Neonode(NEON) - 2023 Q4 - Annual Report

PART I Item 1. BUSINESS Neonode provides optical sensing and machine perception solutions, shifting focus to licensing business by phasing out TSM products in 2024 - Neonode provides advanced optical sensing solutions (touch, contactless touch, gesture) and machine perception software (detecting/tracking persons/objects in video streams) based on zForce and MultiSensing platforms[25] - In December 2023, Neonode announced a new strategy to fully focus on the licensing business, phasing out the TSM product business during 2024 through licensing or outsourcing[29][41] - Since 2010, licensing customers have sold approximately 95 million products featuring Neonode's technology As of December 31, 2023, there were 34 valid technology license agreements[26][31] Revenues by Market (Percentage of Total Revenues) | Market | 2023 | 2022 | | :----------------------------- | :----- | :----- | | Net license revenues from automotive | 35.1% | 27.4% | | Net license revenues from consumer electronics | 50.4% | 51.5% | | Net product revenues from TSMs | 13.9% | 17.5% | | Net non-recurring engineering services revenues | 0.6% | 3.6% | | Total | 100.0% | 100.0% | Revenues by Geographic Region (Percentage of Total Revenues) | Region | 2023 | 2022 | | :---------------- | :----- | :----- | | United States | 35.8% | 32.5% | | Japan | 33.5% | 30.7% | | South Korea | 11.3% | 15.2% | | Germany | 9.0% | 5.3% | | Switzerland | 5.0% | 7.0% | | China | 1.8% | 2.3% | | France | 1.5% | 3.4% | | Sweden | 1.2% | 2.7% | | Other | 0.9% | 0.9% | | Total | 100.0% | 100.0% | Intellectual Property (as of December 31, 2023) | Jurisdiction | No. of Reg. Designs | No. of Issued Patents | No. of Patents Pending | | :------------- | :------------------ | :-------------------- | :--------------------- | | United States | 5 | 53 | 10 | | Europe | - | 11 | 4 | | Japan | - | 7 | 2 | | China | - | 6 | 2 | | South Korea | - | 6 | 2 | | Total: | 5 | 83 | 20 | Research and Development Expenses | Year | Amount (in millions) | | :--- | :------------------- | | 2023 | $3.8 | | 2022 | $4.0 | | Change (YoY) | -5.0% | Item 1A. RISK FACTORS The company faces risks from historical losses, customer concentration, lengthy product development cycles, intense competition, and stock price volatility - Neonode has a history of substantial net losses since inception and may require additional capital, which might not be available on commercially attractive terms[75] - The company is highly dependent on a limited number of customers; in 2023, three customers accounted for approximately 56.4% of consolidated net revenues The new strategy focusing on licensing is likely to change customer composition and reduce the overall number of active engagements[77] - The development and release cycle for customer products is lengthy (18-36 months, longer for automotive) and unpredictable, potentially causing significant expenses without offsetting revenues or variable quarterly revenues[79] - The stock price has been volatile due to factors such as fluctuations in operating results, competitor announcements, strategic actions, new regulations, economic conditions, and changes in analyst recommendations[101][104] Item 1B. UNRESOLVED STAFF COMMENTS No unresolved staff comments from the SEC Item 1C. CYBERSECURITY The company has a comprehensive cybersecurity risk management process, with no material impact to date, but future effects are uncertain - Neonode has a comprehensive process for identifying, assessing, and managing cybersecurity risks, overseen by dedicated professionals and reviewed by executive leadership and the Board of Directors[108][109][110] - Cybersecurity threats have not materially affected the company's business strategy, results of operations, or financial condition to date, but future material effects cannot be assured[111] Item 2. PROPERTIES Neonode leases corporate headquarters in Stockholm (6,700 sq ft) and a workshop in Kungsbacka (9,000 sq ft) - Neonode leases a 6,700 sq ft corporate headquarters in Stockholm and a 9,000 sq ft workshop in Kungsbacka, Sweden[112] Item 3. LEGAL PROCEEDINGS The company is not currently involved in any material legal proceedings - The company is not a party to any pending legal proceedings that would materially impact its operations[113] Item 4. MINE SAFETY DISCLOSURES This item is not applicable to Neonode Inc PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Neonode's common stock trades on Nasdaq under "NEON," with 55 stockholders of record as of January 26, 2024 - Neonode's common stock is quoted on the Nasdaq Stock Market under the symbol "NEON"[116] - As of January 26, 2024, there were 55 stockholders of record[116] - No recent sales of unregistered securities or issuer purchases of equity securities have occurred[118][119] Item 6. [RESERVED] This item is reserved and contains no information Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial condition and results, highlighting increased net loss in 2023 due to lower revenues and TSM inventory write-downs Overview Neonode provides optical