What changed in this filing

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Item 1. Financial Statements

2021-08-11 compared with 2021-05-12 · 728 added, 1249 removed, 181 unchanged (92% of the section changed)

Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

CONSOLIDATED BALANCE SHEETS

thousands, except share and per share amounts)

Current assets:

4 unchanged sentences

Operating lease right-of-use assets

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

10 unchanged sentences

Commitments and contingencies

Stockholders’

Stockholders’ equity:

Common stock, 25,000,000 shares authorized, with par value of $ 0.001 ;

11,504,665 shares issued and outstanding at March 31, 2021 and December 31, 2020

11,504,665 shares issued and outstanding at June 30, 2021 and December 31, 2020

Additional paid-in capital

2 unchanged sentences

Total Neonode Inc.

stockholders’

stockholders’ equity

Noncontrolling interests

Total stockholders’

Total liabilities and stockholders’

The accompanying notes are an integral part of

these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Total stockholders’ equity

Total liabilities and stockholders’ equity

accompanying notes are an integral part of these condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

thousands, except per share amounts)

Three months ended

HMI Solutions

Six months ended

Sensor modules

Non-recurring engineering

Total revenues

Cost of revenues:

HMI Solutions

Sensor modules

Non-recurring engineering

Total cost of revenues

Total gross profit

Total gross margin

Operating expenses:

14 unchanged sentences

Basic and diluted loss per share

Basic and diluted –

weighted average number of common shares outstanding

The accompanying notes are an integral part of

these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE

(In thousands)

Basic and diluted – weighted average number of common shares outstanding

accompanying notes are an integral part of these condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three months ended

Net loss including noncontrolling interests

Other comprehensive loss:

Six months ended

Other comprehensive income (loss):

Foreign currency translation adjustments

2 unchanged sentences

Comprehensive loss attributable to Neonode Inc.

The accompanying notes are an integral part of

these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In thousands, except for Preferred Stock Shares

For the Quarter to Date periods ended March

31, 2020 through March 31, 2021

accompanying notes are an integral part of these condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except for Preferred Stock Shares Issued 1 )

the Quarter to Date periods ended June 30, 2020 through June 30, 2021

Stock Shares Issued

1 unchanged sentence

Paid-in Capital

Other Comprehensive Income

Stockholders’

Other Comprehensive Income (Loss)

Stockholders’ Equity

Noncontrolling

Stockholders’

Stockholders’ Equity

December 31, 2019

$ ( 190,520 )

currency translation adjustment

March 31, 2020

$ ( 191,530 )

currency translation adjustment

June 30, 2020

$ ( 193,142 )

of shares for cash, net of offering costs

3 unchanged sentences

September 30, 2020

$ ( 194,813 )

currency translation adjustment

December 31, 2020

$ ( 196,158 )

currency translation adjustment

March 31, 2021

The accompanying notes are an integral part of

these condensed consolidated financial statements.

$ ( 197,726 )

currency translation adjustment

June 30, 2021

$ ( 199,383 )

accompanying notes are an integral part of these condensed consolidated financial statements.

Shares Issued per series can be found under the equity footnote (see Note 3).

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three months ended

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended

Cash flows from operating activities:

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Cash flows from financing activities:

Proceeds from short-term borrowings

Proceeds from short-term tax credits

Principal payments on finance lease obligations

Net cash used in financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash

5 unchanged sentences

Cash paid for interest

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Notes to the Condensed Consolidated Financial

accompanying notes are an integral part of these condensed consolidated financial statements.

to the Condensed Consolidated Financial Statements

Interim Period Reporting

The accompanying unaudited

interim condensed consolidated financial statements include all adjustments consisting of normal recurring adjustments that are, in the

opinion of management, necessary for a fair presentation of the financial position and results of operations and cash flows for the interim

periods presented.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of results for a

full fiscal year or any other period.

The accompanying condensed

consolidated financial statements for the three months ended March 31, 2021 and 2020 have been prepared by us, pursuant to the rules and

regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”).

Certain information and

footnote disclosures normally contained in financial statements prepared in accordance with accounting principles generally accepted in

GAAP”) have been condensed or omitted.

These condensed consolidated financial statements should be read in

conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal

year ended December 31, 2020.

Neonode Inc., collectively

with its subsidiaries is referred to as “Neonode”

or the “Company”, develops advanced optical sensing solutions

for contactless touch, touch, gesture sensing, and in-cabin monitoring.

