What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2021-03-10 compared with 2020-03-11 · 449 added, 507 removed, 318 unchanged (75% of the section changed)

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Stock Market under the symbol NEON.

As of March 2, 2020, there were approximately

150 stockholders of record of our common stock as determined by counting our record holders and the number of participants reflected

in a security position listing provided to us by the Depository Trust Company.

Because such “DTC participants”

brokers and other institutions holding shares of our common stock on behalf of their customers, we do not know the actual number

of unique “street name”

stockholders represented by these record holders.

There are no restrictions on our ability

to pay dividends.

It is currently the intention of the Board of Directors to retain all earnings, if any, for use in our business

and we do not anticipate paying cash dividends in the foreseeable future.

Any future determination as to the payment of dividends

will depend, among other factors, upon our earnings, capital requirements, operating results and financial condition.

As of March 3, 2021, there were 62 stockholders

of record of our common stock.

This does not include the number of shareholders that hold shares in “street name”

banks, brokers and other financial institutions.

Securities Authorized for Issuance Under Equity Compensation

See Part III, Item

“Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters”

for information

relating to our equity compensation plans.

Recent Sale of Unregistered Securities and Use of Proceeds

Purchases of Equity Securities By the Issuer and Affiliated

SELECTED FINANCIAL DATA

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be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual

develops user interface and

optical interactive touch and gesture solutions.

Our patented technology offers multiple features including the ability to sense

an object’s size, depth, velocity, pressure, and proximity to any type of surface.

In 2010, we began licensing to Original

Equipment Manufacturers (“OEMs”) and Tier 1 suppliers who embed our technology into products they develop, manufacture

Since 2010, our licensing customers have sold approximately 73 million devices that use our technology.

In October 2017,

we augmented our licensing business and started to manufacture and ship sensor modules that incorporate our technology.

these embedded sensors to OEMs, ODM’s and Tier 1 suppliers for use in their products.

We develop advanced optical sensing solutions

for contactless touch, touch, gesture sensing, and in-cabin monitoring.

We market and sell our contactless touch, touch, and gesture

products and solutions using our zForce technology platform, and our in-cabin monitoring solutions using our MultiSensing technology

In 2010, we began licensing to OEMs and

Tier 1 suppliers who embed our technology into products they develop, manufacture and sell.

Since 2010, our licensing customers

have sold approximately 79 million devices that use our technology.

In October 2017, we augmented our licensing business and began

manufacturing and shipping sensor modules that incorporate our technology.

We sell these embedded sensors modules to OEMs, ODM’s

and Tier 1 suppliers for use in their products.

To reduce time to market, we started selling

AirBar in the fourth quarter of 2016, a Neonode branded consumer product, which incorporates one of our sensor modules to enable

laptop touchscreen functionalities, through distributors and directly to consumers.

We have no current plans to develop new Neonode

branded products for the consumer markets.

As of December 31, 2020 and 2019, respectively,

we had entered into forty-two technology license agreements with global OEMs and Tier 1 suppliers.

During the year ended December

31, 2020, we had fourteen customers using our touch technology in products that were being shipped to their customers.

of our license fees earned in 2020 and 2019 were from customer shipments of printers.

As of December 31, 2020, we had entered

into forty-two technology license agreements with global OEMs and Tier 1 suppliers.

This compares with forty-one technology license

agreements as of December 31, 2018.

During the year ended December 31, 2019, we had sixteen customers using our touch technology

in products that were being shipped to their customers.

The majority of our license fees earned in 2019 and 2018 were from customer

shipments of printers.

As of December 31, 2019, our license customers in the automotive and printer markets have not released all

the products that are currently in development and that are planned to go into production and market release over the next 12 to

We now offer our technology to our current

and new customers under either a license agreement or a supply agreement, where we sell them a manufactured embedded sensor module

that has been customized for use in their products.

As of December 31, 2019, we entered into three supply agreements to purchase

our embedded sensor modules with global OEMs, ODMs and Tier 1 suppliers.

In addition to direct shipments to our customers, we distribute

our embedded sensor modules through DigiKey.

As of December 31, 2019, DigiKey sold and shipped 740 sensor module development kits.

We anticipate our revenue will be generated by a combination of royalties from our existing and new license customers plus sales

of our sensor modules.

We intend to continue expanding our sensor

module product offerings in 2020, including new sensors for delivery to the automotive and other key markets in 2090.

that over time the sales of sensor modules may constitute the majority of our revenue.

In the fourth quarter of 2016, we started

selling AirBar, a Neonode branded consumer product incorporating one of our sensor modules, through distributors and directly to

We have no current plans to develop new Neonode branded products for the consumer markets.

into eight agreements with value added resellers (“VARs”) for integration of our sensor modules in the products they

offer to global OEMs, ODMs and Tier 1 suppliers.

In addition to this, we distribute our embedded sensor modules through Digi-Key

Corporation and Serial Microelectronics HK Ltd.

As of December 31, 2020, our two distributors sold and shipped 5,397 sensor modules

and related development kits.

We anticipate our future revenue will be generated by a combination of royalties from our existing

and new license customers plus sales of our sensor modules.

During 2020 and 2019, we continued to focus

our efforts on maintaining our current licensing customers and achieving design wins for new products both with current and future

We made investments enhancing the design of selected embedded sensor modules and setting-up partner networks for sales

and distribution.

We intend to continue expanding our sensor module product offerings in 2021, including new sensor modules for

delivery to our key markets.

We expect that over time the sales of sensor modules may constitute the majority of our revenue.

In 2020, we participated in a Swedish governmental program designed

to support businesses during the COVID-19 pandemic.

Under the program, we received tax credits, which were later repaid, reduced

social charges and subsidies to staff during a four month period of reduced working hours.

