What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-21 compared with 2024-02-28 · 730 added, 1038 removed, 128 unchanged (93% of the section changed)

1 unchanged sentence

Index to the Consolidated Financial Statements Page

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Report of Crowe LLP, Independent Registered Public Accounting Firm (PCAOB ID:

Report of KMJ Corbin & Company LLP, Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2024 and 2023 F-4

4 unchanged sentences

Notes to the Consolidated Financial Statements F-9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

REPORT OF CROWE LLP, INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of Neonode

Opinion on the Financial Statements

We have audited the accompanying

consolidated balance sheet of Neonode Inc.

(the "Company") as of December 31, 2024, the related consolidated statements of operations,

comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to

as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial

position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year then ended, in conformity

with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements

are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements

based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in

accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance

about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to

have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required

to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness

of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing

procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management,

as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for

Critical Audit Matters

Critical audit matters are

matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the

audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially

challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Crowe LLP

We have served as the Company’s auditor

New York, New York

March 21, 2025

REPORT OF KMJ CORBIN & COMPANY LLP, INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Neonode

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated

statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended

December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion,

the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,

2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in

conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying

consolidated balance sheet of Neonode Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023,

the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the year then ended,

and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated

financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the

results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the

United States of America.

Emphasis of a Matter - Discontinued Operations

As discussed in Note 2 to

the consolidated financial statements, the Company concluded that the termination of manufacturing touch sensor modules in 2024 met the

criteria for discontinued operations of its products business in accordance with Accounting Standards Codification (“ASC”)

205-20, Presentation of Financial Statements—Discontinued Operations .

The financial statements for 2023 have been retrospectively

adjusted to reflect the impact of this classification.

Our opinion is not modified with respect to this matter.

Basis for Opinion

These consolidated financial statements are the responsibility of the

Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and

are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules

and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements

are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform,

an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal

control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal

control over financial reporting.

These consolidated financial

statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated

financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board

(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in

accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance

about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not

required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are

required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the

effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material

misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as

evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for

Critical Audit Matter

The critical audit matter communicated below is a matter arising from

the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially

challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on

the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a

separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Licensing Revenues

Critical Audit Matter Description

As described further in Note 2 to the consolidated financial statements,

the Company earns revenue from licensing its internally developed intellectual property (“IP”) by entering into IP licensing

agreements that generally provide licensees the right to incorporate IP components in their products, with terms and conditions that vary

Fees under these agreements may include license fees relating to the Company’s IP, and royalties payable to the Company

following the distribution by the licensees of products incorporating the licensed technology.

At the end of each reporting period, the

Company records unbilled license revenues, using prior royalty revenue data by customer to make estimates of those royalties.

Auditing management’s evaluation of unbilled license revenues

was challenging due to the lack of objectively verifiable evidence used in the estimation process.

As a result, there is a high degree

of auditor judgment involved in performing procedures on the Company’s estimates.

How the Critical Audit Matter Was Addressed

The primary procedures we performed to address this critical audit

matter included assessing the accuracy of royalty estimates made in prior reporting periods as compared to the actual royalties subsequently

determined for all significant licensing customers and inquiring of management as to the reasons for any significant differences between

actual and estimated royalties, determining that the Company has had no significant revenue reversals as a result of these past differences,

and inquiring as to the basis of the current period estimates of royalties, including the Company’s considerations of the overall

economic environment, past royalty experience and the specific circumstances and trends of the license customers’ royalty-based

business based on the Company’s knowledge of and discussions with customers’ representatives.

Our audit included performing

procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing

procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates

made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit

provides a reasonable basis for our opinion.

/s/ KMJ Corbin & Company LLP

We have served as the Company’s auditor since 2009.

Irvine, California

February 28, 2024

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

We served as the Company’s auditor from

2009 to 2024.

Glendora, California

February 28, 2024 (except for Notes 2, 10 and 11, as to which the date

is March 21, 2025)

BALANCE SHEETS

thousands, except share and per share amounts)

Current assets:

1 unchanged sentence

Accounts receivable and unbilled revenues, net

Contract assets

Prepaid expenses and other current assets

Current assets of discontinued operations

Total current assets

Non-current assets:

Property and equipment, net

Operating lease right-of-use assets, net

Non-current assets of discontinued operations

Total non-current assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

6 unchanged sentences

Current portion of operating lease obligations

Current liabilities of discontinued operations

Total current liabilities

Non-current liabilities

Finance lease obligations, net of current portion

Operating lease obligations, net of current portion

Non-current liabilities of discontinued operations

Total non-current liabilities

Total liabilities

Commitments and contingencies

Commitments and contingencies (Note 8)

Stockholders’ equity:

Preferred stock, 1,000,000 shares authorized, with par value of $ 0.001 ;

no shares issued and outstanding at December 31, 2024 and 2023, respectively

Common stock, 25,000,000 shares authorized, with par value of $ 0.001 ;

5 unchanged sentences

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of

these consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Non-recurring engineering

Total revenues

accompanying notes are an integral part of these consolidated financial statements.

STATEMENTS OF OPERATIONS

thousands, except per share amounts )

ended December 31,

Non-recurring

Cost of revenues:

Non-recurring engineering

Loss on purchase commitment

Total cost of revenues

Total gross (loss) margin

Non-recurring

cost of revenues

Operating expenses:

1 unchanged sentence

Sales and marketing

General and administrative

Total operating expenses

and administrative

operating expenses

Operating loss

Other income:

Interest income, net

Total other income

Other income, net

Loss before provision for income taxes

Provision for income taxes

Net loss including noncontrolling interests

net loss attributable to noncontrolling interests

Net loss attributable to Neonode Inc.

Provision for income

Loss from continuing operations

Loss from discontinued

Loss per common share:

Basic and diluted loss per share

Basic and diluted – weighted average number of common shares outstanding

The accompanying notes are an integral part of

these consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

Net loss including noncontrolling interests

Other comprehensive income:

Foreign currency translation adjustments

Basic and diluted loss per share from continuing

Basic and diluted loss

per share from discontinued operations

Basic and diluted net

loss per share

Basic and diluted –

weighted average number of common shares outstanding

accompanying notes are an integral part of these consolidated financial statements.

STATEMENTS OF COMPREHENSIVE LOSS

ended December 31,

Other comprehensive loss:

comprehensive loss attributable to noncontrolling interests

Comprehensive loss attributable to Neonode Inc.

The accompanying notes are an integral part of

these consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In thousands)

currency translation adjustments

Other comprehensive loss

Comprehensive loss

accompanying notes are an integral part of these consolidated financial statements.

STATEMENTS OF STOCKHOLDERS’ EQUITY

Comprehensive

Income (Loss)

Stockholders’

Noncontrolling

Stockholders’

Balances, January

Issuance of shares for cash, net of offering costs

Stock-based compensation

Repurchase and retirement of stock

Acquisition of remaining shares Pronode

Foreign currency translation adjustment

Balances, December 31, 2022

$ ( 207,491 )

Issuance of shares for cash, net of offering costs

Stock-based compensation

Foreign currency translation adjustment

of shares for cash, net of offering costs

currency translation adjustment

Balances, December 31,

$ ( 217,614 )

The accompanying notes are an

integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

of shares for cash, net of offering costs

currency translation adjustment

December 31, 2024

$ ( 224,080 )

accompanying notes are an integral part of these consolidated financial statements.

STATEMENTS OF CASH FLOWS

ended December 31,

Cash flows from operating activities:

Net loss (including noncontrolling interests)

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation expense

Adjustments to reconcile

net loss to net cash used in operating activities:

Stock-based compensation

Bad debt expense

Loss on disposal of assets

Depreciation and amortization

Amortization of operating lease right-of-use assets

Inventory impairment loss

Recoveries of bad debt

Changes in operating assets and liabilities:

Accounts receivable and unbilled revenue, net

Prepaid expenses and other current assets

Accounts payable, accrued payroll and employee benefits, and accrued expenses

Amortization of operating

lease right-of-use assets

Inventory impairment

Changes in operating assets

and liabilities:

Accounts receivable, unbilled revenue and contract assets

Prepaid expenses and

other current assets

Accounts payable, accrued

payroll and employee benefits, and accrued expenses

Contract liabilities

Operating lease obligations

Net cash used in operating activities

lease obligations

Net cash used in operating

Cash flows from investing activities:

Purchase of property and equipment

Net cash used in investing activities

Purchase of property and

from sale of property and equipment

Net cash provided by

(used in) investing activities

Cash flow from financing activities:

Proceeds from issuance of common stock, net of offering costs

Repurchase of common stock

Principal payments on finance lease obligations

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental disclosure of cash flow information:

Cash paid for interest

Cash paid for income taxes

Supplemental disclosure of non-cash investing and financial activities:

Right-of-use asset obtained in exchange for finance lease obligations

Acquisition of Pronode shares

The accompanying notes are an integral part of

these consolidated financial statements.

Notes to the Consolidated Financial Statements

Nature of the Business and Operations

Background and Organization

“our”, or the “Company”) was incorporated in the State of Delaware in 1997 as the parent of Neonode AB, a company

founded in February 2004 and incorporated in Sweden.

We have the following wholly owned subsidiaries:

Neonode Technologies AB (Sweden)

(established in 2008 to develop and license touchscreen technology);

Neonode Japan Inc.

(Japan) (established in 2013);

Neonode Korea Ltd.

(South Korea) (established in 2014).

Neonode Korea Ltd.

is currently dormant.

