||Summary of Significant Accounting policies|
The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
and include the accounts of Neonode Inc. and its wholly owned subsidiaries, as well as Pronode Technologies AB, a 51% majority
owned subsidiary of Neonode Technologies AB. The remaining 49% of Pronode Technologies AB is owned by Propoint AB, located in Gothenburg,
Sweden. Pronode Technologies AB was organized to sell engineering services within the automotive markets. All inter-company accounts
and transactions have been eliminated in consolidation.
Neonode consolidates entities in which it has a controlling
financial interest. We consolidate subsidiaries in which we hold, directly or indirectly, more than 50% of the voting rights.
The consolidated balance sheets at December 31, 2019 and 2018
and the consolidated statements of operations, comprehensive loss, stockholders equity and cash flows for the years ended 2019
and 2018 include our accounts and those of our wholly owned subsidiaries as well as Pronode Technologies AB.
The preparation of financial statements
in conformity with U.S. GAAP requires making estimates and judgments that affect, at the date of the financial statements, the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue
and expenses. Actual results could differ from these estimates and judgments.
Significant estimates and judgments include, but are not limited
to: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, the standalone selling
price of performance obligations, and transaction prices and assessing transfer of control; measuring variable consideration and
other obligations such as product returns and refunds, and product warranties; provisions for uncollectible receivables; determining
the net realizable value of inventory; recoverability of capitalized project costs and long-lived asset; for leases, determining
whether a contract contains a lease, allocating consideration between lease and non-lease components, determining incremental borrowing
rates, and identifying reassessment events, such as modifications; the valuation allowance related to our deferred tax assets;
and the fair value of options issued for stock-based compensation.
Cash and Cash Equivalents
We have not had any liquid investments other
than normal cash deposits with bank institutions to date. The Company considers all highly liquid investments with original maturities
of three months of less to be cash equivalents.
Concentration of Cash Balance Risks
Cash balances are maintained at various banks in the U.S., Japan,
Korea, Taiwan and Sweden. For deposits held with financial institutions in the U.S., the U.S. Federal Deposit Insurance Corporation,
provides basic deposit coverage with limits up to $250,000 per owner. The Swedish government provides insurance coverage up to
100,000 Euro per customer and covers deposits in all types of accounts. The Japanese government provides insurance coverage up
to 10,000,000 Yen per customer. The Korea Deposit Insurance Corporation provides insurance coverage up to 50,000,000 Won per customer.
The Central Deposit Insurance Corporation in Taiwan provides insurance coverage up to 3,000,000 Taiwan Dollar per customer. At
times, deposits held with financial institutions may exceed the amount of insurance provided.
Accounts Receivable and Allowance
for Doubtful Accounts
Accounts receivable is stated at net realizable value. Our policy
is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments. Credit
limits are established through a process of reviewing the financial history and stability of each customer. Should all efforts
fail to recover the related receivable, we will write off the account. We also record an allowance for all customers based on certain
other factors including the length of time the receivables are past due and historical collection experience with customers. Our
allowance for doubtful accounts was approximately $85,000 and $149,000 as of December 31, 2019 and 2018, respectively.
Projects in Process
Projects in process consist of costs incurred
toward the completion of various projects for certain customers. These costs are primarily comprised of direct engineering labor
costs and project-specific equipment costs. These costs are capitalized on our balance sheet as an asset and deferred until revenue
for each project is recognized in accordance with our revenue recognition policy. Costs capitalized in projects in process were
$8,000 as of December 31, 2019. There were no costs capitalized in projects in process as of December 31, 2018.
Inventory is stated at the lower of cost and net realizable
value, using the first-in, first-out (“FIFO”) valuation method. Net realizable value is the estimated selling prices
in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Any adjustments
to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.
Due to the low sell-through of our AirBar
products, management has decided to fully reserve work-in-process for AirBar components, as well as AirBar related raw materials.
Management has further decided to reserve for a portion of AirBar finished goods, depending on type of AirBar and in which location
it is stored. The AirBar inventory reserve was $0.8 million and $1.0 million for the years ended December 31, 2019 and 2018, respectively.
In order to protect our manufacturing partners from losses in
relation to AirBar production, we agreed to secure the value of the inventory with a bank guarantee. Since the sale of AirBars
has been lower than expected, a major part of the inventory at the partner remained unused when the due date of the bank guarantee
neared and Neonode therefore agreed that the partner should keep inventory for the production of 20,000 AirBars and the rest be
purchased by us. The inventory value of these purchases has been fully reserved.