See Note 6 to our consolidated financial

statements for additional details.

Critical Accounting Policies and Estimates

The consolidated financial statements have

Our consolidated financial statements have

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

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and its wholly owned subsidiaries, as well as Pronode Technologies AB (Sweden), a 51%

majority owned subsidiary of Neonode Technologies AB.

The non-controlling interests are reported below net loss including non-controlling

interests under the heading “Net loss attributable to non-controlling interests”

in the consolidated statements of

operations, below comprehensive loss under the heading “Comprehensive income loss attributable to non-controlling interests”

majority owned subsidiary of Neonode Technologies AB, one of our wholly owned subsidiaries.

The non-controlling interests are reported

below net loss including non-controlling interests under the heading “Net loss attributable to non-controlling interests”

in the consolidated statements of operations, below comprehensive loss under the heading “Comprehensive income loss attributable

to non-controlling interests”

in the consolidated statements of comprehensive loss and shown as a separate component of stockholders’

equity in the consolidated

balance sheets.

equity in the consolidated balance sheets.

See “Non-controlling Interests”

for further discussion.

All inter-company accounts and transactions

have been eliminated in consolidation.

All inter-company

accounts and transactions have been eliminated in consolidation.

The consolidated balance sheets at December

31, 2019 and 2018 and the consolidated statements of operations, comprehensive loss and cash flows for the years ending 2019 and

2018 include our accounts and those of our wholly owned subsidiaries as well as Pronode Technologies AB (Sweden).

31, 2020 and 2019 and the consolidated statements of operations, comprehensive loss, stockholders’

equity and cash flows

for the years ended 2020 and 2019 include our accounts and those of our wholly owned subsidiaries as well as Pronode Technologies

The accounting policies affecting our financial

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Revenue Recognition

We recognize revenue

when control of products is transferred to our customers, and when services are completed and accepted by our customers;

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, for example, 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.

Sales of license fees

and AirBar and sensor modules are on a per-unit basis;

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 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, for example, 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.

Sales of license fees and AirBar and sensor

modules are on a per-unit basis;

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.

we treat all shipping and handling charges as expenses.

Licensing Revenues:

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 technology.

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.

of each reporting period, we record unbilled license fees, using prior royalty revenue data by customer to make accurate estimates

of those royalties.

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 into 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 technology.

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

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Engineering Services:

For technology license

or sensor module contracts that require modification or customization of the underlying technology to adapt that technology to

customer use, we determine whether the technology license or sensor module, and engineering consulting services represent separate

performance obligations.

For technology license or sensor module

contracts that require modification or customization of the underlying technology to adapt that technology to customer use, we

determine whether the technology license or sensor module, and 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”) of each separate performance obligation to properly recognize revenue

as each performance obligation is satisfied.

We provide engineering consulting services to our customers under a signed Statement

of Work (“SOW”).

If there are separate performance obligations, we determine the standalone

selling price (“SSP”) of each separate performance obligation to properly recognize revenue as each performance obligation

is satisfied.

We provide engineering consulting services to our customers under a signed Statement of Work (“SOW”).

Deliverables and payment terms are specified in each SOW.

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

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 engineering

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

Revenues from engineering

services 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.

In the years ended December 31, 2019 and 2018, no losses

related to SOW projects were recorded.

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 revenue from non-recurring engineering

services 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 engineering services contracts

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

Revenues from engineering services 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 year ended December 31, 2020, we recorded $47,000 of losses and

during the year ended December 31, 2019, there were no losses related to SOW projects recorded.

Sensor Modules Revenues:

We earn revenue from

sales of sensor modules 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 sensor modules 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.

The timing of revenue

recognition related to AirBar modules depends upon how each sale is transacted - either point-of-sale or through distributors.

We recognize revenue for AirBar modules sold point-of-sale (online sales and other direct sales to customers) when we provide the

promised product to the customer.

Because we generally

use distributors to provide AirBar and sensor modules to our customers, however, we analyze the terms of distributor agreements

to determine when control passes from us to our distributors.

For sales of AirBar and sensor modules sold through distributors,

revenues are recognized 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 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 purchased.

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 AirBar 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 insignificant as of December 31, 2019 and 2018.

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.

We earn revenue from sales of sensor modules 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 sensor modules 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

The timing of revenue recognition related

to AirBar modules depends upon how each sale is transacted - either point-of-sale or through distributors.

We recognize revenue

for AirBar modules sold point-of-sale (online sales and other direct sales to customers) when we provide the promised product to

the customer.

Because we generally use distributors to

provide AirBar and sensor modules to our customers, however, we analyze the terms of distributor agreements to determine when control

passes from us to our distributors.

For sales of AirBar and sensor modules sold through distributors, revenues are recognized 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 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 purchased.

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 AirBar and Module 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 $78,000

as of December 31, 2020 and was insignificant as of December 31, 2019.

The warranty reserve is recorded as an accrued expense and

cost of sales and was $25,000 as of December 31, 2020 and insignificant as of December 31, 2019.

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.

Accounts Receivable and Allowance

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required payments.

Inventory is stated at the lower of cost

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

Net realizable value is the

estimated selling prices 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.

In 2018, after a comprehensive evaluation of our AirBar business we recorded a $0.4 million write-down for obsolete or slow moving

AirBar component and finished goods inventory which is included in our cost of goods sold.

In 2019, we wrote down advance payments

for a module component and an additional reservation of slow moving AirBar components bought from a producing partner which together

amounted to $0.3 million, which is included in our cost of goods.

As of December 31, 2019, the Company’s inventory consists primarily of components that will be used in the manufacturing

of our sensor modules.

We segregate inventory for reporting purposes by 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 method (“FIFO”) valuation method.

