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Item 1. Financial Statements

2021-11-10 compared with 2021-08-11 · 877 added, 638 removed, 271 unchanged (85% of the section changed)

Financial Statements

CONSOLIDATED BALANCE SHEETS

thousands, except share and per share amounts)

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

September 30,

Current assets:

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

11,504,665 shares issued and outstanding at June 30, 2021 and December 31, 2020

11,611,048 and 11,504,665 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively.

Additional paid-in capital

6 unchanged sentences

Total liabilities and stockholders’ equity

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

CONSOLIDATED STATEMENTS OF OPERATIONS

thousands, except per share amounts)

The accompanying notes are an integral part of

these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three months ended

Six months ended

Sensor modules

September 30,

Nine months ended

September 30,

Non-recurring engineering

1 unchanged sentence

Cost of revenues:

Sensor modules

Non-recurring engineering

10 unchanged sentences

Total other expense

Loss before provision for income taxes

Provision for income taxes

Loss before provision (benefit) for income taxes

Provision (benefit) for income taxes

Net loss including noncontrolling interests

1 unchanged sentence

Net loss attributable to Neonode Inc.

Preferred dividends

Net loss attributable to common shareholders of Neonode Inc.

Loss per common share:

1 unchanged sentence

Basic and diluted – weighted average number of common shares outstanding

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

The accompanying notes are an integral part of

these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE

(In thousands)

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Other comprehensive income (loss):

3 unchanged sentences

Comprehensive loss attributable to Neonode Inc.

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except for Preferred Stock Shares Issued 1 )

the Quarter to Date periods ended June 30, 2020 through June 30, 2021

Stock Shares Issued

Paid-in Capital

Other Comprehensive Income (Loss)

Stockholders’ Equity

The accompanying notes are an integral part of

these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In thousands, except for Preferred Stock Shares

For the Quarter to Date periods ended September

30, 2020 through September 30, 2021

Preferred Stock Shares

Preferred Stock Amount

Common Stock Shares Issued

Common Stock Amount

Comprehensive

Income (Loss)

Stockholders’

Noncontrolling

Stockholders’ Equity

December 31, 2019

Stockholders’

Balances, December 31, 2019

$ ( 190,520 )

currency translation adjustment

March 31, 2020

Foreign currency translation adjustment

Balances, March 31,

$ ( 191,530 )

currency translation adjustment

June 30, 2020

Foreign currency translation adjustment

Balances, June 30,

$ ( 193,142 )

of shares for cash, net of offering costs

C-2 Preferred Stock issued for repayment of short-term borrowings and accrued interest

of Series C-1 and C-2 Preferred Stock to common stock

currency translation adjustment

September 30, 2020

Issuance of shares for cash, net

of offering costs

Series C-2 Preferred Stock issued

for repayment of short-term borrowings and accrued interest

Conversion of Series C-1 and C-2

Preferred Stock to common stock

Preferred dividends

Foreign currency translation adjustment

Balances, September 30,

$ ( 194,813 )

currency translation adjustment

December 31, 2020

Stock-based compensation

Foreign currency translation adjustment

Balances, December 31,

$ ( 196,158 )

currency translation adjustment

March 31, 2021

Stock-based compensation

Foreign currency translation adjustment

Balances, March 31,

$ ( 197,726 )

currency translation adjustment

June 30, 2021

Stock-based compensation

Foreign currency translation adjustment

Balances, June 30,

$ ( 199,383 )

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

Issuance of common stock under the

Stock-based compensation

Foreign currency translation adjustment

Balances, September

$ ( 201,104 )

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Shares Issued per series can be found under the equity footnote (see Note 3).

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine months ended

September 30,

Cash flows from operating activities:

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Cash flows from financing activities:

Proceeds from issuance of preferred and common stock, net of offering costs

Proceeds from short term borrowings

Proceeds from short term tax credits

Payments on short term borrowings

Payments on short term tax credits

Principal payments on finance lease obligations

Net cash (used in) provided by financing activities

Payment of preferred dividend

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net decrease in cash

Net increase (decrease) in cash

Cash at beginning of period

3 unchanged sentences

Cash paid for interest

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

to the Condensed Consolidated Financial Statements

Supplemental disclosure of non-cash investing and financing activities:

Short-term borrowings and accrued interest settled for Series C-2 Preferred Stock

Accrual of dividends

Right-of-use asset obtained in exchange for lease obligation

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Notes to the Condensed Consolidated Financial

Interim Period Reporting

accompanying unaudited interim condensed consolidated financial statements include all adjustments consisting of normal recurring adjustments

that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash

flows for the interim periods presented.

The results of operations for the three and six months ended June 30, 2021 are not necessarily

indicative of results for a full fiscal year or any other period.

accompanying condensed consolidated financial statements for the three and six months ended June 30, 2021 and 2020 have been prepared

by us, pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”).

Certain information and footnote disclosures normally contained in financial statements prepared in accordance with accounting principles

generally accepted in the U.S.

The accompanying unaudited

interim condensed consolidated financial statements include all adjustments consisting of normal recurring adjustments that are, in the

opinion of management, necessary for a fair presentation of the financial position and results of operations and cash flows for the interim

periods presented.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of

results for a full fiscal year or any other period.

The accompanying condensed

consolidated financial statements for the three and nine months ended September 30, 2021 and 2020 have been prepared by us, pursuant to

the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”).

Certain information

and footnote disclosures normally contained in financial statements prepared in accordance with accounting principles generally accepted

GAAP”) have been condensed or omitted.

These condensed consolidated financial statements

should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on

Form 10-K for the fiscal year ended December 31, 2020.

These condensed consolidated financial statements should be read

in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the

fiscal year ended December 31, 2020.

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 remote sensing solutions for driver and in-cabin monitoring features.

market and sell our contactless touch, touch, and gesture sensing products and solutions using our zForce technology platform, and our

remote sensing solutions using our MultiSensing technology platform.

Neonode offers customized optical touch and gesture control solutions

for many different markets and segments.

solutions for contactless touch, touch, gesture sensing, and scene analysis 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 products and solutions using our zForce technology platform, and our scene analysis solutions using our MultiSensing

technology platform.

We offer our solutions to customers in many different markets and segments including, but not limited to, consumer

electronics, office equipment, automotive, industrial automation, medical, military and avionics.