As of December 31, 2019, the Company’s
inventory consists primarily of components that will be used in the manufacturing of our sensor modules. We segregate inventory
for reporting purposes by raw materials, work-in-process, and finished goods.
Raw materials, work-in-process, and finished
goods are as follows (in thousands):
||December 31,|| ||
||December 31,|| |
|| ||186|| ||
|| ||220|| |
|| ||448|| ||
|| ||753|| |
Investment in Joint Venture
We invested $3,000 for a 50% interest in Neoeye AB. We account
for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence,
but not control, over the investee. We are not required to guarantee any obligations of the joint venture. There have been no operations
of Neoeye through December 31, 2019.
Property and Equipment
Property and equipment are stated at cost,
net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method based
upon estimated useful lives of the assets as follows:
||Estimated useful lives|
|Furniture and fixtures
Equipment purchased under a finance lease is depreciated over
the term of the lease, if that lease term is shorter than the estimated useful life.
Upon retirement or sale of property and
equipment, cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected
in the consolidated statement of operations. Maintenance and repairs are charged to expense as incurred.
A right-of-use asset represents a lessee’s right to use
a leased asset for the term of the lease. Our right-of-use assets generally consist of operating leases for buildings.
are measured initially at the present value of the lease payments, plus any lease payments made before a lease began and any initial
direct costs, such as commissions paid to obtain a lease.
are subsequently measured at the present value of the remaining lease payments, adjusted for incentives, prepaid or accrued rent,
and any initial direct costs not yet expensed.
We assess any impairment by estimating the
future cash flow from the associated asset in accordance with relevant accounting guidance. If the estimated undiscounted future
cash flow related to these assets decreases or the useful life is shorter than originally estimated, we may incur charges for impairment
of these assets. As of December 31, 2019, we believe there was no impairment of our long-lived assets. There can be no assurance,
however, that market conditions will not change or sufficient demand for our products and services will continue, which could result
in impairment of long-lived assets in the future.
Foreign Currency Translation and
Transaction Gains and Losses
The functional currency of our foreign subsidiaries
is the applicable local currency, the Swedish Krona, the Japanese Yen, the South Korean Won and the Taiwan Dollar. The translation
from Swedish Krona, Japanese Yen, South Korean Won or the Taiwan Dollar to U.S. Dollars is performed for balance sheet accounts
using current exchange rates in effect at the balance sheet date and for income statement accounts using a weighted average exchange
rate during the period. Gains or (losses) resulting from translation are included as a separate component of accumulated other
comprehensive income (loss). Gains (losses) resulting from foreign currency transactions are included in general and administrative
expenses in the accompanying consolidated statements of operations and were $105,000 and $(58,000) during the years ended December
31, 2019 and 2018, respectively. Foreign currency translation gains or (losses) were $(183,000) and $(357,000) during the years
ended December 31, 2019 and 2018, respectively.
Concentration of Credit and Business
Our customers are located in United States,
Europe and Asia.
As of December 31, 2019, three customers
represented approximately 72% of our consolidated accounts receivable and unbilled revenues.
As of December 31, 2018, four customers represented approximately
67% of our consolidated accounts receivable and unbilled revenues.
Customers who accounted for 10% or more
of our net revenues during the year ended December 31, 2019 are as follows.
||Hewlett-Packard Company – 38%|
||Epson – 16%|
||Alpine – 15%|
Customers who accounted for 10% or more
of our net revenues during the year ended December 31, 2018 are as follows.
||Hewlett-Packard Company – 35%|
||Epson – 14%|
||Canon – 12%|
The Company conducts business in the United
States, Europe and Asia. At December 31, 2019, the Company maintained approximately $2,637,000, $1,148,000 and $62,000 of its net
assets in the United States, Europe and Asia, respectively. At December 31, 2018, the Company maintained approximately $2,537,000,
$7,187,000 and $72,000 of its net assets in the United States, Europe and Asia, respectively.
We recognize revenue when control of products
is transferred to our customers, and when services are completed and accepted by our customers; the amount of revenue we recognize
reflects the consideration we expect to receive for those products or services. Our contracts with customers may include combinations
of products and services, for example, a contract that includes products and related engineering services. We structure our contracts
such that distinct performance obligations, such as product sales or license fees, and related engineering services, are clearly
defined in each contract.
