IDEX Biometrics : Annual report 2023

IDEX Biometrics ASA

2023 Annual report

Statutory annual report in accordance with Norwegian requirements for IDEX Biometrics ASA for the year ended December 31, 2023.

This annual report is published to the company's shareholders and the general public as well as the European Regulatory Network which includes the Oslo Børs. The document is filed with the Norwegian Register of company accounts. This report and other public information about IDEX Biometrics ASA are available at the company's web site www.idexbiometrics.com.

All of the company's disclosures to the market and the general public are available at Oslo Børs's web sites live.euronext.com/en or www.newspoint.no.

References included in this document or other documents are intended as an aid to where information can be found and the documents referenced are not incorporated by reference into this document unless explicitly stated.

IDEX Biometrics ASA prepares its consolidated and separate parent company financial statements on a historical cost basis, and in accordance with IFRS Accounting Standards as adopted by the EU.

Date: April 24, 2024

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	IDEX Biometrics ASA Annual Report 2023
Table of contents
Report from the Board of Directors	3
Consolidated Financial Statements with Notes	17
Parent Company Separate Financial Statements with Notes	45
Responsibility Statement	76
Report of Independent Auditor under International Standards on Auditing	77
Articles of Association	82
Corporate Governance Review	83
Board of Directors and Executive Officers	89

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IDEX Biometrics ASA Annual Report 2023

Report from the Board of Directors

REPORT FROM THE BOARD OF DIRECTORS

We were incorporated as a public limited company under the laws of the Kingdom of Norway on July 24, 1996. Our ordinary shares have been listed for trading on the Oslo Børs under the symbol "IDEX" since March 12, 2010. Our principal executive offices are located at Dronning Eufemias gate 16, NO-0191 Oslo, Norway, which is also our registered office address, and our telephone number is [phone]. We currently have subsidiaries in the United Kingdom, the United States and China.

Description of IDEX Biometrics

IDEX Biometrics is a global technology leader in biometric authentication solutions for smart cards, offering secure and convenient solutions for payments, access control, and digital identity. Through our patented and

proprietary sensor technologies, integrated circuit designs,and software we make our biometric solutions unique and innovative, delivering secure, fast and seamless user experiences to customersworldwide.  

IDEX Biometrics partners with leading card manufacturers, technology companies and payment networks, bringing solutions to the market. IDEX's flexible technology platform supports a wide range of applications and use cases. Together with our partners, we provide end-to-end solutions to banks and other organizations seeking to launch their own biometric cards for payment or to support other authentication needs.

IDEX Biometrics ASA is the Group parent, headquartered in Oslo, Norway. The group also has offices in the United Kingdom, the United States and China.

Description of Business model and Strategy

Biometrics solutions as trusted proof of identity for all - Our commitment is to provide trusted proof of identity for all individuals. In an era where security and trust are paramount, our advanced biometric technology ensures that everyone, regardless of their background or circumstance, can rely on a secure and accurate means of confirming their identity, fostering inclusivity, and safeguarding personal information in an increasingly interconnected world.

Providing universal authentication through scalable and trusted biometric solutions - We offer trusted biometric technology solutions that are scalable and meet the diverse needs of industries and applications. We are dedicated to market and consumer relevant innovation, research, and development, to provide resource optimized state-of the-artbiometric platforms.

IDEX is uniquely positioned as a provider of completely decentralized authentication solutions for card- based fingerprint biometric sensing technology. The IDEX Biometrics technology was purpose-built for biometric payment and access smart cards in response to the highest security standards and other requirements of these markets, such as power harvesting, transaction speed, durability, and cost effectiveness. The IDEX Biometrics technology is based on the biological markers of a person's unique fingerprint and confirms the user's identity through a 'handshake procedure' with the payment terminal, access reader or mobile phone. The biometric card solution eliminates the need for less secure credentials such as passwords, pins or the many costly and cumbersome multifactor authentication methods used today.

