Item 1. Financial Statements
Item
1. Financial Statements
NEONODE
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share and per share amounts)
June 30,
December 31,
2021
2020
(Unaudited)
(Audited)
ASSETS
Current assets:
Cash
$ 6,611
$ 10,473
Accounts receivable and unbilled revenue, net
1,224
1,743
Inventory
2,086
1,273
Prepaid expenses and other current assets
650
1,161
Total current assets
10,571
14,650
Property and equipment, net
660
1,003
Operating lease right-of-use assets
628
919
Total assets
$ 11,859
$ 16,572
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$ 754
$ 1,084
Accrued payroll and employee benefits
1,170
1,170
Accrued expenses
435
545
Deferred revenues
130
138
Current portion of finance lease obligations
501
769
Current portion of operating lease obligations
437
504
Total current liabilities
3,427
4,210
Finance lease obligations, net of current portion
39
95
Operating lease obligations, net of current portion
74
377
Total liabilities
3,540
4,682
Commitments and contingencies
Stockholders’ equity:
Common stock, 25,000,000 shares authorized, with par value of $ 0.001 ; 11,504,665 shares issued and outstanding at June 30, 2021 and December 31, 2020
12
12
Additional paid-in capital
211,708
211,663
Accumulated other comprehensive loss
( 514 )
( 404 )
Accumulated deficit
( 199,383 )
( 196,158 )
Total Neonode Inc. stockholders’ equity
11,823
15,113
Noncontrolling interests
( 3,504 )
( 3,223 )
Total stockholders’ equity
8,319
11,890
Total liabilities and stockholders’ equity
$ 11,859
$ 16,572
The
accompanying notes are an integral part of these condensed consolidated financial statements.
1
NEONODE
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
(Unaudited)
Three months ended
June 30,
Six months ended
June 30,
2021
2020
2021
2020
Revenues:
License fees
$
1,358
$
674
$
2,653
$
1,843
Sensor modules
346
66
701
164
Non-recurring engineering
16
18
31
45
Total revenues
1,720
758
3,385
2,052
Cost of revenues:
Sensor modules
212
72
482
108
Non-recurring engineering
9
51
16
59
Total cost of revenues
221
123
498
167
Total gross margin
1,499
635
2,887
1,885
Operating expenses:
Research and development
1,379
1,043
2,521
2,038
Sales and marketing
769
648
1,557
1,193
General and administrative
1,147
700
2,234
1,499
Total operating expenses
3,295
2,391
6,312
4,730
Operating loss
( 1,796
)
( 1,756
)
( 3,425
)
( 2,845
)
Other expense:
Interest expense
3
7
8
14
Total other expense
3
7
8
14
Loss before provision for income taxes
( 1,799
)
( 1,763
)
( 3,433
)
( 2,859
)
Provision for income taxes
37
3
73
19
Net loss including noncontrolling interests
( 1,836
)
( 1,766
)
( 3,506
)
( 2,878
)
Less: Net loss attributable to noncontrolling interests
179
154
281
256
Net loss attributable to Neonode Inc.
$
( 1,657
)
$
( 1,612
)
$
( 3,225
)
$
( 2,622
)
Loss per common share:
Basic and diluted loss per share
$
( 0.14
)
$
( 0.18
)
$
( 0.28
)
$
( 0.29
)
Basic and diluted – weighted average number of common shares outstanding
11,504
9,171
11,504
9,171
The
accompanying notes are an integral part of these condensed consolidated financial statements.
2
NEONODE
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In
thousands)
(Unaudited)
Three months ended
June 30,
Six months ended
June 30,
2021
2020
2021
2020
Net loss
$ ( 1,836 )
$ ( 1,766 )
$ ( 3,506 )
$ ( 2,878 )
Other comprehensive income (loss):
Foreign currency translation adjustments
56
64
( 110 )
( 23 )
Comprehensive loss
( 1,780 )
( 1,702 )
( 3,616 )
( 2,901 )
Less: Comprehensive loss attributable to noncontrolling interests
179
154
281
256
Comprehensive loss attributable to Neonode Inc.
$ ( 1,601 )
$ ( 1,548 )
$ ( 3,335 )
$ ( 2,645 )
The
accompanying notes are an integral part of these condensed consolidated financial statements.
3
NEONODE
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In
thousands, except for Preferred Stock Shares Issued 1 )
(Unaudited)
For
the Quarter to Date periods ended June 30, 2020 through June 30, 2021
Preferred
Stock Shares Issued
Preferred
Stock Amount
Common
Stock Shares Issued
Common
Stock Amount
Additional
Paid-in Capital
Accumulated
Other Comprehensive Income (Loss)
Accumulated
Deficit
Total
Neonode Inc. Stockholders’ Equity
Noncontrolling
Interests
Total
Stockholders’ Equity
Balances,
December 31, 2019
-
$ -
9,171
$ 9
$ 197,543
$ ( 639 )
$ ( 190,520 )
$ 6,393
$
( 2,546
)
$
3,847
Foreign
currency translation adjustment
-
-
-
-
-
( 87 )
-
( 87 )
-
( 87
)
Net
loss
-
-
-
-
-
-
( 1,010 )
( 1,010 )
( 102
)
( 1,112
)
Balances,
March 31, 2020
-
$ -
9,171
$ 9
$ 197,543
$ ( 726 )
$ ( 191,530 )
$ 5,296
$
( 2,648
)
$
2,648
Foreign
currency translation adjustment
-
-
-
-
-
64
-
64
-
64
Net
loss
-
-
-
-
-
-
( 1,612 )
( 1,612 )
( 154
)
( 1,766
)
Balances,
June 30, 2020
-
$ -
9,171
$ 9
$ 197,543
$ ( 662 )
$ ( 193,142 )
$ 3,748
$
( 2,802
)
$
946
Issuance
of shares for cash, net of offering costs
3,932
3,932
1,612
1
9,597
-
-
13,530
-
13,530
Series
C-2 Preferred Stock issued for repayment of short-term borrowings and accrued interest
517
517
-
-
( 1 )
-
-
516
-
516
Conversion
of Series C-1 and C-2 Preferred Stock to common stock
( 4,449 )
( 4,449 )
684
1
4,448
-
-
-
-
-
Preferred
dividends
-
-
-
-
-
-
( 33 )
( 33 )
-
( 33
)
Foreign
currency translation adjustment
-
-
-
-
-
( 228 )
-
( 228 )
-
( 228
)
Net
loss
-
-
-
-
-
-
( 1,638 )
( 1,638 )
( 110
)
( 1,748
)
Balances,
September 30, 2020
-
$ -
11,467
$ 11
$ 211,587
$ ( 890 )
$ ( 194,813 )
$ 15,895
$
( 2,912
)
$
12,983
Stock-based
compensation
-
-
37
1
76
-
-
77
-
77
Foreign
currency translation adjustment
-
-
-
-
-
486
-
486
-
486
Net
loss
-
-
-
-
-
-
( 1,345 )
( 1,345 )
( 311
)
( 1,656
)
Balances,
December 31, 2020
-
$ -
11,504
$ 12
$ 211,663
$ ( 404 )
$ ( 196,158 )
$ 15,113
$
( 3,223
)
$
11,890
Stock-based
compensation
-
-
-
-
23
-
-
23
-
23
Foreign
currency translation adjustment
-
-
-
-
-
( 166 )
-
( 166 )
-
( 166
)
Net
loss
-
-
-
-
-
-
( 1,568 )
( 1,568 )
( 102
)
( 1,670
)
Balances,
March 31, 2021
-
$ -
11,504
$ 12
$ 211,686
$ ( 570 )
$ ( 197,726 )
$ 13,402
$
( 3,325
)
$
10,077
Stock-based
compensation
-
-
-
-
22
-
-
22
-
22
Foreign
currency translation adjustment
-
-
-
-
-
56
-
56
-
56
Net
loss
-
-
-
-
-
-
( 1,657 )
( 1,657 )
( 179
)
( 1,836
)
Balances,
June 30, 2021
-
$ -
11,504
$ 12
$ 211,708
$ ( 514 )
$ ( 199,383 )
$ 11,823
$
( 3,504
)
$
8,319
The
accompanying notes are an integral part of these condensed consolidated financial statements.