License fees for products and sales of AirBar and sensor
modules are on a per-unit basis; therefore, we generally satisfy performance obligations as units are shipped to our customers.
Non-recurring engineering service performance obligations are satisfied as work is performed and accepted by our customers.
We recognize revenue net of allowances for
returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. We treat all product
shipping and handling charges (regardless of when they occur) as activities to fulfill the promise to transfer goods, therefore
we treat all shipping and handling charges as expenses.
We earn revenue from licensing our internally
developed intellectual property (“IP”). We enter into IP licensing agreements that generally provide licensees the
right to incorporate our IP components in their products, with terms and conditions that vary by licensee. Fees under these agreements
may include license fees relating to our IP, and royalties payable to us following the distribution by our licensees of products
incorporating the licensed technology. The license for our IP has standalone value and can be used by the licensee without maintenance
For technology license arrangements that
do not require significant modification or customization of the underlying technology, we recognize technology license revenue
when the license is made available to the customer and the customer has a right to use that license. At the end of each reporting
period, we record unbilled license fees, using prior royalty revenue data by customer to make accurate estimates of those royalties.
Explicit return rights are not offered to
customers. There have been no returns through December 31, 2019.
For technology license or sensor module
contracts that require modification or customization of the underlying technology to adapt that technology to customer use, we
determine whether the technology license or sensor module, and engineering consulting services represent separate performance
obligations. We perform our analysis on a contract-by-contract basis. If there are separate performance obligations, we determine
the standalone selling price (“SSP”) of each separate performance obligation to properly recognize revenue as each
performance obligation is satisfied. We provide engineering consulting services to our customers under a signed Statement of Work
(“SOW”). Deliverables and payment terms are specified in each SOW. We generally charge an hourly rate for engineering
services, and we recognize revenue as engineering services specified in contracts are completed and accepted by our customers.
Any upfront payments we receive for future non-recurring engineering services are recorded as unearned revenue until that revenue
We believe that recognizing non-recurring
engineering services revenues as progress towards completion of engineering services and customer acceptance of those services
occurs best reflects the economics of those transactions, because engineering services as tracked in our systems correspond directly
with the value to our customers of our performance completed to date. Hours performed for each engineering project are tracked
and reflect progress made on each project and are charged at a consistent hourly rate.
Revenues from engineering services contracts
that are short-term in nature are recorded when those services are complete and accepted by customers.
Revenues from engineering services contracts
with substantive defined deliverables for which payment terms in the SOW are commensurate with the efforts required to produce
such deliverables are recognized as they are completed and accepted by customers.
Estimated losses on all SOW projects are
recognized in full as soon as they become evident. In the years ended December 31, 2019 and 2018, no losses related to SOW projects
Optical Sensor Modules Revenues:
We earn revenue from sales of sensor modules
hardware products to our OEM and Tier 1 supplier customers, who embed our hardware into their products, and from sales of branded
consumer products that incorporate our sensor modules sold through distributors or directly to end users. These distributors are
generally given business terms that allow them to return unsold inventory, receive credits for changes in selling prices, and participate
in various cooperative marketing programs. Our sales agreements generally provide customers with limited rights of return and warranty
The timing of revenue recognition related
to AirBar modules depends upon how each sale is transacted - either point-of-sale or through distributors. We recognize revenue
for AirBar modules sold point-of-sale when we provide the promised product to the customer.
Because we generally use distributors to
provide AirBar and sensor modules to our customers, however, we analyze the terms of distributor agreements to determine when control
passes from us to our distributors. For sales of AirBar and sensor modules sold through distributors, revenues are recognized when
our distributors obtain control over our products. Control passes to our distributors when we have a present right to payment for
products sold to distributors, the distributors have legal title to and physical possession of products purchased from us, and
the distributors have significant risks and rewards of ownership of products purchased.
Distributors participate in various cooperative
marketing and other incentive programs, and we maintain estimated accruals and allowances for these programs. If actual credits
received by distributors under these programs were to deviate significantly from our estimates, which are based on historical experience,
our revenue could be adversely affected.
Under U.S. GAAP, companies may make reasonable
aggregations and approximations of returns data to accurately estimate returns. Our AirBar returns and warranty experience to date
has enabled us to make reasonable returns estimates, which are supported by the fact that our product sales involve homogenous
transactions. The reserve for future sales returns is recorded as a reduction of our accounts receivable and revenue and was insignificant
as of December 31, 2019 and 2018. If the actual future returns were to deviate from the historical data on which the reserve had
been established, our revenue could be adversely affected.
