UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 20212022
☐ Transition report pursuant to section 13 or 15(d) of the Securities and Exchange Act of 1934
For the transition period from ________ to ________
Commission file number 1-35526
NEONODE INC.
(Exact name of registrant as specified in its charter)
| Delaware | 94-1517641 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
Karlavägen 100, 115 26 Stockholm, Sweden
(Address of principal executive offices and zip code)
+46 (0) 8 667 17 17
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, par value $0.001 per share | NEON | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒
The number of shares of the registrant’s common stock outstanding as of August 3, 20215, 2022 was 11,520,501.13,579,952.
NEONODE INC.
Quarterly Report on Form 10-Q
For the Fiscal Quarter Ended June 30, 2021
TABLE OF CONTENTS2022
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEONODE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| June 30, | December 31, | June 30, | December 31, | |||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| (Unaudited) | (Audited) | (Unaudited) | (Audited) | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash | $ | 6,611 | $ | 10,473 | $ | 12,426 | $ | 17,383 | ||||||||
| Accounts receivable and unbilled revenue, net | 1,224 | 1,743 | ||||||||||||||
| Accounts receivable and unbilled revenues, net | 1,095 | 1,293 | ||||||||||||||
| Inventory | 2,086 | 1,273 | 4,400 | 2,520 | ||||||||||||
| Prepaid expenses and other current assets | 650 | 1,161 | 536 | 836 | ||||||||||||
| Total current assets | 10,571 | 14,650 | 18,457 | 22,032 | ||||||||||||
| Property and equipment, net | 660 | 1,003 | 351 | 376 | ||||||||||||
| Operating lease right-of-use assets | 628 | 919 | ||||||||||||||
| Operating lease right-of-use assets, net | 306 | 584 | ||||||||||||||
| Total assets | $ | 11,859 | $ | 16,572 | $ | 19,114 | $ | 22,992 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable | $ | 754 | $ | 1,084 | $ | 279 | $ | 776 | ||||||||
| Accrued payroll and employee benefits | 1,170 | 1,170 | 1,052 | 1,037 | ||||||||||||
| Accrued expenses | 435 | 545 | 392 | 371 | ||||||||||||
| Deferred revenues | 130 | 138 | ||||||||||||||
| Contract liabilities | 112 | 106 | ||||||||||||||
| Current portion of finance lease obligations | 501 | 769 | 133 | 258 | ||||||||||||
| Current portion of operating lease obligations | 437 | 504 | 134 | 425 | ||||||||||||
| Total current liabilities | 3,427 | 4,210 | 2,102 | 2,973 | ||||||||||||
| Finance lease obligations, net of current portion | 39 | 95 | 81 | 65 | ||||||||||||
| Operating lease obligations, net of current portion | 74 | 377 | 70 | 117 | ||||||||||||
| Total liabilities | 3,540 | 4,682 | 2,253 | 3,155 | ||||||||||||
| 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 | ||||||||||||||
| Common stock, 25,000,000 shares authorized, with par value of $0.001; 13,579,952 and 13,575,952 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 14 | 14 | ||||||||||||||
| Additional paid-in capital | 211,708 | 211,663 | 226,964 | 226,880 | ||||||||||||
| Accumulated other comprehensive loss | (514 | ) | (404 | ) | (334 | ) | (408 | ) | ||||||||
| Accumulated deficit | (199,383 | ) | (196,158 | ) | (205,536 | ) | (202,608 | ) | ||||||||
| Total Neonode Inc. stockholders’ equity | 11,823 | 15,113 | 21,108 | 23,878 | ||||||||||||
| Noncontrolling interests | (3,504 | ) | (3,223 | ) | (4,247 | ) | (4,041 | ) | ||||||||
| Total stockholders’ equity | 8,319 | 11,890 | 16,861 | 19,837 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 11,859 | $ | 16,572 | $ | 19,114 | $ | 22,992 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NEONODE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| License fees | $ | 1,358 | $ | 674 | $ | 2,653 | $ | 1,843 | $ | 953 | $ | 1,358 | $ | 2,057 | $ | 2,653 | ||||||||||||||||
| Sensor modules | 346 | 66 | 701 | 164 | ||||||||||||||||||||||||||||
| Products | 210 | 346 | 357 | 701 | ||||||||||||||||||||||||||||
| Non-recurring engineering | 16 | 18 | 31 | 45 | 104 | 16 | 171 | 31 | ||||||||||||||||||||||||
| Total revenues | 1,720 | 758 | 3,385 | 2,052 | 1,267 | 1,720 | 2,585 | 3,385 | ||||||||||||||||||||||||
| Cost of revenues: | ||||||||||||||||||||||||||||||||
| Sensor modules | 212 | 72 | 482 | 108 | ||||||||||||||||||||||||||||
| Products | 93 | 212 | 144 | 482 | ||||||||||||||||||||||||||||
| Non-recurring engineering | 9 | 51 | 16 | 59 | 17 | 9 | 26 | 16 | ||||||||||||||||||||||||
| Total cost of revenues | 221 | 123 | 498 | 167 | 110 | 221 | 170 | 498 | ||||||||||||||||||||||||
| Total gross margin | 1,499 | 635 | 2,887 | 1,885 | 1,157 | 1,499 | 2,415 | 2,887 | ||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Research and development | 1,379 | 1,043 | 2,521 | 2,038 | 1,146 | 1,379 | 2,169 | 2,521 | ||||||||||||||||||||||||
| Sales and marketing | 769 | 648 | 1,557 | 1,193 | 644 | 769 | 1,260 | 1,557 | ||||||||||||||||||||||||
| General and administrative | 1,147 | 700 | 2,234 | 1,499 | 1,053 | 1,147 | 2,063 | 2,234 | ||||||||||||||||||||||||
| Total operating expenses | 3,295 | 2,391 | 6,312 | 4,730 | 2,843 | 3,295 | 5,492 | 6,312 | ||||||||||||||||||||||||
| Operating loss | (1,796 | ) | (1,756 | ) | (3,425 | ) | (2,845 | ) | (1,686 | ) | (1,796 | ) | (3,077 | ) | (3,425 | ) | ||||||||||||||||
| Other expense: | ||||||||||||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||||||
| Interest expense | 3 | 7 | 8 | 14 | (4 | ) | (3 | ) | (6 | ) | (8 | ) | ||||||||||||||||||||
| Total other expense | 3 | 7 | 8 | 14 | ||||||||||||||||||||||||||||
| Other income | 21 | - | 21 | - | ||||||||||||||||||||||||||||
| Total other income (expense) | 17 | (3 | ) | 15 | (8 | ) | ||||||||||||||||||||||||||
| Loss before provision for income taxes | (1,799 | ) | (1,763 | ) | (3,433 | ) | (2,859 | ) | (1,669 | ) | (1,799 | ) | (3,062 | ) | (3,433 | ) | ||||||||||||||||
| Provision for income taxes | 37 | 3 | 73 | 19 | 28 | 37 | 72 | 73 | ||||||||||||||||||||||||
| Net loss including noncontrolling interests | (1,836 | ) | (1,766 | ) | (3,506 | ) | (2,878 | ) | (1,697 | ) | (1,836 | ) | (3,134 | ) | (3,506 | ) | ||||||||||||||||
| Less: Net loss attributable to noncontrolling interests | 179 | 154 | 281 | 256 | 149 | 179 | 206 | 281 | ||||||||||||||||||||||||
| Net loss attributable to Neonode Inc. | $ | (1,657 | ) | $ | (1,612 | ) | $ | (3,225 | ) | $ | (2,622 | ) | $ | (1,548 | ) | $ | (1,657 | ) | $ | (2,928 | ) | $ | (3,225 | ) | ||||||||
| Loss per common share: | ||||||||||||||||||||||||||||||||
| Basic and diluted loss per share | $ | (0.14 | ) | $ | (0.18 | ) | $ | (0.28 | ) | $ | (0.29 | ) | $ | (0.11 | ) | $ | (0.14 | ) | $ | (0.22 | ) | $ | (0.28 | ) | ||||||||
| Basic and diluted – weighted average number of common shares outstanding | 11,504 | 9,171 | 11,504 | 9,171 | 13,578 | 11,504 | 13,577 | 11,504 | ||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NEONODE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
| Net loss | $ | (1,836 | ) | $ | (1,766 | ) | $ | (3,506 | ) | $ | (2,878 | ) | $ | (1,697 | ) | $ | (1,836 | ) | $ | (3,134 | ) | $ | (3,506 | ) | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 56 | 64 | (110 | ) | (23 | ) | 41 | 56 | 74 | (110 | ) | |||||||||||||||||||||
| Comprehensive loss | (1,780 | ) | (1,702 | ) | (3,616 | ) | (2,901 | ) | (1,656 | ) | (1,780 | ) | (3,060 | ) | (3,616 | ) | ||||||||||||||||
| Less: Comprehensive loss attributable to noncontrolling interests | 179 | 154 | 281 | 256 | 149 | 179 | 206 | 281 | ||||||||||||||||||||||||
| Comprehensive loss attributable to Neonode Inc. | $ | (1,601 | ) | $ | (1,548 | ) | $ | (3,335 | ) | $ | (2,645 | ) | $ | (1,507 | ) | $ | (1,601 | ) | $ | (2,854 | ) | $ | (3,335 | ) | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NEONODE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except for Preferred Stock Shares Issued1)thousands)
(Unaudited)
For the Quarter to Date periods ended June 30, 20202021 through June 30, 202131, 2022
| 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 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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, 2020 | - | $ | - | 11,504 | $ | 12 | $ | 211,663 | $ | (404 | ) | $ | (196,158 | ) | $ | 15,113 | $ | (3,223 | ) | $ | 11,890 | 11,504 | $ | 12 | $ | 211,663 | $ | (404 | ) | $ | (196,158 | ) | $ | 15,113 | $ | (3,223 | ) | $ | 11,890 | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 23 | - | - | 23 | - | 23 | - | - | 23 | - | - | 23 | - | 23 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | (166 | ) | - | (166 | ) | - | (166 | ) | - | - | - | (166 | ) | - | (166 | ) | - | (166 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (1,568 | ) | (1,568 | ) | (102 | ) | (1,670 | ) | - | - | - | - | (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 | 11,504 | $ | 12 | $ | 211,686 | $ | (570 | ) | $ | (197,726 | ) | $ | 13,402 | $ | (3,325 | ) | $ | 10,077 | |||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 22 | - | - | 22 | - | 22 | - | - | 22 | - | - | 22 | - | 22 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | 56 | - | 56 | - | 56 | - | - | - | 56 | - | 56 | - | 56 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (1,657 | ) | (1,657 | ) | (179 | ) | (1,836 | ) | - | - | - | - | (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 | 11,504 | $ | 12 | $ | 211,708 | $ | (514 | ) | $ | (199,383 | ) | $ | 11,823 | $ | (3,504 | ) | $ | 8,319 | |||||||||||||||||||||||||||||||||
| Issuance of common stock under the ATM, net | 94 | - | 593 | - | - | 593 | - | 593 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 13 | - | 46 | - | - | 46 | - | 46 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | (37 | ) | - | (37 | ) | - | (37 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (1,721 | ) | (1,721 | ) | (135 | ) | (1,856 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, September 30, 2021 | 11,611 | $ | 12 | $ | 212,347 | $ | (551 | ) | $ | (201,104 | ) | $ | 10,704 | $ | (3,639 | ) | $ | 7,065 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares for cash, net of offering costs | 1,950 | 2 | 14,467 | - | - | 14,469 | - | 14,469 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 15 | - | 66 | - | - | 66 | - | 66 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | 143 | - | 143 | - | 143 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (1,504 | ) | (1,504 | ) | (402 | ) | (1,906 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2021 | 13,576 | $ | 14 | $ | 226,880 | $ | (408 | ) | $ | (202,608 | ) | $ | 23,878 | $ | (4,041 | ) | $ | 19,837 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | 39 | - | - | 39 | - | 39 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | 33 | - | 33 | - | 33 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (1,380 | ) | (1,380 | ) | (57 | ) | (1,437 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2022 | 13,576 | $ | 14 | $ | 226,919 | $ | (375 | ) | $ | (203,988 | ) | $ | 22,570 | $ | (4,098 | ) | $ | 18,472 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 4 | - | 45 | - | - | 45 | - | 45 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | 41 | - | 41 | - | 41 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (1,548 | ) | (1,548 | ) | (149 | ) | (1,697 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, June 30, 2022 | 13,580 | $ | 14 | $ | 226,964 | $ | (334 | ) | $ | (205,536 | ) | $ | 21,108 | $ | (4,247 | ) | $ | 16,861 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NEONODE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net loss (including noncontrolling interests) | $ | (3,506 | ) | $ | (2,878 | ) | $ | (3,134 | ) | $ | (3,506 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
| Stock-based compensation expense | 45 | - | 84 | 45 | ||||||||||||
| Depreciation and amortization | 376 | 373 | 87 | 376 | ||||||||||||
| Amortization of operating lease right-of-use assets | 259 | 183 | 224 | 259 | ||||||||||||
| Recoveries of bad debt | (79 | ) | - | |||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable and unbilled revenue, net | 511 | 588 | 253 | 511 | ||||||||||||
| Projects in process | - | 7 | ||||||||||||||
| Inventory | (880 | ) | (42 | ) | (2,312 | ) | (880 | ) | ||||||||
| Prepaid expenses and other current assets | 481 | 155 | 232 | 481 | ||||||||||||
| Accounts payable and accrued expenses | (343 | ) | (169 | ) | (287 | ) | (343 | ) | ||||||||
| Deferred revenues | (6 | ) | 33 | 12 | (6 | ) | ||||||||||
| Operating lease obligations | (342 | ) | (178 | ) | (294 | ) | (342 | ) | ||||||||
| Net cash used in operating activities | (3,405 | ) | (1,928 | ) | (5,214 | ) | (3,405 | ) | ||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Purchase of property and equipment | (67 | ) | (7 | ) | (47 | ) | (67 | ) | ||||||||
| Net cash used in investing activities | (67 | ) | (7 | ) | (47 | ) | (67 | ) | ||||||||
| 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 | ) | (99 | ) | (295 | ) | ||||||||
| Net cash (used in) provided by financing activities | (295 | ) | 1,344 | |||||||||||||
| Net cash used in financing activities | (99 | ) | (295 | ) | ||||||||||||
| Effect of exchange rate changes on cash | (95 | ) | 7 | 403 | (95 | ) | ||||||||||
| Net decrease in cash | (3,862 | ) | (584 | ) | (4,957 | ) | (3,862 | ) | ||||||||
| Cash at beginning of period | 10,473 | 2,357 | 17,383 | 10,473 | ||||||||||||
| Cash at end of period | $ | 6,611 | $ | 1,773 | $ | 12,426 | $ | 6,611 | ||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||||
| Cash paid for income taxes | $ | 73 | $ | 19 | $ | 2 | $ | 73 | ||||||||
| Cash paid for interest | $ | 8 | $ | 13 | $ | 6 | $ | 8 | ||||||||
| Supplemental disclosure of non-cash investing and financial activities: | ||||||||||||||||
| Property and equipment obtained in exchange for lease obligations | $ | 24 | $ | - | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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 periodsperiod presented. The results of operations for the three and six months ended June 30, 20212022 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, 20212022 and 20202021 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.United States (“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, 2020.2021.