In our operations, we have

6 unchanged sentences

going forward.

Revenues are however primarily monitored per our revenue streams license fees, sensor modules and non-recurring engineering

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

The Company incurred net losses

of approximately $ 1.7 million and $ 3.2 million and $ 1.6 million and $ 2.6 million for the three and six months ended June 30, 2021 and

2020, respectively, and had an accumulated deficit of approximately $ 199.4 million and $ 196.2 million as of June 30, 2021 and December

31, 2020, respectively.

In addition, operating activities used cash of approximately $ 3.4 million and $ 1.9 million for the six months

ended June 30, 2021 and 2020, respectively.

The condensed consolidated

financial statements included in this report have been prepared on a going concern basis, which contemplates continuity of operations

and the realization of assets and the repayment of liabilities in the ordinary course of business.

Revenues are however primarily monitored for each of our revenue streams consisting of license fees, product sales and

non-recurring engineering fees.

We have incurred significant

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

The Company incurred net losses of approximately $ 1.7 million

and $ 4.9 million and $ 1.6 million and $ 4.3 million for the three and nine months ended September 30, 2021 and 2020, respectively, and

had an accumulated deficit of approximately $ 201.1 million and $ 196.2 million as of September 30, 2021 and December 31, 2020, respectively.

In addition, operating activities used cash of approximately $ 5.0 million and $ 3.7 million for the nine months ended September 30, 2021

and 2020, respectively.

During the three and nine

months ended September 30, 2021, we sold an aggregate of 93,553 shares of common stock under our at-the-market (the “ATM Facility”)

Riley Securities, Inc.

Riley Securities”), resulting in net proceeds of approximately $ 593,000 to us after payment

of commissions to B.

Riley Securities of $ 18,000 .

During October 2021

we sold an aggregate of 142,169 shares under the ATM Facility with aggregate net proceeds to us of $ 1,396,000 after payment of commissions

Riley Securities of $ 43,000 .

On October 21, 2021, we entered

into a placement agency agreement with Pareto Securities Inc.

and Pareto Securities AB pursuant to which we sold to certain Swedish and

other European investors an aggregate of 1,808,000 shares of our common stock at a price of $ 7.75 per share in a registered direct offering

that closed on October 26, 2021 (the “Offering”).

We received net proceeds of approximately $ 13.1 million from the Offering

after deducting placement agent fees and offering expenses.

The condensed consolidated financial statements included in this report

have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and the repayment

of liabilities in the ordinary course of business.

Management evaluated the significance

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Summary of Significant Accounting Policies

of Consolidation

Principles of Consolidation

The condensed consolidated

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AB is owned by 2X Communication AB, located in Gothenburg, Sweden.

Pronode Technologies AB was organized to manufacture and sell our sensor

Pronode Technologies AB was organized to manufacture and sell our touch

sensor modules (“TSM”).

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

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.

condensed consolidated balance sheets at June 30, 2021 and December 31, 2020 and the condensed consolidated statements of operations,

comprehensive loss, stockholders’ equity and cash flows for the three and six months ended June 30, 2021 and 2020 include our accounts

and those of our wholly owned subsidiaries as well as Pronode Technologies AB.

and Judgments

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.

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 condensed consolidated

balance sheets at September 30, 2021 and December 31, 2020 and the condensed consolidated statements of operations, comprehensive loss,

stockholders’ equity and cash flows for the three and nine months ended September 30, 2021 and 2020 include our accounts and those

of our wholly-owned subsidiaries as well as Pronode Technologies AB.

Estimates and Judgments

The 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

Actual results could differ from these estimates and judgments.

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;

provisions for uncollectible

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;

provisions for uncollectible receivables;

determining the net realizable value of inventory;

recoverability of capitalized project costs and long-lived assets;

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

and the fair value of options issued for stock-based compensation.

and Cash Equivalents

have not had any liquid investments other than normal cash deposits with bank institutions to date.

The Company considers all highly

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

Concentration

of Cash Balance Risks

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;

fair value of options issued as stock-based compensation.

Cash and Cash Equivalents

We have not had any liquid

investments other than normal cash deposits with bank institutions to date.

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 balances are maintained

19 unchanged sentences

based on certain other factors including the length of time the receivables are past due and historical collection experience with customers.

Our allowance for doubtful accounts was approximately $ 79,000 as of June 30, 2021 and December 31, 2020, respectively.

in process consist of costs incurred toward the completion of various projects for certain customers.

These costs are primarily comprised

of direct engineering labor costs and project-specific equipment costs.

These costs are capitalized on our balance sheet as an asset

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

There were no costs capitalized

to projects in process as of June 30, 2021 and December 31, 2020, respectively.

Company’s inventory consists primarily of components that will be used in the manufacturing of our sensor modules.

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

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

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.

Management has further decided to reserve for a portion of AirBar finished goods, depending on type

of AirBar and in which location it is stored.

The AirBar inventory reserve was $ 0.8 million and $ 0.9 million as of June 30, 2021 and

December 31, 2020, respectively.

protect our manufacturing partner from losses in relation to AirBar production, we agreed to secure the value of the inventory with a

bank guarantee covering the production of 20,000 AirBars.

Excess inventory was purchased from our manufacturing partner in 2019 and has

been fully reserved.

materials, work-in-process, and finished goods are as follows (in thousands):

Our allowance for doubtful accounts was approximately $ 79,000 as of September 30, 2021 and December 31, 2020.

Projects in Process

Projects in process consist

of costs incurred toward the completion of various projects for certain customers.

These costs are primarily comprised of direct engineering

labor costs and project-specific equipment costs.

These costs are capitalized on our balance sheet as an asset and deferred until revenue

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

There were no costs capitalized to projects in process

as of September 30, 2021 and December 31, 2020.

The Company’s inventory

consists primarily of components that will be used in the manufacturing of our TSMs.

We classify 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.

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.

Management has further decided to reserve for a portion of AirBar finished goods, depending on type of AirBar and in which location it

The AirBar inventory reserve was $ 0.8 million and $ 0.9 million as of September 30, 2021 and December 31, 2020, respectively.

To protect our manufacturing

partner from losses in relation to AirBar production, we agreed to secure the value of the inventory with a bank guarantee covering the

production of 20,000 AirBars.