IDEX fingerprint biometrics card solution is an industry leading authentication solution based on trust, providing a secure and frictionless user experience. IDEX Biometrics has evolved from a component company to an end-to-end solution company. With our own card operating system capabilities, the product offering supports additional market verticals, broadening the target markets and creating new market opportunities.

A standard-format smart card, utilizing our fingerprint authentication solution, offered by Rocker AB and manufactured by our customer,

IDEMIA France SAS

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Market Overview and Global Market Trends and Regulatory

IDEX Biometrics addresses large and well-established markets, with exposure to market mega-trends as trusted identity is a top priority in payments and for enterprises. There is demand for secure online transactions and convenient multi factor authentication solutions.

Credentials are increasingly stored online, together with other user information. This exposes people, enterprises and society to new types of threats. The costs for cybercrimes are accelerating, especially considering the emerging capabilities of AI and deep fake technologies. We believe this is an alarming global trend representing an opportunity at scale for IDEX to address.

Protection of individual identity and integrity is a rising concern in today's society, manifested by increasing focus from regulators, governments and corporations. A proof of this is all the investments made not only by enterprises, but by regulators and governments to promote stronger authentication, yet with the necessary integrity and data privacy.

Regulatory landscape and industry standardization initiatives favor biometrics

The regulatory landscape world-wide strives to enhance end-user control and improve data accessibility for consumers. EU has recently sharpened directives and regulations1, bringing stricter enforcement of multi factor authentication among organizations, who must upgrade their current IT infrastructures and find the right balancing between frictionless customer experiences and stricter security measures.

US Cybersecurity and Infrastructure Security Agency are promoting multifactor authentication including biometrics as a key ingredient to raise the bar against cyber threats across businesses and in society. Similar initiatives and mandates can be seen among governments globally.

Within payments, EMVCo, the industry governing body, is now intensifying efforts for global standards for biometric payment cards. IDEX Biometrics is an engaged member and participates in EMVCo's industry expert group for biometric payment cards. IDEX is also an associate level member of the FIDO Alliance, a global consortium developing standards for password-less authentication1.

Biometric smart cards provide multi factor authentication by design. Biometric authentication, using unique physical characteristics is a solution that protects individuals and the society efficiently and represents an untapped market potential. The user's biometric data is encrypted and stored only on the card making the biometric card the ultimate hack-resistant authentication device as it is never connected to the internet.

1Examples: EU Payment Services Directive, EU Payment Services Regulation, NIS2, DORA

Market opportunity in/and target markets

The IDEX Biometric unique biometric platform solution can be applied in multiple market segments using smart cards with the use cases of biometrics expanding to new segments. The company has three main target markets with an accelerating need for biometric identity solutions: banking and payment, enterprise security and public services. IDEX Biometrics is today a fintech leader in biometrics technology offering decentralized authentication solutions across payments and access control.

As the market matures and technology on cards gets more powerful, we expect the solution for different use cases will converge. Our biometric card technology can already be seen in solutions that combine physical and digital access. The abilities to attach attributes related to ID and health records are emerging. Fiat and digital currencies could soon co-exist on the same card, and there are many other examples.

Payment

We see the market for biometric payment cards evolve in stages, with affluent consumers taking the role of early adopters. A product segment related to this is the metal card market of more than 40 million cards/year and a double-digit annual growth. As the IDEX biometric solution expands beyond metal and into the traditional market of PVC cards, economy of scale will drive prices down and allow for biometric card services to become ubiquitous.

The global market for chip enabled payment cards is currently near 3 billion cards annually and estimated to be greater than 12 billion EMV cards in circulation today. The growth in the markets is driven by the rising adoption of contactless payments, increased use of digital payments and growing e-commerce.

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The payment market is heavily regulated, with standardization and certifications requirements. Initiatives by EMVCo and its members are well under way to set further industry standards, which should accelerate adoption of biometric smart cards.

Access Control

Investments in enterprise security continue to grow double digit and biometric technologies are quickly becoming necessities in solutions targeting access control and identity management. With growing cyber security threats, and higher potential liabilities, enterprises are stepping up their efforts to authenticate every person they let into their systems and onto their premises.