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 sensingscene analysis solutions using advanced machine learning algorithms to detect and track persons and objects in video streams for drivercameras and in-cabin monitoring features.other types of imagers. We market and sell our contactless touch, touch, and gesture sensing products and solutions usingbased on our zForce technology platform, and our remote sensingscene analysis solutions usingbased on our MultiSensing technology platform. Neonode offers customized optical touch and gesture controlWe offer our solutions forto customers in many different markets and segments.segments including, but not limited to, office equipment, automotive, industrial automation, medical, military and avionics.
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 perfor each of our revenue streams consisting of license fees, sensor modulesproduct sales and non-recurring engineering (“NRE”).fees.
Liquidity
We have incurred significant operating losses and negative cash flows from operations since our inception. The Company incurred net losses of approximately $1.5 million and $2.9 million and $1.7 million and $3.2 million and $1.6 million and $2.6 million for the three and six months ended June 30, 20212022 and 2020,2021, respectively, and had an accumulated deficit of approximately $199.4$205.5 million and $196.2$202.6 million as of June 30, 20212022 and December 31, 2020,2021, respectively. In addition, operating activities used cash of approximately $3.4$5.2 million and $1.9$3.4 million for the six months ended June 30, 2022 and 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 on us 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.
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 ownedwholly-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 touch sensor modules.modules (“TSMs”). 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, 20212022 and December 31, 20202021 and the condensed consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the three and six months ended June 30, 20212022 and 20202021 include our accounts and those of our wholly ownedwholly-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 foras 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 ofor less to be cash equivalents.
Concentration of Cash Balance Risks
Cash balances are maintained at various banks in the U.S.,United States, Japan, Taiwan and Sweden. For deposits held with financial institutions in the U.S.,United States, 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 zero and approximately $79,000 as of June 30, 20212022 and December 31, 2020,2021, respectively.
Projects in Process
Projects in process consist of costs incurred toward the completion of various projects for certain customers. These costs are primarily comprised of direct engineering labor costs and project-specific equipment costs. These costs are capitalized on our consolidated balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition policy. There were no costs capitalized to projects in process as of June 30, 20212022 and December 31, 2020, respectively.2021.
Inventory
The Company’s inventory consists primarily of components that will be used in the manufacturing of our sensor modules.TSMs. We classify inventory for reporting purposes as raw materials, work-in-process, and finished goods.
Inventory is stated at the lower of cost or net realizable value, using the first-in, first-out (“FIFO”) valuation method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.
Due to the low sell-through of our AirBar products, management has decided to fully reserve work-in-process for AirBar components, as well as AirBar related raw materials. 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$0.3 million and $0.9$0.8 million as of June 30, 20212022 and December 31, 2020,2021, 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, | June 30, | December 31, | |||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Raw materials | $ | 998 | $ | 550 | $ | 3,485 | $ | 1,446 | ||||||||
| Work-in-process | 40 | 21 | - | 10 | ||||||||||||
| Finished goods | 1,048 | 702 | 915 | 1,064 | ||||||||||||
| Ending inventory | $ | 2,086 | $ | 1,273 | ||||||||||||
| $ | 4,400 | $ | 2,520 | |||||||||||||
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method based upon estimated useful lives of the assets as follows:
Estimated useful lives
| Computer equipment | 3 years | ||
| Furniture and fixtures | 5 years | ||
| Equipment | 7 years |
Equipment purchased under a finance lease is recognized over the term of the lease if that lease term is shorter than the estimated useful life.
Upon retirement or sale of property and equipment, cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the condensed consolidated statement of operations. Maintenance and repairs are charged to expense as incurred.
Right-of-Use Asstes
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 RecoverabilityAssets
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, 2021,2022, we believe there was no impairment of our long-lived assets. There can be no assurance, however, that market conditions will not change or sufficient demand for our products and services will continue, which could result in impairment of long-lived assets in the future.
Foreign Currency Translation and Transaction Gains and Losses
The functional currency of our foreign subsidiaries is the applicable local currency, the Swedish Krona, the Japanese Yen, the South Korean Won and the Taiwan Dollar. The translation from Swedish Krona, Japanese Yen, South Korean Won 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 $41,000 and $74,000 and $56,000 and $(110,000) and $64,000 and $(23,000) during the three and six months ended June 30, 20212022 and 2020,2021, 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)$30,000 and $28,000$29,000 during the three and six months ended June 30, 2021,2022, respectively, compared to $(63,000)$(54,000) and $(14,000)$28,000 during the same periods in 2020,2021, respectively.
Concentration of Credit and Business Risks
Our customers are located in U.S.,the United States, Europe and Asia.
As of June 30, 2021,2022, 4 of our customers represented approximately 70%69% of our consolidated accounts receivable and unbilled revenues.
As of December 31, 2020, 32021, 4 of our customers represented approximately 62%76% 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, 2022 are as follows:
| ● | Hewlett-Packard Company – 24% | |
| ● | Seiko Epson Corporation – 19% | |
| ● | LG Electronics Inc. – 13% |
Customers who accounted for 10% or more of our net revenues during the six months ended June 30, 2022 are as follows:
| ● | Hewlett-Packard Company – 28% | |
| ● | Seiko Epson Corporation – 18% | |
| ● | LG Electronics Inc. – 14% | |
| ● | Alps Alpine – 10% |
Customers who accounted for 10% or more of our net revenues during the three months ended June 30, 2021 are as follows:
| ● | ||
| ● | 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:
| ● | ||
| ● | Seiko Epson Corporation – 14% | |
| ● | LG Electronics Inc. – 13% |
Customers who accounted for 10% or more of our net revenues during the three months ended June 30, 2020 are as follows:
Customers who accounted for 10% or more of our net revenues during the six months ended June 30, 2020 are as follows:
Revenue Recognition
We recognize revenue when control of products is transferred to our customers, and when services are completed and accepted by our customers. Thecustomers; 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,(e.g., a contract that includes products and related engineering services.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 our AirBar and sensor modulesTSMs are recognized on a per-unit basis; therefore,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.License Fees
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, 2021.2022.
Product Sales
We earn revenue from sales of TSM hardware products to our original equipment manufacturers (“OEMs”), original design manufacturers (“ODMs”) and Tier 1 supplier customers, who embed our hardware into their products, and from sales of branded consumer products that incorporate our TSMs that are sold through distributors or directly to end users. These distributors are generally given business terms that allow them to return unsold inventory, receive credits for changes in selling prices, and participate in various cooperative marketing programs. Our sales agreements generally provide customers with limited rights of return and warranty provisions.
The timing of revenue recognition related to AirBar modules depends upon how each sale is transacted - either point-of-sale or through distributors. We recognize revenue for AirBar modules sold point-of-sale (online sales and other direct sales to customers) when we provide the promised product to the customer.
Because we generally use distributors to provide TSMs and AirBars to our customers, we must analyze the terms of our distributor agreements to determine when control passes from us to our distributors. For sales of TSMs and AirBars sold through distributors, we recognize revenues when our distributors obtain control over our products. Control passes to our distributors when we have a present right to payment for products sold to the distributors, the distributors have legal title to and physical possession of products purchased from us, and the distributors have significant risks and rewards of ownership of products purchased.
Distributors participate in various cooperative marketing and other incentive programs, and we maintain estimated accruals and allowances for these programs. If actual credits received by distributors under these programs were to deviate significantly from our estimates, which are based on historical experience, our revenue could be adversely affected.
Under U.S. GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns. Our TSM and AirBar 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 $61,000 as of June 30, 2022 and $69,000 as of December 31, 2021. If the actual future returns were to deviate from the historical data on which the reserve had been established, our revenue could be adversely affected.
Non-Recurring Engineering Services Revenues:
For technology license or sensor moduleTSM contracts that require modification or customization of the underlying technology to adapt thatthe technology to the customer’s desiredcustomer use, we determine whether the technology license or sensor module,TSM, and required engineering consulting services represent separate performance obligations. We perform our analysis on a contract-by-contract basis. If there are separate performance obligations, we determine the standalone selling price (“SSP”) of each separate performance obligation to properly recognize revenue as each performance obligation is satisfied. We provide engineering consulting services to our customers under a signed Statement of Work (“SOW”). Deliverables and payment terms are specified in each SOW. We generally charge an hourly rate 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 revenuecontract liabilities until that revenue is earned.
We believe that recognizing non-recurring engineering serviceservices revenues as progress towards completion of engineering services and customer acceptance of those services occurs best reflects the economics of those transactions, because engineering services as tracked in our systems correspond directly with the value to our customers of our performance completed to date. Hours performed for each engineering project are tracked and reflect progress made on each project and are charged at a consistent hourly rate.
Revenues from non-recurring engineering services contracts that are short-term in nature are recorded when those services are complete and accepted by customers.
Revenues from non-recurring 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, 20212022 and 2020,2021, no losses related to SOW projects were recorded.
Touch Sensor Modules Revenues:
We earn revenue from sales of touch sensor modules (“TSMs”) products to our OEM and Tier 1 supplier customers, who embed our hardware into their products, and, occasionally, from sales of our AirBar branded consumer products (incorporating our TSM technology) sold through distributors. These distributors are generally given business terms that do not allow them to return unsold inventory. Our sales agreements generally provide customers with limited rights of return and warranty provisions.
The timing of revenue recognition related to sales of TSMs and AirBars depends upon how each sale is transacted - either point-of-sale or through distributors. We recognize revenue for products sold point-of-sale (online sales and other direct sales to customers) when we provide the promised product to the customer.
Because we generally use distributors to provide TSMs and AirBars to our customers, we analyze the terms of distributor agreements to determine when control passes from us to our distributors. For sales of TSMs and AirBars sold through distributors, revenues are recognized when our distributors obtain control over our products. Control passes to our distributors when we have a present right to payment for products sold to distributors, the distributors have legal title to and physical possession of products purchased from us, and the distributors have significant risks and rewards of ownership of products purchased.
Distributors participate in various cooperative marketing and other incentive programs, and we maintain estimated accruals and allowances for these programs. If actual credits received by distributors under these programs were to deviate significantly from our estimates, which are based on historical experience, our revenue could be adversely affected.
Under U.S. GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns. Our returns and warranty experience to date has enabled us to make reasonable returns estimates, which are supported by the fact that our product sales involve homogenous transactions. The reserve for future sales returns is recorded as a reduction of our accounts receivable and revenue and was $70,000 as of June 30, 2021 and $78,000 as of December 31, 2020. If the actual future returns were to deviate from the historical data on which the reserve had been established, our revenue could be adversely affected.