Net realizable value is the estimated selling prices

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.

In 2020, after

a comprehensive evaluation of our AirBar business we recorded a $28,000 write-down for obsolete or slow moving AirBar component

and finished goods inventory which is included in our cost of goods sold.

As of December 31, 2020, our inventory consists

primarily of components that will be used in the manufacturing of our sensor modules.

We segregate inventory for reporting purposes

by raw materials, work-in-process, and finished goods.

Investment in Joint Venture

We invested $3,000, a 50% interest in Neoeye

We account for our investment using the equity method of accounting since the investment provides us the ability to exercise

significant influence, but not control, over the investee.

We are not required to guarantee any obligations of the JV and there

have been no operations of Neoeye through December 31, 2019.

AB, which was sold in November 2020.

We accounted for our investment using the equity method of accounting since the investment

provided us the ability to exercise significant influence, but not control, over the investee.

We were not required to guarantee

any obligations of the Joint Venture and there have been no operations of Neoeye AB during 2020.

Projects in Process

Projects in process consist of costs incurred

toward the completion of various projects for certain customers.

during the completion of various projects for certain customers.

These costs are primarily comprised of direct engineering labor

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for each project is recognized in accordance with our revenue recognition policy.

Costs capitalized in projects in process were

$8,000 and $0 as of December 31, 2019 and 2018, respectively.

There were no costs capitalized in projects in

process as of December 31, 2020 and $8,000 as of December 31, 2019.

Property and Equipment

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Furniture and fixtures

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.

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

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Net income or loss;

Transactions with owners acting in their capacity

as owners, showing separately contributions from and distributions to owners;

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.

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31, 2020 and 2019, respectively.

Foreign currency translation (losses) were $(183,000) and $(357,000) during the years

ended December 31, 2019 and 2018, respectively.

Foreign currency translation gains (losses) were $235,000 and $(183,000) during the years ended

December 31, 2020 and 2019, respectively.

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, 2019 and 2018.

All shares of common stock and potential

common stock equivalents in the calculations used to determine weighted average number of shares of common stock outstanding have

been adjusted to reflect the effects of the reverse stock split for all periods presented.

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, 2020 and 2019.

Net loss per share, assuming dilution

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exchange rates for the consolidated statements of operations were as follows:

Years ended December 31,

Swedish Krona

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Engineering development fee revenues are deferred until engineering services have been completed and accepted by our customers.

We defer AirBar and sensor modules revenues until distributors sell the products to their end customers

GAAP, companies may make reasonable

aggregations and approximations of returns data to accurately estimate returns.

Our AirBar and sensor module 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 insignificant as of December 31, 2019 and 2018.

The following table presents our deferred revenues by source

(in thousands);

Years ended December 31,

We defer sensor modules revenues until distributors sell the products to their end customers.

The following table presents our deferred

revenues by source (in thousands);

Deferred license fees revenues

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Deferred sensor modules revenues

Accounting Pronouncements

In February 2016, the FASB issued ASU No.

2016-02, “

Leases (Topic 842) ”

(“ASU 2016-02”).

Under ASU 2016-02 (and subsequent accounting standards

updates), lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement

a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted

and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified

asset for the lease term.

The effective date of the new lease standard

(ASC 842) was January 1, 2019, and we adopted the new standard on that date.

We used the modified retrospective approach, which

allowed us to make any necessary transition adjustments at January 1, 2019.

We elected the optional transition method, which allowed

us to continue to use disclosures required by the prior standard during 2019, the year of adoption.

There were also several practical

expedients available to make the transition more efficient and cost-effective for companies.

We elected the package of three practical

expedients available to us;

doing so allowed us to not reassess existing leases.

We currently have a limited number of leased

capital assets, all of which were classified as finance leases under the new lease standard.

We maintain a lease inventory for

those assets;

they are currently reported on our consolidated balance sheets under the new standard.

We analyzed our operating

leases, and included two material operating leases on our consolidated balance sheets beginning January 1, 2019.

Because of the

small number of assets we lease, we did not need to make systems changes to comply with the new standard.

We continue to track

leased assets outside of our accounting systems.

We did not experience material changes in financial ratios, leasing practices,

or tax reporting.

In September 2016, the FASB issued ASU

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 and the subsequent accounting standards updates were scheduled to become

effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

On October 16, 2019, the FASB voted to delay

implementation of the new credit losses standard for smaller reporting companies, among other organizations, until fiscal years

beginning after December 15, 2022.

In the future, we will evaluate the impact ASU 2016-13 (and subsequent accounting standards

updates) will have on our consolidated financial statements, specifically regarding our trade receivables;

however, we do not expect

any significant impact from implementation of the new standard.

In December 2019, the FASB issued ASU 2019-12,

Income Taxes (Topic 740):

New 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 scheduled to become effective for fiscal years beginning after December 15, 2023, with early adoption

In the future, we will evaluate the impact that ASU 2016-13, as amended, will have on our consolidated financial statements,

specifically regarding our trade receivables;

however, we do not expect any significant impact from implementation of the new standard.

In December 2019, the FASB issued ASU 2019-12, Income Taxes

Simplifying the Accounting for Income Tax , which simplifies the accounting for income taxes.

will become effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

ASU 2019-12 will

become effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

We are currently evaluating

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Results of Operations

We develop user interface and optical interactive

touch and gesture solutions.

Since 2010, under our licensing agreements, OEMs and Tier 1 suppliers have sold approximately 73 million

devices that use our technology.

In December 2017, we augmented our licensing business and started to manufacture and sell sensor

modules that incorporate our technology.

