NEONODE INC., 10-K filed on 09 Mar 23
v3.22.4
Document And Entity Information - USD ($)
12 Months Ended
Dec. 31, 2022
Mar. 03, 2023
Jun. 30, 2022
Document Information Line Items      
Entity Registrant Name NEONODE INC.    
Trading Symbol NEON    
Document Type 10-K    
Current Fiscal Year End Date --12-31    
Entity Common Stock, Shares Outstanding   15,359,481  
Entity Public Float     $ 50,079,949
Amendment Flag false    
Entity Central Index Key 0000087050    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Non-accelerated Filer    
Entity Well-known Seasoned Issuer No    
Document Period End Date Dec. 31, 2022    
Document Fiscal Year Focus 2022    
Document Fiscal Period Focus FY    
Entity Small Business true    
Entity Emerging Growth Company false    
Entity Shell Company false    
Document Annual Report true    
Document Transition Report false    
Entity File Number 001-35526    
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 $0.001 per share    
Security Exchange Name NASDAQ    
Entity Interactive Data Current Yes    
Auditor Firm ID 170    
Auditor Name KMJ Corbin & Company LLP    
Auditor Location Irvine, California    
v3.22.4
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2022
Dec. 31, 2021
Current assets:    
Cash $ 14,816 $ 17,383
Accounts receivable and unbilled revenues, net 1,448 1,293
Inventory 3,827 2,520
Prepaid expenses and other current assets 707 836
Total current assets 20,798 22,032
Property and equipment, net 282 376
Operating lease right-of-use assets, net 118 584
Total assets 21,198 22,992
Current liabilities:    
Accounts payable 334 776
Accrued payroll and employee benefits 951 1,037
Accrued expenses 200 371
Contract liabilities 36 106
Current portion of finance lease obligations 95 258
Current portion of operating lease obligations 83 425
Total current liabilities 1,699 2,973
Finance lease obligations, net of current portion 46 65
Operating lease obligations, net of current portion 35 117
Total liabilities 1,780 3,155
Commitments and contingencies
Stockholders’ equity:    
Common stock, 25,000,000 shares authorized, with par value of $0.001; 14,455,765 and 13,575,952 shares issued and outstanding at December 31, 2022 and 2021, respectively 14 14
Additional paid-in capital 227,235 226,880
Accumulated other comprehensive loss (340) (408)
Accumulated deficit (207,491) (202,608)
Total Neonode Inc. stockholders’ equity 19,418 23,878
Noncontrolling interests   (4,041)
Total stockholders’ equity 19,418 19,837
Total liabilities and stockholders’ equity $ 21,198 $ 22,992
v3.22.4
Consolidated Balance Sheets (Parentheticals) - $ / shares
Dec. 31, 2022
Dec. 31, 2021
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 14,455,765 13,575,952
Common stock, shares outstanding 14,455,765 13,575,952
v3.22.4
Consolidated Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2022
Dec. 31, 2021
Revenues:    
License fees $ 4,470 $ 4,787
Products 995 955
Non-recurring engineering 205 94
Total revenues 5,670 5,836
Cost of revenues:    
Products 776 922
Non-recurring engineering 28 33
Total cost of revenues 804 955
Total gross margin 4,866 4,881
Operating expenses:    
Research and development 3,963 3,546
Sales and marketing 2,034 2,839
General and administrative 4,155 5,603
Total operating expenses 10,152 11,988
Operating loss (5,286) (7,107)
Other income (expense):    
Interest income (expense), net 100 (15)
Other income 21
Total other income (expense) 121 (15)
Loss before provision for income taxes (5,165) (7,122)
Provision for income taxes 118 146
Net loss including noncontrolling interests (5,283) (7,268)
Less: net loss attributable to noncontrolling interests 400 818
Net loss attributable to Neonode Inc. $ (4,883) $ (6,450)
Loss per common share:    
Basic loss per share (in Dollars per share) $ (0.36) $ (0.54)
Basic – weighted average number of common shares outstanding (in Shares) 13,632 11,907
v3.22.4
Consolidated Statements of Operations (Parentheticals) - $ / shares
12 Months Ended
Dec. 31, 2022
Dec. 31, 2021
Income Statement [Abstract]    
Diluted loss per share (in Dollars per share) $ (0.36) $ (0.54)
Diluted – weighted average number of common shares outstanding (in Shares) 13,632 11,907
v3.22.4
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2022
Dec. 31, 2021
Statement of Comprehensive Income [Abstract]    
Net loss including noncontrolling interests $ (5,283) $ (7,268)
Other comprehensive income (loss):    
Foreign currency translation adjustments 68 (4)
Comprehensive loss (5,215) (7,272)
Less: Comprehensive loss attributable to noncontrolling interests 400 818
Comprehensive loss attributable to Neonode Inc. $ (4,815) $ (6,454)
v3.22.4
Consolidated Statements of Stockholders’ Equity - USD ($)
$ in Thousands
Common Stock Amount
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Total Neonode Inc. Stockholders’ Equity
Noncontrolling Interests
Total Stockholders’ Equity [Member]
Balance at Dec. 31, 2020 $ 12 $ 211,663 $ (404) $ (196,158) $ 15,113 $ (3,223) $ 11,890
Balance (in Shares) at Dec. 31, 2020 11,504            
Issuance of shares for cash, net of offering costs $ 2 15,060 15,062 15,062
Issuance of shares for cash, net of offering costs (in Shares) 2,044            
Stock-based compensation 157 157 157
Stock-based compensation (in Shares) 28            
Foreign currency translation adjustment (4) (4) (4)
Net loss (6,450) (6,450) (818) (7,268)
Balance at Dec. 31, 2021 $ 14 226,880 (408) (202,608) 23,878 (4,041) 19,837
Balance (in Shares) at Dec. 31, 2021 13,576            
Issuance of shares for cash, net of offering costs 4,686 4,686 4,686
Issuance of shares for cash, net of offering costs (in Shares) 886            
Stock-based compensation 122 122 122
Stock-based compensation (in Shares) 4            
Repurchase and retirement of stock   (12)     (12)   (12)
Repurchase and retirement of stock (in Shares) (10)            
Acquisition of remaining shares Pronode   (4,441)     (4,441) 4,441  
Foreign currency translation adjustment 68 68 68
Net loss (4,883) (4,883) $ (400) (5,283)
Balance at Dec. 31, 2022 $ 14 $ 227,235 $ (340) $ (207,491) $ 19,418   $ 19,418
Balance (in Shares) at Dec. 31, 2022 14,456            
v3.22.4
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2022
Dec. 31, 2021
Cash flows from operating activities:    
Net loss (including noncontrolling interests) $ (5,283) $ (7,268)
Adjustments to reconcile net loss to net cash used in operating activities:    
Stock-based compensation expense 122 157
Depreciation and amortization 120 632
Amortization of operating lease right-of-use assets 399 505
Recoveries of bad debt (46)
Changes in operating assets and liabilities:    
Accounts receivable and unbilled revenue, net (136) 434
Projects in process
Inventory (1,133) (1,440)
Prepaid expenses and other current assets 37 247
Accounts payable and accrued expenses (460) (406)
Deferred revenues (65) (28)
Operating lease obligations (363) (511)
Net cash used in operating activities (6,808) (7,678)
Cash flows from investing activities:    
Purchase of property and equipment (52) (67)
Net cash used in investing activities (52) (67)
Cash flow from financing activities:    
Proceeds from issuance of common stock, net of offering costs 4,686 15,062
Repurchase of common stock (12)  
Principal payments on finance lease obligations (165) (487)
Net cash provided by financing activities 4,509 14,575
Effect of exchange rate changes on cash (216) 80
Net change in cash (2,567) 6,910
Cash at beginning of year 17,383 10,473
Cash at end of year 14,816 17,383
Supplemental disclosure of cash flow information:    
Cash paid for interest 9 15
Cash paid for income taxes 132 146
Supplemental disclosure of non-cash investing and financial activities:    
Right-of-use asset obtained in exchange for finance lease obligations 24 $ 239
Acquisition of Pronode shares $ 4,441  
v3.22.4
Nature of the Business and Operations
12 Months Ended
Dec. 31, 2022
Nature of the Business and Operations [Abstract]  
Nature of the Business and Operations
1. Nature of the Business and Operations

