Neonode Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unless noted otherwise, financial amounts below are in U.S. dollars; statement amounts are in thousands. Neonode develops optical sensing and machine-perception solutions, earning revenue mainly from technology licenses, products and non-recurring engineering services.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $1.253 million | $1.318 million; down 4.9% |
| Gross profit and margin | $1.206 million; 96% | $1.258 million; 95% |
| Operating expenses | $2.778 million | $2.649 million; up 4.9% |
| Operating loss | $1.572 million | $1.391 million |
| Net loss attributable to Neonode | $1.425 million; $0.09 per share | $1.380 million; $0.10 per share |
| Operating cash flow | $(1.698) million | $(2.279) million |
| Cash | $20.981 million at March 31 | $14.816 million at December 31, 2022 |
| Working capital | $25.584 million | $19.099 million at December 31, 2022 |
| Lease obligations | $217,000 total: $114,000 finance leases and $103,000 operating leases |
License fees were $1.148 million, up 4.0% year over year; products were $102,000, down 30.6%; and engineering revenue was $3,000, down 95.5%. Products generated a 54% gross margin, versus 65% a year earlier. The filing reports no material conventional borrowings; disclosed liabilities are primarily lease obligations.
Material changes versus the prior comparable period
- Revenue declined modestly as lower product and engineering sales outweighed increased license fees. Management attributed license growth partly to improving semiconductor supply conditions supporting customer production.
- Operating loss widened by $181,000. R&D expense fell 21.6% to $802,000, while general and administrative expense rose 37.0% to $1.384 million, primarily due to higher professional fees and personnel costs.
- Operating cash use improved by $581,000 year over year, but remained negative. Cash rose by $6.165 million during the quarter, largely because of equity issuance under the ATM program.
- Neonode sold 903,716 shares through its at-the-market facility for $7.866 million net proceeds. Shares issued and outstanding increased from 14.456 million at year-end to 15.359 million at quarter-end.
Outlook, risks and unusual items
- Management said cash on hand, its operating plan and potential capital sources were sufficient to fund operations for the 12 months following the report date. It expects revenue growth and efficiency measures to reduce losses, but provided no quantified guidance and cautioned that targets may not be met.
- The company has a history of operating losses and negative operating cash flow, with an accumulated deficit of $208.9 million. Additional financing may be needed if operations do not become cash-flow positive; future equity financing could dilute shareholders, and debt financing could impose restrictive covenants.
- Customer concentration is significant: four customers—Hewlett-Packard, Seiko Epson, Alps Alpine and LG—accounted for 31%, 20%, 15% and 14% of Q1 revenue, respectively. Three customers represented approximately 64% of receivables and unbilled revenue at quarter-end.
- Neonode disclosed substantial cash deposits above insured limits and identified financial-institution instability as a risk. It had deposits at Silicon Valley Bank above FDIC limits when the bank failed, but stated that the deposits were recovered and the banking relationship ended.
- Low AirBar sell-through led to an inventory reserve of $300,000, unchanged from year-end. Management reported no long-lived-asset impairment and no losses on engineering projects during the quarter.
- Patent-infringement cases against Apple and Samsung filed by Neonode Smartphone LLC, a subsidiary of Aequitas Technologies, remain ongoing. The filing separately states Neonode is not a party to pending legal proceedings. No other subsequent events requiring disclosure were reported.
Important facts for investors to verify
- Whether license-fee growth and customer product shipments continue, and how concentrated revenue and receivables remain.
- The pace of operating cash burn relative to available cash, and management’s 12-month liquidity assessment.
- ATM program usage, remaining authorized capacity and the potential effect of further share issuance; the filing does not provide a clear remaining-capacity figure.
- Drivers of increased general and administrative expense and whether the higher cost level persists.
- Cash placement and deposit-insurance exposure across the company’s banking relationships.
- Developments in the ongoing patent cases and any resulting costs or proceeds; the filing does not provide a clear estimate of their financial outcome.