Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
1.
Interim Period Reporting
The
accompanying unaudited interim condensed consolidated financial statements include all adjustments consisting of normal recurring
adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position and results of
operations and cash flows for the interim periods presented. The results of operations for the three and six months ended June
30, 2019 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, 2019 and 2018 have been prepared
by us, pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures normally contained in financial statements prepared in accordance with accounting
principles generally accepted in the U.S. (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained
in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2018.
We
adopted the new lease accounting standard effective January 1, 2019. We used the required modified retrospective approach for
adoption of the new standard, which allowed us to begin reporting operating leases on the balance sheet as of January 1, 2019.
See Notes 2 and 7 for further discussion.
Operations
Neonode
Inc., collectively with its subsidiaries is referred to as “Neonode”, develops and licenses user interfaces and optical
touch technology to Original Equipment Manufacturers (“OEMs”) and Tier 1 suppliers who embed the Neonode technology
into devices that they produce and sell. In the fourth quarter of 2016, Neonode started to manufacture and sell AirBar. In December
2017, we began selling embedded sensor modules that incorporate Neonode technology.
Liquidity
We have incurred significant
operating losses and negative cash flows from operations since our inception. The Company incurred net losses of approximately
$1.3 million and $1.8 million and $1.0 million and $1.7 million for the three and six months ended June 30, 2019 and 2018, respectively,
and had an accumulated deficit of approximately $187.1 million and $185.2 million as of June 30, 2019 and December 31, 2018, respectively.
In addition, operating activities used cash of approximately $1.5 million and $1.4 million for the six months ended June 30, 2019
and 2018, respectively.
We
expect that our revenues from license fees, sensor module, non-recurring engineering fees and AirBar sales will enable us to reduce
our operating losses in 2019. In addition, we have improved the overall cost efficiency of our operations, as a result of the
transition from providing our customers a full custom design solution to providing standardized sensor modules which require limited
custom design work. 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
condensed consolidated financial statements included herein have been prepared on a going concern basis, which contemplates continuity
of operations and the realization of assets and the repayment of liabilities in the ordinary course of business. Management evaluated
the significance of the Company’s operating loss and determined that the Company’s current operating plan and sources
of capital would be sufficient to alleviate concerns about the Company’s ability to continue as a going concern.
We
have obtained capital through private placements in recent years and currently have the ability to raise capital pursuant to an
effective shelf registration statement, which is described immediately below.
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 financing is not
available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect
on our business, results of operations and financial condition. In addition, if funds are available, 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.
Shelf
Registration Statement
In
March 2017, we filed a $20 million shelf registration statement with the SEC that became effective on March 24, 2017. Subject
to the availability of sufficient shares of authorized common stock, we may from time to time issue shares of our common stock
under our shelf registration in amounts, at prices, and on terms to be announced when and if the securities are offered. The specifics
of any future offerings, along with the use of proceeds of any securities offered, will be described in a prospectus supplement
and any other offering materials, at the time of the offering. Our shelf registration statement will expire on March 24, 2020.
2.
Summary of Significant Accounting Policies
Principles
of Consolidation
The condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) and include the accounts of Neonode Inc. and its wholly owned subsidiaries, as well as Pronode Technologies
AB, a 51% majority owned subsidiary of Neonode Technologies AB. The remaining 49% of Pronode Technologies AB is owned by Propoint
AB, located in Gothenburg, Sweden. Pronode Technologies AB was organized to sell engineering services within the automotive markets.
All inter-company accounts and transactions have been eliminated in consolidation.
Neonode
consolidates entities in which we have a controlling financial interest. We consolidate subsidiaries in which we hold, directly
or indirectly, more than 50% of the voting rights, and variable interest entities (“VIEs”) in which Neonode is the
primary beneficiary.
The condensed consolidated
balance sheets at June 30, 2019 and December 31, 2018 and the condensed consolidated statements of operations, comprehensive loss,
stockholders’ equity and cash flows for the three and six months ended June 30, 2019 and 2018 include our accounts and those
of our wholly owned subsidiaries as well as Pronode Technologies AB.
Estimates
and Judgments
The
preparation of financial statements in conformity with U.S. GAAP requires making estimates and judgments that affect, at the date
of the financial statements, the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and
the reported amounts of revenue and expenses. Actual results could differ from these estimates and judgments.
Significant
estimates and judgments include, but are not limited to: for revenue recognition, determining the nature and timing of satisfaction
of performance obligations, the standalone selling price of performance obligations, and transaction prices and assessing transfer
of control; measuring variable consideration and other obligations such as product returns and refunds, and product warranties;
provisions for uncollectible receivables; determining the net realizable value of inventory; recoverability of capitalized project
costs and long-lived assets for leases, determining whether a contract contains a lease, allocating consideration between lease
and non-lease components, determining incremental borrowing rates, and identifying reassessment events, such as modifications;
the valuation allowance related to our deferred tax assets; and the fair value of options issued for stock-based compensation.
Cash
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 90 days or less to be cash equivalents.
Concentration
of Cash Balance Risks
Cash
balances are maintained at various banks in the U.S., Japan, Korea, Taiwan and Sweden. For deposits held with financial institutions
in the U.S., the U.S. Federal Deposit Insurance Corporation, provides basic deposit coverage with limits up to $250,000 per owner.
The Swedish government provides insurance coverage up to 100,000 Euro per customer and covers deposits in all types of accounts.
