| Summary of Significant Accounting Policies | (2)
Summary of Significant Accounting Policies (a)
Cash and Cash Equivalents The
Company considers securities purchased with original maturities of three months or less to be cash equivalents. Cash equivalents consist
of short-term investments in money market accounts at December 31, 2023 and 2022. Cash
and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never
experienced any losses related to these balances. FDIC insurance coverage is $ 250,000 1.2 2.7 (b)
Marketable Securities The
Company classifies investments in marketable securities as trading, available-for-sale or held-to-maturity at the time of purchase and
periodically re-evaluates such classification. Trading securities are carried at fair value, with unrealized holding gains and losses
included in earnings. Held-to-maturity securities are recorded at cost and are adjusted for the amortization or accretion of premiums
or discounts over the life of the related security. Unrealized holding gains and losses of available-for-sale securities are excluded
from earnings and are reported as a separate component of accumulated other comprehensive income (loss) until realized. In determining
realized gains and losses, the cost of the securities sold is based on the specific identification method. Interest and dividends on
the investments are accrued at the balance sheet date. Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”)
in an orderly transaction between market participants at the measurement date. Fair value measurements are broken down into three levels
based on the reliability of inputs as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities
that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which
transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices
that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current
market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures. Level 3 inputs are
unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs
are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the
measurement date. At
December 31, 2023 and 2022, the Company invested only in investments qualified as cash and cash equivalents. During the years ended December
31, 2023 and 2022, the Company incurred a realized gain (loss) on the sale and maturities of marketable securities of $ 57,149 (60,143) (c)
Royalties Receivable Royalties
receivable from licensees are recorded at the amounts specified within the license agreements when the collectability of the receivable
is reasonably assured. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses
in the Company’s existing royalties receivable. The Company determines the allowance based on historical write-off experience as
well as the current status of the Company’s customers. The Company reviews its allowance for doubtful accounts periodically. Past
due accounts are reviewed individually for collectability. Account balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2023, three companies accounted
for 17 12 10 14 (d)
Fixed Assets Fixed
assets are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets. (e)
Revenue Recognition/Fee Income The
Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The standard provides
a single comprehensive revenue recognition model for all contracts with customers and supersedes existing revenue recognition guidance.
The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized.
The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount
that the entity expects to be entitled to in exchange for those goods or services. ASC
606 follows a five-step approach to determining revenue recognition including: 1) Identification of the contract; 2) Identification of
the performance obligations; 3) Determination of the transaction price; 4) Allocation of the transaction price; and 5) Recognition of
revenue. The
Company determined that its license agreements provide for three performance obligations which include: (i) the Grant of Use to its Patent
Portfolio (“Grant of Use”), (ii) Stand-Ready Technical Support (“Technical Support”) including the transfer of
trade secrets and other know-how, production of materials, scale-up support, analytical testing, etc., and (iii) access to new Intellectual
Property (“IP”) that may be developed sometime during the course of the contract period (“New Improvements”).
Given the nature of IP development, such New Improvements are on an unspecified basis and can occur and be made available to licensees
at any time during the contract period. When
a contract includes more than one performance obligation, the Company needs to allocate the total consideration to each performance obligation
based on its relative standalone selling price or estimate the standalone selling price if it is not observable. A standalone selling
price is not available for our performance obligations since we do not sell any of the services separately and there is no competitor
pricing that is available. As a consequence, the best method for determining standalone selling price of our Grant of Use performance
obligation is through a comparison of the average royalty rate for comparable license agreements as compared to our license agreements.
