NEONODE INC., 10-Q filed on 10 Nov 20
v3.20.2
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2020
Nov. 03, 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 Sep. 30, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
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   11,467,377
Entity Filer Number 1-35526  
Entity Interactive Data Current Yes  
Entity Incorporation State Country Code DE  
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Current assets:    
Cash $ 12,212 $ 2,357
Accounts receivable and unbilled revenue, net 1,044 1,324
Projects in process 11 8
Inventory 1,128 1,030
Prepaid expenses and other current assets 1,000 715
Total current assets 15,395 5,434
Investment in joint venture 3 3
Property and equipment, net 1,072 1,583
Operating lease right-of-use assets 155 416
Total assets 16,625 7,436
Current liabilities:    
Accounts payable 917 555
Accrued payroll and employee benefits 908 960
Accrued expenses 629 541
Deferred revenues 143 67
Current portion of finance lease obligations 650 568
Current portion of operating lease obligations 118 332
Total current liabilities 3,365 3,023
Finance lease obligations, net of current portion 277 508
Operating lease obligations, net of current portion 58
Total liabilities 3,642 3,589
Commitments and contingencies
Stockholders’ equity:    
Common stock, 25,000,000 shares authorized, with par value of $0.001; 11,467,377 and 9,171,154 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 11 9
Additional paid-in capital 211,587 197,543
Accumulated other comprehensive loss (890) (639)
Accumulated deficit (194,813) (190,520)
Total Neonode Inc. stockholders’ equity 15,895 6,393
Noncontrolling interests (2,912) (2,546)
Total stockholders’ equity 12,983 3,847
Total liabilities and stockholders’ equity $ 16,625 $ 7,436
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Common stock, shares authorized 25,000,000 25,000,000
Common stock, par value $ 0.001 $ 0.001
Common stock, shares issued 11,467,377 9,171,154
Common stock, shares outstanding 11,467,377 9,171,154
v3.20.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenues:        
HMI Solutions $ 1,211 $ 1,214 $ 3,071 $ 4,625
HMI Products 284 96 476 407
Total revenues 1,495 1,310 3,547 5,032
Cost of revenues:        
HMI Solutions 1 5
HMI Products 201 64 367 231
Total cost of revenues 201 64 368 236
Total gross margin 1,294 1,246 3,179 4,796
Operating expenses:        
Research and development 901 1,167 2,939 3,878
Sales and marketing 604 491 1,797 1,431
General and administrative 1,535 777 3,034 2,658
Total operating expenses 3,040 2,435 7,770 7,967
Operating loss (1,746) (1,189) (4,591) (3,171)
Other expense:        
Interest expense 11 8 25 27
Total other expense 11 8 25 27
Loss before provision (benefit) for income taxes (1,757) (1,197) (4,616) (3,198)
Provision (benefit) for income taxes (9) 2 10 15
Net loss including noncontrolling interests (1,748) (1,199) (4,626) (3,213)
Net loss attributable to noncontrolling interests 110 113 366 290
Net loss attributable to Neonode Inc. (1,638) (1,086) (4,260) (2,923)
Preferred dividends (33) (33)
Net loss attributable to common shareholders of Neonode Inc. $ (1,671) $ (1,086) $ (4,293) $ (2,923)
Loss per common share:        
Basic and diluted loss per share $ (0.16) $ (0.12) $ (0.45) $ (0.33)
Basic and diluted - weighted average number of common shares outstanding 10,128 8,811 9,492 8,804
v3.20.2
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net loss $ (1,748) $ (1,199) $ (4,626) $ (3,213)
Other comprehensive income (loss):        
Foreign currency translation adjustments (228) (145) (251) (300)
Comprehensive loss (1,976) (1,344) (4,877) (3,513)
Less: Comprehensive loss attributable to noncontrolling interests 110 113 366 290
Comprehensive loss attributable to Neonode Inc. $ (1,866) $ (1,231) $ (4,511) $ (3,223)
v3.20.2
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)
$ in Thousands
Preferred Stock Shares Issued
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            
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               (300)
Net loss               (3,213)
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            
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            
Conversion of Series B Preferred Stock to common stock
Conversion of Series B Preferred Stock to common stock, shares (2) 1            
Foreign currency translation adjustment 26 26 26
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            
Conversion of Series B Preferred Stock to common stock
Conversion of Series B Preferred Stock to common stock, shares (80) 10            
Foreign currency translation adjustment     (145) (145) (145)
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            
Common stock issued upon exercise of common stock warrants 36 36 36
Common stock issued upon exercise of common stock warrants, shares 360            
Foreign currency translation adjustment     117 117 117
Net loss       (2,375) (2,375) (214) (2,589)
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            
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               (251)
Net loss               (4,626)
Balances at Sep. 30, 2020   $ 11 211,587 (890) (194,813) 15,895 (2,912) 12,983
Balances, shares at Sep. 30, 2020   11,467            
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            
Foreign currency translation adjustment     64 64 64
Net loss         (1,612) (1,612) (154) (1,766)
Balances at Jun. 30, 2020 $ 9 197,543 (662) (193,142) 3,748 (2,802) 946
Balances, shares at Jun. 30, 2020 9,171            
Issuance of shares for cash, net of offering costs $ 3,932 $ 1 9,597 13,530 13,530
Issuance of shares for cash, net of offering costs, shares 3,932 1,612            
Series C-2 Preferred Stock issued for repayment of short-term borrowings and accrued interest $ 517 (1) 516 516
Series C-2 Preferred Stock issued for repayment of short-term borrowings and accrued interest, shares 517            
Conversion of Series C-1 and C-2 Preferred Stock to common stock $ (4,449) $ 1 4,448
Conversion of Series C-1 and C-2 Preferred Stock to common stock, shares (4,449) 684            
Preferred dividends         (33) (33)   (33)
Foreign currency translation adjustment       (228)   (228)   (228)
Net loss         (1,638) (1,638) (110) (1,748)
Balances at Sep. 30, 2020   $ 11 $ 211,587 $ (890) $ (194,813) $ 15,895 $ (2,912) $ 12,983
Balances, shares at Sep. 30, 2020   11,467            
v3.20.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash flows from operating activities:    
Net loss (including noncontrolling interests) $ (4,626) $ (3,213)
Adjustments to reconcile net loss to net cash used in operating activities:    
Bad debt expense 20
Depreciation and amortization 567 650
Amortization of operating lease right-of-use assets 289 298
Changes in operating assets and liabilities:    
Accounts receivable and unbilled revenue, net 284 (128)
Projects in process (3) (8)
Inventory (55) (8)
Prepaid expenses and other current assets (248) (76)
Accounts payable and accrued expenses 310 (30)
Deferred revenues 73 (16)
Operating lease obligations (298) (362)
Net cash used in operating activities (3,707) (2,873)
Cash flows from investing activities:    
Purchase of property and equipment (17) (89)
Net cash used in investing activities (17) (89)
Cash flows from financing activities:    
Proceeds from issuance of preferred and common stock, net of offering costs 13,530
Proceeds from short term borrowings 966
Proceeds from short term tax credits 542
Payments on short term borrowings (516)
Payments on short term tax credits (557)
Principal payments on finance lease obligations (185) (403)
Payment of preferred dividend (2)
Net cash provided by (used in) financing activities 13,778 (403)
Effect of exchange rate changes on cash (199) (165)
Net increase (decrease) in cash 9,855 (3,530)
Cash at beginning of period 2,357 6,555
Cash at end of period 12,212 3,025
Supplemental disclosure of cash flow information:    
Cash paid for income taxes 10 15
Cash paid for interest 25 27
Supplemental disclosure of non-cash investing and financing activities:    
Short-term borrowings and accrued interest settled for Series C-2 Preferred Stock 516
Accrual of dividends 31
Right-of-use asset obtained in exchange for lease obligation $ 25
v3.20.2
Interim Period Reporting
9 Months Ended
Sep. 30, 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 nine months ended September 30, 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 and nine months ended September 30, 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" or the "Company", 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 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 driver and cabin monitoring solutions for vehicles based on the Company's flexible, scalable and hardware-agnostic software platform.

