Neonode(NEON) - 2024 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This part provides the unaudited condensed consolidated financial statements and management's discussion and analysis for Q1 2024 Item 1. Financial Statements This section presents Neonode Inc.'s unaudited condensed consolidated financial statements for Q1 2024 and 2023, including balance sheets, income statements, and cash flows, with explanatory notes Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, including assets, liabilities, and equity, as of March 31, 2024, and December 31, 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $14,274 | $16,155 | | Total current assets | $16,593 | $18,620 | | Total assets | $16,921 | $19,014 | | Total current liabilities | $1,862 | $1,832 | | Total liabilities | $1,874 | $1,851 | | Total stockholders' equity | $15,047 | $17,163 | Unaudited Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net loss for the three months ended March 31, 2024, and 2023 Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenues | $1,014 | $1,253 | | Total cost of revenues | $397 | $47 | | Total gross margin | $617 | $1,206 | | Total operating expenses | $2,871 | $2,778 | | Operating loss | $(2,254) | $(1,572) | | Net loss | $(2,084) | $(1,425) | | Basic and diluted loss per share | $(0.14) | $(0.09) | Unaudited Condensed Consolidated Statements of Comprehensive Loss This statement presents the net loss and other comprehensive income/loss components for the three months ended March 31, 2024, and 2023 Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(2,084) | $(1,425) | | Foreign currency translation adjustments | $(34) | $35 | | Other comprehensive loss | $(2,118) | $(1,390) | Unaudited Condensed Consolidated Statements of Stockholders' Equity This statement tracks changes in stockholders' equity, including net loss, stock-based compensation, and share issuances, for the periods presented Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | December 31, 2023 | March 31, 2024 | | :--------------------------------- | :---------------- | :------------- | | Total Stockholders' Equity | $17,163 | $15,047 | | Net loss for the period | - | $(2,084) | | Stock-based compensation | - | $2 | | Foreign currency translation adjustment | - | $(34) | | Metric | December 31, 2022 | March 31, 2023 | | :--------------------------------- | :---------------- | :------------- | | Total Stockholders' Equity | $19,418 | $25,912 | | Net loss for the period | - | $(1,425) | | Stock-based compensation | - | $18 | | Issuance of shares for cash, net of offering costs | - | $7,866 | | Foreign currency translation adjustment | - | $35 | Unaudited Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2024, and 2023 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(1,915) | $(1,698) | | Net cash (used in) provided by financing activities | $(9) | $7,838 | | Net change in cash and cash equivalents | $(1,881) | $6,165 | | Cash and cash equivalents at end of period | $14,274 | $20,981 | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations of accounting policies, financial performance, and significant events impacting the financial statements Note 1. Interim Period Reporting & Operations Overview This note details Neonode's business, strategic shift to licensing, financial performance, and going concern assessment - Neonode develops advanced optical sensing solutions for contactless touch, touch, gesture sensing, and object detection, along with machine perception solutions using machine learning algorithms[25] - The company announced a sharpened strategy in December 2023 to focus solely on the licensing business, phasing out the TSM product business[25][44] Net Losses and Cash Flow from Operations (in thousands) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net losses | $(2,084) | $(1,425) | | Cash used in operating activities | $(1,915) | $(1,698) | - As of March 31, 2024, the company had an accumulated deficit of approximately $219.7 million[26] - Management believes the current operating plan and potential capital sources, including the ATM Facility, are sufficient to alleviate going concern concerns[28][29] - During the three months ended March 31, 2023, the company sold 903,716 shares under the ATM facility, generating $7,866,000 in net proceeds. No shares were sold under the ATM facility in Q1 2024[28][101] Note 2. Summary of Significant Accounting Policies This note outlines the company's key accounting policies, including revenue recognition, inventory, and customer concentrations - Due to the strategic shift to a licensing-only business, the company impaired TSM-related inventories by $3.6 million for FY2023 and an additional $0.3 million in Q1 2024, as the TSM product business will be phased out[44] Customer Concentration (Accounts Receivable and Net Revenues) | Metric | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Top 4 customers % of A/R | 64.8% | 76.4% | | Customer (Q1 2024) | % of Net Revenues | | :----------------- | :---------------- | | Hewlett-Packard Company | 24.8% | | Alps Alpine | 18.4% | | Seiko