Neonode Inc. 10-Q

Item 1. Financial Statements NEONODE INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited) June 30, December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 13,107 $ 16,155 Accounts receivable and unbilled revenues, net 1,246 917 Inventory 205 610 Prepaid expenses and other current assets 536 938 Total current assets 15,094 18,620 Property and equipment, net 83 340 Operating lease right-of-use assets, net 17 54 Total assets $ 15,194 $ 19,014 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 321 $ 440 Accrued payroll and employee benefits 1,271 941 Accrued expenses 207 354 Contract liabilities 51 10 Current portion of finance lease obligations 6 33 Current portion of operating lease obligations 17 54 Total current liabilities 1,873 1,832 Finance lease obligations, net of current portion - 19 Total liabilities 1,873 1,851 Commitments and contingencies Stockholders’ equity: Common stock, 25,000,000 shares authorized, with par value of $ 0.001 ; 15,359,481 shares issued and outstanding at June 30, 2024 and December 31, 2023 15 15 Additional paid-in capital 235,161 235,158 Accumulated other comprehensive loss ( 462 ) ( 396 ) Accumulated deficit ( 221,393 ) ( 217,614 ) Total stockholders’ equity 13,321 17,163 Total liabilities and stockholders’ equity $ 15,194 $ 19,014 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 NEONODE INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 Revenues: License fees $ 614 $ 1,094 $ 1,387 $ 2,242 Products 623 84 823 186 Non-recurring engineering 187 22 228 25 Total revenues 1,424 1,200 2,438 2,453 Cost of revenues: Products 461 28 841 75 Non-recurring engineering 24 9 41 9 Total cost of revenues 485 37 882 84 Total gross margin 939 1,163 1,556 2,369 Operating expenses: Research and development 975 1,063 1,870 1,865 Sales and marketing 544 689 1,360 1,281 General and administrative 1,227 1,038 2,387 2,422 Total operating expenses 2,746 2,790 5,617 5,568 Operating loss ( 1,807 ) ( 1,627 ) ( 4,061 ) ( 3,199 ) Other income (expense): Interest income, net 140 169 320 327 Other expense ( 17 ) - ( 17 ) - Total other income, net 123 169 303 327 Loss before provision for income taxes ( 1,684 ) ( 1,458 ) ( 3,758 ) ( 2,872 ) Provision for income taxes 11 49 21 60 Net loss $ ( 1,695 ) $ ( 1,507 ) $ ( 3,779 ) $ ( 2,932 ) Loss per common share: Basic and diluted loss per share $ ( 0.11 ) $ ( 0.10 ) $ ( 0.25 ) $ ( 0.19 ) Basic and diluted – weighted average number of common shares outstanding 15,359 15,359 15,359 15,285 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 NEONODE INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) (Unaudited) Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 Net loss $ ( 1,695 ) $ ( 1,507 ) $ ( 3,779 ) $ ( 2,932 ) Other comprehensive loss: Foreign currency translation adjustments ( 32 ) ( 141 ) ( 66 ) ( 106 ) Other comprehensive loss $ ( 1,727 ) $ ( 1,648 ) $ ( 3,845 ) $ ( 3,038 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 NEONODE INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) (Unaudited) For the three and six months ended June 30, 2024 and 2023 Common Stock Shares Issued Common Stock Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Balances, December 31, 2023 15,359 $ 15 $ 235,158 $ ( 396 ) $ ( 217,614 ) $ 17,163 Stock-based compensation - - 2 - - 2 Foreign currency translation adjustment - - - ( 34 ) - ( 34 ) Net loss - - - - ( 2,084 ) ( 2,084 ) Balances, March 31, 2024 15,359 $ 15 $ 235,160 $ ( 430 ) $ ( 219,698 ) $ 15,047 Stock-based compensation - - 1 - - 1 Foreign currency translation adjustment - - - ( 32 ) - ( 32 ) Net loss - - - - ( 1,695 ) ( 1,695 ) Balances, June 30, 2024 15,359 $ 15 $ 235,161 $ ( 462 ) $ ( 221,393 ) $ 13,321 Common Stock Shares Issued Common Stock Amount Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Balances, December 31, 2022 14,456 $ 14 $ 227,235 $ ( 340 ) $ ( 207,491 ) $ 19,418 Stock-based compensation - - 18 - - 18 Issuance of shares for cash, net of offering costs 903 1 7,865 - - 7,866 Foreign currency translation adjustment - - - 35 - 35 Net loss - - - - ( 1,425 ) ( 1,425 ) Balances, March 31, 2023 15,359 $ 15 $ 235,118 $ ( 305 ) $ ( 208,916 ) $ 25,912 Stock-based compensation - - 17 - - 17 Foreign currency translation adjustment - - - ( 141 ) - ( 141 ) Net loss - - - - ( 1,507 ) ( 1,507 ) Balances, June 30, 2023 15,359 $ 15 $ 235,135 $ ( 446 ) $ ( 210,423 ) $ 24,281 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 NEONODE INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six months ended June 30, 2024 2023 Cash flows from operating activities: Net loss $ ( 3,779 ) $ ( 2,932 