What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2022-03-10 compared with 2021-03-10 · 8 added, 762 removed, 5 unchanged (99% of the section changed)

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is quoted on the Nasdaq

Stock Market under the symbol NEON.

As of March 3, 2021, there were 62 stockholders

Our common stock is quoted on the Nasdaq Stock

Market under the symbol “NEON.”

As of February 24, 2022, there were 50 stockholders

of record of our common stock.

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

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

banks, brokers and other financial institutions.

Securities Authorized for Issuance Under Equity Compensation

Securities Authorized for Issuance Under Equity Compensation Plans

See Part III, Item 12.

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

for information

relating to our equity compensation plans.

Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” for information relating to our equity compensation

Recent Sale of Unregistered Securities and Use of Proceeds

Purchases of Equity Securities By the Issuer and Affiliated

SELECTED FINANCIAL DATA

Not Applicable

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should

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

We develop advanced optical sensing solutions

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

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

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

In 2010, we began licensing to OEMs and

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

Since 2010, our licensing customers

have sold approximately 79 million devices that use our technology.

In October 2017, we augmented our licensing business and began

manufacturing and shipping sensor modules that incorporate our technology.

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

and Tier 1 suppliers for use in their products.

To reduce time to market, we started selling

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

laptop touchscreen functionalities, through distributors and directly to consumers.

We have no current plans to develop new Neonode

branded products for the consumer markets.

As of December 31, 2020 and 2019, respectively,

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

During the year ended December

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

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

As of December 31, 2020, we had entered

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

offer to global OEMs, ODMs and Tier 1 suppliers.

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

Corporation and Serial Microelectronics HK Ltd.

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

and related development kits.

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

and new license customers plus sales of our sensor modules.

During 2020 and 2019, we continued to focus

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

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

and distribution.

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

delivery to our key markets.

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

In 2020, we participated in a Swedish governmental program designed

to support businesses during the COVID-19 pandemic.

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

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

See Note 6 to our consolidated financial

statements for additional details.

Critical Accounting Policies and Estimates

Our consolidated financial statements have

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

and include the accounts of Neonode Inc.

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

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

The non-controlling interests are reported

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

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

to non-controlling interests”

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

equity in the consolidated balance sheets.

See “Non-controlling Interests”

for further discussion.

All inter-company

accounts and transactions have been eliminated in consolidation.

The consolidated balance sheets at December

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

equity and cash flows

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

The accounting policies affecting our financial

condition and results of operations are more fully described in Note 2 to our consolidated financial statements.

Certain of our

accounting policies require the application of judgment by management in selecting appropriate assumptions for calculating financial

estimates, which inherently contain some degree of uncertainty.

Management bases its estimates on historical experience and various

other assumptions that are believed to be reasonable under the circumstances.

The historical experience and assumptions form the

basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenue and

expenses that may not be readily apparent from other sources.

Actual results may differ from these estimates under different assumptions

or conditions.

We believe the following are critical accounting policies and related judgments and estimates used in the preparation

of our consolidated financial statements.

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 expenses.

Actual results could differ from these estimates and judgments.

Significant estimates and judgments include,

but are not limited to:

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

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

measuring variable

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

provisions for uncollectible receivables;

determining the net realizable value of inventory;

recoverability of capitalized project costs and long-lived asset;

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

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

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.

Sales of license fees and AirBar and sensor

modules are on a per-unit basis;

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

Non-recurring engineering service performance obligations are satisfied as work is performed and accepted by our customers.

We recognize revenue net of allowances for

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

We treat all product

shipping and handling charges (regardless of when they occur) as activities to fulfill the promise to transfer goods.

we treat all shipping and handling charges as expenses.

Licensing Revenues:

We earn revenue from licensing our internally developed intellectual

property (“IP”).

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

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

Fees under these agreements may include license

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

the licensed technology.

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

For technology license arrangements that

do not require significant modification or customization of the underlying technology, we recognize technology license revenue

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

At the end of each reporting

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

Explicit return rights are not offered to

There have been no returns through December 31, 2020.

Engineering Services:

For technology license or sensor module

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

determine whether the technology license or sensor module, and engineering consulting services represent separate performance obligations.

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

If there are separate performance obligations, we determine the standalone

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

is satisfied.

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

Deliverables and payment terms are specified in each SOW.

We generally charge an hourly rate for engineering services, and we recognize

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

Any upfront payments we receive

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

We believe that recognizing revenue from non-recurring engineering

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

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

to our customers of our performance completed to date.

Hours performed for each engineering project are tracked and reflect progress

made on each project and are charged at a consistent hourly rate.