In 2015, we established Pronode Technologies AB, a subsidiary

of Neonode Technologies AB.

Since October 1, 2022, Pronode Technologies AB is a wholly owned subsidiary of Neonode Technologies AB.

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.

We have incurred significant operating losses and

negative cash flows from operations since our inception.

The Company incurred net losses of approximately $ 10.1 million and $ 4.9 million

for the years ended December 31, 2023 and 2022, respectively, and had an accumulated deficit of approximately $ 217.6 million as of December

In addition, operating activities used cash of approximately $ 6.3 million and $ 6.8 million for the years ended December 31,

2023 and 2022, respectively.

On May 10, 2021, we entered into an At Market Issuance

Sales Agreement (the “Sales Agreement”) with B.

Riley Securities, Inc.

Riley Securities”) with respect to

an “at the market” offering program (the “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.

Pursuant to the Sales Agreement, we may sell the

shares through B.

Riley Securities 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.

Riley Securities 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).

Riley Securities a commission of 3.0 % of the gross sales price per

share sold under the Sales Agreement.

We are not obligated to sell any shares under the

Sales Agreement.

The offering of shares pursuant to the Sales Agreement will terminate upon the earlier to occur of (i) the issuance and

sale, through B.

Riley Securities, of all of the shares subject to the Sales Agreement and (ii) termination of the Sales Agreement in

accordance with its terms.

During the year ended December 31, 2023, we sold

an aggregate of 903,716 shares of our common stock under the ATM Facility with aggregate net proceeds to us of $ 7,866,000 , after payment

of commissions to B.

Riley Securities and other expenses of $ 244,000 .

During the year ended December 31, 2022, we sold an aggregate of 886,065

shares of common stock under the ATM Facility, resulting in net proceeds of approximately $ 4,686,000 after payment of commissions to B.

Riley Securities and other expenses of $ 167,000 .

The consolidated financial statements included herein 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.

Management has evaluated the significance of the Company’s operating loss and has determined that

the Company’s current operating plan and sources of potential capital (including the Company’s at-the-market facility described

above) are sufficient to alleviate concerns about the Company’s ability to continue as a going concern.

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.

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.

We expect revenues will enable us to reduce our

operating losses in coming years.

In addition, we intend to continue to implement various measures to improve our operational efficiencies.

No assurances can be given that management will be successful in meeting its revenue targets and reducing its operating loss.

Summary of Significant Accounting policies

Principles of Consolidation

The consolidated financial statements have been

prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and include

the accounts of Neonode Inc.

and its wholly owned subsidiaries, as well as well as Pronode Technologies AB, a 51 % majority-owned subsidiary

of Neonode Technologies AB, until September 30, 2022.

On October 1, 2022, the remaining 49 % of Pronode Technologies AB was acquired from

2X Communication AB, located in Gothenburg, Sweden.

All inter-company accounts and transactions have been eliminated in consolidation.

Neonode consolidates entities in which it has a

controlling financial interest.

We consolidate subsidiaries in which we hold, directly or indirectly, more than 50 % of the voting rights.

The consolidated balance sheets at December 31,

2023 and 2022 and the consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the years

ended December 31, 2023 and 2022 include our accounts and those of our wholly owned subsidiaries.

Estimates and Judgements

The preparation of financial statements in conformity

GAAP requires making estimates and judgments that affect, at the date of the financial statements, the reported amounts of assets

and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses.

Actual results could

differ from these estimates and judgments.

Significant estimates and judgments include, but

are not limited to:

for revenue recognition, determining the nature and timing of satisfaction of performance obligations, the standalone

selling price of performance obligations, and transaction prices and assessing transfer of control;

measuring variable consideration and

other obligations such as product returns and refunds, and product warranties;

Proceeds from issuance of

common stock, net of offering costs

payments on finance lease obligations

cash provided by financing activities

Effect of exchange rate

changes on cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents

at beginning of year

Cash and cash equivalents

at end of year

Supplemental disclosure

of cash flow information:

paid for interest

paid for income taxes

Supplemental disclosure

of non-cash investing and financial activities:

asset obtained in exchange for operating lease obligations

accompanying notes are an integral part of these consolidated financial statements.

to the Consolidated Financial Statements

Organization and Summary of Significant

Accounting Policies

of Presentation and Preparation

consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States

of America (“U.S.

GAAP”) and include the accounts of Neonode Inc.

and its wholly owned subsidiaries.

All inter-company accounts

and transactions have been eliminated in consolidation.

preparation of financial statements in conformity with U.S.

GAAP requires making estimates and judgments that affect, at the date of

the financial statements, the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported

amounts of revenue and expenses.

Significant estimates and judgments include, but are not limited to:

for revenue recognition, determining

the nature and timing of satisfaction of performance obligations, the standalone selling price of performance obligations, and transaction

prices and assessing transfer of control;

provisions for uncollectible receivables;

determining the

net realizable value of inventory;

recoverability of capitalized project costs and long-lived assets;

for leases, determining whether

a contract contains a lease, allocating consideration between lease and non-lease components, determining incremental borrowing rates,

and identifying reassessment events, such as modifications;

for leases, determining whether a contract contains

a lease, allocating consideration between lease and non-lease components, determining incremental borrowing rates, and identifying reassessment

events, such as modifications;

the valuation allowance related to our deferred tax assets;

and the fair value

of options issued as stock-based compensation.

Cash and Cash Equivalents

The Company considers all highly liquid investments

with original maturities of three months or less to be cash equivalents.

Concentration of Cash Balance Risks

Cash and cash equivalents balances are maintained

at various banks in the United States, Japan, Taiwan and Sweden.

For deposits held with financial institutions in the United States, the

Federal Deposit Insurance Corporation provides basic deposit coverage with limits up to $ 250,000 per owner.

The Swedish government

provides insurance coverage up to 1,050,000 Krona per customer and covers deposits in all types of accounts.

For bank accounts of the

category held by Neonode, the Japanese government provides full insurance coverage.

The Central Deposit Insurance Corporation in Taiwan

provides insurance coverage up to 3,000,000 Taiwan Dollar per customer.

At times, deposits held with financial institutions may exceed

the amount of insurance provided.

Accounts Receivable and Credit Losses

Accounts receivable is stated

at net realizable value.

We estimate and record a provision for expected credit losses related to our financial instruments, including

our trade receivables.

We consider historical collection rates, the current financial status of our customers, macroeconomic factors,

and other industry-specific factors when evaluating for current expected credit losses.

Forward-looking information is also considered

in the evaluation of current expected credit losses.

However, because of the short time to the expected receipt of accounts receivable,

we believe that the carrying value, net of expected losses, approximates fair value and therefore, we rely more on historical and current

analysis of such financial instruments, including our trade receivables.

Further, we consider macroeconomic

factors and the status of the technology industry to estimate if there are current expected credit losses within our trade receivables

based on the trends and our expectation of the future status of such economic and industry-specific factors.

Also, specific allowance

amounts are established based on review of outstanding invoices to record the appropriate provision for customers that have a higher probability

The accounts receivable balance

on our consolidated balance sheet as of December 31, 2023 was $ 0.9 million, net of approximately $ 30,000 of allowances.

The following

table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable

to present the net amount expected to be collected at December 31, 2023:

Balance at January 1, 2023

Change in expected credit losses

Write-offs, net of recoveries

Balance at December 31, 2023

The Company’s inventory

consists primarily of components that will be used in the manufacturing of our touch sensor modules (“TSMs”).

inventory for reporting purposes as raw materials, work-in-process, and finished goods.

Inventory is stated at the

lower of cost or net realizable value, using the first-in, first-out (“FIFO”) valuation method.

Net realizable value is the

estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.

With the new, sharpened strategy, announced in

December 2023, the Company focuses solely on the licensing business.

Consequently, we will phase out the TSM product business through

licensing of the TSM technology to strategic partners or outsourcing.

Management has decided to impair TSM related inventories which are

expected to remain after production ends in 2024.

The TSM inventory impairment charge was $ 3.6 million for the year ended December 31,

2023 and has been included as a component of cost of revenues for products.

Due to the low sell-through of our AirBar products, management has

decided to fully reserve work-in-process for AirBar components, as well as AirBar related raw materials and finished goods.

inventory reserve was $ 0.3 million as of December 31, 2022.

In 2023, management decided to

scrap the fully reserved AirBar inventory.

Raw materials, work-in-process, and finished goods

are as follows (in thousands):

Raw materials

Work-in-process

Finished goods

Ending inventory

Property and Equipment

Property and equipment are stated at cost, net of

accumulated depreciation and amortization.

Depreciation and amortization are computed using the straight-line method based upon estimated

useful lives of the assets as follows:

Computer equipment

Furniture and fixtures

Depreciation of equipment purchased under a finance

lease is depreciated over the term of the lease if that lease term is shorter than the estimated useful life.

Upon retirement or sale of property and equipment,

cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the condensed

consolidated statement of operations.

Maintenance and repairs are charged to expense as incurred.

Right-of-Use Assets

A right-of-use asset represents a lessee’s

right to use a leased asset for the term of the lease.

Our right-of-use assets generally consist of operating leases for buildings.

Right-of-use assets are measured initially at the

present value of the lease payments, plus any lease payments made before a lease began and any initial direct costs, such as commissions

paid to obtain a lease.

Right-of-use assets are subsequently measured at

the present value of the remaining lease payments, adjusted for incentives, prepaid or accrued rent, and any initial direct costs not

yet expensed.

Long-lived Assets

We assess any impairment by estimating the future

cash flows from the associated asset in accordance with relevant accounting guidance.