 

Liquidity

 

We have incurred significant operating losses and negative cash flows from operations since our inception. The Company incurred net losses attributable to Neonode Inc. of approximately $1.6 million and $4.3 million and $1.1 million and $2.9 million for the three and nine months ended September 30, 2020 and 2019, respectively, and had an accumulated deficit of approximately $194.8 million and $190.5 million as of September 30, 2020 and December 31, 2019, respectively. In addition, operating activities used cash of approximately $3.7 million and $2.9 million for the nine months ended September 30, 2020 and 2019, respectively.

 

On June 17, 2020, the Company entered into short-term loan facilities (the "Loan Agreements") with two entities beneficially owned respectively by each of Ulf Rosberg and Peter Lindell, directors of Neonode (each, a "Director"). Pursuant to the Loan Agreements, each Director made 16,145,000 SEK (Swedish Krona), which is approximately $1.7 million in U.S. dollars, principal amount available to the Company. The Company made an initial drawdown of an aggregate of approximately $1.0 million under the Loan Agreements.

 

On August 5, 2020, the Company entered into a securities purchase agreement (the "Securities Purchase Agreement") with institutional and accredited investors as part of a private placement (the "Private Placement").

 

On August 6, 2020, in connection with the Private Placement, Neonode designated (i) 365 shares of its authorized and unissued preferred stock as Series C-1 5% Convertible Preferred Stock (the "Series C-1 Preferred Stock") by filing a Series C-1 Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State of the State of Delaware and (ii) 4,084 shares of its authorized and unissued preferred stock as Series C-2 5% Convertible Preferred Stock (the "Series C-2 Preferred Stock") by filing a Series C-2 Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State of the State of Delaware. The Series C-1 Preferred Stock and Series C-2 Preferred Stock are substantially the same, except the conversion of the Series C-2 Preferred Stock requires additional shareholder approval in accordance with Nasdaq listing rules.

 

On August 7, 2020, Neonode issued 517 shares of Series C-2 Preferred Stock to UMR Invest AB, the entity beneficially owned by Ulf Rosberg, to repay the indebtedness and accrued interest under the Loan Agreement. To effect a similar transaction with entities beneficially owned by the other Director, Peter Lindell, (i) on August 7, 2020, at the closing of the Private Placement, Cidro Förvaltning AB paid for an additional 517 shares of Series C-2 Preferred Stock, and (ii) on August 10, 2020, the next business day after the closing of the Private Placement, Neonode repaid to Cidro Holding AB the debt and accrued interest due under the Loan Agreement, an amount that equaled the price of the 517 shares of Series C-2 Preferred Stock. As a result of the repayments to each Director, the Loan Agreements terminated in accordance with their terms.

   

The closing of the Private Placement occurred on August 7, 2020.

 

Pursuant to the Securities Purchase Agreement, Neonode issued a total of 1,611,845 shares of common stock (the "Common Shares") at a price of $6.50 per Common Share, and a total of 3,415 shares with a conversion price of $6.50 per share and a stated value of $1,000 of Series C-1 Preferred Stock and Series C-2 Preferred Stock, for an aggregate purchase price of $13.9 million in gross proceeds. 

 

Ulf Rosberg and Peter Lindell, directors of Neonode, and Urban Forssell the Chief Executive Officer of Neonode purchased an aggregate of $3.1 million of the Series C-2 Preferred Stock pursuant to the Securities Purchase Agreement.

 

The net proceeds of the Private Placement are being used for working capital purposes.

 

Pursuant to their terms and the provisions of the Securities Purchase Agreement, the Series C-1 Preferred Stock and Series C-2 Preferred Stock (together, the "Preferred Shares") were converted into 684,378 shares of Neonode common stock. The holders of the Preferred Shares were entitled to receive dividends at the rate per share of 5% per annum, totaling $33,000. As of September 30, 2020, $2,000 of preferred dividends had been paid and $31,000 was accrued.

