Neonode Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Financial statements are unaudited; dollar amounts below are U.S. dollars. The company develops optical sensing technology and products for touch, gesture sensing, and vehicle and cabin monitoring.
Financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $1.665 million | $1.294 million |
| Gross profit / margin | $1.388 million / 83% | $1.250 million / 97% |
| Operating expenses | $3.017 million | $2.339 million |
| Operating loss | $1.629 million | $1.089 million |
| Net loss attributable to Neonode | $1.568 million; $0.14 per share | $1.010 million; $0.11 per share |
| Cash used in operating activities | $1.990 million | $0.969 million |
- Revenue grew 28.7%. HMI Solutions revenue rose 9.9% to $1.299 million; HMI Products revenue increased to $366,000 from $112,000, primarily on higher sensor-module and AirBar sales. Remote Sensing Solutions generated no revenue.
- Gross margin fell to 83% from 97%, primarily because product sales, which carry lower margins, made up a larger share of revenue. Operating expenses increased 29%; R&D was $1.142 million, sales and marketing $788,000, and general and administrative expense $1.087 million.
- At March 31, cash was $8.145 million, down from $10.473 million at year-end 2020. Working capital was $8.8 million, versus $10.4 million. Total assets were $13.523 million and total liabilities $3.446 million.
- Lease obligations were $672,000 for finance leases and $628,000 for operating leases. The filing reports no other material borrowing balance. Inventory was $1.675 million, including an $800,000 AirBar inventory reserve.
Changes, outlook, and risks
- Management attributed the greater loss and cash use to higher operating costs and ongoing losses. It expects revenue growth and efficiency measures to reduce losses, but gives no quantified guidance and cautions that it may not meet revenue targets or reduce losses.
- Management stated its current operating plan and potential capital sources were sufficient to alleviate going-concern concerns. It also said additional financing may be needed if operations do not become cash-flow positive; future financing is not assured and equity financing could dilute shareholders.
- On May 4, 2021, after quarter-end, Neonode announced a strategy and organizational change to emphasize contactless touch opportunities in North America, Asia, and Europe, replacing its business-area structure with regional sales.
- On May 10, 2021, the company entered into an at-the-market sales agreement permitting up to $25 million of common-stock sales, subject to its discretion, with a 3% sales commission. It also filed a shelf registration statement for up to $100 million.
- COVID-19 continued to weigh on customer activity and operations. Neonode cited component-delivery constraints, potential delays or higher costs for product deliveries, and uncertainty around the pandemic’s duration and effects.
- Revenue and liquidity risks include dependence on a limited number of customers, customer product-development and shipment timelines, component suppliers, and access to capital. Five customers represented 78% of accounts receivable and unbilled revenue at quarter-end; five customers each contributed at least 10% of quarterly revenue.
- A $100,000 bank guarantee covers remaining AirBar production materials; management expected to sell the remaining AirBars and purchase the components and assembly service, and recorded no liability. A fee petition relating to a dismissed stockholder disclosure suit remained possible. Separate patent infringement litigation against Apple and Samsung, brought by a subsidiary of the patent assignee, was ongoing.
Key facts for investors to verify
- Whether HMI Products growth is sustainable and can improve margins, given lower product margins and the AirBar inventory reserve.
- Cash burn, working-capital trends, and the timing and amount of any ATM share sales or other financing.
- Customer concentration, customer shipment schedules, and the effect of component supply constraints on sales and delivery costs.
- Progress toward revenue growth and lower operating losses, since the filing provides no quantified forecast.
- Developments in the AirBar guarantee, stockholder fee petition, and patent litigation, including any resulting financial exposure.