NEONODE INC., 10-Q filed on 13 May 20
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
May 11, 2020
Document and Entity Information [Abstract]    
Entity Registrant Name Neonode Inc.  
Entity Central Index Key 0000087050  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Type 10-Q  
Document Period End Date Mar. 31, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Entity Filer Category Non-accelerated Filer  
Entity Current Reporting Status Yes  
Entity Small Business true  
Entity Shell Company false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   9,171,154
Entity Filer Number 1-35526  
Entity Interactive Data Current Yes  
Entity Incorporation State Country Code DE  
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Current assets:    
Cash $ 1,187 $ 2,357
Accounts receivable and unbilled revenue, net 1,136 1,324
Projects in process 57 8
Inventory 980 1,030
Prepaid expenses and other current assets 637 715
Total current assets 3,997 5,434
Investment in joint venture 3 3
Property and equipment, net 1,299 1,583
Operating lease right-of-use assets 301 416
Total assets 5,600 7,436
Current liabilities:    
Accounts payable 515 555
Accrued payroll and employee benefits 1,020 960
Accrued expenses 189 541
Deferred revenues 72 67
Current portion of finance lease obligations 520 568
Current portion of operating lease obligations 240 332
Total current liabilities 2,556 3,023
Finance lease obligations, net of current portion 360 508
Operating lease obligations, net of current portion 36 58
Total liabilities 2,952 3,589
Commitments and contingencies
Stockholders' equity:    
Common stock, 15,000,000 shares authorized, with par value of $0.001; 9,171,154 shares issued and outstanding at March 31, 2020 and December 31, 2019 9 9
Additional paid-in capital 197,543 197,543
Accumulated other comprehensive loss (726) (639)
Accumulated deficit (191,530) (190,520)
Total Neonode Inc. stockholders' equity 5,296 6,393
Noncontrolling interests (2,648) (2,546)
Total stockholders' equity 2,648 3,847
Total liabilities and stockholders' equity $ 5,600 $ 7,436
v3.20.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Common stock, shares authorized 15,000,000 15,000,000
Common stock, par value $ 0.001 $ 0.001
Common stock, shares issued 9,171,154 9,171,154
Common stock, shares outstanding 9,171,154 9,171,154
v3.20.1
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenues:    
HMI Solutions $ 1,182 $ 1,942
HMI Products 112 70
Total revenues 1,294 2,012
Cost of revenues:    
HMI Solutions 1 5
HMI Products 43 96
Total cost of revenues 44 101
Total gross margin 1,250 1,911
Operating expenses:    
Research and development 995 1,259
Sales and marketing 545 449
General and administrative 799 871
Total operating expenses 2,339 2,579
Operating loss (1,089) (668)
Other expense:    
Interest expense 7 10
Total other expense 7 10
Loss before provision for income taxes (1,096) (678)
Provision for income taxes 16 6
Net loss including noncontrolling interests (1,112) (684)
Less: net loss attributable to noncontrolling interests 102 111
Net loss attributable to Neonode Inc. $ (1,010) $ (573)
Loss per common share:    
Basic and diluted loss per share $ (0.11) $ (0.07)
Basic and diluted - weighted average number of common shares outstanding 9,171 8,800
v3.20.1
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net loss including noncontrolling interests $ (1,112) $ (684)
Other comprehensive loss:    
Foreign currency translation adjustments (87) (181)
Comprehensive loss (1,199) (865)
Less: Comprehensive loss attributable to noncontrolling interests 102 111
Comprehensive loss attributable to Neonode Inc. $ (1,097) $ (754)
v3.20.1
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)
$ in Thousands
Series B Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Total Neonode Inc. Stockholders' Equity
Noncontrolling Interests
Total
Balances at Dec. 31, 2018 $ 9 $ 197,507 $ (456) $ (185,222) $ 11,838 $ (2,042) $ 9,796
Balances, shares at Dec. 31, 2018 82 8,800            
Foreign currency translation adjustment       (181)   (181)   (181)
Net loss         (573) (573) (111) (684)
Balances at Mar. 31, 2019 $ 9 197,507 (637) (185,795) 11,084 (2,153) 8,931
Balances, shares at Mar. 31, 2019 82 8,800            
Foreign currency translation adjustment 26 26 26
Conversion of series B Preferred Stock to Common Stock
Conversion of series B Preferred Stock to Common Stock, shares (2) 1            
Net loss (1,264) (1,264) (66) (1,330)
Balances at Jun. 30, 2019 $ 9 197,507 (611) (187,059) 9,846 (2,219) 7,627
Balances, shares at Jun. 30, 2019 80 8,801            
Foreign currency translation adjustment       (145) (145) (145)
Conversion of series B Preferred Stock to Common Stock
Conversion of series B Preferred Stock to Common Stock, shares 80 10            
Net loss (1,086) (1,086) (113) (1,199)
Balances at Sep. 30, 2019 $ 9 197,507 (756) (188,145) 8,615 (2,332) 6,283
Balances, shares at Sep. 30, 2019 8,811            
Foreign currency translation adjustment       117   117   117
Common stock issued upon exercise of common stock warrants 36 36 36
Common stock issued upon exercise of common stock warrants, shares 360            
Balances at Dec. 31, 2019 $ 9 197,543 (639) (190,520) 6,393 (2,546) 3,847
Balances, shares at Dec. 31, 2019 9,171            
Foreign currency translation adjustment       (87)   (87)   (87)
Net loss         (1,010) (1,010) (102) (1,112)
Balances at Mar. 31, 2020 $ 9 $ 197,543 $ (726) $ (191,530) $ 5,296 $ (2,648) $ 2,648
Balances, shares at Mar. 31, 2020 9,171            
v3.20.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net loss (including noncontrolling interests) $ (1,112) $ (684)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 195 222
Amortization of operating lease right-of-use assets 91 120
Changes in operating assets and liabilities:    
Accounts receivable and unbilled revenue, net 188 90
Projects in process (51) (8)
Inventory (16) (63)
Prepaid expenses and other current assets 45 (72)
Accounts payable and accrued expenses (224) 16
Deferred revenues 6 30
Operating lease obligations (91) (111)
Net cash used in operating activities (969) (460)
Cash flows from investing activities:    
Purchase of property and equipment (5) (47)
Net cash used in investing activities (5) (47)
Cash flows from financing activities:    
Principal payments on finance lease obligations (132) (137)
Net cash used in financing activities (132) (137)
Effect of exchange rate changes on cash (64) (89)
Net decrease in cash (1,170) (733)
Cash at beginning of period 2,357 6,555
Cash at end of period 1,187 5,822
Supplemental disclosure of cash flow information:    
Cash paid for income taxes 16 6
Cash paid for interest $ 7 $ 10
v3.20.1
Interim Period Reporting
3 Months Ended
Mar. 31, 2020
Interim Period Reporting [Abstract]  
Interim Period Reporting

1. Interim Period Reporting

 

The accompanying unaudited interim condensed consolidated financial statements include all adjustments consisting of normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash flows for the interim periods presented. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of results for a full fiscal year or any other period.