 

In connection with the Securities Purchase Agreement, Neonode entered into a Registration Rights Agreement (the "Registration Rights Agreement") pursuant to which Neonode filed a registration statement with the Securities and Exchange Commission (the "SEC") relating to the offer and sale by the holders of the Common Shares, and the shares of common stock that were underlying the Preferred Shares. Pursuant to the Registration Rights Agreement, Neonode was obligated to file the registration statement within 30 calendar days and to use reasonable best efforts to cause the registration statement to be declared effective within 75 calendar days. The registration statement was declared effective by the SEC on September 18, 2020. Failure to maintain the effective registration of the Common Shares and the shares of common stock underlying the Preferred Shares will subject Neonode to payment for liquidated damages.

 

In connection with the Private Placement, Neonode incurred total offering costs of $879,000.

 

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 cash position after the Private Placement, 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.

v3.20.2
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 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 September 30, 2020 and December 31, 2019 and the condensed consolidated statements of operations, comprehensive loss, stockholders' equity for the three and nine months ended September 30, 2020 and 2019 and the condensed consolidated statements of cash flows for the nine months ended September 30, 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 950,000 Krona per customer and covers deposits in all types of accounts. For bank accounts of the category held by Neonode, the Japanese government provides full insurance coverage. 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 $82,000 as of September 30, 2020 and $85,000 as of December 31, 2019.

 

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 $11,000 and $8,000 as of September 30, 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 $0.7 million and $0.8 million as of September 30, 2020 and December 31, 2019, respectively.

 

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):

 

   September 30,   December 31, 
   2020   2019 
Raw materials  $373   $396 
Work-in-process   183    186 
Finished goods   572    448 
Ending inventory  $1,128   $1,030 

  

Investment in Joint Venture

 

We invested $3,000 in 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 September 30, 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 September 30, 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 $(228,000) and $(251,000) and $(145,000) and $(300,000) during the three and nine months ended September 30, 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 $(135,000) and $(149,000) during the three and nine months ended September 30, 2020, respectively, compared to $56,000 and $170,000 during the same periods in 2019, respectively.

 

Concentration of Credit and Business Risks

 

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

 

As of September 30, 2020, four customers represented approximately 75% 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 September 30, 2020 are as follows:

  

  Hewlett-Packard Company – 31%
     
  LG Electronics Inc. – 16%
     
  Seiko Epson Corporation – 13%
     
  Alpine Electronics, Inc – 12%

 

Customers who accounted for 10% or more of our net revenues during the nine months ended September 30, 2020 are as follows:

 

  Hewlett-Packard Company – 32%
     
  Seiko Epson Corporation – 19%
     
  Alpine Electronics, Inc – 15%

 

Customers who accounted for 10% or more of our net revenues during the three months ended September 30, 2019 are as follows:

 

  Hewlett Packard Company – 34%
     
  Seiko Epson Corporation – 18%
     
  Alpine Electronics, Inc – 20%

 

Customers who accounted for 10% or more of our net revenues during the nine months ended September 30, 2019 are as follows:

 

  Hewlett Packard Company – 39%
     
  Seiko Epson Corporation – 15%
     
  Alpine Electronics, Inc – 14%

 

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 fulfil 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 September 30, 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. During the three and nine months ended September 30, 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. 

 

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.

 

Under U.S. GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns. Our sensor modules 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 September 30, 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 tables present disaggregated revenues by market for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

 

   Three months ended
September 30,
2020
   Three months ended
September 30,
2019
 
   Amount   Percentage   Amount   Percentage 
HMI Solutions                
Net revenues from automotive  $538    44%  $401    33%
Net revenues from consumer electronics   673    56%   813    67%
   $1,211    100%  $1,214    100%
                     
HMI Products                    
Net revenues from automotive  $-    0%  $8    8%
Net revenues from medical   56    20%   33    35%
Net revenues from distributors and other   228    80%   55    57%
   $284    100%  $96    100%

 

   Nine months ended
September 30,
2020
   Nine months ended
September 30,
2019
 
   Amount   Percentage   Amount   Percentage 
HMI Solutions                
Net revenues from automotive  $1,079    35%  $1,337    29%
Net revenues from consumer electronics   1,992    65%   3,288    71%
   $3,071    100%  $4,625    100%
                     
HMI Products                    
Net revenues from automotive  $15    3%  $9    2%
Net revenues from medical   159    33%   93    23%
Net revenues from distributors and other   302    64%   305    75%
   $476    100%  $407    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.

 

Judgment is further 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 September 30, 2020 and December 31, 2019 (in thousands):

 

   September 30,
2020
   December 31,
2019
 
Accounts receivable and unbilled revenue  $1,044   $1,324 
Deferred revenues   143    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 $82,000 as of September 30, 2020 and $85,000 as of 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):

 

   September 30,
2020
   December 31,
2019
 
Balance at beginning of period  $24   $17 
Provisions for warranty issued   13    7 
Balance at end of period  $37   $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.

 

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

 

   September 30,
2020
   December 31,
2019
 
Deferred revenues HMI Solutions  $41   $37 
Deferred revenues HMI Products   102    30 
   $143   $67 

  

During the three and nine months ended September 30, 2020, the Company recognized revenues of approximately $7,000 and $39,000, respectively, related to contract liabilities outstanding at the beginning of the year.

 

Product Backlog

 

Our sensor module product backlog at September 30, 2020 was approximately $495,000. The product backlog includes orders confirmed for products planned to be shipped within the next 3 quarters to 3 customers. Our cycle time between order and shipment is generally short and customers occasionally change delivery schedules. As a result, we do not believe that our product backlog, as of any particular date, is necessarily indicative of actual product revenue for any future period.

 

Advertising

 

Advertising costs are expensed as incurred. Advertising costs for the three and nine months ended September 30, 2020 and 2019 amounted to approximately $27,000 and $43,000 and $18,000 and $66,000, 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 September 30, 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 September 30, 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 and nine months ended September 30, 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 and nine months ended September 30, 2020 and 2019 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note 9).