The following tables present disaggregatedthe net revenues distribution by geographical area and market for the three and six months ended June 30, 20212022 and 20202021 (dollars in thousands):
| Three months ended June 30, 2021 | Three months ended June 30, 2020 | Three months ended June 30, 2022 | Three months ended June 30, 2021 | |||||||||||||||||||||||||||||
| Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||||||||
| AMER | ||||||||||||||||||||||||||||||||
| Net revenues from consumer electronics | $ | 569 | 97 | % | $ | 260 | 98 | % | $ | 365 | 99 | % | $ | 569 | 97 | % | ||||||||||||||||
| Net revenues from distributors and other | 15 | 3 | % | 6 | 2 | % | 2 | 1 | % | 15 | 3 | % | ||||||||||||||||||||
| $ | 584 | 100 | % | $ | 266 | 100 | % | $ | 367 | 100 | % | $ | 584 | 100 | % | |||||||||||||||||
| APAC | ||||||||||||||||||||||||||||||||
| Net revenues from automotive | $ | 417 | 42 | % | $ | 117 | 29 | % | $ | 308 | 54 | % | $ | 417 | 42 | % | ||||||||||||||||
| Net revenues from consumer electronics | 292 | 30 | % | 267 | 65 | % | 243 | 42 | % | 292 | 30 | % | ||||||||||||||||||||
| Net revenues from distributors and other | 277 | 28 | % | 24 | 6 | % | 23 | 4 | % | 277 | 28 | % | ||||||||||||||||||||
| $ | 986 | 100 | % | $ | 408 | 100 | % | $ | 574 | 100 | % | $ | 986 | 100 | % | |||||||||||||||||
| EMEA | ||||||||||||||||||||||||||||||||
| Net revenues from automotive | $ | 90 | 60 | % | $ | 31 | 37 | % | $ | 166 | 51 | % | $ | 90 | 60 | % | ||||||||||||||||
| Net revenues from medical | 53 | 35 | % | 50 | 60 | % | 72 | 22 | % | 53 | 35 | % | ||||||||||||||||||||
| Net revenues from distributors and other | 7 | 5 | % | 3 | 3 | % | 88 | 27 | % | 7 | 5 | % | ||||||||||||||||||||
| $ | 150 | 100 | % | $ | 84 | 100 | % | $ | 326 | 100 | % | $ | 150 | 100 | % | |||||||||||||||||
| Six months ended June 30, 2021 | Six months ended June 30, 2020 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | |||||||||||||||||||||||||||||
| Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||||||||
| AMER | ||||||||||||||||||||||||||||||||
| Net revenues from consumer electronics | $ | 1,160 | 91 | % | $ | 792 | 92 | % | $ | 844 | 98 | % | $ | 1,160 | 91 | % | ||||||||||||||||
| Net revenues from distributors and other | 117 | 9 | % | 65 | 8 | % | 16 | 2 | % | 117 | 9 | % | ||||||||||||||||||||
| $ | 1,277 | 100 | % | $ | 857 | 100 | % | $ | 860 | 100 | % | $ | 1,277 | 100 | % | |||||||||||||||||
| APAC | ||||||||||||||||||||||||||||||||
| Net revenues from automotive | $ | 822 | 45 | % | $ | 398 | 43 | % | $ | 664 | 55 | % | $ | 822 | 45 | % | ||||||||||||||||
| Net revenues from consumer electronics | 492 | 27 | % | 495 | 54 | % | 478 | 39 | % | 492 | 27 | % | ||||||||||||||||||||
| Net revenues from distributors and other | 502 | 28 | % | 26 | 3 | % | 73 | 6 | % | 502 | 28 | % | ||||||||||||||||||||
| $ | 1,816 | 100 | % | $ | 919 | 100 | % | $ | 1,215 | 100 | % | $ | 1,816 | 100 | % | |||||||||||||||||
| EMEA | ||||||||||||||||||||||||||||||||
| Net revenues from automotive | $ | 204 | 70 | % | $ | 160 | 58 | % | $ | 254 | 49 | % | $ | 204 | 70 | % | ||||||||||||||||
| Net revenues from medical | 74 | 25 | % | 105 | 38 | % | 136 | 27 | % | 74 | 25 | % | ||||||||||||||||||||
| Net revenues from distributors and other | 14 | 5 | % | 11 | 4 | % | 120 | 24 | % | 14 | 5 | % | ||||||||||||||||||||
| $ | 292 | 100 | % | $ | 276 | 100 | % | $ | 510 | 100 | % | $ | 292 | 100 | % | |||||||||||||||||
Significant Judgments
Our contracts with customers may include promises to transfer multiple products and services to a customer, particularly when the contract isone of our customers contracts with us for a product and related engineering services fees for customizing that product for our customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately may require significant judgment. Judgment may also be required to determine the SSP for each distinct performance obligation identified, although we generally structure our contracts such that performance obligations and pricing for each performance obligation are specifically addressed. We currently have no outstanding contracts with multiple performance obligations.obligations; however, we recently negotiated a contract that may include multiple performance obligations in the future.
Judgment is also required to determine when control of products passes from us to our distributors, as well as the amounts of product that may be returned to us. Our products are sold with a right of return, and we may provide other credits or incentives to our customers, which could result in variability when determining the amount of revenue to recognize. At the end of each reporting period, we use product returns history and additional information that becomes available to estimate returns and credits. We do not recognize revenue if it is probable that a significant reversal of any incremental revenue would occur.
Finally, judgment is required to determine the amount of unbilled license fees at the end of each reporting period.
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when we have an unconditional right to receive future payments from customers, and we record unearned deferred revenue when we receive prepayments or upfront payments for goods or services from our customers.
The following table presents accounts receivable and deferred revenues as of June 30, 20212022 and December 31, 20202021 (in thousands):
| June 30, 2021 | December 31, 2020 | |||||||
| Accounts receivable and unbilled revenue | $ | 1,224 | $ | 1,743 | ||||
| Deferred revenues | 130 | 138 | ||||||
| June 30, 2022 | December 31, 2021 | |||||||
| Accounts receivable and unbilled revenue, net | $ | 1,095 | $ | 1,293 | ||||
| Contract liabilities (deferred revenues) | 112 | 106 | ||||||
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled revenues (contract assets), and customer advances and deposits or deferred revenue (contract liabilities) on the consolidated balance sheets. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets; contract assets are generally classified as current. The Company sometimes receives advances or deposits from its customers before revenue is recognized, which are reported as contract liabilities and are generally classified as current. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.
We do not anticipate impairment of our contract assetassets 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 hasassets have been impaired.
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. 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 ana contract asset, if we expect the benefit of those costs to cover a period greater than one year. We currently have no incremental costs that must be capitalized.
We expense as incurred costs of obtaining a contract when the amortization period of those costs would have been less than or equal to one year.
Product Warranty
The following table summarizes the activity related to the product warranty liability (in thousands):
| June 30, 2021 | December 31, 2020 | June 30, 2022 | December 31, 2021 | |||||||||||||
| Balance at beginning of period | $ | 25 | $ | 24 | $ | 36 | $ | 25 | ||||||||
| Provisions for warranty issued | 11 | 1 | (5 | ) | 11 | |||||||||||
| Balance at end of period | $ | 36 | $ | 25 | $ | 31 | $ | 36 | ||||||||
The Company accrues for warranty costs as part of its cost of sales of sensor modulesTSMs 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 RevenuesContract liabilities
Deferred revenuesContract liabilities (deferred revenues) consist primarily of prepayments for license fees, and other products or services for whichthat we have been paid in advance andadvance. We earn the revenue when we transfer control of the product or service. Deferred revenues may also include upfront payments for consulting services to be performed in the future, such as non-recurring engineering services.
We defer license fees until we have met all accounting requirements for revenue recognition, which is when a license is made available to a customer and that customer has a right to use the license. Engineering developmentNon-recurring engineering fee revenues are deferred until engineering services have been completed and accepted by our customers.
The following table presents our deferred revenues by source (in thousands):
| June 30, 2021 | December 31, 2020 | June 30, 2022 | December 31, 2021 | |||||||||||||
| Deferred revenues license fees | $ | 28 | $ | 28 | $ | 28 | $ | 28 | ||||||||
| Deferred revenues sensor modules | 70 | 88 | ||||||||||||||
| Deferred revenues products | 61 | 70 | ||||||||||||||
| Deferred revenues non-recurring engineering | 32 | 22 | 23 | 8 | ||||||||||||
| $ | 130 | $ | 138 | $ | 112 | $ | 106 | |||||||||
During the three and six months ended June 30, 2021,2022, the Company recognized revenues of approximately $8,000$7,000 and $26,000,$16,000, 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, 20212022 and 20202021 amounted to approximately $38,000 and $84,000 and $39,000 and $58,000, and $9,000 and $16,000, respectively.
Research and Development
Research and development (“R&D”) costs are expensed as incurred. R&D costs consist primarily of personnel related costs in addition to external consultancy costs such as testing, certifying and measurements.
Stock-Based Compensation Expense
We measure the cost of employee services received in exchange for an award of equity instruments, including share options, based on the estimated fair value of the award on the grant date, and recognize the value as compensation expense over the period the employee is required to provide services in exchange for the award, usually the vesting period.
We account for equity instruments issued to non-employees at their estimated fair value.
When determining stock-based compensation expense involving options and warrants, we determine the estimated fair value of options and warrants using the Black-Scholes option pricing model.
Noncontrolling Interests
We recognize any noncontrolling interest, also known as a minority interest, as a separate line item in stockholders’ equity in the condensed 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 representsholds 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 condensed 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, 20212022 and December 31, 2020.2021. In the event we were to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase income in the period such determination was made. The provision for income taxes represents the net change in deferred tax amounts, plus income taxes paid or payable for the current period.
We follow U.S. GAAP related accounting for uncertainty in income taxes, which provisions include a two-step approach to recognizing, de-recognizing and measuring uncertainty in income taxes. As a result, we did not recognize a liability for unrecognized tax benefits. As of June 30, 2021,2022 and December 31, 2020,2021, we had no unrecognized tax benefits.
Net Loss per Share
Net loss per share amounts hashave 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.2022. 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, 20212022 and 20202021 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note 8).
Other Comprehensive Income (Loss)
Our other comprehensive income (loss) includes foreign currency translation gains and losses. The cumulative amount of translation gains and losses are reflected as a separate component of stockholders’ equity in the condensed consolidated balance sheets.
Cash Flow Information
Cash flows in foreign currencies have been converted to U.S. Dollars at an approximate weighted-average exchange rate for the respective reporting periods. The weighted-average exchange rate for the condensed consolidated statements of operations was as follows:
| Six months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Swedish Krona | 8.41 | 9.68 | 9.59 | 8.41 | ||||||||||||
| Japanese Yen | 107.73 | 108.26 | 123.07 | 107.73 | ||||||||||||
| South Korean Won | 1,117.81 | 1,205.88 | 1,232.97 | 1,117.81 | ||||||||||||
| Taiwan Dollar | 28.02 | 30.01 | 28.73 | 28.02 | ||||||||||||
ExchangeThe exchange rate for the condensed consolidated balance sheets was as follows:
| As of | As of | |||||||||||||||
| June 30, | December 31, | June 30, | December 31, | |||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Swedish Krona | 8.56 | 8.22 | 10.21 | 9.03 | ||||||||||||
| Japanese Yen | 111.05 | 103.23 | 135.63 | 115.12 | ||||||||||||
| South Korean Won | 1,130.82 | 1,088.29 | 1,288.33 | 1,190.75 | ||||||||||||
| Taiwan Dollar | 27.91 | 28.09 | 29.71 | 27.71 | ||||||||||||
Fair Value of Financial Instruments
We disclose the estimated fair values for all financial instruments for which it is practicable to estimate fair value. Financial instruments including cash, accounts receivable, accounts payable and accrued expenses are deemed to approximate fair value due to their short maturities.
New Accounting Pronouncements
In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments,, (“ASU 2016-13”), supplemented by subsequent accounting standards updates. The new standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13, as amended, is scheduled to become effective for fiscal years beginning after December 15, 2023, with early adoption permitted. In the future, we will evaluate the impact that ASU 2016-13, as amended, will have on our consolidated financial statements, specifically regarding our trade receivables; however, we do not expect any significant impact from implementation of the new standard 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.standard.
3. Stockholders’ Equity
At-the-Market Facility
On May 10, 2021, we entered into an At Market Issuance Sales AgreementSM (the “Sales Agreement”) with B. Riley Securities, Inc. (“B. Riley Securities”) with respect to an “at the market” offering program (the “ATM Facility”), under which we may, from time to time, in our sole discretion, issue and sell through B. Riley Securities, acting as sales agent, up to $25.0$25 million of shares of our common stock.