Biometric on-card authentication has proven to be the most secure and convenient solution for multi factor authentication. It is economically viable and reduces the risk for cloud-based data threats putting the user in total control of their own digital identity. In addition, the card form factor is ideal as it can also function as an employee identity badge and be visibly worn.

In compliance with reinforced cybersecurity and data privacy regulations, biometric identity solutions protect assets and secure access for enterprises, governments, and individuals, by removing the need for PINs and passwords. Biometric authentication cards enable decentralized biometric identification and meet the demand for secure identity solutions with use cases for biometric access solutions expanding. With the global cost for cyber- crimes reaching $8 trillion in 2023, secure access control solutions have become one of the highest priorities for CISO's and other decision makers.

Supply Chain

IDEX has an asset light, fabless business model, using external manufacturing partners for the fabrication, assembly and testing of its products. The majority of our card manufacturing partners are present in both payment and access.

The IDEX Biometrics operational strategy is to maximize efficiency and cost competitiveness by using industry standard design processes, incorporating verified high-volume components and materials, and outsourcing manufacturing to partners using established production processes. IDEX Biometrics has established a supply chain capable of scaling to satisfy expected future demand growth. This limits IDEX financial exposure, while creating better economics of scale and faster path to profitability. The IDEX Biometrics solution is developed and managed in accordance with WEEE2 directive, following the supply chain policies and audit requirements of the IDEX Biometrics ESG policy.

2 Waste Electrical and Electronic Equipment; EU Directive

The IDEX Biometrics go-to-market Business Model

Customers of IDEX Biometrics are manufacturers of payment cards, access cards, and other products using fingerprint sensors as the key to prove identity. Our customers are part of a large ecosystem with a multiparty supply chain to reach the final customer. The ecosystem is different for payments and access. IDEX Biometrics therefore has a distinct engagement strategy to enable the eco system and have business relationships and go-to- market models for various parties in the value chain. Our flexible solutions for smart card manufacturers, our implementation programs, and our user-friendly suite of enrollment solutions meet demands from various customer types and use cases, accelerating time to market.

The IDEX Biometrics go-to-market strategy is scalable with a nimble structure effectively serving the global market. IDEX Biometrics sells its products and solutions directly to manufacturers or enterprises and in some cases through distributors and resellers. Our prime customers are smart card manufacturers and system integrators of our hardware and software biometric technologies.

Our diverse employee base is one of our key success factors, and employee engagement is a critical pillar to our ESG framework. As our solutions span from components to a full, complete end-to-end solutions, we have a full-stack engineering team covering hardware, software system and solutions. Our executive leadership and commercial teams have international industry experience from payments and the broader authentication ecosystem.

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Product development, Innovation

The company has adopted to customer needs when developing products and solutions, focusing on seamlessly user experiences. Our industry leading solutions are software defined and we have the development expertise, plus over 200 patents, to fully support the end-to-end solutions recently certified.

Product development

Our verticalized approach to product development covers the entire biometric smartcard technology stack from high level solution and system architectures, through secure biometric algorithms and software, down to the lowest level sensor and silicon hardware.

Our differentiated approach to capacitive fingerprint sensing is based on an ultra-thin polymer substrate with an embedded array of sense electrodes along with a small, full-custom silicon chip. This approach enables the sensing area to be an order of magnitude larger than the typical silicon footprint, enabling the use of advanced semiconductor technology and a high-volume assembly and test supply chain. Thanks to the combination of our large area sensor and its highly efficient, on-board image, biometric and security processor, we are able to achieve industry leading user experience and security.

This approach to capacitive fingerprint sensing contrasts with that of the conventional all-silicon capacitive sensor which integrates its sensing pixels directly within the silicon chip itself. These devices typically only support small sensing areas and limited functionality due to the use of older, less efficient semiconductor technologies.