If the estimated undiscounted future cash flow related

to these assets decreases or the useful life is shorter than originally estimated, we may incur charges for impairment of these assets.

of December 31, 2023, we believe there was no impairment of our long-lived assets.

There can be no assurance, however, that market conditions

will not change or sufficient demand for our products and services will continue, which could result in impairment of long-lived assets

in the future.

and the fair value of options issued for stock-based

compensation.

Actual results could differ from these estimates and judgments.

Issued Accounting Pronouncement Adopted

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.

We adopted ASU 2023-07 for the annual period ended December 31, 2024 using a retrospective method

to all periods presented.

See Note 12 Segment Information in the accompanying notes to the consolidated financial statements for further

Recently Issued Accounting Pronouncements

Pending Adoption

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.

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting

Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses , requiring

public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim

and annual basis.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after

December 15, 2027, with early adoption permitted.

We are currently evaluating the impact of adopting ASU 2024-03.

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 balance sheet date and for income statement accounts using a weighted-average exchange rate during the

Gains or (losses) resulting from translation are included as a separate component of accumulated other comprehensive income (loss).

Foreign currency translation gains (losses) were $( 56,000 ) and $ 68,000 during the years ended December 31, 2023 and 2022, respectively.

Gains or (losses) resulting from foreign currency transactions are included in general and administrative expenses in the accompanying

consolidated statements of operations and were $( 5,000 ) and $ 35,000 during the years ended December 31, 2023 and 2022, respectively.

Concentration of Credit and Business Risks

Our customers are located in the United States,

Europe, Oceania and Asia.

As of December 31, 2023, four of our customers represented

approximately 76.4 % of our consolidated accounts receivable and unbilled revenues.

As of December 31, 2022, five of our customers represented

approximately 82.5 % of our consolidated accounts receivable and unbilled revenues.

Customers who accounted for 10% or more of our revenues

during the year ended December 31, 2023 are as follows.

● Hewlett-Packard Company – 22.1 %

The functional currency of

our foreign subsidiaries is the applicable local currency, the Swedish Krona, the Japanese Yen and the South Korean Won.

The translation

from Swedish Krona, Japanese Yen or South Korean Won to U.S.

Dollars is performed for balance sheet accounts using current exchange rates

in effect at the balance sheet date and for income statement accounts using a weighted-average exchange rate during the period.

or (losses) resulting from translation are included as a separate component of accumulated other comprehensive income (loss).

currency translation gains (losses) were $( 54,000 ) and $( 56,000 ) during the years ended December 31, 2024 and 2023, respectively.

or (losses) resulting from foreign currency transactions are included in general and administrative expenses in the accompanying consolidated

statements of operations and were $( 1,000 ) and $( 5,000 ) during the years ended December 31, 2024 and 2023, respectively.

have incurred significant operating losses and negative cash flows from operations since our inception.

The Company incurred net losses

for combined continuing and discontinued operations of approximately $ 6.5 million and $ 10.1 million for the years ended December 31,

2024 and 2023, respectively, and had an accumulated deficit of approximately $ 224.1 million and $ 217.6 million as of December 31, 2024

and 2023, respectively.

In addition, operating activities used cash of approximately $ 5.6 million and $ 6.3 million for the years ended

December 31, 2024 and 2023, respectively.

The consolidated financial statements 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.

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 consolidated financial statements were issued.

During the year ended December 31, 2024, we sold an aggregate of 1,423,441

shares of our common stock under the ATM Facility with aggregate net proceeds to us of $ 5.8 million, after payment of commissions to

Ladenburg and other expenses of $ 0.2 million.

Receivable and Credit Losses

receivable is stated at net realizable value.

We estimate and record a provision for expected credit losses related to our financial

instruments, including our trade receivables.

We consider historical collection rates, the current financial status of our customers,

macroeconomic factors, and other industry-specific factors when evaluating for current expected credit losses.

Forward-looking information

is also considered in the evaluation of current expected credit losses.

we consider macroeconomic factors and the status of the technology industry to estimate if there are current expected credit losses within

our trade receivables based on the trends and our expectation of the future status of such economic and industry-specific factors.

specific allowance amounts are established based on review of outstanding invoices to record the appropriate provision for customers

that have a higher probability of default.

accounts receivable balance on our consolidated balance sheet as of December 31, 2024 was $ 0.8 million, and did not include any

The accounts receivable balance on our consolidated balance sheet as of December 31, 2023 was $ 0.7 million, and

did not include any allowances.

Concentration

of Credit and Business Risks

customers are primarily located in North America, Europe and Asia.

of December 31, 2024, four of our customers represented approximately 80.9 % of our consolidated accounts receivable and unbilled revenues.

of December 31, 2023, three of our customers represented approximately 77.8 % of our consolidated accounts receivable and unbilled revenues.

who accounted for 10% or more of our revenues during the year ended December 31, 2024 are as follows.

● Seiko Epson – 27.3 %

● Alpine Electronics – 20.7 %

Customers who accounted for 10% or more of our revenues

during the year ended December 31, 2022 are as follows.

● Hewlett-Packard Company – 20.4 %

● Commercial Vehicle OEM – 11.8 %

who accounted for 10% or more of our revenues during the year ended December 31, 2023 are as follows.

● Hewlett-Packard Company – 33.3 %

● Seiko Epson – 20.2 %

● LG – 12.2 %

● Alpine Electronics – 18.2 %

The Company conducts business in the United States,

Europe, Oceania and Asia.

As of December 31, 2023, the Company maintained approximately $ 16,030,000 , $ 1,100,000 , and $ 33,000 of its net

assets in the United States, Europe, and Asia, respectively.

As of December 31, 2022, the Company maintained approximately $ 15,535,000 ,

$ 3,857,000 , and $ 26,000 of its net assets in the United States, Europe, and Asia, respectively.

Revenue Recognition

We recognize revenue when control of products is

transferred to our customers, and when services are completed and accepted by our customers;

the amount of revenue we recognize reflects

the consideration we expect to receive for those products or services.

Our contracts with customers may include combinations of products

and services (e.g., a contract that includes products and related engineering services).

We structure our contracts such that distinct

performance obligations, such as product sales or license fees, and related engineering services, are clearly defined in each contract.

License fees and sales of our TSMs are on a per-unit

Therefore, we generally satisfy performance obligations as units are shipped to our customers.

Non-recurring engineering service

performance obligations are satisfied as work is performed and accepted by our customers.

We recognize revenue net of allowances for returns

and any taxes collected from customers, which are subsequently remitted to governmental authorities.

We treat all product shipping and

handling charges (regardless of when they occur) as activities to fulfill the promise to transfer goods, therefore we treat all shipping

and handling charges as expenses.

We earn revenue from licensing our internally developed

intellectual property (“IP”).

We enter into IP licensing agreements that generally provide licensees the right to incorporate

our IP components in their products, with terms and conditions that vary by licensee.

Fees under these agreements may include license

fees relating to our IP, and royalties payable to us following the distribution by our licensees of products incorporating the licensed

The license for our IP has standalone value and can be used by the licensee without maintenance and support.

For technology license arrangements that do not

require significant modification or customization of the underlying technology, we recognize technology license revenue when the license

is made available to the customer and the customer has a right to use that license.

At the end of each reporting period, we record unbilled

license fees, using prior royalty revenue data by customer to make estimates of those royalties.

Explicit return rights are not offered to customers.

There have been no returns through December 31, 2023.

Product Sales

We earn revenue from sales of TSM hardware products

to our OEM, ODM and Tier 1 supplier customers, who embed our hardware into their products, and from sales of branded consumer products

that incorporate our TSMs that are sold through distributors or directly to end users.

These distributors are generally given business

terms that allow them to return unsold inventory, receive credits for changes in selling prices, and participate in various cooperative

marketing programs.

Our sales agreements generally provide customers with limited rights of return and warranty provisions.

Because we generally use distributors to provide

TSMs to our customers, we must analyze the terms of our distributor agreements to determine when control passes from us to our distributors.

For sales of TSMs sold through distributors, we recognize revenues when our distributors obtain control over our products.

Control passes

to our distributors when we have a present right to payment for products sold to the distributors, the distributors have legal title to

and physical possession of products purchased from us, and the distributors have significant risks and rewards of ownership of products

Distributors participate in various cooperative

marketing and other incentive programs, and we maintain estimated accruals and allowances for these programs.

If actual credits received

by distributors under these programs were to deviate significantly from our estimates, which are based on historical experience, our revenue

could be adversely affected.

GAAP, companies may make reasonable aggregations

and approximations of returns data to accurately estimate returns.

Our TSM returns and warranty experience to date has enabled us to make

reasonable returns estimates, which are supported by the fact that our product sales involve homogenous transactions.

The reserve for

future sales returns is recorded as a reduction of our accounts receivable and revenue and was $ 8,000 and $ 9,000 as of December 31, 2023

and 2022, respectively.

The warranty reserve is recorded as an accrued expense and cost of sales and was $ 30,000 and $ 49,000 as of December

31, 2023 and 2022, respectively.

If the actual future returns were to deviate from the historical data on which the reserve had been established,

our revenue could be adversely affected.

Non-Recurring Engineering

For technology license or TSM contracts that require

modification or customization of the underlying technology to adapt the technology to customer use, we determine whether the technology

license or TSM, and required engineering consulting services represent separate performance obligations.

We perform our analysis on a

contract-by-contract basis.

● LG Electronics – 13.1 %

and Cash Equivalents

Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

and Equipment

and equipment are stated at cost less accumulated depreciation and include estimated useful lives.