Pursuant to the Sale Agreement, B. Riley Securitieswe may sell the shares through B. Riley Securities by any method permitted that is deemed an “at the market” offering as defined in Rule 415 under the Securities Act.Act of 1933, as amended. B. Riley Securities will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time, based upon instructions from us (including any price or size limits or other customary parameters or conditions we may impose). We will pay B. Riley Securities a commission of 3.0% of the gross sales price per share sold under the Sales Agreement.
We are not obligated to sell any shares under the Sale Agreement. The offering of shares pursuant to the Sale Agreement will terminate upon the earlier to occur of (i) the issuance and sale, through B. Riley Securities, of all of the shares subject to the Sales Agreement and (ii) termination of the Sale Agreement in accordance with its terms.
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
AtAs of June 30, 2022 and December 31, 2021, 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 Delawareauthorized us to increase the number of authorizedissue up to 25,000,000 shares of our common stock, to 25,000,000 shares.par value $0.001 per share.
On December 29, 2020, we issued 37,288 shares of our common stock to key employees pursuant to our 2020 long termlong-term incentive program (“2020 LTIP”) see(see Note 4.4).
During the three and six months ended June 30,On August 12, 2021, there were no activities that affectedwe issued 12,830 shares of our common stock.stock to key employees pursuant to our 2020 LTIP (see Note 4).
On December 29, 2021, we issued 14,735 shares of our common stock to key employees pursuant to our 2020 LTIP (see Note 4).
On May 20, 2022, we issued 4,000 shares of our common stock to a director pursuant to the Neonode Inc. 2020 Stock Incentive Plan (the “2020 Plan”) (see Note 4).
During the twelve months ended December 31, 2021, we sold an aggregate of 235,722 shares of common stock under the ATM Facility, resulting in net proceeds to us of approximately $1,984,000 after payment of commissions to B. Riley Securities and other expenses of $66,000.
On October 21, 2021, we entered into a placement agency agreement with Pareto Securities Inc. and Pareto Securities AB pursuant to which we sold to certain Swedish and other European investors an aggregate of 1,808,000 shares of our common stock at a price of $7.75 per share in a registered direct offering that closed on October 26, 2021 (the “Offering”). We received net proceeds of approximately $13.1 million from the Offering after deducting placement agent fees and offering expenses.
Preferred Stock
On August 6, 2020, in connection with the closingAs of the Private Placement, the Company designated (i) 365June 30, 2022 and December 31, 2021, our Restated Certificate of Incorporation, as amended, authorized us to issue up to 1,000,000 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.par value $0.001 per share.
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, 20212022 and 2020.2021. No shares of preferred stock were issued and outstanding as of June 30, 2021.2022.
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, 20212022 and December 31, 2020,2021, the Company had outstanding warrants to purchase 431,638zero and 431,368 shares of common stock, outstanding.respectively. During the six months ended June 30, 2022, 431,368 warrants expired and no warrants were exercised.
4. Stock-Based Compensation
We have adopted equity incentive plans underfor which we may grant stock options and restricted stock awards are available for grants to employees, consultants and directors. Except for certain options granted to certain Swedish employees, all employee, consultant and director stock options granted under our stock option plans have an exercise price equal to the market value of the underlying common stock on the grant date. There are no vesting provisions tied to performance conditions for any options, as vestingoptions. Vesting for all outstanding option grants wasis 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 2006 Plan or 2015 or 2006 Plans, these plans arePlan, the 2015 Plan is still operative for awards previously granted awards.under such plan. There are no awards outstanding under the 2006 Plan. Under the 2020 Plan, 750,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2020 Plan are set by our compensation committee at its discretion.
As of June 30, 2021, we had three equity incentive plans:
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. UnderThrough 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.stock.
On December 29, 2020, we issued 37,288 shares of common stock to key employees pursuant to the 2020 LTIP. The shares were immediately vested but subject to a two-year lock-up period after issuance. In the event the participant’s employment with Neonode is terminated by the participant during the two-year lock-up period, the Company will repurchase the shares at a price equal to 30% of the lower of market value at issuance and 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 includedrecognized immediately in the consolidated statement of operations for the year ended December 31, 2020, with the remainder to be recognized ratably over the two-year lock-up period.
On August 12, 2021, we issued 12,830 shares of common stock to a key employee pursuant to the 2020 LTIP. The shares were immediately vested but subject to a two-year lock-up period after issuance. In the event the participant’s employment with the Company is terminated by the participant during the two-year lock-up period, the Company will repurchase the shares at a price equal to 30% of the lower of market value at issuance and the termination date. The Company has reported and paid Swedish social charges of $21,000 for the issued shares but only 30% of the stock-based compensation (totaling $25,000) was recognized immediately in the consolidated statements of operations for the year ended December 31, 2021, with the remainder to be recognized ratably over the two-year lock-up period.
On December 29, 2021, we issued 14,735 shares of common stock to key employees pursuant to the 2020 LTIP. The shares were immediately vested but subject to a two-year lock-up period after issuance. In the event the participant’s employment with Neonode is terminated by the participant during the two-year lock-up period, the Company will repurchase the shares at a price equal to 30% of the lower of market value at issuance and termination date. Neonode has reported and paid Swedish social charges of $46,000 for the issued shares but only 30% of the stock-based compensation (totaling $38,000) was recognized immediately in the consolidated statements of operations for the year ended December 31, 2021, with the remainder to be recognized ratably over the two-year lock-up period.
On May 20, 2022, we issued 4,000 shares of common stock to a director pursuant to the 2020 Plan. The shares were immediately vested but subject to a two-year lock-up period after issuance. In the event the participant’s employment with the Company is terminated by the participant during the two-year lock-up period, the Company will repurchase the shares at a price equal to 30% of the lower of market value at issuance and the termination date. The Company has reported and paid Swedish social charges of $5,000 for the issued shares but only 30% of the stock-based compensation (totaling $5,000) was recognized immediately in the consolidated statements of operations for the three and six months ended June 30, 2022, with the remainder to be recognized ratably over the two-year lock-up period.
For the three and six months ended June 30, 2022 and 2021, we recognized $45,000 and $84,000 and $22,000 and $45,000, respectively, of stock-based compensation was included in our condensed consolidated statementfor the amortization of operations. Unrecognized compensation expense related to the 2020 LTIP as of June 30, 2021 was $132,000, which will be recognizedand 2020 Plan over two years from issuance of the shares of common stock.respective lock-up periods.
A summary of the combined activity under all of theour 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 | |||||
| Number of Options Outstanding | Weighted Average Exercise Price | |||||||
| Outstanding at January 1, 2022 | 9,500 | $ | 26.19 | |||||
| Expired | (7,000 | ) | 30.40 | |||||
| Outstanding at June 30, 2022 | 2,500 | $ | 14.40 | |||||
The aggregate intrinsic value of the 9,5002,500 stock options that are outstanding, vested and expected to vest as of June 30, 20212022 was $0.
For the three and six months ended June 30, 20212022 and 2020,2021, 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, 2021,2022, 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, 2015 and 20152020 Plans are exercisable over a maximum term of ten10 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 byOn September 9, 2021, the plaintiff’s counsel filed a complaint in the Supreme Court of the State of New York, County of Nassau, to obtain any fee award.recover plaintiff’s attorneys’ fees and expenses in the amount of $400,000 incurred in connection with the Proceeding. On November 3, 2021, the Company entered into a settlement agreement with plaintiff’s counsel, which was accrued for as of September 30, 2021. On November 4, 2021, the case was dismissed with prejudice.
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, 20212022 and December 31, 2020.2021.
We enter into indemnification provisions under our agreements with other companies in the ordinary course of business, typically with business partners, contractors, customers and landlords. Under these provisions we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of our activities or, in some cases, as a result of the indemnified party’s activities under the agreement. These indemnification provisions often include indemnifications relating to representations made by us regarding intellectual property rights. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these indemnification provisions as of June 30, 20212022 and December 31, 2020.2021.
One of our manufacturing partners has previously purchased material for the final assembly of AirBars. To protect the manufacturer from losses in relation to AirBar production, we agreed to secure the value of the inventory in a bank guarantee. At June 30,In December, 2021 the guaranteed amount is $100,000 and represents the value of the remaining material in inventory at June 30, 2021.bank guarantee was cancelled.
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 2two patents. These litigationThe case against Apple was subsequently transferred to the Northern District of California. Both matters are still ongoing.
Non-Recurring Engineering Development Costs
On April 25, 2013, we entered into an Analog Device Development Agreement with an effective date of December 6, 2012 (the “NN1002 Agreement”) with Texas Instruments (“TI”) pursuant to which TI agreed to integrate our intellectual property into an 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 million2,000,000 ASICs sold. As of June 30, 2021,2022, we had made no payments to TI under the NN1002 Agreement.
6. Segment Information
We have 1 reportable segment, which is comprised of the touch technology licensing and sensor moduleproducts 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 reportsWe report 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, 20212022 and 2020,2021, respectively (dollars in thousands):
| Three months ended June 30, 2021 | Three months ended June 30, 2020 | Three months ended June 30, 2022 | Three months ended June 30, 2021 | |||||||||||||||||||||||||||||
| Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||||||||
| Japan | $ | 604 | 35 | % | $ | 360 | 48 | % | $ | 395 | 31 | % | $ | 604 | 35 | % | ||||||||||||||||
| United States | 582 | 34 | % | 265 | 35 | % | 367 | 29 | % | 582 | 34 | % | ||||||||||||||||||||
| South Korea | 236 | 14 | % | 26 | 3 | % | 164 | 13 | % | 236 | 14 | % | ||||||||||||||||||||
| France | 109 | 9 | % | - | - | % | ||||||||||||||||||||||||||
| Sweden | 84 | 7 | % | 7 | - | % | ||||||||||||||||||||||||||
| Switzerland | 72 | 6 | % | 53 | 3 | % | ||||||||||||||||||||||||||
| Germany | 61 | 4 | % | 89 | 5 | % | ||||||||||||||||||||||||||
| China | 148 | 9 | % | 15 | 2 | % | 11 | 1 | % | 148 | 9 | % | ||||||||||||||||||||
| Germany | 89 | 5 | % | 24 | 3 | % | ||||||||||||||||||||||||||
| Switzerland | 53 | 3 | % | 52 | 7 | % | ||||||||||||||||||||||||||
| Taiwan | - | - | % | 9 | 1 | % | ||||||||||||||||||||||||||
| Other | 8 | - | % | 7 | 1 | % | 4 | - | % | 1 | - | % | ||||||||||||||||||||
| $ | 1,720 | 100 | % | $ | 758 | 100 | % | $ | 1,267 | 100 | % | $ | 1,720 | 100 | % | |||||||||||||||||
| Six months ended June 30, 2021 | Six months ended June 30, 2020 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | |||||||||||||||||||||||||||||
| Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||||||||
| United States | $ | 1,275 | 38 | % | $ | 854 | 42 | % | $ | 860 | 33 | % | 1,275 | 38 | % | |||||||||||||||||
| Japan | 1,009 | 30 | % | 834 | 41 | % | 782 | 30 | % | $ | 1,009 | 30 | % | |||||||||||||||||||
| South Korea | 520 | 16 | % | 27 | 2 | % | 367 | 14 | % | 520 | 16 | % | ||||||||||||||||||||
| France | 145 | 6 | % | 5 | - | % | ||||||||||||||||||||||||||
| Switzerland | 136 | 6 | % | 74 | 2 | % | ||||||||||||||||||||||||||
| Germany | 118 | 5 | % | 198 | 6 | % | ||||||||||||||||||||||||||
| Sweden | 84 | 3 | % | 16 | - | % | ||||||||||||||||||||||||||
| China | 282 | 8 | % | 49 | 2 | % | 31 | 1 | % | 282 | 8 | % | ||||||||||||||||||||
| Germany | 198 | 6 | % | 144 | 7 | % | ||||||||||||||||||||||||||
| Switzerland | 74 | 2 | % | 107 | 5 | % | ||||||||||||||||||||||||||
| Sweden | 16 | - | % | 15 | - | % | ||||||||||||||||||||||||||
| Other | 11 | - | % | 22 | 1 | % | 62 | 2 | % | 6 | - | % | ||||||||||||||||||||
| $ | 3,385 | 100 | % | $ | 2,052 | 100 | % | $ | 2,585 | 100 | % | $ | 3,385 | 100 | % | |||||||||||||||||
The following table presents our total assets by geographic region as of June 30, 20212022 and December 31, 20202021 (in thousands):
| June 30, 2021 | December 31, 2020 | June 30, 2022 | December 31, 2021 | |||||||||||||
| U.S. | $ | 7,047 | $ | 7,253 | ||||||||||||
| United States | $ | 12,784 | $ | 17,589 | ||||||||||||
| Sweden | 4,759 | 9,210 | 6,290 | 5,353 | ||||||||||||
| Asia | 53 | 109 | 40 | 50 | ||||||||||||
| Total | $ | 11,859 | $ | 16,572 | $ | 19,114 | $ | 22,922 | ||||||||
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 two months to three to eighteen months.years. One of our primary operating leases includes options to extend the lease for one to three years and the other primary lease includes an option to annually extend;prolong; those operating leases also include options to terminate the leases within one year. Future renewal options that are not likely to be executed as of the balance sheet date are excluded from right-of-use assets and related lease liabilities.