 

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:

 

    Nine months ended
September 30,
 
    2020     2019  
Swedish Krona     9.41       9.41  
Japanese Yen     107.52       109.11  
South Korean Won     1,199.94       1,162.54  
Taiwan Dollar     29.78       31.04  

 

Exchange rate for the consolidated balance sheets was as follows:

 

    As of  
    September 30,     December 31,  
    2020     2019  
Swedish Krona     8.96       9.34  
Japanese Yen     105.55       108.66  
South Korean Won     1,165.32       1,154.56  
Taiwan Dollar     28.94       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, accrued expenses and short-term borrowings 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, as amended, is scheduled to become effective for fiscal years beginning after December 15, 2023, with early adoption permitted. In the future, we will evaluate the impact that ASU 2016-13, as amended, 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 been changed accordingly. Revenues from HMI Solutions include license fees and non-recurring engineering fees while HMI Products include sensor module sales and non-recurring engineering fees. We expect that future revenues within our Remote Sensing Solutions business area will be derived from license fees and non-recurring engineering fees.

v3.20.2
Short-Term Borrowings
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Short-Term Borrowings

3. Short-Term Borrowings

 

During the nine months ended September 30, 2020, the Company was granted a credit from the Swedish Tax Authority covering social charges and staff withholding taxes relating to January through March 2020 payroll, as part of Swedish governmental COVID-19 support. The total amount was $563,000 and the credit was for 12 months but could be repaid earlier if desired. There was a 1.25% annual non-deductible interest and a credit fee of 0.2% from the seventh month of the granted credit. The tax credit was repaid in August 2020 along with interest of $2,000.

 

On June 17, 2020, the Company entered into short-term loan facilities (the "Loan Agreements") with two entities beneficially owned respectively by each of Ulf Rosberg and Peter Lindell, directors of Neonode (each, a "Director"). Pursuant to the Loan Agreements, each entity beneficially owned by the Director made approximately $1.7 million in U.S. dollars principal amount available to the Company. The Company made an initial drawdown of an aggregate of approximately $1.0 million under the Loan Agreement.

 

Each of the Loan Agreements provided for a credit fee of 0.75% per annum, calculated on a daily basis from the date of the Loan Agreement, and any outstanding amount incurred interest at a fixed rate of 3.25% per annum, calculated on a daily basis from the drawdown date. Drawdowns under the Loan Agreements became unavailable upon the earlier to occur of the execution of a capital raise by Neonode or December 31, 2020. Upon completion of a capital raise before December 31, 2020, any outstanding amount under the Loan Agreements, including any credit fee and interest, became payable as soon as practicably possible after such capital raise. If a capital raise was not completed by December 31, 2020, or if the funds from the capital raise were insufficient to repay the full outstanding amount under the Loan Agreements, then the outstanding amount under the Loan Agreements, including any credit fee and interest, would have become due and payable on February 28, 2021.

 

On August 7, 2020, Neonode issued 517 shares of Series C-2 Preferred Stock to UMR Invest AB, the entity beneficially owned by Ulf Rosberg, to repay the indebtedness and accrued interest under the Loan Agreement. To effect a similar transaction with entities beneficially owned by the other Director, Peter Lindell, (i) on August 7, 2020, at the closing of the Private Placement, Cidro Förvaltning AB paid for an additional 517 shares of Series C-2 Preferred Stock, and (ii) on August 10, 2020, the next business day after the closing of the Private Placement, Neonode repaid to Cidro Holding AB the debt and accrued interest due under the Loan Agreement, an amount that equaled the price of the 517 shares of Series C-2 Preferred Stock. As a result of the repayments to each Director, the Loan Agreements terminated in accordance with their terms.

v3.20.2
Stockholders' Equity
9 Months Ended
Sep. 30, 2020
Equity [Abstract]  
Stockholders' Equity

4. Stockholders' Equity

 

Common Stock

 

See Note 1 for activities that affected common stock during the three and nine months ended September 30, 2020.

 

At the Annual Meeting of our Company held on September 29, 2020, stockholders approved a proposal to increase the number of authorized common stock to 25,000,000 shares. Accordingly, on November 5, 2020, we filed an amendment to the Neonode Inc. Restated Certificate of Incorporation, as amended (our "Certificate of Incorporation"), with the Secretary of State of the State of Delaware to increase to 25,000,000 the number of authorized shares of our common stock.

 

Preferred Stock

 

On August 6, 2020, in connection with the closing of the Private Placement, the Company designated (i) 365 shares of its authorized and unissued preferred stock as Series C-1 Preferred Stock by filing a Series C-1 Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State of the State of Delaware and (ii) 4,084 shares of its authorized and unissued preferred stock as Series C-2 Preferred Stock by filing a Series C-2 Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State of the State of Delaware.

 

The Series C-1 Preferred Stock and Series C-2 Preferred Stock (together, the "Preferred Shares") were converted into 684,378 shares of Neonode common stock.

 

As of September 30, 2020, our Certificate of Incorporation authorized Series A Preferred Stock, Series B Preferred Stock, Series C-1 Preferred Stock, and Series C-2 Preferred Stock.

 

During the year ended December 31, 2019, the only shares of our preferred stock issued and outstanding were Series B Preferred Stock. Effective July 1, 2019, all outstanding shares of our Series B Preferred Stock were converted into shares of our common stock.

  

The holders of the Preferred Shares were entitled to receive dividends at the rate per share of 5% per annum, totaling $33,000. As of September 30, 2020, $2,000 of preferred dividends had been paid and $31,000 was accrued.

 

No shares of preferred stock were issued and outstanding as of September 30, 2020.

