What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-09 compared with 2022-03-10 · 524 added, 586 removed, 688 unchanged (62% of the section changed)

STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to the Consolidated Financial Statements Page

6 unchanged sentences

Notes to the Consolidated Financial Statements F-9

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Directors and Stockholders

on the Consolidated Financial Statements

We have audited

the accompanying consolidated balance sheets of Neonode Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as

of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity

and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the

“consolidated financial statements”).

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

respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash

flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in

the United States of America.

These consolidated

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated

financial statements based on our audits.

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

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

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

our audits in accordance with the standards of the PCAOB.

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

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

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits

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

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

Board of Directors and Stockholders

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Neonode

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated

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

December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion,

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

2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022,

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

Basis for Opinion

These consolidated financial statements are the responsibility of

the Company’s management.

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

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

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

federal securities laws and the applicable rules

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

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

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

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

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

an audit of its internal control over financial reporting.

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

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

control over financial reporting.

Accordingly, we express no such opinion.

included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated

or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated

financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical

audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating

the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which

for Licensing Revenues

Audit Matter Description

further in Note 2 to the consolidated financial statements, the Company earns revenue from licensing its internally developed intellectual

property (“IP”) by entering into IP licensing agreements that generally provide licensees the right to incorporate IP components

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

Fees under these agreements may include license fees relating to

the Company’s IP, and royalties payable to the Company following the distribution by the licensees of products incorporating the

licensed technology.

At the end of each reporting period, the Company records unbilled license revenues, using prior royalty revenue

data by customer to make estimates of those royalties.

management’s evaluation of unbilled license revenues was challenging due to the lack of objectively verifiable evidence used in

the estimation process.

As a result, there is a high degree of auditor judgment involved in performing procedures on the Company’s

the Critical Audit Matter Was Addressed in the Audit

procedures we performed to address this critical audit matter included assessing the accuracy of royalty estimates made in prior reporting

periods as compared to the actual royalties subsequently determined for all significant licensing customers and inquiring of management

as to the reasons for any significant differences between actual and estimated royalties, determining that the Company has had no significant

revenue reversals as a result of these past differences, and inquiring as to the basis of the current period estimates of royalties,

including the Company’s considerations of the overall economic environment, past royalty experience and the specific circumstances

and trends of the license customers’ royalty-based business based on the Company’s knowledge of and discussions with customers’

representatives.

Our audits included performing procedures to assess the risks of material

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

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

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

as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis

for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from

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

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

challenging, subjective, or complex judgments.

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

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

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

Accounting for Licensing Revenues

Critical Audit Matter Description

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

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

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

vary by licensee.

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

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

At the end of each reporting period,

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

Auditing management’s evaluation of unbilled license revenues

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

As a result, there is a high degree

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

How the Critical Audit Matter Was Addressed

The primary procedures we performed to address this critical audit

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

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

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

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

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

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

/s/ KMJ Corbin & Company LLP

We have served

as the Company’s auditor since 2009.

BALANCE SHEETS

thousands, except share and per share amounts)

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

Irvine, California

March 9, 2023

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

Current assets:

Accounts receivable and unbilled revenues, net

Projects in process

Prepaid expenses and other current assets

1 unchanged sentence

Property and equipment, net

Operating lease right-of-use assets

Operating lease right-of-use assets, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

3 unchanged sentences

Accrued expenses

Deferred revenues

Contract liabilities

Current portion of finance lease obligations

16 unchanged sentences

Total liabilities and stockholders’ equity

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

STATEMENTS OF OPERATIONS

thousands, except per share amounts)

Non-Recurring Revenue

The accompanying notes are an integral part of

these consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Non-recurring engineering

Total revenues

Cost of revenues:

Non-Recurring Revenue

Non-recurring engineering

Total cost of revenues

6 unchanged sentences

Operating loss

Other expense:

Interest expense

Other expense

Total other expense

Other income (expense):

Interest income (expense), net

Total other income (expense)

Loss before provision for income taxes

3 unchanged sentences

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 consolidated financial statements.