 

The accompanying condensed consolidated financial statements for the three months ended March 31, 2020 and 2019 have been prepared by us, pursuant to the rules and regulations of the United States ("U.S.") Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally contained in financial statements prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP") have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

Operations

 

Neonode Inc., collectively with its subsidiaries is referred to as "Neonode", develops optical touch and gesture control solutions for human interaction with devices and remote sensing solutions for driver monitoring and cabin monitoring features in automotive and other applications.

  

Our operations from January 1, 2020 focused on three different business areas, human machine interface ("HMI") Solutions, HMI Products and Remote Sensing Solutions. In HMI Solutions, Neonode offers customized optical touch and gesture control solutions for many different markets and segments. In HMI Products, the Company provides innovative, plug-and-play sensor modules that enable touch on any surface, in-air touch, and gesture control for a wide range of applications. In Remote Sensing Solutions, Neonode offers robust and cost-effective driver and cabin monitoring solutions for vehicles based on the Company's flexible, scalable and hardware-agnostic software platform.

 

Liquidity

 

We incurred net losses of approximately $1.0 million and $0.6 million for the three months ended March 31, 2020 and 2019, respectively, and had an accumulated deficit of approximately $191.5 million and $190.5 million as of March 31, 2020 and December 31, 2019, respectively. In addition, operating activities used cash of approximately $1.0 million and $0.5 million for the three months ended March 31, 2020 and 2019, respectively.

  

The condensed consolidated financial statements included herein have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and the repayment of liabilities in the ordinary course of business. Management evaluated the significance of the Company's operating loss and determined that the Company's current operating plan and sources of potential capital would be sufficient to alleviate concerns about the Company's ability to continue as a going concern.

 

We expect our revenues from our three business areas will enable us to reduce our operating losses in coming years. In addition, we intend to continue to implement various measures to improve our operational efficiencies. No assurances can be given that management will be successful in meeting its revenue targets and reducing its operating loss.

   

In the future, we may require sources of capital in addition to cash on hand to continue operations and to implement our strategy. If our operations do not become cash flow positive, we may be forced to seek equity investments or debt arrangements. No assurances can be given that we will be successful in obtaining such additional financing on reasonable terms, or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, results of operations and financial condition. In addition, if funds are available, the issuance of equity securities or securities convertible into equity could dilute the value of shares of our common stock and cause the market price to fall, and the issuance of debt securities could impose restrictive covenants that could impair our ability to engage in certain business transactions.

v3.20.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The condensed 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 2X Communication AB, located in Gothenburg, Sweden. Pronode Technologies AB was organized to manufacture and sell our sensor modules. 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 condensed consolidated balance sheets at March 31, 2020 and December 31, 2019 and the condensed consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for the three months ended March 31, 2020 and 2019 include our accounts and those of our wholly owned subsidiaries as well as Pronode Technologies AB.

 

Estimates and Judgments

 

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 assets; 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 as of March 31, 2020 and December 31, 2019, 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 $57,000 and $8,000 as of March 31, 2020 and December 31, 2019, respectively.

 

Inventory

 

Inventory is stated at the lower of cost or net realizable value, using the first-in, first-out ("FIFO") valuation method. Net realizable value is the estimated selling price 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 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.

 

To protect our manufacturing partner from losses in relation to AirBar production, we agreed to secure the value of the inventory with a bank guarantee covering the production of 20,000 AirBars. Excess inventory was purchased from our manufacturing partner in 2019 and has been fully reserved.

 

In total, the AirBar reserve was $0.8 million as of March 31, 2020 and December 31, 2019.

 

The Company's inventory consists primarily of components that will be used in the manufacturing of our sensor modules. We classify inventory for reporting purposes as raw materials, work-in-process, and finished goods.

 

Raw materials, work-in-process, and finished goods are as follows (in thousands):

 

   March 31,   December 31, 
   2020   2019 
Raw materials  $384   $396 
Work-in-Process   172    186 
Finished goods   424    448 
Ending inventory  $980   $1,030 

   

Investment in Joint Venture

 

We invested $3,000, a 50% interest in Neoeye AB. We account for our investment using the equity method of accounting because 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 and there have been no operations of Neoeye through March 31, 2020.

 

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

 

Computer equipment  3 years
Furniture and fixtures  5 years
Equipment  7 years

 

Equipment purchased under a finance lease is recognized 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 condensed consolidated statement of operations. Maintenance and repairs are charged to expense as incurred. 

 

Right of Use Assets

 

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 and finance leases for manufacturing equipment.

 

Right-of-use assets 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.

 

Right-of-use assets 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.

  

Long-lived Asset Recoverability

 

We assess the recoverability of long-lived assets by estimating the future cash flow from the associated assets 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 March 31, 2020, 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 and 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). Foreign currency translation gains (losses) were $(87,000) and $(181,000) during the three months ended March 31, 2020 and 2019, respectively. Gains (losses) resulting from foreign currency transactions are included in general and administrative expenses in the accompanying condensed consolidated statements of operations and were $49,000 and $171,000 during the three months ended March 31, 2020 and 2019, respectively.

 

Concentration of Credit and Business Risks

 

Our customers are located in U.S., Europe and Asia.

 

As of March 31, 2020, four customers represented approximately 80% of our consolidated accounts receivable and unbilled revenues.

  

As of December 31, 2019, three customers represented approximately 72% of our consolidated accounts receivable and unbilled revenues.

 

Customers who accounted for 10% or more of our net revenues during the three months ended March 31, 2020 are as follows:

 

  Hewlett Packard Company – 36%
     
  Alpine – 19%
     
  Epson – 17%

 

Customers who accounted for 10% or more of our net revenues during the three months ended March 31, 2019 are as follows:

 

  Hewlett Packard Company – 38%
     
  Epson – 17%
     
  Alpine – 12%

   

Revenue Recognition

 

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.

 

Sales of license fees and 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.

 

Revenues from our business areas derive from three different revenue streams, license fees, non-recurring engineering fees and the sale of sensor modules.

 

Licensing Revenues:

 

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 and support.

 

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 March 31, 2020.

 

Engineering Services:

 

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 is earned.

 

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 quarters ended March 31, 2020 and 2019, no losses related to SOW projects were recorded.

 

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 (AirBar) that incorporate our sensor modules sold through distributors. 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 provisions. 

 

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 (online sales and other direct sales to customers) when we provide the promised product to the customer.

 

Because we generally use distributors to provide AirBar and sensor modules to our customers, 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 March 31, 2020 and 2019. 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 three months ended March 31, 2020 and 2019 (dollars in thousands):

 

    Three months ended
March 31, 2020
    Three months ended
March 31, 2019
 
    Amount     Percentage     Amount     Percentage  
HMI Solutions                                
Net revenues from automotive   $ 401       34 %   $ 496       26 %
Net revenues from consumer electronics     781       66 %     1,446       74 %
    $ 1,182       100 %   $ 1,942       100 %
                                 
HMI Products                                
Net revenues from automotive    $ 8       7 %    $ 1       1 %
Net revenues from medical     56       50 %     20       29 %
Net revenues from distributors and other     48       43 %     49       70 %
    $ 112       100 %   $ 70       100 %

   

Significant Judgments

 

Our contracts with customers may include promises to transfer multiple products and services to a customer, particularly when the contract is 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.

 

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.

 

Contract Balances

 

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 our customers.