The following table presents disaggregated
revenues by market for the years ended December 31, 2019 and 2018 (dollars in thousands):
||Year ended |
December 31, 2019
||Year ended |
December 31, 2018
|Net license revenues from automotive||
|Net license revenues from consumer electronics||
|| ||4,127|| ||
|| ||6,327|| ||
|Net revenues from sensor modules||
|| ||560|| ||
|| ||227|| ||
|Net revenues from non-recurring engineering||
|| ||120|| ||
|| ||357|| ||
Our contracts with customers may include
promises to transfer multiple products and services to a customer, particularly when one of our customers contracts with us for
a product and related engineering services fees for customizing that product for our customer. Determining whether products and
services are considered distinct performance obligations that should be accounted for separately may require significant judgment.
Judgment may also be required to determine the SSP for each distinct performance obligation identified, although we generally structure
our contracts such that performance obligations and pricing for each performance obligation are specifically addressed. We currently
have no outstanding contracts with multiple performance obligations; however, we recently negotiated a contract that may include
multiple performance obligations in the future.
Judgment is also required to determine when
control of products passes from us to our distributors, as well as the amounts of product that may be returned to us. Our products
are sold with a right of return, and we may provide other credits or incentives to our customers, which could result in variability
when determining the amount of revenue to recognize. At the end of each reporting period, we use product returns history and additional
information that becomes available to estimate returns and credits. We do not recognize revenue if it is probable that a significant
reversal of any incremental revenue would occur.
Finally, judgment is required to determine
the amount of unbilled license fees at the end of each reporting period.
Timing of revenue recognition may differ
from the timing of invoicing to customers. We record a receivable when we have an unconditional right to receive future payments
from customers, and we record unearned deferred revenue when we receive prepayments or upfront payments for goods or services from
The following table presents accounts receivable, unbilled revenues
and deferred revenues as of December 31, 2019 and 2018 (dollars in thousands):
|Accounts receivable and unbilled revenues||
|| ||67|| ||
|| ||75|| |
The timing of revenue recognition, billings
and cash collections results in billed accounts receivable, unbilled revenues (contract assets), and customer advances and deposits
or deferred revenue (contract liabilities) on the consolidated balance sheets. Generally, billing occurs subsequent to revenue
recognition, resulting in contract assets; contract assets are generally classified as current. The Company sometimes receives
advances or deposits from its customers before revenue is recognized, which are reported as contract liabilities and are generally
classified as current. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis
at the end of each reporting period.
We do not anticipate impairment of our contract
asset related to license fee revenues, given the creditworthiness of our customers whose invoices comprise the balance in that
asset account. We will continue to monitor the timeliness of receipts from those customers, however, to assess whether the contract
asset has been impaired.
The allowance for doubtful accounts reflects our best estimate
of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical
experience, and other currently available evidence.
Payment terms and conditions vary by the
type of contract; however, payments generally occur 30-60 days after invoicing for license fees and sensor modules to our resellers
and distributors. Where revenue recognition timing differs from invoice timing, we have determined that our contracts do not include
a significant financing component. Our intent is to provide our customers with consistent invoicing terms for the convenience of
our customers, not to receive financing from our customers.
Costs to Obtain Contracts
We record the incremental costs of obtaining
a contract with a customer as an asset, if we expect the benefit of those costs to cover a period greater than one year. We currently
have no incremental costs that must be capitalized.
We expense as incurred costs of obtaining
a contract when the amortization period of those costs would have been less than or equal to one year.
The following table summarizes the activity
related to the product warranty liability (in thousands):
||Years ended|| |
|Balance at beginning of period||
|Provisions for warranty issued||
|| ||7|| ||
|Balance at end of period||
The Company accrues
for warranty costs as part of its cost of sales of sensor modules based on estimated costs. The Company’s products are generally
covered by a warranty for a period of 12 to 36 months from the customer receipt of the product.
Deferred revenues consist primarily of prepayments
for license fees, and other products or services for which we have been paid in advance, and earn the revenue when we transfer
control of the product or service. Deferred revenues may also include upfront payments for consulting services to be performed
in the future, such as non-recurring engineering services.