Depreciation on property, plant and

equipment is recognized on a straight-line basis.

and Development

and development (“R&D”) costs are expensed as incurred.

R&D costs consist primarily of personnel related costs in

addition to external consultancy costs such as testing, certifying and measurements.

Compensation Expense

measure the cost of employee services received in exchange for an award of equity instruments, including share options, based on the

estimated fair value of the award on the grant date, and recognize the value as compensation expense over the period the employee is

required to provide services in exchange for the award, usually the vesting period.

account for equity instruments issued to non-employees at their estimated fair value.

determining stock-based compensation expense involving options and warrants, we determine the estimated fair value of options and warrants

using the Black-Scholes option pricing model.

recognize deferred tax liabilities and assets for the expected future tax consequences of items that have been included in the 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.

on the uncertainty of future pre-tax income, we fully reserved our net deferred tax assets as of December 31, 2024 and 2023.

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.

GAAP related to accounting for uncertainty in income taxes, which prescribes a model for the recognition, measurement

and presentation of uncertainty in income taxes.

As a result, we did not recognize a liability for unrecognized tax benefits.

December 31, 2024 and 2023, we had no unrecognized tax benefits.

Value of Financial Instruments

We disclose the estimated

fair values for all financial instruments for which it is practicable to estimate fair value.

The carrying value of financial instruments

including cash and cash equivalents, accounts receivable and accounts payable are deemed to approximate fair value due to their short

Accounting guidance defines

fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements.

three levels of the fair value hierarchy are described as follows:

Applies to assets or liabilities for which there are observable quoted prices in active markets for identical assets and liabilities.

Applies to assets

or liabilities for which there are inputs other than quoted prices included in Level 1 that are directly or indirectly observable.

Applies to assets or liabilities for which inputs are unobservable, and those inputs that are significant to the measurement of the

fair value of the assets or liabilities.

were no assets or liabilities recorded at fair value on a recurring basis in 2024 and 2023.

earn revenues from licensing of our intellectual property, licensing of our software and by performing engineering services.

of revenue recognition and the amount of revenue actually recognized in each case depends upon a variety of factors, including the specific

terms of each arrangement and the nature of our performance obligations.

earn revenue from licensing our internally developed intellectual property (“IP”) and licensing of our internally developed

We enter into IP licensing agreements that generally provide licensees the right to incorporate our IP components in their

products, with terms and conditions that vary by licensee.

Fees under these agreements may include technology access fees payable upfront

and royalties payable to us following the distribution by our licensees of products incorporating the licensed technology.

for our IP has standalone value and can be used by the licensee without maintenance and support.

For technology license arrangements that do not require significant

modification or customization of the underlying technology, we recognize technology license revenue when the license is made available

to the customer and the customer has a right to use that license.

We recognize royalties following the distribution by our licensees of

products incorporating the licensed technology.

At the end of each reporting period, we record unbilled license fees, using prior royalty

revenue data by customer to make estimates of those royalties.

also earn license fee revenue by providing our customers with development licenses for our software tools related to the

MultiSensing platform.

We recognize revenue ratably over the contract term beginning on the commencement date of each contract,

which is the date we make the software available to our customers.

Our development license contracts with customers typically

include a fixed amount of consideration and are generally non-cancellable and without any refund-type provisions.

invoice our customers annually in advance for our development licenses upon execution of the initial contract or subsequent

Non-Recurring

For technology license that

require modification or customization of the underlying technology to adapt the technology to customer use, we determine whether the

technology license, and required engineering consulting services represent separate performance obligations.

We perform our analysis

on a contract-by-contract basis.

If there are separate performance obligations, we determine the standalone selling price (“SSP”)

3 unchanged sentences

Deliverables and payment terms are specified

We generally charge an hourly rate for engineering services, and we recognize revenue as engineering services specified in

contracts are completed and accepted by our customers.

Any upfront payments we receive for future non-recurring engineering services are

recorded as unearned revenue until that revenue is earned.

We believe that recognizing non-recurring engineering

services revenues as progress towards completion of engineering services and customer acceptance of those services occurs best reflects

the economics of those transactions, because engineering services as tracked in our systems correspond directly with the value to our

customers of our performance completed to date.

Hours performed for each engineering project are tracked and reflect progress made on

each project and are charged at a consistent hourly rate.

Revenues from non-recurring engineering contracts

that are short-term in nature are recorded when those services are complete and accepted by customers.

Revenues from non-recurring engineering contracts

with substantive defined deliverables for which payment terms in the SOW are commensurate with the efforts required to produce such deliverables

are recognized as they are completed and accepted by customers.

Estimated losses on all SOW projects are recognized

in full as soon as they become evident.

During the years ended December 31, 2023 and 2022, we recorded no losses.

The following tables present the net revenues distribution

by geographical area and market for the years ended December 31, 2023 and 2022 (dollars in thousands):

We charge an hourly rate or a fixed fee for engineering services.

We recognize revenues for hourly rate services as engineering

services specified in contracts are completed and accepted by our customers.

Revenues for fixed price services are generally recognized

over time applying input methods to estimate progress to completion.

We believe that recognizing non-recurring engineering services revenues

as progress towards completion of engineering services and customer acceptance of those services occurs best reflects the economics of

those transactions, because engineering services as tracked in our systems correspond directly with the value to our customers of our

performance completed to date.

Hours performed for each engineering project are tracked and reflect progress made on each project and

are charged at a consistent hourly rate.

Any upfront payments we receive for future non-recurring engineering services are recorded as

unearned revenue until that revenue is earned.

from non-recurring engineering contracts that are short-term in nature are recorded when those services are complete and accepted by

following tables present the net revenues distribution by geographical area and market:

ended December 31,

(in thousands)

North America

Net revenues from consumer electronics

Net revenues from distributors and other

Net revenues from Automotive

Net revenues from consumer electronics

Net revenues from distributors and other

Europe, Middle East and Africa

from IT & Industrial

Net revenues from Automotive

Net revenues from medical

Net revenues from distributors and other

Significant Judgments

Our contracts with customers may include promises

to transfer multiple products and services to a customer, particularly when one of our customers contracts with us for a product and related

engineering services fees for customizing that product for our customer.

Determining whether products and services are considered distinct

performance obligations that should be accounted for separately may require significant judgment.

Judgment may also be required to determine

the SSP for each distinct performance obligation identified, although we generally structure our contracts such that performance obligations

and pricing for each performance obligation are specifically addressed.

We currently have no outstanding contracts with multiple performance

however, we recently negotiated a contract that may include multiple performance obligations in the future.

Judgment is also required to determine when control

of products passes from us to our distributors, as well as the amounts of product that may be returned to us.

Our products are sold with

a right of return, and we may provide other credits or incentives to our customers, which could result in variability when determining

the amount of revenue to recognize.

At the end of each reporting period, we use product returns history and additional information that

becomes available to estimate returns and credits.

We do not recognize revenue if it is probable that a significant reversal of any incremental

revenue would occur.

Finally, judgment is required to determine the amount

of unbilled license fees at the end of each reporting period.

Contract Balances

Timing of revenue recognition may differ from the

timing of invoicing to customers.

We record a receivable when we have an unconditional right to receive future payments from customers,

and we record unearned deferred revenue when we receive prepayments or upfront payments for goods or services from our customers.

The following table presents our accounts receivable and unbilled

revenues, and deferred revenues as of December 31, 2023 and 2022 (in thousands):

Net revenues from IT

Europe, Middle East and

Net revenues from Automotive

Net revenues from IT

Timing of revenue recognition may differ from the timing of invoicing

and receipt of consideration.

We record a receivable or unbilled revenue when we have an unconditional right to receive consideration

from customers.

Contract assets represent revenue recognized for performance to date when the right to consideration is conditional on

something other than the passage of time.

We record contract liabilities when we receive prepayments or upfront payments ahead of performance.

The following table presents

our accounts receivable, net, contract assets, and contract liabilities:

(in thousands)

Accounts receivable and unbilled revenues

Contract assets

Contract liabilities (deferred revenues)

The timing of revenue recognition, billings and

cash collections results in billed accounts receivable, unbilled revenues (contract assets), and customer advances and deposits or deferred

revenue (contract liabilities) on the consolidated balance sheets.

Generally, billing occurs subsequent to revenue recognition, resulting

in contract assets;

contract assets are generally classified as current.

The Company sometimes receives advances or deposits from its

customers before revenue is recognized, which are reported as contract liabilities and are generally classified as current.

and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.

We do not anticipate impairment of our contract

assets related to license fee revenues, given the creditworthiness of our customers whose invoices comprise the balance in that asset

We will continue to monitor the timeliness of receipts from those customers to assess whether the contract assets have been impaired.

The allowance for credit losses reflects our best

estimate of probable losses inherent in the accounts receivable balance.

We determine the allowance based on known troubled accounts,

historical experience, and other currently available evidence.

Payment terms and conditions vary by the type of

however, payments generally occur 30-60 days after invoicing for license fees and sensor modules to our resellers and distributors.

Where revenue recognition timing differs from invoice timing, we have determined that our contracts do not include a significant financing

Our intent is to provide our customers with consistent invoicing terms for the convenience of our customers, not to receive

financing from our customers.

Costs to Obtain Contracts

We record the incremental costs of obtaining a contract

with a customer as a contract asset if we expect the benefit of those costs to cover a period greater than one year.

We currently have

no incremental costs that must be capitalized.

We expense as incurred costs of obtaining a contract

when the amortization period of those costs would have been less than or equal to one year.