 

Background and Organization

 

Neonode Inc. (“we”, “us”, “our”, or the “Company”) was incorporated in the State of Delaware in 1997 as the parent of Neonode AB, a company founded in February 2004 and incorporated in Sweden. We have the following wholly owned subsidiaries: Neonode Technologies AB (Sweden) (established in 2008 to develop and license touchscreen technology); Neonode Japan Inc. (Japan) (established in 2013); Neonode Korea Ltd. (South Korea) (established in 2014). In 2015, we established Pronode Technologies AB, a subsidiary of Neonode Technologies AB. Since October 1, 2022, Pronode Technologies AB is a wholly owned subsidiary of Neonode Technologies AB.

  

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 object detection and machine perception solutions using advanced machine learning algorithms to detect and track persons and objects in video streams for cameras and other types of imagers. We market and sell our contactless touch, touch, gesture sensing, and object detection products and solutions based on our zForce technology platform, and our machine perception solutions based on our MultiSensing technology platform. We offer our solutions to customers in many different markets and segments including, but not limited to, office equipment, automotive, industrial automation, medical, military and avionics.

 

Liquidity

 

We incurred net losses of approximately $4.9 million and $6.5 million for the years ended December 31, 2022 and 2021, respectively, and had an accumulated deficit of approximately $207.5 million as of December 31, 2022. In addition, we used cash in operating activities of approximately $6.8 million and $7.7 million for the years ended December 31, 2022 and 2021, respectively.

 

On October 21, 2021, we entered into a placement agency agreement with Pareto Securities Inc. and Pareto Securities AB pursuant to which we sold to certain Swedish and other European investors an aggregate of 1,808,000 shares of our common stock at a price of $7.75 per share in a registered direct offering that closed on October 26, 2021 (the “Offering”). We received net proceeds of approximately $13.1 million from the Offering after deducting placement agent fees and offering expenses.

 

On May 10, 2021, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (“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 million of shares of our common stock.

 

Pursuant to the Sale Agreement, we may sell the shares through B. Riley Securities by any method permitted that is deemed an “at the market” offering as defined in Rule 415 under the Securities Act of 1933, as amended. 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.

 

During the twelve months ended December 31, 2022, we sold an aggregate of 886,065 shares of common stock under the ATM Facility, resulting in net proceeds of approximately $4,686,000 after payment of commissions to B. Riley Securities and other expenses of $167,000.

 

During the twelve months ended December 31, 2021, we sold an aggregate of 235,722 shares of common stock under the ATM Facility, resulting in net proceeds of approximately $1,984,000 after payment of commissions to B. Riley Securities and other expenses of $66,000.

 

During January 2023, we sold an aggregate of 903,716 shares of our common stock under the ATM Facility with aggregate net proceeds to us of $7,868,000, after payment of commissions to B. Riley Securities and other expenses of $244,000.

 

The 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 following the Offering and considering the Company’s current operating plan and other sources of potential capital, including the ATM Facility, 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 and our ATM Facility (described below) 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. Historically, we have been able to access the capital markets through sales of common stock and warrants to generate liquidity. Our management believes it could raise capital through public or private offerings if needed to provide us with sufficient liquidity.

 

No assurances can be given, however, 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, no assurance can be given that stockholders will approve an increase in the number of our authorized shares of common stock if needed. 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.

v3.22.4
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2022
Summary of Significant Accounting Policies [Abstract]  
Summary of Significant Accounting policies
2. Summary of Significant Accounting policies

 

Principles of Consolidation

 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of Neonode Inc. and its wholly owned subsidiaries, as well as Pronode Technologies AB, a 51% majority owned subsidiary of Neonode Technologies AB, through September 30, 2022. On October 1, 2022, the remaining 49% of Pronode Technologies AB was acquired from Propoint AB, located in Gothenburg, Sweden. All inter-company accounts and transactions have been eliminated in consolidation.

 

Neonode consolidates entities in which it has a controlling financial interest. We consolidate subsidiaries in which we hold, directly or indirectly, more than 50% of the voting rights.

 

The consolidated balance sheets at December 31, 2022 and 2021 and the consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the years ended December 31, 2022 and 2021 include our accounts and those of our wholly owned subsidiaries.

 

Estimates

 

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 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 shares and options issued for stock-based compensation. 

 

Cash and Cash Equivalents

 

We have not had any liquid investments other than normal cash deposits with bank institutions to date. The Company considers all highly liquid investments with original maturities of three months of less to be cash equivalents.

 

Concentration of Cash Balance Risks

 

Cash balances are maintained at various banks in the U.S., Japan, Korea, Taiwan and Sweden. For deposits held with financial institutions in the U.S., the U.S. Federal Deposit Insurance Corporation, provides basic deposit coverage with limits up to $250,000 per owner. The Swedish government provides insurance coverage up to 100,000 Euro per customer and covers deposits in all types of accounts. The Japanese government provides insurance coverage up to 10,000,000 Yen per customer. The Korea Deposit Insurance Corporation provides insurance coverage up to 50,000,000 Won per customer. The Central Deposit Insurance Corporation in Taiwan provides insurance coverage up to 3,000,000 Taiwan Dollar per customer. At times, deposits held with financial institutions may exceed the amount of insurance provided.

 

Accounts Receivable and Allowance for Doubtful Accounts  

 

Accounts receivable is stated at net realizable value. Our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make the 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 $30,000 and $79,000 as of December 31, 2022 and 2021, 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 consolidated 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 in projects in process as of December 31, 2022 and 2021.

 

Inventory

 

The Company’s inventory consists primarily of components that will be used in the manufacturing of our touch sensor modules (“TSMs”). 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 and finished goods. The AirBar inventory reserve was $0.3 million and $0.8 million as of December 31, 2022 and 2021, respectively.

 

Management decided to reserve for TSM inventory related to a quality issue in production. The TSM inventory reserve was $0.2 million as of December 31, 2021. During 2022 the affected inventory was scrapped and as of December 31, 2022 the inventory reserve was zero.

 

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

  

   December 31,   December 31, 
   2022   2021 
Raw materials  $3,177   $1,446 
Work-in-process   414    10 
Finished goods   236    1,064 
Ending inventory  $3,827   $2,520 

 

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   10 years 

 

Equipment purchased under a finance lease is depreciated over the term of the lease, if that lease term is shorter than the estimated useful life.

 

Upon retirement or sale of property and equipment, cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the consolidated statement of operations. Maintenance and repairs are charged to expense as incurred.

 

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.

 

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 Assets

 

We assess any impairment by estimating the future cash flow from the associated asset in accordance with relevant accounting guidance. If the estimated undiscounted future cash flow related to these assets decreases or the useful life is shorter than originally estimated, we may incur charges for impairment of these assets. As of December 31, 2022, we believe there was no impairment of our long-lived assets. There can be no assurance, however, that market conditions will not change or sufficient demand for our products and services will continue, which could result in impairment of long-lived assets in the future.

