Neonode Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Financial amounts are in U.S. dollars; statement amounts below are in millions unless noted. Neonode develops optical sensing technology and sells licenses, sensor modules, and engineering services. In May 2021, it shifted to a regional sales organization and announced an increased focus on contactless touch and opportunities in the Americas, Asia-Pacific, and EMEA.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1.720 | $0.758 | $3.385 | $2.052 |
| Gross profit | $1.499 | $0.635 | $2.887 | $1.885 |
| Gross margin | 87% | 84% | 85% | 92% |
| Operating loss | $(1.796) | $(1.756) | $(3.425) | $(2.845) |
| Net loss attributable to Neonode | $(1.657) | $(1.612) | $(3.225) | $(2.622) |
| Loss per share | $(0.14) | $(0.18) | $(0.28) | $(0.29) |
| Cash used in operating activities | Not separately stated | Not separately stated | $(3.405) | $(1.928) |
- Q2 revenue increased 127% year over year; first-half revenue increased 65%. License fees rose to $1.358 million in Q2 and $2.653 million for the half, while sensor-module revenue rose to $0.346 million and $0.701 million, respectively. Engineering revenue declined.
- Despite higher revenue, first-half operating loss widened by $0.580 million, as operating expenses rose 33% to $6.312 million. Q2 operating loss was broadly similar to the prior year. R&D, sales and marketing, and general and administrative expenses all increased.
- At June 30, cash was $6.611 million, down from $10.473 million at year-end 2020. Working capital was $7.1 million, versus $10.4 million at year-end. Current assets were $10.571 million and current liabilities $3.427 million.
- Total liabilities were $3.540 million, including $1.040 million of finance and operating lease obligations. The filing reports no conventional borrowings at June 30. Inventory increased to $2.086 million from $1.273 million; accounts receivable and unbilled revenue declined to $1.224 million from $1.743 million.
Changes, outlook, and key risks
- Management attributed revenue growth mainly to a rebound in legacy licensing activity from pandemic-depressed 2020 levels and increased contactless-touch sensor-module demand, particularly in Asia. Management said most sensor-module sales were retrofit solutions given long product-development cycles. No revenue was reported from Remote Sensing Solutions.
- First-half gross margin fell to 85% from 92%; Neonode cited low-margin AirBar sales in Q1. AirBar inventory was subject to an approximately $0.8 million reserve at June 30.
- Management expects revenue growth to help reduce operating losses in coming years and plans further operational-efficiency measures, but provided no quantified guidance and cautioned that targets may not be met.
- The company reported a history of losses and negative operating cash flow. Management said its operating plan and potential capital sources were sufficient to alleviate going-concern concerns, while warning that additional funding may be needed if operations do not become cash-flow positive. Financing may not be available on acceptable terms; equity financing could dilute shareholders.
- COVID-19 and variants, component-supply constraints, customer product-release timing, foreign-exchange movements, and reliance on a limited number of customers are identified risks. Three customers—HP, Epson, and LG—represented 61% of first-half revenue; four customers represented about 70% of receivables and unbilled revenue at quarter-end.
- Neonode established a discretionary at-the-market equity program of up to $25 million in May, with a 3% sales commission. After quarter-end, it sold shares for $100,000 net proceeds. The filing does not state how much of the program remained available after those sales.
- Contingencies include a shareholder counsel fee claim following dismissal of a 2020 lawsuit concerning private-placement proxy disclosures; Neonode said it would defend against a fee award. A separate patent-infringement case involving Apple and Samsung, brought by a subsidiary of the company that received Neonode’s patent portfolio assignment, remained ongoing. A $100,000 bank guarantee covers AirBar-related inventory; no liability was recorded.
Important facts for investors to verify
- Whether licensing and contactless-touch demand can continue to grow, and whether growth will translate into lower operating losses and improved cash flow.
- Cash runway, future cash burn, and potential share dilution or other financing needs, including use of the ATM facility.
- Customer concentration, component availability, and the recoverability and sell-through of inventory, especially AirBar products.
- Developments in the shareholder fee claim, the Apple and Samsung patent litigation, and the AirBar inventory guarantee.