Product Warranty

The following table summarizes the activity related

to the product warranty liability (in thousands):

Balance at beginning of period

Provisions for (adjustments to) warranty issued

Balance at end of period

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 consolidated balance sheet.

Contract Liabilities

Contract liabilities (deferred revenues) consist

primarily of prepayments for license fees, and other products or services that we have been paid in advance.

We earn the revenue when

we transfer control of the product or service.

Deferred revenues may also include upfront payments for consulting services to be performed

in the future, such as non-recurring engineering services.

We defer license fees until we have met all accounting

requirements for revenue recognition, which is when a license is made available to a customer and that customer has a right to use the

Non-recurring engineering fee revenues are deferred until engineering services have been completed and accepted by our customers.

The following table presents our deferred revenues

by source (in thousands):

Payment terms and conditions

vary by the type of contract;

however, payments generally occur 30-60 days after invoicing for license fees.

Where revenue recognition

timing differs from invoice timing, we have determined that our contracts do not include a significant financing component.

the practical expedient in Topic 606, the Company does not assess whether a significant financing component exists if the period between

when the Company performs its obligations under the contract and when the customer pays is one year or less.

Our intent is to provide

our customers with consistent invoicing terms for the convenience of our customers, not to provide financing to our customers.

liabilities (deferred revenues) consist primarily of prepayments for license fees, and other services that we have been paid in advance.

We earn the revenue when we transfer control of the service.

Deferred revenues may also include upfront payments for consulting services

to be performed in the future, such as non-recurring engineering services.

following table presents our deferred revenues by source:

(in thousands)

Deferred revenues license fees

Deferred revenues products

Deferred revenues non-recurring engineering

Deferred revenue not yet recognized was $ 10,000

as of December 31, 2023.

We expect to recognize 100 % of that revenue over the next twelve months.

The Company recognized revenues of approximately

$ 26,000 and $ 24,000 , for 2023 and 2022, respectively, related to contract liabilities outstanding at the beginning of the year.

Advertising costs are expensed as incurred.

costs amounted to approximately $ 217,000 and $ 158,000 for the years ended December 31, 2023 and 2022, respectively.

Research and Development

Research and development (“R&D”)

costs are expensed as incurred.

R&D costs consist primarily of personnel related costs in addition to external consultancy costs such

as testing, certifying and measurements.

Stock-Based Compensation Expense

We measure the cost of employee services received

in exchange for an award of equity instruments, including share options, based on the estimated fair value of the award on the grant date,

and recognize the value as compensation expense over the period the employee is required to provide services in exchange for the award,

usually the vesting period.

We account for equity instruments issued to non-employees

at their estimated fair value.

When determining stock-based compensation expense

involving options and warrants, we determine the estimated fair value of options and warrants using the Black-Scholes option pricing model.

Noncontrolling Interests

We recognize any noncontrolling interest, also known

as a minority interest, as a separate line item in stockholders’ equity in the consolidated financial statements.

A noncontrolling

interest represents the portion of equity ownership in a less-than-wholly owned subsidiary not attributable to us.

Generally, any interest

that holds less than 50 % of the outstanding voting shares is deemed to be a noncontrolling interest;

however, there are other factors,

such as decision-making rights, that are considered as well.

We include the amount of net income (loss) attributable to noncontrolling

interests in consolidated net income (loss) on the face of the consolidated statements of operations.

The Company provides either in the consolidated

statement of stockholders’ equity, if presented, or in the notes to consolidated financial statements, a reconciliation at the beginning

and the end of the period of the carrying amount of total equity (net assets), equity (net assets) attributable to the Company, and equity

(net assets) attributable to the noncontrolling interest that separately discloses:

Net income or loss;

Transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners;

Each component of other comprehensive income or loss.

We recognize deferred tax liabilities and assets

for the expected future tax consequences of items that have been included in the consolidated financial statements or tax returns.

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 December 31, 2023 and 2022.

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

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 December 31, 2023 and 2022, 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 years ended December 31, 2023 and 2022.

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 years ended December 31, 2023 and 2022 exclude the potential common

stock equivalents, as the effect would be anti-dilutive (see Note 14).

Other Comprehensive Income (Loss)

Our other comprehensive income (loss) includes foreign

currency translation gains and losses.

The cumulative amount of translation gains and losses are reflected as a separate component of

stockholders’ equity as accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets.

Cash Flow Information

Cash flows in foreign currencies have been converted

Dollars at an approximate weighted-average exchange rate for the respective reporting periods.

The weighted-average exchange rates

for the consolidated statements of operations were as follows:

Swedish Krona

South Korean Won

Taiwan Dollar

Exchange rates for the consolidated balance sheets

were as follows:

Swedish Krona

South Korean Won

Taiwan Dollar

Fair Value of Financial Instruments

We disclose the estimated fair values for all financial instruments

for which it is practicable to estimate fair value.

Financial instruments including cash and cash equivalents, accounts receivable, accounts

payable and accrued expenses, are deemed to approximate fair value due to their short maturities.

Recent Accounting Pronouncements

In September 2016, the FASB issued ASU No.

2016-13, Financial

Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments , (“ASU 2016-13”), supplemented

by subsequent accounting standards updates.

The new standard requires entities to measure all expected credit losses for financial assets

held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

ASU 2016-13, as

amended, is effective for fiscal years beginning after December 15, 2022.

We adopted ASU 2016-13 on January 1, 2023.

Based on the composition of our accounts receivable, and other financial

assets, including current market conditions and historical credit loss activity, the adoption of this standard did not have a material

impact on our consolidated financial statements or disclosures.

Specifically, our estimate of expected credit losses as of December

31, 2023, using our expected credit loss evaluation process described above, resulted in no adjustments to the provision for credit losses

and no cumulative-effect adjustment to accumulated deficit on the adoption date of the standard.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting

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.

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

Improvements to Income Tax Disclosures , which updates several disclosures regarding the accounting for income taxes.

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.

revenue were zero as of December 31, 2024.

The Company recognized revenues of approximately $ 2,000 and $ 25,000 , for 2024 and 2023, respectively,

related to contract liabilities outstanding at the beginning of the year.

Costs to Obtain Contracts

We record the incremental

costs of obtaining a contract with a customer as a contract asset if we expect the benefit of those costs to cover a period greater than

We currently have no incremental costs that must be capitalized.

We expense as incurred costs

of obtaining a contract when the amortization period of those costs would have been less than or equal to one year.

Discontinued Operations

the fourth quarter of 2023 the Company decided to phase out the product business and as a consequence terminate production at the Pronode

Technologies AB facilities in Kungsbacka, Sweden.

Subsequently, we commenced the phase out of our TSM product business during the first

quarter of 2024 through licensing of the TSM technology to strategic partners or outsourcing.

In May 2024, we stopped

producing TSMs and started to shut down the factory.

The facility lease terminated as of September 30, 2024 and was not renewed.

Company concluded that the termination of TSM manufacturing met the criteria for discontinued operations.

this business has been reclassified to discontinued operations in these consolidated financial statements for all periods presented.

and Liabilities of Discontinued Operations

and liabilities of discontinued operations are presented separately in the condensed consolidated balance sheets for all periods presented.

On December 31, 2024 and December 31, 2023, these balances consisted of assets and liabilities of the Company’s Products business.

following table presents a reconciliation of the carrying amounts of the major classes of these assets and liabilities to the assets and liabilities of discontinued operations as presented on the Company’s consolidated balance sheets:

(in thousands)

ASSETS OF DISCONTINUED OPERATIONS

Current assets of discontinued operations:

receivable and unbilled revenues, net

expenses and other current assets

current assets of discontinued operations

assets of discontinued operations:

and equipment, net

lease right-of-use assets, net

non-current assets of discontinued operations

assets of discontinued operations

OF DISCONTINUED OPERATIONS

liabilities of discontinued operations:

payroll and employee benefits

portion of finance lease obligations

portion of operating lease obligations

current liabilities of discontinued operations

liabilities of discontinued operations:

lease obligations, net of current portion

non-current liabilities of discontinued operations

liabilities of discontinued operations

from Discontinued Operations

operations for the years ended December 31, 2024 and 2023, respectively, consists of results from the Company’s products business.

The following table provides

details about the major classes of line items constituting “Loss from discontinued operations” as presented on the Company’s

condensed consolidated statements of operations:

ended December 31,

(in thousands)

Cost of revenues:

on purchase commitment

cost of revenues

(loss) margin

and marketing

and administrative

operating expenses

income (expense), net

from discontinued operations

Flows Information

following table presents cash flow information for discontinued operations:

ended December 31,

(in thousands)

and amortization

of operating lease ROU assets

impairment loss

of property and equipment

from sale of property and equipment

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist

of the following (in thousands):

expenses and other current assets consist of the following:

(in thousands)

Prepaid insurance

VAT receivable

Total prepaid expenses and other current assets

Total prepaid expenses

and other current assets

Property and Equipment

Property and equipment, net consist of the following

and equipment, net consist of the following:

(in thousands)

Computers, software, furniture and fixtures

Less accumulated depreciation and amortization

Property and equipment, net

Depreciation and amortization expense was $ 0.1 million

for each of the years ended December 31, 2023 and 2022.

Computers, software, furniture

Less accumulated depreciation

and amortization

Property and equipment,

and amortization expense was $ 39,000 and $ 47,000 for the years ended December 31, 2024 and 2023, respectively.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

Accrued returns and warranty

expenses consist of the following:

(in thousands)

Accrued audit fees

Accrued other compensation

Accrued bonus costs

Accrued costs related to customer claim

Accrued consulting fees and other

Total accrued expenses

Fair Value Measurements

Accounting guidance defines fair value, establishes

a framework for measuring fair value, and expands disclosure requirements about fair value measurements.