Our biometric algorithms and software run on both the sensor's on-board biometric processor and within our secure biometric software stack on the smartcard's secure microcontroller (referred to as a Secure Element, or SE). These algorithms and software implement a wide range of both proprietary and industry-standard cryptographic security functions for privacy and tamper protection, as well as implementing critical biometric enrollment, liveness detection and authentication features. Our proprietary biometric algorithms are optimized to achieve best-in-class performance, security, and user experience within the power and processing constraints of the battery-free smartcard platform; they are differentiated by a multitude of patented features that ensure highly accurate and reliable biometric performance across enrollment, authentication, and liveness detection.

Since the introduction of our first fingerprint sensor and software optimized for smartcard applications in 2016, we have systematically increased the scope of our offerings to the market to add increased levels of value while enabling market adoption. This journey has included the development of biometric algorithms, a secure biometric stack for Secure Element integration, and biometric card operating systems and applications.

IDEX Pay is a manufacturer-agnosticend-to-end biometric smartcard solution, providing all the necessary biometric performance, functionality and security certifications required by payment schemes such as Mastercard and VISA. It enables our customers and partners to take their own card manufacturing processes and complete a fast-track certification by incorporating IDEX Pay technology and leveraging our certified smartcard reference design into their own card manufacturing lines.

The IDEX Pay biometric solution is offered with a suite of enrollment methods to enable issuers to deploy turnkey biometric activation and on-boarding solutions allowing user to enroll via their smartphone, with a dedicated device at home or in a branch.

IDEX Biometrics Software Platform solution strategy supporting multiple markets

Our biometrics technology platform for payments was specifically designed and purpose built for the card form factor to enable a seamless user experience for contactless biometric payment transactions while significantly increasing security.

The Mastercard certification of the IDEX Pay solution marked a major milestone in the development of our Biometric Software Platform for cards. Over the last years we have focused our engineering resources on the development of value-added systems and solutions. We have taken the foundation of our core patented, biometric sensor technology and enriched it, through a full-stack software approach, with advanced algorithms, high-assurance biometric card operating system and a host of card applications.

This has yielded a versatile, software-defined biometric card platform able to address multiple applications across payment, access, cyber-security and digital ID markets. Taking this Software Platform approach also

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enables IDEX to remain at the forefront of driving both user experience and security through the development and deployment of new technologies such as seamless-activation and next generation liveness detection.

IDEX biometric software platform, IDEX Pay, and access, IDEX Access are built on the same biometric platform, serving two different markets. The solution can be layered with different applets to provide new functions and capabilities for supporting payment, crypto wallets, and other digital authentication solutions such as digital access. The full card solution from IDEX Biometrics is complete with hardware (sensor, secure element modules and all accompanying components) and software (OS, applets, SDKs). The OS developed by IDEX allows our customers to provide their own customized applet for application specific functions.

The IDEX Pay platform enables payment schemes and partners to seamlessly integrate and scale.

Using our proprietary remote solutions for fingerprint activation, cardholders can easily scan and activate their fingerprint on their cards remotely without the need to visit a bank branch or ATM, and without communicating sensitive biometric information to third parties. An encrypted template of the fingerprint is stored directly on the card's secure encryption chip. Therefore, sensitive biometric information is never communicated to third parties or stored in a connected database. We are committed to investing in patents and other intellectual property protection measures that ensure our products are, and remain, the leading solution in our target markets.

Sustainability

Providing secure authentication to the world through sustainable technology solutions, IDEX Biometrics is embedding Environmental, Social and Governance (ESG) practices into its business and operating model.

Sustainability framework based on UN SDGs

IDEX Biometrics company strategy for sustainability reporting is based on the United Nations Sustainable

Development Goals (SDGs). This framework is part of our business and operating models, aimed at contributing to secure value, trust and predictability for our operations. 