1 Preferred
Shares Issued per series can be found under the equity footnote (see Note 3).
4
NEONODE
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
Six months ended
June 30,
2021
2020
Cash flows from operating activities:
Net loss (including noncontrolling interests)
$
( 3,506
)
$
( 2,878
)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense
45
-
Depreciation and amortization
376
373
Amortization of operating lease right-of-use assets
259
183
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue, net
511
588
Projects in process
-
7
Inventory
( 880
)
( 42
)
Prepaid expenses and other current assets
481
155
Accounts payable and accrued expenses
( 343
)
( 169
)
Deferred revenues
( 6
)
33
Operating lease obligations
( 342
)
( 178
)
Net cash used in operating activities
( 3,405
)
( 1,928
)
Cash flows from investing activities:
Purchase of property and equipment
( 67
)
( 7
)
Net cash used in investing activities
( 67
)
( 7
)
Cash flows from financing activities:
Proceeds from short-term borrowings
-
966
Proceeds from short-term tax credits
-
542
Principal payments on finance lease obligations
( 295
)
( 164
)
Net cash (used in) provided by financing activities
( 295
)
1,344
Effect of exchange rate changes on cash
( 95
)
7
Net decrease in cash
( 3,862
)
( 584
)
Cash at beginning of period
10,473
2,357
Cash at end of period
$
6,611
$
1,773
Supplemental disclosure of cash flow information:
Cash paid for income taxes
$
73
$
19
Cash paid for interest
$
8
$
13
The
accompanying notes are an integral part of these condensed consolidated financial statements.
5
NEONODE
INC.
Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
1.
Interim Period Reporting
The
accompanying unaudited interim condensed consolidated financial statements include all adjustments consisting of normal recurring adjustments
that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash
flows for the interim periods presented. The results of operations for the three and six months ended June 30, 2021 are not necessarily
indicative of results for a full fiscal year or any other period.
The
accompanying condensed consolidated financial statements for the three and six months ended June 30, 2021 and 2020 have been prepared
by us, pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures normally contained in financial statements prepared in accordance with accounting principles
generally accepted in the U.S. (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2020.
Operations
Neonode Inc., which is collectively
with its subsidiaries referred to as “Neonode” or the “Company” in this report, develops advanced optical sensing
solutions for contactless touch, touch, gesture sensing, and remote sensing solutions for driver and in-cabin monitoring features. We
market and sell our contactless touch, touch, and gesture sensing products and solutions using our zForce technology platform, and our
remote sensing solutions using our MultiSensing technology platform. Neonode offers customized optical touch and gesture control solutions
for many different markets and segments.
In our operations, we have
historically focused on three different business areas, human machine interface (“HMI”) Solutions, HMI Products and Remote
Sensing Solutions. On May 4, 2021, we announced a new strategy and organizational update targeting an increased focus on the Company’s
contactless touch business and on current market opportunities in North America (“AMER”), Asia-Pacific (“APAC”),
and Europe, Middle East and Africa (“EMEA”). We thereby changed from a business area organization to a regional sales organization
going forward. Revenues are however primarily monitored per our revenue streams license fees, sensor modules and non-recurring engineering
(“NRE”).
Liquidity
We
have incurred significant operating losses and negative cash flows from operations since our inception. The Company incurred net losses
of approximately $ 1.7 million and $ 3.2 million and $ 1.6 million and $ 2.6 million for the three and six months ended June 30, 2021 and
2020, respectively, and had an accumulated deficit of approximately $ 199.4 million and $ 196.2 million as of June 30, 2021 and December
31, 2020, respectively. In addition, operating activities used cash of approximately $ 3.4 million and $ 1.9 million for the six months
ended June 30, 2021 and 2020, respectively.
The condensed consolidated
financial statements included in this report have been prepared on a going concern basis, which contemplates continuity of operations
and the realization of assets and the repayment of liabilities in the ordinary course of business. Management evaluated the significance
of the Company’s operating loss and determined that the Company’s current operating plan and sources of potential capital
would be sufficient to alleviate concerns about the Company’s ability to continue as a going concern.
In the future, we may require
sources of capital in addition to cash on hand to continue operations and to implement our strategy. If our operations do not become cash
flow positive, we may be forced to seek equity investments or debt arrangements. No assurances can be given that we will be successful
in obtaining such additional financing on reasonable terms, or at all. If adequate funds are not available to us on acceptable terms,
or at all, we may be unable to adequately fund our business plans which could have a negative effect on our business, results of operations
and financial condition. If funds are available through the issuance of equity or debt securities, the issuance of equity securities or
securities convertible into equity could dilute the value of shares of our common stock and cause the market price to fall, and the issuance
of debt securities could impose restrictive covenants that could impair our ability to engage in certain business transactions.
We expect revenues will enable
us to reduce our operating losses in coming years. In addition, we intend to continue to implement various measures to improve our operational
efficiencies. No assurances can be given that management will be successful in meeting its revenue targets and reducing its operating
loss.
6
2.
Summary of Significant Accounting Policies
Principles
of Consolidation
The condensed consolidated
financial statements have been prepared in accordance with U.S. GAAP and include the accounts of Neonode Inc. and its wholly owned subsidiaries,
as well as Pronode Technologies AB, a 51 % majority owned subsidiary of Neonode Technologies AB. The remaining 49 % of Pronode Technologies
AB is owned by 2X Communication AB, located in Gothenburg, Sweden. Pronode Technologies AB was organized to manufacture and sell our sensor
modules. All inter-company accounts and transactions have been eliminated in consolidation.
Neonode
consolidates entities in which it has a controlling financial interest. We consolidate subsidiaries in which we hold, directly or indirectly,
more than 50% of the voting rights.
The
condensed consolidated balance sheets at June 30, 2021 and December 31, 2020 and the condensed consolidated statements of operations,
comprehensive loss, stockholders’ equity and cash flows for the three and six months ended June 30, 2021 and 2020 include our accounts
and those of our wholly owned subsidiaries as well as Pronode Technologies AB.
Estimates
and Judgments
The
preparation of financial statements in conformity with U.S. GAAP requires making estimates and judgments that affect, at the date of
the financial statements, the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported
amounts of revenue and expenses. Actual results could differ from these estimates and judgments.