 

Foreign Currency Translation and Transaction Gains and Losses

 

The functional currency of our foreign subsidiaries is the applicable local currency, the Swedish Krona, the Japanese Yen, the South Korean Won and the Taiwan Dollar. The translation from Swedish Krona, Japanese Yen, South Korean Won or the Taiwan Dollar to U.S. Dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income statement accounts using a weighted average exchange rate during the period. Gains or (losses) resulting from translation are included as a separate component of accumulated other comprehensive income (loss). Gains or (losses) resulting from foreign currency transactions are included in general and administrative expenses in the accompanying consolidated statements of operations and were $35,000 and $(66,000) during the years ended December 31, 2022 and 2021, respectively. Foreign currency translation gains (losses) were $68,000 and $(4,000) during the years ended December 31, 2022 and 2021, respectively.

 

Concentration of Credit and Business Risks

 

Our customers are located in the United States, Europe and Asia.

 

As of December 31, 2022, five of our customers represented approximately 83% of our consolidated accounts receivable and unbilled revenues.

  

As of December 31, 2021, four of our customers represented approximately 76% of our consolidated accounts receivable and unbilled revenues.

 

Customers who accounted for 10% or more of our revenues during the year ended December 31, 2022 are as follows.

 

  Hewlett-Packard Company – 27%
     
  Seiko Epson – 19%
     
  LG – 12%
     
  Alpine Electronics – 10%

 

Customers who accounted for 10% or more of our revenues during the year ended December 31, 2021 are as follows.

 

  Hewlett-Packard Company – 32%
     
  Seiko Epson – 18%
     
  LG – 13%

 

The Company conducts business in the United States, Europe and Asia. As of December 31, 2022, the Company maintained approximately $15,535,000, $3,857,000 and $26,000 of its net assets in the United States, Europe and Asia, respectively. As of December 31, 2021, the Company maintained approximately $17,198,000, $2,611,000 and $28,000 of its net assets in the United States, Europe and Asia, respectively.

 

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 (e.g., 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 and sales of our AirBar and TSMs are on a per-unit basis. Therefore, we generally satisfy performance obligations as units are shipped to our customers. Non-recurring engineering service performance obligations are satisfied as work is performed and accepted by our customers.

 

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

 

License Fees

 

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 estimates of those royalties.

 

Explicit return rights are not offered to customers. There have been no returns through December 31, 2022.

 

Product Sales

 

We earn revenue from sales of TSM hardware products to our OEM, ODM and Tier 1 supplier customers, who embed our hardware into their products, and from sales of branded consumer products that incorporate our TSMs that are sold through distributors or directly to end users. These distributors are generally given business terms that allow them to return unsold inventory, receive credits for changes in selling prices, and participate in various cooperative marketing programs. Our sales agreements generally provide customers with limited rights of return and warranty provisions.

 

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

 

Because we generally use distributors to provide AirBar and TSMs to our customers, we must analyze the terms of our distributor agreements to determine when control passes from us to our distributors. For sales of AirBar and TSMs sold through distributors, we recognize revenues 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 the distributors, the distributors have legal title to and physical possession of products purchased from us, and the distributors have significant risks and rewards of ownership of products purchased.

 

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

 

Under U.S. GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns. Our AirBar and TSM 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 $9,000 and $69,000 as of December 31, 2022 and 2021, respectively. The warranty reserve is recorded as an accrued expense and cost of sales and was $49,000 and $36,000 as of December 31, 2022 and 2021, respectively. 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.

 

Non-Recurring Engineering

 

For technology license or TSM contracts that require modification or customization of the underlying technology to adapt the technology to customer use, we determine whether the technology license or TSM, and required 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 non-recurring engineering contracts that are short-term in nature are recorded when those services are complete and accepted by customers.

 

Revenues from non-recurring engineering 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 years ended December 31, 2022 and 2021, we recorded no losses.

 

The following tables present the net revenues distribution by geographical area and market for the years ended December 31, 2022 and 2021 (dollars in thousands):

 

   2022   2021 
   Amount   Percentage   Amount   Percentage 
AMER                
Net revenues from consumer electronics  $1,812    98.5%  $2,097    93.4%
Net revenues from distributors and other   27    1.5%   149    6.6%
   $1,839    100.0%  $2,246    100.0%
                     
APAC                    
Net revenues from automotive  $1,295    46.9%  $1,330    42.9%
Net revenues from consumer electronics   1,127    40.8%   1,088    35.0%
Net revenues from distributors and other   341    12.3%   685    22.1%
   $2,763    100.0%  $3,103    100.0%
                     
EMEA                    
Net revenues from automotive  $493    46.1%  $313    64.3%
Net revenues from medical   398    37.3%   73    15.0%
Net revenues from distributors and other   177    16.6%   101    20.7%
   $1,068    100.0%  $487    100.0%

 

Significant Judgments

 

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

 

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

 

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

 

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, unbilled revenues and deferred revenues as of December 31, 2022 and 2021 (in thousands):

 

   December 31,
2022
   December 31,
2021
 
Accounts receivable and unbilled revenues  $1,448   $1,293 
Contract liabilities (deferred revenues)  $36   $106 

  

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 sheets on a contract-by-contract basis at the end of each reporting period.

 

We do not anticipate impairment of our contract assets 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 to assess whether the contract assets have been impaired.

 

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.

 

Payment terms and conditions vary by the type of contract; however, payments generally occur 30-60 days after invoicing for license fees and sensor modules to our resellers and distributors. Where revenue recognition timing differs from invoice timing, we have determined that our contracts do not include a significant financing component. Our intent is to provide our customers with consistent invoicing terms for the convenience of our customers, not to receive financing from our customers.

 

Costs to Obtain Contracts

 

We record the incremental costs of obtaining a contract with a customer as a contract 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):

 

   Years ended 
   December 31,
2022
   December 31,
2021
 
Balance at beginning of period  $36   $25 
Provisions for warranty issued         13        11 
Balance at end of period  $49   $36 

 

The Company accrues for warranty costs as part of its cost of sales of TSMs 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 included as a component of accrued expenses on the consolidated balance sheet.

 

Contract Liabilities

 

Contract liabilities (deferred revenues) consist primarily of prepayments for license fees, and other products or services that we have been paid in advance. We 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. Non-recurring engineering fee revenues are deferred until engineering services have been completed and accepted by our customers.

 

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

 

    As of
December 31,
 
    2022     2021  
Deferred revenues license fees   $ 20     $ 28  
Deferred revenues products     9       70  
Deferred non-recurring engineering     7       8  
    $ 36     $ 106  

 

Deferred revenue not yet recognized was $36,000 as of December 31, 2022. We expect to recognize 100% of that revenue over the next twelve months. The Company recognized revenues of approximately $24,000 and $41,000, for 2022 and 2021, respectively, related to contract liabilities outstanding at the beginning of the year.

 

Advertising

 

Advertising costs are expensed as incurred. Advertising costs amounted to approximately $158,000 and $208,000 for the years ended December 31, 2022 and 2021, 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 stockholders’ equity in the consolidated financial statements. A noncontrolling interest represents the portion of equity ownership in a less-than-wholly owned subsidiary not attributable to us. Generally, any interest that holds less than 50% of the outstanding voting shares is deemed to be a noncontrolling interest; however, there are other factors, such as decision-making rights, that are considered as well. We include the amount of net income (loss) attributable to noncontrolling interests in consolidated net income (loss) on the face of the consolidated statements of operations.

 

The Company provides either in the consolidated statement of stockholders’ equity, if presented, or in the notes to consolidated financial statements, a reconciliation at the beginning and the end of the period of the carrying amount of total equity (net assets), equity (net assets) attributable to the parent, and equity (net assets) attributable to the noncontrolling interest that separately discloses:

 

  (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 December 31, 2022 and 2021. 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 December 31, 2022 and 2021, we had no unrecognized tax benefits.