We market and sell our contactless touch, touch, and gesture sensing

products and solutions using our zForce technology platform, and our in-cabin monitoring solutions using our MultiSensing technology platform.

Neonode offers customized optical touch and gesture control solutions for many different markets and segments.

In our operations for the

three months ended March 31, 2021, we focused on three different business areas, human machine interface (“HMI”) Solutions,

HMI Products and Remote Sensing Solutions.

On May 4, 2021, we announced a new strategy and organizational update targeting an increased

focus on the Company’s contactless touch business and on current market opportunities in North America, Asia, and Europe.

changed to a regional sales organization to replace our business area structure going forward.

In HMI Solutions, Neonode

offered customized optical touch and gesture control solutions for many different markets and segments.

In HMI Products, the Company provided

plug-and-play sensor modules that enable touch on any surface, in-air touch, and gesture control for a wide range of applications.

Remote Sensing Solutions, Neonode offered driver and cabin monitoring solutions for vehicles based on the Company’s flexible, scalable

and hardware-agnostic software platform.

Revenues are derived from

three different revenue streams:

license fees, non-recurring engineering fees and the sale of sensor modules.

We have incurred significant

operating losses and negative cash flows from operations since our inception.

The Company incurred net losses attributable to Neonode

of approximately $1.6 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively, and had an accumulated

deficit of approximately $197.7 million and $196.2 million as of March 31, 2021 and December 31, 2020, respectively.

In addition, operating

activities used cash of approximately $2.0 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively.

accompanying unaudited interim condensed consolidated financial statements include all adjustments consisting of normal recurring adjustments

that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash

flows for the interim periods presented.

The results of operations for the three and six months ended June 30, 2021 are not necessarily

indicative of results for a full fiscal year or any other period.

accompanying condensed consolidated financial statements for the three and six months ended June 30, 2021 and 2020 have been prepared

by us, pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”).

Certain information and footnote disclosures normally contained in financial statements prepared in accordance with accounting principles

generally accepted in the U.S.

GAAP”) have been condensed or omitted.

These condensed consolidated financial statements

should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on

Form 10-K for the fiscal year ended December 31, 2020.

Neonode Inc., which is collectively

with its subsidiaries referred to as “Neonode” or the “Company” in this report, develops advanced optical sensing

solutions for contactless touch, touch, gesture sensing, and remote sensing solutions for driver and in-cabin monitoring features.

market and sell our contactless touch, touch, and gesture sensing products and solutions using our zForce technology platform, and our

remote sensing solutions using our MultiSensing technology platform.

Neonode offers customized optical touch and gesture control solutions

for many different markets and segments.

In our operations, we have

historically focused on three different business areas, human machine interface (“HMI”) Solutions, HMI Products and Remote

Sensing Solutions.

On May 4, 2021, we announced a new strategy and organizational update targeting an increased focus on the Company’s

contactless touch business and on current market opportunities in North America (“AMER”), Asia-Pacific (“APAC”),

and Europe, Middle East and Africa (“EMEA”).

We thereby changed from a business area organization to a regional sales organization

going forward.

Revenues are however primarily monitored per our revenue streams license fees, sensor modules and non-recurring engineering

have incurred significant operating losses and negative cash flows from operations since our inception.

The Company incurred net losses

of approximately $ 1.7 million and $ 3.2 million and $ 1.6 million and $ 2.6 million for the three and six months ended June 30, 2021 and

2020, respectively, and had an accumulated deficit of approximately $ 199.4 million and $ 196.2 million as of June 30, 2021 and December

31, 2020, respectively.

In addition, operating activities used cash of approximately $ 3.4 million and $ 1.9 million for the six months

ended June 30, 2021 and 2020, respectively.

The condensed consolidated

2 unchanged sentences

Management evaluated the significance

of the Company’s operating loss and determined that the Company’s current operating plan and sources of potential capital

would be sufficient to alleviate concerns about the Company’s ability to continue as a going concern.

of the Company’s operating loss and determined that the Company’s current operating plan and sources of potential capital

would be sufficient to alleviate concerns about the Company’s ability to continue as a going concern.

In the future, we may require

16 unchanged sentences

Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements have been prepared in accordance

with accounting principles generally accepted in the U.S.

of Consolidation

The condensed consolidated

financial statements have been prepared in accordance with U.S.