 

Details of the preferred stock activities are set forth below:

 

   Series B Preferred Stock Shares Issued   Series B Preferred Stock Amount   Series C-1 Preferred Stock Shares Issued   Series C-1 Preferred Stock Amount   Series C-2 Preferred Stock Shares Issued   Series C-2 Preferred Stock Amount 
Balances, December 31, 2018   82   $-    -   $-    -   $- 
                               
Balances, March 31, 2019   82   $-    -   $-    -   $- 
                               
Conversion of Series B Preferred Stock to common stock   (2)  $-    -   $-    -   $- 
                               
Balances, June 30, 2019   80   $     -         -   $-    -   $- 
                               
Conversion of Series B Preferred Stock to common stock   (80)  $-    -   $-    -   $- 
                               
Balances, September 30, 2019   -   $-    -   $-    -   $- 
                               
Balances, December 31, 2019   -   $-    -   $-    -   $- 
                               
Balances, March 31, 2020   -   $-    -   $-    -   $- 
                               
Balances, June 30, 2020   -   $-    -   $-    -   $- 
                               
Issuance of Preferred Shares for cash   -   $-    365   $365    3,567   $3,567 
                               
Series C-2 Preferred Stock issued for repayment of short-term borrowings and accrued interest   -    -    -    -    517    517 
                               
Conversion of Preferred Shares to common stock   -   $-    (365)  $(365)   (4,084)  $(4,084)
                               
Balances, September 30, 2020   -   $-    -   $-    -   $- 

 

Warrants

 

As of September 30, 2020 and December 31, 2019, the Company had 431,368 warrants to purchase common stock outstanding.

v3.20.2
Stock-Based Compensation
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation

5. Stock-Based Compensation

 

There was no stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019 and there is no remaining unrecognized stock-based compensation expense related to stock options as of September 30, 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 September 30, 2020, we had three equity incentive plans:

 

  The 2006 Equity Incentive Plan (the "2006 Plan");
     
 

The 2015 Stock Incentive Plan (the "2015 Plan"); and

 

  The 2020 Stock Incentive Plan (the "2020 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   52,500   $27.51 
Cancelled   (42,000)   22.52 
Outstanding at September 30, 2020   10,500   $29.61 

 

The aggregate intrinsic value of the 10,500 stock options that are outstanding, vested and expected to vest as of September 30, 2020 was $0.

 

For the three and nine months ended September 30, 2020 and 2019, we recorded no 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 and nine months ended September 30, 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.

v3.20.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

6. Commitments and Contingencies

 

Litigation

 

On August 26, 2020, a putative stockholder of Neonode filed a purported class action lawsuit (C.A. No. 2020-0701-AGB) in the Delaware Court of Chancery against Neonode and the Board of Directors of Neonode for alleged breach of fiduciary duty in connection with disclosure of information concerning Proposal 5 and Proposal 6 in the proxy statement filed with the SEC by Neonode on August 20, 2020 for the 2020 Annual Meeting of Stockholders of Neonode (the "Proxy Statement"). These proposals for shareholder approval related to the Private Placement by Neonode on August 5, 2020 in which two directors and the chief executive officer of Neonode participated. The relief sought by the plaintiff included a preliminary injunction to enjoin the stockholder votes on Proposal 5 and Proposal 6. On September 13, 2020, the plaintiff amended his complaint to also enjoin the stockholder vote on Proposal 1 in the Proxy Statement concerning election of directors. Neonode and the other named defendants believe that the disclosures set forth in the Proxy Statement complied fully with all applicable law, that no supplemental disclosure was required, and that the plaintiffs' allegations are without merit. However, in an effort to avoid the nuisance and ongoing expense relating to the claims in the lawsuit, Neonode filed definitive additional materials to the Proxy Statement on September 18, 2020. The plaintiff withdrew his motion to preliminarily enjoin the stockholder votes on Proposals 1, 5, and 6 based upon the definitive additional materials to the Proxy Statement. The lawsuit remains subject to final disposition, including the potential award of fees to the attorneys for the plaintiff.

 

On September 2, 2020, a separate putative stockholder of Neonode filed a purported class action lawsuit (Case No. 1:20-cv-01174-UNA) in the United States District Court for the District of Delaware against Neonode, the Board of Directors of Neonode, and the Chief Executive Officer of Neonode for alleged violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, in connection with disclosure of information concerning Proposal 5 and Proposal 6 in the Proxy Statement, and generally containing the same substantive allegations as in the above previously-filed Delaware Court of Chancery action. On October 20, 2020, the plaintiff voluntarily dismissed the lawsuit in the United States District Court.

 

Operating expenses for the three and nine months ended September 30, 2020 include actual and estimated costs in relation to the above-referenced lawsuits.

 

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 September 30, 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 September 30, 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 decreased the bank guarantee to $210,000, covering the value of inventory for the production of 20,000 AirBars and in conjunction with this purchase the excess AirBar inventory for approximately $141,000. The current bank guarantee 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 November 10, 2020, management's judgment is that we will sell the remaining AirBars during 2020 and 2021 and thereby purchase the components and the assembly service from the manufacturing partner throughout the years. The bank guarantee is expected to be renewed at a lower amount reflecting the value of the remaining inventory at year-end. No liability has been recorded for the period ended September 30, 2020. 

 

Patent Assignment

 

On May 6, 2019, the Company assigned a portfolio of patents to Aequitas Technologies LCC ("Aequitas"). 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. As of September 30, 2020, there have been no proceeds from the agreement with Aequitas.

 

On July 11, 2020, Aequitas assigned 10 patents belonging to the one of the patent families back to Neonode based upon a determination by Aequitas not to enforce those particular patents.

 

On September 8, 2020, an Aequitas subsidiary, Neonode Smartphone LLC, filed patent infringement lawsuits against Apple Inc., and Samsung Electronics Co. Ltd. and Samsung Electronics America, Inc., in U.S. federal court in the Western District of Texas.

 

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 application-specific integrated circuit ("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 September 30, 2020, we had made no payments to TI under the NN1002 Agreement.

v3.20.2
Segment Information
9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
Segment Information

7. 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 and nine months ended September 30, 2020 and 2019, respectively, 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 and nine months ended September 30, 2020 and 2019, respectively, (dollars in thousands):

 

   Three months ended
September 30,
2020
   Three months ended
September 30,
2019
 
   Amount   Percentage   Amount   Percentage 
United States  $486    33%  $548    42%
Japan   395    26%   498    38%
South Korea   240    16%   -    -%
China   154    10%   49    4%
Germany   130    9%   106    8%
Switzerland   54    4%   52    4%
Other   36    2%   57    3%
   $1,495    100%  $1,310    100%

 