The accounting guidance does

not mandate any new fair value measurements and is applicable to assets and liabilities that are required to be recorded at fair value

under other accounting pronouncements.

The three levels of the fair value hierarchy are

described as follows:

Applies to assets or liabilities for which

there are observable quoted prices in active markets for identical assets and liabilities.

Applies to assets or liabilities for which

there are inputs other than quoted prices included in Level 1.

Applies to assets or liabilities for which

inputs are unobservable, and those inputs that are significant to the measurement of the fair value of the assets or liabilities.

There were no assets or liabilities recorded at

fair value on a recurring basis in 2023 and 2022.

Stockholders’ Equity

As of December 31, 2023 and 2022, our Restated Certificate

of Incorporation, as amended, authorized us to issue up to 25,000,000 shares of common stock, par value $ 0.001 per share.

On May 20, 2022, we issued 4,000 shares of our common

stock to a director pursuant to the Neonode Inc.

2020 Stock Incentive Plan (the “2020 Plan”) (see Note 8).

On September 15, 2022, we repurchased 10,252 shares

of common stock from an employee who resigned during the two-year lock up period associated with such shares for $ 12,000 , pursuant to

the terms of the 2020 Long-Term Incentive Program (“2020 LTIP”).

During the year ended December 31, 2022, we sold

an aggregate of 886,065 shares of common stock under the ATM Facility, resulting in net proceeds of approximately $ 4,686,000 after payment

of commissions to B.

Riley Securities and other expenses of $ 167,000 .

During the year ended December 31, 2023, we sold

an aggregate of 903,716 shares of our common stock under the ATM Facility with aggregate net proceeds of $ 7,866,000 , after payment of

commissions to B.

Riley Securities and other expenses of $ 244,000 .

Preferred Stock

As of December 31, 2023 and 2022, our Restated Certificate

of Incorporation, as amended, authorized us to issue up to 1,000,000 shares of preferred stock, par value $ 0.001 per share.

There were no transactions in our preferred stock

during the years ended December 31, 2023 and 2022.

No shares of preferred stock were issued and outstanding as of December 31, 2023.

As of December 31, 2023 and 2022, the Company had no outstanding warrants

to purchase common stock.

During the year ended December 31, 2022, 431,368 warrants expired, and no warrants were exercised.

As of December 31, 2024 and

2023, our Restated Certificate of Incorporation, as amended, authorized us to issue up to 1,000,000 shares of preferred stock, par value

$ 0.001 per share.

There were no transactions

in our preferred stock during the years ended December 31, 2024 and 2023.

No shares of preferred stock were issued and outstanding as

of December 31, 2024 and 2023.

of December 31, 2024 and 2023, our Restated Certificate of Incorporation, as amended, authorized us to issue up to 25,000,000 shares

of common stock, par value $ 0.001 per share.

the year ended December 31, 2023, we sold an aggregate of 903,716 shares of our common stock under the ATM Facility with aggregate net

proceeds of $ 7,866,000 , after payment of commissions to B.

Riley Securities and other expenses of $ 244,000 .

the year ended December 31, 2024, we sold an aggregate of 1,423,441 shares of our common stock under the Ladenburg ATM Facility with

aggregate net proceeds to us of $ 5.8 million, after payment of commissions to Ladenburg and other expenses of $ 0.2 million.

Stock-Based Compensation

We have adopted equity incentive plans for which

stock options and restricted stock awards are available for grants to employees, consultants and directors.

Except for certain options

granted to certain Swedish employees, all employee, consultant and director stock options granted under our stock option plans have an

exercise price equal to the market value of the underlying common stock on the grant date.

There are no vesting provisions tied to performance

conditions for any options.

Vesting for all outstanding option grants is based solely on continued service as an employee, consultant

All of our outstanding stock options and restricted stock awards are classified as equity instruments.

Stock Options and Long-Term Incentive Plan

During the year ended December 31, 2020, our stockholders

approved the 2020 Plan which replaced our 2015 Stock Incentive Plan (the “2015 Plan”), which in turn replaced our Neonode

have adopted equity incentive plans for which stock options and restricted stock awards are available for grants to employees, consultants

and directors.

Except for certain options granted to certain Swedish employees, all employee, consultant and director stock options granted

under our stock option plans have an exercise price equal to the market value of the underlying common stock on the grant date.

are no vesting provisions tied to performance conditions for any options.

Vesting for all outstanding option grants is based solely on

continued service as an employee, consultant or director.

All of our outstanding stock options and restricted stock awards are classified

as equity instruments.

Options and Long-Term Incentive Plan

During the year ended December

31, 2020, our stockholders approved the 2020 Plan which replaced our 2015 Stock Incentive Plan (the “2015 Plan”), which in

turn replaced our Neonode Inc.

2006 Equity Incentive Plan (the “2006 Plan”).

Although no new awards may be made under the 2006 Plan or 2015 Plan, the

2015 Plan is still operative for awards previously granted under such plan.

There are no awards outstanding under the 2006 Plan.

the 2020 Plan, 750,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted

stock grants to officers, employees, non-employee directors and consultants.

The terms of the awards granted under the 2020 Plan are set

by our compensation committee at its discretion.

In 2020, we established the 2020 LTIP to provide

eligible persons with the opportunity to acquire an equity interest, or otherwise increase their equity interest, in the Company as an

incentive for them to remain in the service of the Company.

Through the 2020 LTIP, eligible employees of Neonode may waive between 50 %

to 67 % of future unearned bonuses that may be awarded to them under the Company’s annual bonus arrangement in exchange for the grant

of shares of the Company’s common stock.

On December 29, 2020, we issued 37,288 shares of

common stock to key employees pursuant to the 2020 LTIP.

The shares were immediately vested but subject to a two-year lock-up period after

In the event the participant’s employment with Neonode is terminated by the participant during the two-year lock-up period,

the Company will repurchase the shares at a price equal to 30 % of the lower of market value at issuance and termination date.

has reported and paid Swedish social charges of $ 75,000 for the issued shares but only 30 % of the stock-based compensation (totaling $ 77,000 )

was recognized immediately in the consolidated statement of operations for the year ended December 31, 2020, with the remainder to be

recognized ratably over the two-year lock-up period.

On August 12, 2021, we issued 12,830 shares of common

stock to a key employee pursuant to the 2020 LTIP.

The shares were immediately vested but subject to a two-year lock-up period after issuance.

In the event the participant’s employment with the Company is terminated by the participant during the two-year lock-up period,

the Company will repurchase the shares at a price equal to 30 % of the lower of market value at issuance and the termination date.

Company has reported and paid Swedish social charges of $ 21,000 for the issued shares but only 30 % of the stock-based compensation (totaling

$ 25,000 ) was recognized immediately in the consolidated statements of operations for the year ended December 31, 2021, with the remainder

to be recognized ratably over the two-year lock-up period.

On December 29, 2021, we issued 14,735 shares of

common stock to key employees pursuant to the 2020 LTIP.

The shares were immediately vested but subject to a two-year lock-up period after

In the event the participant’s employment with Neonode is terminated by the participant during the two-year lock-up period,

the Company will repurchase the shares at a price equal to 30 % of the lower of market value at issuance and termination date.

has reported and paid Swedish social charges of $ 46,000 for the issued shares but only 30 % of the stock-based compensation (totaling $ 38,000 )

was recognized immediately in the consolidated statements of operations for the year ended December 31, 2021, with the remainder to be

recognized ratably over the two-year lock-up period.

On May 20, 2022, we issued 4,000 shares of common

stock to a director pursuant to the 2020 Plan.

The shares were immediately vested but subject to a two-year lock-up period after issuance.

In the event the participant’s employment with the Company is terminated by the participant during the two-year lock-up period,

the Company will repurchase the shares at a price equal to 30 % of the lower of market value at issuance and the termination date.

Company has reported and paid Swedish social charges of $ 5,000 for the issued shares but only 30 % of the stock-based compensation (totaling

$ 5,000 ) was recognized immediately in the consolidated statements of operations for the year ended December 31, 2022, with the remainder

to be recognized ratably over the two-year lock-up period.

On September 15, 2022, we repurchased 10,252 shares

of common stock from an employee who resigned during the two-year lock up period associated with such shares for $ 12,000 , pursuant to

the terms of the 2020 LTIP.

During the years ended December 31, 2023 and 2022,

we recognized $ 58,000 and $ 122,000 , respectively, of stock-based compensation for the amortization of the LTIP over the respective lock-up

The following table summarizes information with

respect to all options to purchase shares of common stock outstanding under the 2006 Plan, the 2015 Plan and the 2020 Plan at December

A summary of the combined activity under all of

the stock option plans is set forth below:

There are no awards outstanding under the 2006

Plan and 2015 Plan.

Under the 2020 Plan, 750,000 shares of common stock have been reserved for awards, including nonqualified stock option

grants and restricted stock grants to officers, employees, non-employee directors and consultants.

The terms of the awards granted under

the 2020 Plan are set by our compensation committee at its discretion.

2020, we established the 2020 LTIP to provide eligible persons with the opportunity to acquire an equity interest, or otherwise increase

their equity interest, in the Company as an incentive for them to remain in the service of the Company.

Through the 2020 LTIP, eligible

employees of Neonode may waive between 50 % to 67 % of future unearned bonuses that may be awarded to them under the Company’s annual

bonus arrangement in exchange for the grant of shares of the Company’s common stock.