GAAP and include the accounts of Neonode Inc.

2 unchanged sentences

The remaining 49 % of Pronode Technologies

AB is owned by 2X-Communication AB, located in Kungsbacka, Sweden.

Pronode Technologies AB was organized to sell engineering services

within the automotive markets.

AB is owned by 2X Communication AB, located in Gothenburg, Sweden.

Pronode Technologies AB was organized to manufacture and sell our sensor

All inter-company accounts and transactions have been eliminated in consolidation.

Neonode consolidates entities

in which it has a controlling financial interest.

We consolidate subsidiaries in which we hold, directly or indirectly, more than 50%

of the voting rights.

The condensed consolidated

balance sheets at March 31, 2021 and December 31, 2020 and the condensed consolidated statements of operations, comprehensive loss, stockholders’

equity and cash flows for the three months ended March 31, 2021 and 2020 include our accounts and those of our wholly owned subsidiaries

as well as Pronode Technologies AB.

Estimates and Judgments

The preparation of financial

statements in conformity with U.S.

GAAP requires making estimates and judgments that affect, at the date of the financial statements,

the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and

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.

condensed consolidated balance sheets at June 30, 2021 and December 31, 2020 and the condensed consolidated statements of operations,

comprehensive loss, stockholders’ equity and cash flows for the three and six months ended June 30, 2021 and 2020 include our accounts

and those of our wholly owned subsidiaries as well as Pronode Technologies AB.

and Judgments

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;

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

determining the net realizable value of inventory;

recoverability of capitalized project costs and long-lived assets;

for leases, determining

whether a contract contains a lease, allocating consideration between lease and non-lease components, determining incremental borrowing

rates, and identifying reassessment events, such as modifications;

the valuation allowance related to our deferred tax assets;

fair value of options issued for stock-based compensation.

Cash and Cash Equivalents

We have not had any liquid

investments other than normal cash deposits with bank institutions to date.

The Company considers all highly liquid investments with original

maturities of three months of less to be cash equivalents.

Concentration of Cash

Balance Risks

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

and the fair value of options issued for stock-based compensation.

and Cash Equivalents

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.

at various banks in the U.S., Japan, Taiwan and Sweden.

For deposits held with financial institutions in the U.S., the U.S.

Deposit Insurance Corporation, provides basic deposit coverage with limits up to $250,000 per owner.

The Swedish government provides

insurance coverage up to 950,000 Krona per customer and covers deposits in all types of accounts.

For bank accounts of the category held

by Neonode, the Japanese government provides full insurance coverage.

The Korea Deposit Insurance Corporation provides insurance coverage

up to 50,000,000 Won per customer.

The Central Deposit Insurance Corporation in Taiwan provides insurance coverage up to 3,000,000 Taiwan

Dollar per customer.

Federal Deposit

Insurance Corporation provides basic deposit coverage with limits up to $250,000 per owner.

The Swedish government provides insurance

coverage up to 1,050,000 Krona per customer and covers deposits in all types of accounts.

For bank accounts of the category held by Neonode,

the Japanese government provides full insurance coverage.

The Central Deposit Insurance Corporation in Taiwan provides insurance coverage

up to 3,000,000 Taiwan Dollar per customer.

At times, deposits held with financial institutions may exceed the amount of insurance provided.

Accounts Receivable and Allowance for Doubtful

Receivable and Allowance for Doubtful Accounts

Accounts receivable is stated

6 unchanged sentences

based on certain other factors including the length of time the receivables are past due and historical collection experience with customers.

Our allowance for doubtful accounts was approximately $79,000 as of March 31, 2021 and December 31, 2020, respectively.

Projects in Process

Projects in process consist

of costs incurred toward the completion of various projects for certain customers.

These costs are primarily comprised of direct engineering

labor costs and project-specific equipment costs.

These costs are capitalized on our balance sheet as an asset and deferred until revenue

for each project is recognized in accordance with our revenue recognition policy.

There were no costs capitalized in projects as of March

31, 2021 and December 31, 2020, respectively.

The Company’s inventory

consists primarily of components that will be used in the manufacturing of our sensor modules.

We classify inventory for reporting purposes

as raw materials, work-in-process, and finished goods.

Inventory is stated at the

lower of cost or net realizable value, using the first-in, first-out (“FIFO”) valuation method.

