Neonode Inc. Income Taxes Disclosure

11.

Income Taxes

 

During 2024, the Company identified errors in the calculation of net operating loss carryforwards, resulting in balances for deferred tax assets and the corresponding valuation allowance being overstated at December 31, 2023. Following an analysis of quantitative and qualitative factors in accordance with SEC Staff Accounting Bulletin 99, Materiality, the Company concluded that the errors were not material to the previously issued consolidated financial statements, and thus, no restatement of any of the Company’s previously issued consolidated financial statements is necessary. These amounts have been corrected from the amounts that were previously reported in the footnotes to the December 31, 2023 consolidated financial statements in the 2023 tables below as follows:

 

1.

An increase to the foreign deferred tax provision and a corresponding decrease in the change in valuation allowance of $7,424,000.

 

2.

A decrease in gross deferred tax assets and the corresponding valuation allowance of $7,424,000.

 

These corrections did not impact the financial position, operating results or cash flows of the Company as of and for the year ended December 31, 2023.

 

Loss before provision for income taxes was distributed geographically as follows:

 

		Years ended December 31,
(in thousands)		2024				2023
Domestic		$	(5,888	)		$	(5,221	)
Foreign			28				220
Total		$	(5,860	)		$	(5,001	)

 

The provision (benefit) for income taxes is as follows:

 

		Years ended December 31,
(in thousands)		2024				2023
Current
Federal		$	-			$	-
State			-				-
Foreign			15				115
Total current expense			15				115
Deferred
Federal			(784	)			(1,054	)
State			99				-
Foreign			23				6,361
Change in valuation allowance			662				(5,307	)
Total deferred expense			-				-
Total provision for income taxes		$	15			$	115

 

The differences between our effective income tax rate and the U.S. federal statutory federal income tax rate are as follows:

 

		Years ended December 31,
		2024				2023
Amounts at statutory tax rates			21	%			21	%
Foreign losses taxed at different rates			(2	)%			(20	)%
Stock-based compensation			-	%			-	%
GILTI inclusion			(8	)%			-	%
Other			-	%			(3	)%
Total			11	%			(2	)%
Valuation allowance			(11	)%			-	%
Effective tax rate			-	%			(2	)%

 

Significant components of the deferred tax asset balances are as follows:

 

		December 31,
(in thousands)		2024				2023
Deferred tax assets:
Accruals		$	-			$	3
Net operating losses			22,124				21,320
Gross deferred tax assets			22,124				21,323
Valuation allowance			(22,108	)			(21,323	)
Total deferred tax assets			16				-
Deferred tax liabilities:
Accruals			(16	)			-
Net deferred tax assets		$	-			$	-

Valuation allowances are recorded to offset certain deferred tax assets due to management’s uncertainty of realizing the benefits of these items. Management applies a full valuation allowance for the accumulated losses of Neonode Inc., and its subsidiaries, since it is not determinable using the “more likely than not” criteria that there will be any future benefit of our deferred tax assets. This is mainly due to our history of operating losses. As of December 31, 2024, we had federal, state and foreign net operating losses of $84.6 million, $18.7 million and $14.9 million, respectively. Of the total federal loss carryforward, approximately $58.0 million will begin to expire in 2028 and the remainder do not expire. The California loss carryforward will begin to expire in 2030. The foreign loss carryforward, which is generated in Sweden, does not expire.

 

Utilization of the net operating loss and tax credit carryforwards is subject to an annual limitation due to the ownership percentage change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. The annual limitation may result in the expiration of the net operating losses and tax credit carryforwards before utilization.  As of December 31, 2024, we had not completed the determination of the amount to be limited under the provision.

 

We follow the provisions of accounting guidance which includes a two-step approach to recognizing, derecognizing and measuring uncertain tax positions. There were no unrecognized tax benefits for the years ended December 31, 2024 and 2023.

 

We follow the policy to classify accrued interest and penalties as part of the accrued tax liability in the provision for income taxes. For the years ended December 31, 2024 and 2023 we did not recognize any interest or penalties related to unrecognized tax benefits.

 

As of December 31, 2024, we had no uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations.

 

We file income tax returns in the U.S. federal jurisdiction, California, Sweden, and Japan. The 2008 through 2023 tax years are open and may be subject to potential examination in one or more jurisdictions. We are not currently under any federal, state or foreign income tax examinations.