Excess inventory was purchased from our manufacturing partner in 2019 and has been fully reserved.

Raw materials, work-in-process,

and finished goods are as follows (in thousands):

September 30,

Raw materials

Work-in-process

and Equipment

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:

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:

Estimated useful lives

Computer equipment

Furniture and fixtures

purchased under a finance lease is recognized over the term of the lease if that lease term is shorter than the estimated useful life.

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

of Use Assets

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 and finance leases for manufacturing equipment.

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.

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.

Asset Recoverability

assess the recoverability of long-lived assets by estimating the future cash flows from the associated assets in accordance with relevant

accounting guidance.

If the estimated undiscounted future cash flows related to these assets decreases or the useful life is shorter

than originally estimated, we may incur charges for impairment of these assets.

As of June 30, 2021, 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.

Currency Translation and Transaction Gains and Losses

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.

Equipment purchased under

a finance lease is recognized 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 and finance leases for manufacturing equipment.

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 Asset Recoverability

We assess the recoverability

of long-lived assets by estimating the future cash flows from the associated assets in accordance with relevant accounting guidance.

the estimated undiscounted future cash flows related to these assets decreases or the useful life is shorter than originally estimated,

we may incur charges for impairment of these assets.

As of September 30, 2021, we believe there was no impairment of our long-lived

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.

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 period.

Gains or (losses) resulting from translation are included as a separate component of

accumulated other comprehensive income (loss).

Foreign currency translation gains (losses) were $ 56,000 and $( 110,000 ) and $ 64,000 and

$( 23,000 ) during the three and six months ended June 30, 2021 and 2020, respectively.

Gains (losses) resulting from foreign currency

transactions are included in general and administrative expenses in the accompanying condensed consolidated statements of operations

and were $( 54,000 ) and $ 28,000 during the three and six months ended June 30, 2021, respectively, compared to $( 63,000 ) and $( 14,000 )

during the same periods in 2020, respectively.

Concentration

of Credit and Business Risks

customers are located in U.S., Europe and Asia.

As of June 30, 2021, four

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.

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

income (loss).

Foreign currency translation gains (losses) were $( 37,000 ) and $( 147,000 ) and $( 228,000 ) and $( 251,000 ) during the three

and nine months ended September 30, 2021 and 2020, respectively.

Gains (losses) resulting from foreign currency transactions are included

in general and administrative expenses in the accompanying condensed consolidated statements of operations and were $ 40,000 and $ 68,000

during the three and nine months ended September 30, 2021, respectively, compared to $( 135,000 ) and $( 149,000 ) during the same periods

in 2020, respectively.

Concentration of Credit and Business Risks

Our customers are located

in the U.S., Europe and Asia.

As of September 30, 2021,

five customers represented approximately 82 % of our consolidated accounts receivable and unbilled revenues.

As of December 31, 2020, three

customers represented approximately 62 % of our consolidated accounts receivable and unbilled revenues.

of December 31, 2020, three customers represented approximately 62 % of our consolidated accounts receivable and unbilled revenues.

who accounted for 10 % or more of our net revenues during the three months ended June 30, 2021 are as follows:

Customers who accounted for

10 % or more of our net revenues during the three months ended September 30, 2021 are as follows:

● Hewlett Packard Company:

1 unchanged sentence

● LG Electronics Inc.:

who accounted for 10 % or more of our net revenues during the six months ended June 30, 2021 are as follows:

Customers who accounted for

10 % or more of our net revenues during the nine months ended September 30, 2021 are as follows:

● Hewlett Packard Company:

1 unchanged sentence

● LG Electronics Inc.:

who accounted for 10 % or more of our net revenues during the three months ended June 30, 2020 are as follows:

● Epson – 35 %

Customers who accounted for

10 % or more of our net revenues during the three months ended September 30, 2020 are as follows:

● Hewlett Packard Company – 31 %

● Alpine – 12 %

who accounted for 10 % or more of our net revenues during the six months ended June 30, 2020 are as follows:

● Alpine – 17 %

● Epson – 24 %

● LG Electronics – 16 %

● Seiko Epson Corporation – 13 %

● Alpine Electronics, Inc – 12 %

Customers who accounted for

10 % or more of our net revenues during the nine months ended September 30, 2020 are as follows:

● Hewlett Packard Company – 32 %

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.

fees for products and sales of AirBar and sensor modules are recognized 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.

recognize revenue net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental

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.

from our business areas derive from three different revenue streams:

license fees, non-recurring engineering fees and the sale of sensor

● Seiko Epson Corporation – 19 %

● Alpine Electronics, Inc – 15 %

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, 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.

License fees for products

and sales of AirBar and TSMs are recognized 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.

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.

Revenues from our business

areas derive from three different revenue streams:

license fees, product sales and non-recurring engineering fees.

Licensing Revenues:

We earn revenue from licensing

our internally developed intellectual property (“IP”) and our licensing customer base is primarily in the automotive and printer

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

our internally developed intellectual property (“IP”).

Our licensing customer base is primarily in the automotive and printer

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.

3 unchanged sentences

standalone value and can be used by the licensee without maintenance and support.

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.

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

return rights are not offered to customers.

There have been no returns through June 30, 2021.

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 September 30, 2021.

We earn revenue from sales

of TSMs to our Original Equipment Manufacturers (“OEMs”) and Tier 1 supplier customers, who embed our hardware into their

products and, occasionally, from sales of our AirBar branded consumer products (incorporating our TSM technology) sold through distributors.

These distributors are generally given business terms that do not allow them to return unsold inventory.

Our sales agreements generally

provide customers with limited rights of return and warranty provisions.

The timing of revenue recognition

related to sales of TSMs and AirBars depends upon how each sale is transacted - either point-of-sale or through distributors.

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

Because we generally use distributors

to provide TSMs and AirBars to our customers, we analyze the terms of distributor agreements to determine when control passes from us

to our distributors.

For sales of TSMs and AirBars 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.

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 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 $ 76,000 as

of September 30, 2021 and $ 78,000 as of December 31, 2020.

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.

Engineering Services Revenues:

For technology license or

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

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

TSM contracts that require modification or customization of the underlying technology to adapt that technology to the customer’s

desired use, we determine whether the technology licensing or TSM sales, and the engineering consulting services represent separate performance

We perform our analysis on a contract-by-contract basis.