The Japanese government provides insurance coverage up to 10,000,000 Yen per customer. The Korea Deposit Insurance Corporation
provides insurance coverage up to 50,000,000 Won per customer. The Central Deposit Insurance Corporation in Taiwan provides insurance
coverage up to 3,000,000 Taiwan Dollar, per customer. At times, deposits held with financial institutions may exceed the amount
of insurance provided.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable
is stated at net realizable value. Our policy is to maintain allowances for estimated losses resulting from the inability of our
customers to make required payments. Credit limits are established through a process of reviewing the financial history and stability
of each customer. Should all efforts fail to recover the related receivable, we will write off the account. We also record an allowance
for all customers based on certain other factors including the length of time the receivables are past due and historical collection
experience with customers. Our allowance for doubtful accounts was approximately $19,000 and $149,000 as of June 30, 2019 and December
31, 2018, 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 condensed consolidated
balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition
policy. Costs capitalized in projects in process were $8,000 as of June 30, 2019. There were no costs capitalized in projects in
process as of December 31, 2018.
Inventory
Inventory
is stated at the lower of cost, computed using the first-in, first-out method (“FIFO”), and net realizable value.
Net realizable value is the estimated selling prices 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.
As
of June 30, 2019 and December 31, 2018, the Company’s inventory consists primarily of components that will be used in the
manufacturing of our sensor modules. We segregate inventory for reporting purposes by raw materials, work-in-process, and finished
goods.
Raw
materials, work-in-process, and finished goods are as follows (in thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Raw materials
|
|
$
|
379
|
|
|
$
|
246
|
|
Work-in-process
|
|
|
201
|
|
|
|
220
|
|
Finished goods
|
|
|
586
|
|
|
|
753
|
|
Ending inventory
|
|
$
|
1,166
|
|
|
$
|
1,219
|
|
Investment
in Joint Venture
We have invested $3,000
for a 50% interest in Neoeye AB (“Neoeye”). We account for our investment using the equity method of accounting because
the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence
is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although
other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity
method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted
to recognize our share of net earnings or losses of the investee and will be recognized in the condensed consolidated statements
of operations and will also be adjusted by contributions to and distributions from Neoeye. The Company is not required to guarantee
any obligations of Neoeye. There have been no operations of Neoeye through June 30, 2019.
Neoeye,
as an unconsolidated equity investee, will recognize revenue from technology license agreements at the time a contract is entered
into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement
are satisfied, and the realization of revenue is assured, which is generally upon the receipt of the license proceeds. Neoeye
may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones have
been met.
We
review our investment in Neoeye to determine whether events or changes in circumstances indicate that the carrying amount may
not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and
near-term prospects of Neoeye. If a decline in value is deemed to be other than temporary, we would recognize an impairment
loss.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed
using the straight-line method based upon estimated useful lives of the assets as follows:
Estimated
useful lives
|
Computer
equipment
|
|
|
3
years
|
|
|
Furniture and fixtures
|
|
|
5
years
|
|
|
Equipment
|
|
|
7
years
|
|
Equipment
purchased under a finance lease is recognized over the term of the lease, if that lease term is shorter than the estimated useful
life.
Upon
retirement or sale of property and equipment, cost and accumulated depreciation and amortization are removed from the accounts
and any gains or losses are reflected in the condensed consolidated statement of operations. Maintenance and repairs are charged
to expense as incurred.
Right
of Use Assets
A
right-of-use asset represents a lessee’s right to use a leased asset for the term of the lease. Our right-of-use assets
generally consist of operating leases for buildings and finance leases for manufacturing equipment.
Right-of-use
assets are measured initially at the present value of the lease payments, plus any lease payments made before a lease began and
any initial direct costs, such as commissions paid to obtain a lease.
Right-of-use
assets are subsequently measured at the present value of the remaining lease payments, adjusted for incentives, prepaid or accrued
rent, and any initial direct costs not yet expensed.
Long-lived
Asset Recoverability
We
assess the recoverability of long-lived assets by estimating the future cash flow from the associated assets in accordance with
relevant accounting guidance. If the estimated undiscounted future cash flow related to these assets decreases or the useful life
is shorter than originally estimated, we may incur charges for impairment of these assets. As of June 30, 2019, 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 $26,000 and $(155,000) during
the three and six months ended June 30, 2019, respectively, compared to translation losses of $336,000 and $430,000 during the
same periods in 2018, 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 $(57,000) and $114,000 during the three and
six months ended June 30, 2019, respectively, compared to $8,000 and $(21,000) during the same periods in 2018, respectively.
Concentration
of Credit and Business Risks
Our customers are located in the U.S., Europe
and Asia.
As
of June 30, 2019, four customers represented approximately 70% of the Company’s accounts receivable compared to 67% as of
December 31 2018.
Customers
who accounted for 10% or more of our net revenues during the three months ended June 30, 2019 are as follows:
|
●
|
Hewlett Packard
Company – 45%
|
|
|
|
|
●
|
Epson – 11%
|
|
|
|
|
●
|
Alpine –
13%
|
|
|
|
|
●
|
Bosch – 11%
|
Customers
who accounted for 10% or more of our net revenues during the six months ended June 30, 2019 are as follows:
|
●
|
Hewlett Packard
Company – 41%
|
|
|
|
|
●
|
Epson – 14%
|
|
|
|
|
●
|
Alpine –
12%
|
|
|
|
|
●
|
Bosch – 10%
|
Customers
who accounted for 10% or more of our net revenues during the three months ended June 30, 2018 are as follows:
|
●
|
Hewlett Packard
Company – 29%
|
|
|
|
|
●
|
Epson – 14%
|
|
|
|
|
●
|
Canon – 15%
|
|
|
|
|
●
|
Amazon –
12%
|
Customers
who accounted for 10% or more of our net revenues during the six months ended June 30, 2018 are as follows:
|
●
|
Hewlett Packard
Company – 34%
|
|
|
|
|
●
|
Epson – 14%
|
|
|
|
|
●
|
Canon – 14%
|
Revenue
Recognition
We
recognize revenue when control of products is transferred to our customers, and when services are completed and accepted by our
customers. The amount of revenue we recognize reflects the consideration we expect to receive for those products or services.