Significant
estimates and judgments include, but are not limited to: for revenue recognition, determining the nature and timing of satisfaction of
performance obligations, the standalone selling price of performance obligations, and transaction prices and assessing transfer of control;
measuring variable consideration and other obligations such as product returns and refunds, and product warranties; provisions for uncollectible
receivables; determining the net realizable value of inventory; recoverability of capitalized project costs and long-lived assets; for
leases, determining whether a contract contains a lease, allocating consideration between lease and non-lease components, determining
incremental borrowing rates, and identifying reassessment events, such as modifications; the valuation allowance related to our deferred
tax assets; and the fair value of options issued for stock-based compensation.
Cash
and Cash Equivalents
We
have not had any liquid investments other than normal cash deposits with bank institutions to date. The Company considers all highly
liquid investments with original maturities of three months of less to be cash equivalents.
Concentration
of Cash Balance Risks
Cash balances are maintained
at various banks in the U.S., Japan, Taiwan and Sweden. For deposits held with financial institutions in the U.S., the U.S. Federal Deposit
Insurance Corporation provides basic deposit coverage with limits up to $250,000 per owner. The Swedish government provides insurance
coverage up to 1,050,000 Krona per customer and covers deposits in all types of accounts. For bank accounts of the category held by Neonode,
the Japanese government provides full insurance coverage. The Central Deposit Insurance Corporation in Taiwan provides insurance coverage
up to 3,000,000 Taiwan Dollar per customer. At times, deposits held with financial institutions may exceed the amount of insurance provided.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable is stated
at net realizable value. Our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make
required payments. Credit limits are established through a process of reviewing the financial history and stability of each customer.
Should all efforts fail to recover the related receivable, we will write off the account. We also record an allowance for all customers
based on certain other factors including the length of time the receivables are past due and historical collection experience with customers.
Our allowance for doubtful accounts was approximately $ 79,000 as of June 30, 2021 and December 31, 2020, respectively.
7
Projects
in Process
Projects
in process consist of costs incurred toward the completion of various projects for certain customers. These costs are primarily comprised
of direct engineering labor costs and project-specific equipment costs. These costs are capitalized on our balance sheet as an asset
and deferred until revenue for each project is recognized in accordance with our revenue recognition policy. There were no costs capitalized
to projects in process as of June 30, 2021 and December 31, 2020, respectively.
Inventory
The
Company’s inventory consists primarily of components that will be used in the manufacturing of our sensor modules. We classify
inventory for reporting purposes as raw materials, work-in-process, and finished goods.
Inventory
is stated at the lower of cost or net realizable value, using the first-in, first-out (“FIFO”) valuation method. Net realizable
value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and
transportation. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current
period.
Due
to the low sell-through of our AirBar products, management has decided to fully reserve work-in-process for AirBar components, as well
as AirBar related raw materials. Management has further decided to reserve for a portion of AirBar finished goods, depending on type
of AirBar and in which location it is stored. The AirBar inventory reserve was $ 0.8 million and $ 0.9 million as of June 30, 2021 and
December 31, 2020, respectively.
To
protect our manufacturing partner from losses in relation to AirBar production, we agreed to secure the value of the inventory with a
bank guarantee covering the production of 20,000 AirBars. Excess inventory was purchased from our manufacturing partner in 2019 and has
been fully reserved.
Raw
materials, work-in-process, and finished goods are as follows (in thousands):
June 30,
December 31,
2021
2020
Raw
materials
$ 998
$ 550
Work-in-process
40
21
Finished
goods
1,048
702
Ending
inventory
$ 2,086
$ 1,273
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using
the straight-line method based upon estimated useful lives of the assets as follows:
Estimated
useful lives
Computer equipment
3 years
Furniture and fixtures
5 years
Equipment
7 years
Equipment
purchased under a finance lease is recognized over the term of the lease if that lease term is shorter than the estimated useful life.
Upon
retirement or sale of property and equipment, cost and accumulated depreciation and amortization are removed from the accounts and any
gains or losses are reflected in the condensed consolidated statement of operations. Maintenance and repairs are charged to expense as
incurred.
8
Right
of Use Assets
A
right-of-use asset represents a lessee’s right to use a leased asset for the term of the lease. Our right-of-use assets generally
consist of operating leases for buildings and finance leases for manufacturing equipment.
Right-of-use
assets are measured initially at the present value of the lease payments, plus any lease payments made before a lease began and any initial
direct costs, such as commissions paid to obtain a lease.
Right-of-use
assets are subsequently measured at the present value of the remaining lease payments, adjusted for incentives, prepaid or accrued rent,
and any initial direct costs not yet expensed.
Long-lived
Asset Recoverability
We
assess the recoverability of long-lived assets by estimating the future cash flows from the associated assets in accordance with relevant
accounting guidance. If the estimated undiscounted future cash flows related to these assets decreases or the useful life is shorter
than originally estimated, we may incur charges for impairment of these assets. As of June 30, 2021, we believe there was no impairment
of our long-lived assets. There can be no assurance, however, that market conditions will not change or sufficient demand for our products
and services will continue, which could result in impairment of long-lived assets in the future.
Foreign
Currency Translation and Transaction Gains and Losses
The
functional currency of our foreign subsidiaries is the applicable local currency, the Swedish Krona, the Japanese Yen, the South Korean
Won and the Taiwan Dollar. The translation from Swedish Krona, Japanese Yen, South Korean Won and Taiwan Dollar to U.S. Dollars is performed
for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income statement accounts using a
weighted-average exchange rate during the period. Gains or (losses) resulting from translation are included as a separate component of
accumulated other comprehensive income (loss). Foreign currency translation gains (losses) were $ 56,000 and $( 110,000 ) and $ 64,000 and
$( 23,000 ) during the three and six months ended June 30, 2021 and 2020, respectively. Gains (losses) resulting from foreign currency
transactions are included in general and administrative expenses in the accompanying condensed consolidated statements of operations
and were $( 54,000 ) and $ 28,000 during the three and six months ended June 30, 2021, respectively, compared to $( 63,000 ) and $( 14,000 )
during the same periods in 2020, respectively.
Concentration
of Credit and Business Risks
Our
customers are located in U.S., Europe and Asia.
As of June 30, 2021, four
customers represented approximately 70 % of our consolidated accounts receivable and unbilled revenues.
As
of December 31, 2020, three customers represented approximately 62 % of our consolidated accounts receivable and unbilled revenues.
Customers
who accounted for 10 % or more of our net revenues during the three months ended June 30, 2021 are as follows:
● Hewlett Packard Company – 30 %
● Seiko Epson Corporation – 17 %
● LG Electronics Inc. – 14 %
Customers
who accounted for 10 % or more of our net revenues during the six months ended June 30, 2021 are as follows:
● Hewlett Packard Company – 31 %
● Seiko Epson Corporation – 14 %
● LG Electronics Inc. – 13 %
9
Customers
who accounted for 10 % or more of our net revenues during the three months ended June 30, 2020 are as follows:
● Epson – 35 %
● Hewlett Packard Company – 27 %
● Alpine – 12 %
Customers
who accounted for 10 % or more of our net revenues during the six months ended June 30, 2020 are as follows:
● Alpine – 17 %
● Epson – 24 %
● Hewlett Packard Company – 33 %
Revenue
Recognition
We
recognize revenue when control of products is transferred to our customers, and when services are completed and accepted by our customers.
The amount of revenue we recognize reflects the consideration we expect to receive for those products or services. Our contracts with
customers may include combinations of products and services, for example, a contract that includes products and related engineering services.