   Nine months ended
September 30,
2020
   Nine months ended
September 30,
2019
 
   Amount   Percentage   Amount   Percentage 
United States  $1,340    38%  $2,510    50%
Japan   1,229    35%   1,515    30%
Germany   274    8%   477    9%
South Korea   267    7%   -    -%
China   203    6%   177    4%
Switzerland   161    4%   109    2%
France   -    -%   152    3%
Other   72    2%   61    1%
   $3,547    100%  $5,032    100%

 

The following table presents our total assets by geographic region as of September 30, 2020 and December 31, 2019 (in thousands):

 

   September 30,
2020
   December 31,
2019
 
U.S.  $6,602   $2,898 
Sweden   9,914    4,430 
Asia   109    108 
Total  $16,625   $7,436 
v3.20.2
Leases
9 Months Ended
Sep. 30, 2020
Leases [Abstract]  
Leases

8. 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 two months to 2.42 years, and one of our two primary operating leases includes an option to extend the lease for another three years. This primary operating lease also includes an option to terminate the lease by October 1, 2021. The other primary operating lease has been terminated effective November 30, 2020 and a new lease has been signed for three years beginning December 1, 2020. 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.

 

We report operating lease assets, as well as operating lease current and noncurrent obligations on our consolidated 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 consolidated 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
September 30,
2020
   Nine Months Ended
September 30,
2020
 
Operating lease cost (1)  $139   $381 
           
Finance lease cost:          
Amortization of leased assets  $164   $467 
Interest on lease liabilities   3    15 
Total finance lease cost  $167   $482 

  

(1) Includes short term lease costs of $30,000 and $81,000 for the three and nine months ended September 30, 2020, respectively.

  

   Three Months
Ended
September 30,
2019
   Nine Months
Ended
September 30,
2019
 
Operating lease cost (1)  $145   $454 
           
Finance lease cost:          
Amortization of leased assets  $153   $471 
Interest on lease liabilities   8    26 
Total finance lease cost  $161   $497 

 

(1) Includes short term lease costs of $27,000 and $93,000 for the three and nine months ended September 30, 2019, respectively.

     

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

 

   Three Months
Ended
September 30,
2020
   Nine Months
Ended
September 30,
2020
 
Cash paid for amounts included in leases:        
Operating cash flows from operating leases  $(115)  $(298)
Operating cash flows from finance leases   (3)   (15)
Financing cash flows from finance leases   (21)   (185)
           
Right-of-use assets obtained in exchange for lease obligations:          
Operating leases   25    - 

  

   Three months
ended
September 30,
   Nine months
ended
September 30,
 
   2019   2019 
Cash paid for amounts included in leases:        
Operating cash flows from operating leases  $(109)  $(298)
Operating cash flows from finance leases   (8)   (26)
Financing cash flows from finance leases   (131)   (403)
           
Right-of-use assets obtained in exchange for lease obligations:          
Operating leases   -    - 

 

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

 

   September 30,
2020
   December 31,
2019
 
Operating leases        
Operating lease right-of-use assets  $155   $416 
           
Current portion of operating lease obligations  $118   $332 
Operating lease liabilities, net of current portion   -    58 
Total operating lease liabilities  $118   $390 
           
Finance leases          
Property and equipment, at cost  $3,491   $3,348 
Accumulated depreciation   (2,533)   (1,956)
Property and equipment, net  $958   $1,392 
           
Current portion of finance lease obligations  $650   $568 
Finance lease liabilities, net of current portion   277    508 
Total finance lease liabilities  $927   $1,076 

  

   September 30,
2020
   December 31,
2019
 
Weighted Average Remaining Lease Term        
Operating leases   0.7 years    1.2 years 
Finance leases   1.2 years    1.6 years 
           
Weighted Average Discount Rate          
Operating leases (2)   5%   5%
Finance leases   2%   2%

 

(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 September 30, 2020 is as follows (in thousands):

 

Years ending December 31,  Total 
2020 (remaining months)  $47 
2021   74 
    121 
Less imputed interest   (3)
Total lease liabilities  $118 

  

The following is a schedule of minimum future rentals on the non-cancellable finance leases as of September 30, 2020 (in thousands):

 

Year ending December 31,  Total 
2020 (remaining months)  $131 
2021   721 
2022   82 
2023   8 
Total minimum payments required:   942 
Less amount representing interest:   (15)
Present value of net minimum lease payments:   927 
Less current portion   (650)
   $277 
v3.20.2
Net Loss per Share
9 Months Ended
Sep. 30, 2020
Earnings Per Share [Abstract]  
Net Loss per Share

9. Net Loss per Share

 

Basic net loss per common share for the three and nine months ended September 30, 2020 and 2019 was computed by dividing the net loss attributable to common shareholders of 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 common shareholders of 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 and 0.3 million outstanding stock warrants under the treasury stock method, and 0 and 0 shares issuable upon conversion of preferred stock are excluded from the diluted earnings per share calculation for the three and nine months ended September 30, 2020 and 2019, respectively, due to their anti-dilutive effect.

 

(in thousands, except per share amounts)  Three months ended
September 30,
 
   2020   2019 
BASIC AND DILUTED        
Weighted average number of common shares outstanding   10,128    8,811 
Net loss attributable to common shareholders of Neonode Inc.  $(1,671)  $(1,086)
           
Net loss per share - basic and diluted  $(0.16)  $(0.12)

 

(in thousands, except per share amounts)  Nine months ended
September 30,
 
   2020   2019 
BASIC AND DILUTED        
Weighted average number of common shares outstanding   9,492    8,804 
Net loss attributable to common shareholders of Neonode Inc.  $(4,293)  $(2,923)
           
Net loss per share - basic and diluted  $(0.45)  $(0.33)
v3.20.2
Subsequent Events
9 Months Ended
Sep. 30, 2020
Subsequent Events [Abstract]  
Subsequent Events

10. 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 elsewhere in the accompanying notes.