Our contracts with customers may include combinations of products and services, for example, a contract that includes products
and related engineering services. We structure our contracts such that distinct performance obligations, such as product sales
or license fees, and related engineering services, are clearly defined in each contract.
Sales
of license fees and AirBar and sensor modules are on a per-unit basis; therefore, we generally satisfy performance obligations
as units are shipped to our customers. Non-recurring engineering service performance obligations are satisfied as work is performed
and accepted by our customers.
We
recognize revenue net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental
authorities. We treat all product shipping and handling charges (regardless of when they occur) as activities to fulfill the promise
to transfer goods, therefore we treat all shipping and handling charges as expenses.
Licensing
Revenues:
We
earn revenue from licensing our internally developed intellectual property (“IP”). We enter into IP licensing agreements
that generally provide licensees the right to incorporate our IP components in their products, with terms and conditions that
vary by licensee. Fees under these agreements may include license fees relating to our IP, and royalties payable to us following
the distribution by our licensees of products incorporating the licensed technology. The license for our IP has standalone value
and can be used by the licensee without maintenance and support.
For
technology license arrangements that do not require significant modification or customization of the underlying technology, we
recognize technology license revenue when the license is made available to the customer and the customer has a right to use that
license. At the end of each reporting period, we record unbilled license fees, using prior royalty revenue data by customer to
make accurate estimates of those royalties.
Explicit
return rights are not offered to customers. There have been no returns through June 30, 2019.
Engineering
Services:
For
technology license or sensor module contracts that require modification or customization of the underlying technology to adapt
that technology to customer use, we determine whether the technology license or sensor module, and engineering consulting services
represent separate performance obligations. We perform our analysis on a contract-by-contract basis. If there are separate performance
obligations, we determine the standalone selling price (“SSP”) of each separate performance obligation to properly
recognize revenue as each performance obligation is satisfied. We provide engineering consulting services to our customers under
a signed Statement of Work (“SOW”). Deliverables and payment terms are specified in each SOW. We generally charge
an hourly rate for engineering services, and we recognize revenue as engineering services specified in contracts are completed
and accepted by our customers. Any upfront payments we receive for future non-recurring engineering services are recorded as unearned
revenue until that revenue is earned.
We
believe that recognizing non-recurring engineering services revenues as progress towards completion of engineering services and
customer acceptance of those services occurs best reflects the economics of those transactions, because engineering services as
tracked in our systems correspond directly with the value to our customers of our performance completed to date. Hours performed
for each engineering project are tracked and reflect progress made on each project, and are charged at a consistent hourly rate.
Revenues
from engineering services contracts that are short-term in nature are recorded when those services are complete and accepted by
customers.
Revenues
from engineering services contracts with substantive defined deliverables for which payment terms in the SOW are commensurate
with the efforts required to produce such deliverables are recognized as they are completed and accepted by customers.
Estimated losses on
all SOW projects are recognized in full as soon as they become evident. In the three and six months ended June 30, 2019 and 2018,
no losses related to SOW projects were recorded.
Optical
Sensor Modules Revenues:
We
earn revenue from sales of sensor modules hardware products to our OEM and Tier 1 supplier customers, who embed our hardware into
their products, and from sales of branded consumer products (AirBar) that incorporate our sensor modules sold through distributors.
These distributors are generally given business terms that allow them to return unsold inventory, receive credits for changes
in selling prices, and participate in various cooperative marketing programs. Our sales agreements generally provide customers
with limited rights of return and warranty provisions.
The
timing of revenue recognition related to AirBar modules depends upon how each sale is transacted - either point-of-sale or through
distributors. We recognize revenue for AirBar modules sold point-of-sale (online sales and other direct sales to customers) when
we provide the promised product to the customer.
Because
we generally use distributors to provide AirBar and sensor modules to our customers, we analyze the terms of distributor agreements
to determine when control passes from us to our distributors. For sales of AirBar and sensor modules sold through distributors,
revenues are recognized when our distributors obtain control over our products. Control passes to our distributors when we have
a present right to payment for products sold to distributors, the distributors have legal title to and physical possession of
products purchased from us, and the distributors have significant risks and rewards of ownership of products purchased.
Distributors
participate in various cooperative marketing and other incentive programs, and we maintain estimated accruals and allowances for
these programs. If actual credits received by distributors under these programs were to deviate significantly from our estimates,
which are based on historical experience, our revenue could be adversely affected.
Under
U.S. GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns. Our 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 $11,000 as of June 30, 2019 and insignificant as of December 31, 2018. If the actual future returns
were to deviate from the historical data on which the reserve had been established, our revenue could be adversely affected.