Epson | 15.7% | | Customer (Q1 2023) | % of Net Revenues | | :----------------- | :---------------- | | Hewlett-Packard Company | 30.7% | | Seiko Epson | 20.2% | | Alps Alpine | 14.7% | | LG | 13.7% | Contract Liabilities (Deferred Revenues) (in thousands) | Source | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Deferred revenues license fees | $75 | $2 | | Deferred revenues products | $7 | $8 | | Deferred revenues non-recurring engineering | $- | $- | | Total Contract Liabilities | $82 | $10 | Advertising and R&D Expenses (in thousands) | Expense Category | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :----------------- | :-------------------------------- | :-------------------------------- | | Advertising costs | $175 | $54 | | R&D costs | $895 | $802 | - The company fully reserved its net deferred tax assets as of March 31, 2024, and December 31, 2023, due to uncertainty of future pre-tax income[86] - The company is evaluating the impact of new accounting pronouncements: ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures)[93][94] Note 3. Stockholders' Equity This note details the company's ATM facility, common stock, and preferred stock, including share issuance activities - The company has an At-the-Market (ATM) facility allowing the sale of up to $25 million of common stock through B. Riley Securities, with a 3.0% commission[96][97] - During the three months ended March 31, 2024, no shares were sold under the ATM Facility. In the same period of 2023, 903,716 shares were sold, generating $7,866,000 in net proceeds[101] - The aggregate market value of outstanding common stock held by non-affiliates was approximately $26.7 million as of February 28, 2024, reducing the ATM offering limit to $8,901,792[99][188] - As of March 31, 2024, and December 31, 2023, the company had 25,000,000 shares of common stock authorized and 15,359,481 shares issued and outstanding. No preferred stock was issued or outstanding[100][102] Note 4. Stock-Based Compensation This note outlines equity incentive plans and the stock-based compensation expense recognized for the period Stock-Based Compensation Expense (in thousands) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Stock-based compensation expense | $2 | $18 | - As of March 31, 2024, and December 31, 2023, the company had no outstanding stock options[111] Note 5. Commitments and Contingencies This note discusses legal proceedings, indemnities, patent litigation, and NRE agreements - The company is not aware of any pending or threatened litigation matters that would have a material impact on its operations[113] - In 2019, the company assigned a patent portfolio to Aequitas Technologies LLC, which subsequently filed infringement complaints against Apple and Samsung. One patent was invalidated (under appeal), and a judgment in favor of Samsung is also under appeal[116][117] - Under a 2013 agreement with Texas Instruments (TI) for ASIC integration, the company agreed to pay $500,000 in non-recurring engineering costs at $0.25 per ASIC for the first 2 million ASICs sold. No payments have been made to TI as of March 31, 2024[118][183] Note 6. Segment Information This note provides revenue and asset breakdowns by geographic area for the company's single reportable segment - The company has one reportable segment: technology licensing and products business[119] Net Revenues by Geographic Area (in thousands) | Geographic Area | Three months ended March 31, 2024 (Amount) | Three months ended March 31, 2024 (Percentage) | Three months ended March 31, 2023 (Amount) | Three months ended March 31, 2023 (Percentage) | | :---------------- | :----------------------------------------- | :--------------------------------------------- | :----------------------------------------- | :--------------------------------------------- | | Japan | $391 | 38.6% | $449 | 35.8% | | United States | $338 | 33.3% | $471 | 37.6% | | France | $79 | 7.8% | $172 | 13.7% | | South Korea | $69 | 6.8% | $- | -% | | Germany | $64 | 6.3% | $111 | 8.9% | | Sweden | $54 | 5.3% | $- | -% | | Other | $19 | 1.9% | $50 | 4.0% | | Total | $1,014 | 100.0% | $1,253 | 100.0% | Total Assets by Geographic Region (in thousands) | Geographic Region | March 31, 2024 | December 31, 2023 | | :---------------- | :------------- | :---------------- | | United States | $13,817 | $16,084 | | Sweden | $3,064 | $2,888 | | Asia | $40 | $42 | | Total | $16,921 | $19,014 | Note 7. Leases This note details the company's operating and finance leases, including expenses, cash flows, and future commitments Lease Expense (in thousands) | Lease Type | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Operating lease cost | $136 | $127 | | Finance lease cost | $29 | $5 | Supplemental Cash Flow Information Related to Leases (in thousands) | Cash Flow Type | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Operating cash flows from operating leases | $(17) | $(16) | | Financing cash flows from finance leases | $(9) | $(28) | Supplemental Balance Sheet Information Related to Leases (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $34 | $54 | | Total operating lease liabilities | $34 | $54 | | Total finance lease liabilities | $41 | $52 | Weighted Average Lease Terms and Discount Rates | Metric | March 31, 2024 | March 31, 2023 | | :--------------------------------- | :------------- | :------------- | | Operating leases (Remaining Lease Term) | 0.5 years | 1.5 years | | Finance leases (Remaining Lease Term) | 1.1 years | 1.4 years | | Operating leases (Discount Rate) | 5.0% | 5.0% | | Finance leases (Discount Rate) | 2.6% | 2.5% | Future Minimum Lease Payments (in thousands) | Year ending December 31, | Operating Lease Commitments | Finance Lease Commitments | | :----------------------- | :-------------------------- | :------------------------ | | 2024 | $35 | $23 | | 2025 | $- | $19 | | Total Lease Liabilities | $34 | $41 | Note 8. Net Loss per Share This note presents the basic and diluted net loss per common share calculations for the reported periods Net Loss per Share (in thousands, except per share amounts) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Weighted average number of common shares outstanding | 15,359 | 15,209 | | Net loss attributable to Neonode Inc. | $(2,084) | $(1,425) | | Net loss per share – basic and diluted | $(0.14) | $(0.09) | - The company had no potential common stock equivalents for the three months ended March 31, 2024 and 2023, as their effect would be anti-dilutive[129] Note 9. Subsequent Events This note discloses significant events occurring after the reporting period, specifically leadership changes - On April 10, 2024, Dr. Forssell was discharged from his position as President and CEO and will serve as a Senior Advisor until December 31, 2024[131] - Fredrik Nihlén, the Chief Financial Officer, was appointed Interim President and CEO effective immediately[132] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for Q1 2024 Forward Looking Statements This section highlights the inherent risks and uncertainties associated with the company's forward-looking statements - The report contains forward-looking statements identified by words like 'believe,' 'anticipate,' 'expect,' 'intend,' 'goal,' 'plan,' and similar expressions[133] - Forward-looking statements involve inherent risks and uncertainties, including a history of losses, dependence on limited customers, reliance on component suppliers, and global economic conditions[133] Overview of Business This section describes Neonode's technology platforms, strategic shift to licensing, and current license agreements - Neonode provides advanced optical sensing solutions (touch, contactless touch, gesture sensing) and machine perception software using zForce and MultiSensing technology platforms[135] - The company's sharpened strategy, announced in December 2023, focuses solely on the licensing business, with plans to phase out the TSM product business in 2024[25][140] - As of March 31, 2024, Neonode had 34 valid technology license agreements, with 10 licensing customers currently shipping products embedding its technology[136][137] - The company offers non-recurring engineering (NRE) services related to application development and proof-of-concept projects for its TSMs and technology platforms[141][142] - Global conflicts (Ukraine, Israel-Gaza) are noted as potential sources of economic and financial uncertainty, impacting supply chains and market volatility[143] Revenue Streams Analysis This section analyzes the changes in license fees, product sales, and non-recurring engineering revenues for Q1 2024 Revenue Performance (in thousands, except percentages) | Revenue Category | Q1 2024 Amount | Q1 2023 Amount | Variance in Dollars | Variance in Percent | | :----------------- | :------------- | :------------- | :------------------ | :------------------ | | License fees | $773 | $1,148 | $(375) | (32.7)% | | Products | $200 | $102 | $98 | 96.1% | | Non-recurring engineering | $41 | $3 | $38 | 1,266.7% | | Total Revenue | $1,014 | $1,253 | $(239) | (19.1)% | - The decrease in license fees was mainly due to lower demand for legacy customers' products, resulting in high inventory levels at some customers[148] - The increase in product revenues was primarily due to customers securing TSM inventory after receiving news about the company phasing out TSM manufacturing[149] - The significant increase in non-recurring engineering revenues was the result of a potential TSM licensing project following the company's strategic shift[150] Net Revenues by Market (in thousands) | Market | Q1 2024 Amount | Q1 2023 Amount | | :---------------- | :------------- | :------------- | | Automotive | $337 | $445 | | IT & Industrial | $677 | $808 | Operating Performance and Expenses This section details changes in gross margin, R&D, sales and marketing, and general and administrative expenses for Q1 2024 Gross Margin and Operating Expenses (in thousands, except percentages) | Metric | Q1 2024 Amount | Q1 2024 % of Revenue | Q1 2023 Amount | Q1 2023 % of Revenue | | :----------------- | :------------- | :------------------- | :------------- | :------------------- | | Total