Net realizable value is the

estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.

Due to the low sell-through of our AirBar products,

management has decided to fully reserve work-in-process for AirBar components, as well as AirBar related raw materials.

Management has

further decided to reserve for a portion of AirBar finished goods, depending on type of AirBar and in which location it is stored.

AirBar inventory reserve was $0.8 million and $0.9 million as of March 31, 2021 and December 31, 2020, respectively.

To protect our manufacturing partner from losses

in relation to AirBar production, we agreed to secure the value of the inventory with a bank guarantee covering the production of 20,000

Excess inventory was purchased from our manufacturing partner in 2019 and has been fully reserved.

Raw materials, work-in-process,

and finished goods are as follows (in thousands):

Raw materials

Our allowance for doubtful accounts was approximately $ 79,000 as of June 30, 2021 and December 31, 2020, respectively.

in process consist of costs incurred toward the completion of various projects for certain customers.

These costs are primarily comprised

of direct engineering labor costs and project-specific equipment costs.

These costs are capitalized on our balance sheet as an asset

and deferred until revenue for each project is recognized in accordance with our revenue recognition policy.

There were no costs capitalized

to projects in process as of June 30, 2021 and December 31, 2020, respectively.

Company’s inventory consists primarily of components that will be used in the manufacturing of our sensor modules.

inventory for reporting purposes as raw materials, work-in-process, and finished goods.

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

to the low sell-through of our AirBar products, management has decided to fully reserve work-in-process for AirBar components, as well

as AirBar related raw materials.

Management has further decided to reserve for a portion of AirBar finished goods, depending on type

of AirBar and in which location it is stored.

The AirBar inventory reserve was $ 0.8 million and $ 0.9 million as of June 30, 2021 and

December 31, 2020, respectively.

protect our manufacturing partner from losses in relation to AirBar production, we agreed to secure the value of the inventory with a

bank guarantee covering the production of 20,000 AirBars.

Excess inventory was purchased from our manufacturing partner in 2019 and has

been fully reserved.

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

Work-in-process

Finished goods

Ending inventory

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

and Equipment

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:

Computer equipment

Furniture and fixtures

Equipment purchased under

a finance lease is recognized over the term of the lease if that lease term is shorter than the estimated useful life.

Upon retirement or sale of

property and equipment, cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected

in the condensed consolidated statement of operations.

Maintenance and repairs are charged to expense as incurred.

Right of Use Assets

A right-of-use asset represents

a lessee’s right to use a leased asset for the term of the lease.

Our right-of-use assets generally consist of operating leases

for buildings and finance leases for manufacturing equipment.

Right-of-use assets are measured initially at the present value of

the lease payments, plus any lease payments made before a lease begins and any initial direct costs, such as commissions paid to obtain

Right-of-use assets are subsequently

measured at the present value of the remaining lease payments, adjusted for incentives, prepaid or accrued rent, and any initial direct

costs not yet expensed.

Long-Lived Asset Recoverability

We assess the recoverability

of long-lived assets by estimating the future cash flow from the associated assets in accordance with relevant accounting guidance.

the estimated undiscounted future cash flow related to these assets decreases or the useful life is shorter than originally estimated,

we may incur charges for impairment of these assets.

As of March 31, 2021, we believe there was no impairment of our long-lived assets.

There can be no assurance, however, that market conditions will not change or sufficient demand for our products and services will continue,

which could result in impairment of long-lived assets in the future.

Foreign Currency Translation and Transaction Gains and Losses

The functional currency of

our foreign subsidiaries is the applicable local currency, the Swedish Krona, the Japanese Yen, the South Korean Won and the Taiwan Dollar.

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

retirement or sale of property and equipment, cost and accumulated depreciation and amortization are removed from the accounts and any

gains or losses are reflected in the condensed consolidated statement of operations.

Maintenance and repairs are charged to expense as

of Use Assets

right-of-use asset represents a lessee’s right to use a leased asset for the term of the lease.

Our right-of-use assets generally

consist of operating leases for buildings and finance leases for manufacturing equipment.

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.

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.

Asset Recoverability

assess the recoverability of long-lived assets by estimating the future cash flows from the associated assets in accordance with relevant

accounting guidance.

If the estimated undiscounted future cash flows related to these assets decreases or the useful life is shorter

than originally estimated, we may incur charges for impairment of these assets.