Revenues from engineering services contracts

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

Revenues from engineering services contracts

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

such deliverables are recognized as they are completed and accepted by customers.

Estimated losses on all SOW projects are

recognized in full as soon as they become evident.

During the year ended December 31, 2020, we recorded $47,000 of losses and

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

Sensor Modules Revenues:

We earn revenue from sales of sensor modules hardware products

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

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

These distributors are generally

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

in various cooperative marketing programs.

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

The timing of revenue recognition related

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

We recognize revenue

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

the customer.

Because we generally use distributors to

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

passes from us to our distributors.

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

our distributors obtain control over our products.

Control passes to our distributors when we have a present right to payment for

products sold to distributors, the distributors have legal title to and physical possession of products purchased from us, and

the distributors have significant risks and rewards of ownership of products purchased.

Distributors participate in various cooperative

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

If actual credits

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

our revenue could be adversely affected.

GAAP, companies may make reasonable aggregations

and approximations of returns data to accurately estimate returns.

Our AirBar and Module returns and warranty experience to date

has enabled us to make reasonable returns estimates, which are supported by the fact that our product sales involve homogenous

transactions.

The reserve for future sales returns is recorded as a reduction of our accounts receivable and revenue and was $78,000

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

The warranty reserve is recorded as an accrued expense and

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

If the actual future returns were

to deviate from the historical data on which the reserve had been established, our revenue could be adversely affected.

Accounts Receivable and Allowance

for Doubtful Accounts

Our accounts receivable is stated at net

realizable value.

Our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make

required payments.

Inventory is stated at the lower of cost or net realizable value,

using the first-in, first-out method (“FIFO”) valuation method.

Net realizable value is the estimated selling prices

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

Any adjustments

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

In 2020, after

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

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

As of December 31, 2020, our inventory consists

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

We segregate inventory for reporting purposes

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

Investment in Joint Venture

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

AB, which was sold in November 2020.

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

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

We were not required to guarantee

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

Projects in Process

Projects in process consist of costs incurred

during 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 in projects in

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

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

Equipment purchased under a finance lease

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

Upon retirement or sale of property and

equipment, cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected

in the consolidated statement of operations.

Maintenance and repairs are charged to expense as incurred.

Long-Lived Assets

We assess any impairment by estimating the

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

If the estimated undiscounted future

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

of these assets.

As of December 31, 2020, 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.

Research and Development

Research and development (“R&D”)

costs are expensed as incurred.

R&D costs consist mainly of personnel related costs in addition to some 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, net of estimated forfeitures.

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.

Non-controlling Interests

We recognize any non-controlling interest,

also known as a minority interest, as a separate line item in equity in the consolidated financial statements.

A non-controlling

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

Generally, any

interest that holds less than 50% of the outstanding voting shares is deemed to be a non-controlling 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 non-controlling interests in consolidated net income (loss) on the face of the consolidated statements of operations.

We provide either in the consolidated statement

of stockholders’

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

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

and equity (net assets) attributable to the non-controlling 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.

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 or the 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).

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

expenses in the accompanying consolidated statements of operations and were $(252,000) and $105,000 during the years ended December

31, 2020 and 2019, respectively.

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

December 31, 2020 and 2019, respectively.

Net Loss per Share

Net loss per share amounts have been computed

based on the weighted-average number of shares of common stock outstanding during the years ended December 31, 2020 and 2019.

Net loss per share, assuming dilution

amounts from common stock equivalents, is computed based on the weighted-average number of shares of common stock and potential

common stock equivalents outstanding during the period.

The weighted-average number of shares of common stock and potential common

stock equivalents used in computing the net loss per share for years ended December 31, 2020 and 2019 exclude the potential common

stock equivalents, as the effect would be anti-dilutive.

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 consolidated balance sheets as accumulated other comprehensive loss.

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 rates for the consolidated statements of operations were as follows:

Swedish Krona

South Korean Won

Taiwan Dollar

Exchange rates for the consolidated balance

sheets were as follows:

Swedish Krona

South Korean Won

Taiwan Dollar

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.

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

The following table presents our deferred

revenues by source (in thousands);

Deferred license fees revenues

Deferred NRE revenues

Deferred AirBar revenues

Deferred sensor modules revenues

New Accounting

Pronouncements

In September 2016, the FASB issued ASU No.

2016-13, Financial

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

by subsequent accounting standards updates.

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

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

ASU 2016-13, as amended, is scheduled to become effective for fiscal years beginning after December 15, 2023, with early adoption

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

specifically regarding our trade receivables;

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

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

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

ASU 2019-12 will

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

We are currently evaluating

the impact ASU 2019-12 will have on our consolidated financial statements.