We structure our contracts such that distinct performance obligations, such as product sales or license fees, and related engineering
services, are clearly defined in each contract.
License
fees for products and sales of AirBar and sensor modules are recognized on a per-unit basis; therefore, we generally satisfy performance
obligations as units are shipped to our customers. Non-recurring engineering service performance obligations are satisfied as work is
performed and accepted by our customers.
We
recognize revenue net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental
authorities. We treat all product shipping and handling charges (regardless of when they occur) as activities to fulfill the promise
to transfer goods, therefore we treat all shipping and handling charges as expenses.
Revenues
from our business areas derive from three different revenue streams: license fees, non-recurring engineering fees and the sale of sensor
modules.
Licensing
Revenues:
We earn revenue from licensing
our internally developed intellectual property (“IP”) and our licensing customer base is primarily in the automotive and printer
industries. We enter into IP licensing agreements that generally provide licensees the right to incorporate our IP components in their
products, with terms and conditions that vary by licensee. Fees under these agreements may include license fees relating to our IP, and royalties
payable to us following the distribution by our licensees of products incorporating the licensed technology. The license for our IP has
standalone value and can be used by the licensee without maintenance and support.
For
technology license arrangements that do not require significant modification or customization of the underlying technology, we recognize
technology license revenue when the license is made available to the customer and the customer has a right to use that license. At the
end of each reporting period, we record unbilled license fees, using prior royalty revenue data by customer to make estimates of those
royalties.
Explicit
return rights are not offered to customers. There have been no returns through June 30, 2021.
10
Engineering Services Revenues:
For technology license or
sensor module contracts that require modification or customization of the underlying technology to adapt that technology to the customer’s
desired use, we determine whether the technology license or sensor module, and engineering consulting services represent separate performance
obligations. We perform our analysis on a contract-by-contract basis. If there are separate performance obligations, we determine the
standalone selling price (“SSP”) of each separate performance obligation to properly recognize revenue as each performance
obligation is satisfied. We provide engineering consulting services to our customers under a signed Statement of Work (“SOW”).
Deliverables and payment terms are specified in each SOW. We generally charge an hourly rate or on a flat rate for engineering services,
and we recognize revenue as the engineering services specified in the contracts are completed and accepted by our customers. Any upfront
payments we receive for future non-recurring engineering services are recorded as unearned revenue until that revenue is earned.
We
believe that recognizing non-recurring engineering service revenues as progress towards completion of engineering services and customer
acceptance of those services occurs best reflects the economics of those transactions, because engineering services as tracked in our
systems correspond directly with the value to our customers of our performance completed to date. Hours performed for each engineering
project are tracked and reflect progress made on each project and are charged at a consistent hourly rate.
Revenues
from engineering services contracts that are short-term in nature are recorded when those services are complete and accepted by customers.
Revenues
from engineering services contracts with substantive defined deliverables for which payment terms in the SOW are commensurate with the
efforts required to produce such deliverables are recognized as they are completed and accepted by customers.
Estimated
losses on all SOW projects are recognized in full as soon as they become evident. During the three and six months ended June 30, 2021
and 2020, no losses related to SOW projects were recorded.
Touch Sensor Modules Revenues:
We earn revenue from sales
of touch sensor modules (“TSMs”) products to our OEM and Tier 1 supplier customers, who embed our hardware into their products,
and, occasionally, from sales of our AirBar branded consumer products (incorporating our TSM technology) sold through distributors. These
distributors are generally given business terms that do not allow them to return unsold inventory. Our sales agreements generally provide
customers with limited rights of return and warranty provisions.
The timing of revenue recognition
related to sales of TSMs and AirBars depends upon how each sale is transacted - either point-of-sale or through distributors. We recognize
revenue for products sold point-of-sale (online sales and other direct sales to customers) when we provide the promised product to the
customer.
Because
we generally use distributors to provide TSMs and AirBars to our customers, we analyze the terms of distributor agreements to determine
when control passes from us to our distributors. For sales of TSMs and AirBars sold through distributors, revenues are recognized when
our distributors obtain control over our products. Control passes to our distributors when we have a present right to payment for products
sold to distributors, the distributors have legal title to and physical possession of products purchased from us, and the distributors
have significant risks and rewards of ownership of products purchased.
Distributors
participate in various cooperative marketing and other incentive programs, and we maintain estimated accruals and allowances for these
programs. If actual credits received by distributors under these programs were to deviate significantly from our estimates, which are
based on historical experience, our revenue could be adversely affected.
Under
U.S. GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns. Our returns
and warranty experience to date has enabled us to make reasonable returns estimates, which are supported by the fact that our product
sales involve homogenous transactions. The reserve for future sales returns is recorded as a reduction of our accounts receivable and
revenue and was $ 70,000 as of June 30, 2021 and $ 78,000 as of December 31, 2020. If the actual future returns were to deviate from the
historical data on which the reserve had been established, our revenue could be adversely affected.
11
The
following tables present disaggregated revenues by market for the three and six months ended June 30, 2021 and 2020 (dollars in thousands):
Three
months ended
June 30, 2021
Three
months ended
June 30, 2020
Amount
Percentage
Amount
Percentage
AMER
Net
revenues from consumer electronics
$ 569
97 %
$ 260
98 %
Net
revenues from distributors and other
15
3 %
6
2 %
$ 584
100 %
$ 266
100 %
APAC
Net
revenues from automotive
$ 417
42 %
$ 117
29 %
Net
revenues from consumer electronics
292
30 %
267
65 %
Net
revenues from distributors and other
277
28 %
24
6 %
$ 986
100 %
$ 408
100 %
EMEA
Net
revenues from automotive
$ 90
60 %
$ 31
37 %
Net
revenues from medical
53
35 %
50
60 %
Net
revenues from distributors and other
7
5 %
3
3 %
$ 150
100 %
$ 84
100 %
Six
months ended
June 30, 2021
Six
months ended
June 30, 2020
Amount
Percentage
Amount
Percentage
AMER
Net
revenues from consumer electronics
$ 1,160
91 %
$ 792
92 %
Net
revenues from distributors and other
117
9 %
65
8 %
$ 1,277
100 %
$ 857
100 %
APAC
Net
revenues from automotive
$ 822
45 %
$ 398
43 %
Net
revenues from consumer electronics
492
27 %
495
54 %
Net
revenues from distributors and other
502
28 %
26
3 %
$ 1,816
100 %
$ 919
100 %
EMEA
Net
revenues from automotive
$ 204
70 %
$ 160
58 %
Net
revenues from medical
74
25 %
105
38 %
Net
revenues from distributors and other
14
5 %
11
4 %
$ 292
100 %
$ 276
100 %
12
Significant
Judgments
Our
contracts with customers may include promises to transfer multiple products and services to a customer, particularly when the contract
is for a product and related engineering services fees for customizing that product for our customer. Determining whether products and
services are considered distinct performance obligations that should be accounted for separately may require significant judgment. Judgment
may also be required to determine the SSP for each distinct performance obligation identified, although we generally structure our contracts
such that performance obligations and pricing for each performance obligation are specifically addressed. We currently have no outstanding
contracts with multiple performance obligations.
