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Nature of the Business and Operations

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Nature of the Business and Operations

1.	Nature of the Business and Operations

Background and Organization

Neonode Inc. (“we”, “us”, “our”, or the “Company”) was incorporated in the State of Delaware in 1997 as the parent of Neonode AB, a company founded in February 2004 and incorporated in Sweden. We have the following wholly owned subsidiaries: Neonode Technologies AB (Sweden) (established in 2008 to develop and license touchscreen technology); Neonode Japan Inc. (Japan) (established in 2013); Neonode Korea Ltd. (South Korea) (established in 2014); and Neonode Taiwan Ltd. (Taiwan) (established in 2015). In 2015, we established Pronode Technologies AB, a majority-owned subsidiary of Neonode Technologies AB. In 2016, we entered into a joint venture, named Neoeye AB, between SMART EYE AB and our subsidiary Neonode Technologies AB (sold November 4, 2020).

Operations

Neonode Inc., collectively with its subsidiaries is referred to as “Neonode”, develops optical touch and gesture control solutions for human interaction with devices (“HMI”) and remote sensing solutions for driver monitoring and cabin monitoring features in automotive and other applications.

Neonode’s main business model is to license the technology to Original Equipment Manufacturers (“OEMs”) and Tier 1 system suppliers who embed the technology into systems and products they develop, manufacture and sell.

In addition, Neonode designs and manufactures sensor modules that incorporate our zForce AIR technology and sells the embedded sensors to OEMs, Original Design Manufacturers (“ODMs”) and Tier 1 suppliers for use in their systems and products. Neonode began shipping sensor modules in October 2017.

Neonode also manufactures and sells through distributors, a Neonode branded AirBar product that incorporates one of the sensor modules.

Liquidity

We incurred net losses of approximately $5.6 million and $5.3 million for the years ended December 31, 2020 and 2019, respectively, and had an accumulated deficit of approximately $196.2 million as of December 31, 2020. In addition, we used cash in operating activities of approximately $5.8 million and $3.5 million for the years ended December 31, 2020 and 2019, respectively.

On June 17, 2020, we entered into short-term loan facilities (the “Loan Agreements”) with two entities beneficially owned respectively by each of Ulf Rosberg and Peter Lindell, Directors of Neonode. Pursuant to the Loan Agreements, each Director made 16,145,000 SEK (Swedish Krona), which is approximately $1.7 million in U.S. dollars, principal amount available to the Company. The Company made an initial drawdown of an aggregate of approximately $1.0 million under the Loan Agreements. See Note 6 to our consolidated financial statements for additional details on the Loan Agreements.

On August 7, 2020, we closed a private placement (the “August 2020 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 gross proceeds. The net proceeds from the private placement are being used for working capital purposes.

Ulf Rosberg and Peter Lindell, directors of Neonode, and Urban Forssell, our Chief Executive Officer, purchased an aggregate of $3.05 million of the Series C-2 Preferred Stock in the August 2020 Private Placement.

We issued 517 shares of Series C-2 Preferred Stock to UMR Invest AB, an entity beneficially owned by Ulf Rosberg, in satisfaction of the outstanding indebtedness and accrued interest under the Loan Agreement with UMR Invest AB. Cidro Förvaltning AB, an entity associated with Mr. Lindell purchased 517 shares of Series C-2 Preferred Stock. Following the closing, we used the proceeds from the sale of Series C-2 Preferred Stock to Cidro Förvaltning AB to satisfy the outstanding indebtedness and accrued interest under the Loan Agreement with Cidro Holding AB. As a result of the repayments to each of UMR Invest AB and Cidro Holding AB, the Loan Agreements terminated in accordance with their terms.

Pursuant to the terms and the provisions of the Securities Purchase Agreement, all 365 shares of Series C-1 Preferred Stock and 4,084 shares of Series C-2 Preferred Stock (together, the “Series C Preferred Shares”) were converted into 684,378 shares of Neonode common stock on September 24 and 29, 2020, respectively.

Prior to their conversion, the holders of the Series C 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 have been paid.

We entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the investors in the August 2020 Private Placement, pursuant to which we filed a registration statement with the Securities and Exchange Commission (the “SEC”) relating to the offer and sale by the holders of the shares of common stock sold in the private placement, and the shares of common stock issuable upon conversion of the Series C Preferred Shares. The registration statement was declared effective by the SEC on September 18, 2020. Failure to maintain the effectiveness of the registration statement will subject us to payment for liquidated damages.

In connection with the August 2020 Private Placement, we incurred total offering costs of $879,000, which were netted with the gross proceeds.

The consolidated financial statements included herein have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and the repayment of liabilities in the ordinary course of business. Management evaluated the significance of the Company’s operating loss and determined that the Company’s cash position after the Private Placement, 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.

We expect our revenues from our three business areas will enable us to reduce our operating losses in coming years. In addition, we intend to continue to implement various measures to improve our operational efficiencies. No assurances can be given that management will be successful in meeting its revenue targets and reducing its operating loss.

In the future, we may require sources of capital in addition to cash on hand 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 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.