The following table summarizes

the combined activity under all of the stock option plans:

Options Outstanding

Weighted- Remaining

Average Contractual Aggregate

Number of Exercise Life Intrinsic

Shares Price (in years) Value

Options outstanding – January 1, 2023 2,500 $ 14.40 0.59 $ -

7 unchanged sentences

Options outstanding and vested – December 31, 2024 - $ - - $ -

No stock options were granted during the years ended

December 31, 2023 and 2022.

During the years ended December 31, 2023 and 2022,

we recorded no stock-based compensation expense related to the vesting of stock options.

The estimated fair value of the stock options

will be calculated using the Black-Scholes option pricing model as of the grant date of the stock option.

Stock options granted under the 2006, 2015 and 2020

Plans are exercisable over a maximum term of 10 years from the date of grant, vest in various installments over a one to four-year period

and have exercise prices reflecting the market value of the shares of common stock on the date of grant.

Stock-Based Compensation

The stock-based compensation expense for the years

ended December 31, 2023 and 2022 reflects the estimated fair value of the vested portion of common stock granted to directors and employees

(in thousands):

Sales and marketing

General and administrative

Stock-based compensation expense

There is no remaining unrecognized compensation

expense related to stock options as of December 31, 2023.

Unrecognized compensation expense related to the 2020 Plan as of December 31,

2023 was $ 2,000 , which will be recognized during 2024.

stock options were granted during the years ended December 31, 2024 and 2023.

the years ended December 31, 2024 and 2023, we recorded no stock-based compensation expense related to the vesting of stock options.

The estimated fair value of the stock options will be calculated using the Black-Scholes option pricing model as of the grant date of

the stock option.

options granted under the 2006, 2015 and 2020 Plans are exercisable over a maximum term of 10 years from the date of grant, vest in various

installments over a one to four-year period and have exercise prices reflecting the market value of the shares of common stock on the

date of grant.

Commitments and Contingencies

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.

Indemnities and Guarantees

Our bylaws require that we indemnify each of our

executive officers and directors for certain events or occurrences arising because of the officer or director serving in such capacity.

The term of the indemnification period is for the officer’s or director’s lifetime.

The maximum potential amount of future

payments we could be required to make under these indemnification agreements is unlimited.

However, we have a directors’ and officers’

liability insurance policy that should enable us to recover a portion of any future amounts paid.

As a result of our insurance policy

coverage, we believe the estimated fair value of these indemnification agreements is minimal and we have no liabilities recorded for these

agreements as of December 31, 2023 and 2022.

We enter into indemnification provisions under our

agreements with other companies in the ordinary course of business, typically with business partners, contractors, customers and landlords.

Under these provisions we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified

party as a result of our activities or, in some cases, as a result of the indemnified party’s activities under the agreement.

indemnification provisions often include indemnifications relating to representations made by us regarding intellectual property rights.

These indemnification provisions generally survive termination of the underlying agreement.

The maximum potential amount of future payments

we could be required to make under these indemnification provisions is unlimited.

We have not incurred material costs to defend lawsuits

or settle claims related to these indemnification agreements.

As a result, we believe the estimated fair value of these agreements is

Accordingly, we have no liabilities recorded for these indemnification provisions as of December 31, 2023 and 2022.

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 means gross proceeds less out of pocket expenses and legal fees paid by Aequitas.

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.

On June 8, 2020, Neonode Smartphone LLC, an unrelated third party

that is a subsidiary of Aequitas (“Aequitas Sub"), filed complaints against Apple and Samsung in the Western District of Texas

for infringing two patents.

The case against Apple was subsequently transferred to the Northern District of California.

In December 2022,

the Patent Trial and Appeal Board invalidated one of the two patents, which Aequitas Sub is appealing.

On August 2, 2023, the United States

District Court for the Western District of Texas entered judgment in favor of Samsung.

Aequitas Sub has filed an appeal to change this

decision to the Federal Circuit.

The case against Apple is still pending in the United States District Court for the Northern District

of California.

Non-Recurring Engineering Development Costs

On April 25, 2013, we entered into an Analog Device

Development Agreement with an effective date of December 6, 2012 (the “NN1002 Agreement”) with Texas Instruments (“TI”)

pursuant to which TI agreed to integrate our intellectual property into an Application Specific Integrated Circuit (“ASIC”).

Under the terms of the NN1002 Agreement, we agreed to pay TI $ 500,000 of non-recurring engineering costs at the rate of $ 0.25 per ASIC

for each of the first 2,000,000 ASICs sold.

As of December 31, 2023, we had made no payments to TI under the NN1002 Agreement.

We have operating leases for our corporate offices and our manufacturing

facility, and finance leases for equipment.

Our leases have remaining lease terms of nine months to two years, and includes an option

to annually extend.

These operating leases also include options to terminate the leases within one year.

Future renewal options that are

not likely to be executed as of the consolidated balance sheet date are excluded from right-of-use assets and related lease liabilities.

Our operating leases represent building leases for

our Stockholm corporate offices and our Kungsbacka manufacturing facility.

Our Stockholm corporate office lease has a remaining lease

term of under one year and both of our leases are automatically renewed at a cost increase of 2 % on an annual basis, unless we provide

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.

Company has leases mainly consisting of the corporate office.

This kind of lease typically has an original lease term of one to three

Future renewal options that are not likely to be executed as of the consolidated balance sheet date are excluded from right-of-use

assets and related lease liabilities.

The lease is automatically renewed at a cost increase of 2 % on an annual basis, unless we provide

written notice nine months prior to the respective expiration dates.

We report operating lease right-of-use assets, as

well as current and noncurrent operating lease obligations on our consolidated balance sheets for the right to use those buildings in

our business.

Our finance leases represent manufacturing equipment;

we report the manufacturing equipment, as well as current and noncurrent

finance lease obligations on our consolidated balance sheets for our manufacturing equipment.

Generally, interest rates are stated in our leases

for equipment.

When no interest rate is stated in a lease, however, we review the interest rates implicit in our recent finance leases

to estimate our incremental borrowing rate.

We determine the rate implicit in a lease by using the most recent finance lease rate, or

other method we think most closely represents our incremental borrowing rate.

The components of lease expense

were as follows (in thousands):

Operating lease cost (1)

lease right of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the

The Company has entered into various short-term operating leases with an initial term of twelve months or less.

are not recorded on the Company's Consolidated Balance Sheets.

All operating lease expense is recognized on a straight-line basis over

the lease term.

Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate

to determine the present value of the lease payments.

For finance leases, the implicit rate is used, since it is readily available.

components of lease expense were as follows (in thousands):

Finance lease cost:

1 unchanged sentence

Interest on lease liabilities

Total finance lease cost

short term lease costs of $ 458,000 and $ 180,000 for the years ended December 31, 2023 and 2022, respectively.

Supplemental cash flow information

related to leases was as follows (in thousands):

Cash paid for amounts included in leases:

Operating cash flows from operating leases

Operating cash flows from finance leases

Financing cash flows from finance leases

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

Finance leases

consolidated balance sheet information related to leases was as follows (in thousands):

Operating leases

Operating lease right-of-use assets, net

Current portion of operating lease obligations

Operating lease liabilities, net of current portion

Total operating lease liabilities

Finance leases

Property and equipment, at cost

Accumulated depreciation

Property and equipment, net

Current portion of finance lease obligations

Finance lease liabilities, net of current portion

Total finance lease liabilities

Weighted-Average Remaining Lease Term

Operating leases

Finance leases

Weighted-Average Discount Rate

Operating leases (2)

Finance leases

adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019 .

A summary of future minimum payments under non-cancellable

operating lease commitments as of December 31, 2023 is as follows (in thousands):

Years ending December 31,

Total minimum payments required:

Less imputed interest

Operating lease cost

Short-term lease cost

Total lease cost

Company made cash payments regarding operating leases of $ 27,000 and $ 0 for the years ended December 31, 2024 and 2023, respectively.

The Company made cash payments regarding finance leases of $ 18,000 and $ 96,000 for the years ended December 31, 2024 and 2023, respectively.

following table shows right-of-use assets and lease liabilities:

(in thousands)

Right-of-use assets:

right-of-use assets

Lease liabilities:

Current portion of operating

lease obligations

Operating lease obligations,

net of current portion

Current portion of finance

lease obligations

lease obligations, net of current portion

lease liabilities

liability maturities are as follows:

(in thousands)

Imputed interest

Total lease liabilities

Less current portion

The following is a schedule of minimum future rentals

on the non-cancelable finance leases as of December 31, 2023 (in thousands):

Year ending December 31,

Total minimum payments required:

Less amount representing interest:

Present value of net minimum lease payments:

Less current portion

We have one reportable segment, which is comprised

of the touch technology licensing and products business.

We report revenues from external customers based on the country where the customer

The following table presents net revenues by geographic

area for the years ended December 31, 2023 and 2022 (dollars in thousands):

Lease liabilities, current

Lease liabilities, non-current

Total lease liabilities

The weighted-average remaining

lease term related to the Company’s operating lease liabilities as of December 31, 2024 and December 31, 2023 was 1.9 years and

0.8 years, respectively.

The discount rate related to the Company’s operating lease liabilities as of December 31, 2024 and December

31, 2023 was 5.0 % for each of the years.

The weighted-average remaining

lease term related to the Company’s finance lease liabilities as of December 31, 2024 and December 31, 2023 was 0.2 years and 1.3

years, respectively.

The discount rate related to the Company’s operating lease liabilities as of December 31, 2024 and December

31, 2023 was 3.0 % and 2.6 %, respectively.

Company operates as one operating segment.