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 3 35 Loss on disposal of assets 18 - Depreciation and amortization 40 37 Amortization of operating lease right-of-use assets 34 33 Inventory impairment loss 286 - Changes in operating assets and liabilities: Accounts receivable and unbilled revenues, net ( 344 ) 140 Inventory 89 17 Prepaid expenses and other current assets 362 27 Accounts payable, accrued payroll and employee benefits, and accrued expenses 149 374 Contract liabilities 41 ( 13 ) Operating lease obligations ( 34 ) ( 33 ) Net cash used in operating activities ( 3,135 ) ( 2,315 ) Cash flows from investing activities: Purchase of property and equipment ( 37 ) ( 36 ) Proceeds from sale of property and equipment 190 - Net cash (used in) provided by investing activities 153 ( 36 ) Cash flows from financing activities: Proceeds from issuance of common stock, net of offering costs - 7,866 Principal payments on finance lease obligations ( 13 ) ( 52 ) Net cash (used in) provided by financing activities ( 13 ) 7,814 Effect of exchange rate changes on cash and cash equivalents ( 53 ) 12 Net change in cash and cash equivalents ( 3,048 ) 5,475 Cash and cash equivalents at beginning of period 16,155 14,816 Cash and cash equivalents at end of period $ 13,107 $ 20,291 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 21 $ 60 Cash paid for interest $ 1 $ 6 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 NEONODE INC. Notes to the Condensed Consolidated Financial Statements (Unaudited) 1. Interim Period Reporting The accompanying unaudited interim condensed consolidated financial statements include all adjustments consisting of normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash flows for the interim period presented. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of results for a full fiscal year or any other period. The accompanying condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 have been prepared by us, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally contained in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Operations Neonode Inc., which is collectively with its subsidiaries referred to as “Neonode” or the “Company” in this report, develops advanced optical sensing solutions for contactless touch, touch, gesture sensing, and object detection and machine perception solutions using advanced machine learning algorithms to detect and track persons and objects in video streams for cameras and other types of imagers. We market and sell our contactless touch, touch, and gesture sensing, and object detection products and solutions based on our zForce technology platform, and our scene analysis solutions based on our MultiSensing technology platform. We offer our solutions to customers in many different markets and segments including, but not limited to, office equipment, automotive, industrial automation, medical, military and avionics. With the new, sharpened strategy, announced in December 2023, we focus solely on the licensing business. This allows customers to license our unique and advanced technology to create bespoke products and solutions that bring value to end customers. Liquidity We have incurred significant operating losses and negative cash flows from operations since our inception. The Company incurred net losses of approximately $ 1.7 million and $ 3.8 million and $ 1.5 million and $ 2.9 million for the three and six months ended June 30, 2024 and June 30, 2023, respectively and had an accumulated deficit of approximately $ 221.4 million and $ 217.6 million as of June 30, 2024 and December 31, 2023, respectively. In addition, operating activities used cash of approximately $ 3.1 million and $ 2.3 million for the six months ended June 30, 2024 and 2023, respectively. The condensed consolidated financial statements included in this report have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and the repayment of liabilities in the ordinary course of business. 