The
following table presents disaggregated revenues by market for the three and six months ended June 30, 2019 and 2018 (dollars in
thousands):
|
|
Three
months ended
June 30, 2019
|
|
|
Three
months ended
June 30, 2018
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
Net license revenues from
automotive
|
|
$
|
440
|
|
|
|
26
|
%
|
|
$
|
385
|
|
|
|
21
|
%
|
Net license revenues from consumer electronics
|
|
|
1,027
|
|
|
|
60
|
%
|
|
|
1,376
|
|
|
|
73
|
%
|
Net revenues from sensor modules
|
|
|
223
|
|
|
|
13
|
%
|
|
|
85
|
|
|
|
4
|
%
|
Net revenues from non-recurring engineering
|
|
|
20
|
|
|
|
1
|
%
|
|
|
30
|
|
|
|
2
|
%
|
|
|
$
|
1,710
|
|
|
|
100
|
%
|
|
$
|
1,876
|
|
|
|
100
|
%
|
|
|
Six
months ended
June 30, 2019
|
|
|
Six
months ended
June 30, 2018
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
Net license revenues from automotive
|
|
$
|
936
|
|
|
|
25
|
%
|
|
$
|
904
|
|
|
|
21
|
%
|
Net license revenues from consumer electronics
|
|
|
2,473
|
|
|
|
67
|
%
|
|
|
3,180
|
|
|
|
75
|
%
|
Net revenues from sensor modules
|
|
|
273
|
|
|
|
7
|
%
|
|
|
137
|
|
|
|
3
|
%
|
Net revenues from non-recurring engineering
|
|
|
40
|
|
|
|
1
|
%
|
|
|
30
|
|
|
|
1
|
%
|
|
|
$
|
3,722
|
|
|
|
100
|
%
|
|
$
|
4,251
|
|
|
|
100
|
%
|
Significant
Judgments:
Our
contracts with customers may include promises to transfer multiple products and services to a customer, particularly when the
contract is for a product and related engineering services fees for customizing that product for our customer. Determining whether
products and services are considered distinct performance obligations that should be accounted for separately may require significant
judgment. Judgment may also be required to determine the SSP for each distinct performance obligation identified, although we
generally structure our contracts such that performance obligations and pricing for each performance obligation are specifically
addressed. We currently have no outstanding contracts with multiple performance obligations.
Judgment
is also required to determine when control of products passes from us to our distributors, as well as the amounts of product that
may be returned to us. Our products are sold with a right of return, and we may provide other credits or incentives to our customers,
which could result in variability when determining the amount of revenue to recognize. At the end of each reporting period, we
use product returns history and additional information that becomes available to estimate returns and credits. We do not recognize
revenue if it is probable that a significant reversal of any incremental revenue would occur.
Finally,
judgment is required to determine the amount of unbilled license fees at the end of each reporting period.
Contract
Balances:
Timing
of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when we have an unconditional
right to receive future payments from customers, and we record unearned deferred revenue when we receive prepayments or upfront
payments for goods or services from our customers.
The
following table presents accounts receivable and deferred revenues as of June 30, 2019 and December 31, 2018 (in thousands):
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Accounts receivable and unbilled revenue, net
|
|
$
|
1,784
|
|
|
$
|
1,830
|
|
Deferred revenues
|
|
|
66
|
|
|
|
75
|
|
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; which are generally classified as current. The
Company sometimes receives advances or deposits from its customers before revenue is recognized, which are reported as contract
liabilities and are generally classified as current. These assets and liabilities are reported on the consolidated balance sheet
on a contract-by-contract basis at the end of each reporting period.
We
do not anticipate impairment of our contract asset related to license fee revenues, given the creditworthiness of our customers
whose invoices comprise the balance in that asset account. We will continue to monitor the timeliness of receipts from those customers,
however, to assess whether the contract asset has been impaired.
The
allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We
determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. Our allowance
for doubtful accounts was approximately $19,000 and $149,000 as of June 30, 2019 and December 31, 2018, respectively.
Payment
terms and conditions vary by the type of contract; however, payments generally occur 30-60 days after invoicing for license fees
and sensor modules to our resellers and distributors. Where revenue recognition timing differs from invoice timing, we have determined
that our contracts do not include a significant financing component. Our intent is to provide our customers with consistent invoicing
terms for the convenience of our customers, not to receive financing from our customers.
Costs
to Obtain Contracts:
We
record the incremental costs of obtaining a contract with a customer as an asset, if we expect the benefit of those costs to cover
a period greater than one year. We currently have no incremental costs that must be capitalized.
We
expense as incurred costs of obtaining a contract when the amortization period of those costs would have been less than or equal
to one year.
Product
Warranty
The
following table summarizes the activity related to the product warranty liability (in thousands):
|
|
June
30,
2019
|
|
|
December 31,
2018
|
|
Balance at beginning of period
|
|
$
|
17
|
|
|
$
|
35
|
|
Provisions for warranty issued
|
|
|
(6
|
)
|
|
|
(18
|
)
|
Balance at end of period
|
|
$
|
11
|
|
|
$
|
17
|
|
The
Company accrues for warranty costs as part of its cost of sales of sensor modules based on estimated costs. The Company’s
products are generally covered by a warranty for a period of 12 to 36 months from the customer receipt of the product.
Deferred
Revenues
Deferred
revenues consist primarily of prepayments for license fees, and other products or services for which we have been paid in advance,
and earn the revenue when we transfer control of the product or service. Deferred revenues may also include upfront payments for
consulting services to be performed in the future, such as non-recurring engineering services.