Our operating leases represent building leases for our Stockholm corporate offices and our Kungsbacka manufacturing facility. Our Stockholm corporate office lease has a remaining lease term of 17 monthsunder one year and both of our leases are automatically renewed at a cost increase of 2% on an annual basis, unless we provide written notice nine months prior to the respective expiration dates.
We report operating lease right-of-use assets, as well as current and noncurrent operating lease obligations on our consolidated balance sheets for the right to use those buildings in our business. Our finance leases represent manufacturing equipment; we report the manufacturing equipment, as well as current and noncurrent finance lease obligations on our 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, | Six months ended June 30, | |||||||||||||||||||||||
| Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Operating lease cost (1) | $ | 179 | $ | 355 | $ | 152 | $ | 179 | $ | 318 | $ | 355 | ||||||||||||
| Finance lease cost: | ||||||||||||||||||||||||
| Amortization of leased assets | $ | 147 | $ | 316 | 27 | 147 | 57 | 316 | ||||||||||||||||
| Interest on lease liabilities | 4 | 8 | 4 | 4 | 6 | 8 | ||||||||||||||||||
| Total finance lease cost | $ | 151 | $ | 324 | 31 | 151 | 63 | 324 | ||||||||||||||||
| (1) | Includes |
| 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 | ||||
|
Supplemental cash flow information related to leases was as follows (in thousands):
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
| Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Cash paid for amounts included in leases: | ||||||||||||||||||||||||
| Operating cash flows from operating leases | $ | (132 | ) | $ | (342 | ) | $ | (110 | ) | $ | (132 | ) | $ | (294 | ) | $ | (342 | ) | ||||||
| Operating cash flows from finance leases | (4 | ) | (8 | ) | (4 | ) | (4 | ) | (6 | ) | (8 | ) | ||||||||||||
| Financing cash flows from finance leases | (147 | ) | (295 | ) | (38 | ) | (147 | ) | (99 | ) | (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 | June 30, 2022 | December 31, 2021 | |||||||||||||
| Operating leases | ||||||||||||||||
| Operating lease right-of-use assets | $ | 628 | $ | 919 | $ | 306 | $ | 584 | ||||||||
| Current portion of operating lease obligations | $ | 437 | $ | 504 | $ | 134 | $ | 425 | ||||||||
| Operating lease liabilities, net of current portion | 74 | 377 | 70 | 117 | ||||||||||||
| Total operating lease liabilities | $ | 511 | $ | 881 | $ | 204 | $ | 542 | ||||||||
| Finance leases | ||||||||||||||||
| Property and equipment, at cost | $ | 3,656 | $ | 3,806 | $ | 2,468 | $ | 3,463 | ||||||||
| Accumulated depreciation | (3,139 | ) | (2,941 | ) | (2,234 | ) | (3,199 | ) | ||||||||
| Property and equipment, net | $ | 517 | $ | 865 | $ | 234 | $ | 264 | ||||||||
| Current portion of finance lease obligations | $ | 501 | $ | 769 | $ | 133 | $ | 258 | ||||||||
| Finance lease liabilities, net of current portion | 39 | 95 | 81 | 65 | ||||||||||||
| Total finance lease liabilities | $ | 540 | $ | 864 | $ | 214 | $ | 323 | ||||||||
| June 30, 2021 | December 31, 2020 | June 30, 2022 | December 31, 2021 | |||||||||||||
| Weighted Average Remaining Lease Term | ||||||||||||||||
| Operating leases | 1.4 years | 1.6 years | 1.4 years | 1.6 years | ||||||||||||
| Finance leases | 0.7 years | 0.8 years | 1.9 years | 1.0 years | ||||||||||||
| Weighted Average Discount Rate: | ||||||||||||||||
| Operating leases (2) | 5 | % | 5 | % | 5 | % | 5 | % | ||||||||
| Finance leases | 2 | % | 2 | % | 2 | % | 2 | % | ||||||||
| (2) | Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019 |
A summary of future minimum payments under non-cancellable operating lease commitments as of June 30, 20212022 is as follows (in thousands):
| Years ending December 31, | Total | |||||||
| 2021 (remaining months) | $ | 230 | ||||||
| 2022 | 297 | |||||||
| Year ending December 31, | Total | |||||||
| 2022 (remaining months) | 88 | |||||||
| 2023 | 72 | |||||||
| 2024 | 54 | |||||||
| 527 | 214 | |||||||
| Less imputed interest | (16 | ) | (10 | ) | ||||
| Total lease liabilities | $ | 511 | $ | 204 | ||||
| Less current portion | (437 | ) | (134 | ) | ||||
| $ | 74 | $ | 70 | |||||
The following is a schedule of minimum future rentals on the non-cancellable finance leases as of June 30, 20212022 (in thousands):
| Year ending December 31, | Total | Total | ||||||
| 2021 (remaining months) | $ | 354 | ||||||
| 2022 | 169 | |||||||
| 2022 (remaining months) | $ | 82 | ||||||
| 2023 | 22 | 90 | ||||||
| 2024 | 35 | |||||||
| 2025 | 12 | |||||||
| Total minimum payments required: | 545 | 219 | ||||||
| Less amount representing interest: | (5 | ) | (5 | ) | ||||
| Present value of net minimum lease payments: | 540 | 214 | ||||||
| Less current portion | (501 | ) | (133 | ) | ||||
| $ | 39 | $ | 81 | |||||
8. Net Loss per Share
Basic net loss per common share for the three and six months ended June 30, 20212022 and 20202021 was computed by dividing the net loss attributable to common shareholders of Neonode Inc. for the relevant period by the weighted average number of shares of common stock outstanding. Diluted loss per common share is computed by dividing net loss attributable to common shareholders of Neonode Inc. for the relevant period 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, 20212022 and 2020,2021, 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 | ) | ||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands, except per share amounts) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| BASIC AND DILUTED | ||||||||||||||||
| Weighted average number of common shares outstanding | 13,578 | 11,504 | 13,577 | 11,504 | ||||||||||||
| Net loss attributable to Neonode Inc. | $ | (1,548 | ) | $ | (1,657 | ) | $ | (2,928 | ) | $ | (3,225 | ) | ||||
| Net loss per share - basic and diluted | $ | (0.11 | ) | $ | (0.14 | ) | $ | (0.22 | ) | $ | (0.28 | ) | ||||
| (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 | ) | ||
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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking. For example, statements in this Quarterly Report regarding our plans, strategy and focus areas are forward-looking statements. You can identify some forward-looking statements by the use of words such as “believe,” “anticipate,” “expect,” “intend,” “goal,” “plan,” and similar expressions. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements, including, but not limited to risks relating to the impact of the COVID-19 pandemic (including the emergence of vaccine resistant COVID-19 variants), the ongoing war in Ukraine and its impact on the global economy, our history of losses since inception, our dependence on a limited number of customers, our reliance on our customers’ ability to develop and sell products that incorporate our touch technology, the length of a product development and release cycle, our and our customers’ reliance on component suppliers, the difficulty in verifying royalty amounts owed to us, our limited experience manufacturing hardware devices, our ability to remain competitive in response to new technologies, our dependence on key members of our management and development team, the costs to defend, as well as risks of losing, patents and intellectual property rights and our ability to obtain adequate capital to fund future operations. For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 and in our publicly available filings with the Securities and Exchange Commission. Forward-looking statements reflect our analysis only as of the date of this Quarterly Report on Form 10-Q. Because actual events or results may differ materially from those discussed in or implied by forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statement. We do not undertake responsibility to update or revise any of these factors or to announce publicly any revision to forward-looking statements, whether as a result of new information, future events or otherwise.
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and consolidated financial statements for the year ended December 31, 20202021 included in our most recent Annual Report on Form 10-K.
Neonode Inc., collectively with its subsidiaries, is referred to in this Form 10-Q as “Neonode”, “we”, “us”, “our”, “registrant”, or “Company”.
Overview
Our company provides advanced optical sensing solutions for contactless touch, touch, and gesture sensing, and remote sensingsensing. We also provide software solutions for driverscene analysis that feature advanced machine learning algorithms to detect and in-cabin monitoring features.track persons and objects in video streams for cameras and other types of imagers. We market and sellbase our contactless touch, touch, and gesture sensing products and solutions usingon our zForce technology platform and our remote sensingscene analysis solutions usingon our MultiSensing technology platform. Neonode offers customized optical touchWe market and gesture controlsell our solutions forto customers in many different markets and segments including, but not limited to, office equipment, automotive, industrial automation, medical, military and mainly operates in the business-to-business (“B2B”) markets.avionics.
License Sales
We license our zForce technology to Original Equipment Manufacturers (“OEMs”)OEMs, ODMs and Tier 1 suppliers who embed our Human Machine Interface (“HMI”) technology into products they develop, manufacture and sell. Since 2010, our licensing customers have sold approximately 8287 million devices that use our patented technology.
As of June 30, 2021,2022, we had thirty-five34 valid technology license agreements with global OEMs, Original Design Manufacturers (“ODMs”)ODMs and Tier 1 suppliers.
Our licensing customer base is primarily in the automotive and printer industries. Thirteensegments. Eleven of our licensing customers are currently shipping products that embed our technology. We anticipate current and new customers will initiate product shipments throughout 2021continue to ship products with our technology in 2022 and in future yearsyears. We also expect to expand our customer base with a number of new customers who will be looking to ship new products incorporating our zForce and MultiSensing technologies as they complete final product development and release cycles. Customer product development and release cyclesWe typically take between 6 months to 36 months. We earn our license fees on a per unit basis when our customers ship products using our technology.technology, but in the future other business models may also be used.
Product Salessales
In addition to our technical solutions business, we design and manufacture sensor modulesTSMs that incorporate our patented technology. We sell our embedded sensors componentsTSMs to OEMs, ODMs and Tier 1 supplierssystems integrators for HMI use in their products. We also sell our Neonode branded AirBar product that incorporates one of our TSMs through distributors.
We utilize a robotic manufacturing process designed specifically for our components. Industry specific sensor modules with a commonOur TSMs are commercial-off-the-shelf products based on our patent-protected zForce technology platform provides hardwareand can support the development of contactless touch, touch, gesture and object sensing solutions that, paired with our technology licensing platform, givesoffering, give us a full range of options to enter and compete in key markets.
In October 2017, we began selling embedded sensor modulesour TSMs to business customers in the industrial and consumer electronics markets.segments. Over time, we expect a significant portion of our revenues will be derived from productTSM sales.
Our offerings include a consumer product, AirBar. As a plug and play accessory, AirBar enables touch and gesture functionality for notebook computers and other devices. AirBar is powered by our sensor modules. We have no current plans to develop new Neonode branded products for the consumer markets.Non-recurring engineering services
Non-recurring Engineering Services Sales
We also offer non-recurring engineering consulting(“NRE”) services related to application development linked to our licensingTSMs and sensor module customersour zForce and MultiSensing technology platforms on a flat rate or hourly rate basis.
Typically, our licensing customers require engineering support during the development and initial manufacturing phase for their products using our technology, while our sensor moduleTSM customers require hardware or software modifications ofto our standard products or support during the development and initial manufacturing phase forphases of their products using our technology. In both cases we can offer NRE services and earn NRE revenues.
Remote Sensing Solutions
We also address the demand for cost-effective driver and cabin monitoring systems. We have developed a software platform for driver and cabin monitoring that is flexible, scalable and hardware-agnostic, and uses computationally efficient machine-learning algorithms. Within this area, we expect to derive revenues through technology licensing and engineering consulting services.
Impact of COVID-19
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. Our near termnear-term growth and overall business hashave been and isare continuing to be adversely impacted by COVID-19 and we expect itthey will continue to be impacted by COVID-19the pandemic and the emergence of new COVID-19 variants and theirits impact on the global economy. Although we have noted additional demand for our TSMs for use in our contactless touch products and some increases in sales of licensed products,licenses, COVID-19 has negatively impacted some of our customers’ businesses and their sales volumes and new development projects and product launches, which, in turn, has impacted our business. We are experiencing challenges in obtaining deliveries of components needed to manufacture our sensor modules and we may have difficulties delivering our products to our customers in time and at a reasonable cost. Our operations werehave as also been impacted as we pausedby lockdowns and travel restrictions, which forced us to pause business-related travel and caused a majority of our employees to a high extent still workbegin working remotely. In the second quarter of 2022, however, as lockdowns and travel restrictions continued to be lifted, we began to resume business-related travel and more and more of our employees are now returning to the office.. The extent of the COVID-19 pandemic’s impact on our operational and financial performance going forward will depend on future developments, including the duration, spread and intensity of the pandemic, (including the emergence of new COVID-19 variants), all of which are uncertain and difficult to predict at this time. To mitigate the financial effects of the COVID-19 pandemic, we have undertaken cost-reduction measures. In particular, we implemented a Swedish government-backed program of short-term layoffs that resulted in the reduction of staff working hours by 20% between mid-April to mid-August last year. We are continuing to monitor the impact of the COVID-19 pandemic and we may take further actions in response. There is a risk that we will not be successful in mitigating the COVID-19 pandemic’s impact on our business, and our sales may not increase in line with our expectations and our operating margins could fluctuate or decline.