6 Management evaluated the significance of the Company’s operating loss and negative cash flows from operations and determined that the Company’s current operating plan and sources of liquidity would be sufficient to alleviate concerns about the Company’s ability to continue as a going concern. Management has prepared an operating plan and believes that the Company has sufficient cash to meet its obligations as they come due for a year from the date the financial statements were issued. During July 2024, we sold an aggregate of 107,087 of our common stock under the ATM Facility with aggregate net proceeds to us of $ 341,000 , after payment of commissions to Ladenburg and other expenses of $ 11,000 . In the future, we may require additional sources of capital to continue operations and to implement our strategy. If our operations do not become cash flow positive, we may be forced to seek equity investments or debt arrangements. No assurances can be given that we will be successful in obtaining such additional financing on reasonable terms, or at all. If adequate funds are not available to us on acceptable terms, or at all, we may be unable to adequately fund our business plans, which could have a negative effect on our business, results of operations and financial condition. If funds are available through the issuance of equity or debt securities, the issuance of equity securities or securities convertible into equity could dilute the value of shares of our common stock and cause the market price to fall, and the issuance of debt securities could impose restrictive covenants on us that could impair our ability to engage in certain business transactions. 2. Summary of Significant Accounting Policies Principles of Consolidation The condensed consolidated financial statements include the accounts of Neonode Inc. and its intercompany subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The condensed consolidated balance sheets at June 30, 2024 and December 31, 2023 and the condensed consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the three and six months ended June 30, 2024 and 2023 include our accounts and those of our intercompany subsidiaries. 7 Foreign Currency Translation and Transaction Gains and Losses The functional currency of our foreign subsidiaries is the applicable local currency, the Swedish Krona, the Japanese Yen, the South Korean Won and the Taiwan Dollar. The translation from Swedish Krona, Japanese Yen, South Korean Won and Taiwan Dollar to U.S. Dollars is performed for balance sheet accounts using current exchange rates in effect at the condensed consolidated balance sheet date and for income statement accounts using a weighted-average exchange rate during the period. Gains or (losses) resulting from translation are included as a separate component of accumulated other comprehensive income (loss). Foreign currency translation gains (losses) were ($ 32,000 ) and ($ 66,000 ) and $( 141,000 ) and $( 106,000 ) during the three and six months ended June 30, 2024 and 2023, respectively. Gains (losses) resulting from foreign currency transactions are included in general and administrative expenses in the accompanying condensed consolidated statements of operations and were $( 3,000 ) and $ 2,000 during the three and six months ended June 30, 2024, respectively, compared to $ 0 and $( 5,000 ) during the same periods in 2023, respectively. Concentration of Credit and Business Risks Our customers are located in the United States, Europe, Oceania and Asia. As of June 30, 2024, six of our customers represented approximately 82.0 % of our consolidated accounts receivable and unbilled revenues. As of December 31, 2023, four of our customers represented approximately 76.4 % of our consolidated accounts receivable and unbilled revenues. Customers who accounted for 10.0% or more of our net revenues during the three months ended June 30, 2024 are as follows: ● Seiko Epson – 14.3 % ● Commercial Vehicle OEM – 13.9 % ● Alps Alpine – 13.0 % ● Propoint – 11.5 % 8 Customers who accounted for 10.0% or more of our net revenues during the six months ended June 30, 2024 are as follows: ● Hewlett-Packard Company – 15.9 % ● Alps Alpine – 15.3 % ● Seiko Epson – 14.9 % Customers who accounted for 10.0% or more of our net revenues during the three months ended June 30, 2023 are as follows: ● Hewlett-Packard Company – 37.4 % ● Alps Alpine – 15.3 % ● Seiko Epson – 13.7 % ● LG – 12.5 % Customers who accounted for 10.0% or more of our net revenues during the six months ended June 30, 2023 are as follows: ● Hewlett-Packard Company – 34.0 % ● Seiko Epson – 17.0 % ● Alps Alpine – 15.0 % ● LG – 13.1 % 9 Revenues The following tables present the net revenues distribution by geographical area and market for the three and six months ended June 30, 2024 and 2023 (dollars in thousands): Three months ended June 30, 2024 Three months ended June 30, 2023 Amount Percentage Amount Percentage North America Net revenues from Automotive $ - - % $ - - % Net revenues from IT & Industrial 248 100.0 % 566 100.0 % $ 248 100.0 % $ 566 100.0 % Asia Pacific Net revenues from Automotive $ 206 26.1 % $ 332 63.6 % Net revenues from IT & Industrial 584 73.9 % 190 36.4 % $ 790 100.0 % $ 522 100.0 % Europe, Middle East and Africa Net revenues from Automotive $ 221 57.3 % $ 112 100.0 % Net revenues from IT & Industrial 165 42.7 % - - % $ 386 100.0 % $ 112 100.0 % Six months ended June 30, 2024 Six months ended June 30, 2023 Amount Percentage Amount Percentage North America Net revenues from Automotive $ - - % $ - - % Net revenues from IT & Industrial 586 100.0 % 1,037 100.0 % $ 586 100.0 % $ 1,037 100.0 % Asia Pacific Net revenues from Automotive $ 454 35.7 % $ 689 59.6 % Net revenues from IT & Industrial 816 64.3 % 467 40.4 % $ 1,270 100.0 % $ 1,156 100.0 % Europe, Middle East and Africa Net revenues from Automotive $ 310 53.3 % $ 201 77.3 % Net revenues from IT & Industrial 272 46.7 % 59 22.7 % $ 582 100.0 % $ 260 100.0 % 10 Product Warranty The following table summarizes the activity related to the product warranty liability (in thousands): June 30, 2024 December 31, 2023 Balance at beginning of period $ 30 $ 49 Provisions for (adjustments to) warranty issued 31 ( 19 ) Balance at end of period $ 61 $ 30 The Company accrues for warranty costs as part of its cost of sales of TSMs based on estimated costs. The Company’s products are generally covered by a warranty for a period of 12 months from the customer receipt of the product included as a component of accrued expenses on the condensed consolidated balance sheet. Contract Liabilities The following table presents our deferred revenues by source (in thousands): June 30, 2024 December 31, 2023 Deferred revenues license fees $ 50 $ 2 Deferred revenues products 1 8 Deferred revenues non-recurring engineering - - $ 51 $ 10 During the three and six months ended June 30, 2024, the Company recognized revenues of approximately $ 7,000 and $ 10,000 , respectively, related to contract liabilities outstanding at the beginning of the year. During the three and six months ended June 30, 2023, the Company recognized revenues of approximately $ 9,000 and 14,000 , respectively, related to contract liabilities outstanding at the beginning of the year. Income Taxes We recognize deferred tax liabilities and assets for the expected future tax consequences of items that have been included in the condensed consolidated financial statements or tax returns. We estimate income taxes based on rates in effect in each of the jurisdictions in which we operate. Deferred income tax assets and liabilities are determined based upon differences between the financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The realization of deferred tax assets is based on historical tax positions and expectations about future taxable income. Valuation allowances are recorded against net deferred tax assets when, in our opinion, realization is uncertain based on the “more likely than not” criteria of the accounting guidance. Based on the uncertainty of future pre-tax income, we fully reserved our net deferred tax assets as of June 30, 2024 and December 31, 2023. In the event we were to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase income in the period such determination was made. The provision for income taxes represents the net change in deferred tax amounts, plus income taxes paid or payable for the current period. We follow U.S. GAAP related accounting for uncertainty in income taxes, which provisions include a two-step approach to recognizing, de-recognizing and measuring uncertainty in income taxes. As a result, we did not recognize a liability for unrecognized tax benefits. As of June 30, 2024 and December 31, 2023, we had no unrecognized tax benefits. Net Loss per Share Net loss per share amounts have been computed based on the weighted average number of shares of common stock outstanding during the three and six months ended June 30, 2024 and 2023. Net loss per share, assuming dilution amounts from common stock equivalents, is computed based on the weighted-average number of shares of common stock and potential common stock equivalents outstanding during the period. The weighted-average number of shares of common stock and potential common stock equivalents used in computing the net loss per share for the three and six months ended June 30, 2024 and 2023 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note 6). 11 Recent Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 requires, among other updates, enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker. The ASU also clarifies that entities with a single reportable segment are subject to both new and existing reporting requirements under Topic 280. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which updates several disclosures regarding the accounting for income taxes. ASU 2023-09 will become effective for public business entities for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact ASU 2023-09 will have on our consolidated financial statements. 3. Stockholders’ Equity At-the-Market Facility On May 10, 2021, we entered into an At Market Issuance Sales Agreement (the “B. Riley Sales Agreement”) with B. Riley Securities, Inc. (“B. Riley Securities”) with respect to an “at the market” offering program (the “B. Riley ATM Facility”), under which we may, from time to time, in our sole discretion, issue and sell through B. Riley Securities, acting as sales agent, up to $ 25 million of shares of our common stock, in any method permitted that is deemed an “at the market” offering as defined in Rule 415 under the Securities Act of 1933, as amended. On May 29, 2024, we terminated the B. Riley Sales Agreement with B. Riley Securities. On June 4, 2024, we entered into an At The Market Offering Agreement (the “Ladenburg Sales Agreement”) with Ladenburg Thalmann & Co. Inc. (“Ladenburg”) with respect to an “at the market” offering program (the “Ladenburg ATM Facility”), under which we may, from time to time, in our sole discretion, issue and sell through Ladenburg, acting as agent or principal, up to approximately $ 10 million of shares of our common stock. Pursuant to the Ladenburg Sales Agreement, we may sell the shares through Ladenburg by any method permitted that is deemed an “at the market” offering as defined in Rule 415 under the Securities Act of 1933, as amended. Ladenburg will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time, based upon instructions from us (including any price or size limits or other customary parameters or conditions we may impose). We will pay Ladenburg a commission of 3.0 % of the gross sales price per share sold under the Ladenburg Sales Agreement. We are not obligated to sell any shares under the Ladenburg Sales Agreement. The offering of shares pursuant to the Ladenburg Sales Agreement will terminate upon the earlier to occur of (i) the issuance and sale, through Ladenburg, of all of the shares of our common stock subject to the Ladenburg Sales Agreement and (ii) termination of the Ladenburg Sales Agreement in accordance with its terms. 12 4. Commitments and Contingencies Legal The Company is subject to legal proceedings and claims that may arise in the ordinary course of business. The Company is not aware of any pending or threatened litigation matters at this time that would have a material impact on the operations of the Company. Patent Assignment On May 6, 2019, the Company assigned a portfolio of patents to Aequitas Technologies LLC (“Aequitas”), an unrelated third party. The assignment provides the Company the right to share the potential net proceeds to Aequitas generated from possible licensing and monetization program that Aequitas may enter into. Under the terms of the assignment, net proceeds mean gross proceeds less out of pocket expenses and legal fees paid by Aequitas. The Company’s share would also be net of the Company’s own fees and expenses, including a brokerage fee payable by the Company in connection with the original assignment to Aequitas. 5. Net Loss per Share Basic net loss per common share for the three and six months ended June 30, 2024 and 2023 was computed by dividing the net loss attributable to common shareholders of Neonode Inc. for the relevant period by the weighted average number of shares of common stock outstanding. Diluted loss per common share is computed by dividing net loss attributable to common shareholders of Neonode Inc. for the relevant period by the weighted average number of shares of common stock and common stock equivalents outstanding. The Company had no potential common stock equivalents for the three and six months ended June 30, 2024 and 2023, respectively. Three months ended June 30, Six months ended June 30, (in thousands, except per share amounts) 2024 2023 2024 2023 BASIC AND DILUTED Weighted average number of common shares outstanding 15,359 15,359 15,359 15,285 Net loss attributable to Neonode Inc. $ ( 1,695 ) $ ( 1,507 ) $ ( 3,779 ) $ ( 2,932 ) Net loss per share - basic and diluted $ ( 0.11 ) $ ( 0.10 ) $ ( 0.25 ) $ ( 0.19 ) 6. Subsequent Events During July 2024, we sold an aggregate of 107,087 of our common stock under the ATM Facility with aggregate net proceeds to us of $ 341,000 , after payment of commissions to Ladenburg and other expenses of $ 11,000 . No other subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto other than as discussed elsewhere in the accompanying notes. 13