 

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 constantly 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. The situation could have a material adverse effect on the Company’s condensed consolidated balance sheets, liquidity, and condensed consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows. The pandemic has, however, created an increased interest in the Company’s technology, which allows germ-free contactless touch on any surface.

v3.20.2
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 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 September 30, 2020 and December 31, 2019 and the condensed consolidated statements of operations, comprehensive loss, stockholders' equity for the three and nine months ended September 30, 2020 and 2019 and the condensed consolidated statements of cash flows for the nine months ended September 30, 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 950,000 Krona per customer and covers deposits in all types of accounts. For bank accounts of the category held by Neonode, the Japanese government provides full insurance coverage. 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 $82,000 as of September 30, 2020 and $85,000 as of December 31, 2019.

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 $11,000 and $8,000 as of September 30, 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 $0.7 million and $0.8 million as of September 30, 2020 and December 31, 2019, respectively.

 

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):

 

   September 30,   December 31, 
   2020   2019 
Raw materials  $373   $396 
Work-in-process   183    186 
Finished goods   572    448 
Ending inventory  $1,128   $1,030 
Investment in Joint Venture

Investment in Joint Venture

 

We invested $3,000 in 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 September 30, 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 September 30, 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 $(228,000) and $(251,000) and $(145,000) and $(300,000) during the three and nine months ended September 30, 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 $(135,000) and $(149,000) during the three and nine months ended September 30, 2020, respectively, compared to $56,000 and $170,000 during the same periods in 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 September 30, 2020, four customers represented approximately 75% 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 September 30, 2020 are as follows:

  

  Hewlett-Packard Company – 31%
     
  LG Electronics Inc. – 16%
     
  Seiko Epson Corporation – 13%
     
  Alpine Electronics, Inc – 12%

 

Customers who accounted for 10% or more of our net revenues during the nine months ended September 30, 2020 are as follows:

 

  Hewlett-Packard Company – 32%
     
  Seiko Epson Corporation – 19%
     
  Alpine Electronics, Inc – 15%

 

Customers who accounted for 10% or more of our net revenues during the three months ended September 30, 2019 are as follows:

 

  Hewlett Packard Company – 34%
     
  Seiko Epson Corporation – 18%
     
  Alpine Electronics, Inc – 20%

 

Customers who accounted for 10% or more of our net revenues during the nine months ended September 30, 2019 are as follows:

 

  Hewlett Packard Company – 39%
     
  Seiko Epson Corporation – 15%
     
  Alpine Electronics, Inc – 14%
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 fulfil 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 September 30, 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. During the three and nine months ended September 30, 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. 

 

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.

 

Under U.S. GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns. Our sensor modules 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 September 30, 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 tables present disaggregated revenues by market for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

 

   Three months ended
September 30,
2020
   Three months ended
September 30,
2019
 
   Amount   Percentage   Amount   Percentage 
HMI Solutions                
Net revenues from automotive  $538    44%  $401    33%
Net revenues from consumer electronics   673    56%   813    67%
   $1,211    100%  $1,214    100%
                     
HMI Products                    
Net revenues from automotive  $-    0%  $8    8%
Net revenues from medical   56    20%   33    35%
Net revenues from distributors and other   228    80%   55    57%
   $284    100%  $96    100%

 

   Nine months ended
September 30,
2020
   Nine months ended
September 30,
2019
 
   Amount   Percentage   Amount   Percentage 
HMI Solutions                
Net revenues from automotive  $1,079    35%  $1,337    29%
Net revenues from consumer electronics   1,992    65%   3,288    71%
   $3,071    100%  $4,625    100%
                     
HMI Products                    
Net revenues from automotive  $15    3%  $9    2%
Net revenues from medical   159    33%   93    23%
Net revenues from distributors and other   302    64%   305    75%
   $476    100%  $407    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.

 

Judgment is further 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 September 30, 2020 and December 31, 2019 (in thousands):

 

   September 30,
2020
   December 31,
2019
 
Accounts receivable and unbilled revenue  $1,044   $1,324 
Deferred revenues   143    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 $82,000 as of September 30, 2020 and $85,000 as of 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):

 

   September 30,
2020
   December 31,
2019
 
Balance at beginning of period  $24   $17 
Provisions for warranty issued   13    7 
Balance at end of period  $37   $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.

 

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

 

   September 30,
2020
   December 31,
2019
 
Deferred revenues HMI Solutions  $41   $37 
Deferred revenues HMI Products   102    30 
   $143   $67 

  

During the three and nine months ended September 30, 2020, the Company recognized revenues of approximately $7,000 and $39,000, respectively, related to contract liabilities outstanding at the beginning of the year.

Product Backlog

Product Backlog

 

Our sensor module product backlog at September 30, 2020 was approximately $495,000. The product backlog includes orders confirmed for products planned to be shipped within the next 3 quarters to 3 customers. Our cycle time between order and shipment is generally short and customers occasionally change delivery schedules. As a result, we do not believe that our product backlog, as of any particular date, is necessarily indicative of actual product revenue for any future period.

Advertising

Advertising

 

Advertising costs are expensed as incurred. Advertising costs for the three and nine months ended September 30, 2020 and 2019 amounted to approximately $27,000 and $43,000 and $18,000 and $66,000, 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 September 30, 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 September 30, 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 and nine months ended September 30, 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 and nine months ended September 30, 2020 and 2019 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note 9).

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:

 

    Nine months ended
September 30,
 
    2020     2019  
Swedish Krona     9.41       9.41  
Japanese Yen     107.52       109.11  
South Korean Won     1,199.94       1,162.54  
Taiwan Dollar     29.78       31.04  

 

Exchange rate for the consolidated balance sheets was as follows:

 

    As of  
    September 30,     December 31,  
    2020     2019  
Swedish Krona     8.96       9.34  
Japanese Yen     105.55       108.66  
South Korean Won     1,165.32       1,154.56  
Taiwan Dollar     28.94       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, accrued expenses and short-term borrowings 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, as amended, is scheduled to become effective for fiscal years beginning after December 15, 2023, with early adoption permitted. In the future, we will evaluate the impact that ASU 2016-13, as amended, 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 been changed accordingly. Revenues from HMI Solutions include license fees and non-recurring engineering fees while HMI Products include sensor module sales and non-recurring engineering fees. We expect that future revenues within our Remote Sensing Solutions business area will be derived from license fees and non-recurring engineering fees.