As of June 30, 2021, we believe there was no impairment

of our long-lived assets.

There can be no assurance, however, that market conditions will not change or sufficient demand for our products

and services will continue, which could result in impairment of long-lived assets in the future.

Currency Translation and Transaction Gains and Losses

functional currency of our foreign subsidiaries is the applicable local currency, the Swedish Krona, the Japanese Yen, the South Korean

Won and the Taiwan Dollar.

The translation from Swedish Krona, Japanese Yen, South Korean Won and Taiwan Dollar to U.S.

Dollars is performed for balance sheet accounts

using current exchange rates in effect at the balance sheet date and for income statement accounts using a weighted-average exchange rate

during the period.

Gains or (losses) resulting from translation are included as a separate component of accumulated other comprehensive

income (loss).

Foreign currency translation gains (losses) were $(166,000) and $(87,000) during the three months ended March 31, 2021

and 2020, respectively.

Gains (losses) resulting from foreign currency transactions are included in general and administrative expenses

in the accompanying condensed consolidated statements of operations and were $82,000 and $49,000 during the three months ended March 31,

2021 and 2020, respectively.

Concentration of Credit and Business Risks

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

As of March 31, 2021, five

customers represented approximately 78% of our consolidated accounts receivable and unbilled revenues.

As of December 31, 2020, three

Dollars is performed

for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income statement accounts using a

weighted-average exchange rate during the period.

Gains or (losses) resulting from translation are included as a separate component of

accumulated other comprehensive income (loss).

Foreign currency translation gains (losses) were $ 56,000 and $( 110,000 ) and $ 64,000 and

$( 23,000 ) during the three and six months ended June 30, 2021 and 2020, respectively.

Gains (losses) resulting from foreign currency

transactions are included in general and administrative expenses in the accompanying condensed consolidated statements of operations

and were $( 54,000 ) and $ 28,000 during the three and six months ended June 30, 2021, respectively, compared to $( 63,000 ) and $( 14,000 )

during the same periods in 2020, respectively.

Concentration

of Credit and Business Risks

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

As of June 30, 2021, four

customers represented approximately 70 % of our consolidated accounts receivable and unbilled revenues.

Customers who accounted for

10% or more of our net revenues during the three months ended March 31, 2021 are as follows:

Hewlett Packard Company –

Seiko Epson Corporation –

Lexmark Intl Inc –

Alpine –

Customers who accounted for 10% or more of our

net revenues during the three months ended March 31, 2020 are as follows:

Hewlett Packard Company –

Epson –

Alpine –

Revenue Recognition

We recognize revenue when

control of products is transferred to our customers, and when services are completed and accepted by our customers.

The amount of revenue

we recognize reflects the consideration we expect to receive for those products or services.

Our contracts with customers may include

combinations of products and services, for example, a contract that includes products and related engineering services.

We structure our

contracts such that distinct performance obligations, such as product sales or license fees, and related engineering services, are clearly

defined in each contract.

License fees for products and sales of AirBar and sensor modules are

recognized on a per-unit basis;

therefore, we generally satisfy performance obligations as units are shipped to our customers.

Non-recurring

engineering service performance obligations are satisfied as work is performed and accepted by our customers.

We recognize revenue net of

allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

product shipping and handling charges (regardless of when they occur) as activities to fulfill the promise to transfer goods, therefore

we treat all shipping and handling charges as expenses.

Revenues from our business

areas derive from three different revenue streams:

license fees, non-recurring engineering fees and the sale of sensor modules.

Licensing Revenues:

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

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

● Hewlett Packard Company – 30 %

● Seiko Epson Corporation – 17 %

● LG Electronics Inc.

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

● Hewlett Packard Company – 31 %

● Seiko Epson Corporation – 14 %

● LG Electronics Inc.

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

● Epson – 35 %

● Hewlett Packard Company – 27 %

● Alpine – 12 %

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

● Alpine – 17 %

● Epson – 24 %

● Hewlett Packard Company – 33 %

recognize revenue when control of products is transferred to our customers, and when services are completed and accepted by our customers.

The amount of revenue we recognize reflects the consideration we expect to receive for those products or services.

Our contracts with

customers may include combinations of products and services, for example, a contract that includes products and related engineering services.