Our ESG strategy is summarized under the umbrella of Sustainable Tech and is based on seven defined development goals from UN's Sustainable Development Goals, relating to business relevant environmental (E), social (S), and corporate governance (G) areas, falling into five categories:

1. Financial and Societal Inclusion: We provide solutions that support financial, digital, and societal inclusion
2. Supply Chain Responsibility: We manage our suppliers in a responsible and transparent manner
3. Employee Wellbeing and Diversity: We prioritize staff wellbeing, and a diverse and inclusive culture
4. Ethical Responsibility: We operate with highest ethical standards
5. Environmental Footprint: We minimize our environmental footprint

The regulatory environment mandates IDEX Biometrics to apply EU Sustainable Finance Legislation; taxonomy and Corporate Reporting Directive (CSRD), as of 2026. During 2023 evaluation of the reporting

requirements for the Sustainability Accounting Standards Board (SASB) and the Sustainable Finance Disclosure Regulation (SFRD) was initiated, alongside a scope and materiality classification. The Euronext Sustainability Reporting was implemented during the year.

I - Governance and policies

IDEX Biometrics has, as per our governance section in our annual report and as disclosed on our website, during the year reviewed and reinforced governance and policies within the following areas: ethics policies and training, employee and supplier code of contact, diversity and inclusion policy, whistleblowing policy, fair pay and leave policies, and executive remuneration policy and reporting.

IDEX Biometrics gender targets have been reached for the board, with a balanced board of directors with 50% women. The executive team is currently at 35% female representation, with continued efforts based on our policies and targets.

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II - Environmental impact

IDEX Biometrics sensor solutions are being managed in accordance with the Waste Electrical and Electronic Equipment (WEEE) EU Directive. Significant effort has been made within the scope two supply chain management, where audits were formalized and implemented. The results have been satisfactory with close to 90% of suppliers in scope being audited and 100% of the critical supplier KPIs being met. IDEX Biometrics also passed all partner evaluations where we were subject to audits.

Our manufacturing partners are carefully selected based on their card material policy with the criteria of being able to produce and transition towards r-PVC. Our metal card partners are considered based on their environmental policies including recycling readiness.

To meet growing demand of sustainable enrollment solutions, a suite of alternatives such as mobile enrollment and rechargeable sleeves have been developed, providing banks with solutions combining user friendliness with environmental production and waste requirements.

III Social Impact

Inclusive payments are driven by regulations, financial development,and technology advancements. Biometric payment cards are a direct response to EU regulations, driving inclusivity and non-dependency on smartphones as per pan EU directives such as PSD3 and European Accessibility Act. Our bank partners across the globe are leveraging IDEX Pay and IDEX Access to bridge mobile and cloud-based solutions with off-cloud secure payment safeguarding the identity and access to digital payments to all parts of society. As expressed by Ali Reza Iftekhar, Managing Director and CEO of Eastern Bank Limited when announcing their biometric payment card launch in December 2023: 'We believe biometric payment cards will become the new payment standard, supporting secure contactless payments, and ultimately bringing financial empowerment to all'. With biometric smart card solutions as an accelerating driver for financial inclusivity, a variety of socially impactful use cases are currently in motion, making payments easier and driving social impact for visually- and memory impaired, elderly and digitally excluded and supporting women with salary cards and programs to be economically in control and financially empowered. Several initiatives began in 2023 and will continue to develop and scale in 2024 and onwards.

OPERATING AND FINANCIAL REVIEW

IDEX has established customer relationships with innovators and early adopters sharing our vision for the potential of fingerprint authentication in smart card applications, and, over the last three years, we have experienced increasing strategic momentum, successfully attracting new customers and increasing our revenue year on year since 2020.

Since we released a reference design integrating our TrustedBio™ fingerprint authentication module and the SLC38, the latest SE from Infineon Technologies, we have marketed this reference design to smart card manufacturers.

IDEX recorded revenue of $4.1 million for 2023, $4.1 million for 2022, and $2.8 million for 2021. Product revenue, as a percentage of total revenue, represented 99.8 %, 95.0 % and 99.9 % for 2023, 2022, and 2021, respectively. Revenue associated with our early-adopting customer in the digital access market represented 48.2%, 85.4%, and 89.7% of our total revenue for 2023, 2022, and 2021, respectively.

