Neonode Inc. — Form 10-Q Summary
Business and period: Neonode develops and licenses user-interface and optical infrared touch technology to OEMs and ODMs; it does not manufacture products. This unaudited filing covers the quarter and six months ended June 30, 2015, compared with the same 2014 periods. Amounts below are U.S. dollars.
Financial results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $2.776 million | $0.865 million | $5.039 million | $1.879 million |
| Gross profit | $2.039 million | $0.413 million | $3.964 million | $1.261 million |
| Gross margin | 73.5% | 47.7% | 78.7% | 67.1% |
| Operating loss | $(1.737) million | $(3.874) million | $(3.803) million | $(7.881) million |
| Net loss | $(1.792) million | $(3.874) million | $(3.864) million | $(7.882) million |
| Loss per share, basic and diluted | $(0.04) | $(0.10) | $(0.10) | $(0.20) |
| Operating cash flow | Not presented by quarter | $(2.819) million | $(6.010) million |
Revenue included technology license fees of $1.5 million in Q2 and $3.3 million for the first half of 2015, with the balance primarily from non-recurring engineering services. License revenue has a stated 100% gross margin. Operating expenses for the first half were $7.767 million, down from $9.142 million.
Balance sheet and liquidity
- At June 30, 2015, cash was $3.159 million, down from $6.129 million at December 31, 2014; total assets were $5.658 million.
- Current assets of $5.125 million and current liabilities of $5.212 million resulted in negative working capital of approximately $87,000. Stockholders’ equity was $131,000, compared with $3.270 million at year-end.
- Total liabilities were $5.527 million, including $372,000 in capital lease obligations. The filing reports no other borrowing balance.
- Operating cash use was $2.819 million; investing cash use was $36,000; financing cash use was $29,000. Cash declined by $2.970 million during the half year.
Material changes and business developments
- Revenue increased 221% in Q2 and 168% for the first half versus 2014, primarily from higher license fees—including printer and e-reader activity—and engineering services. Gross margin also improved as revenue increased.
- Q2 customer revenue included Autoliv Development AB at 31%, Hewlett Packard at 28%, and Amazon at 11%. For the first half, Hewlett Packard, Amazon, and Autoliv represented 29%, 19%, and 17%, respectively. Two customers accounted for approximately 90% of receivables at quarter-end.
- Under a joint development and cooperation agreement, Autoliv paid an initial $1.5 million and could pay another $1.5 million in three milestone-based installments. Neonode recognized $875,000 in Q2 under the agreement: $375,000 from amortizing the initial payment and $500,000 for a completed milestone.
- Cash provided by financing was $9.290 million in the first half of 2014, principally from a stock offering; there were no comparable stock-sale proceeds in the first half of 2015. A warrant exercise during 2015 used the cashless provision and issued 69,632 shares.
Outlook, risks, and other items
- Management stated it believed cash was sufficient to operate for at least the next twelve months and expected revenue to continue increasing. This outlook is conditional: management cautioned that failure to meet revenue targets could require conserving cash, scaling back or delaying activities, or seeking additional financing.
- The company has a history of losses and negative operating cash flows, an accumulated deficit of approximately $169.8 million, and may need equity or debt financing if operations do not become cash-flow positive. Financing may be unavailable or dilute shareholders; debt could impose restrictive covenants.
- Risks include customer concentration and dependence on customers’ product shipments, uncertain market demand and technology adoption, competition, intellectual-property protection and litigation costs, foreign-exchange exposure, and dependence on key personnel. About 66% of first-half operating costs were denominated in foreign currencies; Neonode said it did not hedge this exposure.
- Deferred revenue was $3.016 million at quarter-end, including $1.9 million of deferred license fees and $1.1 million of deferred engineering fees. The company reported $1.585 million of future minimum operating lease payments and potential Texas Instruments engineering reimbursements tied to shipments; no payments had been made under the cited TI agreements through June 30.
- There were no material legal proceedings or material changes to the previously reported risk factors. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth, especially license revenue and Autoliv milestone activity, continues and converts into cash.
- Cash runway, near-term liquidity, and the terms and availability of any additional financing.
- Customer concentration, receivable collectability, and the timing of customer shipments and royalty reports.
- Potential dilution from equity issuance, outstanding options and warrants, and the remaining shares available under the shelf registration.
- Future obligations or expense recognition under the TI development agreements, leases, and other commitments.