Neonode(NEON) - 2021 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements Neonode Inc. reported a 65% revenue increase to $3.39 million for H1 2021, yet net loss widened to $3.23 million due to higher operating expenses Condensed Consolidated Balance Sheets Total assets decreased to $11.86 million by June 30, 2021, driven by reduced cash, while liabilities and equity also declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | | :--- | :--- | :--- | | Assets | | | | Cash | $6,611 | $10,473 | | Total current assets | $10,571 | $14,650 | | Total assets | $11,859 | $16,572 | | Liabilities & Equity | | | | Total current liabilities | $3,427 | $4,210 | | Total liabilities | $3,540 | $4,682 | | Total stockholders' equity | $8,319 | $11,890 | Condensed Consolidated Statements of Operations Q2 2021 revenues more than doubled to $1.72 million, but a 38% rise in operating expenses resulted in a net loss of $1.66 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $1,720 | $758 | $3,385 | $2,052 | | License fees | $1,358 | $674 | $2,653 | $1,843 | | Sensor modules | $346 | $66 | $701 | $164 | | Total gross margin | $1,499 | $635 | $2,887 | $1,885 | | Total operating expenses | $3,295 | $2,391 | $6,312 | $4,730 | | Operating loss | $(1,796) | $(1,756) | $(3,425) | $(2,845) | | Net loss attributable to Neonode Inc. | $(1,657) | $(1,612) | $(3,225) | $(2,622) | | Basic and diluted loss per share | $(0.14) | $(0.18) | $(0.28) | $(0.29) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $3.41 million for H1 2021, leading to a $3.86 million decrease in cash balance Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,405) | $(1,928) | | Net cash used in investing activities | $(67) | $(7) | | Net cash (used in) provided by financing activities | $(295) | $1,344 | | Net decrease in cash | $(3,862) | $(584) | | Cash at beginning of period | $10,473 | $2,357 | | Cash at end of period | $6,611 | $1,773 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, liquidity, revenue streams, and commitments, addressing going concern despite historical operating losses and negative cash flows - The company has incurred significant operating losses and negative cash flows since inception, with a net loss of $3.2 million for the first six months of 2021 and an accumulated deficit of $199.4 million as of June 30, 2021[28] - Management believes the current operating plan and potential capital sources are sufficient to alleviate going concern concerns[29] - As of June 30, 2021, four customers represented approximately 70% of consolidated accounts receivable, with Hewlett Packard Company (31%), Seiko Epson Corporation (14%), and LG Electronics Inc. (13%) as top revenue contributors for H1 2021[52][53] - An "at the market" (ATM) offering program was established on May 10, 2021, to sell up to $25.0 million of common stock[97] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue growth for H1 2021 was driven by license fees and contactless touch solutions, while increased operating expenses and decreased liquidity led to establishing a $25 million ATM facility Overview Neonode offers advanced optical sensing solutions for B2B markets, generating revenue through technology licensing and sensor module sales, primarily in automotive and printer industries - The business model relies on licensing zForce and MultiSensing technology platforms and selling sensor module products[144] - As of June 30, 2021, Neonode had 35 valid technology license agreements, with approximately 82 million devices sold using its technology since 2010, primarily in automotive and printer industries[145][146] Impact of COVID-19 COVID-19 continues to impact supply chains and customer sales, yet it has also increased demand for contactless touch products - The COVID-19 pandemic causes component delivery challenges and affects customer sales volumes, but also increases demand for contactless touch products[154] Results of Operations Q2 2021 net revenues surged 127% to $1.72 million, driven by license fees and sensor module sales, but a 37.8% rise in operating expenses resulted in a $1.66 million net loss Q2 2021 vs Q2 2020 Financial Performance (in thousands) | Metric | Q2 2021 | Q2 2020 | Variance ($) | Variance (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $1,720 | $758 | $962 | 126.9% | | License fees | $1,358 | $674 | $684 | 101.5% | | Sensor modules | $346 | $66 | $280 | 424.2% | | Total Gross Margin | $1,499 | $635 | $864 | 136.1% | | Total Operating Expenses | $3,295 | $2,391 | $904 | 37.8% | | Operating Loss | $(1,796) | $(1,756) | $(40) | 2.3% | - The increase in license fees is attributed to a pandemic-related rebound from depressed levels in 2020[159] - Growing interest in contactless touch solutions, with Asia as the first adopter, is the primary driver for increased sensor module sales[161] - Higher staff costs, compared to 2020 when government pandemic support reduced working hours, primarily drove increases in R&D, Sales & Marketing, and G&A expenses[167][168][169] Liquidity and Capital Resources Cash decreased to $6.6 million by June 30, 2021, with $3.4 million used in operations, leading to the establishment of a $25 million ATM program for future funding Key Liquidity Metrics (in millions) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash | $6.6 | $10.5 | | Working Capital | $7.1 | $10.4 | - Net cash used in operating activities was $3.4 million for H1 2021, primarily due to a net loss of $3.5 million[186] - An "at the market" (ATM) offering program was established in May 2021 to sell up to $25 million of common stock for future operations[195] - Subsequent to quarter-end, on July 2 and 6, 2021, the company raised net proceeds of $100,000 by selling shares under the ATM facility[197] Item 3. Quantitative and Qualitative Disclosures about Market Risk No quantitative and qualitative disclosures about market risk are applicable for the reporting period - The company has indicated that there are no quantitative and qualitative disclosures about market risk to report[201] Item 4. Controls and Procedures Disclosure controls and procedures were deemed effective as of June 30, 2021, with no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2021[202] - No material changes in internal control over financial reporting occurred during the quarter[205] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company faces a legal matter regarding a voluntarily dismissed shareholder class action, with intent to vigorously defend against a potential fee petition - A putative stockholder class action lawsuit filed on September 2, 2020, was voluntarily dismissed by the plaintiff on October 20, 2020[116] - Plaintiff's counsel informed Neonode on February 11, 2021, of their intent to file a fee petition, which the company plans to vigorously defend against[116] Item 1A. Risk Factors No material changes to risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to risk factors have occurred since the filing of the Annual Report on Form 10-K for the year ended December 31, 2020[208] Item 6. Exhibits Exhibits filed with this report include corporate governance documents, the At Market Issuance Sales Agreement, and officer certifications - Exhibits include the At Market Issuance Sales Agreement with B. Riley Securities, Inc., and Sarbanes-Oxley Act of 2002 certifications[210]