Comparable license agreements must consider several factors including: (i) the materials that are being licensed, (ii) the market application
for the licensed materials, and (iii) the financial terms in the license agreements that can increase or decrease the risk/reward nature
of the agreement. Based
on the royalty rate comparison referred to above, any pricing above and beyond the average royalty rate would relate to the Technical
Support and New Improvements performance obligations. The Company focuses a significant portion of its time and resources to provide
the Technical Support and New Improvements services to its licensees, which further supports the conclusions reached using the royalty
rate analysis. The
Technical Support and New Improvements performance obligations are co-terminus over the term of the license agreement. For purposes of
determining the transaction price, and recognizing revenue, the Company combined the Technical Support and New Improvements performance
obligations because they have the same pattern of transfer and the same term. We maintain a staff of scientists and other professionals
whose primary job responsibilities throughout the year are: (i) being available to respond to Technical Support needs of our licensees,
and (ii) developing improvements to our technology which are offered to our licensees as New Improvements. Since the costs incurred to
satisfy the Technical Support and New Improvements performance obligations are incurred evenly throughout the year, the value of the
Technical Support and New Improvements services are recognized throughout the initial contract period as these performance obligations
are satisfied. If the agreement is not terminated at the end of the initial contract period, it will renew on the same terms as the initial
contract for a one-year period. Consequently, any fees or minimum annual royalty obligations relating to this renewal contract will be
allocated similarly to the initial contract over the additional one-year period. We
recognize revenue when or as the performance obligations in the contract are satisfied. For performance obligations that are fulfilled
at a point in time, revenue is recognized at the fulfillment of the performance obligation. Since the IP is determined to be a functional
license, the value of the Grant of Use is recognized in the first period of the contract term in which the license agreement is in force.
The value of the Technical Support and New Improvements obligations is allocated throughout the contract period based on the satisfaction
of its performance obligations. If the agreement is not terminated at the end of the contract period, it will renew on the same terms
as the original agreement for a one-year period. Consequently, any fees or minimum annual royalties (“MAR”) relating to this
renewal contract will be allocated similarly over that additional year. The
Company’s license agreements have a variable royalty fee structure (meaning that royalties are a fixed percentage of sales that
vary from period to period) and frequently include a minimum annual royalty commitment. In instances when sales of licensed products
by its licensees exceed the MAR, the Company recognizes fee income as the amounts have been earned. Typically, the royalty rate for such
sales is 10 15 Because
of the immediate recognition of the Grant of Use performance obligation: (i) the first period of the contract term will generally have
a higher percent allocation of the transaction price under ASC 606 and (ii) the remaining periods will have less of the transaction price
recognized under ASC 606. After the initial period in the contract term, the revenue for the remaining periods will be based on the satisfaction
of the technical support and New Improvements obligations. Since most of our license agreements start as of January 1st, the revenue
recognized for the contract under ASC 606 in our first quarter will tend to be higher subsequent quarters in the fiscal year. Certain
of the contract fees are accrued by, or paid to, the Company in advance of the period in which they are earned resulting in deferred
revenue. Such excess amounts are recorded as deferred revenue and are recognized as revenue in future periods as earned. The
Company operates in a single business segment which is engaged in the development and marketing of technology and devices to control
the flow of light. Our revenue source comes from the licensing of this technology and all of these license agreements have similar terms
and provisions. The majority of the Company’s licensing fee income comes from the activities of several licensees participating
in the automotive market. The Company currently believes that the automotive market will be the largest source of its royalty income
over the next several years. The Company’s royalty income from this market may be influenced by numerous factors including various
trends affecting demand in the automotive industry and the rate of introduction of new technology in OEM product lines. In addition to
these macro factors, the Company’s royalty income from the automotive market could also be influenced by specific factors such
as whether the Company’s SPD-SmartGlass technology appears as standard equipment or as an option on a particular vehicle, the number
of additional vehicle models that SPD-SmartGlass appears on, the size of each window on a vehicle and the number of windows on a vehicle
that use SPD SmartGlass, fluctuations in the total number of vehicles produced by a manufacturer, and in the percentage of cars within
each model produced with SPD-SmartGlass, and changes in pricing or exchange rates. As
of December 31, 2023, the Company has one license agreement that are in its initial multiyear term (“Initial Term”) with
continuing performance obligations going forward. The Initial Term of this agreement will end as of December 31, 2024, The Company currently
expects this agreement will renew annually at the end of the Initial Term. As of December 31, 2023, the aggregate amount of the revenue
to be recognized upon the satisfaction of the remaining performance obligations for this license agreements is $ 100,000 Over
the years, the Company has entered into a number of license agreements covering its light control technology. The Company received
minimum annual royalties under certain license agreements and recorded fee income based on ASC 606 revenue recognition each quarter.