Judgment
is also required to determine when control of products passes from us to our distributors, as well as the amounts of product that may
be returned to us. Our products are sold with a right of return, and we may provide other credits or incentives to our customers, which
could result in variability when determining the amount of revenue to recognize. At the end of each reporting period, we use product
returns history and additional information that becomes available to estimate returns and credits. We do not recognize revenue if it
is probable that a significant reversal of any incremental revenue would occur.
Finally,
judgment is required to determine the amount of unbilled license fees at the end of each reporting period.
Contract
Balances
Timing
of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when we have an unconditional right
to receive future payments from customers, and we record unearned deferred revenue when we receive prepayments or upfront payments for
goods or services from our customers.
The
following table presents accounts receivable and deferred revenues as of June 30, 2021 and December 31, 2020 (in thousands):
June 30,
2021
December 31,
2020
Accounts
receivable and unbilled revenue
$ 1,224
$ 1,743
Deferred
revenues
130
138
The
timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled revenues (contract assets),
and customer advances and deposits or deferred revenue (contract liabilities) on the consolidated balance sheets. Generally, billing
occurs subsequent to revenue recognition, resulting in contract assets; contract assets are generally classified as current. The Company
sometimes receives advances or deposits from its customers before revenue is recognized, which are reported as contract liabilities and
are generally classified as current. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract
basis at the end of each reporting period.
We
do not anticipate impairment of our contract asset related to license fee revenues, given the creditworthiness of our customers whose
invoices comprise the balance in that asset account. We will continue to monitor the timeliness of receipts from those customers, however,
to assess whether the contract asset has been impaired.
The
allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine
the allowance based on known troubled accounts, historical experience, and other currently available evidence. Our allowance for doubtful
accounts was approximately $79,000 as of June 30, 2021 and December 31, 2020.
Payment
terms and conditions vary by the type of contract; however, payments generally occur 30-60 days after invoicing for license fees and
sensor modules to our resellers and distributors. Where revenue recognition timing differs from invoice timing, we have determined that
our contracts do not include a significant financing component. Our intent is to provide our customers with consistent invoicing terms
for the convenience of our customers, not to receive financing from our customers.
Costs
to Obtain Contracts
We
record the incremental costs of obtaining a contract with a customer as an asset, if we expect the benefit of those costs to cover a
period greater than one year. We currently have no incremental costs that must be capitalized.
We
expense as incurred costs of obtaining a contract when the amortization period of those costs would have been less than or equal to one
year.
13
Product
Warranty
The
following table summarizes the activity related to the product warranty liability (in thousands):
June 30,
2021
December 31,
2020
Balance
at beginning of period
$ 25
$ 24
Provisions
for warranty issued
11
1
Balance
at end of period
$ 36
$ 25
The
Company accrues for warranty costs as part of its cost of sales of sensor modules based on estimated costs. The Company’s products
are generally covered by a warranty for a period of 12 months from the customer receipt of the product.
Deferred
Revenues
Deferred
revenues consist primarily of prepayments for license fees, and other products or services for which we have been paid in advance and
earn the revenue when we transfer control of the product or service. Deferred revenues may also include upfront payments for consulting
services to be performed in the future, such as non-recurring engineering services.
We
defer license fees until we have met all accounting requirements for revenue recognition, which is when a license is made available to
a customer and that customer has a right to use the license. Engineering development fee revenues are deferred until engineering services
have been completed and accepted by our customers.
The
following table presents our deferred revenues (in thousands):
June 30,
2021
December 31,
2020
Deferred
revenues license fees
$ 28
$ 28
Deferred
revenues sensor modules
70
88
Deferred
revenues non-recurring engineering
32
22
$ 130
$ 138
During
the three and six months ended June 30, 2021, the Company recognized revenues of approximately $ 8,000 and $ 26,000 , respectively, related
to contract liabilities outstanding at the beginning of the year.
Advertising
Advertising
costs are expensed as incurred. Advertising costs for the three and six months ended June 30, 2021 and 2020 amounted to approximately
$ 39,000 and $ 58,000 and $ 9,000 and $ 16,000 , respectively.
Research
and Development
Research
and development (“R&D”) costs are expensed as incurred. R&D costs consist primarily of personnel related costs in
addition to external consultancy costs such as testing, certifying and measurements.
Stock-Based
Compensation Expense
We
measure the cost of employee services received in exchange for an award of equity instruments, including share options, based on the
estimated fair value of the award on the grant date, and recognize the value as compensation expense over the period the employee is
required to provide services in exchange for the award, usually the vesting period.
14
We
account for equity instruments issued to non-employees at their estimated fair value.
When
determining stock-based compensation expense involving options and warrants, we determine the estimated fair value of options and warrants
using the Black-Scholes option pricing model.
Noncontrolling
Interests
We recognize any noncontrolling interest, also known as a minority
interest, as a separate line item in equity in the consolidated financial statements. A noncontrolling interest represents the portion
of equity ownership in a less-than-wholly owned subsidiary not attributable to us. Generally, any interest that represents less than 50 %
of the outstanding voting shares of an entity is deemed to be a noncontrolling interest; however, there are other factors, such as decision-making
rights, that are considered as well. We include the amount of net income (loss) attributable to noncontrolling interests in consolidated
net income (loss) on the face of the consolidated statements of operations.
The
Company provides either in the condensed consolidated statement of stockholders’ equity, if presented, or in the notes to condensed
consolidated financial statements, a reconciliation at the beginning and the end of the period of the carrying amount of total equity
(net assets), equity (net assets) attributable to the parent, and equity (net assets) attributable to the noncontrolling interest that
separately discloses:
(1)
Net
income or loss;
(2)
Transactions
with owners acting in their capacity as owners, showing separately contributions from and distributions to owners; and
(3)
Each
component of other comprehensive income or loss.
Income
taxes
We
recognize deferred tax liabilities and assets for the expected future tax consequences of items that have been included in the consolidated
financial statements or tax returns. We estimate income taxes based on rates in effect in each of the jurisdictions in which we operate.
Deferred income tax assets and liabilities are determined based upon differences between the financial statement and income tax bases
of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The realization
of deferred tax assets is based on historical tax positions and expectations about future taxable income. Valuation allowances are recorded
against net deferred tax assets when, in our opinion, realization is uncertain based on the “more likely than not” criteria
of the accounting guidance.
Based
on the uncertainty of future pre-tax income, we fully reserved our net deferred tax assets as of June 30, 2021 and December 31, 2020.
In the event we were to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred
tax asset would increase income in the period such determination was made. The provision for income taxes represents the net change in
deferred tax amounts, plus income taxes paid or payable for the current period.
We
follow U.S. GAAP related accounting for uncertainty in income taxes, which provisions include a two-step approach to recognizing, de-recognizing
and measuring uncertainty in income taxes. As a result, we did not recognize a liability for unrecognized tax benefits. As of June 30,
2021, and December 31, 2020, we had no unrecognized tax benefits.
Net
Loss per Share
Net loss per share amounts
has been computed based on the weighted average number of shares of common stock outstanding during the three and six months ended June
30, 2021 and 2020, respectively. Net loss per share, assuming dilution amounts from common stock equivalents, is computed based on the
weighted-average number of shares of common stock and potential common stock equivalents outstanding during the period. The weighted-average
number of shares of common stock and potential common stock equivalents used in computing the net loss per share for the three and six
months ended June 30, 2021 and 2020 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note
8).