We do not own or operate manufacturing facilities, but operate as a fabless manufacturer, outsourcing manufacturing and product assembly activities. We currently rely on TSMC, the leading producer of semiconductor wafers, as the sole source of wafers for our proprietary ASICs. We also rely on a limited number of providers of semiconductor packaging, design, and test services, including Amkor Technology, Inc., and Silicon Precision Industries Limited, both of which are leaders in outsourced semiconductor assembly and test services. Like many other companies in the electronics markets we experienced some disruptions in the supply chain in 2022, which led us to order and hold relatively high values of raw materials and carry relatively large quantities of finished goods with the aim that customer delivery schedules can be met. Following normalisation of the supply situation in 2023, we expect to return to normal inventory levels by the end of 2024.

Variable costs are associated primarily with cost of materials, net of inventory change. Our operating cost structure is largely fixed, reflecting our business model and strategic focus on development. Because we believe the Company's leadership in fingerprint authentication technologies is an important competitive differentiator, we intend to maintain development activities to maintain this leadership.

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We utilize a direct sales force and have customers around the world. We do not sell our products through stocking distributors. Given the early-stage characteristics of the market segments we are targeting, including the extended and unpredictable sales cycles frequently associated with marketing new and innovative technology- based products, we expanded our marketing and sales staff in 2021-2022 and maintained the activity level in 2023.

As a Norwegian public company, with Ordinary Shares listed on the Oslo Børs, and an SEC registrant, with ADSs listed on Nasdaq Capital Markets until August 2023, we were required to comply with two sets of applicable laws, rules, and regulations. Recognising that US investors generally traded the IDEX share on Oslo Børs, leading to small trading volume on Nasdaq, the listing on Nasdaq was voluntarily discontinued in order to streamline internal workflows and save operating expenses.

Our largest expenses are associated with staff costs. Our total staff, consisting of employees and individual contractors located in countries in which we do not have operations, totaled 93, 99, and 111 as of December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023, 20 were assigned to our head office in Oslo, 35 were assigned to our two offices in the United States, 33 were assigned to our office in the United Kingdom, and five were assigned to our offices in China. We expect to reduce staff in the first half of 2024 with the aim to reach operating costs below $4 million per quarter.

The Company continues to focus on reducing expenses and as such in March 2024 provided notice to about 25 employees and or contractors. The Company is also consolidating the majority of its engineering functions to Europe and closing two engineering facilities in the US. These actions are part of the plan to reduce operating expense level below $4 million per quarter. All current actions are expected to be completed by the end of the second quarter of 2024. The Company does not expect any significant restructuring costs.

Revenue

Revenue in 2023 was $4.1 million, consisting of $4.1 million of revenue from product sales and $8 thousand from services. The increase in product sales of $0.2 million from 2022 to 2023, representing an annual increase of 6%, is associated with growth in sales to customers in the card market, while sales to the customized digital access solution were lower than in the previous year. Service revenue is a minor element of customer engagement. Our two largest customers represented 47% and 20%, respectively, of total revenue for the year.

We aim to increase shipments of our TrustedBio modules through 2024. Such shipments are expected to contribute to important diversification of our customer base. We also expect that shipments to the access market will increase in 2024.

Revenue in 2022 was $4.1 million consisting of $3.9 million of revenue from product sales, and $203

thousand amount of revenue from services. Our two largest customers represented 48% and 25%, respectively, of total revenue for the year.

Revenue in 2021 was $2.8 million, consisting of revenue from product sales, and a negligible amount of revenue from services, associated with the completion of development of a customized digital access solution to an existing customer. As such, this single customer represented approximately 85% of our revenue for 2021. Our second largest customer represented approximately 9% of total revenue for the year.

We categorize origin of revenue based on the billing addresses of our deliveries. Certain customers may request delivery to other countries than the customer's domicile. Customers' contract manufacturers may place orders with us under the terms of the customer's contract. We are potentially exposed to the risks associated with the countries to which delivery is requested and in countries where the contract manufacturers are domiciled (e.g., risks associated with customs delays and other logistical delays).

