Neonode Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise stated. Amounts are in U.S. dollars.
Business context
Neonode develops optical sensing and machine-perception technologies, including zForce and MultiSensing. Following a strategy change announced in December 2023, management says the company is focused solely on licensing; it plans to phase out touch sensor module (TSM) manufacturing during 2024 through licensing or outsourcing. It reported 34 valid technology license agreements, with 10 customers currently shipping products using its technology.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $1.014 million | $1.253 million; down 19.1% |
| License fees | $773,000 | $1.148 million; down 32.7% |
| Products | $200,000 | $102,000; up 96.1% |
| Non-recurring engineering | $41,000 | $3,000 |
| Gross profit / margin | $617,000 / 60.8% | $1.206 million / 96.2% |
| Operating expenses | $2.871 million | $2.778 million; up 3.3% |
| Operating loss | $2.254 million | $1.572 million |
| Net loss | $2.084 million; $0.14 per share | $1.425 million; $0.09 per share |
| Cash used in operations | $1.915 million | $1.698 million |
Product gross margin was negative 90.0%, compared with 53.9% a year earlier, primarily reflecting a $278,000 inventory write-down related to the TSM phase-out. License fees remained the largest revenue source. Management attributed their decline mainly to lower demand and elevated inventories at some legacy customers. Higher product revenue reflected customers securing TSM inventory after the phase-out announcement.
Cash and cash equivalents were $14.274 million at March 31, 2024, down from $16.155 million at year-end 2023. Working capital was $14.731 million. Total liabilities were $1.874 million, including $41,000 of finance lease obligations and $34,000 of operating lease obligations; the filing reports no substantial conventional borrowings. Management believes current cash and planned operations are sufficient for at least the 12 months following the report date. The company nevertheless has a history of losses and negative operating cash flow and may need additional financing if it does not become cash-flow positive.
The company reported $180,000 of net interest income, a $10,000 income-tax provision, and $34,000 of foreign-currency translation loss. Cash declined by $1.881 million during the quarter. No shares were sold under the ATM facility in Q1 2024; the filing says Form S-3 limits the aggregate amount currently permitted to be offered and sold to approximately $8.9 million.
Changes, outlook, and risks
Revenue fell while operating expenses rose modestly, widening operating and net losses. Gross margin contracted sharply, largely because of the inventory impairment. R&D expense increased 11.6% and sales and marketing expense increased 37.8%; general and administrative expense decreased 16.2%. Management expects revenue to help reduce operating losses in coming years and intends to improve operating efficiency, but gives no quantified revenue or earnings guidance and cautions that these outcomes are not assured.
Key risks include dependence on a limited number of customers and on customers’ product shipment cycles, royalty reporting and collection, competition and technology changes, supply-chain and geopolitical disruption, foreign-exchange exposure, and the possibility that future financing may be unavailable or dilutive. Three customers—Hewlett-Packard, Alps Alpine, and Seiko Epson—accounted for 24.8%, 18.4%, and 15.7% of Q1 revenue, respectively. Four customers represented 64.8% of receivables and unbilled revenue at quarter-end.
Management reported no material changes to previously disclosed risk factors, no pending company litigation expected to materially affect operations, and effective disclosure controls at quarter-end. Separately, an unrelated Aequitas entity’s patent litigation involves patents previously assigned by Neonode; the Samsung judgment is under appeal and the Apple case remains pending. The filing does not provide a clear estimate of any proceeds Neonode might receive from that matter. After quarter-end, on April 10, CEO Dr. Forssell departed; CFO Fredrik Nihlén became interim CEO, and Dr. Forssell was to serve as a senior advisor through December 31, 2024.
Important facts for investors to verify
- Whether licensing revenue and customer shipments recover, given the 32.7% year-over-year decline in license fees and customer concentration.
- Whether the TSM phase-out, inventory liquidation, or licensing/outsourcing arrangements lead to further impairments or affect margins and cash flow.
- Cash burn and financing capacity: management’s 12-month liquidity assessment, the ATM facility’s current offering limit, and potential dilution if additional capital is raised.
- Progress in replacing the CEO and execution of the licensing-focused strategy; the filing provides no quantified financial targets.
- Developments in Aequitas’s patent litigation and whether any potential recovery could benefit Neonode; outcomes and proceeds are uncertain.