In instances when sales of licensed products by its licensees exceed minimum annual royalties, the Company recognized additional fee
income as the amounts have been earned. Certain of the fees are accrued by, or paid to, the Company in advance of the period in
which they are earned resulting in deferred revenue. Such excess amounts are recorded as deferred revenue and are typically
recognized as fee income when earned. As of December 31, 2023 and 2022, there was no balance in deferred revenue. Fee
income represents amounts earned by the Company under various license and other agreements relating to technology developed by the Company.
During 2023, four licensees accounted for 39 16 16 13 28 23 13 11 (f)
Basic and Diluted Loss Per Common Share Basic
loss per share excludes any dilution. It is based upon the weighted average number of common shares outstanding during the period. Dilutive
loss per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised
or converted into common stock. The Company’s dilutive loss per share equals basic loss per share for each of the years in the
two-year period ended December 31, 2023 because all potentially dilutive securities (i.e ., 3,294,515 4,146,951 (g)
Research and Development Costs Research
and development costs are charged to expense as incurred. (h)
Patent Costs The
Company expenses costs relating to the development or acquisition of patents due to the uncertainty of the recoverability of these items. (i)
Use of Estimates The
preparation of the Company’s consolidated financial statements requires management of the Company to make a number of estimates
and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of revenues and expenses during this period. Actual results
could differ from those estimates. (j)
Income Taxes Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to be recovered or settled. In
accordance with ASC Topic 740, we recognize tax benefits only for tax positions that are more likely than not to be sustained upon examination
by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent The
tax years subject to examination by major tax jurisdictions include the years 2018 and forward by the U.S. Internal Revenue Service and
certain states. The Company is not currently being audited by any tax jurisdiction. (k)
Share-Based Compensation We
recognize all stock-based compensation as an expense in the consolidated financial statements and such costs are measured at the fair
value of the award at the date of grant. In addition to reflecting compensation expense for new share-based payment awards, expense is
also recognized to reflect the remaining vesting period of awards that had been granted in prior periods. Tax benefits related to stock
option exercises are reflected as financing cash inflows. The
exercise prices for stock options granted are generally set at the average for the high and low trading prices of the Company’s
common stock on the trading date immediately prior to the date of grant, and the related numbers of shares granted are fixed at the date
of grant. In
order to determine the fair value of stock options on the date of grant, the Company uses the Black-Scholes option-pricing model. Inherent
in this model are assumptions related to expected stock-price volatility, option term, risk-free interest rate and dividend yield. While
the risk-free interest rate and dividend yield are less subjective assumptions that are based on factual data derived from public sources,
the expected stock-price volatility and option term assumptions require a greater level of judgment. In
connection with employee and director stock options, the Company charged to compensation expense $ 144,728 232,291 (l)
Restricted Stock Compensation
cost for restricted stock is measured using the quoted market price of the Company’s common stock at the date the common stock
is granted. The compensation cost is recognized over the period between the issue date and the vesting period for such shares. Restricted
stock is included in total common shares outstanding upon the lapse of any vesting conditions. (m)
Impairment of Long-Lived Assets The
Company reviews long-lived assets to determine whether an event or change in circumstances indicates the carrying value of the asset
may not be recoverable. The Company bases its evaluation on such impairment indicators as the nature of the assets, the future economic
benefit of the assets and any historical or future profitability measurements, as well as other external market conditions or factors
that may be present. There was no impairment of long-lived assets recorded during 2023 and 2022. (n)
Fair Value Measurements As
of December 31, 2023 and 2022, the fair value of the Company’s financial assets and non-warrant liabilities including cash and
cash equivalents, marketable securities, royalties receivable, accounts payable and accrued expenses approximated carrying value due
to the short-term maturity of these instruments. (o)
Recent Accounting Pronouncements New
Accounting Standards The
Company believes that no new accounting standards that are not yet effective will have a material effect on the Company’s consolidated
financial statements. |