 

The following table presents accounts receivable and deferred revenues as of March 31, 2020 and 2019 (in thousands):

 

   March 31,
2020
   December 31,
2019
 
Accounts receivable and unbilled revenue  $1,136   $1,324 
Deferred revenues   72    67 

 

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 which 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. Our allowance for doubtful accounts was approximately $85,000 as of March 31, 2020 and December 31, 2019.

 

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.

 

Product Warranty

 

The following table summarizes the activity related to the product warranty liability (in thousands):

 

   March 31,
2020
   December 31,
2019
 
Balance at beginning of period  $24   $17 
Provisions for warranty issued   5    7 
Balance at end of period  $29   $24 

 

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

 

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. We defer AirBar and sensor modules revenues until distributors sell the products to their end customers.

 

The following table presents our deferred revenues (in thousands):

 

   March 31,
2020
   December 31,
2019
 
Deferred revenues HMI Solutions  $33   $37 
Deferred revenues HMI Products   39    30 
   $72   $67 

  

During the three months ended March 31, 2020, the Company recognized revenues of approximately $26,000 related to contract liabilities outstanding at the beginning of the year.

 

Advertising

 

Advertising costs are expensed as incurred. Advertising costs for the three months ended March 31, 2020 and 2019 amounted to approximately $7,000 and $19,000, respectively.

   

Research and Development

 

Research and development ("R&D") costs are expensed as incurred. R&D costs consist primarily of personnel related costs in addition to 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 pricing model.

 

Noncontrolling Interests

 

The Company recognizes noncontrolling interests as equity in the condensed consolidated financial statements separate from the parent company's equity. Noncontrolling interests' partners have less than 50% share of voting rights at any one of the subsidiary level companies. The amount of net income (loss) attributable to non-controlling interests is included in consolidated net income (loss) on the face of the condensed consolidated statements of operations. Changes in a parent entity's ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income (loss) when a subsidiary is deconsolidated. Such gain or loss is measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Additionally, operating losses are allocated to noncontrolling interests even when such allocation creates a deficit balance for the noncontrolling interest partner.

 

The Company provides either in the condensed consolidated statement of stockholders' equity, if presented, or in the notes to condensed 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:

 

  (1) Net income or loss;
     
  (2) Transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners; and
     
  (3) Each component of other comprehensive income or loss.

  

Income taxes

 

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 March 31, 2020 and December 31, 2019. 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 paid or payable for the current period.

 

We follow U.S. GAAP related accounting for uncertainty in income taxes, which provisions include a two-step approach to recognizing, de-recognizing and measuring uncertainty in income taxes. As a result, we did not recognize a liability for unrecognized tax benefits. As of March 31, 2020 and December 31, 2019, we had no unrecognized tax benefits.

  

Net Loss per Share

 

Net loss per share amounts has been computed based on the weighted average number of shares of common stock outstanding during the three months ended March 31, 2020 and 2019, respectively. 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 the three months ended March 31, 2020 and 2019 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note 8).

 

Other Comprehensive Income (Loss)

 

Our other 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 condensed consolidated balance sheets.

 

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 condensed consolidated statements of operations was as follows:

 

   Three months ended
March 31,
 
   2020   2019 
Swedish Krona   9.68    9.18 
Japanese Yen   108.97    110.15 
South Korean Won   1,192.79    1,125.77 
Taiwan Dollar   30.12    30.83 

 

Exchange rate for the consolidated balance sheets was as follows:

 

   As of 
   March 31,   December 31, 
   2020   2019 
Swedish Krona   9.97    9.34 
Japanese Yen   107.81    108.66 
South Korean Won   1,218.24    1,154.56 
Taiwan Dollar   30.26    30.00 

    

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 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 subsequent accounting standards updates. 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 (and subsequent accounting standards updates) 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.

 

Reclass of Presentation in our Condensed Consolidated Statements of Operations

 

Since January 1, 2020, we have allocated revenue to our new business areas, HMI Solutions, HMI Products and Remote Sensing Solutions rather than by our revenue streams, license fees, sensor module sale and non-recurring engineering fees. The presentation in our condensed consolidated statements of operations has therefore been changed accordingly. Revenues from HMI Solutions include license fees and non-recurring engineering fees while HMI Products include sensor module sale and non-recurring engineering fees. We believe that future revenues from Remote Sensing Solutions will include license fees and non-recurring engineering fees.

v3.20.1
Stockholders' Equity
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Stockholders' Equity

3. Stockholders' Equity

 

Common Stock

 

During the three months ended March 31, 2020, there were no activities that affected common stock.

 

Preferred Stock

 

We have one class of preferred stock. There were no activities that affected preferred stock during the three months ended March 31, 2020.

 

Warrants

 

As of March 31, 2020 and December 31, 2019, there were 756,368 warrants to purchase common stock outstanding.

v3.20.1
Stock-Based Compensation
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation

4. Stock-Based Compensation

 

There was no stock-based compensation expense for the three months ended March 31, 2020 and 2019 and there is no remaining unrecognized expense related to stock options as of March 31, 2020.

 

The estimated fair value of stock-based awards is calculated using the Black-Scholes option pricing model, even though this model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from our stock options. The Black-Scholes model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term and forfeiture rate of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior, as well as expected behavior on outstanding options. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. The expected volatility is based on the historical volatility of our stock price. These factors could change in the future, which would affect fair values of stock options granted in such future periods and could cause volatility in the total amount of the stock-based compensation expense reported in future periods.

 

Stock Options

 

We have adopted equity incentive plans for which stock options and restricted stock awards are available to grant to employees, consultants and directors. All employee, consultant and director stock options granted under our stock option plans have an exercise price equal to the market value of the underlying common stock on the grant date. There are no vesting provisions tied to performance conditions for any options, as vesting for all outstanding option grants was based only on continued service as an employee, consultant or director. All of our outstanding stock options and restricted stock awards are classified as equity instruments.

 

As of March 31, 2020, we had two equity incentive plans:

 

  The 2006 Equity Incentive Plan (the "2006 Plan"); and
     
  The 2015 Stock Incentive Plan (the "2015 Plan").

 

Both the 2006 Plan and the 2015 Plan have terminated with respect to additional awards. However, shares issuable pursuant to previously awarded stock options may still be exercised in accordance with their terms.

 

A summary of the combined activity under all of the stock option plans is set forth below:

 

    Number of
Options
Outstanding
    Weighted
Average
Exercise
Price
 
Outstanding at January 1, 2020     51,500     $ 26.84  
Cancelled     -       -  
Expired     -       -  
Outstanding at March 31, 2020     51,500     $ 26.84  

 

The aggregate intrinsic value of the 51,500 stock options that are outstanding, vested and expected to vest as of March 31, 2020 was $0.

 

For the three months ended March 31, 2020 and 2019, we recorded $0 of compensation expense related to the vesting of stock options. The fair value of the stock-based compensation was calculated using the Black-Scholes option pricing model as of the date of grant of the stock option.

 

During the three months ended March 31, 2020, we did not grant any options to purchase shares of our common stock to employees or members of our board of directors.

 

Stock options granted under the 2006 and 2015 Plans are exercisable over a maximum term of ten years from the date of grant, vest in various installments over a one to four-year period and have exercise prices reflecting the market value of the shares of common stock on the date of grant.

v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

5. Commitments and Contingencies

 

Indemnities and Guarantees

 

Our bylaws require that we indemnify each of our executive officers and directors for certain events or occurrences arising because of the officer or director serving in such capacity. The term of the indemnification period is for the officer's or director's lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. However, we have a directors' and officers' liability insurance policy that should enable us to recover a portion of future amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal and we have no liabilities recorded for these agreements as of March 31, 2020 and December 31, 2019.