A summary of our financial results for the

years ended December 31, is as follows (in thousands, except percentages):

Percentage of revenue

Sensor Modules

A summary of our financial results for

the years ended December 31, is as follows (in thousands, except percentages):

HMI Solutions

Percentage of revenue

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Cost of Sales:

Sensor Modules

HMI Solutions

Percentage of revenue

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31, 2020 and 2019 were to customers located in the United States, Europe and Asia.

The following table presents revenues by

market and NRE for the years ended December 31, 2019 and 2018 (dollars in thousands):

The decrease in total net revenues by 10.0%

for the year ended December 31, 2020 as compared to 2019 was primarily caused by lower licensing revenues, offset by higher sensor

modules sales.

The following tables

present the net revenues distribution per business area and revenue stream for the years ended December 31, 2020 and 2019 (dollars

in thousands):

HMI Solutions

Non-recurring engineering

Sensor modules

Non-recurring engineering

HMI Solutions

Net revenues from automotive

Net revenues from consumer electronics

Net revenues from military avionics

Net revenues from medical

Net revenues from distributors

Net revenues from other

The following table presents revenues by market and revenues

from NRE for the years ended December 31, 2020 and 2019 (dollars in thousands):

Revenues from Automotive

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Revenues from NRE

Other revenue

Revenues from Automotive

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Revenues from NRE

We have historically licensed our technology

to OEMs, ODM’s and Tier 1 suppliers who embed it in their products based upon our custom designs and we charge these customers

a non-recurring fee to offset our engineering costs.

We sell a Neonode branded consumer product, AirBar and in October 2017 we

added sales of embedded sensor modules to our business model.

Our sensor modules provide a hardware-based technology solution,

which allows our customers a way to use our zForce AIR technology while forgoing the complex design and manufacturing phase associated

with our licensing model.

We now earn revenue from a combination of licensing plus selling our embedded sensor modules and AirBar.

During 2019 and 2018 we continued to focus

our efforts on maintaining our current licensing customers and achieve design wins for new products both with current and future

We made investments enhancing the design of selected embedded sensor modules and setting-up partner networks for sales

and distribution.

As of December 31, 2019, we had entered

into forty-two technology license agreements with global OEMs, ODMs and Tier 1 suppliers and sixteen of our customers are currently

shipping products.

This compares with forty-one technology license agreements with global OEMs, ODM’s and Tier 1 suppliers

as of December 31, 2018.

We expect to continue to earn license fees

in future years and anticipate our customers will continue to release new products that embed our technology under a license agreement.

License fees were the majority of our total revenue in the past three years and decreased by 25% in 2019 as compared to 2018, primarily

due to a 87% decrease in license fees earned from our e-reader customers and 27% decrease in license fees earned from our printer

customers partially offset by a 13% increase in license fees from our automotive customers.

In addition to license fees, a portion of

our revenues is attributable embedded sensor modules which we began selling in October 2017.

We are focusing our efforts on markets

such as medical technology, industrial control systems and avionics.

During 2017, we entered into a U.S.

distribution agreement

with Digi-Key and they currently have a range of sensor modules and development kits for sale.

We currently have supply agreements

for sensor modules with three customers.

We sold $560,000 and $227,000 of sensor modules in 2019 and 2018, respectively.

Our revenues from license fees and sensor

module sales may be negatively impacted in 2020 due to the outbreak of coronavirus (COVID-19).

Many of our customers source their

components from suppliers in China.

Uncertainty about the availability of these components, or the future demand for products due

to a negative economic impact from the global spread of the coronavirus, may cause our customers to alter their purchasing decisions

and reduce demand for their products, thereby adversely affecting our future results of operations.

Non-recurring engineering fees (“NRE”)

decreased 66% in 2019 as compared to 2018 due to a decline of new license customers and related NRE design projects.

2018, 0% and 80% of our total NRE fees were earned from automotive projects.

In 2019, 62% of total NRE fees were earned from avionics

License fees were the majority of our total

revenue in the past three years and decreased by 23% in 2020 as compared to 2019, primarily due to a 27% decrease in license fees

earned from our customer within consumer electronics and 13% decrease in license fees earned from our automotive customers.

decrease is related to the generally slower sales due to the COVID-19 pandemic in combination with declining volumes from aging

customer contracts.

An increasing portion of our revenues for

2020 was attributable to embedded sensor modules, which we began selling in October 2017.

We sold $950,000 and $560,000 of sensor

modules in 2020 and 2019, respectively.

While our revenues from license fees in

2020 were negatively impacted by the COVID-19 pandemic, as the demand for our customer products decreased, revenues from our sensor

module sales were positively impacted in 2020 due to the increased demand for contactless touch that they enable.

Revenues from NRE increased 247% in 2020

as compared to 2019 due to prototype projects within the military & avionics market.

In 2020, 84% of total NRE fees were earned

from military & avionics compared to 62% in 2019.

88% of our NRE revenues derived from our HMI Solutions business area in 2020

compared to 68% in 2019.

We expect to continue to earn NRE fees in 2020 and future years in all our three business areas.

Our combined total gross margin was 90%

in 2019 compared to 89% in 2018.

The slight increase in total gross margin in 2019 as compared to 2018 is primarily due to higher

margin on sales of sensor modules which was partially offset by an increase in valuation reserves for slow moving and obsolete

inventory and lower gross margins on our NRE projects in 2019.

In 2019, we wrote down an advance payment

for module components and reserved 100% of AirBar components bought from a producing partner.

These two transactions amount to

$0.3 million.

License fees accounted for 90% of total

revenue in 2019 compared to 93% in 2018, with a 100% gross margin.

NRE projects had a (53)% gross margin in 2019 compared to 21%

in 2018 mainly due to investment of time in customer projects in new markets.