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Deliverables and payment terms are specified in each SOW.

We generally charge an hourly rate or on a flat rate for engineering services,

We generally charge an hourly rate or a flat rate for engineering services,

and we recognize revenue as the engineering services specified in the contracts are completed and accepted by our customers.

payments we receive for future non-recurring engineering services are recorded as unearned revenue until that revenue is earned.

believe that recognizing non-recurring engineering service 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.

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

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.

losses on all SOW projects are recognized in full as soon as they become evident.

During the three and six months ended June 30, 2021

and 2020, no losses related to SOW projects were recorded.

Touch Sensor Modules Revenues:

We earn revenue from sales

of touch sensor modules (“TSMs”) products to our OEM and Tier 1 supplier customers, who embed our hardware into their products,

and, occasionally, from sales of our AirBar branded consumer products (incorporating our TSM technology) sold through distributors.

distributors are generally given business terms that do not allow them to return unsold inventory.

Our sales agreements generally provide

customers with limited rights of return and warranty provisions.

We believe that recognizing

non-recurring engineering service revenues as progress towards completion of engineering services and when 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 three and nine months ended September 30, 2021 and 2020, no

losses related to SOW projects were recorded.

The following tables present

disaggregated revenues by market for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):

Three months ended

September 30, 2021

Three months ended

September 30, 2020

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

Net revenues from automotive

Net revenues from medical

Net revenues from distributors and other

Nine months ended

September 30, 2021

Nine months ended

September 30, 2020

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

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 the contract is 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

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

The following table presents

accounts receivable and deferred revenues as of September 30, 2021 and December 31, 2020 (in thousands):

September 30,

Accounts receivable and unbilled revenue

Deferred revenues

The timing of revenue recognition,

related to sales of TSMs and AirBars depends upon how each sale is transacted - either point-of-sale or through distributors.

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

we generally use distributors to provide TSMs and AirBars to our customers, we analyze the terms of distributor agreements to determine

when control passes from us to our distributors.

For sales of TSMs and AirBars 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.

participate in various cooperative marketing and other incentive programs, and we maintain estimated accruals and allowances for these

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.

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 $ 70,000 as of June 30, 2021 and $ 78,000 as of December 31, 2020.

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.

following tables present disaggregated revenues by market for the three and six months ended June 30, 2021 and 2020 (dollars in thousands):

June 30, 2021

June 30, 2020

revenues from consumer electronics

revenues from distributors and other

revenues from automotive

revenues from consumer electronics

revenues from distributors and other

revenues from automotive

revenues from medical

revenues from distributors and other

June 30, 2021

June 30, 2020

revenues from consumer electronics

revenues from distributors and other

revenues from automotive

revenues from consumer electronics

revenues from distributors and other

revenues from automotive

revenues from medical

revenues from distributors and other

contracts with customers may include promises to transfer multiple products and services to a customer, particularly when the contract

is 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.

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 obligations.

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.

judgment is required to determine the amount of unbilled license fees at the end of each reporting period.

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.

following table presents accounts receivable and deferred revenues as of June 30, 2021 and December 31, 2020 (in thousands):

receivable and unbilled revenue

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;

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.

sometimes receives advances or deposits from its customers before revenue is recognized, which are reported as contract liabilities and

are generally classified as current.

These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract

basis at the end of each reporting period.

do not anticipate impairment of our contract asset related to license fee revenues, given the creditworthiness of our customers whose

invoices comprise the balance in that asset account.

We will continue to monitor the timeliness of receipts from those customers, however,

to assess whether the contract asset has been impaired.

allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance.

the allowance based on known troubled accounts, historical experience, and other currently available evidence.

Our allowance for doubtful

accounts was approximately $79,000 as of June 30, 2021 and December 31, 2020.

terms and conditions vary by the type of contract;

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 component.

Our intent is to provide our customers with consistent invoicing terms

for the convenience of our customers, not to receive financing from our customers.

to Obtain Contracts

record the incremental costs of obtaining a contract with a customer as an asset, if we expect the benefit of those costs to cover a

period greater than one year.

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.

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

We do not anticipate impairment

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

in that asset account.

We will continue to monitor the timeliness of receipts from those customers, however, to assess whether the contract

asset has been impaired.

The allowance for doubtful

accounts 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.

Our allowance for doubtful accounts was approximately

$ 79,000 as of September 30, 2021 and December 31, 2020.

Payment terms and conditions

vary by the type of contract;

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

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 an asset, if we expect the benefit of those costs to cover a period greater than one

We currently have no incremental costs that must be capitalized.

expense as incurred costs of obtaining a contract when the amortization period of those costs would have been less than or equal to one

following table summarizes the activity related to the product warranty liability (in thousands):

at beginning of period

for warranty issued

at end of period

Company accrues for warranty costs as part of its cost of sales of sensor modules 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.

revenues consist primarily of prepayments for license fees, and other products or services for which we have been paid in advance and

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.

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 license.

Engineering development fee revenues are deferred until engineering services

have been completed and accepted by our customers.

following table presents our deferred revenues (in thousands):

revenues license fees

revenues sensor modules

revenues non-recurring engineering

the three and six months ended June 30, 2021, the Company recognized revenues of approximately $ 8,000 and $ 26,000 , respectively, related

to contract liabilities outstanding at the beginning of the year.

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):

September 30,

Balance at beginning of period

Provisions for 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.

Deferred Revenues

Deferred revenues consist

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

Engineering development fee revenues are deferred until engineering services have been completed and accepted

by our customers.

The following table presents

our deferred revenues (in thousands):

September 30,

Deferred revenues license fees

Deferred revenues products

Deferred revenues non-recurring engineering

During the three and nine

months ended September 30, 2021, the Company recognized revenues of approximately $ 0 and $ 26,000 , respectively, related to contract liabilities

outstanding at the beginning of the year.

Advertising costs are expensed

Advertising costs for the three and nine months ended September 30, 2021 and 2020 amounted to approximately $ 12,000 and $ 70,000

and $ 27,000 and $ 43,000 , respectively.

Research and Development

Research and development (“R&D”)

costs are expensed as incurred.

Advertising costs for the three and six months ended June 30, 2021 and 2020 amounted to approximately

$ 39,000 and $ 58,000 and $ 9,000 and $ 16,000 , respectively.

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.

Noncontrolling

We recognize any noncontrolling interest, also known as a minority

interest, as a separate line item in 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 represents less than 50 %

of the outstanding voting shares of an entity 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.

Company provides either in the condensed consolidated statement of stockholders’ equity, if presented, or in the notes to condensed

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 parent, and equity (net assets) attributable to the noncontrolling interest that

separately discloses:

income or loss;

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

component of other comprehensive income or loss.

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.

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 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 represents less than 50 % of the outstanding voting shares of an entity 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 condensed consolidated statement of stockholders’ equity, if presented, or in the notes to condensed 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 parent, 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 our 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 June 30, 2021 and December 31, 2020.

In the event we were to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred

tax asset would increase income in the period such determination was made.

The provision for income taxes represents the net change in

deferred tax amounts, plus income taxes paid or payable for the current period.

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.

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.

realization of deferred tax assets is based on historical tax positions and expectations about future taxable income.

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 September 30, 2021 and December 31, 2020.

In the event we were

to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase

income in the period such determination was made.

The provision for income taxes represents the net change in deferred tax amounts, plus

income taxes paid or payable for the current period.

We follow U.S.

accounting for uncertainty in income taxes, which provisions include a two-step approach to recognizing, de-recognizing and measuring

uncertainty in income taxes.

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

As of June 30,

2021, and December 31, 2020, we had no unrecognized tax benefits.

Loss per Share

As of September 30, 2021 and

December 31, 2020, we had no unrecognized tax benefits.

Net Loss per Share

Net loss per share amounts

has been computed based on the weighted average number of shares of common stock outstanding during the three and six months ended June

have been computed based on the weighted average number of shares of common stock outstanding during the three and nine months ended September

30, 2021 and 2020, respectively.

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The weighted-average

number of shares of common stock and potential common stock equivalents used in computing the net loss per share for the three and six

months ended June 30, 2021 and 2020 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note

Comprehensive Income (Loss)

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 in the condensed consolidated balance sheets.

Flow Information

flows in foreign currencies have been converted to U.S.

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

The weighted-average exchange rate for the condensed consolidated statements of operations was as follows:

rate for the consolidated balance sheets was as follows:

Value of Financial Instruments

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

Financial instruments

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

Accounting Pronouncements

number of shares of common stock and potential common stock equivalents used in computing the net loss per share for the three and nine

months ended September 30, 2021 and 2020 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see

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 in the condensed consolidated balance sheets.

Cash Flow Information

Cash flows in foreign currencies

have been converted to U.S.

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

The weighted-average

exchange rate for the condensed consolidated statements of operations was as follows:

Nine months ended

September 30,

Swedish Krona

South Korean Won

Taiwan Dollar

Exchange rate for the consolidated

balance sheets was as follows:

September 30,

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, accounts

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

New Accounting Pronouncements

In September 2016, the FASB

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of the new standard at this time.

December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Tax , which simplifies

the accounting for income taxes.

We adopted ASU 2019-12 on January 1, 2021 and the adoption of this ASU did not have a significant impact

on our consolidated financial statements.

In December 2019, the FASB

issued ASU 2019-12, Income Taxes (Topic 740):

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

We adopted ASU 2019-12 on January 1, 2021 and the adoption of this ASU did not have a significant impact on our consolidated financial

Stockholders’ Equity

May 10, 2021, we entered into an At Market Issuance Sales Agreement SM (the “Sales Agreement”) with B.

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 $ 25.0 million of shares

of our common stock.

to the Sale Agreement, B.

Riley Securities may sell the shares by any method permitted that is deemed an “at the market”

offering as defined in Rule 415 under the Securities Act.

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).

At-the-Market Facility

May 10, 2021, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B.

Riley Securities with

respect to, 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 $ 25.0 million of shares of our common stock through the ATM Facility.

Pursuant to the Sale Agreement, we may sell the shares through B.

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).

We will pay B.

Riley Securities a commission of 3.0 % of the gross

sales price per share sold under the Sales Agreement.

Riley Securities a commission of 3.0 % of the gross sales price per share sold under the Sales

are not obligated to sell any shares under the Sale Agreement.

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(ii) termination of the Sale Agreement in accordance with its terms.

2020 Private Placement

On August 7, 2020, we closed

10 unchanged sentences

shares of our common stock to 25,000,000 shares.

December 29, 2020, we issued 37,288 shares of our common stock to key employees pursuant to our 2020 long term incentive program (“2020

LTIP”) see Note 4.

the three and six months ended June 30, 2021, there were no activities that affected common stock.

August 6, 2020, in connection with the closing of the Private Placement, the Company designated (i) 365 shares of its authorized and

unissued preferred stock as Series C-1 Preferred Stock by filing a Series C-1 Certificate of Designation of Preferences, Rights and Limitations

with the Secretary of State of the State of Delaware and (ii) 4,084 shares of its authorized and unissued preferred stock as Series C-2

Preferred Stock by filing a Series C-2 Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State

of the State of Delaware.

September 24 and 29, 2020, respectively, the Series C-1 Preferred Stock and Series C-2 Preferred Stock (together, the “Series C

Preferred Shares”) were converted into 684,378 shares of Neonode common stock.

holders of the Series C-1 and C-2 Preferred Shares were entitled to receive dividends at the rate per share of 5 % per annum, totaling

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

December 7, 2020, we filed Certificates of Elimination with the Secretary of State of the State of Delaware to eliminate the Series A

Preferred Stock, Series B Preferred Stock, Series C-1 Preferred Stock and Series C-2 Preferred Stock.

were no transactions in our preferred stock during the three and six months ended June 30, 2021 and 2020.

No shares of preferred stock

were issued and outstanding as of June 30, 2021.

of the preferred stock activities are set forth below:

On December 29, 2020, we issued

37,288 shares of our common stock to key employees pursuant to our 2020 long-term incentive program (“2020 LTIP”) (see Note

On August 12, 2021, we issued

12,830 shares of our common stock to key employees pursuant to our 2020 LTIP (see Note 4).