 

Net Loss per Share

 

Net loss per share amounts have been computed based on the weighted average number of shares of common stock outstanding during the years ended December 31, 2022 and 2021. Net loss per share, assuming dilution amounts from common stock equivalents, is computed based on the weighted-average number of shares of common stock and potential common stock equivalents outstanding during the period. The weighted-average number of shares of common stock and potential common stock equivalents used in computing the net loss per share for years ended December 31, 2022 and 2021 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note 14).

 

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 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 consolidated statements of operations was as follows:

 

   Years ended
December 31,
 
   2022   2021 
Swedish Krona   10.12    8.58 
Japanese Yen   131.72    109.82 
South Korean Won   1,292.25    1,144.95 
Taiwan Dollar   29.81    27.93 

 

Exchange rates for the consolidated balance sheets were as follows: 

 

   As of
December 31,
 
   2022   2021 
Swedish Krona   10.43    9.03 
Japanese Yen   131.12    115.12 
South Korean Won   1,261.91    1,190.75 
Taiwan Dollar   30.66    27.71 

 

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.

 

Reclass of Presentation in our Consolidated Statements of Operations

 

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 for each of our revenue streams consisting of license fees, product sales and non-recurring engineering fees.

v3.22.4
Prepaid Expenses and Other Current Assets
12 Months Ended
Dec. 31, 2022
Prepaid Expenses and Other Current Assets [Abstract]  
Prepaid Expenses and Other Current Assets
3. Prepaid Expenses and Other Current Assets

 

Prepaid expense and other current assets consist of the following (in thousands):

 

   As of
December 31,
 
   2022   2021 
         
Prepaid insurance  $140   $189 
Prepaid rent   91    6 
VAT receivable   297    345 
Advances   
-
    3 
Advances to suppliers   
-
    38 
Other   179    255 
Total prepaid expenses and other current assets  $707   $836 
v3.22.4
Property and Equipment
12 Months Ended
Dec. 31, 2022
Property and Equipment [Abstract]  
Property and Equipment
4. Property and Equipment

 

Property and equipment, net consist of the following (in thousands):

 

   As of
December 31,
 
   2022   2021 
         
Computers, software, furniture and fixtures  $1,336   $1,484 
Equipment   2,639    3,463 
Less accumulated depreciation and amortization   (3,693)   (4,571)
Property and equipment, net  $282   $376 

 

Depreciation and amortization expense was $0.1 million and $0.6 million for the years ended December 31, 2022 and 2021, respectively.

v3.22.4
Accrued Expenses
12 Months Ended
Dec. 31, 2022
Accrued Expenses [Abstract]  
Accrued Expenses
5. Accrued Expenses

 

Accrued expenses consist of the following (in thousands):

 

   As of
December 31,
 
   2022   2021 
         
Accrued returns and warranty  $49   $36 
Accrued consulting fees and other   151    335 
Total accrued expenses  $200   $371 
v3.22.4
Fair Value Measurements
12 Months Ended
Dec. 31, 2022
Fair Value Measurements [Abstract]  
Fair Value Measurements
6. Fair Value Measurements

 

Accounting guidance defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements about fair value measurements. The accounting guidance does not mandate any new fair value measurements and is applicable to assets and liabilities that are required to be recorded at fair value under other accounting pronouncements.

 

The three levels of the fair value hierarchy are described as follows:

 

Level 1: Applies to assets or liabilities for which there are observable quoted prices in active markets for identical assets and liabilities.

 

Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices included in Level 1.

 

Level 3: Applies to assets or liabilities for which inputs are unobservable, and those inputs that are significant to the measurement of the fair value of the assets or liabilities. 

 

There were no assets or liabilities recorded at fair value on a recurring basis in 2022 and 2021.

v3.22.4
Stockholders’ Equity
12 Months Ended
Dec. 31, 2022
Stockholders' Equity Note [Abstract]  
Stockholders’ Equity
7. Stockholders’ Equity

 

Common Stock

 

As of December 31, 2022 and 2021, our Restated Certificate of Incorporation, as amended (our “Certificate of Incorporation”), authorized us to issue up to 25,000,000 shares of common stock, par value $0.001 per share.

 

On August 12, 2021, we issued 12,830 shares of our common stock to key employees pursuant to our 2020 long-term incentive program (“2020 LTIP”) (see Note 8).

 

On December 29, 2021, we issued 14,735 shares of our common stock to key employees pursuant to our 2020 long-term incentive program (“2020 LTIP”) (see Note 8).

 

On October 21, 2021, we entered into a placement agency agreement with Pareto Securities Inc. and Pareto Securities AB pursuant to which we sold to certain Swedish and other European investors an aggregate of 1,808,000 shares of our common stock at a price of $7.75 per share in a registered direct offering that closed on October 26, 2021 (the “Offering”). We received net proceeds of approximately $13.1 million from the Offering after deducting placement agent fees and offering expenses.

 

During the twelve months ended December 31, 2021, we sold an aggregate of 235,722 shares of common stock under the ATM Facility, resulting in net proceeds to us of approximately $1,984,000 after payment of commissions to B. Riley and other expenses of $66,000.

 

During the twelve months ended December 31, 2022, we sold an aggregate of 886,065 shares of common stock under the ATM Facility, resulting in net proceeds of approximately $4,686,000 after payment of commissions to B. Riley Securities and other expenses of $167,000.

 

Warrants and Other Common Stock Activity

  

During the year ended December 31, 2022, 431,368 warrants expired and no warrants were exercised. During the year ended December 31, 2021, no warrants expired and no warrants were exercised.

 

A summary of all warrant activity is set forth below:

 

Outstanding and exercisable  Warrants   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Life
 
January 1, 2021   431,368   $11.20    0.13 
Expired/forfeited   
-
    
-
    
-
 
December 31, 2021   431,368   $11.20    0.13 
Issued   
-
    
-
    
-
 
Expired/forfeited   (431,368)   (11.20)   - 
Exercised   
-
    
-
    
-
 
December 31, 2022   
-
   $
-
    
-
 

 

We have no outstanding warrants to purchase common stock as of December 31, 2022.

  

Preferred Stock

 

As of December 31, 2022 and 2021, our Certificate of Incorporation authorized us to issue up to 1,000,000 shares of preferred stock, par value $0.001 per share.

 

There were no transactions in our preferred stock during the years ended December 31, 2022 and 2021. No shares of preferred stock were issued and outstanding as of December 31, 2022.

v3.22.4
Stock-Based Compensation
12 Months Ended
Dec. 31, 2022
Stock-Based Compensation [Abstract]  
Stock-Based Compensation
8. Stock-Based Compensation

 

We have adopted equity incentive plans for which stock options and restricted stock awards are available for grants 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. Vesting for all outstanding option grants is 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 / Stock Awards

 

During the year ended December 31, 2020, our stockholders approved 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 2006 Plan or 2015 Plan, the 2015 Plan is still operative for awards previously granted under such plan. There are no awards outstanding under the 2006 Plan. 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.

 

In 2020, we established 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. Through the 2020 LTIP, eligible employees of Neonode may waive between 50% to 67% of 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.

 

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 termination date. 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 recognized immediately 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.

 

On August 12, 2021, we issued 12,830 shares of common stock to a key employee 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 the Company 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 Company has reported and paid Swedish social charges of $21,000 for the issued shares but only 30% of the stock-based compensation (totaling $25,000) was recognized immediately in the consolidated statements of operations for the year ended December 31, 2021, with the remainder to be recognized ratably over the two-year lock-up period.

 

On December 29, 2021, we issued 14,735 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 termination date. Neonode has reported and paid Swedish social charges of $46,000 for the issued shares but only 30% of the stock-based compensation (totaling $38,000) was recognized immediately in the consolidated statements of operations for the year ended December 31, 2021, with the remainder to be recognized ratably over the two-year lock-up period.