sensing and machine perception solutions, shifting focus to licensing business by phasing out TSM products - Neonode provides optical sensing solutions (touch, contactless touch, gesture) and machine perception software using zForce and MultiSensing platforms for various markets[121] - The company began licensing technology to OEMs and Tier 1 suppliers in 2010, with approximately 95 million devices sold by customers incorporating its technology since then[122] - In December 2023, Neonode announced a new strategy to fully focus on the licensing business, phasing out the TSM product business during 2024[126] Critical Accounting Policies and Estimates Financial statement preparation involves significant estimates and judgments, particularly for revenue, credit losses, inventory, and stock-based compensation - The preparation of financial statements requires significant estimates and judgments, including revenue recognition, credit losses, inventory valuation, and stock-based compensation[129][130] - Revenue is recognized when control of products is transferred or services are completed and accepted License fees are earned on a per-unit basis or when the license is made available[131][132][134][135] - Inventory is stated at the lower of cost or net realizable value using FIFO A TSM inventory impairment charge of $3.6 million was recorded in 2023 due to the phase-out of the TSM product business[150][151] - Research and development costs are expensed as incurred, primarily consisting of personnel-related and external consultancy costs[153] Deferred Revenues by Source (in thousands) | Source | 2023 | 2022 | | :----------------------------- | :--- | :--- | | Deferred revenues license fees | $2 | $20 | | Deferred revenues products | $8 | $9 | | Deferred revenues non-recurring engineering | $- | $7 | | Total | $10 | $36 | Results of Operations This section details Neonode's financial performance, highlighting a significant increase in net loss for 2023 Summary of Financial Results (in thousands, except percentages) | Metric | 2023 | 2022 | Variance (Dollars) | Variance (Percent) | | :------------------------------------ | :----- | :----- | :----------------- | :----------------- | | Revenues: | | | | | | License fees | $3,803 | $4,470 | $(667) | (14.9)% | | Products | $620 | $995 | $(375) | (37.7)% | | Non-recurring engineering | $26 | $205 | $(179) | (87.3)% | | Total revenues | $4,449 | $5,670 | $(1,221) | (21.5)% | | Cost of revenues: | | | | | | Products | $4,168 | $776 | $3,392 | 437.1% | | Non-recurring engineering | $12 | $28 | $(16) | (57.1)% | | Loss on purchase commitment | $362 | $- | $362 | -% | | Total cost of revenues | $4,542 | $804 | $3,738 | 464.9% | | Total gross (loss) margin | $(93) | $4,866 | $(4,959) | (101.9)% | | Operating expenses: | | | | | | Research and development | $3,833 | $3,963 | $(130) | (3.3)% | | Sales and marketing | $2,455 | $2,034 | $421 | 20.7% | | General and administrative | $4,363 | $4,155 | $208 | 5.0% | | Total operating expenses | $10,651 | $10,152 | $499 | 4.9% | | Operating loss | $(10,744) | $(5,286) | $(5,458) | 103.3% | | Other income | $736 | $121 | $615 | 508.3% | | Provision for income taxes | $115 | $118 | $(3) | (2.5)% | | Less: net loss attributable to noncontrolling interests | $- | $400 | $(400) | (100.0)% | | Net loss attributable to Neonode Inc. | $(10,123) | $(4,883) | $(5,240) | 107.3% | | Net loss per share attributable to Neonode Inc. per share | $(0.66) | $(0.36) | $(0.30) | 83.3% | - Total net revenues decreased by 21.5% in 2023 compared to 2022, driven by lower revenues from license fees (-14.9%), product sales (-37.7%), and non-recurring engineering services (-87.3%)[163][164][165][166] - The combined total gross margin shifted from 85.8% in 2022 to a gross loss of (2.1)% in 2023, primarily due to one-time costs of $3.6 million for inventory write-down, $362,000 for loss on purchase commitment, and $143,000 for a customer claim related to product sales[167] - Net loss attributable to Neonode Inc. more than doubled, increasing by 107.3% from $4.9 million in 2022 to $10.1 million in 2023[161][176] Contractual Obligation and Off-Balance Sheet Arrangements The company has no off-balance sheet arrangements, only operating leases and a development agreement - Neonode has no special purpose entities or off-balance sheet financing arrangements, only operating leases in the normal course of business[177][178] - The company leases office facilities in Stockholm (6,684 sq ft, lease extended through Nov 2024) and a workshop in Kungsbacka (9,040 sq ft, lease not to be renewed after Sep 2024)[181][182] - Neonode has finance leases for component production equipment and soundproof office pods, with implicit interest rates around 1.5% to 3.0% per annum[183][184][185][186] - An Analog Device Development Agreement with Texas Instruments requires Neonode to pay $500,000 in non-recurring engineering costs at $0.25 per ASIC for the first 2,000,000 ASICs sold; no payments have been made as of December 31, 2023[187][340] Liquidity and Capital Resources This section discusses