During the three and nine

months ended September 30, 2021, we sold an aggregate of 93,553 shares of common stock under the ATM Facility, resulting in net proceeds

to us of approximately $ 593,000 after payment of commissions to B.

Riley of $ 18,000 .

Preferred Stock

On August 6, 2020, in connection with the closing of the Private Placement,

we designated (i) 365 shares of our authorized and unissued preferred stock as Series C-1 Preferred Stock by filing a Series C-1 Certificate

of Designation of Preferences, Rights and Limitations with the Secretary of State of the State of Delaware and (ii) 4,084 shares of our

authorized and unissued preferred stock as Series C-2 Preferred Stock by filing a Series C-2 Certificate of Designation of Preferences,

Rights and Limitations with the Secretary of State of the State of Delaware.

On September 24 and 29, 2020, respectively, the Series C-1 Preferred

Stock and Series C-2 Preferred Stock (together, the “Series C Preferred Shares”) were converted into an aggregate of 684,378

shares of Neonode common stock.

The holders of the Series

C-1 and C-2 Preferred Shares were entitled to receive dividends at the rate per share of 5 % per annum, totaling $ 33,000 .

As of December

31, 2020, all of the preferred dividends had been paid.

On December 7, 2020, we filed

Certificates of Elimination with the Secretary of State of the State of Delaware to eliminate the Series A Preferred Stock, Series B Preferred

Stock, Series C-1 Preferred Stock and Series C-2 Preferred Stock.

There were no transactions

in our preferred stock during the three and nine months ended September 30, 2021 and 2020.

No shares of preferred stock were issued and

outstanding as of September 30, 2021.

Details of the preferred stock

activities are set forth below:

Shares Issued

December 31, 2019

of Preferred Shares for cash

C-2 Preferred Stock issued for repayment of short-term borrowings and accrued interest

of Preferred Shares to common stock

December 31, 2020

As of June 30, 2021 and December

31, 2020, the Company had outstanding warrants to purchase 431,638 shares of common stock outstanding.

Balances, December 31, 2019

Issuance of Preferred Shares for cash

Series C-2 Preferred Stock issued for repayment of short-term borrowings and accrued interest

Conversion of Preferred Shares to common stock

Balances, December 31, 2020

As of September 30, 2021 and

December 31, 2020, the Company had outstanding warrants to purchase 431,638 shares of common stock outstanding.

Stock-Based Compensation

7 unchanged sentences

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

During the year ended December

31, 2020, our stockholders approved the Neonode Inc.

2020 Stock Incentive Plan (the “2020 Plan”) which replaced our 2015 Stock

Incentive Plan (the “2015 Plan”), which in turn replaced our Neonode Inc.

Stock Options

During the year ended December 31, 2020, our stockholders approved

the Neonode Inc.

2020 Stock Incentive Plan (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 2015 or 2006 Plans, these plans are still operative for previously granted awards.

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.

of June 30, 2021, we had three equity incentive plans:

The 2006 Plan;

The 2015 Plan;

The 2020 Plan.

Although no new awards

may be made under the 2015 or 2006 Plans, these plans are still operative for awards previously granted under those plans.

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.

In 2020 we established the

2020 Long Term Incentive Plan (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

Under the 2020 LTIP, eligible employees of Neonode may waive between 50 % to 67 % of any 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 under

the Company’s 2020 Plan.

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 issuance.

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 the termination date.

The shares issued on December 29, 2020 represent two-thirds of the total shares available

for issuance under the 2020 LTIP and the last one-third is planned to be issued at the end of December 2021.

Neonode has reported and

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.

Under the 2020 LTIP, eligible employees of Neonode may

waive between 50 % to 67 % of any 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 under the Company’s 2020 Plan.

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 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.

The shares issued on December 29, 2020 represent two-thirds of the total shares available for issuance to these

employees under the 2020 LTIP and the last one-third is planned to be issued at the end of December 2021.

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.

The shares issued on August 12, 2021 represent two-thirds of the total shares available for issuance under the 2020

LTIP to this employee and the last one-third is planned to be issued at the end of December 2021.

The Company 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 included

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

in the consolidated statements of operations for the year ended December 31, 2020, with the remainder to be recognized ratably over the

two-year lock-up period.

For the three and six months ended June 30, 2021, $ 22,000 and $ 45,000 , respectively, of stock-based compensation

was included in our condensed consolidated statement of operations.

Unrecognized compensation expense related to the 2020 LTIP as of

June 30, 2021 was $ 132,000 , which will be recognized over two years from issuance of the shares of common stock.

summary of the combined activity under all of the stock option plans is set forth below:

The Company has reported and

paid Swedish social charges of $ 21,000 for the issued shares but only 30 % and two twenty-fourth of 70 % of the stock-based compensation

(totaling $ 25,000 ) was included in the consolidated statements of operations for the three and nine months ended September 30, 2021, with

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

For the three and nine months

ended September 30, 2021, $ 46,000 and $ 91,000 , respectively, of stock-based compensation was included in our condensed consolidated statements

of operations.

Unrecognized compensation expense related to the 2020 LTIP as of September 30, 2021 was $ 156,000 , which will be recognized

over two years from issuance of the shares of common stock.

A summary of the combined

activity under all of our stock option plans is set forth below:

Outstanding at January 1, 2021

Outstanding at June 30, 2021

aggregate intrinsic value of the 9,500 stock options that are outstanding, vested and expected to vest as of June 30, 2021 was $ 0 .

the three and six months ended June 30, 2021 and 2020, we recorded no compensation expense related to the vesting of stock options.

fair value of the stock-based compensation was calculated using the Black-Scholes option pricing model as of the date of grant of the

stock option.

the three and six months ended June 30, 2021, we did not grant any options to purchase shares of our common stock to employees or members

of our board of directors.

options granted under the 2006 and 2015 Plans are exercisable over a maximum term of ten 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.

Outstanding at September 30, 2021

The aggregate intrinsic value

of the 9,500 stock options that are outstanding, vested and expected to vest as of September 30, 2021 was $ 0 .

For the three and nine months

ended September 30, 2021 and 2020, we recorded no compensation expense related to the vesting of stock options.

During the three and nine

months ended September 30, 2021, we did not grant any options to purchase shares of our common stock to employees or members of our board

of directors.