 

On May 20, 2022, we issued 4,000 shares of common stock to a director pursuant to the 2020 Plan. The shares were immediately vested but subject to a two-year lock-up period after issuance. In the event the participant’s employment with the Company 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 Company has reported and paid Swedish social charges of $5,000 for the issued shares but only 30% of the stock-based compensation (totaling $5,000) was recognized immediately in the consolidated statements of operations for the year ended December 31, 2022, with the remainder to be recognized ratably over the two-year lock-up period.

 

On September 15, 2022, we repurchased 10,252 shares of common stock from an employee who resigned during the two-year lock up period associated with such shares for $12,000, pursuant to the terms of the 2020 LTIP.

 

During the years ended December 31, 2022 and 2021, we recognized $122,000 and $157,000, respectively, of stock-based compensation for the amortization of the LTIP over the respective lock-up periods.

 

The following table summarizes information with respect to all options to purchase shares of common stock outstanding under the 2006 Plan, the 2015 Plan and the 2020 Plan at December 31, 2022:

 

Options Outstanding
Range of Exercise Price  Number
Outstanding
and
Exercisable
at 12/31/22
   Weighted
Average
Remaining
Contractual
Life
(years)
   Weighted
Average
Exercise
Price
 
             
$ 0 - $ 15.00   2,500    0.59   $14.40 
    2,500    0.59   $14.40 

 

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

 

   Options Outstanding 
           Weighted-     
           Average     
       Weighted-   Remaining     
       Average   Contractual   Aggregate 
   Number of   Exercise   Life   Intrinsic 
   Shares   Price   (in years)   Value 
Options outstanding – January 1, 2021   10,500   $29.61    1.40   $
          -
 
Options granted   
-
    
-
         
-
 
Options exercised   
-
    
-
         
-
 
Options cancelled or expired   (1,000)   62.10         
-
 
Options outstanding – December 31, 2021   9,500   $26.19    0.54    
-
 
Options granted   
-
    
-
         
-
 
Options exercised   
-
    
-
         
-
 
Options cancelled or expired   (7,000)   30.40         
-
 
Options outstanding and vested – December 31, 2022   2,500   $14.40    0.59   $
-
 

 

No stock options were granted during the years ended December 31, 2022 and 2021, respectively.

 

During the years ended December 31, 2022 and 2021, we recorded no stock-based compensation expense related to the vesting of stock options. The estimated fair value of the stock options will be calculated using the Black-Scholes option pricing model as of the grant date of the stock option.

 

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.

 

Stock-Based Compensation

 

The stock-based compensation expense for the years ended December 31, 2022 and 2021 reflects the estimated fair value of the vested portion of common stock granted to directors and employees (in thousands):

 

   Years ended
December 31,
 
   2022   2021 
(In thousands)        
Sales and marketing  $8   $50 
General and administrative   114    107 
Stock-based compensation expense  $122   $157 

 

There is no remaining unrecognized compensation expense related to stock options as of December 31, 2022. Unrecognized compensation expense related to the 2020 LTIP as of December 31, 2022 was $60,000, which will be recognized over two years.

v3.22.4
Commitments and Contingencies
12 Months Ended
Dec. 31, 2022
Commitments and Contingencies [Abstract]  
Commitments and Contingencies
9. 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. On September 9, 2021, the plaintiff’s counsel filed a complaint in the Supreme Court of the State of New York, County of Nassau, to recover plaintiff’s attorneys’ fees and expenses in the amount of $400,000 incurred in connection with the Proceeding. On November 3, 2021, the Company entered into a settlement agreement with plaintiff’s counsel, which was accrued for as of September 30, 2021. On November 4, 2021, the case was dismissed with prejudice.

 

Operating expenses for the year ended December 31, 2021 include 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 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 December 31, 2022 and December 31, 2021.

 

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 December 31, 2022 and December 31, 2021.

 

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. In December 2021, the bank guarantee was cancelled.

 

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 the potential net proceeds generated from a licensing and monetization program. Net proceeds shall here be understood as gross proceeds less out of pocket expenses and legal fees.

 

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. The case against Apple was subsequently transferred to the Northern District of California. Both 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 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 2,000,000 ASICs sold. As of December 31, 2022, we had made no payments to TI under the NN1002 Agreement. 

v3.22.4
Leases
12 Months Ended
Dec. 31, 2022
Leases [Abstract]  
Leases
10. 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 one month to three years. 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 prolong; 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 under one year 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 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):

 

   Years ended
December 31,
 
   2022   2021 
Operating lease cost (1)  $596   $662 
           
Finance lease cost:          
Amortization of leased assets  $66   $585 
Interest on lease liabilities   8    14 
Total finance lease cost  $74   $599 

 

  (1) Includes short term lease costs of $180,000 and $127,000 for the years ended December 31, 2022 and 2021.

 

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

 

   Years ended
December 31,
 
   2022   2021 
Cash paid for amounts included in leases:        
Operating cash flows from operating leases  $(399)  $(505)
Operating cash flows from finance leases   (8)   (14)
Financing cash flows from finance leases   (165)   (487)
           
Right-of-use assets obtained in exchange for lease obligations:          
Operating leases   
-
    239 
Finance leases   24    
-
 

 

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

 

   As of
December 31,
 
   2022   2021 
Operating leases        
Operating lease right-of-use assets, net   $118   $584 
           
Current portion of operating lease obligations  $83   $425 
Operating lease liabilities, net of current portion   35    117 
Total operating lease liabilities  $118   $542 
           
Finance leases          
Property and equipment, at cost  $2,622   $3,463 
Accumulated depreciation   (2,418)   (3,199)
Property and equipment, net  $204   $264 
           
Current portion of finance lease obligations  $95   $258 
Finance lease liabilities, net of current portion   46    65 
Total finance lease liabilities  $141   $323 

 

   Year ended
December 31,
2022
 
Weighted-Average Remaining Lease Term    
Operating leases   1.8 years 
Finance leases   1.5 years  
     
Weighted-Average Discount Rate     
Operating leases (2)   5%
Finance leases   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 December 31, 2022 is as follows (in thousands):

 

Years ending December 31,  Total 
2023  $71 
2024   53 
Total minimum payments required:   124 
Less imputed interest   (6)
Total lease liabilities   118 
Less current portion   (83)
   $35 

 

The following is a schedule of minimum future rentals on the non-cancelable finance leases as of December 31, 2022 (in thousands):

 

Year ending December 31,   Total  
2023   $ 98  
2024     28  
2025     19  
Total minimum payments required:     145  
Less amount representing interest:     (4 )
Present value of net minimum lease payments:     141  
Less current portion     (95 )
    $ 46  
v3.22.4
Segment Information
12 Months Ended
Dec. 31, 2022
Segment Information [Abstract]  
Segment Information
11. Segment Information

 

Our Company has one reportable segment, which is comprised of the touch technology licensing and sensor module business.