 

We enter into indemnification provisions under our agreements with other companies in the ordinary course of business, typically with business partners, contractors, customers and landlords. Under these provisions we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of our activities or, in some cases, as a result of the indemnified party's activities under the agreement. These indemnification provisions often include indemnifications relating to representations made by us regarding intellectual property rights. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these indemnification provisions as of March 31, 2020 and December 31, 2019.

 

One of our manufacturing partners has previously purchased material for the final assembly of AirBars. To protect the manufacturer from losses in relation to AirBar production, we agreed to secure the value of the inventory in a bank guarantee. The initial guarantee was for $345,000 and valid until December 31, 2019. Since the sale of AirBars has been lower than expected, a major part of the inventory at the manufacturer remained unused when the due date of the bank guarantee neared. 

 

In November 2019, we agreed to purchase the excess AirBar inventory for approximately $141,000 and in conjunction with this, the bank guarantee was decreased to $210,000 and is valid until December 31, 2020.

 

Management's judgment is that the bank guarantee is a contingent guarantee and management will record a liability when it is probable we will have to purchase the inventory. As of May 5, 2020, management's judgment is that we will sell the remaining AirBars during 2020 and thereby purchase the components and the assembly service from the manufacturing partner throughout the year. No liability has therefore been recorded for the period ended March 31, 2020.

 

Patent Assignment

 

On May 6, 2019, the Company assigned a portfolio of patents to Aequitas Technologies LCC. The portfolio contains two patent families comprising nine U.S. patents, five non-U.S. patents and three pending U.S. patent applications. The assignment provides the Company the right to share potential proceeds generated from a licensing and monetization program.

 

Non-Recurring Engineering Development Costs

 

On April 25, 2013, we entered into an Analog Device Development Agreement with an effective date of December 6, 2012 (the "NN1002 Agreement") with Texas Instruments ("TI") pursuant to which TI agreed to integrate our intellectual property into an ASIC. Under the terms of the NN1002 Agreement, we agreed to pay TI $500,000 of non-recurring engineering costs at the rate of $0.25 per ASIC for each of the first 2 million ASICs sold. As of March 31, 2020, we had made no payments to TI under the NN1002 Agreement.

v3.20.1
Segment Information
3 Months Ended
Mar. 31, 2020
Segment Reporting [Abstract]  
Segment Information

6. Segment Information

 

We have one reportable segment, which is comprised of the touch technology licensing and sensor module business. All of our sales for the three months ended March 31, 2020 and 2019 were to customers located in the U.S., Europe and Asia. The Company reports revenues from external customers based on the country where the customer is located.

    

The following table presents net revenues by geographic area for the three months ended March 31, 2020 and 2019 (dollars in thousands):

 

   Three months ended
March 31, 2020
   Three months ended
March 31, 2019
 
   Amount   Percentage   Amount   Percentage 
United States  $589    46%  $1,063    53%
Japan   474    37%   600    30%
Germany   120    9%   186    9%
Switzerland   55    4%   18    1%
China   34    3%   75    4%
Taiwan   -    -%   40    2%
Other   22    1%   30    1%
   $1,294    100%  $2,012    100%

  

The following table presents our total assets by geographic region as of March 31, 2020 and December 31, 2019 (in thousands):

 

   March 31,
2020
   December 31,
2019
 
U.S.  $2,008   $2,898 
Sweden   3,498    4,430 
Asia   94    108 
Total  $5,600   $7,436 
v3.20.1
Leases
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Leases

7. Leases

 

We have operating leases for our corporate offices and our manufacturing facility, and finance leases for equipment. Our leases have remaining lease terms of three months to 2.5 years, and our two primary operating leases include options to extend the leases for one to three years; those operating leases also include options to terminate the leases within one year. Future renewal options that are not likely to be executed as of the balance sheet date are excluded from right-of-use assets and related lease liabilities.

 

Our operating leases represent building leases for our Stockholm corporate offices and our Kungsbacka manufacturing facility. Our corporate office lease is automatically renewed at a cost increase of 2% on a yearly basis unless we provide written notice three months prior to expiration date.

 

We report operating leased assets, as well as operating lease current and noncurrent obligations on our balance sheets for the right to use those buildings in our business. Our finance leases represent manufacturing equipment; we report the manufacturing equipment, as well as finance lease current and noncurrent obligations on our balance sheets.

 

Generally, interest rates are stated in our leases for equipment. When no interest rate is stated in a lease, however, we review the interest rates implicit in our recent finance leases to estimate our incremental borrowing rate. We determine the rate implicit in a lease by using the most recent finance lease rate, or other method we think most closely represents our incremental borrowing rate.

 

The components of lease expense were as follows (in thousands):

 

   Three Months Ended
March 31,
2020
   Three Months Ended
March 31,
2019
 
Operating lease cost (1)  $119   $157 
           
Finance lease cost:          
Amortization of leased assets  $151   $161 
Interest on lease liabilities   7    10 
Total finance lease cost  $158   $171 

  

(1)Includes short term lease costs of $24,000 and $34,000 for the three months ended March 31, 2020 and 2019, respectively.

      

Supplemental cash flow information related to leases was as follows (in thousands):

 

   Three Months Ended
March 31,
2020
   Three Months Ended
March 31,
2019
 
Cash paid for amounts included in leases:        
Operating cash flows from operating leases  $(91)  $(111)
Operating cash flows from finance leases   (7)   (10)
Financing cash flows from finance leases   (132)   (137)
           
Right-of-use assets obtained in exchange for lease obligations:          
Operating leases   -    - 

  

Supplemental balance sheet information related to leases was as follows (in thousands):

 

   March 31,
2020
   December 31,
2019
 
Operating leases        
Operating lease right-of-use assets  $301   $416 
           
Current portion of operating lease obligations  $240   $332 
Operating lease liabilities, net of current portion   36    58 
Total operating lease liabilities  $276   $390 
           
Finance leases          
Property and equipment, at cost  $3,136   $3,348 
Accumulated depreciation   (1,980)   (1,956)
Property and equipment, net  $1,156   $1,392 
           
Current portion of finance lease obligations  $520   $568 
Finance lease liabilities, net of current portion   360    508 
Total finance lease liabilities  $880   $1,076 

  

   Three Months Ended
March 31,
2020
   Three Months Ended
March 31,
2019
 
Weighted Average Remaining Lease Term        
Operating leases   1.0 years    2.0 years 
Finance leases   1.4 years    2.2 years 
           
           
Weighted Average Discount Rate:          
Operating leases (2)   5%   5%
Finance leases   2%  3%

 

(2)Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019

   

A summary of future minimum payments under non-cancellable operating lease commitments as of March 31, 2020 is as follows (in thousands):

 

Years ending December 31,   Total  
2020 (remaining months)   $ 228  
2021     56  
      284  
Less imputed interest     (8 )
Total lease liabilities   $ 276  

 

The following is a schedule of minimum future rentals on the non-cancellable finance leases as of March 31, 2020 (in thousands):

 

Year ending December 31,  Total 
2020 (remaining months)  $415 
2021   447 
2022   34 
Total minimum payments required:   896 
Less amount representing interest:   (16)
Present value of net minimum lease payments:   880 
Less current portion   (520)
   $360 
v3.20.1
Net Loss per Share
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Net Loss per Share

8. Net Loss per Share

 

Basic net loss per common share for the three months ended March 31, 2020 and 2019 was computed by dividing the net loss attributable to Neonode Inc. for the relevant period by the weighted average number of shares of common stock outstanding. Diluted loss per common share is computed by dividing net loss attributable to Neonode Inc. by the weighted average number of shares of common stock and common stock equivalents outstanding.

