Total Warrants Outstanding |  |  |  |  |  |  | 4,704,636 |  |  |  |

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 + Details
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