Our cost of revenues includes the direct

cost of production of certain customer prototypes, costs of engineering personnel, engineering consultants to complete the engineering

design contracts and cost of goods sold for sensor modules includes fully burdened manufacturing costs, outsourced final assembly

costs, and component costs of sensor modules.

We expect to continue to earn NRE fees in 2021 and future years from all three of our business areas.

Our combined total

gross margin was 82% in 2020 compared to 90% in 2019.

The decrease in total gross margin in 2020 as compared to 2019 was primarily

due to lower license revenues with 100% gross margin and increased sales of sensor modules with lower margins.

There were also

higher costs relating to write-down of slow moving and obsolete inventory in 2020.

For the year ended December 31, 2020, revenues

from our HMI Solutions business area accounted for 83% of total revenue compared to 91% in the same period in 2019 and revenues

from our HMI Products business area accounted for 17% of total revenue compared to 9% in the same period 2019.

There were no revenues

from our Remote Sensing Solutions business area for the years ended December 31, 2019 and 2020.

Our cost of revenues

includes the direct cost of production of certain customer prototypes, costs of engineering personnel, engineering consultants

to complete the engineering design contracts and cost of goods sold for sensor modules includes fully burdened manufacturing costs,

outsourced final assembly costs, and component costs of sensor modules.

Research and Development

Product research and development (“R&D”)

expenses for 2019 were 79% of total revenue compared to 62% in 2018.

R&D in 2019 decreased 1% compared to 2018 primarily currency

There were twenty-seven employees and seven consultants in our Research and Development department in 2019 compared to

twenty-four employees and three consultants in 2018.

Product R&D expenses for 2020 were 69%

of total revenue compared to 79% in 2019.

R&D in 2020 decreased 21% compared to 2019 primarily due to lower staff expenses

in 2020, primarily as a result of the Swedish governmental COVID-19 support program.

There were 25 employees and two consultants

in our Research and Development department as of December 31, 2020 compared to 27 employees and seven consultants as of December

Our R&D groups are primarily tasked

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Sales and marketing expenses in 2020 increased 17% compared to 2019 primarily related

to investment in a new partner program including marketing and sales promotion in the U.S.

We had six employees and six consultants

in our sales and marketing department in 2019 compared to six employees and three consultants in 2018.

There is no stock-based

compensation expense included in sales and marketing expenses for the year ended December 31, 2019 compared to approximately $6,000

for the year ended December 31, 2018.

to higher staff expenses in 2020.

We had six employees and seven consultants in our sales and marketing department as of December

31, 2020 compared to six employees and six consultants as of December 31, 2019.

There is approximately $32,000 of stock-based compensation

expense included in sales and marketing expenses for the year ended December 31, 2020 compared to none for the year ended December

Our sales activities focus on OEM, ODM and

Tier 1 customers who will license our technology or purchase and embed our touch sensor modules into their products.

Our customers

will then sell and market their products incorporating our technology to their customers.

We expect to expand our licensing and

sensor module sales and marketing activities in 2020 and future years to capture market share in our target markets.

Tier 1 customers, directly or through VARs, who license our technology or purchase and embed our touch sensor modules into their

General and Administrative

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Total G&A expenses in 2020 increased 3% from 2019.

is primarily related to a write down of prepaid prototype work.

As of December 31, 2019, we had nine full-time employees and one

consultant in our G&A department fulfilling management and accounting responsibilities compared to ten full-time employees

and one consultant as of December 31, 2018.

There is no non-cash stock-based compensation included in G&A expenses for the

year ended December 31, 2019 compared to approximately $23,000 for the year ended December 31, 2018.

was primarily related to a one-time litigation expense, partly offset by lower staff expenses.

As of December 31, 2020, we had

eight full-time employees and no consultants in our G&A department fulfilling management and accounting responsibilities compared

to nine full-time employees and one consultant as of December 31, 2019.

There is approximately $42,000 of non-cash stock-based

compensation included in G&A expenses for the year ended December 31, 2020 compared to none for the year ended December 31,

Interest Expense

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31, 2020 was $27,000 compared to $34,000 for the year ended December 31, 2019.

The interest expense was mainly related to finance

The interest expense for both 2020 and 2019 was

mainly related to finance leases.

Foreign Currency Translation and

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31, 2020 and 2019, respectively.

Foreign currency translation gains or (losses) were $(183,000) and $(357,000) during the years

ended December 31, 2019 and 2018, respectively.

Our effective tax rate was 0% in the year

Foreign currency translation gains or (losses) were $235,000 and $(183,000) during the years ended

December 31, 2020 and 2019, respectively.

Our effective tax rate was 0% for the year

ended December 31, 2020 and 0% in the year ended 2019.

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Obligation and Off-Balance Sheet Arrangements

We have a bank guarantee in favor of a

manufacturing partner of $210,000 for AirBar packaging material.

We do not have any other transactions, arrangements, or other

relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources other than

the operating leases incurred in the normal course of business.

We previously agreed to secure the value

of inventory purchased by one of our AirBars manufacturing partners.

At December 31, 2020, the guaranteed amount was decreased

from $210,000 to $100,000.

We do not have any other transactions, arrangements, or other relationships with unconsolidated entities

that are reasonably likely to affect our liquidity or capital resources other than the operating leases incurred in the normal

course of business.

We have no special purpose or limited purpose

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Operating Leases

On August 22, 2016, we entered into a lease

of office space located at 2880 Zanker Road, San Jose, CA 95134.

The lease is up for renewal in August 2020.

On July 1, 2014, Neonode Technologies AB

entered into a lease for 7,007 square feet of office space located at Storgatan 23C, Stockholm, Sweden.

The lease agreement was

renegotiated and renewed in December 2019 and is valid through November 2020.