 

Potential common stock equivalents of approximately 0 and 0 outstanding stock options and 0 million and 0.3 million outstanding stock warrants under the treasury stock method, and 0 and 11,000 shares issuable upon conversion of preferred stock are excluded from the diluted earnings per share calculation for the three months ended March 31, 2020 and 2019, respectively, due to their anti-dilutive effect.

 

(in thousands, except per share amounts)  Three months ended
March 31,
 
   2020   2019 
BASIC AND DILUTED        
Weighted average number of common shares outstanding   9,171    8,880 
Net loss attributable to Neonode Inc.  $(1,010)  $(573)
           
Net loss per share - basic and diluted  $(0.11)  $(0.07)
v3.20.1
Subsequent Events
3 Months Ended
Mar. 31, 2020
Subsequent Events [Abstract]  
Subsequent Events

9. Subsequent Events

 

We have evaluated subsequent events through the filing date of this Form 10-Q, and determined that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto other than as discussed in the accompanying notes.

  

In December 2019, a novel strain of coronavirus disease ("COVID-19") was first reported in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. The extent of COVID-19's effect on the Company's operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considered the rapidly evolving landscape. The Company is currently analyzing the potential impacts to all of its business areas. At this time, it is not possible to determine the magnitude of the overall impact of COVID-19 on the Company. However, it could have a material adverse effect on the Company's business, condensed consolidated balance sheets, liquidity, and condensed consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows.

v3.20.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Principles of Consolidation

Principles of Consolidation

 

The condensed 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 2X Communication AB, located in Gothenburg, Sweden. Pronode Technologies AB was organized to manufacture and sell our sensor modules. 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 condensed consolidated balance sheets at March 31, 2020 and December 31, 2019 and the condensed consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for the three months ended March 31, 2020 and 2019 include our accounts and those of our wholly owned subsidiaries as well as Pronode Technologies AB.

Estimates and Judgments

Estimates and Judgments

 

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 assets; 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

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

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 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 as of March 31, 2020 and December 31, 2019, respectively.

Projects in process

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 $57,000 and $8,000 as of March 31, 2020 and December 31, 2019, respectively.

Inventory

Inventory

 

Inventory is stated at the lower of cost or net realizable value, using the first-in, first-out ("FIFO") valuation method. Net realizable value is the estimated selling price 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 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.

 

To protect our manufacturing partner from losses in relation to AirBar production, we agreed to secure the value of the inventory with a bank guarantee covering the production of 20,000 AirBars. Excess inventory was purchased from our manufacturing partner in 2019 and has been fully reserved.

 

In total, the AirBar reserve was $0.8 million as of March 31, 2020 and December 31, 2019.

 

The Company's inventory consists primarily of components that will be used in the manufacturing of our sensor modules. We classify inventory for reporting purposes as raw materials, work-in-process, and finished goods.

 

Raw materials, work-in-process, and finished goods are as follows (in thousands):

 

   March 31,   December 31, 
   2020   2019 
Raw materials  $384   $396 
Work-in-Process   172    186 
Finished goods   424    448 
Ending inventory  $980   $1,030 
Investment in Joint Venture

Investment in Joint Venture

 

We invested $3,000, a 50% interest in Neoeye AB. We account for our investment using the equity method of accounting because 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 and there have been no operations of Neoeye through March 31, 2020.

Property and Equipment

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

 

Computer equipment  3 years
Furniture and fixtures  5 years
Equipment  7 years

 

Equipment purchased under a finance lease is recognized 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 condensed consolidated statement of operations. Maintenance and repairs are charged to expense as incurred. 

Right of Use Assets

Right of Use Assets

 

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 and finance leases for manufacturing equipment.

 

Right-of-use assets 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.

 

Right-of-use assets 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.

Long-lived Asset Recoverability

Long-lived Asset Recoverability

 

We assess the recoverability of long-lived assets by estimating the future cash flow from the associated assets 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 March 31, 2020, 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

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 and 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). Foreign currency translation gains (losses) were $(87,000) and $(181,000) during the three months ended March 31, 2020 and 2019, respectively. Gains (losses) resulting from foreign currency transactions are included in general and administrative expenses in the accompanying condensed consolidated statements of operations and were $49,000 and $171,000 during the three months ended March 31, 2020 and 2019, respectively.

Concentration of Credit and Business Risks

Concentration of Credit and Business Risks

 

Our customers are located in U.S., Europe and Asia.

 

As of March 31, 2020, four customers represented approximately 80% of our consolidated accounts receivable and unbilled revenues.

  

As of December 31, 2019, three customers represented approximately 72% of our consolidated accounts receivable and unbilled revenues.

 

Customers who accounted for 10% or more of our net revenues during the three months ended March 31, 2020 are as follows:

 

  Hewlett Packard Company – 36%
     
  Alpine – 19%
     
  Epson – 17%

 

Customers who accounted for 10% or more of our net revenues during the three months ended March 31, 2019 are as follows:

 

  Hewlett Packard Company – 38%
     
  Epson – 17%
     
  Alpine – 12%
Revenue Recognition

Revenue Recognition

 

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.

 

Sales of license fees and 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.

 

Revenues from our business areas derive from three different revenue streams, license fees, non-recurring engineering fees and the sale of sensor modules.

 

Licensing Revenues:

 

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 and support.

 

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 March 31, 2020.

 

Engineering Services:

 

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 is earned.

 

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 quarters ended March 31, 2020 and 2019, no losses related to SOW projects were recorded.

 

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 (AirBar) that incorporate our sensor modules sold through distributors. 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 provisions. 

 

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 (online sales and other direct sales to customers) when we provide the promised product to the customer.

 

Because we generally use distributors to provide AirBar and sensor modules to our customers, 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 March 31, 2020 and 2019. 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 three months ended March 31, 2020 and 2019 (dollars in thousands):

 

    Three months ended
March 31, 2020
    Three months ended
March 31, 2019
 
    Amount     Percentage     Amount     Percentage  
HMI Solutions                                
Net revenues from automotive   $ 401       34 %   $ 496       26 %
Net revenues from consumer electronics     781       66 %     1,446       74 %
    $ 1,182       100 %   $ 1,942       100 %
                                 
HMI Products                                
Net revenues from automotive    $ 8       7 %    $ 1       1 %
Net revenues from medical     56       50 %     20       29 %
Net revenues from distributors and other     48       43 %     49       70 %
    $ 112       100 %   $ 70       100 %
Significant Judgments

Significant Judgments

 

Our contracts with customers may include promises to transfer multiple products and services to a customer, particularly when the contract is 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.

 

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.

Contract Balances

Contract Balances

 

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 our customers.