Cost of materials, net of inventory change

Cost of materials, net of inventory change, rose 20% from 2022 to 2023, to $3.9 million, reflecting the 6% increase for the year in product revenue and a one-time inventory write-off for end-of-life products. For 2022, the figure was $3.2 million, a sequential increase of 159%, reflecting a 37% increase for the year in product revenue. For 2021, services represented 7% of total revenue, in 2022 and 2023 almost nil. Because we present our Consolidated Financial Statements reflecting the nature of expenses, the costs of personnel delivering engineering services associated with services revenue are not included in Cost of materials, net of inventory change.

Certain costs typically associated with manufacturing and manufacturing overhead, such as personnel costs and depreciation charges, are excluded from Cost of materials, net of inventory change, given the presentation of

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operating expenses based on the nature of expenses rather than by function. These excluded costs are not material. Because of our presentation of operating expenses based on the nature of expenses, we do not present in our Consolidated Statements of Profit and Loss a line representing "gross margin". We assess product-level profitability by calculating a proxy gross margin based on subtraction of Cost of materials, net of inventory change, from revenue derived from product sales. Under IFRS, the gross margin and ratio figures are alternative performance measures ("APMs"). In 2023, such a product gross margin to product revenue was 5% . For 2022, and 2021, the product gross margins were 17% and 56% respectively. The declining gross margin ratios reflect sequentially higher shipment volumes and shifts in product mix. In 2022 and 2023, the margin was additionally adversely impacted by several factors: higher component prices have not yet been passed on to customers, manufacturing costs have not yet achieved high-volume level, and write-off of inventory of discontinued products.

Compensation and benefits

Compensation and benefits expenses include, for all departments and activities, also cost of share-based remuneration.

Compensation and benefits expenses for 2023 were $14.3 million, as compared to $19.2 million for 2022, a decrease of $4.9 million or 26%, reflecting a reduction in number of employees, a lower level of share-based compensation costs and reduction of variable incentives. Compensation and benefits expenses for 2021 were $21.1 million. The decrease from 2021 to 2022 was due to a reduction in number of employees, and a lower level of share-based compensation costs.

The year-end numbers of employees for 2023, 2022, and 2021 were 69, 82, and 93, respectively, reflecting staff reductions and attrition in engineering during the three years and the expansion of our marketing and sales team during 2021 and 2022. We expect staffing levels to be reduced in the first half of 2024 in order to reduce operating expenses.

For more information regarding compensation and the composition of our staff, see Note 5 to our Consolidated Financial Statements.

Research and development

Research and development expenses are presented on a net basis, reflecting the recognised government grants. We regularly apply for and receive grants under government programs, in Norway and the United Kingdom, supporting research and development activities.

Research and development expenses include the cost of individual contractors assigned to engineering roles. As of December 31, 2023, December 31, 2022, and December 31, 2021, compensation for six, six, and eight individual contractors, respectively, were included in Research and development expenses.

In 2023, research and development expenses were $2.4 million, reflecting gross expenses of $3.5 million, offset by government grants of $1.1 million. In 2022, research and development expenses were $3.2 million, reflecting gross expenses of $4.0 million, offset by government grants of $0.7 million. In 2021, research and development expenses were $2.7 million, reflecting gross expenses of $3.4 million, offset by government grants of $0.7 million.

The variations in gross research and development costs between the years reflect primarily the use of third- party service providers for outsourced engineering activities, particularly related to ASIC development and initiation of fabrication. Variances in the values of government grants approved reflect the amount of qualifying projects and expenses in the respective years.

For 2023, we have focused our research and development activities on a narrower range of priorities associated with near-term product introduction objectives. Going forward we expect gross expenses associated with these activities will be lower than gross expenses incurred in 2023.

Other operating expenses

This category consists of costs associated with our marketing and sales activities and costs associated with administrative activities, including external services related to these functions.

Other operating expenses in 2023, were $8.7 million, as compared to $8.4 million in 2022, an increase of $0.3 million or 4%. Other operating expenses in 2021 were $7.3.

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