We defer license fees until we have met
all accounting requirements for revenue recognition, which is when a license is made available to a customer and that customer
has a right to use the license. Engineering development fee revenues are deferred until engineering services have been completed
and accepted by our customers.
The following table presents our deferred revenues by source
|Deferred license revenues||
|Deferred NRE revenues||
|| ||20|| ||
|| ||-|| |
|Deferred AirBar revenues||
|| ||6|| ||
|| ||59|| |
|Deferred sensor modules revenues||
|| ||13|| ||
|| ||16|| |
Contracted revenue not yet recognized was $67,000 as of December
31, 2019; we expect to recognize approximately 100% of that revenue over the next twelve months. The Company recognized revenues
of approximately $75,000 and $1.2 million, for 2019 and 2018 respectively, related to contract liabilities outstanding at the beginning
of the year.
Advertising costs are expensed as incurred.
We will classify any reseller marketing allowances related to AirBar in general as sales expense unless we can define an identifiable
benefit to us from the reseller marketing allowance. Advertising costs amounted to approximately $82,000 and $120,000 for
the years ended December 31, 2019 and 2018, respectively.
Research and Development
Research and development (“R&D”)
costs are expensed as incurred. R&D costs consist mainly of personnel related costs in addition to some external consultancy
costs such as testing, certifying and measurements.
Stock-Based Compensation Expense
We measure the cost of employee services
received in exchange for an award of equity instruments, including share options, based on the estimated fair value of the award
on the grant date, and recognize the value as compensation expense over the period the employee is required to provide services
in exchange for the award, usually the vesting period.
We account for equity instruments issued
to non-employees at their estimated fair value.
When determining stock-based compensation
expense involving options and warrants, we determine the estimated fair value of options and warrants using the Black-Scholes option
We recognize any noncontrolling interest,
also known as a minority interest, as a separate line item in equity in the consolidated financial statements. A noncontrolling
interest represents the portion of equity ownership in a less-than-wholly owned subsidiary not attributable to us. Generally, any
interest that holds less than 50% of the outstanding voting shares is deemed to be a noncontrolling interest; however, there are
other factors, such as decision-making rights, that are considered as well. We include the amount of net income (loss) attributable
to noncontrolling interests in consolidated net income (loss) on the face of the consolidated statements of operations.
The Company provides either in the consolidated
statements of stockholders’ equity, if presented, or in the notes to consolidated financial statements, a reconciliation
at the beginning and the end of the period of the carrying amount of total equity (net assets), equity (net assets) attributable
to the parent, and equity (net assets) attributable to the noncontrolling interest that separately discloses:
||Net income or loss;|
||Transactions with owners acting in their capacity
as owners, showing separately contributions from and distributions to owners; and|
||Each component of other comprehensive income or loss.|
We recognize deferred tax liabilities and
assets for the expected future tax consequences of items that have been included in the consolidated financial statements or tax
returns. We estimate income taxes based on rates in effect in each of the jurisdictions in which we operate. Deferred income tax
assets and liabilities are determined based upon differences between the financial statement and income tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The realization of
deferred tax assets is based on historical tax positions and expectations about future taxable income. Valuation allowances are
recorded against net deferred tax assets when, in our opinion, realization is uncertain based on the “more likely than not”
criteria of the accounting guidance.
Based on the uncertainty of future pre-tax
income, we fully reserved our net deferred tax assets as of December 31, 2019 and 2018. In the event we were to determine that
we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase income
in the period such determination was made. The provision for income taxes represents the net change in deferred tax amounts, plus
income taxes payable for the current period.
We follow U.S. GAAP related to uncertain
tax positions, which provisions include a two-step approach to recognizing, de-recognizing and measuring uncertain tax positions.
As a result, we did not recognize a liability for unrecognized tax benefits. As of December 31, 2019 and 2018, we had no unrecognized
Net Loss per Share
Net loss per share amounts have been computed
based on the weighted-average number of shares of common stock outstanding during the years ended December 31, 2019 and 2018. We
effected a 1-for-10 reverse stock split on October 1, 2018. All shares of common stock and potential common stock equivalents in
the calculations used to determine weighted average number of shares of common stock outstanding have been adjusted to reflect
the effects of the reverse stock split for all periods presented. Net loss per share, assuming dilution amounts from common stock
equivalents, is computed based on the weighted-average number of shares of common stock and potential common stock equivalents
outstanding during the period. The weighted-average number of shares of common stock and potential common stock equivalents used
in computing the net loss per share for years ended December 31, 2019 and 2018 exclude the potential common stock equivalents,
as the effect would be anti-dilutive (see Note 14).