We
defer license fees until we have met all accounting requirements for revenue recognition, which is when a license is made available
to a customer and that customer has a right to use the license. Engineering development fee revenues are deferred until engineering
services have been completed and accepted by our customers. We defer AirBar and sensor modules revenues until distributors sell
the products to their end customers.
The
following table presents our deferred revenues (in thousands):
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Deferred License revenues
|
|
$
|
28
|
|
|
$
|
-
|
|
Deferred AirBar revenues
|
|
|
10
|
|
|
|
59
|
|
Deferred sensor modules revenues
|
|
|
12
|
|
|
|
16
|
|
Deferred NRE revenues
|
|
|
16
|
|
|
|
-
|
|
|
|
$
|
66
|
|
|
$
|
75
|
|
During the three and
six months ended June 30, 2019, the Company recognized revenues of approximately $40,000 and $75,000, 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, 2019 amounted to approximately $29,000
and $48,000, respectively. Advertising costs for the three and six months ended June 30, 2018 amounted to approximately $27,000
and $70,000 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
The
Company recognizes noncontrolling interests as equity in the condensed consolidated financial statements separate from the parent
company’s equity. Noncontrolling interests’ partners have less than 50% share of voting rights at any one of the subsidiary
level companies. The amount of net income (loss) attributable to non-controlling interests is included in consolidated net income
(loss) on the face of the condensed consolidated statements of operations. Changes in a parent entity’s ownership interest
in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling
financial interest. The Company recognizes a gain or loss in net income (loss) when a subsidiary is deconsolidated. Such gain
or loss is measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Additionally, operating
losses are allocated to noncontrolling interests even when such allocation creates a deficit balance for the noncontrolling interest
partner.
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.
|
|
|
|
|
(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, 2019 and December 31,
2018. 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, 2019 and December 31, 2018, we had no unrecognized tax benefits.
Net
Loss per Share
Net
loss per share amounts has been computed based on the weighted average number of shares of common stock outstanding during the
three and six months ended June 30, 2019 and 2018. 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, 2019 and 2018 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,
|
|
|
|
2019
|
|
|
2018
|
|
Swedish Krona
|
|
|
9.31
|
|
|
|
8.38
|
|
Japanese Yen
|
|
|
110.03
|
|
|
|
108.71
|
|
South Korean Won
|
|
|
1,146.39
|
|
|
|
1,074.69
|
|
Taiwan Dollar
|
|
|
30.97
|
|
|
|
29.52
|
|
Exchange rate for the condensed consolidated
balance sheets was as follows:
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Swedish Krona
|
|
|
9.28
|
|
|
|
8.87
|
|
Japanese Yen
|
|
|
107.90
|
|
|
|
109.69
|
|
South Korean Won
|
|
|
1,156.43
|
|
|
|
1,113.63
|
|
Taiwan Dollar
|
|
|
30.97
|
|
|
|
30.61
|
|
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
February 2016, the FASB issued ASU No. 2016-02, “
Leases (Topic 842)
” (“ASU 2016-02”). Under ASU
2016-02 (and several subsequent accounting standards updates), lessees are required to recognize the following for all leases
(with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to
make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents
the lessee’s right to use, or control the use of, a specified asset for that asset’s lease term. Lessees must apply a modified
retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements.
The
effective date of the new lease standard (ASC 842) was January 1, 2019, and we adopted the new standard on that date. We used
the modified retrospective approach, which allowed us to make our transition adjustments at January 1, 2019. We elected the optional
transition method, which allows us to continue to use disclosures required by ASC 840, the prior standard, during 2019. As permitted
by the transition method, we did not reassess existing leases.
We currently have a limited
number of leased finance assets, all of which have been classified as finance leases under the new lease standard. We maintain
a lease inventory for those leased assets; which are currently reported on our condensed consolidated balance sheets and we continue
to report them on our condensed consolidated balance sheets under the new standard. We have reported two material operating leases
(for the Kungsbacka manufacturing facility and the Stockholm corporate offices) on our condensed consolidated balance sheets beginning
January 1, 2019, which resulted in recording operating lease right-of-use assets and operating lease obligations of approximately
$0.9 million. We determined that no adjustment to equity was necessary related to implementation of the new lease standard.
Because
of the small number of assets we lease, we did not need to make systems changes to comply with the new standard. We continue to
track leased assets outside of our accounting systems. We implemented additional process controls effective January 1, 2019 to
ensure that we properly evaluate our contracts to determine whether they may contain leased assets. We assessed the impact of
the new lease accounting standard on our consolidated financial statements to facilitate our adoption of the new standard on January
1, 2019. We have not noted (nor do we expect to see) material changes in financial ratios, leasing practices, or tax reporting;
however, we will continue to address impacts to our business.
In June 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 ASU 2019-04, “
Codification Improvements to Topic 326, Financial Instruments—Credit
Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
”, (“ASU 2019-04”), ASU
2019-05, “
Financial Instruments—Credit Losses (Topic 326)
”, (“ASU 2019-05”), and ASU 2018-19,
“
Codification Improvements to Topic 326, Financial Instruments – Credit Losses
”, (“ASU 2018-19”).
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, ASU 2019-04, ASU 2019-05 and
ASU 2018-19 will become effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are currently
evaluating the impact ASU 2016-13, ASU 2019-04, ASU 2019-05 and ASU 2018-19 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.