 

The following table presents accounts receivable and deferred revenues as of March 31, 2020 and 2019 (in thousands):

 

   March 31,
2020
   December 31,
2019
 
Accounts receivable and unbilled revenue  $1,136   $1,324 
Deferred revenues   72    67 

 

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 which 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. Our allowance for doubtful accounts was approximately $85,000 as of March 31, 2020 and December 31, 2019.

 

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

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.

Product Warranty

Product Warranty

 

The following table summarizes the activity related to the product warranty liability (in thousands):

 

   March 31,
2020
   December 31,
2019
 
Balance at beginning of period  $24   $17 
Provisions for warranty issued   5    7 
Balance at end of period  $29   $24 

 

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

Deferred Revenues

 

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. We defer AirBar and sensor modules revenues until distributors sell the products to their end customers.

 

The following table presents our deferred revenues (in thousands):

 

   March 31,
2020
   December 31,
2019
 
Deferred revenues HMI Solutions  $33   $37 
Deferred revenues HMI Products   39    30 
   $72   $67 

  

During the three months ended March 31, 2020, the Company recognized revenues of approximately $26,000 related to contract liabilities outstanding at the beginning of the year.

Advertising

Advertising

 

Advertising costs are expensed as incurred. Advertising costs for the three months ended March 31, 2020 and 2019 amounted to approximately $7,000 and $19,000, respectively.

Research and Development

Research and Development

 

Research and development ("R&D") costs are expensed as incurred. R&D costs consist primarily of personnel related costs in addition to external consultancy costs such as testing, certifying and measurements.

Stock-Based Compensation Expense

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 pricing model.

Noncontrolling Interests

Noncontrolling Interests

 

The Company recognizes noncontrolling interests as equity in the condensed consolidated financial statements separate from the parent company's equity. Noncontrolling interests' partners have less than 50% share of voting rights at any one of the subsidiary level companies. The amount of net income (loss) attributable to non-controlling interests is included in consolidated net income (loss) on the face of the condensed consolidated statements of operations. Changes in a parent entity's ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income (loss) when a subsidiary is deconsolidated. Such gain or loss is measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Additionally, operating losses are allocated to noncontrolling interests even when such allocation creates a deficit balance for the noncontrolling interest partner.

 

The Company provides either in the condensed consolidated statement of stockholders' equity, if presented, or in the notes to condensed 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:

 

  (1) Net income or loss;
     
  (2) Transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners; and
     
  (3) Each component of other comprehensive income or loss.
Income taxes

Income taxes

 

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 March 31, 2020 and December 31, 2019. 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 paid or payable for the current period.

 

We follow U.S. GAAP related accounting for uncertainty in income taxes, which provisions include a two-step approach to recognizing, de-recognizing and measuring uncertainty in income taxes. As a result, we did not recognize a liability for unrecognized tax benefits. As of March 31, 2020 and December 31, 2019, we had no unrecognized tax benefits.

Net Loss per Share

Net Loss per Share

 

Net loss per share amounts has been computed based on the weighted average number of shares of common stock outstanding during the three months ended March 31, 2020 and 2019, respectively. 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 the three months ended March 31, 2020 and 2019 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note 8).

Other Comprehensive Income (Loss)

Other Comprehensive Income (Loss)

 

Our other 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 condensed consolidated balance sheets.

Cash Flow Information

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 condensed consolidated statements of operations was as follows:

 

   Three months ended
March 31,
 
   2020   2019 
Swedish Krona   9.68    9.18 
Japanese Yen   108.97    110.15 
South Korean Won   1,192.79    1,125.77 
Taiwan Dollar   30.12    30.83 

 

Exchange rate for the consolidated balance sheets was as follows:

 

   As of 
   March 31,   December 31, 
   2020   2019 
Swedish Krona   9.97    9.34 
Japanese Yen   107.81    108.66 
South Korean Won   1,218.24    1,154.56 
Taiwan Dollar   30.26    30.00 
Fair Value of Financial Instruments

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

New Accounting Pronouncements

 

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 subsequent accounting standards updates. 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 (and subsequent accounting standards updates) 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.

Reclass of Presentation in our Condensed Consolidated Statements of Operations

Reclass of Presentation in our Condensed Consolidated Statements of Operations

 

Since January 1, 2020, we have allocated revenue to our new business areas, HMI Solutions, HMI Products and Remote Sensing Solutions rather than by our revenue streams, license fees, sensor module sale and non-recurring engineering fees. The presentation in our condensed consolidated statements of operations has therefore been changed accordingly. Revenues from HMI Solutions include license fees and non-recurring engineering fees while HMI Products include sensor module sale and non-recurring engineering fees. We believe that future revenues from Remote Sensing Solutions will include license fees and non-recurring engineering fees.

v3.20.1
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2020
Schedule of inventory
   March 31,   December 31, 
   2020   2019 
Raw materials  $384   $396 
Work-in-Process   172    186 
Finished goods   424    448 
Ending inventory  $980   $1,030 
Schedule of estimated useful lives of property and equipment
Computer equipment  3 years
Furniture and fixtures  5 years
Equipment  7 years
Schedule of disaggregated revenues
    Three months ended
March 31, 2020
    Three months ended
March 31, 2019
 
    Amount     Percentage     Amount     Percentage  
HMI Solutions                                
Net revenues from automotive   $ 401       34 %   $ 496       26 %
Net revenues from consumer electronics     781       66 %     1,446       74 %
    $ 1,182       100 %   $ 1,942       100 %
                                 
HMI Products                                
Net revenues from automotive    $ 8       7 %    $ 1       1 %
Net revenues from medical     56       50 %     20       29 %
Net revenues from distributors and other     48       43 %     49       70 %
    $ 112       100 %   $ 70       100 %
Schedule of prepayments or upfront payments for goods or services from our customers
   March 31,
2020
   December 31,
2019
 
Accounts receivable and unbilled revenue  $1,136   $1,324 
Deferred revenues   72    67 
Schedule of activity related to the product warranty liability
   March 31,
2020
   December 31,
2019
 
Balance at beginning of period  $24   $17 
Provisions for warranty issued   5    7 
Balance at end of period  $29   $24 
Schedule of deferred revenues
   March 31,
2020
   December 31,
2019
 
Deferred revenues HMI Solutions  $33   $37 
Deferred revenues HMI Products   39    30 
   $72   $67 
Schedule of weighted average exchange rate for the condensed consolidated statements of operations
   Three months ended
March 31,
 
   2020   2019 
Swedish Krona   9.68    9.18 
Japanese Yen   108.97    110.15 
South Korean Won   1,192.79    1,125.77 
Taiwan Dollar   30.12    30.83 
Schedule of exchange rate for the consolidated balance sheets
   As of 
   March 31,   December 31, 
   2020   2019 
Swedish Krona   9.97    9.34 
Japanese Yen   107.81    108.66 
South Korean Won   1,218.24    1,154.56 
Taiwan Dollar   30.26    30.00 
v3.20.1
Stock-Based Compensation (Tables)
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Schedule of the combined activity under all of the stock option plans
    Number of
Options
Outstanding
    Weighted
Average
Exercise
Price
 