15
Other
Comprehensive Income (Loss)
Our
other comprehensive income (loss) includes foreign currency translation gains and losses. The cumulative amount of translation gains
and losses are reflected as a separate component of stockholders’ equity in the condensed consolidated balance sheets.
Cash
Flow Information
Cash
flows in foreign currencies have been converted to U.S. Dollars at an approximate weighted-average exchange rate for the respective reporting
periods. The weighted-average exchange rate for the condensed consolidated statements of operations was as follows:
Six
months ended
June 30,
2021
2020
Swedish
Krona
8.41
9.68
Japanese
Yen
107.73
108.26
South
Korean Won
1,117.81
1,205.88
Taiwan
Dollar
28.02
30.01
Exchange
rate for the consolidated balance sheets was as follows:
As
of
June 30,
December 31,
2021
2020
Swedish
Krona
8.56
8.22
Japanese
Yen
111.05
103.23
South
Korean Won
1,130.82
1,088.29
Taiwan
Dollar
27.91
28.09
Fair
Value of Financial Instruments
We
disclose the estimated fair values for all financial instruments for which it is practicable to estimate fair value. Financial instruments
including cash, accounts receivable, accounts payable and accrued expenses are deemed to approximate fair value due to their short maturities.
New
Accounting Pronouncements
In September 2016, the FASB
issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments ,
(“ASU 2016-13”), supplemented by subsequent accounting standards updates. The new standard requires entities to measure all
expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable
and supportable forecasts. ASU 2016-13, as amended, is scheduled to become effective for fiscal years beginning after December 15, 2023,
with early adoption permitted. In the future, we will evaluate the impact that ASU 2016-13, as amended, will have on our consolidated
financial statements, specifically regarding our trade receivables; however, we do not expect any significant impact from implementation
of the new standard at this time.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Tax , which simplifies
the accounting for income taxes. We adopted ASU 2019-12 on January 1, 2021 and the adoption of this ASU did not have a significant impact
on our consolidated financial statements.
3.
Stockholders’ Equity
On
May 10, 2021, we entered into an At Market Issuance Sales Agreement SM (the “Sales Agreement”) with B. Riley
Securities with respect to an “at the market” offering program (the “ATM Facility”), under which we may, from
time to time, in our sole discretion, issue and sell through B. Riley Securities, acting as sales agent, up to $ 25.0 million of shares
of our common stock.
Pursuant
to the Sale Agreement, B. Riley Securities may sell the shares by any method permitted that is deemed an “at the market”
offering as defined in Rule 415 under the Securities Act. B. Riley Securities will use commercially reasonable efforts consistent with
its normal trading and sales practices to sell the shares from time to time, based upon instructions from us (including any price or
size limits or other customary parameters or conditions we may impose). We will pay B. Riley Securities a commission of 3.0 % of the gross
sales price per share sold under the Sales Agreement.
We
are not obligated to sell any shares under the Sale Agreement. The offering of shares pursuant to the Sale Agreement will terminate upon
the earlier to occur of (i) the issuance and sale, through B. Riley Securities, of all of the shares subject to the Sales Agreement and
(ii) termination of the Sale Agreement in accordance with its terms.
16
On August 7, 2020, we closed
a private placement (the “Private Placement”) with certain institutional and accredited investors. We issued a total of 1,611,845
shares of common stock at a price of $ 6.50 per share, and a total of 365 shares of Series C-1 Preferred Stock and 3,050 shares of Series
C-2 Preferred Stock, each with a conversion price of $ 6.50 per share and a stated value of $ 1,000 per share, for approximately $ 13.9 million
in aggregate gross proceeds.
Common
Stock
At our annual meeting of stockholders
held on September 29, 2020, stockholders approved a proposal to increase the number of authorized shares of our common stock to 25,000,000
shares. Accordingly, on November 5, 2020, we filed an amendment to the Neonode Inc. Restated Certificate of Incorporation, as amended
(our “Certificate of Incorporation”), with the Secretary of State of the State of Delaware to increase the number of authorized
shares of our common stock to 25,000,000 shares.
On
December 29, 2020, we issued 37,288 shares of our common stock to key employees pursuant to our 2020 long term incentive program (“2020
LTIP”) see Note 4.
During
the three and six months ended June 30, 2021, there were no activities that affected common stock.
Preferred
Stock
On
August 6, 2020, in connection with the closing of the Private Placement, the Company designated (i) 365 shares of its authorized and
unissued preferred stock as Series C-1 Preferred Stock by filing a Series C-1 Certificate of Designation of Preferences, Rights and Limitations
with the Secretary of State of the State of Delaware and (ii) 4,084 shares of its authorized and unissued preferred stock as Series C-2
Preferred Stock by filing a Series C-2 Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State
of the State of Delaware.
On
September 24 and 29, 2020, respectively, the Series C-1 Preferred Stock and Series C-2 Preferred Stock (together, the “Series C
Preferred Shares”) were converted into 684,378 shares of Neonode common stock.
The
holders of the Series C-1 and C-2 Preferred Shares were entitled to receive dividends at the rate per share of 5 % per annum, totaling
$ 33,000 . As of December 31, 2020, all of the preferred dividends had been paid.
On
December 7, 2020, we filed Certificates of Elimination with the Secretary of State of the State of Delaware to eliminate the Series A
Preferred Stock, Series B Preferred Stock, Series C-1 Preferred Stock and Series C-2 Preferred Stock.
There
were no transactions in our preferred stock during the three and six months ended June 30, 2021 and 2020. No shares of preferred stock
were issued and outstanding as of June 30, 2021.
Details
of the preferred stock activities are set forth below:
Series C-1
Preferred
Stock
Shares Issued
Series
C-1
Preferred
Stock
Amount
Series C-2
Preferred
Stock
Shares Issued
Series C-2
Preferred
Stock
Amount
Balances,
December 31, 2019
-
-
-
-
Issuance
of Preferred Shares for cash
365
365
3,567
3,567
Series
C-2 Preferred Stock issued for repayment of short-term borrowings and accrued interest
-
-
517
517
Conversion
of Preferred Shares to common stock
( 365 )
( 365 )
( 4,084 )
( 4,084 )
Balances,
December 31, 2020
-
$ -
-
$ -
Warrants
As of June 30, 2021 and December
31, 2020, the Company had outstanding warrants to purchase 431,638 shares of common stock outstanding.
17
4.
Stock-Based Compensation
We have adopted equity incentive
plans under which we may grant stock options and restricted stock awards to employees, consultants and directors. Except for certain options
granted to certain Swedish employees, all employee, consultant and director stock options granted under our stock option plans have an
exercise price equal to the market value of the underlying common stock on the grant date. There are no vesting provisions tied to performance
conditions for any options, as vesting for all outstanding option grants was based solely on continued service as an employee, consultant
or director. All of our outstanding stock options and restricted stock awards are classified as equity instruments.
Stock
Options
During the year ended December
31, 2020, our stockholders approved the Neonode Inc. 2020 Stock Incentive Plan (the “2020 Plan”) which replaced our 2015 Stock
Incentive Plan (the “2015 Plan”), which in turn replaced our Neonode Inc. 2006 Equity Incentive Plan (the “2006 Plan”).
Although no new awards may be made under the 2015 or 2006 Plans, these plans are still operative for previously granted awards. Under
the 2020 Plan, 750,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted
stock grants to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2020 Plan are set
by our compensation committee at its discretion.