Impact of War in Ukraine
The ongoing war in Ukraine has impacted the global economy as the United States, the UK, the EU, and other countries have imposed broad export controls and financial and economic sanctions against Russia (a large exporter of commodities), Belarus, and specific areas of Ukraine, and may continue to impose additional sanctions or other measures. Russia may impose its own counteractive measures. We do not procure materials directly from Ukraine or Russia, but the war in Ukraine may further exacerbate ongoing supply chain disruptions that are occurring across the globe. While the precise effects on global economies from the war and related sanctions remain uncertain, there has been significant volatility in the financial markets, fluctuations in currency exchange rates, and an increase in energy and commodity prices globally. Should the war continue or escalate, there may be various economic and security consequences including, but not limited to, additional supply shortages of different kinds; further increases in prices of commodities; significant disruptions in logistics infrastructure and telecommunications services; and risks relating to the unavailability of information technology systems and infrastructure. The resulting impacts on the global economy, financial markets, inflation, interest rates, and unemployment, among others, could adversely impact economic and financial conditions, and may disrupt the global economy’s ongoing recovery from the COVID-19 pandemic.
Results of Operations
A summary of our financial results is as follows (in thousands, except percentages):
| Three months ended June 30, | 2021 vs 2020 | Three months ended June 30, | 2022 vs 2021 | |||||||||||||||||||||||||||||
| 2021 | 2020 | Variance in Dollars | Variance in Percent | 2022 | 2021 | Variance in Dollars | Variance in Percent | |||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||
| License fees | $ | 1,358 | $ | 674 | $ | 684 | 101.5 | % | $ | 953 | $ | 1,358 | $ | (405 | ) | (29.8 | )% | |||||||||||||||
| Percentage of revenue | 79.0 | % | 88.9 | % | 75.2 | % | 79.0 | % | ||||||||||||||||||||||||
| Sensor modules | 346 | 66 | 280 | 424.2 | % | |||||||||||||||||||||||||||
| Products | 210 | 346 | (136 | ) | (39.3 | )% | ||||||||||||||||||||||||||
| Percentage of revenue | 20.1 | % | 8.7 | % | 16.6 | % | 20.1 | % | ||||||||||||||||||||||||
| Non-recurring engineering | $ | 16 | $ | 18 | $ | (2 | ) | (11.1 | )% | $ | 104 | $ | 16 | $ | 88 | 550.0 | % | |||||||||||||||
| Percentage of revenue | 0.9 | % | 2.4 | % | 8.2 | % | 0.9 | % | ||||||||||||||||||||||||
| Total Revenue | $ | 1,720 | $ | 758 | $ | 962 | 126.9 | % | $ | 1,267 | $ | 1,720 | $ | (453 | ) | (26.3 | )% | |||||||||||||||
| Cost of Sales: | ||||||||||||||||||||||||||||||||
| Sensor modules | $ | 212 | $ | 72 | $ | 140 | 194.4 | % | ||||||||||||||||||||||||
| Products | $ | 93 | $ | 212 | $ | (119 | ) | (56.1 | )% | |||||||||||||||||||||||
| Percentage of revenue | 12.3 | % | 9.5 | % | 7.3 | % | 12.3 | % | ||||||||||||||||||||||||
| Non-recurring engineering | $ | 9 | $ | 51 | $ | (42 | ) | (82.4 | )% | $ | 17 | $ | 9 | $ | 8 | 88.9 | % | |||||||||||||||
| Percentage of revenue | 0.5 | % | 6.7 | % | 1.3 | % | 0.5 | % | ||||||||||||||||||||||||
| Total Cost of Sales | $ | 221 | $ | 123 | $ | 98 | 79.7 | % | $ | 110 | $ | 221 | $ | (111 | ) | (50.2 | )% | |||||||||||||||
| Total Gross Margin | $ | 1,499 | $ | 635 | $ | 864 | 136.1 | % | $ | 1,157 | $ | 1,499 | $ | (342 | ) | (22.8 | )% | |||||||||||||||
| Operating Expense: | ||||||||||||||||||||||||||||||||
| Research and development | $ | 1,379 | $ | 1,043 | $ | 336 | 32.2 | % | $ | 1,146 | $ | 1,379 | $ | (233 | ) | (16.9 | )% | |||||||||||||||
| Percentage of revenue | 80.2 | % | 137.6 | % | 90.4 | % | 80.2 | % | ||||||||||||||||||||||||
| Sales and marketing | 769 | 648 | 121 | 18.7 | % | 644 | 769 | (125 | ) | (16.3 | )% | |||||||||||||||||||||
| Percentage of revenue | 44.7 | % | 85.5 | % | 50.8 | % | 44.7 | % | ||||||||||||||||||||||||
| General and administrative | 1,147 | 700 | 447 | 63.9 | % | 1,053 | 1,147 | (94 | ) | (8.2 | )% | |||||||||||||||||||||
| Percentage of revenue | 66.7 | % | 92.3 | % | 83.1 | % | 66.7 | % | ||||||||||||||||||||||||
| Total Operating Expenses | $ | 3,295 | $ | 2,391 | $ | 904 | 37.8 | % | $ | 2,843 | $ | 3,295 | $ | (452 | ) | (13.7 | )% | |||||||||||||||
| Percentage of revenue | 191.6 | % | 315.4 | % | 224.4 | % | 191.6 | % | ||||||||||||||||||||||||
| Operating Loss | $ | (1,796 | ) | $ | (1,756 | ) | $ | (40 | ) | 2.3 | % | $ | (1,686 | ) | $ | (1,796 | ) | $ | 110 | (6.1 | )% | |||||||||||
| Percentage of revenue | (104.4 | )% | (231.7 | )% | (133.1 | )% | (104.4 | )% | ||||||||||||||||||||||||
| Interest expense | 3 | 7 | (4 | ) | (57.1 | )% | (4 | ) | (3 | ) | (1 | ) | 33.3 | % | ||||||||||||||||||
| Percentage of revenue | 0.2 | % | 0.9 | % | (0.3 | )% | (0.2 | )% | ||||||||||||||||||||||||
| Provision for income taxes | 37 | 3 | 34 | 1,133.3 | % | |||||||||||||||||||||||||||
| Other income | 21 | - | 21 | 100.0 | % | |||||||||||||||||||||||||||
| Percentage of revenue | 1.7 | % | - | % | ||||||||||||||||||||||||||||
| Provision (benefit) for income taxes | 28 | 37 | (9 | ) | (24.3 | )% | ||||||||||||||||||||||||||
| Percentage of revenue | 2.2 | % | 0.4 | % | 2.2 | % | 2.2 | % | ||||||||||||||||||||||||
| Less: net loss attributable to noncontrolling interests | $ | 179 | $ | 154 | $ | 25 | 16.2 | % | 149 | 179 | (30 | ) | (16.8 | )% | ||||||||||||||||||
| Percentage of revenue | 10.4 | % | 20.3 | % | 11.8 | % | 10.4 | % | ||||||||||||||||||||||||
| Net loss attributable to Neonode Inc. | $ | (1,657 | ) | $ | (1,612 | ) | $ | (45 | ) | 2.8 | % | $ | (1,548 | ) | $ | (1,657 | ) | $ | 109 | (6.6 | )% | |||||||||||
| Percentage of revenue | (96.3 | )% | (212.7 | )% | (122.2 | )% | (96.3 | )% | ||||||||||||||||||||||||
| Net loss per share attributable to Neonode Inc. | $ | (0.14 | ) | $ | (0.18 | ) | $ | 0.04 | (22.2 | )% | $ | (0.11 | ) | $ | (0.14 | ) | $ | (0.03 | ) | (21.4 | )% | |||||||||||
| Percentage of revenue | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||
| Six months ended June 30, | 2021 vs 2020 | Six months ended June 30, | 2022 vs 2021 | |||||||||||||||||||||||||||||
| 2021 | 2020 | Variance in Dollars | Variance in Percent | 2022 | 2021 | Variance in Dollars | Variance in Percent | |||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||
| License fees | $ | 2,653 | $ | 1,843 | $ | 810 | 44.0 | % | $ | 2,057 | $ | 2,653 | $ | (596 | ) | (22.5 | )% | |||||||||||||||
| Percentage of revenue | 78.4 | % | 89.8 | % | 79.6 | % | 78.4 | % | ||||||||||||||||||||||||
| Sensor modules | 701 | 164 | 537 | 327.4 | % | |||||||||||||||||||||||||||
| Products | 357 | 701 | (344 | ) | (49.1 | )% | ||||||||||||||||||||||||||
| Percentage of revenue | 20.7 | % | 8.0 | % | 13.8 | % | 20.7 | % | ||||||||||||||||||||||||
| Non-recurring engineering | $ | 31 | $ | 45 | $ | (14 | ) | (31.1 | )% | $ | 171 | $ | 31 | $ | 140 | 451.6 | % | |||||||||||||||
| Percentage of revenue | 0.9 | % | 2.2 | % | 6.6 | % | 0.9 | % | ||||||||||||||||||||||||
| Total Revenue | $ | 3,385 | $ | 2,052 | $ | 1,333 | 65.0 | % | $ | 2,585 | $ | 3,385 | $ | (800 | ) | (23.6 | )% | |||||||||||||||
| Cost of Sales: | ||||||||||||||||||||||||||||||||
| Sensor modules | $ | 482 | $ | 108 | $ | 374 | 346.3 | % | ||||||||||||||||||||||||
| Products | $ | 144 | $ | 482 | $ | (338 | ) | (70.1 | )% | |||||||||||||||||||||||
| Percentage of revenue | 14.2 | % | 5.3 | % | 5.6 | % | 14.2 | % | ||||||||||||||||||||||||
| Non-recurring engineering | $ | 16 | $ | 59 | $ | (43 | ) | (72.9 | )% | $ | 26 | $ | 16 | $ | 10 | 62.5 | % | |||||||||||||||
| Percentage of revenue | 0.5 | % | 2.9 | % | 1.0 | % | 0.5 | % | ||||||||||||||||||||||||
| Total Cost of Sales | $ | 498 | $ | 167 | $ | 331 | 198.2 | % | $ | 170 | $ | 498 | $ | (328 | ) | (65.9 | )% | |||||||||||||||
| Total Gross Margin | $ | 2,887 | $ | 1,885 | $ | 1,002 | 53.2 | % | $ | 2,415 | $ | 2,887 | $ | (472 | ) | (16.3 | )% | |||||||||||||||
| Operating Expense: | ||||||||||||||||||||||||||||||||
| Research and development | $ | 2,521 | $ | 2,038 | $ | 483 | 23.7 | % | $ | 2,169 | $ | 2,521 | $ | (352 | ) | (14.0 | )% | |||||||||||||||
| Percentage of revenue | 74.5 | % | 99.3 | % | 83.9 | % | 74.5 | % | ||||||||||||||||||||||||
| Sales and marketing | 1,557 | 1,193 | 364 | 30.5 | % | 1,260 | 1,557 | (297 | ) | (19.1 | )% | |||||||||||||||||||||
| Percentage of revenue | 46.0 | % | 58.1 | % | 48.7 | % | 46.0 | % | ||||||||||||||||||||||||
| General and administrative | 2,234 | 1,499 | 735 | 49.0 | % | 2,063 | 2,234 | (171 | ) | (7.7 | )% | |||||||||||||||||||||
| Percentage of revenue | 66.0 | % | 73.1 | % | 79.8 | % | 66.0 | % | ||||||||||||||||||||||||
| Total Operating Expenses | $ | 6,312 | $ | 4,730 | $ | 1,582 | 33.4 | % | $ | 5,492 | $ | 6,312 | $ | (820 | ) | (13.0 | )% | |||||||||||||||
| Percentage of revenue | 186.5 | % | 230.5 | % | 212.5 | % | 186.5 | % | ||||||||||||||||||||||||
| Operating Loss | $ | (3,425 | ) | $ | (2,845 | ) | $ | (580 | ) | 20.4 | % | $ | (3,077 | ) | $ | (3,425 | ) | $ | 348 | (10.2 | )% | |||||||||||
| Percentage of revenue | (101.2 | )% | (138.6 | )% | (119.0 | )% | (101.2 | )% | ||||||||||||||||||||||||
| Interest expense | 8 | 14 | (6 | ) | (42.9 | )% | (6 | ) | (8 | ) | 2 | (25.0 | )% | |||||||||||||||||||
| Percentage of revenue | 0.2 | % | 0.7 | % | (0.2 | )% | (0.2 | )% | ||||||||||||||||||||||||
| Provision for income taxes | 73 | 19 | 54 | 284.2 | % | |||||||||||||||||||||||||||
| Other income | 21 | - | 21 | 100.0 | % | |||||||||||||||||||||||||||
| Percentage of revenue | 0.8 | % | - | % | ||||||||||||||||||||||||||||
| Provision (benefit) for income taxes | 72 | 73 | (1 | ) | (1.4 | )% | ||||||||||||||||||||||||||
| Percentage of revenue | 2.2 | % | 0.9 | % | 2.8 | % | 2.2 | % | ||||||||||||||||||||||||
| Less: net loss attributable to noncontrolling interests | $ | 281 | $ | 256 | $ | 25 | 9.8 | % | 206 | 281 | (75 | ) | (26.7 | )% | ||||||||||||||||||
| Percentage of revenue | 8.3 | % | 12.5 | % | 8.0 | % | 8.3 | % | ||||||||||||||||||||||||
| Net Loss attributable to Neonode Inc. | $ | (3,225 | ) | $ | (2,622 | ) | $ | (603 | ) | 23.0 | % | |||||||||||||||||||||
| Net loss attributable to Neonode Inc. | $ | (2,928 | ) | $ | (3,225 | ) | $ | 297 | (9.2 | )% | ||||||||||||||||||||||
| Percentage of revenue | (95.3 | )% | (127,8 | )% | (113.3 | )% | (95.3 | )% | ||||||||||||||||||||||||
| Net Loss per share attributable to Neonode Inc. | $ | (0.28 | ) | $ | (0.29 | ) | $ | 0.01 | (3.4 | )% | ||||||||||||||||||||||
| Percentage of revenue | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||
| Net loss per share attributable to Neonode Inc. | $ | (0.22 | ) | $ | (0.28 | ) | $ | (0.06 | ) | (21.4 | )% | |||||||||||||||||||||
Net Revenues
All of our sales for the three and six months ended June 30, 20212022 and 20202021 were to customers located in the U.S.,United States, Europe and Asia.