Outstanding at January 1, 2020     51,500     $ 26.84  
Cancelled     -       -  
Expired     -       -  
Outstanding at March 31, 2020     51,500     $ 26.84  
v3.20.1
Segment Information (Tables)
3 Months Ended
Mar. 31, 2020
Segment Reporting [Abstract]  
Schedule of net revenues by geographic region
   Three months ended
March 31, 2020
   Three months ended
March 31, 2019
 
   Amount   Percentage   Amount   Percentage 
United States  $589    46%  $1,063    53%
Japan   474    37%   600    30%
Germany   120    9%   186    9%
Switzerland   55    4%   18    1%
China   34    3%   75    4%
Taiwan   -    -%   40    2%
Other   22    1%   30    1%
   $1,294    100%  $2,012    100%
Schedule of long-lived assets by geographic region

   March 31,
2020
   December 31,
2019
 
U.S.  $2,008   $2,898 
Sweden   3,498    4,430 
Asia   94    108 
Total  $5,600   $7,436 

v3.20.1
Leases (Tables)
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Schedule of components of lease expense
   Three Months Ended
March 31,
2020
   Three Months Ended
March 31,
2019
 
Operating lease cost (1)  $119   $157 
           
Finance lease cost:          
Amortization of leased assets  $151   $161 
Interest on lease liabilities   7    10 
Total finance lease cost  $158   $171 

  

(1)Includes short term lease costs of $24,000 and $34,000 for the three months ended March 31, 2020 and 2019 respectively.
Schedule of supplemental cash flow information related to leases

   Three Months Ended
March 31,
2020
   Three Months Ended
March 31,
2019
 
Cash paid for amounts included in leases:        
Operating cash flows from operating leases  $(91)  $(111)
Operating cash flows from finance leases   (7)   (10)
Financing cash flows from finance leases   (132)   (137)
           
Right-of-use assets obtained in exchange for lease obligations:          
Operating leases   -    - 
Schedule of supplemental balance sheet information

   March 31,
2020
   December 31,
2019
 
Operating leases        
Operating lease right-of-use assets  $301   $416 
           
Current portion of operating lease obligations  $240   $332 
Operating lease liabilities, net of current portion   36    58 
Total operating lease liabilities  $276   $390 
           
Finance leases          
Property and equipment, at cost  $3,136   $3,348 
Accumulated depreciation   (1,980)   (1,956)
Property and equipment, net  $1,156   $1,392 
           
Current portion of finance lease obligations  $520   $568 
Finance lease liabilities, net of current portion   360    508 
Total finance lease liabilities  $880   $1,076 

  

   Three Months Ended
March 31,
2020
   Three Months Ended
March 31,
2019
 
Weighted Average Remaining Lease Term        
Operating leases   1.0 years    2.0 years 
Finance leases   1.4 years    2.2 years 
           
           
Weighted Average Discount Rate:          
Operating leases (2)   5%   5%
Finance leases   2%  3%

 

(2)Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019
Schedule of future minimum payments under non-cancellable operating lease commitments
Years ending December 31,   Total  
2020 (remaining months)   $ 228  
2021     56  
      284  
Less imputed interest     (8 )
Total lease liabilities   $ 276  
Schedule of minimum future rentals on the non-cancelable finance leases

Year ending December 31,  Total 
2020 (remaining months)  $415 
2021   447 
2022   34 
Total minimum payments required:   896 
Less amount representing interest:   (16)
Present value of net minimum lease payments:   880 
Less current portion   (520)
   $360 
v3.20.1
Net Loss per Share (Tables)
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Schedule of basic and diluted for net loss per share

(in thousands, except per share amounts)  Three months ended
March 31,
 
   2020   2019 
BASIC AND DILUTED        
Weighted average number of common shares outstanding   9,171    8,880 
Net loss attributable to Neonode Inc.  $(1,010)  $(573)
           
Net loss per share - basic and diluted  $(0.11)  $(0.07)