Stock options granted under the 2006, 2015 and 2020 Plans are exercisable

over a maximum term of ten 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

September 2, 2020, a putative stockholder of Neonode filed a purported class action lawsuit (Case No.

1:20-cv-01174-UNA) in the United

States District Court for the District of Delaware against Neonode, the Board of Directors of Neonode, and the Chief Executive Officer

of Neonode for alleged violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, in connection with disclosure

of information concerning Proposal 5 and Proposal 6 in the proxy statement filed with the SEC by Neonode on August 20, 2020 for the 2020

Annual Meeting of Stockholders of Neonode (the “Proxy Statement”).

These proposals for shareholder approval related to the

Private Placement by Neonode on August 5, 2020 in which two directors and the chief executive officer of Neonode participated.

sought by the plaintiff included a preliminary injunction to enjoin the stockholder votes on Proposal 5 and Proposal 6.

On October 20,

2020, the plaintiff voluntarily dismissed the lawsuit in the United States District Court.

However, on February 11, 2021, the plaintiff’s

counsel informed Neonode that they would file a fee petition as a result of Neonode filing the definitive additional materials to the

Proxy Statement on September 18, 2020.

Neonode intends to vigorously defend against any attempt by the plaintiff’s counsel to obtain

any fee award.

and Guarantees

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.

On September 2, 2020, a putative

stockholder of Neonode filed a purported class action lawsuit (Case No.

1:20-cv-01174-UNA) in the United States District Court for the

District of Delaware against Neonode, the Board of Directors of Neonode, and the Chief Executive Officer of Neonode for alleged violation

of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, in connection with disclosure of information concerning

Proposal 5 and Proposal 6 in the proxy statement filed with the SEC by Neonode on August 20, 2020 for the 2020 Annual Meeting of Stockholders

of Neonode (the “Proxy Statement”).

These proposals for shareholder approval related to the Private Placement by Neonode on

August 5, 2020 in which two directors and the chief executive officer of Neonode participated.

The relief sought by the plaintiff included

a preliminary injunction to enjoin the stockholder votes on Proposal 5 and Proposal 6.

On October 20, 2020, the plaintiff voluntarily

dismissed the lawsuit in the United States District Court.

However, on February 11, 2021, the plaintiff’s counsel informed Neonode

that they would file a fee petition as a result of Neonode filing the definitive additional materials to the Proxy Statement on September

On September 9, 2021, the plaintiff’s counsel filed a complaint in the Supreme Court of the State of New York, County

of Nassau, to recover plaintiff’s attorneys’ fees and expenses in the amount of $ 400,000 incurred in connection with the Proceeding.

On November 3, 2021, the Company entered into a settlement agreement with plaintiff’s counsel, which was accrued for as of September

On November 4, 2021, the case was dismissed with prejudice.

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.

we have a directors’ and officers’ liability insurance policy that should enable us to recover a portion of any future amounts

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 June 30, 2021 and December 31, 2020.

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.

These indemnification provisions often include indemnifications relating to representations

made by us regarding intellectual property rights.

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 September 30, 2021 and December 31, 2020.

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.

These 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.

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 minimal.

Accordingly, we have no liabilities recorded for these indemnification provisions

as of June 30, 2021 and December 31, 2020.

of our manufacturing partners has previously purchased material for the final assembly of AirBars.

To protect the manufacturer from losses

in relation to AirBar production, we agreed to secure the value of the inventory in a bank guarantee.

At June 30, 2021, the guaranteed

amount is $ 100,000 and represents the value of the remaining material in inventory at June 30, 2021.

judgment is that the bank guarantee is a contingent guarantee and management will record a liability when it is probable that we will

have to purchase the inventory.

As of August 11, 2021, management’s judgment is that we will sell the remaining AirBars and purchase

the components and the assembly service from the manufacturing partner.

No liability has therefore been recorded for the period ended

June 30, 2021.

May 6, 2019, the Company assigned a portfolio of patents to Aequitas Technologies LLC.

The assignment provides the Company the right

to share potential proceeds generated from a licensing and monetization program.

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 minimal.

Accordingly, we have no liabilities recorded for these indemnification provisions as of September

30, 2021 and December 31, 2020.

One of our manufacturing partners

has previously purchased material for the final assembly of AirBars.

To protect the manufacturer from losses in relation to AirBar production,

we agreed to secure the value of the inventory in a bank guarantee.

At September 30, 2021, the guaranteed amount is $ 100,000 and represents

the value of the remaining material in inventory at September 30, 2021.

Management’s judgment

is that the bank guarantee is a contingent guarantee and management will record a liability when it is probable that we will have to purchase

the inventory.

As of November 10, 2021, management’s judgment is that we will sell the remaining AirBars and purchase the components

and the assembly service from the manufacturing partner.

No liability has therefore been recorded for the period ended September 30, 2021.

Patent Assignment

On May 6, 2019, the Company

assigned a portfolio of patents to Aequitas Technologies LLC.

The assignment provides the Company the right to share potential proceeds

generated from a licensing and monetization program.

On June 8, 2020, Neonode Smartphone

1 unchanged sentence

These litigation matters are still ongoing.

Non-Recurring

Engineering Development Costs

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

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 June 30, 2021, we had made no payments to TI under the NN1002

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

two million ASICs sold.

As of September 30, 2021, we had made no payments to TI under the NN1002 Agreement.

Segment Information

have one reportable segment, which is comprised of the touch technology licensing and sensor module business.

All of our sales for the

three and six months ended June 30, 2021 and 2020, respectively, were to customers located in the U.S., Europe and Asia.

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

following table presents net revenues by geographic area for the three and six months ended June 30, 2021 and 2020, respectively, (dollars

in thousands):

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

following table presents our total assets by geographic region as of June 30, 2021 and December 31, 2020 (in thousands):

have operating leases for our corporate offices and our manufacturing facility, and finance leases for equipment.

Our leases have remaining

lease terms of three to eighteen months .

One of our primary operating leases includes options to extend the lease for one to three years

and the other primary lease includes an option to annually extend;

those 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 balance sheet date are excluded from right-of-use

assets and related lease liabilities.

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 17 months and both of our leases are 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.

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.

We have one reportable segment,

which is comprised of the touch technology licensing and TSM business.

All of our sales for the three and nine months ended September

30, 2021 and 2020, respectively, were to customers located in the U.S., Europe and Asia.