Neonode's cash position, working capital, and ability to fund operations and raise capital Cash and Cash Equivalents (in thousands) | Date | Amount | | :---------------- | :----- | | December 31, 2023 | $16,155 | | December 31, 2022 | $14,816 | | Change (YoY) | +$1,339 | Working Capital (in thousands) | Date | Amount | | :---------------- | :----- | | December 31, 2023 | $16,800 | | December 31, 2022 | $19,100 | | Change (YoY) | -$2,300 | Net Cash Used in Operating Activities (in thousands) | Year | Amount | | :--- | :----- | | 2023 | $(6,300) | | 2022 | $(6,800) | | Change (YoY) | +$500 | - Neonode believes it has sufficient capital to fund operations for the next twelve months based on current cash and planned expenditures[189] - Under its At-the-Market (ATM) Offering Program, Neonode sold 903,716 shares in 2023, generating net proceeds of $7.87 million, and 886,065 shares in 2022, generating net proceeds of $4.69 million[199] - Future liquidity depends on technology licensing, TSM purchases, operating expenses, customer product shipments, payment timing, gross profit margin, and the ability to raise additional capital[193] Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This item is not applicable to Neonode Inc Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section presents Neonode's audited consolidated financial statements and accompanying notes, confirmed by the independent auditor Report of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion, identifying licensing revenue accounting as a critical audit matter - The independent auditor, KMJ Corbin & Company LLP, issued an unqualified opinion, stating that the consolidated financial statements present fairly Neonode's financial position and results of operations in conformity with U.S. GAAP[209] - A critical audit matter identified was the accounting for licensing revenues, specifically management's evaluation of unbilled license revenues due to the lack of objectively verifiable evidence in the estimation process[215][216] Consolidated Balance Sheets as of December 31, 2023 and 2022 This section presents the company's consolidated balance sheets, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheets (in thousands) | Item | Dec 31, 2023 | Dec 31, 2022 | | :------------------------------------------ | :----------- | :----------- | | ASSETS | | | | Cash and cash equivalents | $16,155 | $14,816 | | Accounts receivable and unbilled revenues, net | $917 | $1,448 | | Inventory | $610 | $3,827 | | Total current assets | $18,620 | $20,798 | | Property and equipment, net | $340 | $282 | | Total assets | $19,014 | $21,198 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $440 | $334 | | Accrued payroll and employee benefits | $941 | $951 | | Accrued expenses | $354 | $200 | | Contract liabilities | $10 | $36 | | Total current liabilities | $1,832 | $1,699 | | Total liabilities | $1,851 | $1,780 | | Total stockholders' equity | $17,163 | $19,418 | | Total liabilities and stockholders' equity | $19,014 | $21,198 | Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 This section presents the company's consolidated statements of operations, detailing revenues, expenses, and net loss Consolidated Statements of Operations (in thousands, except per share amounts) | Item | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Total revenues | $4,449 | $5,670 | | Total cost of revenues | $4,542 | $804 | | Total gross (loss) margin | $(93) | $4,866 | | Total operating expenses | $10,651 | $10,152 | | Operating loss | $(10,744) | $(5,286) | | Total other income | $736 | $121 | | Loss before provision for income taxes | $(10,008) | $(5,165) | | Provision for income taxes | $115 | $118 | | Net loss including noncontrolling interests | $(10,123) | $(5,283) | | Net loss attributable to Neonode Inc. | $(10,123) | $(4,883) | | Basic and diluted loss per share | $(0.66) | $(0.36) | | Basic and diluted – weighted average number of common shares outstanding | 15,322 | 13,632 | Consolidated Statements of Comprehensive Loss for the years ended December 31, 2023 and 2022 This section presents the company's consolidated statements of comprehensive loss, including net loss and other comprehensive income/loss Consolidated Statements of Comprehensive Loss (in thousands) | Item | 2023 | 2022 | | :------------------------------------------ | :------- | :------- | | Net loss including noncontrolling interests | $(10,123) | $(5,283) | | Foreign currency translation adjustments | $(56) | $68 | | Other comprehensive loss | $(10,179) | $(5,215) | | Comprehensive loss attributable to Neonode Inc. | $(10,179) | $(4,815) | Consolidated Statements of Stockholders' Equity for the years ended December 31, 2023 and 2022 This section presents the company's consolidated statements of stockholders' equity, detailing changes in equity components Consolidated Statements of Stockholders' Equity (in thousands) | Item | Dec 31, 2023 | Dec 31, 2022 | | :------------------------------------------ | :----------- | :----------- | | Common Stock Issued (shares) | 15,359 | 14,456 | | Common Stock Amount | $15 | $14 | | Additional Paid-in Capital | $235,158 | $227,235 | | Accumulated Other Comprehensive Income (Loss) | $(396) | $(340) | | Accumulated Deficit | $(217,614) | $(207,491) | | Total Stockholders' Equity | $17,163 | $19,418 | Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 This section presents the company's consolidated statements of cash flows, detailing operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands) | Item | 2023 | 2022 | | :------------------------------------------ | :------- | :------- | | Net cash used in operating activities | $(6,308) | $(6,808) | | Net cash used in investing activities | $(123) | $(52) | | Net cash provided by financing activities | $7,777 | $4,509 | | Effect of exchange rate changes on cash and cash equivalents | $(7) | $(216) | | Net increase (decrease) in cash and cash equivalents | $1,339 | $(2,567) | | Cash and cash equivalents at end of year | $16,155 | $14,816 | Notes to the Consolidated Financial Statements This section provides detailed notes explaining accounting policies, significant estimates, and additional information for the financial statements - Neonode incurred net losses of $10.1 million in 2023 and $4.9 million in 2022, with an accumulated deficit of $217.6 million as of December 31, 2023, and negative cash flows from operations[233] - The company sold 903,716 shares under its ATM Facility in 2023 for net proceeds of $7.87 million, and 886,065 shares in 2022 for $4.69 million, to support liquidity[237] - A TSM inventory impairment charge of $3.6 million was recorded in 2023 due to the strategic decision to phase out the TSM product business[253] R&D Expenses (in thousands) | Year | Amount | | :--- | :----- | | 2023 | $3,833 | | 2022 | $3,963 | | Change (YoY) | -3.3% | Stock-Based Compensation Expense (in thousands) | Category | 2023 | 2022 | | :------------------------ | :--- | :--- | | Sales and marketing | $8 | $8 | | General and administrative | $50 | $114 | | Total | $58 | $122 | | Change (YoY) | -52.5% | | - The company's effective tax rate was (1.1)% for 2023 and (2.3)% for 2022, with a full valuation allowance recorded against net deferred tax assets due to historical operating losses[175][302] Net Loss Per Share (in thousands, except per share amounts) | Item | 2023 | 2022 | | :------------------------------------------ | :------- | :------- | | Weighted average number of common shares outstanding | 15,322 | 13,632 | | Net loss attributable to Neonode Inc. | $(10,123) | $(4,883) | | Net loss per share - basic and diluted | $(0.66) | $(0.36) | Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No changes in or disagreements with accountants on accounting and financial disclosure matters - No changes in or disagreements with accountants on accounting and financial disclosure[362] Item 9A. CONTROLS AND PROCEDURES Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of December 31, 2023[362] - Management concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework[367] - There were no material changes in internal control over financial reporting during the quarter ended December 31, 2023[364] Item 9B. OTHER INFORMATION This item contains no other information Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS This item is not applicable to Neonode Inc PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders proxy statement - Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders proxy statement[371] Item 11. EXECUTIVE COMPENSATION Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders proxy statement - Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders proxy statement[372] Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders proxy statement - Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders proxy statement[373] Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders proxy statement - Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders proxy statement[374] Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders proxy statement - Information for this item is incorporated by reference from the 2024 Annual Meeting of Stockholders proxy statement[375] PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES This section lists consolidated financial statements, notes inapplicable schedules, and provides a comprehensive list of exhibits - The consolidated financial statements are listed in the index and filed under Item 8[378] - Financial statement schedules are not applicable[379] - A detailed list of exhibits, including the Restated Certificate of Incorporation, Amended and Restated Bylaws, employment agreements, stock incentive plans, and various certifications, is provided[381] Item 16. FORM 10-K SUMMARY This item indicates that no Form 10-K summary is provided SIGNATURES The report is signed by Neonode Inc.'s CFO, CEO, and Board of Directors as of February 28, 2024 - The report is signed by Fredrik Nihlén (CFO), Urban Forssell (President and CEO), and members of the Board of Directors, including Ulf Rosberg (Chairman), Per Löfgren, Peter Lindell, and Cecilia Edström, on February 28, 2024[384][385]