It is extended on a yearly basis unless written notice

three months prior to expiration date.

We did not renew our lease for the office

space located at 2880 Zanker Road, San Jose, CA 95134 in August 2020 and Neonode Inc.

now operates through a virtual office.

On December 1, 2020, Neonode Technologies

AB entered into a lease for 6,684 square feet of office space located at Karlavägen 100, Stockholm, Sweden.

The lease agreement

is valid through November 2022.

It is extended on a yearly basis unless written notice nine months prior to expiration date.

On December 1, 2015, Pronode Technologies

AB entered into a lease agreement for 9,040 square feet of workshop located at Faktorvägen 17, Kungsbacka, Sweden.

is valid through December 9, 2020 and can be terminated with nine months’

can be terminated with nine months’

written notice before the termination date.

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543-1, Seoul, South Korea.

The lease may be cancelled

with 2 months’

The lease was terminated

on December 18, 2020 and we now only have a virtual office in South Korea.

On December 1, 2015, Neonode Taiwan Ltd.

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is renewed monthly.

On September 1, 2019 we entered into a lease of office

space located at NishiShinjuku Takagi Building, 1203 NishiShinjuku, Shinjukuku, Tokyo, Japan.

On September 1, 2019 we entered into a lease

of office space located at NishiShinjuku Takagi Building, 1203 NishiShinjuku, Shinjukuku, Tokyo, Japan.

The lease is valid through

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to Finance Lease

In April 2014, we entered into a lease for

certain specialized milling equipment.

Under the terms of the lease agreement we are obligated to purchase the equipment at the

end of the original six-year lease term for 10% of the original purchase price of the equipment.

In accordance with relevant accounting

guidance the lease is classified as a finance lease.

The lease payments and depreciation period began on July 1, 2014 when the

equipment went into service.

The implicit interest rate of the lease is 4% per annum.

Between the second and the fourth quarters

of 2016, we entered into six leases for component production equipment.

Under the terms of five of the lease agreements we are

obligated to purchase the equipment at the end of the original 3 5-year lease terms for 5-10% of the original purchase price of

the equipment.

In accordance with relevant accounting guidance the leases are classified as finance leases.

The lease payments

and depreciation periods began between June and November 2016 when the equipment went into service.

The implicit interest rate

of the leases is currently approximately 3% per annum.

One of the leases is a hire-purchase agreement where the equipment is required

to be paid off after 5 years.

In accordance with relevant accounting guidance the lease is classified as a finance lease.

payments and depreciation period began on July 1, 2016 when the equipment went into service.

The implicit interest rate of the

lease is currently approximately 3% per annum.

In 2017, we entered into one lease for component

production equipment.

Under the terms of the lease agreement the lease will be renewed within one year of the end of the original

four-year lease term.

In accordance with relevant accounting guidance the lease is classified as a finance lease.

The lease payments

and depreciation periods began in May 2017 when the equipment went into service.

The implicit interest rate of the lease is currently

approximately 1.5% per annum.

In 2018, we entered into one lease for component

production equipment.

Under the terms of the agreement, the lease will be renewed within one year of the original four-year lease

In April 2014, we entered into a lease for certain specialized

milling equipment.

Under the terms of the lease agreement we are obligated to purchase the equipment at the end of the original

six-year lease term for 10% of the original purchase price of the equipment.

In accordance with relevant accounting guidance the

lease is classified as a finance lease.

The lease payments and depreciation period began on July 1, 2014 when the equipment went

into service.

On July 1, 2020 the lease contract was extended for one year.

The implicit interest rate of the extended lease period

is 9.85% per annum.

Between the second and fourth quarters of 2016, we entered into

six leases for component production equipment.

Under the terms of five of the lease agreements we are obligated to purchase the

equipment at the end of the original 3 5-year lease terms for 5-10% of the original purchase price of the equipment.

In accordance

with relevant accounting guidance the leases are classified as finance leases.

The lease payments and depreciation periods began

between June and November 2016 when the equipment went into service.

The implicit interest rate of the leases is currently approximately

3% per annum.

One of the leases is a hire-purchase agreement where the equipment is required to be paid off after five years.

accordance with relevant accounting guidance the lease is classified as a finance lease.

The lease payments and depreciation period

began on July 1, 2016 when the equipment went into service.

The implicit interest rate of the lease is currently approximately

3% per annum.

In 2017, we entered into a lease for component production equipment.

Under the terms of the lease agreement the lease will be renewed within one year of the end of the original four-year lease term.

In accordance with relevant accounting guidance the lease is classified as a finance lease.

The lease payments and depreciation

periods began in August 2018 when the equipment went into service.

periods began in May 2017 when the equipment went into service.

The implicit interest rate of the lease is currently approximately

1.5% per annum.

In 2018, we entered into a lease for component production equipment.

Under the terms of the agreement, the lease will be renewed within one year of the original four-year lease term.

In accordance

with relevant accounting guidance the lease is classified as a finance lease.

The lease payments and depreciation periods began

in August 2018 when the equipment went into service.

The implicit interest rate of the lease is currently approximately 1.5% per

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 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 million ASICs sold.

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 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 two million ASICs sold.

As of December 31, 2020, we had made no payments to TI under the NN1002 Agreement.

On December 4, 2014, we entered into an

Analog Device Development Agreement (the “NN1003 Agreement”) with STMicroelectronics International N.V.

(“STMicro”)

pursuant to which STMicro agreed to integrate our intellectual property into an ASIC.

The NN1003 ASIC only can be sold by STMicro

exclusively to our licensees.

Under the terms of the NN1003 Agreement, we agreed to reimburse STMicro up to $835,000 of non-recurring

engineering costs.

As of December 31, 2019 we paid a total of $835,000 of the non-recurring engineering costs.