The Company reports revenues from external customers

based on the country where the customer is located.

The following table presents

net revenues by geographic area for the three and nine months ended September 30, 2021 and 2020, respectively, (dollars in thousands):

Three months ended

September 30, 2021

Three months ended

September 30, 2020

United States

Nine months ended

September 30, 2021

Nine months ended

September 30, 2020

United States

The following table presents

our total assets by geographic region as of September 30, 2021 and December 31, 2020 (in thousands):

September 30,

We have operating leases for

our corporate offices and our manufacturing facility, and finance leases for equipment.

Our leases have remaining lease terms of three

to eighteen months .

One of our primary operating leases includes options to extend the lease for one to three years and the other primary

lease includes an option to annually extend;

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

renewal options that are not likely to be executed as of the balance sheet date are excluded from right-of-use assets and related lease

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 17 months and both of our leases are 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 condensed consolidated balance sheets for our manufacturing

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.

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

lease cost (1)

of leased assets

on lease liabilities

we report the manufacturing equipment, as well

as current and noncurrent finance lease obligations on our condensed 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):

September 30,

Operating lease cost (1)

Finance lease cost:

(1) Includes short term lease costs of $ 38,000 and $ 76,000 for the three and six months ended June 30, 2021, respectively.

lease cost (1)

of leased assets

on lease liabilities

Amortization of leased assets

Interest on lease liabilities

Total finance lease cost

(1) Includes short-term lease costs of $ 41,000 and $ 117,000 for the three and nine months ended September 30, 2021, respectively.

September 30,

Operating lease cost (1)

Finance lease cost:

Includes short term lease costs of $ 27,000 and $ 51,000 for the three and six months ended June 30, 2020, respectively.

cash flow information related to leases was as follows (in thousands):

paid for amounts included in leases:

cash flows from operating leases

cash flows from finance leases

assets obtained in exchange for lease obligations:

Amortization of leased assets

Interest on lease liabilities

Total finance lease cost

(1) Includes short-term lease costs of $ 30,000 and $ 81,000 for the three and nine months ended September 30, 2020, respectively.

Supplemental cash flow information

related to leases was as follows (in thousands):

September 30,

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

Three Months Ended

Six months ended

September 30,

Nine Months Ended

September 30,

Cash paid for amounts included in leases:

4 unchanged sentences

Operating leases

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

lease right-of-use assets

portion of operating lease obligations

lease liabilities, net of current portion

operating lease liabilities

and equipment, at cost

and equipment, net

portion of finance lease obligations

lease liabilities, net of current portion

finance lease liabilities

Average Remaining Lease Term

Average Discount Rate:

adoption of the new lease standard, discount rates used for existing leases were established

at January 1, 2019

summary of future minimum payments under non-cancellable operating lease commitments as of June 30, 2021 is as follows (in thousands):

ending December 31,

Supplemental balance sheet

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

September 30,

Operating leases

Operating lease right-of-use assets

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

September 30,

Weighted Average Remaining Lease Term

Operating leases

Finance leases

Weighted Average Discount Rate:

Operating leases (2)

Finance leases

Upon 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 September 30, 2021 is as follows (in thousands):

Years ending December 31,

2021 (remaining months)

imputed interest

lease liabilities

current portion

following is a schedule of minimum future rentals on the non-cancellable finance leases as of June 30, 2021 (in thousands):

ending December 31,

Less imputed interest

Total lease liabilities

Less current portion

The following is a schedule

of minimum future rentals on the non-cancellable finance leases as of September 30, 2021 (in thousands):

Year ending December 31,

2021 (remaining months)

minimum payments required:

amount representing interest:

value of net minimum lease payments:

current portion

Total minimum payments required:

Less amount representing interest:

Present value of net minimum lease payments:

Less current portion

Net Loss per Share

net loss per common share for the three and six months ended June 30, 2021 and 2020 was computed by dividing the net loss attributable

to Neonode Inc.

for the relevant period by the weighted average number of shares of common stock outstanding.

Diluted loss per common

share is computed by dividing net loss attributable to Neonode Inc.

by the weighted average number of shares of common stock and common

stock equivalents outstanding.

were no potentially dilutive common stock equivalents for the three and six months ended June 30, 2021 and 2020, respectively.

thousands, except per share amounts)

average number of common shares outstanding

loss attributable to Neonode Inc.

loss per share - basic and diluted

thousands, except per share amounts)

average number of common shares outstanding

loss attributable to Neonode Inc.

loss per share - basic and diluted

Basic net loss per common share for the three and nine months ended

September 30, 2021 and 2020 was computed by dividing the net loss attributable to Neonode for the relevant period by the weighted average

number of shares of common stock outstanding.

Diluted loss per common share is computed by dividing net loss attributable to Neonode by

the weighted average number of shares of common stock and common stock equivalents outstanding.

There were no potentially

dilutive common stock equivalents for the three and nine months ended September 30, 2021 and 2020, respectively.

(in thousands, except per share amounts)

Three months ended

September 30,

BASIC AND DILUTED

Weighted average number of common shares outstanding

Net loss attributable to Neonode Inc.

Net loss per share - basic and diluted

(in thousands, except per share amounts)

Nine months ended

September 30,

BASIC AND DILUTED

Weighted average number of common shares outstanding

Net loss attributable to Neonode Inc.

Net loss per share - basic and diluted

Subsequent Events

On July 2, and 6, 2021, we

sold 6,028 and 9,808 shares, respectively, of our common stock under the ATM Facility with aggregate net proceeds to us of $ 100,000 .

During October 2021, we sold

an aggregate of 142,169 shares under the ATM Facility with aggregate net proceeds to us of $ 1,396,000 after payment of commissions to

Riley Securities of $ 43,000 .

On October 21, 2021, we entered

into a placement agency agreement with Pareto Securities Inc.

and Pareto Securities AB pursuant to which we sold to certain Swedish and

other European investors an aggregate of 1,808,000 shares of our common stock at a price of $7.75 per share in a registered direct offering

that closed on October 26, 2021.

We received net proceeds of approximately $13.1 million from the Offering after deducting placement agent

fees and offering expenses.

No other subsequent events

2 unchanged sentences

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-Q

Item 1. Financial Statements