 

We report revenues from external customers based on the country where the customer is located. The following table presents revenues by geographic region for the years ended December 31, 2022 and 2021 (dollars in thousands):

 

   2022   2021 
   Amount   Percentage   Amount   Percentage 
United States  $1,839    33%  $2,241    39%
Japan   1,742    31%   1,894    33%
South Korea   861    15%   894    15%
Switzerland   398    7%   73    1%
Germany   298    5%   303    5%
France   193    3%   7    -%
Sweden   155    3%   22    -%
China   130    2%   311    5%
Other   54    1%   91    2%
Total  $5,670    100%  $5,836    100%
                     
v3.22.4
Income Taxes
12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes
12. Income Taxes

 

Loss before provision for income taxes was distributed geographically for the years ended December 31, as follows (in thousands):

 

   2022   2021 
Domestic  $(4,453)  $(5,570)
Foreign   (712)   (1,552)
           
Total  $(5,165)  $(7,122)

 

The provision (benefit) for income taxes is as follows for the years ended December 31 (in thousands):

 

   2022   2021 
Current        
Federal  $
-
   $
-
 
State   
-
    
-
 
Foreign   118    146 
Change in deferred          
Federal   (186)   (1,177)
Federal valuation allowance   186    1,177 
State   (3)   
-
 
State valuation allowance   3    
-
 
Foreign   (3,517)   (1,842)
Foreign valuation allowance   3,517    1,842 
           
Total current  $118   $146 

 

The differences between our effective income tax rate and the U.S. federal statutory federal income tax rate for the years ended December 31, are as follows:

 

   2022   2021 
Amounts at statutory tax rates   21%   21%
Foreign losses taxed at different rates   (1)%   (1)%
Stock-based compensation   (1)%   (1)%
GILTI inclusion   (16)%   -%
Other   (2)%   (1)%
Total   1%   18%
Valuation allowance   (3)%   (20)%
Effective tax rate   (2)%   (2)%

 

Significant components of the deferred tax asset balances at December 31 are as follows (in thousands):

 

   2022   2021 
Deferred tax assets:        
Accruals  $(13)  $(87)
Stock compensation   4    38 
Net operating losses   25,608    21,943 
Total deferred tax assets   25,599    21,894 
Valuation allowance   (25,599)   (21,894)
           
Total net deferred tax assets  $
-
   $
-
 

 

Valuation allowances are recorded to offset certain deferred tax assets due to management’s uncertainty of realizing the benefits of these items. Management applies a full valuation allowance for the accumulated losses of Neonode Inc. and its subsidiaries, since it is not determinable using the “more likely than not” criteria that there will be any future benefit of our deferred tax assets. This is mainly due to our history of operating losses. As of December 31, 2022, we had federal, state and foreign net operating losses of $75.6 million, $20.1 million and $40.4 million, respectively. The federal loss carryforward begins to expire in 2028, and the California loss carryforward begins to expire in 2030. The foreign loss carryforward, which is generated in Sweden, does not expire.

 

Utilization of the net operating loss and tax credit carryforwards is subject to an annual limitation due to the ownership percentage change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. The annual limitation may result in the expiration of the net operating losses and tax credit carryforwards before utilization.  As of December 31, 2022, we had not completed the determination of the amount to be limited under the provision.

 

We follow the provisions of accounting guidance which includes a two-step approach to recognizing, derecognizing and measuring uncertain tax positions. There were no unrecognized tax benefits for the years ended December 31, 2022 and 2021.

 

We follow the policy to classify accrued interest and penalties as part of the accrued tax liability in the provision for income taxes. For the years ended December 31, 2022 and 2021 we did not recognize any interest or penalties related to unrecognized tax benefits.

 

As of December 31, 2022, we had no uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations.

 

We file income tax returns in the U.S. federal jurisdiction, California, Sweden, and Japan. The 2008 through 2021 tax years are open and may be subject to potential examination in one or more jurisdictions. We are not currently under any federal, state or foreign income tax examinations.

v3.22.4
Employee Benefit Plans
12 Months Ended
Dec. 31, 2022
Employee Benefit Plans [Abstract]  
Employee Benefit Plans

13. Employee Benefit Plans

 

We participate in a number of individual defined contribution pension plans for our employees in Sweden. We contribute between 4.5% and 30% of the employee’s annual salary to these pension plans depending on age and salary level. Contributions relating to these defined contribution plans for the years ended December 31, 2022 and 2021 were $555,000 and $587,000, respectively. We match U.S. employee contributions to a 401(K) retirement plan up to a maximum of six percent (6%) of an employee’s annual salary. Contributions relating to the matching 401(K) contributions for the years ended December 31, 2022 and 2021 were $6,000 and $10,000, respectively. In Taiwan, we contribute six percent (6%) of the employee’s annual salary to a pension fund which agrees with Taiwan’s Labor Pension Act. Contributions relating to the Taiwanese pension fund for the years ended December 31, 2022 and 2021 were $4,000 and $2,000, respectively.

v3.22.4
Net Loss Per Share
12 Months Ended
Dec. 31, 2022
Earnings Per Share [Abstract]  
Net Loss per Share

14. Net Loss Per Share

 

Basic net loss per common share for the years ended December 31, 2022 and 2021 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 during the year. Diluted loss per common share is computed by dividing net loss attributable to common shareholders of Neonode Inc. for the relevant period by the weighted average number of shares of common stock and common stock equivalents outstanding during the year.

 

The Company had no potential common stock equivalents as of December 31, 2022 or 2021.

 

   Years ended
December 31,
 
(In thousands, except per share amounts)  2022   2021 
BASIC AND DILUTED        
Weighted average number of common shares outstanding
   13,632    11,907 
           
Net loss attributable to common shareholders of Neonode Inc.  $(4,883)  $(6,450)
           
Net loss per share basic and diluted
  $(0.36)  $(0.54)
v3.22.4
Subsequent Events
12 Months Ended
Dec. 31, 2022
Subsequent Events [Abstract]  
Subsequent Events

15. Subsequent Events

 

During January 2023, we sold an aggregate of 903,716 shares of our common stock under the ATM Facility with aggregate net proceeds to us of $7,868,000, after payment of commissions to B. Riley Securities and other expenses of $244,000.

 

No other subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes thereto other than as discussed elsewhere in the accompanying notes.

v3.22.4
Accounting Policies, by Policy (Policies)
12 Months Ended
Dec. 31, 2022
Summary of Significant Accounting Policies [Abstract]  
Principles of Consolidation

Principles of Consolidation

 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of Neonode Inc. and its wholly owned subsidiaries, as well as Pronode Technologies AB, a 51% majority owned subsidiary of Neonode Technologies AB, through September 30, 2022. On October 1, 2022, the remaining 49% of Pronode Technologies AB was acquired from Propoint AB, located in Gothenburg, Sweden. All inter-company accounts and transactions have been eliminated in consolidation.

 

Neonode consolidates entities in which it has a controlling financial interest. We consolidate subsidiaries in which we hold, directly or indirectly, more than 50% of the voting rights.

 

The consolidated balance sheets at December 31, 2022 and 2021 and the consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the years ended December 31, 2022 and 2021 include our accounts and those of our wholly owned subsidiaries.

 

Estimates

Estimates

 

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 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 shares and options issued for stock-based compensation. 

 

Cash and Cash Equivalents

Cash and Cash Equivalents

 

We have not had any liquid investments other than normal cash deposits with bank institutions to date. The Company considers all highly liquid investments with original maturities of three months of less to be cash equivalents.

 

Concentration of Cash Balance Risks

Concentration of Cash Balance Risks

 

Cash balances are maintained at various banks in the U.S., Japan, Korea, Taiwan and Sweden. For deposits held with financial institutions in the U.S., the U.S. Federal Deposit Insurance Corporation, provides basic deposit coverage with limits up to $250,000 per owner. The Swedish government provides insurance coverage up to 100,000 Euro per customer and covers deposits in all types of accounts. The Japanese government provides insurance coverage up to 10,000,000 Yen per customer. The Korea Deposit Insurance Corporation provides insurance coverage up to 50,000,000 Won per customer. The Central Deposit Insurance Corporation in Taiwan provides insurance coverage up to 3,000,000 Taiwan Dollar per customer. At times, deposits held with financial institutions may exceed the amount of insurance provided.

 

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts  

 

Accounts receivable is stated at net realizable value. Our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make the 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 $30,000 and $79,000 as of December 31, 2022 and 2021, 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 consolidated 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 in projects in process as of December 31, 2022 and 2021.