In
July 2018, the FASB issued ASU No. 2018-09, “
Codification Improvements (Topic 740, among others)
”, (“ASU
2018-09”), and in March 2018, the FASB issued ASU No. 2018-05, “
Income Taxes (Topic 740)
”, (“ASU
2018-05”). The updates were issued to address the income tax accounting and SEC reporting implications of the Tax Cuts and
Jobs Act, enacted December 22, 2017. The new legislation contained several key tax provisions that affected us, including the
one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate from 35% to 21% effective
January 1, 2018, among other changes.
We
were required to recognize the effect of the tax law changes in the period of enactment. Because we have negative accumulated
foreign earnings, we are not subject to the one-time repatriation tax. We have re-measured our U.S. deferred tax assets and liabilities,
which resulted in a reduction of our net deferred tax assets with a corresponding adjustment to our valuation allowance. As a
result, no tax expense is recorded related to the enactment of the Tax Act. We consider the accounting of deferred tax re-measurement
and one-time transition tax calculation to be complete.
3.
Stockholders’ Equity
Common
Stock
On September 27,
2018, the Company filed a certificate of amendment to its restated certificate of incorporate with the state of Delaware to
effect the reverse stock split, effective October 1, 2018. The Company also filed a certificate of amendment to its restated
certificate of incorporation to reduce the number of authorized shares of common stock from 100,000,000 to 10,000,000 shares.
The filing did not affect the number of authorized preferred stock of 1,000,000 shares.
As a result of the
reverse stock split, every ten shares of issued and outstanding common stock were converted into one share of common stock, without
any change in the par value per share. No fractional shares were issued, therefore shareholders entitled to receive a fractional
share in connection with the reverse stock split received a cash payment instead. There was no financial impact to the Company’s
condensed consolidated financial statements. All shares and per share information in this Form 10-Q has been retroactively adjusted
for all periods presented to reflect the reverse stock split, including reclassifying any amount equal to the reduction in par
value of common stock to additional paid-in capital.
Effective June 11,
2019, the Company further amended its restated certificate of incorporation to increase the number of authorized shares of common
stock to 15,000,000 shares.
Preferred Stock
We have one class
of preferred stock outstanding. On April 10, 2019, a holder of two shares of Series B Preferred stock converted into 264 shares
of our common stock.
Effective July 1, 2019, the Company implemented a conversion of all outstanding shares of Series B Preferred
Stock into shares of common stock. Each share of Series B Preferred Stock was automatically converted into 132.07 shares of common
stock. No fractional shares were issued. In lieu of any fractional shares, the resulting number of shares of common stock was
rounded up to the nearest whole number. Accordingly, 10,577 shares of common stock were issued as a result of the conversion.
Warrants
As of June 30, 2019
and December 31, 2018, there were 1,116,368 warrants to purchase common stock outstanding.
4.
Stock-Based Compensation
The
stock-based compensation expense for the six months ended June 30, 2019 and 2018 reflects the estimated fair value of the vested
portion of options granted to employees, directors and eligible consultants. Stock-based compensation expense in the accompanying
condensed consolidated statements of operations is as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Sales and marketing
|
|
$
|
-
|
|
|
$
|
(2
|
)
|
|
$
|
-
|
|
|
$
|
6
|
|
General and administrative
|
|
|
-
|
|
|
|
19
|
|
|
|
-
|
|
|
|
23
|
|
Total stock-based compensation expense
|
|
$
|
-
|
|
|
$
|
17
|
|
|
$
|
-
|
|
|
$
|
29
|
|
There
is no remaining unrecognized expense related to stock options as of June 30, 2019.
The
estimated fair value of stock-based awards is calculated using the Black-Scholes option pricing model, even though this model
was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ
significantly from our stock options. The Black-Scholes model also requires subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated values. The expected term and forfeiture rate of
options granted is derived from historical data on employee exercises and post-vesting employment termination behavior, as well
as expected behavior on outstanding options. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding
period of grant. The expected volatility is based on the historical volatility of our stock price. These factors could change
in the future, which would affect fair values of stock options granted in such future periods, and could cause volatility in the
total amount of the stock-based compensation expense reported in future periods.
Stock
Options
We
have adopted equity incentive plans for which stock options and restricted stock awards are available to grant to employees, consultants
and directors. All employee, consultant and director stock options granted under our stock option plans have an exercise price
equal to the market value of the underlying common stock on the grant date. There are no vesting provisions tied to performance
conditions for any options, as vesting for all outstanding option grants was based only on continued service as an employee, consultant
or director. All of our outstanding stock options and restricted stock awards are classified as equity instruments.
As
of June 30, 2019, we had two equity incentive plans:
|
●
|
The 2006 Equity
Incentive Plan; and
|
|
|
|
|
●
|
The 2015 Stock
Incentive Plan.
|
A
summary of the combined activity under all of the stock option plans is set forth below:
|
|
Number
of
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at January 1,
2019
|
|
|
99,800
|
|
|
$
|
34.55
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(44,300
|
)
|
|
|
42.50
|
|
Outstanding at June 30, 2019
|
|
|
55,500
|
|
|
$
|
28.20
|
|
The
aggregate intrinsic value of the 55,500 stock options that are outstanding, vested and expected to vest as of June 30, 2019 was
$0.
For
both the three and six months ended June 30, 2019, we recorded $0 of compensation expense related to the vesting of stock options.
For the three and six months ended June 30, 2018, the corresponding amounts were $17,000 and $29,000, respectively. 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, 2019, we did not grant any options to purchase shares of our common stock to employees
or members of our board of directors.