The increasedecrease of 127%26.3% and 65%23.6% in total net revenues for the three and six months ended June 30, 20212022 as compared to the same periodsperiod in 2020 was related to higher license fees2021 is mainly explained by component shortage within the printer industry and higher sensor modules sales, partly offset byautomotive industry and lock-downs in APAC, as a decrease in non-recurring engineering revenues.result of the pandemic.
License Fees Revenues
The increasedecrease in license feesfee revenues for the three and six months ended June 30, 20212022 compared to the same periodsperiod in 20202021 is mostly pandemic-relatedmainly pandemic-related. The component shortage within the printer and withinautomotive industries, as a result of the pandemic, has continued as well as reduced production volumes of printers and cars equipped with our legacy business. Licensing revenues in 2020 were depressed by the general economic slow-down associated with the pandemic. For 2021, revenues are still rebounding. We have seen an increase in license fees revenues in the second quarter of 2021 compared to the first.new technology.
Touch Sensor Modules RevenuesProduct Sales
The interest for contactless touch is the main driverRevenues from product sales were $0.2 million and $0.4 million for the increasethree and six month ended June 30, 2022 compared to $0.3 million and $0.7 million for the same periods in revenues from sale2021. In the first half of 2021 several early adopters of our TSMs. We have seentechnology developed and launched retrofit solutions, which affected our TSM sales positively during this period. However, our product sales for the second quarter of 2022 continue to be negatively impacted by COVID-19 driven lock-downs in Asia asand we are also affected by the first adoptercomparatively long development and launch periods, often 12 to 18 months, or longer, for our contactless touch technology. As expected, most ofcustomer new equipment solutions, which slow down our sales are related to retrofit solutions due to long product development cycles.growth.
Non-recurring Engineering Revenues
Most of our non-recurring revenues are related to both hardware and software related customization of our TSMs and decreasedTSMs. Non-recurring revenues increased for the three and six months ended June 30, 20212022 compared to the same periods in 2020.2021.
There were no revenuesRevenues related to Remote Sensing Solutions were recognized for the first time for the three and six months ended June 30, 2021.2022 and were $0.1 million.
The following tables presents the net revenues by geographical area and revenue stream for the three and six months ended June 30, 20212022 and 20202021 (dollars in thousands):
| Three months ended June 30, 2022 | Three months ended June 30, 2021 | |||||||||||||||
| Amount | Percentage | Amount | Percentage | |||||||||||||
| AMER | ||||||||||||||||
| License fees | $ | 365 | 100 | % | $ | 569 | 97 | % | ||||||||
| Products | 1 | - | % | 15 | 3 | % | ||||||||||
| Non-recurring engineering | 1 | - | % | - | - | % | ||||||||||
| $ | 367 | 100 | % | $ | 584 | 100 | % | |||||||||
| APAC | ||||||||||||||||
| License fees | $ | 528 | 92 | % | $ | 706 | 71 | % | ||||||||
| Products | 22 | 4 | % | 264 | 27 | % | ||||||||||
| Non-recurring engineering | 24 | 4 | % | 16 | 2 | % | ||||||||||
| $ | 574 | 100 | % | $ | 986 | 100 | % | |||||||||
| EMEA | ||||||||||||||||
| License fees | $ | 60 | 18 | % | $ | 83 | 55 | % | ||||||||
| Products | 187 | 57 | % | 67 | 45 | % | ||||||||||
| Non-recurring engineering | 79 | 25 | % | - | - | % | ||||||||||
| $ | 326 | 100 | % | $ | 150 | 100 | % | |||||||||
| Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | |||||||||||||||||||||||||||||
| Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||||||||
| AMER | ||||||||||||||||||||||||||||||||
| License fees | $ | 569 | 97 | % | $ | 260 | 98 | % | $ | 846 | 98 | % | $ | 1,160 | 91 | % | ||||||||||||||||
| Sensor modules | 15 | 3 | % | 6 | 2 | % | ||||||||||||||||||||||||||
| Products | 13 | 2 | % | 117 | 9 | % | ||||||||||||||||||||||||||
| Non-recurring engineering | 1 | - | % | - | - | % | ||||||||||||||||||||||||||
| $ | 584 | 100 | % | $ | 266 | 100 | % | $ | 860 | 100 | % | $ | 1,277 | 100 | % | |||||||||||||||||
| APAC | ||||||||||||||||||||||||||||||||
| License fees | $ | 706 | 71 | % | $ | 388 | 95 | % | $ | 1,095 | 90 | % | $ | 1,304 | 72 | % | ||||||||||||||||
| Sensor modules | 264 | 27 | % | 16 | 4 | % | ||||||||||||||||||||||||||
| Products | 79 | 7 | % | 481 | 26 | % | ||||||||||||||||||||||||||
| Non-recurring engineering | 16 | 2 | % | 4 | 1 | % | 41 | 3 | % | 31 | 2 | % | ||||||||||||||||||||
| $ | 986 | 100 | % | $ | 408 | 100 | % | $ | 1,215 | 100 | % | $ | 1,816 | 100 | % | |||||||||||||||||
| EMEA | ||||||||||||||||||||||||||||||||
| License fees | $ | 83 | 55 | % | $ | 26 | 31 | % | $ | 116 | 23 | % | $ | 189 | 65 | % | ||||||||||||||||
| Sensor modules | 67 | 45 | % | 44 | 52 | % | ||||||||||||||||||||||||||
| Products | 265 | 52 | % | 103 | 35 | % | ||||||||||||||||||||||||||
| Non-recurring engineering | - | - | % | 14 | 17 | % | 129 | 25 | % | - | - | % | ||||||||||||||||||||
| $ | 150 | 100 | % | $ | 84 | 100 | % | $ | 510 | 100 | % | $ | 292 | 100 | % | |||||||||||||||||
| Six months ended June 30, 2021 | Six months ended June 30, 2020 | |||||||||||||||
| Amount | Percentage | Amount | Percentage | |||||||||||||
| AMER | ||||||||||||||||
| License fees | $ | 1,160 | 91 | % | $ | 802 | 94 | % | ||||||||
| Sensor modules | 117 | 9 | % | 47 | 5 | % | ||||||||||
| Non-recurring engineering | - | - | % | 8 | 1 | % | ||||||||||
| $ | 1,277 | 100 | % | $ | 857 | 100 | % | |||||||||
| APAC | ||||||||||||||||
| License fees | $ | 1,304 | 72 | % | $ | 894 | 97 | % | ||||||||
| Sensor modules | 481 | 26 | % | 16 | 2 | % | ||||||||||
| Non-recurring engineering | 31 | 2 | % | 9 | 1 | % | ||||||||||
| $ | 1,816 | 100 | % | $ | 919 | 100 | % | |||||||||
| EMEA | ||||||||||||||||
| License fees | $ | 189 | 65 | % | $ | 147 | 53 | % | ||||||||
| Sensor modules | 103 | 35 | % | 101 | 37 | % | ||||||||||
| Non-recurring engineering | - | - | % | 28 | 10 | % | ||||||||||
| $ | 292 | 100 | % | $ | 276 | 100 | % | |||||||||
Gross Margin
Our combined total gross margin was 93% and 94% for the three and six months ended June 30, 2022, respectively, and 87% and 85% for the three and six months ended June 30, 2021, and 84% and 92% for the three and six months ended June 30, 2020, respectively. For the three and six months ended June 30, 2021,2022, gross margin related to sensor module salesproducts was 63% and 64%, respectively, compared to 39% and 31% compared to (9)% and 34% for the same periods in 2020. The reason for the decrease in the six months ended June 30, 2021, compared to the same period 2020 is low-margin AirBar sales during the first three months of 2021.respectively.
Our cost of revenuessales includes the direct cost of production of certain customer prototypes, costs of engineering personnel, engineering consultants to complete the engineering design contracts. Cost of goods sold for sensor modulesTSMs includes fully burdened manufacturing costs, outsourced final assembly costs, and component costs of sensor modules.TSMs.
Research and Development
Research and development (“R&D”) expenses for the three and six months ended June 30, 20212022 were $1.4$1.1 million and $2.5$2.2 million, respectively. For the same periods in 2020,2021, the R&D expenses were $1.0$1.4 million and $2.0$2.5 million, respectively. R&D expenses primarily consist of personnel-related costs in addition to external consultancy costs, such as testing, certifying and measurements, along with costs related to developing and building new product prototypes.
The increasesdecreases were primarily related to higher staff expenses for the threemove of administrative costs related to production from R&D to general and six months ended June 30, 2021, which can be explainedadministrative partly offset by the reduced working hours associated with the governmental pandemic related support program in Sweden during 2020.reallocation of overhead costs from general and administrative to R&D.
Sales and Marketing
Sales and marketing expenses for the three and six months ended June 30, 20212022 were $0.8$0.6 million and $1.6$1.3 million, respectively. The sales and marketing costs for the same periods in 20202021 were $0.6$0.8 million and $1.2$1.6 million, respectively. Again, the increasesThe decrease for the three and six months ended June 30, 20212022 were primarily due to higherlower staff expenses and the Swedish governmental support program during 2020expenses.
Our sales and marketing activities focus on OEM, ODM and Tier 1 customers who will license our technology or purchase and embed our touch sensor modulesTSMs into their products.
General and Administrative
General and administrative (“G&A”) expenses for the three and six months ended June 30, 2022 were $1.1 million and $2.1 million, respectively. The G&A expenses for the three and six months ended June 30, 2021 were $1.1 million and $2.2 million, respectively. The G&A expenses for the three and six months ended June 30, 2020 were $0.7 million and $1.5 million, respectively. The increasedecrease was primarily due to higher costs related to staff and in-house consultantsdecrease in combination with high professional fees for the three and six months ended June 30, 2021.depreciation.
Income Taxes
Our effective tax rate was (2)% and (2)% for the three and six months ended June 30, 2021,2022, respectively, and 0%(2)% and (1)(2)% for the three and six months ended June 30, 2020,2021, respectively. The negative tax rate in the three and six months ended June 30, 2021 and June 30, 2020 is due to withholding taxes from sales. We recorded valuation allowances for the three and six-month periods ended June 30, 20212022 and June 30, 20202021 for deferred tax assets related to net operating losses due to the uncertainty of realization.
Net Loss
As a result of the factors discussed above, we recorded a net loss attributable to Neonode Inc. of $1.7$1.5 million and $3.2$2.9 million for the three and six months ended June 30, 2021,2022, respectively, and $1.6compared to $1.7 million and $2.6$3.2 million for the same periods in 20202021, respectively.
Contractual Obligations and Off-Balance Sheet Arrangements
We previously agreed to secure the value of inventory purchased by one of our AirBars manufacturing partners. At December 31, 2020,2021, the guaranteed amount was decreased from $210,000$100,000 to $100,000.$0. We do not have any other transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources other than the operating leases incurred in the normal course of business.
We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support. We do not engage in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected on the face of the consolidated financial statements.