 

Inventory

Inventory

 

The Company’s inventory consists primarily of components that will be used in the manufacturing of our touch sensor modules (“TSMs”). 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 and finished goods. The AirBar inventory reserve was $0.3 million and $0.8 million as of December 31, 2022 and 2021, respectively.

 

Management decided to reserve for TSM inventory related to a quality issue in production. The TSM inventory reserve was $0.2 million as of December 31, 2021. During 2022 the affected inventory was scrapped and as of December 31, 2022 the inventory reserve was zero.

 

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

  

   December 31,   December 31, 
   2022   2021 
Raw materials  $3,177   $1,446 
Work-in-process   414    10 
Finished goods   236    1,064 
Ending inventory  $3,827   $2,520 

 

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   10 years 

 

Equipment purchased under a finance lease is depreciated over the term of the lease, if that lease term is shorter than the estimated useful life.

 

Upon retirement or sale of property and equipment, cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the consolidated statement of operations. Maintenance and repairs are charged to expense as incurred.

 

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.

 

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 Assets

Long-Lived Assets

 

We assess any impairment by estimating the future cash flow from the associated asset in accordance with relevant accounting guidance. If the estimated undiscounted future cash flow related to these assets decreases or the useful life is shorter than originally estimated, we may incur charges for impairment of these assets. As of December 31, 2022, 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 or the Taiwan Dollar to U.S. Dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income statement accounts using a weighted average exchange rate during the period. Gains or (losses) resulting from translation are included as a separate component of accumulated other comprehensive income (loss). Gains or (losses) resulting from foreign currency transactions are included in general and administrative expenses in the accompanying consolidated statements of operations and were $35,000 and $(66,000) during the years ended December 31, 2022 and 2021, respectively. Foreign currency translation gains (losses) were $68,000 and $(4,000) during the years ended December 31, 2022 and 2021, respectively.

 

Concentration of Credit and Business Risks

Concentration of Credit and Business Risks

 

Our customers are located in the United States, Europe and Asia.

 

As of December 31, 2022, five of our customers represented approximately 83% of our consolidated accounts receivable and unbilled revenues.

  

As of December 31, 2021, four of our customers represented approximately 76% of our consolidated accounts receivable and unbilled revenues.

 

Customers who accounted for 10% or more of our revenues during the year ended December 31, 2022 are as follows.

 

  Hewlett-Packard Company – 27%
     
  Seiko Epson – 19%
     
  LG – 12%
     
  Alpine Electronics – 10%

 

Customers who accounted for 10% or more of our revenues during the year ended December 31, 2021 are as follows.

 

  Hewlett-Packard Company – 32%
     
  Seiko Epson – 18%
     
  LG – 13%

 

The Company conducts business in the United States, Europe and Asia. As of December 31, 2022, the Company maintained approximately $15,535,000, $3,857,000 and $26,000 of its net assets in the United States, Europe and Asia, respectively. As of December 31, 2021, the Company maintained approximately $17,198,000, $2,611,000 and $28,000 of its net assets in the United States, Europe and Asia, respectively.

 

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 (e.g., 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 and sales of our AirBar and TSMs are on a per-unit basis. Therefore, we generally satisfy performance obligations as units are shipped to our customers. Non-recurring engineering service performance obligations are satisfied as work is performed and accepted by our customers.

 

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

 

License Fees

 

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 estimates of those royalties.

 

Explicit return rights are not offered to customers. There have been no returns through December 31, 2022.

 

Product Sales

 

We earn revenue from sales of TSM hardware products to our OEM, ODM and Tier 1 supplier customers, who embed our hardware into their products, and from sales of branded consumer products that incorporate our TSMs that are sold through distributors or directly to end users. These distributors are generally given business terms that allow them to return unsold inventory, receive credits for changes in selling prices, and participate in various cooperative marketing programs. Our sales agreements generally provide customers with limited rights of return and warranty provisions.

 

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

 

Because we generally use distributors to provide AirBar and TSMs to our customers, we must analyze the terms of our distributor agreements to determine when control passes from us to our distributors. For sales of AirBar and TSMs sold through distributors, we recognize revenues 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 the distributors, the distributors have legal title to and physical possession of products purchased from us, and the distributors have significant risks and rewards of ownership of products purchased.

 

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

 

Under U.S. GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns. Our AirBar and TSM 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 $9,000 and $69,000 as of December 31, 2022 and 2021, respectively. The warranty reserve is recorded as an accrued expense and cost of sales and was $49,000 and $36,000 as of December 31, 2022 and 2021, respectively. 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.

 

Non-Recurring Engineering

 

For technology license or TSM contracts that require modification or customization of the underlying technology to adapt the technology to customer use, we determine whether the technology license or TSM, and required 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 non-recurring engineering contracts that are short-term in nature are recorded when those services are complete and accepted by customers.

 

Revenues from non-recurring engineering 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 years ended December 31, 2022 and 2021, we recorded no losses.

 

The following tables present the net revenues distribution by geographical area and market for the years ended December 31, 2022 and 2021 (dollars in thousands):

 

   2022   2021 
   Amount   Percentage   Amount   Percentage 
AMER                
Net revenues from consumer electronics  $1,812    98.5%  $2,097    93.4%
Net revenues from distributors and other   27    1.5%   149    6.6%
   $1,839    100.0%  $2,246    100.0%
                     
APAC                    
Net revenues from automotive  $1,295    46.9%  $1,330    42.9%
Net revenues from consumer electronics   1,127    40.8%   1,088    35.0%
Net revenues from distributors and other   341    12.3%   685    22.1%
   $2,763    100.0%  $3,103    100.0%
                     
EMEA                    
Net revenues from automotive  $493    46.1%  $313    64.3%
Net revenues from medical   398    37.3%   73    15.0%
Net revenues from distributors and other   177    16.6%   101    20.7%
   $1,068    100.0%  $487    100.0%

 

Significant Judgments

Significant Judgments

 

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

 

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

 

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

 

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, unbilled revenues and deferred revenues as of December 31, 2022 and 2021 (in thousands):

 

   December 31,
2022
   December 31,
2021
 
Accounts receivable and unbilled revenues  $1,448   $1,293 
Contract liabilities (deferred revenues)  $36   $106 

  

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 sheets on a contract-by-contract basis at the end of each reporting period.

 

We do not anticipate impairment of our contract assets 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 to assess whether the contract assets have been impaired.

 

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.

 

Payment terms and conditions vary by the type of contract; however, payments generally occur 30-60 days after invoicing for license fees and sensor modules to our resellers and distributors. Where revenue recognition timing differs from invoice timing, we have determined that our contracts do not include a significant financing component. Our intent is to provide our customers with consistent invoicing terms for the convenience of our customers, not to receive financing from our customers.

 

Costs to Obtain Contracts

Costs to Obtain Contracts

 

We record the incremental costs of obtaining a contract with a customer as a contract 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):

 

   Years ended 
   December 31,
2022
   December 31,
2021
 
Balance at beginning of period  $36   $25 
Provisions for warranty issued         13        11 
Balance at end of period  $49   $36 

 

The Company accrues for warranty costs as part of its cost of sales of TSMs 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 included as a component of accrued expenses on the consolidated balance sheet.

 

Contract Liabilities

Contract Liabilities

 

Contract liabilities (deferred revenues) consist primarily of prepayments for license fees, and other products or services that we have been paid in advance. We 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. Non-recurring engineering fee revenues are deferred until engineering services have been completed and accepted by our customers.

 

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

 

    As of
December 31,
 
    2022     2021  
Deferred revenues license fees   $ 20     $ 28  
Deferred revenues products     9       70  
Deferred non-recurring engineering     7       8  
    $ 36     $ 106  

 

Deferred revenue not yet recognized was $36,000 as of December 31, 2022. We expect to recognize 100% of that revenue over the next twelve months. The Company recognized revenues of approximately $24,000 and $41,000, for 2022 and 2021, respectively, related to contract liabilities outstanding at the beginning of the year.

 

Advertising

Advertising

 

Advertising costs are expensed as incurred. Advertising costs amounted to approximately $158,000 and $208,000 for the years ended December 31, 2022 and 2021, 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

 

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

 

The Company provides either in the consolidated statement of stockholders’ equity, if presented, or in the notes to consolidated financial statements, a reconciliation at the beginning and the end of the period of the carrying amount of total equity (net assets), equity (net assets) attributable to the parent, and equity (net assets) attributable to the noncontrolling interest that separately discloses:

 

  (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 December 31, 2022 and 2021. 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 December 31, 2022 and 2021, we had no unrecognized tax benefits.

 

Net Loss per Share

Net Loss per Share

 

Net loss per share amounts have been computed based on the weighted average number of shares of common stock outstanding during the years ended December 31, 2022 and 2021. Net loss per share, assuming dilution amounts from common stock equivalents, is computed based on the weighted-average number of shares of common stock and potential common stock equivalents outstanding during the period. The weighted-average number of shares of common stock and potential common stock equivalents used in computing the net loss per share for years ended December 31, 2022 and 2021 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note 14).

 

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 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 consolidated statements of operations was as follows:

 

   Years ended
December 31,
 
   2022   2021 
Swedish Krona   10.12    8.58 
Japanese Yen   131.72    109.82 
South Korean Won   1,292.25    1,144.95 
Taiwan Dollar   29.81    27.93 

 

Exchange rates for the consolidated balance sheets were as follows: 

 

   As of
December 31,
 
   2022   2021 
Swedish Krona   10.43    9.03 
Japanese Yen   131.12    115.12 
South Korean Won   1,261.91    1,190.75 
Taiwan Dollar   30.66    27.71 

 

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

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

 

Reclass of presentation in our consolidated statements of operations

Reclass of Presentation in our Consolidated Statements of Operations

 

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 for each of our revenue streams consisting of license fees, product sales and non-recurring engineering fees.

v3.22.4
Summary of Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2022
Summary of Significant Accounting Policies [Abstract]  
Schedule of inventory
   December 31,   December 31, 
   2022   2021 
Raw materials  $3,177   $1,446 
Work-in-process   414    10 
Finished goods   236    1,064 
Ending inventory  $3,827   $2,520 

 

Schedule of straight-line method based upon estimated useful lives
    Estimated
useful lives
 
      
Computer equipment   3 years 
Furniture and fixtures   5 years 
Equipment   10 years 

 

Schedule of disaggregated revenues
   2022   2021 
   Amount   Percentage   Amount   Percentage 
AMER                
Net revenues from consumer electronics  $1,812    98.5%  $2,097    93.4%
Net revenues from distributors and other   27    1.5%   149    6.6%
   $1,839    100.0%  $2,246    100.0%
                     
APAC                    
Net revenues from automotive  $1,295    46.9%  $1,330    42.9%
Net revenues from consumer electronics   1,127    40.8%   1,088    35.0%
Net revenues from distributors and other   341    12.3%   685    22.1%
   $2,763    100.0%  $3,103    100.0%
                     
EMEA                    
Net revenues from automotive  $493    46.1%  $313    64.3%
Net revenues from medical   398    37.3%   73    15.0%
Net revenues from distributors and other   177    16.6%   101    20.7%
   $1,068    100.0%  $487    100.0%

 

Schedule of accounts receivable and deferred revenues
   December 31,
2022
   December 31,
2021
 
Accounts receivable and unbilled revenues  $1,448   $1,293 
Contract liabilities (deferred revenues)  $36   $106 

  

Schedule of activity related to the product warranty liability
   Years ended 
   December 31,
2022
   December 31,
2021
 
Balance at beginning of period  $36   $25 
Provisions for warranty issued         13        11 
Balance at end of period  $49   $36 

 

Schedule of deferred revenues
    As of
December 31,
 
    2022     2021  
Deferred revenues license fees   $ 20     $ 28  
Deferred revenues products     9       70  
Deferred non-recurring engineering     7       8  
    $ 36     $ 106  

 

Schedule of weighted-average exchange rates for the consolidated statements of operations
   Years ended
December 31,
 
   2022   2021 
Swedish Krona   10.12    8.58 
Japanese Yen   131.72    109.82 
South Korean Won   1,292.25    1,144.95 
Taiwan Dollar   29.81    27.93 

 

Schedule of exchange rates for the consolidated balance sheets
   As of
December 31,
 
   2022   2021 
Swedish Krona   10.43    9.03 
Japanese Yen   131.12    115.12 
South Korean Won   1,261.91    1,190.75 
Taiwan Dollar   30.66    27.71 

 

v3.22.4
Prepaid Expenses and Other Current Assets (Tables)
12 Months Ended
Dec. 31, 2022
Prepaid Expenses and Other Current Assets [Abstract]  
Schedule of prepaid expense and other current assets
   As of
December 31,
 
   2022   2021 
         
Prepaid insurance  $140   $189 
Prepaid rent   91    6 
VAT receivable   297    345 
Advances   
-
    3 
Advances to suppliers   
-
    38 
Other   179    255 
Total prepaid expenses and other current assets  $707   $836 
v3.22.4
Property and Equipment (Tables)
12 Months Ended
Dec. 31, 2022
Property and Equipment [Abstract]  
Schedule of property and equipment
   As of
December 31,
 
   2022   2021 
         
Computers, software, furniture and fixtures  $1,336   $1,484 
Equipment   2,639    3,463 
Less accumulated depreciation and amortization   (3,693)   (4,571)
Property and equipment, net  $282   $376 

 

v3.22.4
Accrued Expenses (Tables)
12 Months Ended
Dec. 31, 2022
Accrued Expenses [Abstract]  
Schedule of accrued expenses
   As of
December 31,
 
   2022   2021 
         
Accrued returns and warranty  $49   $36 
Accrued consulting fees and other   151    335 
Total accrued expenses  $200   $371 
v3.22.4
Stockholders’ Equity (Tables)
12 Months Ended
Dec. 31, 2022
Stockholders' Equity Note [Abstract]  
Schedule of warrant activity
Outstanding and exercisable  Warrants   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Life
 
January 1, 2021   431,368   $11.20    0.13 
Expired/forfeited   
-
    
-
    
-
 
December 31, 2021   431,368   $11.20    0.13 
Issued   
-
    
-
    
-
 
Expired/forfeited   (431,368)   (11.20)   - 
Exercised   
-
    
-
    
-
 
December 31, 2022   
-
   $
-
    
-
 

 

v3.22.4
Stock-Based Compensation (Tables)
12 Months Ended
Dec. 31, 2022
Stock-Based Compensation [Abstract]  
Schedule of options outstanding by exercise price range
Options Outstanding
Range of Exercise Price  Number
Outstanding
and
Exercisable
at 12/31/22
   Weighted
Average
Remaining
Contractual
Life
(years)
   Weighted
Average
Exercise
Price
 
             
$ 0 - $ 15.00   2,500    0.59   $14.40 
    2,500    0.59   $14.40 

 

Schedule of all stock option plans
   Options Outstanding 
           Weighted-     
           Average     
       Weighted-   Remaining     
       Average   Contractual   Aggregate 
   Number of   Exercise   Life   Intrinsic 
   Shares   Price   (in years)   Value 
Options outstanding – January 1, 2021   10,500   $29.61    1.40   $
          -