As
of June 30, 2021, we had three equity incentive plans:
●
The 2006 Plan;
●
The 2015 Plan; and
●
The 2020 Plan.
In 2020 we established the
Neonode Inc. 2020 Long Term Incentive Plan (the “2020 LTIP”) to provide eligible persons with the opportunity to acquire an
equity interest, or otherwise increase their equity interest, in the Company as an incentive for them to remain in the service of the
Company. Under the 2020 LTIP, eligible employees of Neonode may waive between 50 % to 67 % of any future unearned bonuses that may be awarded
to them under the Company’s annual bonus arrangement in exchange for the grant of shares of the Company’s common stock under
the Company’s 2020 Plan.
On
December 29, 2020, we issued 37,288 shares of common stock to key employees pursuant to the 2020 LTIP. The shares were immediately vested
but subject to a two-year lock-up period after issuance. In the event the participant’s employment with Neonode is terminated by
the participant during the two-year lock-up period, the Company will repurchase the shares at a price equal to 30 % of the lower of market
value at issuance and the termination date. The shares issued on December 29, 2020 represent two-thirds of the total shares available
for issuance under the 2020 LTIP and the last one-third is planned to be issued at the end of December 2021. Neonode has reported and
paid Swedish social charges of $ 75,000 for the issued shares but only 30 % of the stock-based compensation (totaling $ 77,000 ) was included
in the consolidated statement of operations for the year ended December 31, 2020, with the remainder to be recognized ratably over the
two-year lock-up period. For the three and six months ended June 30, 2021, $ 22,000 and $ 45,000 , respectively, of stock-based compensation
was included in our condensed consolidated statement of operations. Unrecognized compensation expense related to the 2020 LTIP as of
June 30, 2021 was $ 132,000 , which will be recognized over two years from issuance of the shares of common stock.
A
summary of the combined activity under all of the stock option plans is set forth below:
Number
of Options
Outstanding
Weighted
Average
Exercise
Price
Outstanding at January 1, 2021
10,500
$ 29.61
Expired
( 1,000 )
61.10
Outstanding at June 30, 2021
9,500
$ 26.19
18
The
aggregate intrinsic value of the 9,500 stock options that are outstanding, vested and expected to vest as of June 30, 2021 was $ 0 .
For
the three and six months ended June 30, 2021 and 2020, we recorded no compensation expense related to the vesting of stock options. The
fair value of the stock-based compensation was calculated using the Black-Scholes option pricing model as of the date of grant of the
stock option.
During
the three and six months ended June 30, 2021, we did not grant any options to purchase shares of our common stock to employees or members
of our board of directors.
Stock
options granted under the 2006 and 2015 Plans are exercisable over a maximum term of ten years from the date of grant, vest in various
installments over a one to four-year period and have exercise prices reflecting the market value of the shares of common stock on the
date of grant.
5.
Commitments and Contingencies
Litigation
On
September 2, 2020, a putative stockholder of Neonode filed a purported class action lawsuit (Case No. 1:20-cv-01174-UNA) in the United
States District Court for the District of Delaware against Neonode, the Board of Directors of Neonode, and the Chief Executive Officer
of Neonode for alleged violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, in connection with disclosure
of information concerning Proposal 5 and Proposal 6 in the proxy statement filed with the SEC by Neonode on August 20, 2020 for the 2020
Annual Meeting of Stockholders of Neonode (the “Proxy Statement”). These proposals for shareholder approval related to the
Private Placement by Neonode on August 5, 2020 in which two directors and the chief executive officer of Neonode participated. The relief
sought by the plaintiff included a preliminary injunction to enjoin the stockholder votes on Proposal 5 and Proposal 6. On October 20,
2020, the plaintiff voluntarily dismissed the lawsuit in the United States District Court. However, on February 11, 2021, the plaintiff’s
counsel informed Neonode that they would file a fee petition as a result of Neonode filing the definitive additional materials to the
Proxy Statement on September 18, 2020. Neonode intends to vigorously defend against any attempt by the plaintiff’s counsel to obtain
any fee award.
19
Indemnities
and Guarantees
Our
bylaws require that we indemnify each of our executive officers and directors for certain events or occurrences arising because of the
officer or director serving in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime.
The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. However,
we have a directors’ and officers’ liability insurance policy that should enable us to recover a portion of any future amounts
paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal
and we have no liabilities recorded for these agreements as of June 30, 2021 and December 31, 2020.
We
enter into indemnification provisions under our agreements with other companies in the ordinary course of business, typically with business
partners, contractors, customers and landlords. Under these provisions we generally indemnify and hold harmless the indemnified party
for losses suffered or incurred by the indemnified party as a result of our activities or, in some cases, as a result of the indemnified
party’s activities under the agreement. These indemnification provisions often include indemnifications relating to representations
made by us regarding intellectual property rights. These indemnification provisions generally survive termination of the underlying agreement.
The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. We
have not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe
the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these indemnification provisions
as of June 30, 2021 and December 31, 2020.
One
of our manufacturing partners has previously purchased material for the final assembly of AirBars. To protect the manufacturer from losses
in relation to AirBar production, we agreed to secure the value of the inventory in a bank guarantee. At June 30, 2021, the guaranteed
amount is $ 100,000 and represents the value of the remaining material in inventory at June 30, 2021.
Management’s
judgment is that the bank guarantee is a contingent guarantee and management will record a liability when it is probable that we will
have to purchase the inventory. As of August 11, 2021, management’s judgment is that we will sell the remaining AirBars and purchase
the components and the assembly service from the manufacturing partner. No liability has therefore been recorded for the period ended
June 30, 2021.
Patent
Assignment
On
May 6, 2019, the Company assigned a portfolio of patents to Aequitas Technologies LLC. The assignment provides the Company the right
to share potential proceeds generated from a licensing and monetization program.
On June 8, 2020, Neonode Smartphone
LLC, a subsidiary of Aequitas Technologies LLC, filed complaints against Apple and Samsung in the Western District of Texas for infringing
two patents. These litigation matters are still ongoing.
Non-Recurring
Engineering Development Costs
On
April 25, 2013, we entered into an Analog Device Development Agreement with an effective date of December 6, 2012 (the “NN1002
Agreement”) with Texas Instruments (“TI”) pursuant to which TI agreed to integrate our intellectual property into
an ASIC. Under the terms of the NN1002 Agreement, we agreed to pay TI $500,000 of non-recurring engineering costs at the rate of
$0.25 per ASIC for each of the first two million ASICs sold. As of June 30, 2021, we had made no payments to TI under the NN1002
Agreement.
20
6.
Segment Information
We
have one reportable segment, which is comprised of the touch technology licensing and sensor module business. All of our sales for the
three and six months ended June 30, 2021 and 2020, respectively, were to customers located in the U.S., Europe and Asia. The Company
reports revenues from external customers based on the country where the customer is located.