gross margin | $617 | 60.8% | $1,206 | 96.2% | | Product gross margin | (90.0)% | - | 53.9% | - | | R&D expenses | $895 | 88.3% | $802 | 64.0% | | Sales and marketing | $816 | 80.5% | $592 | 47.2% | | General and administrative | $1,160 | 114.4% | $1,384 | 110.5% | | Net loss | $(2,084) | (205.5)% | $(1,425) | (113.7)% | - The product gross margin for Q1 2024 was significantly impacted by a $278,000 write-down on inventory due to the phasing out of TSM manufacturing[152] - R&D expenses increased primarily due to higher product development costs[154] - Sales and marketing expenses increased mainly due to participation in technology events[155] - General and administrative expenses decreased primarily due to lower professional fees[157] Liquidity and Capital Resources This section discusses the company's cash position, working capital, cash flows, and future capital needs Liquidity and Working Capital (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $14,274 | $16,155 | | Working capital | $14,731 | $16,788 | - Net cash used in operating activities for the three months ended March 31, 2024, was $1.9 million[164] - Net cash provided by financing activities for the three months ended March 31, 2023, was $7.8 million, primarily from the issuance of common stock under the ATM Facility[166] - The company has incurred significant operating losses and negative cash flows from operations since inception, with an accumulated deficit of approximately $219.7 million as of March 31, 2024[167] - Management believes current capital, including the ATM Facility, is sufficient for operations for the next twelve months, but may require additional capital through equity investments or debt arrangements if operations do not become cash flow positive[168][169] - The ATM Facility's aggregate offering amount was reduced to $8,901,792 as of February 27, 2024, due to the market value of common stock held by non-affiliates being below $75.0 million[188] - The company is exposed to foreign currency exchange rate risk due to its foreign subsidiaries' functional currencies (Swedish Krona, Japanese Yen, South Korean Won, Taiwan Dollar)[171] Critical Accounting Policies This section outlines the company's accounting policies requiring significant judgment, particularly in revenue recognition - Significant judgment is required in revenue recognition for contracts with multiple performance obligations, including determining standalone selling prices (SSP)[189] - Judgment is also needed to determine when control of products passes to distributors and to estimate product returns and other credits[190] - Determining the amount of unbilled license fees at the end of each reporting period also requires judgment[191] - There have been no other changes from the critical accounting policies previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023[192] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there are no applicable quantitative and qualitative disclosures about market risk for the period - This item is not applicable[193] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2024 - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024[194] - There were no material changes in the company's internal control over financial reporting during the three months ended March 31, 2024[196] PART II OTHER INFORMATION This part includes legal proceedings, risk factors, equity sales, other information, and a list of exhibits Item 1. Legal Proceedings The company is not currently a party to any pending legal proceedings expected to materially impact its operations - The company is not a party to any pending legal proceedings that would have a material impact on its operations[199] Item 1A. Risk Factors This section states there have been no material changes to the risk factors previously disclosed in the annual report - There have been no material changes from the risk factors as previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[200] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds occurred during the period[201] Item 5. Other Information This section indicates that there is no other information to report for the period - No other information to report[204] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents and certifications Key Exhibits Filed | Exhibit | Description | | :-------- | :---------- | | 3.1 | Restated Certificate of Incorporation of Neonode Inc. | | 3.2 | Amended and Restated Bylaws | | 4.1 | Description of registrant's Common Stock | | 31.1* | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 | | 31.2* | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 | | 32** | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101.INS | Inline XBRL Instance Document. | | 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | SIGNATURES This section contains the official signatures, confirming the due authorization and filing of the Quarterly Report on Form 10-Q - The report was signed on May 8, 2024, by Fredrik Nihlén, Interim President and Chief Executive Officer and Chief Financial Officer[209]