Neonode Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports fourth-quarter results; it is an annual report, not a standalone quarterly filing. Amounts are in U.S. dollars unless noted.
Business context
Neonode develops and licenses optical touch and user-interface technology to device manufacturers. At year-end it had 40 technology license agreements, up from 35 in 2014, and 16 customers shipping products. The company planned to add hardware sales through AirBar, a USB touch module for non-touch PCs, in 2016.
Financial results and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $11.12 million | $4.74 million |
| Technology license fees | $7.1 million | $3.1 million |
| Engineering services revenue | $4.0 million | $1.6 million |
| Gross margin dollars / approximate margin | $7.34 million / 66% | $3.23 million / 68% |
| Operating loss | $7.70 million | $14.19 million |
| Net loss attributable to Neonode | $7.82 million; $0.19 per share | $14.23 million; $0.36 per share |
| Net cash used in operating activities | $8.06 million | $11.82 million |
| Cash at year-end | $3.08 million | $6.13 million |
| Working capital | $1.5 million | $3.0 million |
| Total liabilities | $4.09 million | $5.33 million |
Fourth-quarter 2015 revenue was $2.96 million, gross margin was $1.17 million, and attributable net loss was $2.59 million. The company had $340,000 in capital-lease obligations at year-end (including $57,000 current) and $1.48 million of future minimum operating-lease payments. It raised $5.42 million net from issuing stock in 2015.
Changes versus prior period
- Revenue rose 136%, principally from higher license fees related to e-readers, printers and automotive customers, plus engineering services.
- Net loss narrowed by $6.41 million, reflecting higher gross profit and lower total operating expenses.
- Gross margin percentage declined from approximately 68% to 66%. Cost of revenue included a $1.2 million write-off of zForce CORE development costs after the company shifted development to zForce PLUS and AIR.
- R&D expense fell to $6.28 million from $7.37 million; sales and marketing rose to $3.75 million from $3.25 million; and general and administrative expense fell to $5.00 million from $6.80 million.
- Cash declined by $3.05 million despite the equity financing, as operating cash outflow remained substantial.
Outlook, risks and unusual items
- Management expected 2016 license and engineering revenue to reduce or eliminate operating losses, and said existing cash and expected cash flows should support operations for at least 12 months. This is management’s expectation, not quantified revenue or earnings guidance; the filing cautions that projected cash flows are not assured.
- AirBar manufacturing and sales were planned for 2016. Neonode disclosed limited hardware-manufacturing experience and risks involving component supply, production capacity, product acceptance and distribution.
- Under its Autoliv development agreement, Neonode could receive $3.0 million: an initial $1.5 million and up to $1.5 million tied to milestones. It recognized $1.1 million of the initial payment and $1.0 million for milestones in 2015.
- Customer concentration is significant: HP, Autoliv and Amazon accounted for 25%, 21% and 14% of 2015 revenue, respectively; three customers represented 78% of year-end receivables. Revenue remains dependent on customers’ product launches and shipment cycles.
- Other risks include persistent losses, operating cash burn, possible need for additional financing and dilution, competition, patent protection, foreign-exchange exposure, and long product-development cycles. The company did not hedge foreign currency exposure.
- Two engineering projects generated a $165,000 expected-loss charge in 2015. Deferred revenue totaled $1.475 million, including $1.1 million in prepaid license fees and $0.4 million in engineering fees (rounded figures).
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management’s control assessment excluded Pronode Technologies AB, which represented less than 2% of assets and no 2015 revenue. No material legal proceedings were reported.
Investor verification points
- Track cash burn, cash runway, deferred revenue conversion and whether operations approach cash-flow break-even without further equity financing.
- Verify AirBar launch timing, manufacturing readiness, distribution performance and actual contribution to revenue and margins.
- Monitor customer concentration and shipment trends, particularly the top three customers and the e-reader business.
- Confirm Autoliv milestone payments and project progress, and assess the timing of automotive commercialization.
- Review the effect of the $1.2 million platform write-off and the $165,000 project-loss charge on comparability and future costs.
- Assess potential dilution from future offerings; 1.8 million shares remained available under the shelf registration at year-end.