Contractual Obligations and Commercial Commitments
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, which is used in our licensed technology. Under the terms of the NN1002 Agreement, we agreed to pay TI $500,000 of non-recurring engineering costs at the rate of $0.25 per ASIC for each of the first 2 million ASICs sold. As of June 30, 2021,2022, we had made no payments to TI under the NN1002 Agreement.
Operating Leases
We did not renew our lease for the office space located at 2880 Zanker Road, San Jose, CA 95134 in August 2020 and Neonode Inc. now operates through a virtual office.
On December 1, 2020, Neonode Technologies AB entered into a lease for 6,684 square feet of office space located at Karlavägen 100, Stockholm, Sweden. The lease agreement is valid through November 2022. The lease is extended on a yearly basis unless written notice is given nine months prior to the expiration date.
On December 1, 2015, Pronode Technologies AB entered into a lease agreement for 9,040 square feet of workshop located at Faktorvägen 17, Kungsbacka, Sweden. The lease can be terminated with nine months’ written notice prior to the termination date.
In January 2015, our subsidiary Neonode Korea Ltd. entered into a lease agreement located at B-1807, Daesung D-Polis. 543-1, Seoul, South Korea. The lease was terminated on December 18, 2020 and we now only have a virtual office in South Korea.
On December 1, 2015, Neonode Taiwan Ltd. entered into a lease agreement located at Rm. 2406, International Trade Building, Keelung Rd., Sec.1, Taipei, Taiwan. The lease is renewed monthly.
On September 1, 2019 we entered into a lease of office space located at NishiShinjuku Takagi Building, 1203 NishiShinjuku, Shinjukuku, Tokyo, Japan. The lease iswas valid through August 31, 2021 and willwas not be renewed thereafter since we have decided to only haverenewed. We now operate through a virtual office in Japan.
For the three and six months ended June 30, 2022, we recorded approximately $146,000 and $307,000 for total rent expense. For the three and six months ended June 30, 2021, we recorded approximately $171,000 and $344,000 for total rent expense. For the three and six months ended June 30, 2020, we recorded approximately $142,000 and $281,000 for rent expense.expense, respectively.
See Note 7 – Leases in the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1) for further discussions.
Equipment Subject to Finance Lease
In April 2014, we entered into a lease for certain specialized milling equipment. Under the terms of the lease agreement we are obligated to purchase the equipment at the end of the original six-year lease term for 10% of the original purchase price of the equipment. In accordance with relevant accounting guidance the lease is classified as a finance lease. The lease payments and depreciation period began on July 1, 2014 when the equipment went into service. On July 1, 2020 the lease contract was extended for one year. The implicit interest rate of the extended lease period is 9.85% per annum. The lease expired July 1, 2021 and we paid the residual value.
Between the second and the fourth quarters of 2016, we entered into six leases for component production equipment. Under the terms of five of the lease agreements entered into during 2016, we are obligated to purchase the equipment at the end of the original three to five years3-5 year lease terms for 5-10% of the original purchase price of the equipment. In accordance with relevant accounting guidance these fivethe leases are classified as finance leases. The lease payments and depreciation periods began between June and November 2016 when the equipment went into service. The implicit interest rate of these fivethe leases is currently approximately 3% per annum. The additional lease entered into during 2016One of the leases is a hire-purchase agreement that requireswhere the equipment is required to be paid off after five years. In accordance with relevant accounting guidance the lease is classified as a finance lease. The lease payments and depreciation period began on July 1, 2016 when the equipment went into service. The implicit interest rate of thisthe lease is currently approximately 3% per annum. On April 1, 2022, one of lease contracts was extended for three years. The implicit interest rate of the extended lease period is 2.7% per annum.
In 2017, we entered into onea lease for component production equipment. Under the terms of the lease agreement the lease will be renewed within one year of the end of the original four-year lease term. In accordance with relevant accounting guidance the lease is classified as a finance lease. The lease payments and depreciation periods began in May 2017 when the equipment went into service. The implicit interest rate of the lease is currently approximately 1.5% per annum. On November 1, 2021 the lease contract was extended for two years. The implicit interest rate of the extended lease period is 1.5% per annum.
In 2018, we entered into onea lease for component production equipment. Under the terms of the agreement, the lease will be renewed within one year of the original four-year lease term. In accordance with relevant accounting guidance the lease is classified as a finance lease. The lease payments and depreciation periods began in August 2018 when the equipment went into service. The implicit interest rate of the lease is currently approximately 1.5% per annum.
During 2021 we terminated one finance lease by purchasing the related equipment and extended one finance lease for an additional two years.
During the three month ended June 30, 2022, we entered into a lease for soundproof office pods. Under the terms of the agreement, the lease will be renewed within one year of the original three-year lease term. In accordance with relevant accounting guidance the lease is classified as a finance lease. The lease payments and depreciation periods began in May 2022 when the equipment went into service. The implicit interest rate of the lease is currently approximately 3.0% per annum.
See Note 7 – Leases in the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1) for further discussion.
Liquidity and Capital Resources
Our liquidity is dependent on many factors, including sales volume, operating profit and the efficiency of asset use and turnover. Our future liquidity will be affected by, among other things:
| ● | licensing of our technology; | |
| ● | purchases of our | |
| ● | operating expenses; | |
| ● | timing of our OEM customer product shipments; | |
| ● | timing of payment for our technology licensing agreements; | |
| ● | gross profit margin; and | |
| ● | ability to raise additional capital, if necessary. |
As of June 30, 2021,2022, we had cash of $6.6$12.4 million compared to $10.5$17.4 million as of December 31, 2020.2021. Based on our current cash position, and assuming currently planned expenditures and level of operations, we believe we have sufficient capital to fund operations for the twelve-month period subsequent to the date of this Report.
Working capital (current assets less current liabilities) was $7.1$16.4 million as of June 30, 2021,2022, compared to $10.4$19.1 million as of December 31, 2020.2021.
Net cash used in operating activities for the six months ended June 30, 2022 was $5.2 million and was primarily the result of a net loss of $3.1 million and approximately $0.3 million in non-cash operating expenses, comprised of depreciation and amortization and amortization of operating lease right-of-use assets and recoveries of bad debt, and changes in operating assets and liabilities of $(2.4) million.
Net cash used in operating activities for the six months ended June 30, 2021 was $3.4 million and was primarily the result of a net loss of $3.5 million and approximately $0.7 million in non-cash operating expenses, comprised of depreciation and amortization and amortization of operating lease right-of-use assets, partly offset by changes in operating assets and liabilities of $(0.6) million.
Net cash used in operating activities for the six months ended June 30, 2020 was $1.9 million and was primarily the result of a net loss of $2.9 million and approximately $0.4 million in non-cash operating expenses, comprised of depreciation and amortization and amortization of operating lease right-of-use assets.
Accounts receivable and unbilled revenues decreased by approximately $0.5$0.3 million as of June 30, 20212022 compared to December 31, 2020.2021. This was due to estimated lower revenues.
Inventory increased by approximately $880,000$2.3 million during the six months ended June 30, 20212022 compared to December 31, 2020,2021, primarily due to purchase of components to secure production in line with estimated product sales.
Deferred revenues decreased by approximately $6,000 during the six months ended June 30, 2021 compared to December 31, 2020.
During the six months ended June 30, 2021, we purchased approximately $67,000 of property and equipment, primarily furniture and test equipment.
Net cash used in financing activities of $0.1 million and $0.3 million during the six months ended June 30,31, 2022 and 2021, respectively, was the result of principal payments on finance leases.lease obligations.
Net cash provided by financing activities of $1.3 million during the six months ended June 30, 2020 was the result of short-term borrowings of $966,000 and short-term tax credits of $542,000, offset by principal payments on finance leases of $164,000.
We have incurred significant operating losses and negative cash flows from operations since our inception. The Company incurred net losses of approximately $1.5 million and $2.9 million and $1.7 million and $3.2 million and $1.6 million and $2.6 million for the three and six months ended June 30, 20212022 and 2020,2021, respectively, and had an accumulated deficit of approximately $199.4$205.5 million and $196.2$202.6 million as of June 30, 20212022 and December 31, 2020,2021, respectively. In addition, operating activities used cash of approximately $3.4$5.2 million and $1.9$3.4 million for the six months ended June 30,31, 2022 and 2021, and 2020, respectively.
The condensed consolidated financial statements included in this reportherein have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and the repayment of liabilities in the ordinary course of business. Management evaluated the significance of the Company’s operating loss and determined that the Company’s cash position and considering the Company’s current operating plan and other sources of potential capital, including the ATM Facility, would be sufficient to alleviate concerns about the Company’s ability to continue as a going concern.
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. Historically, we have been able to access the capital markets through sales of common stock and warrants to generate liquidity. Our management believes it could raise capital through public or private offerings if needed to provide us with sufficient liquidity.
No assurances can be given, however, that we will be successful in obtaining such additional financing on reasonable terms, or at all. If adequate funds are not available to us on acceptable terms, or at all, we may be unable to adequately fund our business plans whichand it could have a negative effect on our business, results of operations and financial condition. If funds are available throughIn addition, no assurance can be given that stockholders will approve an increase in the issuancenumber of equity or debt securities, theour authorized shares of common stock if needed. The issuance of equity securities or securities convertible into equity could dilute the value of shares of our common stock and cause the market price to fall, and the issuance of debt securities could impose restrictive covenants that could impair our ability to engage in certain business transactions.
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.
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. They are subject to foreign currency exchange rate risk. Any increase or decrease in the exchange rate of the U.S. Dollar compared to the Swedish Krona, Japanese Yen, South Korean Won or Taiwan Dollar will impact our future operating results.
Registered Direct Offering
On October 21, 2021, we entered into a placement agency agreement with Pareto Securities Inc. and Pareto Securities AB pursuant to which we sold to certain Swedish and other European investors an aggregate of 1,808,000 shares of our common stock at a price of $7.75 per share in a registered direct offering that closed on October 26, 2021 (the “Offering”). We received net proceeds of approximately $13.1 million from the Offering after deducting placement agent fees and offering expenses.
At-the-Market Offering Program
On May 10, 2021, we entered into an At Market Issuance Sales AgreementSM (the “Sales Agreement”) with B. Riley Securities, Inc. (“B. Riley Securities”) with respect to an “at the market” offering program (the “ATM Facility”), under which we may, from time to time, in our sole discretion, issue and sell through B. Riley Securities, acting as sales agent, up to $25 million of shares of our common stock.
Pursuant to the Sale Agreement, B. Riley Securitieswe may sell the shares through B. Riley Securities by any method permitted that is deemed an “at the market” offering as defined in Rule 415 under the Securities Act.Act of 1933, as amended. B. Riley Securities will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time, based upon instructions from us (including any price or size limits or other customary parameters or conditions we may impose). We will pay B. Riley Securities a commission of 3.0% of the gross sales price per share sold under the Sales Agreement.
We are not obligated to sell any shares under the Sale Agreement. The offering of shares pursuant to the Sale Agreement will terminate upon the earlier to occur of (i) the issuance and sale, through B. Riley Securities, of all of the shares subject to the Sales Agreement and (ii) termination of the Sale Agreement in accordance with its terms.
On July 2 and 6,During the twelve months ended December 31, 2021, we sold 6,028 and 9,808an aggregate of 235,722 shares respectively,of common stock under the ATM Facility, with aggregateresulting in net proceeds of approximately $1,984,000 after payment of commissions to usB. Riley Securities and other expenses of $100,000.$66,000. During the six month ended June 30, 2022, no shares were sold under the ATM Facility.
Critical Accounting Policies
Our contracts with customers may include promises to transfer multiple products and services to a customer, particularly when the contract coversone of our customers contracts with us for a product and related engineering services fees for customizing that product for our customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately may require significant judgment. Judgment may also be required to determine the stand-alone selling priceSSP 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.obligations; however, we recently negotiated a contract that may include multiple performance obligations in the future.
Judgment is also required to determine when control of products passes from us to our distributors, as well as the amounts of product that may be returned to us. Our products are sold with a right of return, and we may provide other credits or incentives to our customers, which could result in variability when determining the amount of revenue to recognize. At the end of each reporting period, we use product returns history and additional information that becomes available to estimate returns and credits. We do not recognize revenue if it is probable that a significant reversal of any incremental revenue would occur.
Finally, judgment is required to determine the amount of unbilled license fees at the end of each reporting period.
See Note 2 – Summary of Significant Accounting Policies in the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1) for further discussion of critical accounting policies and discussion of estimates.
There have been no other changes from the critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Under the supervision of and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2021.2022. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are currently involved in onenot a party to any pending legal proceeding as described in Note 5 – Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements.proceedings. From time to time, we may become subject to legal proceedings, claims, and litigation arising in the ordinary course of business, including, but not limited to, employee, customer and vendor disputes.
Item 1A. Risk Factors
There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
| * | Filed or furnished herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| NEONODE INC. | ||
| Date: August 11, | By: | /s/ Fredrik Nihlén |
| Fredrik Nihlén | ||
| Chief Financial Officer, | ||
| (Principal Financial and Accounting Officer) | ||
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