v3.20.1
Interim Period Reporting (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Interim Period Reporting (Textual)      
Net loss $ (1,010) $ (573)  
Accumulated deficit (191,530)   $ (190,520)
Net cash used in operating activities $ (969) $ (460)  
v3.20.1
Summary of Significant Accounting Policies (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Accounting Policies [Abstract]    
Raw materials $ 384 $ 396
Work-in-process 172 186
Finished goods 424 448
Ending inventory $ 980 $ 1,030
v3.20.1
Summary of Significant Accounting Policies (Details 1)
3 Months Ended
Mar. 31, 2020
Computer equipment [Member]  
Estimated useful lives of property and equipment  
Estimated useful lives 3 years
Furniture and fixtures [Member]  
Estimated useful lives of property and equipment  
Estimated useful lives 5 years
Equipment [Member]  
Estimated useful lives of property and equipment  
Estimated useful lives 7 years
v3.20.1
Summary of Significant Accounting Policies (Details 2) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Property, Plant and Equipment [Line Items]    
Net revenues $ 1,182 $ 1,942
Percentage of net revenues 100.00% 100.00%
HMI Solutions [Member] | Automotive [Member]    
Property, Plant and Equipment [Line Items]    
Net revenues $ 401 $ 496
Percentage of net revenues 34.00% 26.00%
HMI Solutions [Member] | Consumer electronics [Member]    
Property, Plant and Equipment [Line Items]    
Net revenues $ 781 $ 1,446
Percentage of net revenues 66.00% 74.00%
HMI Products [Member]    
Property, Plant and Equipment [Line Items]    
Net revenues $ 112 $ 70
Percentage of net revenues 100.00% 100.00%
HMI Products [Member] | Automotive [Member]    
Property, Plant and Equipment [Line Items]    
Net revenues $ 8 $ 1
Percentage of net revenues 7.00% 1.00%
HMI Products [Member] | Medical [Member]    
Property, Plant and Equipment [Line Items]    
Net revenues $ 56 $ 20
Percentage of net revenues 50.00% 29.00%
HMI Products [Member] | Distributors and other [Member]    
Property, Plant and Equipment [Line Items]    
Net revenues $ 48 $ 49
Percentage of net revenues 43.00% 70.00%
v3.20.1
Summary of Significant Accounting Policies (Details 3) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Accounting Policies [Abstract]    
Accounts receivable and unbilled revenue, net $ 1,136 $ 1,324
v3.20.1
Summary of Significant Accounting Policies (Details 4) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Accounting Policies [Abstract]    
Balance at beginning of period $ 24 $ 17
Provisions for warranty issued 5 7
Balance at end of period $ 29 $ 24
v3.20.1
Summary of Significant Accounting Policies (Details 5) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Deferred revenues HMI Solutions [Member]    
Summary of Significant Accounting Policies [Line Items]    
Deferred revenues $ 33 $ 37
Deferred revenues HMI Products [Member]    
Summary of Significant Accounting Policies [Line Items]    
Deferred revenues $ 39 $ 30
v3.20.1
Summary of Significant Accounting Policies (Details 6)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Swedish Krona [Member]    
Weighted-average exchange rate for the condensed consolidated statements of operations    
Weighted-average exchange rate for statements of operations 9.68 9.18
Japanese Yen [Member]    
Weighted-average exchange rate for the condensed consolidated statements of operations    
Weighted-average exchange rate for statements of operations 108.97 110.15
South Korean Won [Member]    
Weighted-average exchange rate for the condensed consolidated statements of operations    
Weighted-average exchange rate for statements of operations 1,192.79 1,125.77
Taiwan Dollar [Member]    
Weighted-average exchange rate for the condensed consolidated statements of operations    
Weighted-average exchange rate for statements of operations 30.12 30.83
v3.20.1
Summary of Significant Accounting Policies (Details 7)
Mar. 31, 2020
Dec. 31, 2019
Swedish Krona [Member]    
Exchange rate for the consolidated balance sheets    
Exchange rate 9.97 9.34
Japanese Yen [Member]    
Exchange rate for the consolidated balance sheets    
Exchange rate 107.81 108.66
South Korean Won [Member]    
Exchange rate for the consolidated balance sheets    
Exchange rate 1,218.24 1,154.56
Taiwan Dollar [Member]    
Exchange rate for the consolidated balance sheets    
Exchange rate 30.26 30.00
v3.20.1
Summary of Significant Accounting Policies (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2019
Summary of Significant Accounting Policies (Textual)            
Basic deposit coverage limits per owner and customer $ 250          
Allowance for doubtful accounts 85 $ 85       $ 85
Costs capitalized in projects in process 57          
Foreign currency translation adjustments (87) 117 $ (145) $ 26 $ (181)  
Foreign currency transactions, general and administrative expenses 49       $ 171  
Investment in joint venture $ 3          
Equity ownership percentage 50.00%          
Concentration risk, percentage 100.00%       100.00%  
Advertising costs $ 7       $ 19  
Noncontrolling interest, description Noncontrolling interests’ partners have less than 50% share of voting rights at any one of the subsidiary level companies.          
Recognized of Revenues $ 26          
Inventory reserve amount $ 800 $ 800       $ 800
AirBar Sales [Member]            
Summary of Significant Accounting Policies (Textual)            
Inventory description To protect our manufacturing partner from losses in relation to AirBar production, we agreed to secure the value of the inventory with a bank guarantee covering the production of 20,000 Airbars. Excess inventory was purchased from our manufacturing partner in 2019 and has been fully reserved.          
Accounts Receivable [Member]            
Summary of Significant Accounting Policies (Textual)            
Concentration risk, percentage 80.00%         72.00%
Sales Revenue, Net [Member]            
Summary of Significant Accounting Policies (Textual)            
Concentration risk, percentage 10.00%       10.00%  
Sales Revenue, Net [Member] | Hewlett Packard [Member]            
Summary of Significant Accounting Policies (Textual)            
Concentration risk, percentage 36.00%       38.00%  
Sales Revenue, Net [Member] | Epson [Member]            
Summary of Significant Accounting Policies (Textual)            
Concentration risk, percentage 17.00%       17.00%  
Sales Revenue, Net [Member] | Alpine [Member]            
Summary of Significant Accounting Policies (Textual)            
Concentration risk, percentage 19.00%       12.00%  
Sweden [Member] | Pronode Technologies AB [Member]            
Summary of Significant Accounting Policies (Textual)            
Noncontrolling interest owned by Pronode Technologies AB 51.00%          
Noncontrolling interest owned by Propoint AB 49.00%          
v3.20.1
Stockholders' Equity (Details Textual) - shares
Mar. 31, 2020
Dec. 31, 2019
Stockholders' Equity (Textual)    
Warrants to purchase common stock outstanding 756,368 756,368
v3.20.1
Stock-Based Compensation (Details 1) - Stock Options [Member]
3 Months Ended
Mar. 31, 2020
$ / shares
shares
Summary of all stock option plans  
Number of Options Outstanding, Beginning Balance | shares 51,500
Number of Options Outstanding, Cancelled | shares
Number of Options Outstanding, Expired | shares
Number of Options Outstanding, Ending Balance | shares 51,500
Weighted Average Exercise Price, Outstanding, Beginning Balance | $ / shares $ 26.84
Weighted Average Exercise Price, Cancelled | $ / shares
Weighted Average Exercise Price, Expired | $ / shares
Weighted Average Exercise Price, Outstanding, Ending Balance | $ / shares $ 26.84
v3.20.1
Stock-Based Compensation (Details Textual) - Stock Option [Member] - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Stock-Based Compensation (Textual)    
Number of options outstanding 51,500  
Options outstanding, vested and expected to vest, aggregate intrinsic value $ 0  
Share-based compensation expense $ 0 $ 0
Term of stock options description Stock options granted under the 2006 and 2015 Plans are exercisable over a maximum term of ten years from the date of grant, vest in various installments over a one to four-year period and have exercise prices reflecting the market value of the shares of common stock on the date of grant.  
v3.20.1
Commitments and Contingencies (Details) - USD ($)
$ in Thousands
1 Months Ended 3 Months Ended
Nov. 30, 2019
Apr. 25, 2013
Mar. 31, 2020
Commitments and Contingencies (Textual)      
Non-recurring engineering costs, description   Under the terms of the NN1002 Agreement, we agreed to pay TI $500,000 of non-recurring engineering costs at the rate of $0.25 per ASIC for each of the first 2 million ASICs sold.  
Guarantee, description The bank guarantee was decreased to $210,000 and is valid until December 31, 2020.   The initial guarantee was for $345,000 and valid until December 31, 2019.
Inventory purchase $ 141,000    
v3.20.1
Segment Information (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Summary of net revenues by geographic region    
Total revenues $ 1,294 $ 2,012
Revenues percentage 100.00% 100.00%
United States [Member]    
Summary of net revenues by geographic region    
Total revenues $ 589 $ 1,063
Revenues percentage 46.00% 53.00%
Japan [Member]    
Summary of net revenues by geographic region    
Total revenues $ 474 $ 600
Revenues percentage 37.00% 30.00%
Germany [Member]    
Summary of net revenues by geographic region    
Total revenues $ 120 $ 186
Revenues percentage 9.00% 9.00%
Switzerland [Member]    
Summary of net revenues by geographic region    
Total revenues $ 55 $ 18
Revenues percentage 4.00% 1.00%
China [Member]    
Summary of net revenues by geographic region    
Total revenues $ 34 $ 75
Revenues percentage 3.00% 4.00%
Taiwan [Member]    
Summary of net revenues by geographic region    
Total revenues $ 40
Revenues percentage 2.00%
Other [Member]    
Summary of net revenues by geographic region    
Total revenues $ 22 $ 30
Revenues percentage 1.00% 1.00%
v3.20.1
Segment Information (Details 1) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Revenues from External Customers and Long-Lived Assets [Line Items]    
Total $ 5,600 $ 7,436
U.S. [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Total 2,008 2,898
Asia [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Total 94 108
Sweden [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Total $ 3,498 $ 4,430
v3.20.1
Leases (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Leases [Abstract]    
Operating lease cost [1] $ 119 $ 157
Finance lease cost:    
Amortization of leased assets 151 161
Interest on lease liabilities 7 10
Total finance lease cost $ 158 $ 171
[1] Includes short term lease costs of $24,000 and $34,000 for the three months ended March 31, 2020 and 2019 respectively.
v3.20.1
Leases (Details 1) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash paid for amounts included in leases:    
Operating cash flows from operating leases $ (91) $ (111)
Operating cash flows from finance leases (7) (10)
Financing cash flows from finance leases (132) (137)
Right-of-use assets obtained in exchange for lease obligations:    
Operating leases