Other Comprehensive Income (Loss)
Our comprehensive income (loss) includes
foreign currency translation gains and losses. The cumulative amount of translation gains and losses are reflected as a separate
component of stockholders’ equity in the consolidated balance sheets, as accumulated other comprehensive loss.
Cash Flow Information
Cash flows in foreign currencies have been
converted to U.S. Dollars at an approximate weighted-average exchange rate for the respective reporting periods. The weighted-average
exchange rate for the consolidated statements of operations was as follows:
||Years ended December 31,|| |
|| ||9.46|| ||
|| ||8.70|| |
|| ||109.01|| ||
|| ||110.43|| |
|South Korean Won||
|| ||1,165.70|| ||
|| ||1,100.50|| |
|| ||30.90|| ||
|| ||30.15|| |
Exchange rate for the consolidated balance
sheets was as follows:
||As of |
|| ||9.34|| ||
|| ||8.87|| |
|| ||108.66|| ||
|| ||109.69|| |
|South Korean Won||
|| ||1,154.56|| ||
|| ||1,113.63|| |
|| ||30.00|| ||
|| ||30.61|| |
Fair Value of Financial Instruments
We disclose the estimated fair values for
all financial instruments for which it is practicable to estimate fair value. Financial instruments including cash, accounts receivable,
accounts payable and accrued expenses and are deemed to approximate fair value due to their short maturities.
New Accounting Pronouncements
In February 2016, the FASB issued ASU No.
2016-02, “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02 (and several subsequent accounting
standards updates), lessees are required to recognize the following for all leases (with the exception of short-term leases) at
the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured
on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control
the use of, a specified asset for the lease term.
The effective date of the new lease standard (ASC 842) was January
1, 2019, and we adopted the new standard on that date. We used the required modified retrospective approach, which allowed us to
make any necessary transition adjustments at January 1, 2019. We elected the optional transition method, which allowed us to continue
to use disclosures required by the prior standard during 2019, the year of adoption. There were also several practical expedients
available to make the transition more efficient and cost-effective for companies. We elected the package of three practical expedients
available to us; doing so allowed us to not reassess existing leases.
We currently have a limited number of leased
capital assets, all of which were classified as finance leases under the new lease standard. We maintain a lease inventory for
those assets; they are currently reported on our consolidated balance sheets under the new standard. We analyzed our operating
leases, and included two material operating leases on our consolidated balance sheets beginning January 1, 2019 which resulted
in recording operating lease right-of-use assets and operating lease obligations of approximately $0.9 million. We did not have
any equity adjustment related to our implementation of the new standard, and we will continue to provide disclosures related to
leases. Because of the small number of assets we lease, we did not need to make systems changes to comply with the new standard.
We continue to track leased assets outside of our accounting systems. We did not experience material changes in financial ratios,
leasing practices, or tax reporting.
In September 2016, the FASB issued ASU No.
2016-13, “Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments”,
(“ASU 2016-13”), supplemented by ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit
Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, (“ASU 2019-04”), ASU 2019-05,
“Financial Instruments—Credit Losses (Topic 326)”, (“ASU 2019-05”), and ASU 2018-19, “Codification
Improvements to Topic 326, Financial Instruments – Credit Losses”, (“ASU 2018-19”), and ASU 2019-11,
“Codification Improvements to Topic 326, Financial Instruments – Credit Losses” (“ASU 2019-11”).
The new standard requires entities to measure all expected credit losses for financial assets held at the reporting date based
on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 and the subsequent accounting
standards updates were scheduled to become effective for fiscal years beginning after December 15, 2020, with early adoption permitted.
On October 16, 2019, the FASB voted to delay implementation of the new credit losses standard for smaller reporting companies,
among other organizations, until fiscal years beginning after December 15, 2022. In the future, we will evaluate the impact ASU
2016-13, ASU 2019-04, ASU 2019-05 and ASU 2018-19 will have on our consolidated financial statements, specifically regarding our
trade receivables; however, we do not expect any significant impact from implementation of the new standard.
In December 2019, the FASB issued ASU 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Tax, which simplifies the accounting for income taxes.
ASU 2019-12 will become effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are currently
evaluating the impact ASU 2019-12 will have on our consolidated financial statements.