We structure our contracts such that distinct performance obligations, such as product sales or license fees, and related engineering

services, are clearly defined in each contract.

fees for products and sales of AirBar and sensor modules are recognized on a per-unit basis;

therefore, we generally satisfy performance

obligations as units are shipped to our customers.

Non-recurring engineering service performance obligations are satisfied as work is

performed and accepted by our customers.

recognize revenue net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental

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.

from our business areas derive from three different revenue streams:

license fees, non-recurring engineering fees and the sale of sensor

We earn revenue from licensing

our internally developed intellectual property (“IP”).

We enter into IP licensing agreements that generally provide licensees

the right to incorporate our IP components in their products, with terms and conditions that vary by licensee.

Fees under these agreements

may include license fees relating to our IP, and royalties payable to us following the distribution by our licensees of products

incorporating the licensed technology.

The license for our IP has standalone value and can be used by the licensee without maintenance

For technology license arrangements

that do not require significant modification or customization of the underlying technology, we recognize technology license revenue when

the license is made available to the customer and the customer has a right to use that license.

At the end of each reporting period, we

record unbilled license fees, using prior royalty revenue data by customer to make estimates of those royalties.

Explicit return rights are not offered to customers.

There have been no returns through March 31, 2021.

Engineering Services:

For technology license or sensor module contracts that require modification

or customization of the underlying technology to adapt that technology to the customer’s desired use, we determine whether the technology

license or sensor module, and engineering consulting services represent separate performance obligations.

We perform our analysis on a

contract-by-contract basis.

If there are separate performance obligations, we determine the standalone selling price (“SSP”)

of each separate performance obligation to properly recognize revenue as each performance obligation is satisfied.

We provide engineering

consulting services to our customers under a signed Statement of Work (“SOW”).

Deliverables and payment terms are specified

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 service revenues

as progress towards completion of engineering services and customer acceptance of those services occurs best reflects the economics of

those transactions, because engineering services as tracked in our systems correspond directly with the value to our customers of our

performance completed to date.

Hours performed for each engineering project are tracked and reflect progress made on each project and

are charged at a consistent hourly rate.

Revenues from engineering

services contracts that are short-term in nature are recorded when those services are complete and accepted by customers.

Revenues from engineering

services contracts with substantive defined deliverables for which payment terms in the SOW are commensurate with the efforts required

to produce such deliverables are recognized as they are completed and accepted by customers.

Estimated losses on all SOW

projects are recognized in full as soon as they become evident.

During the three months ended March 31, 2021 and 2020, no losses related

to SOW projects were recorded.

Optical Sensor Modules

We earn revenue from sales of sensor modules hardware products to our

Original Equipment Manufacturers (“OEM”) and Tier 1 supplier customers, who embed our hardware into their products, and from

sales of branded consumer products that incorporate our sensor modules sold through distributors or directly to end users.

These distributors

are generally given business terms that allow them to return unsold inventory, receive credits for changes in selling prices, and participate

in various cooperative marketing programs.

Our sales agreements generally provide customers with limited rights of return and warranty

The timing of revenue recognition related to AirBar

modules depends upon how each sale is transacted - either point-of-sale or through distributors.

We recognize revenue for AirBar modules

sold point-of-sale when we provide the promised product to the customer.

We generally use distributors to provide AirBar and sensor modules

to our customers and analyze the terms of distributor agreements to determine when control passes from us to our distributors.

of AirBar and sensor modules sold through distributors, revenues are recognized when our distributors obtain control over our products.

Control passes to our distributors when we have a present right to payment for products sold to distributors, the distributors have legal

title to and physical possession of products purchased from us, and the distributors have significant risks and rewards of ownership of

products purchased.

Distributors participate in various cooperative

marketing and other incentive programs, and we maintain estimated accruals and allowances for these programs.

If actual credits received

by distributors under these programs were to deviate significantly from our estimates, which are based on historical experience, our revenue

could be adversely affected.

GAAP, companies may make reasonable aggregations and approximations

of returns data to accurately estimate returns.

Our AirBar and Module 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 $74,000 as of March 31, 2021 and $74,000 as of December

If the actual future returns were to deviate from the historical data on which the reserve had been established, our revenue

could be adversely affected.