Stock
options granted under the 2006 and 2015 Plans are exercisable over a maximum term of ten years from the date of grant, vest in
various installments over a one to four-year period and have exercise prices reflecting the market value of the shares of common
stock on the date of grant.
5.
Commitments and Contingencies
Indemnities
and Guarantees
Our
bylaws require that we indemnify each of our executive officers and directors for certain events or occurrences arising as a result
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 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, 2019 and December 31, 2018.
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 with regard to 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, 2019 and December 31, 2018.
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 2 million ASICs sold. As of June 30, 2019, we had made no payments to TI under the
NN1002 Agreement.
On
December 4, 2014, we entered into an Analog Device Development Agreement (the “NN1003 Agreement”) with STMicroelectronics
International N.V. (“STMicro”) pursuant to which STMicro agreed to integrate our intellectual property into an ASIC.
The NN1003 ASIC only can be sold by STMicro exclusively to our licensees. Under the terms of the NN1003 Agreement, we agreed to
reimburse STMicro up to $835,000 of nonrecurring engineering costs. As of June 30, 2019 we paid a total of $835,000 of the non-recurring
engineering costs and all obligations related to the NN1003 Agreement have been satisfied.
Under
the terms of the NN1003 Agreement, we also will reimburse ST Microelectronics a non-recurring engineering fee of $5.00 per each
of the first 10,000 units sold. As of June 30, 2019, we had reimbursed for 1,832 units under the NN1003 Agreement.
Patent Assignment
On May 6, 2019, Neonode
assigned a portfolio of patents to Aequitas Technologies LLC. The portfolio contains two patent families comprising nine U.S.
patents, five non-U.S. patents and three pending U.S. patent applications. The assignment provides Neonode the right to share
potential proceeds generated from a licensing and monetization program.
6.
Segment Information
We
have one reportable segment, which is comprised of the touch technology licensing and sensor module business. All of our sales
for the three and six months ended June 30, 2019 and 2018 were to customers located in the U.S., Europe and Asia. The Company
reports revenues from external customers based on the country where the customer is located.
The following table
presents net revenues by geographic area for the three and six months ended June 30, 2019 and 2018 (dollars in thousands):
|
|
Three months ended
June 30, 2019
|
|
|
Three months ended
June 30, 2018
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
United States
|
|
$
|
898
|
|
|
|
53
|
%
|
|
|
792
|
|
|
|
42
|
%
|
Japan
|
|
|
417
|
|
|
|
24
|
|
|
|
708
|
|
|
|
38
|
|
Germany
|
|
|
185
|
|
|
|
11
|
|
|
|
181
|
|
|
|
10
|
|
China
|
|
|
53
|
|
|
|
3
|
|
|
|
69
|
|
|
|
4
|
|
Taiwan
|
|
|
(22
|
)
|
|
|
(1
|
)
|
|
|
46
|
|
|
|
2
|
|
Singapore
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
United Arab Emirates
|
|
|
-
|
|
|
|
-
|
|
|
|
48
|
|
|
|
3
|
|
Canada
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
South Korea
|
|
|
-
|
|
|
|
-
|
|
|
|
23
|
|
|
|
1
|
|
Switzerland
|
|
|
40
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
France
|
|
|
131
|
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
1
|
|
|
|
-
|
|
|
|
10
|
|
|
|
-
|
|
|
|
$
|
1,710
|
|
|
|
100
|
%
|
|
$
|
1,876
|
|
|
|
100
|
%
|
|
|
Six months ended
June 30, 2019
|
|
|
Six months ended
June 30, 2018
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
United States
|
|
$
|
1,962
|
|
|
|
54
|
%
|
|
|
1,931
|
|
|
|
45
|
%
|
Japan
|
|
|
1,017
|
|
|
|
27
|
|
|
|
1,496
|
|
|
|
35
|
|
Germany
|
|
|
371
|
|
|
|
10
|
|
|
|
409
|
|
|
|
10
|
|
China
|
|
|
128
|
|
|
|
3
|
|
|
|
198
|
|
|
|
5
|
|
Taiwan
|
|
|
18
|
|
|
|
-
|
|
|
|
110
|
|
|
|
3
|
|
Singapore
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
United Arab Emirates
|
|
|
-
|
|
|
|
-
|
|
|
|
48
|
|
|
|
1
|
|
Canada
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
South Korea
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Switzerland
|
|
|
57
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
France
|
|
|
152
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
4
|
|
|
|
-
|
|
|
|
59
|
|
|
|
1
|
|
|
|
$
|
3,722
|
|
|
|
100
|
%
|
|
$
|
4,251
|
|
|
|
100
|
%
|
The
following table presents our total assets by geographic region for the periods ended (in thousands):
|
|
June 30,
2019
|
|
|
December 31, 2018
|
|
U.S.
|
|
$
|
4,789
|
|
|
$
|
2,828
|
|
Sweden
|
|
|
6,451
|
|
|
|
10,308
|
|
Asia
|
|
|
106
|
|
|
|
106
|
|
Total
|
|
$
|
11,346
|
|
|
$
|
13,242
|
|
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 one year to three years, and our two primary operating leases include options to extend the leases for
one to three years; 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
corporate office lease is automatically renewed at a cost increase of 2% on a yearly basis, unless we provide written notice six
months prior to expiration date.