Results of Operations

A summary of our financial results for

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

HMI Solutions

Percentage of revenue

Total Revenue

Cost of Sales:

HMI Solutions

Percentage of revenue

Total Cost of Sales

Total Gross Margin

Operating Expense:

Research and Development

Percentage of revenue

Sales and Marketing

Percentage of revenue

General and Administrative

Percentage of revenue

Total Operating Expenses

Percentage of revenue

Operating Loss

Percentage of revenue

Other Expenses

Percentage of revenue

Net Loss attributable to Neonode Inc.

Percentage of revenue

Net Loss attributable to Neonode Inc.

All of our sales for the years ended December

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

The decrease in total net revenues by 10.0%

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

modules sales.

The following tables

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

in thousands):

HMI Solutions

Non-recurring engineering

Sensor modules

Non-recurring engineering

HMI Solutions

Net revenues from automotive

Net revenues from consumer electronics

Net revenues from military avionics

Net revenues from medical

Net revenues from distributors

Net revenues from other

The following table presents revenues by market and revenues

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

Revenues from Automotive

Revenues from Consumer electronics

Revenues from Sensor modules

Revenues from NRE

Other revenue

Revenues from Automotive

Revenues from Consumer electronics

Revenues from Sensor modules

Revenues from NRE

License fees were the majority of our total

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

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

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

customer contracts.

An increasing portion of our revenues for

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

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

modules in 2020 and 2019, respectively.

While our revenues from license fees in

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

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

Revenues from NRE increased 247% in 2020

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

In 2020, 84% of total NRE fees were earned

from military & avionics compared to 62% in 2019.

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

compared to 68% in 2019.

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

Our combined total

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

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

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

There were also

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

For the year ended December 31, 2020, revenues

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

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

There were no revenues

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

Our cost of revenues

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

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

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

Research and Development

Product R&D expenses for 2020 were 69%

of total revenue compared to 79% in 2019.

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

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

There were 25 employees and two consultants

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

Our R&D groups are primarily tasked

with developing technology and software platforms to support our sensor modules and our customer integration activities for both

our sensor hardware and license agreements.

Sales and Marketing

Sales and marketing expenses for 2020 were

42% of total revenue compared to 32% in 2019.

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

to higher staff expenses in 2020.

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

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

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

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

Our sales activities focus on OEM, ODM and

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

General and Administrative

General and administrative (“G&A”)

expenses were 74% of revenue in 2020 compared to 65% in 2019.

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

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

As of December 31, 2020, we had

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

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

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

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

Interest Expense

Interest expense for the year ended December

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

The interest expense for both 2020 and 2019 was

mainly related to finance leases.

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 or the 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).

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

expenses in the accompanying consolidated statements of operations and were $(252,000) and $(105,000) during the years ended December

31, 2020 and 2019, respectively.

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

December 31, 2020 and 2019, respectively.

Our effective tax rate was 0% for the year

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

We recorded valuation allowances in 2020 and 2019 for deferred tax assets

related to net operating losses due to the uncertainty of realization.

As a result of the factors discussed above,

we recorded a net loss of $5.6 million for the year ended December 31, 2020, compared to a net loss of $5.3 million for the year

ended December 31, 2019.

Obligation and Off-Balance Sheet Arrangements

We previously agreed to secure the value

of inventory purchased by one of our AirBars manufacturing partners.

At December 31, 2020, the guaranteed amount was decreased

from $210,000 to $100,000.

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

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

course of business.

We have no special purpose or limited purpose

entities that provide off-balance sheet financing, liquidity, or market or credit risk support.

We do not engage in leasing, hedging,

research and development services, or other relationships that expose us to liability that is not reflected on the face of the

consolidated financial statements.

Operating Leases

We did not renew our lease for the office

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

now operates through a virtual office.

On December 1, 2020, Neonode Technologies

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

The lease agreement

is valid through November 2022.

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

On December 1, 2015, Pronode Technologies

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

can be terminated with nine months’

written notice before the termination date.

In January 2015, our subsidiary Neonode

entered into a lease agreement located at B-1807, Daesung D-Polis.

543-1, Seoul, South Korea.

The lease was terminated

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

On December 1, 2015, Neonode Taiwan Ltd.

entered into a lease agreement located at Rm.

2406, International Trade Building, Keelung Rd., Sec.1, Taipei, Taiwan.

is renewed monthly.