The following table presents

disaggregated revenues by market for the three months ended March 31, 2021 and 2020 (dollars in thousands):

Three months ended

March 31, 2021

Three months ended

March 31, 2020

HMI Solutions

Net revenues from automotive

Net revenues from consumer electronics

Net revenues from medical

Net revenues from distributors

Net revenues from other

Significant Judgments

Our contracts with customers

may include promises to transfer multiple products and services to a customer, particularly when the contract is for a product and related

engineering services fees for customizing that product for our customer.

Determining whether products and services are considered distinct

performance obligations that should be accounted for separately may require significant judgment.

Judgment may also be required to determine

the SSP for each distinct performance obligation identified, although we generally structure our contracts such that performance obligations

and pricing for each performance obligation are specifically addressed.

We currently have no outstanding contracts with multiple performance

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

The following table presents accounts receivable

and deferred revenues as of March 31, 2021 and 2020 (in thousands):

Accounts receivable and unbilled revenue

Deferred revenues

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;

our internally developed intellectual property (“IP”) and our licensing customer base is primarily in the automotive and printer

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.

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.

end of each reporting period, we record unbilled license fees, using prior royalty revenue data by customer to make estimates of those

return rights are not offered to customers.

There have been no returns through June 30, 2021.

Engineering Services Revenues:

For technology license or

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

desired use, we determine whether the technology license or sensor module, and engineering consulting services represent separate performance

We perform our analysis on a contract-by-contract basis.

If there are separate performance obligations, we determine the

standalone selling price (“SSP”) of each separate performance obligation to properly recognize revenue as each performance

obligation is satisfied.

We provide engineering consulting services to our customers under a signed Statement of Work (“SOW”).

Deliverables and payment terms are specified in each SOW.

We generally charge an hourly rate or on a flat rate for engineering services,

and we recognize revenue as the engineering services specified in the contracts are completed and accepted by our customers.

payments we receive for future non-recurring engineering services are recorded as unearned revenue until that revenue is earned.

believe that recognizing non-recurring engineering service revenues as progress towards completion of engineering services and customer

acceptance of those services occurs best reflects the economics of those transactions, because engineering services as tracked in our

systems correspond directly with the value to our customers of our performance completed to date.

Hours performed for each engineering

project are tracked and reflect progress made on each project and are charged at a consistent hourly rate.

from engineering services contracts that are short-term in nature are recorded when those services are complete and accepted by customers.

from engineering services contracts with substantive defined deliverables for which payment terms in the SOW are commensurate with the

efforts required to produce such deliverables are recognized as they are completed and accepted by customers.

losses on all SOW projects are recognized in full as soon as they become evident.

During the three and six months ended June 30, 2021

and 2020, no losses related to SOW projects were recorded.

Touch Sensor Modules Revenues:

We earn revenue from sales

of touch sensor modules (“TSMs”) products to our OEM and Tier 1 supplier customers, who embed our hardware into their products,

and, occasionally, from sales of our AirBar branded consumer products (incorporating our TSM technology) sold through distributors.

distributors are generally given business terms that do not allow them to return unsold inventory.

Our sales agreements generally provide

customers with limited rights of return and warranty provisions.

The timing of revenue recognition

related to sales of TSMs and AirBars depends upon how each sale is transacted - either point-of-sale or through distributors.

revenue for products sold point-of-sale (online sales and other direct sales to customers) when we provide the promised product to the

we generally use distributors to provide TSMs and AirBars to our customers, we analyze the terms of distributor agreements to determine

when control passes from us to our distributors.

For sales of TSMs and AirBars sold through distributors, revenues are recognized when

our distributors obtain control over our products.

Control passes to our distributors when we have a present right to payment for products

sold to distributors, the distributors have legal title to and physical possession of products purchased from us, and the distributors

have significant risks and rewards of ownership of products purchased.

participate in various cooperative marketing and other incentive programs, and we maintain estimated accruals and allowances for these

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.

GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns.

and warranty experience to date has enabled us to make reasonable returns estimates, which are supported by the fact that our product

sales involve homogenous transactions.

The reserve for future sales returns is recorded as a reduction of our accounts receivable and

revenue and was $ 70,000 as of June 30, 2021 and $ 78,000 as of December 31, 2020.

If the actual future returns were to deviate from the

historical data on which the reserve had been established, our revenue could be adversely affected.

following tables present disaggregated revenues by market for the three and six months ended June 30, 2021 and 2020 (dollars in thousands):

June 30, 2021

June 30, 2020

revenues from consumer electronics