On December 4, 2014, we entered into an Analog Device Development

Agreement (the “NN1003 Agreement”) with STMicroelectronics International N.V.

(“STMicro”) pursuant to which

STMicro agreed to integrate our intellectual property into an ASIC.

The NN1003 ASIC can only be sold by STMicro exclusively to

our licensees.

Under the terms of the NN1003 Agreement, we agreed to reimburse STMicro up to $835,000 of non-recurring engineering

As of December 31, 2020 we have paid a total of $835,000 of the non-recurring engineering costs.

Liquidity and

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among other things:

actual versus anticipated licensing of our technology;

actual versus anticipated purchases of our sensor products, including AirBar;

actual versus anticipated operating expenses;

licensing of our technology;

purchases of our sensor products, including AirBar;

operating expenses;

timing of our OEM customer product shipments;

timing of payment for our technology licensing agreements;

actual versus anticipated gross profit margin;

gross profit margin;

ability to raise additional capital, if necessary.

1 unchanged sentence

$10.5 million, as compared to $2.4 million as of December 31, 2019.

Working capital (current assets less current

liabilities) was $2.4 million as of December 31, 2019, compared to working capital of $8.2 million as of December 31, 2018.

Net cash used in operating activities for

the year ended December 31, 2019 of $3.5 million was primarily the result of a net loss including noncontrolling interests

of approximately $5.8 million.

Cash used to fund net losses is offset by approximately $1.8 million in non-cash operating

expenses, mainly comprised of depreciation, amortization and write-offs.

Working capital (current assets less current liabilities) was

$10.4 million as of December 31, 2020, compared to working capital of $2.4 million as of December 31, 2019.

Net cash used in operating activities for the year ended December

31, 2020 of $5.8 million was primarily the result of a net loss including noncontrolling interests of approximately $6.3 million.

Cash used to fund net losses is offset by approximately $1.3 million in non-cash operating expenses, mainly comprised of depreciation,

amortization and stock based compensations.

Accounts receivable and unbilled revenues

decreased by approximately $397,000 as of December 31, 2019 compared to December 31, 2018.

Inventory decreased by approximately $124,000

increased by approximately $394,000 as of December 31, 2020 compared to December 31, 2019.

Inventory increased by approximately $91,000

as of December 31, 2020 compared to December 31, 2019.

Accounts payable and accrued expenses increased

approximately $454,000 as of December 31, 2019 compared to December 31, 2018.

Accounts payable and accrued expenses increased approximately

$444,000 as of December 31, 2020 compared to December 31, 2019.

Net cash used in operating activities for

the year ended December 31, 2019 of $3.5 million was primarily the result of (i) a net loss including noncontrolling interests

of approximately $3.9 million and (ii) approximately $40,000 in net cash provided in changes in operating assets and liabilities,

primarily accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued expenses, and

deferred revenues.

Cash used to fund net losses is offset by approximately $1.0 million in non-cash operating expenses, mainly

comprised of depreciation and amortization and stock-based compensation.

Accounts receivable decreased approximately

$0.5 million as of December 31, 2018 compared with December 31, 2017.

During 2018, we were successful in collecting cash

from sales to our customers substantially in accordance with our standard payment terms to those customers.

of approximately $5.8 million and (ii) approximately $0.5 million in net cash provided in changes in operating assets and

liabilities, primarily accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued

expenses, and deferred revenues.

Cash used to fund net losses is offset by approximately $1.8 million in non-cash operating

expenses, mainly comprised of depreciation and amortization and stock-based compensation.

Accounts receivable and unbilled revenues

decreased approximately $397,000 as of December 31, 2019 compared with December 31, 2018.

During 2019, we were successful

in collecting cash from sales to our customers substantially in accordance with our standard payment terms to those customers.

Accounts payable and accrued expenses increased

1 unchanged sentence

Deferred revenue decreased approximately

$0.9 million during 2018 mainly related to recognition of prepaid license fees from two customers during 2018.

$429,000 during 2019.

Net cash provided by financing activities

during the year ended December 31, 2020 of $13.6 million was mainly the result of issuance of common stock, partly offset by principal

payments on finance leases.

Net cash used by financing activities during

the year ended December 31, 2019 of $0.5 million was mainly the result of principal payments on finance leases.

Net cash provided by financing activities

during the year ended December 31, 2018 was the result of net proceeds of approximately $4.6 million from the sale of our common

This increase was offset by principal payments on finance leases of $0.6 million.

In the years ended December 31, 2020 and

2018, we purchased $89,000 and $236,000, respectively of fixed assets, consisting primarily of leasing equipment and engineering

On December 28, 2018, we entered into a

Securities Purchase Agreement with foreign investors as part of a non-brokered private placement pursuant to which we issued a

total of 2,940,767 shares of common stock at $1.60 per share for a purchase price of $4.6 million in net proceeds.

stock issued in the private placement was not registered for resale and we are not required under the Securities Purchase Agreement

to register the issued stock for resale.

The purchasers in the private placement included Neonode directors, Ulf Rosberg and Andreas

Bunge, and members of management and certain employees of the Company, including former Chief Executive Officer Hakan Persson

and former Chief Financial Officer Lars Lindqvist.

The Neonode directors and members of management and employees individually

purchased an aggregate of approximately $2 million of common stock as part of the private placement.

In addition, major

shareholder and now director Peter Lindell also purchased shares.

Lindell and Mr.

Rosberg are each a beneficial owner

of approximately 18% of Neonode common stock.

In March 2017, we filed a $20 million shelf

registration statement with the SEC that became effective on March 24, 2017.