The
following table presents net revenues by geographic area for the three and six months ended June 30, 2021 and 2020, respectively, (dollars
in thousands):
Three
months ended
June 30, 2021
Three
months ended
June 30, 2020
Amount
Percentage
Amount
Percentage
Japan
$ 604
35 %
$ 360
48 %
United
States
582
34 %
265
35 %
South
Korea
236
14 %
26
3 %
China
148
9 %
15
2 %
Germany
89
5 %
24
3 %
Switzerland
53
3 %
52
7 %
Taiwan
-
-
%
9
1 %
Other
8
-
%
7
1 %
$ 1,720
100 %
$ 758
100 %
Six
months ended
June 30, 2021
Six
months ended
June 30, 2020
Amount
Percentage
Amount
Percentage
United
States
$ 1,275
38 %
$ 854
42 %
Japan
1,009
30 %
834
41 %
South
Korea
520
16 %
27
2 %
China
282
8 %
49
2 %
Germany
198
6 %
144
7 %
Switzerland
74
2 %
107
5 %
Sweden
16
-
%
15
-
%
Other
11
-
%
22
1 %
$ 3,385
100 %
$ 2,052
100 %
The
following table presents our total assets by geographic region as of June 30, 2021 and December 31, 2020 (in thousands):
June 30,
2021
December 31,
2020
U.S.
$ 7,047
$ 7,253
Sweden
4,759
9,210
Asia
53
109
Total
$ 11,859
$ 16,572
21
7.
Leases
We
have operating leases for our corporate offices and our manufacturing facility, and finance leases for equipment. Our leases have remaining
lease terms of three to eighteen months . One of our primary operating leases includes options to extend the lease for one to three years
and the other primary lease includes an option to annually extend; those operating leases also include options to terminate the leases
within one year. Future renewal options that are not likely to be executed as of the balance sheet date are excluded from right-of-use
assets and related lease liabilities.
Our
operating leases represent building leases for our Stockholm corporate offices and our Kungsbacka manufacturing facility. Our Stockholm
corporate office lease has a remaining lease term of 17 months and both of our leases are automatically renewed at a cost increase of
2% on an annual basis, unless we provide written notice nine months prior to the respective expiration dates.
We
report operating lease right-of-use assets, as well as current and noncurrent operating lease obligations on our consolidated balance
sheets for the right to use those buildings in our business. Our finance leases represent manufacturing equipment; we report the manufacturing
equipment, as well as current and noncurrent finance lease obligations on our condensed consolidated balance sheets for our manufacturing
equipment.
Generally,
interest rates are stated in our leases for equipment. When no interest rate is stated in a lease, however, we review the interest rates
implicit in our recent finance leases to estimate our incremental borrowing rate. We determine the rate implicit in a lease by using
the most recent finance lease rate, or other method we think most closely represents our incremental borrowing rate.
The
components of lease expense were as follows (in thousands):
Three
Months Ended
June 30,
2021
Six
Months Ended
June 30,
2021
Operating
lease cost (1)
$ 179
$ 355
Finance
lease cost:
Amortization
of leased assets
$ 147
$ 316
Interest
on lease liabilities
4
8
Total
finance lease cost
$ 151
$ 324
(1) Includes short term lease costs of $ 38,000 and $ 76,000 for the three and six months ended June 30, 2021, respectively.
Three
Months Ended
June 30,
2020
Six
Months Ended
June 30,
2020
Operating
lease cost (1)
$ 123
$ 242
Finance
lease cost:
Amortization
of leased assets
$ 152
$ 303
Interest
on lease liabilities
5
12
Total
finance lease cost
$ 157
$ 315
(1)
Includes short term lease costs of $ 27,000 and $ 51,000 for the three and six months ended June 30, 2020, respectively.
22
Supplemental
cash flow information related to leases was as follows (in thousands):
Three
Months Ended
June 30,
2021
Six
Months Ended
June 30,
2021
Cash
paid for amounts included in leases:
Operating
cash flows from operating leases
$ ( 132 )
$ ( 342 )
Operating
cash flows from finance leases
( 4 )
( 8 )
Financing
cash flows from finance leases
( 147 )
( 295 )
Right-of-use
assets obtained in exchange for lease obligations:
Operating
leases
-
-
Three months ended
June 30,
Six months ended
June 30,
2020
2020
Cash paid for amounts included in leases:
Operating cash flows from operating leases
$ ( 92 )
$ ( 183 )
Operating cash flows from finance leases
( 5 )
( 12 )
Financing cash flows from finance leases
( 32 )
( 164 )
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
-
-
Supplemental
balance sheet information related to leases was as follows (in thousands):
June 30,
2021
December 31,
2020
Operating
leases
Operating
lease right-of-use assets
$ 628
$ 919
Current
portion of operating lease obligations
$ 437
$ 504
Operating
lease liabilities, net of current portion
74
377
Total
operating lease liabilities
$ 511
$ 881
Finance
leases
Property
and equipment, at cost
$ 3,656
$ 3,806
Accumulated
depreciation
( 3,139 )
( 2,941 )
Property
and equipment, net
$ 517
$ 865
Current
portion of finance lease obligations
$ 501
$ 769
Finance
lease liabilities, net of current portion
39
95
Total
finance lease liabilities
$ 540
$ 864
June 30,
2021
December 31,
2020
Weighted
Average Remaining Lease Term
Operating
leases
1.4 years
1.6 years
Finance
leases
0.7 years
0.8 years
Weighted
Average Discount Rate:
Operating
leases (2)
5 %
5 %
Finance
leases
2 %
2 %
(2) Upon
adoption of the new lease standard, discount rates used for existing leases were established
at January 1, 2019
23
A
summary of future minimum payments under non-cancellable operating lease commitments as of June 30, 2021 is as follows (in thousands):
Years
ending December 31,
Total
2021
(remaining months)
$ 230
2022
297
527
Less
imputed interest
( 16 )
Total
lease liabilities
$ 511
Less
current portion
( 437 )
$ 74
The
following is a schedule of minimum future rentals on the non-cancellable finance leases as of June 30, 2021 (in thousands):
Year
ending December 31,
Total
2021
(remaining months)
$ 354
2022
169
2023
22
Total
minimum payments required:
545
Less
amount representing interest:
( 5 )
Present
value of net minimum lease payments:
540
Less
current portion
( 501 )
$ 39
8.
Net Loss per Share
Basic
net loss per common share for the three and six months ended June 30, 2021 and 2020 was computed by dividing the net loss attributable
to Neonode Inc. for the relevant period by the weighted average number of shares of common stock outstanding. Diluted loss per common
share is computed by dividing net loss attributable to Neonode Inc. by the weighted average number of shares of common stock and common
stock equivalents outstanding.
There
were no potentially dilutive common stock equivalents for the three and six months ended June 30, 2021 and 2020, respectively.
(in
thousands, except per share amounts)
Three
months ended
June 30,
2021
2020
BASIC
AND DILUTED
Weighted
average number of common shares outstanding
11,504
9,171
Net
loss attributable to Neonode Inc.
$ ( 1,657 )
$ ( 1,612 )
Net
loss per share - basic and diluted
$ ( 0.14 )
$ ( 0.18 )
(in
thousands, except per share amounts)
Six
months ended
June 30,
2021
2020
BASIC
AND DILUTED
Weighted
average number of common shares outstanding
11,504
9,171
Net
loss attributable to Neonode Inc.
$ ( 3,225 )
$ ( 2,622 )
Net
loss per share - basic and diluted
$ ( 0.28 )
$ ( 0.29 )
24
9.
Subsequent Events
On July 2, and 6, 2021, we
sold 6,028 and 9,808 shares, respectively, of our common stock under the ATM Facility with aggregate net proceeds to us of $ 100,000 .
No other subsequent events
have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto other
than as discussed elsewhere in the accompanying notes.
25
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.