On September 1, 2019 we entered into a lease

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

The lease is valid through

August 31, 2021 and is extended on a yearly basis unless written notice three months prior to expiration date.

For the years ended December 31, 2020 and

2019, we recorded approximately $585,000 and $649,000, respectively, for rent expense.

Equipment Subject

to Finance Lease

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

milling equipment.

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

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

In accordance with relevant accounting guidance the

lease is classified as a finance lease.

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

into service.

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

The implicit interest rate of the extended lease period

is 9.85% per annum.

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

six leases for component production equipment.

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

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

In accordance

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

The lease payments and depreciation periods began

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

The implicit interest rate of the leases is currently approximately

3% per annum.

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

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

The lease payments and depreciation period

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

The implicit interest rate of the lease is currently approximately

3% per annum.

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

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

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

The lease payments and depreciation

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

The implicit interest rate of the lease is currently approximately

1.5% per annum.

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

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

In accordance

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

The lease payments and depreciation periods began

in August 2018 when the equipment went into service.

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

Non-Recurring

Engineering Development Costs

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

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

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

Under the terms of the NN1002 Agreement, we agreed

to pay TI $500,000 of non-recurring engineering costs at the rate of $0.25 per ASIC for each of the first two million ASICs sold.

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

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

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

(“STMicro”) pursuant to which

STMicro agreed to integrate our intellectual property into an ASIC.

The NN1003 ASIC can only be sold by STMicro exclusively to

our licensees.

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

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

Liquidity and

Capital Resources

Our liquidity is dependent on many factors,

including sales volume, operating profit and the efficiency of asset use and turnover.

Our future liquidity will be affected by,

among other things:

licensing of our technology;

purchases of our sensor products, including AirBar;

operating expenses;

timing of our OEM customer product shipments;

timing of payment for our technology licensing agreements;

gross profit margin;

ability to raise additional capital, if necessary.

As of December 31, 2020, we had cash of

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

Working capital (current assets less current liabilities) was

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

Net cash used in operating activities for the year ended December

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

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

amortization and stock based compensations.

Accounts receivable and unbilled revenues

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

Inventory increased by approximately $91,000

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

Accounts payable and accrued expenses increased approximately

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

Net cash used in operating activities for

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

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

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

expenses, and deferred revenues.

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

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

Accounts receivable and unbilled revenues

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

During 2019, we were successful

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

Accounts payable and accrued expenses increased

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

Deferred revenue decreased approximately

$429,000 during 2019.

Net cash provided by financing activities

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

payments on finance leases.

Net cash used by financing activities during

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

In the years ended December 31, 2020 and

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

Loan agreements

with Directors Rosberg and Lindell

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

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

Peter Lindell, Directors of Neonode.

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

is approximately $1.7 million in U.S.

dollars, principal amount available to the Company.

The Company made an initial drawdown

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

See Note 6 to our consolidated financial statements for

additional details on the Loan Agreements.

Private Placement

On August 7, 2020, we closed a private placement

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

We issued a total of 1,611,845

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

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

$13.9 million in gross proceeds.

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

Ulf Rosberg and Peter Lindell, directors

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

Stock in the August 2020 Private Placement.

We issued 517 shares of Series C-2 Preferred

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

interest under the Loan Agreement with UMR Invest AB.

Cidro Förvaltning AB, an entity associated with Mr.

Lindell purchased

517 shares of Series C-2 Preferred Stock.

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

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

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

Pursuant to the terms and the provisions

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

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

24 and 29, 2020, respectively.

Prior to their conversion, the holders of

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

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

We entered into a Registration Rights Agreement

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

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

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

of the Series C Preferred Shares.

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

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

In connection with the August 2020 Private

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

Future Sources of Liquidity

In the future, we may require sources of

capital in addition to cash on hand to continue operations and to implement our strategy.

If our operations do not become cash

flow positive, we may be forced to seek equity investments or debt arrangements.

Historically, we have been able to access the

capital markets through sales of common stock and warrants to generate liquidity.

Our management believes it could raise capital

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

No assurances can be given, however, that

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

If adequate funds are not available

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

business, results of operations and financial condition.

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

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

The issuance of equity securities or securities convertible

into equity could dilute the value of shares of our common stock and cause the market price to fall, and the issuance of debt securities

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

The functional currency of our foreign subsidiaries

is the applicable local currency, the Swedish Krona, the Japanese Yen, the South Korean Won and the Taiwan Dollar.

They are subject

to foreign currency exchange rate risk.

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

Dollar compared to the Swedish

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Purchases of Equity Securities By the Issuer and Affiliated Purchasers

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity