NEONODE INC., 10-Q filed on 11 Aug 21
v3.21.2
Document And Entity Information - shares
6 Months Ended
Jun. 30, 2021
Aug. 03, 2021
Document Information Line Items    
Entity Registrant Name NEONODE INC.  
Trading Symbol NEON  
Document Type 10-Q  
Current Fiscal Year End Date --12-31  
Entity Common Stock, Shares Outstanding   11,520,501
Amendment Flag false  
Entity Central Index Key 0000087050  
Entity Current Reporting Status Yes  
Entity Filer Category Non-accelerated Filer  
Document Period End Date Jun. 30, 2021  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q2  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Document Quarterly Report true  
Document Transition Report false  
Entity File Number 1-35526  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 94-1517641  
Entity Address, Address Line One Karlavägen 100  
Entity Address, Postal Zip Code 115 26  
Entity Address, City or Town Stockholm  
Entity Address, Country SE  
City Area Code +46 (0)  
Local Phone Number 8 667 17 17  
Title of 12(b) Security Common Stock, par value $0.001 per share  
Security Exchange Name NASDAQ  
Entity Interactive Data Current Yes  
v3.21.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2021
Dec. 31, 2020
Current assets:    
Cash $ 6,611 $ 10,473
Accounts receivable and unbilled revenue, net 1,224 1,743
Inventory 2,086 1,273
Prepaid expenses and other current assets 650 1,161
Total current assets 10,571 14,650
Property and equipment, net 660 1,003
Operating lease right-of-use assets 628 919
Total assets 11,859 16,572
Current liabilities:    
Accounts payable 754 1,084
Accrued payroll and employee benefits 1,170 1,170
Accrued expenses 435 545
Deferred revenues 130 138
Current portion of finance lease obligations 501 769
Current portion of operating lease obligations 437 504
Total current liabilities 3,427 4,210
Finance lease obligations, net of current portion 39 95
Operating lease obligations, net of current portion 74 377
Total liabilities 3,540 4,682
Commitments and contingencies
Stockholders’ equity:    
Common stock, 25,000,000 shares authorized, with par value of $0.001; 11,504,665 shares issued and outstanding at June 30, 2021 and December 31, 2020 12 12
Additional paid-in capital 211,708 211,663
Accumulated other comprehensive loss (514) (404)
Accumulated deficit (199,383) (196,158)
Total Neonode Inc. stockholders’ equity 11,823 15,113
Noncontrolling interests (3,504) (3,223)
Total stockholders’ equity 8,319 11,890
Total liabilities and stockholders’ equity $ 11,859 $ 16,572
v3.21.2
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares
Jun. 30, 2021
Dec. 31, 2020
Statement of Financial Position [Abstract]    
Common stock, shares authorized 25,000,000 25,000,000
Common stock, par value (in Dollars per share) $ 0.001 $ 0.001
Common stock, shares issued 11,504,665 11,504,665
Common stock, shares outstanding 11,504,665 11,504,665
v3.21.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Revenues:        
License fees $ 1,358 $ 674 $ 2,653 $ 1,843
Sensor modules 346 66 701 164
Non-recurring engineering 16 18 31 45
Total revenues 1,720 758 3,385 2,052
Cost of revenues:        
Sensor modules 212 72 482 108
Non-recurring engineering 9 51 16 59
Total cost of revenues 221 123 498 167
Total gross margin 1,499 635 2,887 1,885
Operating expenses:        
Research and development 1,379 1,043 2,521 2,038
Sales and marketing 769 648 1,557 1,193
General and administrative 1,147 700 2,234 1,499
Total operating expenses 3,295 2,391 6,312 4,730
Operating loss (1,796) (1,756) (3,425) (2,845)
Other expense:        
Interest expense 3 7 8 14
Total other expense 3 7 8 14
Loss before provision for income taxes (1,799) (1,763) (3,433) (2,859)
Provision for income taxes 37 3 73 19
Net loss including noncontrolling interests (1,836) (1,766) (3,506) (2,878)
Less: Net loss attributable to noncontrolling interests 179 154 281 256
Net loss attributable to Neonode Inc. $ (1,657) $ (1,612) $ (3,225) $ (2,622)
Loss per common share:        
Basic and diluted loss per share (in Dollars per share) $ (0.14) $ (0.18) $ (0.28) $ (0.29)
Basic and diluted – weighted average number of common shares outstanding (in Shares) 11,504 9,171 11,504 9,171
v3.21.2
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Statement of Comprehensive Income [Abstract]        
Net loss $ (1,836) $ (1,766) $ (3,506) $ (2,878)
Other comprehensive income (loss):        
Foreign currency translation adjustments 56 64 (110) (23)
Comprehensive loss (1,780) (1,702) (3,616) (2,901)
Less: Comprehensive loss attributable to noncontrolling interests 179 154 281 256
Comprehensive loss attributable to Neonode Inc. $ (1,601) $ (1,548) $ (3,335) $ (2,645)
v3.21.2
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) - USD ($)
$ in Thousands
Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Total Neonode Inc. Stockholders’ Equity
Noncontrolling Interests
Total
Balance at Dec. 31, 2019 $ 9 $ 197,543 $ (639) $ (190,520) $ 6,393 $ (2,546) $ 3,847
Balance (in Shares) at Dec. 31, 2019 [1] 9,171            
Foreign currency translation adjustment (87) (87) (87)
Net loss (1,010) (1,010) (102) (1,112)
Balance at Mar. 31, 2020 $ 9 197,543 (726) (191,530) 5,296 (2,648) 2,648
Balance (in Shares) at Mar. 31, 2020 [1] 9,171            
Foreign currency translation adjustment 64 64 64
Net loss (1,612) (1,612) (154) (1,766)
Balance at Jun. 30, 2020 $ 9 197,543 (662) (193,142) 3,748 (2,802) 946
Balance (in Shares) at Jun. 30, 2020 [1] 9,171            
Foreign currency translation adjustment (228) (228) (228)
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 (in Shares) 3,932 [1] 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 (in Shares) [1] 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 (in Shares) (4,449) [1] 684            
Preferred dividends (33) (33) (33)
Net loss (1,638) (1,638) (110) (1,748)
Balance at Sep. 30, 2020 $ 11 211,587 (890) (194,813) 15,895 (2,912) 12,983
Balance (in Shares) at Sep. 30, 2020 [1] 11,467            
Foreign currency translation adjustment 486 486 486
Stock-based compensation $ 1 76 77 77
Stock-based compensation (in Shares) [1] 37            
Net loss (1,345) (1,345) (311) (1,656)
Balance at Dec. 31, 2020 $ 12 211,663 (404) (196,158) 15,113 (3,223) 11,890
Balance (in Shares) at Dec. 31, 2020 [1] 11,504            
Foreign currency translation adjustment (166) (166) (166)
Stock-based compensation 23 23 23
Net loss (1,568) (1,568) (102) (1,670)
Balance at Mar. 31, 2021 $ 12 211,686 (570) (197,726) 13,402 (3,325) 10,077
Balance (in Shares) at Mar. 31, 2021 [1] 11,504            
Foreign currency translation adjustment 56 56 56
Stock-based compensation 22 22 22
Net loss   (1,657) (1,657) (179) (1,836)
Balance at Jun. 30, 2021 $ 12 $ 211,708 $ (514) $ (199,383) $ 11,823 $ (3,504) $ 8,319
Balance (in Shares) at Jun. 30, 2021 [1] 11,504            
[1] Preferred Shares Issued per series can be found under the equity footnote (see Note 3).
v3.21.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Cash flows from operating activities:    
Net loss (including noncontrolling interests) $ (3,506) $ (2,878)
Adjustments to reconcile net loss to net cash used in operating activities:    
Stock-based compensation expense 45
Depreciation and amortization 376 373
Amortization of operating lease right-of-use assets 259 183
Changes in operating assets and liabilities:    
Accounts receivable and unbilled revenue, net 511 588
Projects in process 7
Inventory (880) (42)
Prepaid expenses and other current assets 481 155
Accounts payable and accrued expenses (343) (169)
Deferred revenues (6) 33
Operating lease obligations (342) (178)
Net cash used in operating activities (3,405) (1,928)
Cash flows from investing activities:    
Purchase of property and equipment (67) (7)
Net cash used in investing activities (67) (7)
Cash flows from financing activities:    
Proceeds from short-term borrowings 966
Proceeds from short-term tax credits   542
Principal payments on finance lease obligations (295) (164)
Net cash (used in) provided by financing activities (295) 1,344
Effect of exchange rate changes on cash (95) 7
Net decrease in cash (3,862) (584)
Cash at beginning of period 10,473 2,357
Cash at end of period 6,611 1,773
Supplemental disclosure of cash flow information:    
Cash paid for income taxes 73 19
Cash paid for interest $ 8 $ 13
v3.21.2
Interim Period Reporting
6 Months Ended
Jun. 30, 2021
Interim Period Reporting [Abstract]  
Interim Period Reporting

1. Interim Period Reporting

 

The accompanying unaudited interim condensed consolidated financial statements include all adjustments consisting of normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash flows for the interim periods presented. The results of operations for the three and six months ended June 30, 2021 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 six months ended June 30, 2021 and 2020 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, 2020.

 

Operations

 

Neonode Inc., which is collectively with its subsidiaries referred to as “Neonode” or the “Company” in this report, develops advanced optical sensing solutions for contactless touch, touch, gesture sensing, and remote sensing solutions for driver and in-cabin monitoring features. We market and sell our contactless touch, touch, and gesture sensing products and solutions using our zForce technology platform, and our remote sensing solutions using our MultiSensing technology platform. Neonode offers customized optical touch and gesture control solutions for many different markets and segments.

 

In our operations, we have historically focused on three different business areas, human machine interface (“HMI”) Solutions, HMI Products and Remote Sensing Solutions. On May 4, 2021, we announced a new strategy and organizational update targeting an increased focus on the Company’s contactless touch business and on current market opportunities in North America (“AMER”), Asia-Pacific (“APAC”), and Europe, Middle East and Africa (“EMEA”). We thereby changed from a business area organization to a regional sales organization going forward. Revenues are however primarily monitored per our revenue streams license fees, sensor modules and non-recurring engineering (“NRE”).

 

Liquidity

 

We have incurred significant operating losses and negative cash flows from operations since our inception. The Company incurred net losses of approximately $1.7 million and $3.2 million and $1.6 million and $2.6 million for the three and six months ended June 30, 2021 and 2020, respectively, and had an accumulated deficit of approximately $199.4 million and $196.2 million as of June 30, 2021 and December 31, 2020, respectively. In addition, operating activities used cash of approximately $3.4 million and $1.9 million for the six months ended June 30, 2021 and 2020, respectively.

 

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

 

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 to us on acceptable terms, or at all, we may be unable to adequately fund our business plans which could have a negative effect on our business, results of operations and financial condition. If funds are available through the issuance of equity or debt securities, 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.

 

We expect revenues 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.

v3.21.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2021
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 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 June 30, 2021 and December 31, 2020 and the condensed consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the three and six months ended June 30, 2021 and 2020 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, 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 1,050,000 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 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 $79,000 as of June 30, 2021 and December 31, 2020, respectively.

 

Projects in Process

 

Projects in process consist of costs incurred toward the completion of various projects for certain customers. These costs are primarily comprised of direct engineering labor costs and project-specific equipment costs. These costs are capitalized on our balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition policy. There were no costs capitalized to projects in process as of June 30, 2021 and December 31, 2020, respectively.

 

Inventory

 

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.

 

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 fully reserve work-in-process for AirBar components, as well as AirBar related raw materials. Management has further decided to reserve for a portion of AirBar finished goods, depending on type of AirBar and in which location it is stored. The AirBar inventory reserve was $0.8 million and $0.9 million as of June 30, 2021 and December 31, 2020, respectively.

 

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.

 

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

 

   June 30,   December 31, 
   2021   2020 
Raw materials  $998   $550 
Work-in-process   40    21 
Finished goods   1,048    702 
Ending inventory  $2,086   $1,273 

 

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 flows from the associated assets in accordance with relevant accounting guidance. If the estimated undiscounted future cash flows 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 June 30, 2021, 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 $56,000 and $(110,000) and $64,000 and $(23,000) during the three and six months ended June 30, 2021 and 2020, 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 $(54,000) and $28,000 during the three and six months ended June 30, 2021, respectively, compared to $(63,000) and $(14,000) during the same periods in 2020, respectively.

 

Concentration of Credit and Business Risks

 

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

 

As of June 30, 2021, four customers represented approximately 70% of our consolidated accounts receivable and unbilled revenues.

 

As of December 31, 2020, three customers represented approximately 62% of our consolidated accounts receivable and unbilled revenues.

 

Customers who accounted for 10% or more of our net revenues during the three months ended June 30, 2021 are as follows:

 

  Hewlett Packard Company – 30%
     
  Seiko Epson Corporation – 17%

 

  LG Electronics Inc. – 14%

 

Customers who accounted for 10% or more of our net revenues during the six months ended June 30, 2021 are as follows:

 

  Hewlett Packard Company – 31%
     
  Seiko Epson Corporation – 14%
     
  LG Electronics Inc. – 13%

 

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

 

  Epson – 35%
     
  Hewlett Packard Company – 27%
     
  Alpine – 12%

 

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

 

  Alpine – 17%
     
  Epson – 24%
     
  Hewlett Packard Company – 33%

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.

 

License fees for products and sales of AirBar and sensor modules are recognized on a per-unit basis; therefore, we generally satisfy performance obligations as units are shipped to our customers. Non-recurring engineering service performance obligations are satisfied as work is performed and accepted by our customers.

 

We recognize revenue net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. We treat all product shipping and handling charges (regardless of when they occur) as activities to fulfill the promise to transfer goods, therefore we treat all shipping and handling charges as expenses.

 

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

 

Licensing Revenues:

 

We earn revenue from licensing our internally developed intellectual property (“IP”) and our licensing customer base is primarily in the automotive and printer industries. 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 estimates of those royalties.

 

Explicit return rights are not offered to customers. There have been no returns through June 30, 2021.

 

Engineering Services Revenues:

 

For technology license or sensor module contracts that require modification or customization of the underlying technology to adapt that technology to the customer’s desired 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 or on a flat rate for engineering services, and we recognize revenue as the engineering services specified in the 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 service 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 six months ended June 30, 2021 and 2020, no losses related to SOW projects were recorded.

 

Touch Sensor Modules Revenues:

 

We earn revenue from sales of touch sensor modules (“TSMs”) products to our OEM and Tier 1 supplier customers, who embed our hardware into their products, and, occasionally, from sales of our AirBar branded consumer products (incorporating our TSM technology) sold through distributors. These distributors are generally given business terms that do not allow them to return unsold inventory. Our sales agreements generally provide customers with limited rights of return and warranty provisions. 

 

The timing of revenue recognition related to sales of TSMs and AirBars depends upon how each sale is transacted - either point-of-sale or through distributors. We recognize revenue for products sold point-of-sale (online sales and other direct sales to customers) when we provide the promised product to the customer.

 

Because we generally use distributors to provide TSMs and AirBars to our customers, we analyze the terms of distributor agreements to determine when control passes from us to our distributors. For sales of TSMs and AirBars sold through distributors, revenues are recognized when our distributors obtain control over our products. Control passes to our distributors when we have a present right to payment for products sold to distributors, the distributors have legal title to and physical possession of products purchased from us, and the distributors have significant risks and rewards of ownership of products purchased.

 

Distributors participate in various cooperative marketing and other incentive programs, and we maintain estimated accruals and allowances for these programs. If actual credits received by distributors under these programs were to deviate significantly from our estimates, which are based on historical experience, our revenue could be adversely affected.

 

Under U.S. GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns. Our 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 $70,000 as of June 30, 2021 and $78,000 as of December 31, 2020. 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 six months ended June 30, 2021 and 2020 (dollars in thousands):

 

   Three months ended
June 30, 2021
   Three months ended
June 30, 2020
 
   Amount   Percentage   Amount   Percentage 
AMER                
Net revenues from consumer electronics  $569    97%  $260    98%
Net revenues from distributors and other   15    3%   6    2%
   $584    100%  $266    100%
                     
APAC                    
Net revenues from automotive  $417    42%  $117    29%
Net revenues from consumer electronics   292    30%   267    65%
Net revenues from distributors and other   277    28%   24    6%
   $986    100%  $408    100%
                     
EMEA                    
Net revenues from automotive  $90    60%  $31    37%
Net revenues from medical   53    35%   50    60%
Net revenues from distributors and other   7    5%   3    3%
   $150    100%  $84    100%

 

   Six months ended
June 30, 2021
   Six months ended
June 30, 2020
 
   Amount   Percentage   Amount   Percentage 
AMER                
Net revenues from consumer electronics  $1,160    91%  $792    92%
Net revenues from distributors and other   117    9%   65    8%
   $1,277    100%  $857    100%
                     
APAC                    
Net revenues from automotive  $822    45%  $398    43%
Net revenues from consumer electronics   492    27%   495    54%
Net revenues from distributors and other   502    28%   26    3%
   $1,816    100%  $919    100%
                     
EMEA                    
Net revenues from automotive  $204    70%  $160    58%
Net revenues from medical   74    25%   105    38%
Net revenues from distributors and other   14    5%   11    4%
   $292    100%  $276    100%

 

Significant Judgments

 

Our contracts with customers may include promises to transfer multiple products and services to a customer, particularly when the contract is for a product and related engineering services fees for customizing that product for our customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately may require significant judgment. Judgment may also be required to determine the SSP for each distinct performance obligation identified, although we generally structure our contracts such that performance obligations and pricing for each performance obligation are specifically addressed. We currently have no outstanding contracts with multiple performance obligations.

 

Judgment is also required to determine when control of products passes from us to our distributors, as well as the amounts of product that may be returned to us. Our products are sold with a right of return, and we may provide other credits or incentives to our customers, which could result in variability when determining the amount of revenue to recognize. At the end of each reporting period, we use product returns history and additional information that becomes available to estimate returns and credits. We do not recognize revenue if it is probable that a significant reversal of any incremental revenue would occur.

 

Finally, judgment is required to determine the amount of unbilled license fees at the end of each reporting period.

 

Contract Balances

 

Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when we have an unconditional right to receive future payments from customers, and we record unearned deferred revenue when we receive prepayments or upfront payments for goods or services from our customers.

 

The following table presents accounts receivable and deferred revenues as of June 30, 2021 and December 31, 2020 (in thousands):

 

   June 30,
2021
   December 31,
2020
 
Accounts receivable and unbilled revenue  $1,224   $1,743 
Deferred revenues   130    138 

 

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled revenues (contract assets), and customer advances and deposits or deferred revenue (contract liabilities) on the consolidated balance sheets. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets; contract assets are generally classified as current. The Company sometimes receives advances or deposits from its customers before revenue is recognized, which are reported as contract liabilities and are generally classified as current. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.

 

We do not anticipate impairment of our contract asset related to license fee revenues, given the creditworthiness of our customers whose invoices comprise the balance in that asset account. We will continue to monitor the timeliness of receipts from those customers, however, to assess whether the contract asset has been impaired.

 

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. Our allowance for doubtful accounts was approximately $79,000 as of June 30, 2021 and December 31, 2020.

 

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):

 

   June 30,
2021
   December 31,
2020
 
Balance at beginning of period  $25   $24 
Provisions for warranty issued   11    1 
Balance at end of period  $36   $25 

 

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 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):

 

   June 30,
2021
   December 31,
2020
 
Deferred revenues license fees  $28   $28 
Deferred revenues sensor modules   70    88 
Deferred revenues non-recurring engineering   32    22 
   $130   $138 

 

During the three and six months ended June 30, 2021, the Company recognized revenues of approximately $8,000 and $26,000, respectively, related to contract liabilities outstanding at the beginning of the year.

 

Advertising

 

Advertising costs are expensed as incurred. Advertising costs for the three and six months ended June 30, 2021 and 2020 amounted to approximately $39,000 and $58,000 and $9,000 and $16,000, 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

 

We recognize any noncontrolling interest, also known as a minority interest, as a separate line item in equity in the consolidated financial statements. A noncontrolling interest represents the portion of equity ownership in a less-than-wholly owned subsidiary not attributable to us. Generally, any interest that represents less than 50% of the outstanding voting shares of an entity is deemed to be a noncontrolling interest; however, there are other factors, such as decision-making rights, that are considered as well. We include the amount of net income (loss) attributable to noncontrolling interests in consolidated net income (loss) on the face of the consolidated statements of operations.

 

The Company provides either in the 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 June 30, 2021 and December 31, 2020. 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 June 30, 2021, and December 31, 2020, 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 six months ended June 30, 2021 and 2020, 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 six months ended June 30, 2021 and 2020 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note 8).

 

Other Comprehensive Income (Loss)

 

Our other comprehensive income (loss) includes foreign currency translation gains and losses. The cumulative amount of translation gains and losses are reflected as a separate component of stockholders’ equity in the condensed consolidated balance sheets.

 

Cash Flow Information

 

Cash flows in foreign currencies have been converted to U.S. Dollars at an approximate weighted-average exchange rate for the respective reporting periods. The weighted-average exchange rate for the condensed consolidated statements of operations was as follows:

 

   Six months ended
June 30,
 
   2021   2020 
Swedish Krona   8.41    9.68 
Japanese Yen   107.73    108.26 
South Korean Won   1,117.81    1,205.88 
Taiwan Dollar   28.02    30.01 

 

Exchange rate for the consolidated balance sheets was as follows:

 

   As of 
   June 30,   December 31, 
   2021   2020 
Swedish Krona   8.56    8.22 
Japanese Yen   111.05    103.23 
South Korean Won   1,130.82    1,088.29 
Taiwan Dollar   27.91    28.09 

 

Fair Value of Financial Instruments

 

We disclose the estimated fair values for all financial instruments for which it is practicable to estimate fair value. Financial instruments including cash, accounts receivable, accounts payable and accrued expenses 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 at this time.

 

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. We adopted ASU 2019-12 on January 1, 2021 and the adoption of this ASU did not have a significant impact on our consolidated financial statements.

v3.21.2
Stockholders' Equity
6 Months Ended
Jun. 30, 2021
Stockholders' Equity Note [Abstract]  
Stockholders' Equity

3. Stockholders’ Equity

 

On May 10, 2021, we entered into an At Market Issuance Sales AgreementSM (the “Sales Agreement”) with B. Riley Securities with respect to an “at the market” offering program (the “ATM Facility”), under which we may, from time to time, in our sole discretion, issue and sell through B. Riley Securities, acting as sales agent, up to $25.0 million of shares of our common stock.

 

Pursuant to the Sale Agreement, B. Riley Securities may sell the shares by any method permitted that is deemed an “at the market” offering as defined in Rule 415 under the Securities Act. B. Riley Securities will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time, based upon instructions from us (including any price or size limits or other customary parameters or conditions we may impose). We will pay B. Riley Securities a commission of 3.0% of the gross sales price per share sold under the Sales Agreement.

 

We are not obligated to sell any shares under the Sale Agreement. The offering of shares pursuant to the Sale Agreement will terminate upon the earlier to occur of (i) the issuance and sale, through B. Riley Securities, of all of the shares subject to the Sales Agreement and (ii) termination of the Sale Agreement in accordance with its terms.

 

On August 7, 2020, we closed a private placement (the “Private Placement”) with certain institutional and accredited investors. We issued a total of 1,611,845 shares of common stock at a price of $6.50 per share, and a total of 365 shares of Series C-1 Preferred Stock and 3,050 shares of Series C-2 Preferred Stock, each with a conversion price of $6.50 per share and a stated value of $1,000 per share, for approximately $13.9 million in aggregate gross proceeds.

 

Common Stock

 

At our annual meeting of stockholders held on September 29, 2020, stockholders approved a proposal to increase the number of authorized shares of our 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 the number of authorized shares of our common stock to 25,000,000 shares.

 

On December 29, 2020, we issued 37,288 shares of our common stock to key employees pursuant to our 2020 long term incentive program (“2020 LTIP”) see Note 4.

 

During the three and six months ended June 30, 2021, there were no activities that affected 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.

 

On September 24 and 29, 2020, respectively, the Series C-1 Preferred Stock and Series C-2 Preferred Stock (together, the “Series C Preferred Shares”) were converted into 684,378 shares of Neonode common stock.

 

The holders of the Series C-1 and C-2 Preferred Shares were entitled to receive dividends at the rate per share of 5% per annum, totaling $33,000. As of December 31, 2020, all of the preferred dividends had been paid.

 

On December 7, 2020, we filed Certificates of Elimination with the Secretary of State of the State of Delaware to eliminate the Series A Preferred Stock, Series B Preferred Stock, Series C-1 Preferred Stock and Series C-2 Preferred Stock.

 

There were no transactions in our preferred stock during the three and six months ended June 30, 2021 and 2020. No shares of preferred stock were issued and outstanding as of June 30, 2021.

 

Details of the preferred stock activities are set forth below:

 

   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, 2019   
-
    
-
    
-
    
-
 
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, December 31, 2020   
-
   $
-
    
-
   $
-
 

 

Warrants

 

As of June 30, 2021 and December 31, 2020, the Company had outstanding warrants to purchase 431,638 shares of common stock outstanding.

v3.21.2
Stock-Based Compensation
6 Months Ended
Jun. 30, 2021
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation

4. Stock-Based Compensation

 

We have adopted equity incentive plans under which we may grant stock options and restricted stock awards to employees, consultants and directors. Except for certain options granted to certain Swedish employees, 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 solely on continued service as an employee, consultant or director. All of our outstanding stock options and restricted stock awards are classified as equity instruments.

 

Stock Options

 

During the year ended December 31, 2020, our stockholders approved the Neonode Inc. 2020 Stock Incentive Plan (the “2020 Plan”) which replaced our 2015 Stock Incentive Plan (the “2015 Plan”), which in turn replaced our Neonode Inc. 2006 Equity Incentive Plan (the “2006 Plan”). Although no new awards may be made under the 2015 or 2006 Plans, these plans are still operative for previously granted awards. Under the 2020 Plan, 750,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2020 Plan are set by our compensation committee at its discretion.

 

As of June 30, 2021, we had three equity incentive plans:

 

  The 2006 Plan;
     
  The 2015 Plan; and
     
  The 2020 Plan.

 

In 2020 we established the Neonode Inc. 2020 Long Term Incentive Plan (the “2020 LTIP”) to provide eligible persons with the opportunity to acquire an equity interest, or otherwise increase their equity interest, in the Company as an incentive for them to remain in the service of the Company. Under the 2020 LTIP, eligible employees of Neonode may waive between 50% to 67% of any future unearned bonuses that may be awarded to them under the Company’s annual bonus arrangement in exchange for the grant of shares of the Company’s common stock under the Company’s 2020 Plan.

 

On December 29, 2020, we issued 37,288 shares of common stock to key employees pursuant to the 2020 LTIP. The shares were immediately vested but subject to a two-year lock-up period after issuance. In the event the participant’s employment with Neonode is terminated by the participant during the two-year lock-up period, the Company will repurchase the shares at a price equal to 30% of the lower of market value at issuance and the termination date. The shares issued on December 29, 2020 represent two-thirds of the total shares available for issuance under the 2020 LTIP and the last one-third is planned to be issued at the end of December 2021. Neonode has reported and paid Swedish social charges of $75,000 for the issued shares but only 30% of the stock-based compensation (totaling $77,000) was included in the consolidated statement of operations for the year ended December 31, 2020, with the remainder to be recognized ratably over the two-year lock-up period. For the three and six months ended June 30, 2021, $22,000 and $45,000, respectively, of stock-based compensation was included in our condensed consolidated statement of operations. Unrecognized compensation expense related to the 2020 LTIP as of June 30, 2021 was $132,000, which will be recognized over two years from issuance of the shares of common stock.

 

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, 2021   10,500   $29.61 
Expired   (1,000)   61.10 
Outstanding at June 30, 2021   9,500   $26.19 

 

The aggregate intrinsic value of the 9,500 stock options that are outstanding, vested and expected to vest as of June 30, 2021 was $0.

 

For the three and six months ended June 30, 2021 and 2020, 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 six months ended June 30, 2021, 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.

v3.21.2
Commitments and Contingencies
6 Months Ended
Jun. 30, 2021
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

5. Commitments and Contingencies

 

Litigation

 

On September 2, 2020, a 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 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 October 20, 2020, the plaintiff voluntarily dismissed the lawsuit in the United States District Court. However, on February 11, 2021, the plaintiff’s counsel informed Neonode that they would file a fee petition as a result of Neonode filing the definitive additional materials to the Proxy Statement on September 18, 2020. Neonode intends to vigorously defend against any attempt by the plaintiff’s counsel to obtain any fee award.

 

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 any 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 June 30, 2021 and December 31, 2020.

 

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 June 30, 2021 and December 31, 2020.

 

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. At June 30, 2021, the guaranteed amount is $100,000 and represents the value of the remaining material in inventory at June 30, 2021.

 

Management’s judgment is that the bank guarantee is a contingent guarantee and management will record a liability when it is probable that we will have to purchase the inventory. As of August 11, 2021, management’s judgment is that we will sell the remaining AirBars and purchase the components and the assembly service from the manufacturing partner. No liability has therefore been recorded for the period ended June 30, 2021.

 

Patent Assignment

 

On May 6, 2019, the Company assigned a portfolio of patents to Aequitas Technologies LLC. The assignment provides the Company the right to share potential proceeds generated from a licensing and monetization program.

 

On June 8, 2020, Neonode Smartphone LLC, a subsidiary of Aequitas Technologies LLC, filed complaints against Apple and Samsung in the Western District of Texas for infringing two patents. These litigation matters are still ongoing.

 

Non-Recurring Engineering Development Costs

 

On April 25, 2013, we entered into an Analog Device Development Agreement with an effective date of December 6, 2012 (the “NN1002 Agreement”) with Texas Instruments (“TI”) pursuant to which TI agreed to integrate our intellectual property into an ASIC. Under the terms of the NN1002 Agreement, we agreed to pay TI $500,000 of non-recurring engineering costs at the rate of $0.25 per ASIC for each of the first two million ASICs sold. As of June 30, 2021, we had made no payments to TI under the NN1002 Agreement.

v3.21.2
Segment Information
6 Months Ended
Jun. 30, 2021
Segment Reporting [Abstract]  
Segment Information

6. Segment Information

 

We have one reportable segment, which is comprised of the touch technology licensing and sensor module business. All of our sales for the three and six months ended June 30, 2021 and 2020, 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 six months ended June 30, 2021 and 2020, respectively, (dollars in thousands):

 

   Three months ended
June 30, 2021
   Three months ended
June 30, 2020
 
   Amount   Percentage   Amount   Percentage 
Japan  $604    35%  $360    48%
United States   582    34%   265    35%
South Korea   236    14%   26    3%
China   148    9%   15    2%
Germany   89    5%   24    3%
Switzerland   53    3%   52    7%
Taiwan   
-
    
-
%   9    1%
Other   8    
-
%   7    1%
   $1,720    100%  $758    100%

 

   Six months ended
June 30, 2021
   Six months ended
June 30, 2020
 
   Amount   Percentage   Amount   Percentage 
United States  $1,275    38%  $854    42%
Japan   1,009    30%   834    41%
South Korea   520    16%   27    2%
China   282    8%   49    2%
Germany   198    6%   144    7%
Switzerland   74    2%   107    5%
Sweden   16    
-
%   15    
-
%
Other   11    
-
%   22    1%
   $3,385    100%  $2,052    100%

 

The following table presents our total assets by geographic region as of June 30, 2021 and December 31, 2020 (in thousands):

 

   June 30,
2021
   December 31,
2020
 
U.S.  $7,047   $7,253 
Sweden   4,759    9,210 
Asia   53    109 
Total  $11,859   $16,572 
v3.21.2
Leases
6 Months Ended
Jun. 30, 2021
Leases [Abstract]  
Leases

7. Leases

 

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

 

Our operating leases represent building leases for our Stockholm corporate offices and our Kungsbacka manufacturing facility. Our Stockholm corporate office lease has a remaining lease term of 17 months and both of our leases are automatically renewed at a cost increase of 2% on an annual basis, unless we provide written notice nine months prior to the respective expiration dates.

 

We report operating lease right-of-use assets, as well as current and noncurrent operating lease 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 current and noncurrent finance lease obligations on our condensed consolidated balance sheets for our manufacturing equipment.

 

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
June 30,
2021
   Six Months Ended
June 30,
2021
 
Operating lease cost (1)  $179   $355 
           
Finance lease cost:          
Amortization of leased assets  $147   $316 
Interest on lease liabilities   4    8 
Total finance lease cost  $151   $324 

 

(1) Includes short term lease costs of $38,000 and $76,000 for the three and six months ended June 30, 2021, respectively.

 

   Three Months Ended
June 30,
2020
   Six Months Ended
June 30,
2020
 
Operating lease cost (1)  $123   $242 
           
Finance lease cost:          
Amortization of leased assets  $152   $303 
Interest on lease liabilities   5    12 
Total finance lease cost  $157   $315 

 

(1) 

Includes short term lease costs of $27,000 and $51,000 for the three and six months ended June 30, 2020, respectively.

 

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

 

   Three Months Ended
June 30,
2021
   Six Months Ended
June 30,
2021
 
Cash paid for amounts included in leases:          
Operating cash flows from operating leases  $(132)  $(342)
Operating cash flows from finance leases   (4)   (8)
Financing cash flows from finance leases   (147)   (295)
           
Right-of-use assets obtained in exchange for lease obligations:          
Operating leases   
-
    
-
 

 

   Three months ended
June 30,
   Six months ended
June 30,
 
   2020   2020 
Cash paid for amounts included in leases:        
Operating cash flows from operating leases  $(92)  $(183)
Operating cash flows from finance leases   (5)   (12)
Financing cash flows from finance leases   (32)   (164)
           
Right-of-use assets obtained in exchange for lease obligations:          
Operating leases   
-
    
-
 

 

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

 

   June 30,
2021
   December 31,
2020
 
Operating leases          
Operating lease right-of-use assets  $628   $919 
           
Current portion of operating lease obligations  $437   $504 
Operating lease liabilities, net of current portion   74    377 
Total operating lease liabilities  $511   $881 
           
Finance leases          
Property and equipment, at cost  $3,656   $3,806 
Accumulated depreciation   (3,139)   (2,941)
Property and equipment, net  $517   $865 
           
Current portion of finance lease obligations  $501   $769 
Finance lease liabilities, net of current portion   39    95 
Total finance lease liabilities  $540   $864 

 

   June 30,
2021
   December 31,
2020
 
Weighted Average Remaining Lease Term          
Operating leases   1.4 years    1.6 years 
Finance leases   0.7 years    0.8 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 June 30, 2021 is as follows (in thousands):

 

Years ending December 31,  Total 
2021 (remaining months)  $230 
2022   297 
    527 
Less imputed interest   (16)
Total lease liabilities  $511 
Less current portion   (437)
   $74 

 

The following is a schedule of minimum future rentals on the non-cancellable finance leases as of June 30, 2021 (in thousands):

 

Year ending December 31,  Total 
2021 (remaining months)  $354 
2022   169 
2023   22 
Total minimum payments required:   545 
Less amount representing interest:   (5)
Present value of net minimum lease payments:   540 
Less current portion   (501)
   $39 
v3.21.2
Net Loss Per Share
6 Months Ended
Jun. 30, 2021
Earnings Per Share [Abstract]  
Net Loss per Share

8. Net Loss per Share

 

Basic net loss per common share for the three and six months ended June 30, 2021 and 2020 was computed by dividing the net loss attributable to Neonode Inc. for the relevant period by the weighted average number of shares of common stock outstanding. Diluted loss per common share is computed by dividing net loss attributable to Neonode Inc. by the weighted average number of shares of common stock and common stock equivalents outstanding.

 

There were no potentially dilutive common stock equivalents for the three and six months ended June 30, 2021 and 2020, respectively.

 

(in thousands, except per share amounts)  Three months ended
June 30,
 
  2021   2020 
BASIC AND DILUTED          
Weighted average number of common shares outstanding   11,504    9,171 
Net loss attributable to Neonode Inc.  $(1,657)  $(1,612)
           
Net loss per share - basic and diluted  $(0.14)  $(0.18)

 

(in thousands, except per share amounts)  Six months ended
June 30,
 
  2021   2020 
BASIC AND DILUTED          
Weighted average number of common shares outstanding   11,504    9,171 
Net loss attributable to Neonode Inc.  $(3,225)  $(2,622)
           
Net loss per share - basic and diluted  $(0.28)  $(0.29)
v3.21.2
Subsequent Events
6 Months Ended
Jun. 30, 2021
Subsequent Events [Abstract]  
Subsequent Events

9. Subsequent Events

 

On July 2, and 6, 2021, we sold 6,028 and 9,808 shares, respectively, of our common stock under the ATM Facility with aggregate net proceeds to us of $100,000.

 

No other 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.

v3.21.2
Accounting Policies, by Policy (Policies)
6 Months Ended
Jun. 30, 2021
Accounting Policies [Abstract]  
Principles of Consolidation

Principles of Consolidation

 

The condensed consolidated financial statements have been prepared in accordance with 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 June 30, 2021 and December 31, 2020 and the condensed consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the three and six months ended June 30, 2021 and 2020 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, 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 1,050,000 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 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 $79,000 as of June 30, 2021 and December 31, 2020, respectively.

 

Projects in Process

Projects in Process

 

Projects in process consist of costs incurred toward the completion of various projects for certain customers. These costs are primarily comprised of direct engineering labor costs and project-specific equipment costs. These costs are capitalized on our balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition policy. There were no costs capitalized to projects in process as of June 30, 2021 and December 31, 2020, respectively.

 

Inventory

Inventory

 

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.

 

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 fully reserve work-in-process for AirBar components, as well as AirBar related raw materials. Management has further decided to reserve for a portion of AirBar finished goods, depending on type of AirBar and in which location it is stored. The AirBar inventory reserve was $0.8 million and $0.9 million as of June 30, 2021 and December 31, 2020, respectively.

 

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.

 

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

 

   June 30,   December 31, 
   2021   2020 
Raw materials  $998   $550 
Work-in-process   40    21 
Finished goods   1,048    702 
Ending inventory  $2,086   $1,273 

 

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 flows from the associated assets in accordance with relevant accounting guidance. If the estimated undiscounted future cash flows 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 June 30, 2021, 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 $56,000 and $(110,000) and $64,000 and $(23,000) during the three and six months ended June 30, 2021 and 2020, 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 $(54,000) and $28,000 during the three and six months ended June 30, 2021, respectively, compared to $(63,000) and $(14,000) during the same periods in 2020, 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 June 30, 2021, four customers represented approximately 70% of our consolidated accounts receivable and unbilled revenues.

 

As of December 31, 2020, three customers represented approximately 62% of our consolidated accounts receivable and unbilled revenues.

 

Customers who accounted for 10% or more of our net revenues during the three months ended June 30, 2021 are as follows:

 

  Hewlett Packard Company – 30%
     
  Seiko Epson Corporation – 17%

 

  LG Electronics Inc. – 14%

 

Customers who accounted for 10% or more of our net revenues during the six months ended June 30, 2021 are as follows:

 

  Hewlett Packard Company – 31%
     
  Seiko Epson Corporation – 14%
     
  LG Electronics Inc. – 13%

 

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

 

  Epson – 35%
     
  Hewlett Packard Company – 27%
     
  Alpine – 12%

 

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

 

  Alpine – 17%
     
  Epson – 24%
     
  Hewlett Packard Company – 33%

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.

 

License fees for products and sales of AirBar and sensor modules are recognized on a per-unit basis; therefore, we generally satisfy performance obligations as units are shipped to our customers. Non-recurring engineering service performance obligations are satisfied as work is performed and accepted by our customers.

 

We recognize revenue net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. We treat all product shipping and handling charges (regardless of when they occur) as activities to fulfill the promise to transfer goods, therefore we treat all shipping and handling charges as expenses.

 

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

 

Licensing Revenues:

 

We earn revenue from licensing our internally developed intellectual property (“IP”) and our licensing customer base is primarily in the automotive and printer industries. 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 estimates of those royalties.

 

Explicit return rights are not offered to customers. There have been no returns through June 30, 2021.

 

Engineering Services Revenues:

 

For technology license or sensor module contracts that require modification or customization of the underlying technology to adapt that technology to the customer’s desired 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 standal