Our chief operating decision maker ("CODM") is our Chief Executive Officer, who

reviews financial information presented on a consolidated basis.

The CODM uses consolidated operating loss and net loss to assess financial

performance and allocate resources.

These financial metrics are used by the CODM to make key operating decisions, such as the allocation

of budget between cost of revenues, research and development, sales and marketing, and general and administrative expenses.

following table presents key financial information with respect to the Company’s single operating segment:

ended December 31,

(in thousands)

Costs and expenses (a)

Cost of revenues

General and administrative,

including rent

Payroll and related

Professional fees and

Total costs and expenses

Other segment items (b)

Other income, net

Loss before provision for income taxes

Provision for income

Loss from continuing operations

(a) The significant expense categories and amounts align with the segment-level information that is regularly provided to the chief operating decision-maker.

(b) Other segment items primarily include depreciation and amortization, payroll and related - re-allocated to cost of revenues, and stock options expense.

The following table presents

the long-lived assets property and equipment and right-of-use assets by geographic area:

report revenues from external customers based on the country where the customer is located.

The following table presents net revenues

Years ended December 31,

(in thousands)

United States

Loss before provision for income taxes was distributed

geographically for the years ended December 31, 2023 and 2022 as follows (in thousands):

The provision (benefit) for income taxes is as follows

for the years ended December 31, 2023 and 2022 (in thousands):

During 2024, the Company identified errors in the

calculation of net operating loss carryforwards, resulting in balances for deferred tax assets and the corresponding valuation allowance

being overstated at December 31, 2023.

Following an analysis of quantitative and qualitative factors in accordance with SEC Staff Accounting

Bulletin 99, Materiality, the Company concluded that the errors were not material to the previously issued consolidated financial statements,

and thus, no restatement of any of the Company’s previously issued consolidated financial statements is necessary.

These amounts

have been corrected from the amounts that were previously reported in the footnotes to the December 31, 2023 consolidated financial statements

in the 2023 tables below as follows:

An increase to the foreign deferred tax provision and a corresponding

decrease in the change in valuation allowance of $ 7,424,000 .

A decrease in gross deferred tax assets and the corresponding

valuation allowance of $ 7,424,000 .

These corrections did not impact the financial

position, operating results or cash flows of the Company as of and for the year ended December 31, 2023.

before provision for income taxes was distributed geographically as follows:

Years ended December 31,

(in thousands)

provision (benefit) for income taxes is as follows:

Years ended December 31,

(in thousands)

Total current expense

2 unchanged sentences

Total provision for income taxes

The differences between our effective income tax

rate and the U.S.

federal statutory federal income tax rate for the years ended December 31, 2023 and 2022, are as follows:

differences between our effective income tax rate and the U.S.

federal statutory federal income tax rate are as follows:

Years ended December 31,

Amounts at statutory tax rates

4 unchanged sentences

Effective tax rate

Significant components of the deferred tax asset

balances at December 31, 2023 and 2022 are as follows (in thousands):

components of the deferred tax asset balances are as follows:

(in thousands)

Deferred tax assets:

Stock compensation

Net operating losses

Total deferred tax assets

Gross deferred tax assets

Valuation allowance

Total net deferred tax assets

Valuation allowances are recorded to offset certain

deferred tax assets due to management’s uncertainty of realizing the benefits of these items.

Management applies a full valuation

allowance for the accumulated losses of Neonode Inc., and its subsidiaries, since it is not determinable using the “more likely

than not” criteria that there will be any future benefit of our deferred tax assets.

This is mainly due to our history of operating

As of December 31, 2023, we had federal, state and foreign net operating losses of $ 80.8 million, $ 20.1 million and $ 50.0 million,

respectively.

The federal loss carryforward begins to expire in 2028, and the California loss carryforward begins to expire in 2030.

foreign loss carryforward, which is generated in Sweden, does not expire.

Utilization of the net operating loss and tax credit

carryforwards is subject to an annual limitation due to the ownership percentage change limitations provided by Section 382 of the

Internal Revenue Code and similar state provisions.

The annual limitation may result in the expiration of the net operating losses and

tax credit carryforwards before utilization.

As of December 31, 2023, we had not completed the determination of the amount to be

limited under the provision.

We follow the provisions of accounting guidance

which includes a two-step approach to recognizing, derecognizing and measuring uncertain tax positions.

There were no unrecognized tax

benefits for the years ended December 31, 2023 and 2022.

We follow the policy to classify accrued interest

and penalties as part of the accrued tax liability in the provision for income taxes.

For the years ended December 31, 2023 and 2022 we

did not recognize any interest or penalties related to unrecognized tax benefits.

As of December 31, 2023, we had no uncertain tax

positions that would be reduced as a result of a lapse of the applicable statute of limitations.

We file income tax returns in the U.S.

federal jurisdiction,

California, Sweden, and Japan.

The 2008 through 2022 tax years are open and may be subject to potential examination in one or more jurisdictions.

We are not currently under any federal, state or foreign income tax examinations.

Total deferred tax assets

Deferred tax liabilities:

Net deferred tax assets

Valuation allowances are recorded to offset certain deferred tax assets

due to management’s uncertainty of realizing the benefits of these items.

Management applies a full valuation allowance for the

accumulated losses of Neonode Inc., and its subsidiaries, since it is not determinable using the “more likely than not” criteria

that there will be any future benefit of our deferred tax assets.

This is mainly due to our history of operating losses.

As of December

31, 2024, we had federal, state and foreign net operating losses of $ 84.6 million, $ 18.7 million and $ 14.9 million, respectively.

total federal loss carryforward, approximately $ 58.0 million will begin to expire in 2028 and the remainder do not expire.

The California

loss carryforward will begin to expire in 2030.

The foreign loss carryforward, which is generated in Sweden, does not expire.

of the net operating loss and tax credit carryforwards is subject to an annual limitation due to the ownership percentage change limitations

provided by Section 382 of the Internal Revenue Code and similar state provisions.

The annual limitation may result in the expiration

of the net operating losses and tax credit carryforwards before utilization.

As of December 31, 2024, we had not completed the

determination of the amount to be limited under the provision.

follow the provisions of accounting guidance which includes a two-step approach to recognizing, derecognizing and measuring uncertain

tax positions.

There were no unrecognized tax benefits for the years ended December 31, 2024 and 2023.

follow the policy to classify accrued interest and penalties as part of the accrued tax liability in the provision for income taxes.

For the years ended December 31, 2024 and 2023 we did not recognize any interest or penalties related to unrecognized tax benefits.

of December 31, 2024, we had no uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations.

file income tax returns in the U.S.

federal jurisdiction, California, Sweden, and Japan.

The 2008 through 2023 tax years are open and

may be subject to potential examination in one or more jurisdictions.

We are not currently under any federal, state or foreign income

tax examinations.

Employee Benefit Plans

We participate in a number of individual defined

contribution pension plans for our employees in Sweden.

We contribute between 4.5 % and 30 % of the employee’s annual salary to these

pension plans depending on age and salary level.

Contributions relating to these defined contribution plans for the years ended December

31, 2023 and 2022 were $ 510,000 and $ 546,000 , respectively.

participate in a number of individual defined contribution pension plans for our employees in Sweden.

We contribute between 4.5 % and

30 % of the employee’s annual salary to these pension plans depending on age and salary level.

Contributions relating to these defined

contribution plans for the years ended December 31, 2024 and 2023 were $ 542,000 and $ 510,000 , respectively.

We match U.S.

employee contributions to a 401(K) retirement plan up to a maximum

of six percent ( 6 %) of an employee’s annual salary.

Contributions relating to the matching 401(K) contributions for the years ended

December 31, 2023 and 2022 were $ 6,000 and $ 6,000 , respectively.

In Taiwan, we contribute six percent ( 6 %) of the employee’s annual

salary to a pension fund which agrees with Taiwan’s Labor Pension Act.

Contributions relating to the Taiwanese pension fund for

the years ended December 31, 2023 and 2022 were $ 3,000 and $ 4,000 , respectively.

employee contributions

to a 401(K) retirement plan up to a maximum of six percent ( 6 %) of an employee’s annual salary.

Contributions relating to the matching

401(K) contributions for the years ended December 31, 2024 and 2023 were $ 6,000 and $ 6,000 , respectively.

In Taiwan, we contribute six

percent ( 6 %) of the employee’s annual salary to a pension fund which agrees with Taiwan’s Labor Pension Act.

Contributions

relating to the Taiwanese pension fund for the years ended December 31, 2024 and 2023 were $ 3,000 and $ 3,000 , respectively.

Net Loss Per Share

Basic net loss per common share for the years ended

December 31, 2023 and 2022 was computed by dividing the net loss attributable to common shareholders of Neonode Inc.

net loss per common share for the years ended December 31, 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 during the

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 outstanding during the year.

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 during the year.

The Company had no potential common stock equivalents

as of December 31, 2023 or 2022.

(In thousands, except per share amounts)

period by the weighted average number of shares of common stock and common stock equivalents outstanding during the year.

Company had no potential common stock equivalents as of December 31, 2024 or 2023.

(In thousands,

except per share amounts)

BASIC AND DILUTED

Weighted average number of common shares outstanding

Net loss attributable to Neonode Inc.

Net loss per share - basic and diluted

Weighted average number of

common shares outstanding

Loss from continuing operations

Loss from discontinued

Loss per share from continuing operations

- basic and diluted

Loss per share from

discontinued operations - basic and diluted

Net loss per share - basic

Subsequent Events

No subsequent events have occurred that would require recognition in

the consolidated financial statements or disclosure in the notes thereto.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE

subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes thereto.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data