We
report operating leased assets, as well as operating lease current and noncurrent obligations on our 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 finance lease current and noncurrent obligations on our 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,
2019
|
|
|
Six Months Ended
June 30,
2019
|
|
Operating lease cost
(1)
|
|
$
|
153
|
|
|
$
|
309
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of leased assets
|
|
$
|
157
|
|
|
$
|
318
|
|
Interest on lease liabilities
|
|
|
8
|
|
|
|
18
|
|
Total finance lease cost
|
|
$
|
165
|
|
|
$
|
336
|
|
|
(1)
|
Includes
short term lease costs of $32,000 and $66,000 for the three and six months ended June 30, 2019, respectively.
|
Supplemental
cash flow information related to leases was as follows (in thousands):
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Cash paid for amounts included in leases:
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
|
(67
|
)
|
|
|
(189
|
)
|
Operating cash flows from finance leases
|
|
|
(8
|
)
|
|
|
(18
|
)
|
Financing cash flows from finance leases
|
|
|
(135
|
)
|
|
|
(272
|
)
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
-
|
|
|
|
-
|
|
Finance leases
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
balance sheet information related to leases was as follows (in thousands):
|
|
June 30,
2019
|
|
Operating leases
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
728
|
|
|
|
|
|
|
Current portion of operating lease obligations
|
|
$
|
427
|
|
Operating lease liabilities, net of current portion
|
|
|
266
|
|
Total operating lease liabilities
|
|
$
|
693
|
|
|
|
|
|
|
Finance leases
|
|
|
|
|
Property and equipment, at cost
|
|
$
|
3,368
|
|
Accumulated depreciation
|
|
|
(1,650
|
)
|
Property and equipment, net
|
|
$
|
1,718
|
|
|
|
|
|
|
Current portion of finance lease obligations
|
|
$
|
547
|
|
Finance lease obligations, net of current portion
|
|
|
807
|
|
Total finance lease liabilities
|
|
$
|
1,354
|
|
|
|
Six
months Ended
June 30,
2019
|
|
Weighted Average Remaining Lease Term
|
|
|
|
Operating leases
|
|
|
1.6 years
|
|
Finance leases
|
|
|
2.0 years
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
Operating
leases
(2)
|
|
|
5
|
%
|
Finance leases
|
|
|
3
|
%
|
|
(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, 2019 is as follows (in thousands):
Years ending December 31,
|
|
Total
|
|
2019 (remaining months)
|
|
$
|
207
|
|
2020
|
|
|
457
|
|
2021
|
|
|
60
|
|
|
|
|
724
|
|
Less imputed interest
|
|
|
(31
|
)
|
Total lease liabilities
|
|
|
693
|
|
Less current portion
|
|
|
(427
|
)
|
|
|
$
|
266
|
|
The
following is a schedule of minimum future rentals on the non-cancelable finance leases as of June 30, 2019 (in thousands):
Year ending December 31,
|
|
Total
|
|
2019 (remaining months)
|
|
$
|
286
|
|
2020
|
|
|
589
|
|
2021
|
|
|
479
|
|
2022
|
|
|
37
|
|
Total minimum payments required:
|
|
|
1,391
|
|
Less amount representing interest:
|
|
|
(37
|
)
|
Present value of net minimum lease payments:
|
|
|
1,354
|
|
Less current portion
|
|
|
(547
|
)
|
|
|
$
|
807
|
|
Disclosures related to periods prior to adoption of ASC 842
Minimum future lease payments under capital
and operating lease obligations as of December 31, 2018 were as follows:
Year ending December 31,
|
|
Capital
|
|
|
Operating
|
|
2019
|
|
$
|
602
|
|
|
$
|
457
|
|
2020
|
|
|
616
|
|
|
|
89
|
|
2021
|
|
|
502
|
|
|
|
3
|
|
2022
|
|
|
39
|
|
|
|
-
|
|
Total minimum payments required
|
|
|
1,759
|
|
|
$
|
549
|
|
Less amount representing interest
|
|
|
(56
|
)
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
1,703
|
|
|
|
|
|
Less current portion
|
|
|
(570
|
)
|
|
|
|
|
|
|
$
|
1,133
|
|
|
|
|
|
8.
Net Loss per Share
Basic
net loss per common share for the three and six months ended June 30, 2019 and 2018 was computed by dividing the net loss attributable
to Neonode Inc. for the relevant period by the weighted average number of shares of common stock outstanding. Diluted loss per
common share is computed by dividing net loss attributable to Neonode Inc. by the weighted average number of shares of common
stock and common stock equivalents outstanding.
Potential common stock
equivalents of approximately 0 and 0 outstanding stock options and 348,000 and 1,000 outstanding stock warrants under the treasury
stock method, and 11,000 and 11,000 shares issuable upon conversion of preferred stock are excluded from the diluted earnings per
share calculation for the three and six months ended June 30, 2019 and 2018, respectively, due to their anti-dilutive effect.
(in thousands, except per share amounts)
|
|
Three months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
8,801
|
|
|
|
5,859
|
|
Net loss attributable to Neonode Inc.
|
|
$
|
(1,264
|
)
|
|
$
|
(964
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(0.16
|
)
|
(in thousands, except per share amounts)
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
8,800
|
|
|
|
5,859
|
|
Net loss attributable to Neonode Inc.
|
|
$
|
(1,837
|
)
|
|
$
|
(1,657
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.21
|
)
|
|
$
|
(0.28
|
)
|
9.
Subsequent Events
We
have evaluated subsequent events through the filing date of this Form 10-Q, and determined that no subsequent events have occurred
that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto other than
as discussed in the accompanying notes.