Subject to the availability of sufficient shares

of authorized common stock, we may from time to time issue shares of our common stock under our shelf registration in amounts,

at prices, and on terms to be announced when and if the securities are offered.

The specifics of any future offerings, along with

the use of proceeds of any securities offered, will be described in a prospectus supplement and any other offering materials,

at the time of the offering.

Our shelf registration statement will expire on March 24, 2020.

On September 27, 2018, the Company filed

a certificate of amendment to its restated certificate of incorporate with the state of Delaware to effect a reverse stock split,

effective October 1, 2018.

The Company also filed a certificate of amendment to its restated certificate of incorporation with

the state of Delaware to reduce the number of authorized shares of common stock from 100,000,000 to 10,000,000 shares.

did not affect the number of authorized preferred stock of 1,000,000 shares.

As a result of the reverse stock split,

every ten shares of issued and outstanding common stock were converted into one share of common stock, without any change in the

par value per share.

No fractional shares were issued, therefore shareholders entitled to receive a fractional share in connection

with the reverse stock split received a cash payment instead.

There was no financial impact to the Company’s consolidated

financial statements.

All shares and per share information in this Form 10-K have been retroactively adjusted for all periods presented

to reflect the reverse stock split, including reclassifying any amount equal to the reduction in par value of common stock to additional

paid-in capital.

Effective June 11, 2019, the Company further

amended its restated certificate of incorporation to increase the number of authorized shares of common stock to 15,000,000 shares.

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.

We aim to grow our revenues in all business

areas and 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.

2019, we purchased $60,000 and $89,000, respectively, of fixed assets, consisting primarily of engineering equipment.

Loan agreements

with Directors Rosberg and Lindell

On June 17, 2020, we entered into short-term

loan facilities (the “Loan Agreements”) with two entities beneficially owned respectively by each of Ulf Rosberg and

Peter Lindell, Directors of Neonode.

Pursuant to the Loan Agreements, each Director made 16,145,000 SEK (Swedish Krona), which

is approximately $1.7 million in U.S.

dollars, principal amount available to the Company.

The Company made an initial drawdown

of an aggregate of approximately $1.0 million under the Loan Agreements.

See Note 6 to our consolidated financial statements for

additional details on the Loan Agreements.

Private Placement

On August 7, 2020, we closed a private placement

(the “August 2020 Private Placement”) with certain institutional and accredited investors.

We issued a total of 1,611,845

shares of common stock at a price of $6.50 per share, and a total of 365 shares of Series C-1 Preferred Stock and 3,050 shares

of Series C-2 Preferred Stock, each with a conversion price of $6.50 per share and a stated value of $1,000 per share, for approximately

$13.9 million in gross proceeds.

The net proceeds from the private placement are being used for working capital purposes.

Ulf Rosberg and Peter Lindell, directors

of Neonode, and Urban Forssell, our Chief Executive Officer, purchased an aggregate of $3.05 million of the Series C-2 Preferred

Stock in the August 2020 Private Placement.

We issued 517 shares of Series C-2 Preferred

Stock to UMR Invest AB, an entity beneficially owned by Ulf Rosberg, in satisfaction of the outstanding indebtedness and accrued

interest under the Loan Agreement with UMR Invest AB.

Cidro Förvaltning AB, an entity associated with Mr.

Lindell purchased

517 shares of Series C-2 Preferred Stock.

Following the closing, we used the proceeds from the sale of Series C-2 Preferred Stock

to Cidro Förvaltning AB to satisfy the outstanding indebtedness and accrued interest under the Loan Agreement with Cidro Holding

As a result of the repayments to each of UMR Invest AB and Cidro Holding AB, the Loan Agreements terminated in accordance with

Pursuant to the terms and the provisions

of the Securities Purchase Agreement, all 365 shares of Series C-1 Preferred Stock and 4,084 shares of Series C-2 Preferred Stock

(together, the “Series C Preferred Shares”) were converted into 684,378 shares of Neonode common stock on September

24 and 29, 2020, respectively.

Prior to their conversion, the holders of

the Series C Preferred Shares were entitled to receive dividends at the rate per share of 5% per annum, totaling $33,000.

December 31, 2020, all of the preferred dividends have been paid.

We entered into a Registration Rights Agreement

(the “Registration Rights Agreement”) with the investors in the August 2020 Private Placement, pursuant to which we

filed a registration statement with the Securities and Exchange Commission (the “SEC”) relating to the offer and sale

by the holders of the shares of common stock sold in the private placement, and the shares of common stock issuable upon conversion

of the Series C Preferred Shares.

The registration statement was declared effective by the SEC on September 18, 2020.

maintain the effectiveness of the registration statement will subject us to payment for liquidated damages.

In connection with the August 2020 Private

Placement, we incurred total offering costs of $879,000.

Future Sources of Liquidity

In the future, we may require sources of

6 unchanged sentences

through public or private offerings if needed to provide us with sufficient liquidity.

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 on acceptable

terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business,

results of operations and financial condition.

In addition, no assurance can be given that stockholders will approve an increase

in the number of our authorized shares of common stock.

If funds and sufficient authorized shares are available, 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 that could impair our ability to

engage in certain business transactions.

No assurances can be given, however, that

we will be successful in obtaining such additional financing on reasonable terms, or at all.

If adequate funds are not available

on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our

business, results of operations and financial condition.

In addition, no assurance can be given that stockholders will approve

an increase in the number of our authorized shares of common stock if needed.

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 that could impair our ability to engage in certain business transactions.

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.

They are subject

to foreign currency exchange rate risk.

Any increase or decrease in the exchange rate of the U.S.

Dollar compared to the Swedish

Krona, Japanese Yen, South Korean Won or Taiwan Dollar will impact our future operating results.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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 5. Market for Registrant’s Common Equity