v3.20.2
Summary of Significant Accounting Policies (Tables)
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Schedule of inventory
   September 30,   December 31, 
   2020   2019 
Raw materials  $373   $396 
Work-in-process   183    186 
Finished goods   572    448 
Ending inventory  $1,128   $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
September 30,
2020
   Three months ended
September 30,
2019
 
   Amount   Percentage   Amount   Percentage 
HMI Solutions                
Net revenues from automotive  $538    44%  $401    33%
Net revenues from consumer electronics   673    56%   813    67%
   $1,211    100%  $1,214    100%
                     
HMI Products                    
Net revenues from automotive  $-    0%  $8    8%
Net revenues from medical   56    20%   33    35%
Net revenues from distributors and other   228    80%   55    57%
   $284    100%  $96    

100 

%

   Nine months ended
September 30,
2020
   Nine months ended
September 30,
2019
 
   Amount   Percentage   Amount   Percentage 
HMI Solutions                
Net revenues from automotive  $1,079    35%  $1,337    29%
Net revenues from consumer electronics   1,992    65%   3,288    71%
   $3,071    100%  $4,625    100%
                     
HMI Products                    
Net revenues from automotive  $15    3%  $9    2%
Net revenues from medical   159    33%   93    23%
Net revenues from distributors and other   302    64%   305    75%
   $476    100%  $407    100%

 

Schedule of accounts receivable and deferred revenues
   September 30,
2020
   December 31,
2019
 
Accounts receivable and unbilled revenue  $1,044   $1,324 
Deferred revenues   143    67 
Schedule of activity related to the product warranty liability
   September 30,
2020
   December 31,
2019
 
Balance at beginning of period  $24   $17 
Provisions for warranty issued   13    7 
Balance at end of period  $37   $24 
Schedule of deferred revenues
   September 30,
2020
   December 31,
2019
 
Deferred revenues HMI Solutions  $41   $37 
Deferred revenues HMI Products   102    30 
   $143   $67 
Schedule of weighted average exchange rate for the condensed consolidated statements of operations
    Nine months ended
September 30,
 
    2020     2019  
Swedish Krona     9.41       9.41  
Japanese Yen     107.52       109.11  
South Korean Won     1,199.94       1,162.54  
Taiwan Dollar     29.78       31.04  
Schedule of exchange rate for the consolidated balance sheets
    As of  
    September 30,     December 31,  
    2020     2019  
Swedish Krona     8.96       9.34  
Japanese Yen     105.55       108.66  
South Korean Won     1,165.32       1,154.56  
Taiwan Dollar     28.94       30.00  
v3.20.2
Stockholders' Equity (Tables)
9 Months Ended
Sep. 30, 2020
Equity [Abstract]  
Schedule of preferred stock activities
   Series B Preferred Stock Shares Issued   Series B Preferred Stock Amount   Series C-1 Preferred Stock Shares Issued   Series C-1 Preferred Stock Amount   Series C-2 Preferred Stock Shares Issued   Series C-2 Preferred Stock Amount 
Balances, December 31, 2018   82   $-    -   $-    -   $- 
                               
Balances, March 31, 2019   82   $-    -   $-    -   $- 
                               
Conversion of Series B Preferred Stock to common stock   (2)  $-    -   $-    -   $- 
                               
Balances, June 30, 2019   80   $     -         -   $-    -   $- 
                               
Conversion of Series B Preferred Stock to common stock   (80)  $-    -   $-    -   $- 
                               
Balances, September 30, 2019   -   $-    -   $-    -   $- 
                               
Balances, December 31, 2019   -   $-    -   $-    -   $- 
                               
Balances, March 31, 2020   -   $-    -   $-    -   $- 
                               
Balances, June 30, 2020   -   $-    -   $-    -   $- 
                               
Issuance of Preferred Shares for cash   -   $-    365   $365    3,567   $3,567 
                               
Series C-2 Preferred Stock issued for repayment of short-term borrowings and accrued interest   -    -    -    -    517    517 
                               
Conversion of Preferred Shares to common stock   -   $-    (365)  $(365)   (4,084)  $(4,084)
                               
Balances, September 30, 2020   -   $-    -   $-    -   $- 
v3.20.2
Stock-Based Compensation (Tables)
9 Months Ended
Sep. 30, 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   52,500   $27.51 
Cancelled   (42,000)   22.52 
Outstanding at September 30, 2020   10,500   $29.61 
v3.20.2
Segment Information (Tables)
9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
Schedule of net revenues by geographic region

   Three months ended
September 30,
2020
   Three months ended
September 30,
2019
 
   Amount   Percentage   Amount   Percentage 
United States  $486    33%  $548    42%
Japan   395    26%   498    38%
South Korea   240    16%   -    -%
China   154    10%   49    4%
Germany   130    9%   106    8%
Switzerland   54    4%   52    4%
Other   36    2%   57    3%
   $1,495    100%  $1,310    100%

   Nine months ended
September 30,
2020
   Nine months ended
September 30,
2019
 
   Amount   Percentage   Amount   Percentage 
United States  $1,340    38%  $2,510    50%
Japan   1,229    35%   1,515    30%
Germany   274    8%   477    9%
South Korea   267    7%   -    -%
China   203    6%   177    4%
Switzerland   161    4%   109    2%
France   -    -%   152    3%
Other   72    2%   61    1%
   $3,547    100%  $5,032    100%

 

Schedule of long-lived assets by geographic region

   September 30,
2020
   December 31,
2019
 
U.S.  $6,602   $2,898 
Sweden   9,914    4,430 
Asia   109    108 
Total  $16,625   $7,436 

 

v3.20.2
Leases (Tables)
9 Months Ended
Sep. 30, 2020
Leases [Abstract]  
Schedule of components of lease expense
   Three Months
Ended
September 30,
2020
   Nine Months Ended
September 30,
2020
 
Operating lease cost (1)  $139   $381 
           
Finance lease cost:          
Amortization of leased assets  $164   $467 
Interest on lease liabilities   3    15 
Total finance lease cost  $167   $482 

  

(1) Includes short term lease costs of $30,000 and $81,000 for the three and nine months ended September 30, 2020, respectively.