STATEMENTS OF COMPREHENSIVE LOSS

The accompanying notes are an integral part of

these consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

Net loss including noncontrolling interests

4 unchanged sentences

Comprehensive loss attributable to Neonode Inc.

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

STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except for Preferred Stock Shares Issued 1 )

The accompanying notes are an integral part of

these consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In thousands)

Comprehensive

3 unchanged sentences

Stockholders’

January 1, 2020

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

December 31, 2020

of shares for cash, net of offering costs

currency translation adjustment

December 31, 2021

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

1 Preferred Shares activity per series can be found under the equity footnote (see Note 8).

STATEMENTS OF CASH FLOWS

Balances, January 1, 2021

$ ( 196,158 )

Issuance of shares for cash, net of offering costs

Stock-based compensation

Foreign currency translation adjustment

Balances, December 31, 2021

Issuance of shares for cash, net of offering costs

Stock-based compensation

Repurchase and retirement of stock

Acquisition of remaining shares Pronode

Foreign currency translation adjustment

Balances, December 31, 2022

$ ( 207,491 )

The accompanying notes are an integral part of

these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Cash flows from operating activities:

loss (including noncontrolling interests)

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

compensation expense

and amortization

of operating lease right-of-use assets

on disposal of property and equipment

in operating assets and liabilities:

receivable and unbilled revenue, net

expenses and other current assets

payable and accrued expenses

lease obligations

cash used in operating activities

Cash flows from investing

of property and equipment

of investment in joint venture

cash used in investing activities

Net loss (including noncontrolling interests)

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

Stock-based compensation expense

Depreciation and amortization

Amortization of operating lease right-of-use assets

Recoveries of bad debt

Changes in operating assets and liabilities:

Accounts receivable and unbilled revenue, net

Projects in process

Prepaid expenses and other current assets

Accounts payable and accrued expenses

Deferred revenues

Operating lease obligations

Net cash used in operating activities

Cash flows from investing activities:

Purchase of property and equipment

Net cash used in investing activities

Cash flow from financing activities:

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

from short-term borrowings

from short-term tax credits

on short-term borrowings

on short-term tax credits

payments on finance lease obligations

cash provided by financing activities

of exchange rate changes on cash

Proceeds from issuance of common stock, net of offering costs

Repurchase of common stock

Principal payments on finance lease obligations

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net change in cash

at beginning of year

at end of year

disclosure of cash flow information:

paid for interest

paid for income taxes

disclosure of non-cash investing and financing activities:

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

asset obtained in exchange for lease obligations

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

Notes to the Consolidated

Financial Statements

Cash at beginning of year

Cash at end of year

Supplemental disclosure of cash flow information:

Cash paid for interest

Cash paid for income taxes

Supplemental disclosure of non-cash investing and financial activities:

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

Acquisition of Pronode shares

The accompanying notes are an integral part of

these consolidated financial statements.

Notes to the Consolidated Financial Statements

Nature of the Business and Operations

9 unchanged sentences

(South Korea) (established in 2014).

In 2015, we established Pronode Technologies AB, a majority-owned subsidiary of Neonode Technologies

In 2015, we established Pronode Technologies AB, a subsidiary of Neonode Technologies AB.

Since October

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

Neonode Inc., which is collectively with its subsidiaries

referred to as “Neonode” or the “Company” in this report, develops advanced optical sensing solutions for contactless

touch, touch, gesture sensing, and 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 based on our zForce technology platform, and our scene analysis solutions based on our MultiSensing technology

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

automotive, industrial automation, medical, military and avionics.

We incurred net losses of approximately $ 6.5 million and $ 5.6 million

for the years ended December 31, 2021 and 2020, respectively, and had an accumulated deficit of approximately $ 202.6 million as of December

In addition, we used cash in operating activities of approximately $ 7.7 million and $ 5.8 million for the years ended December

31, 2021 and 2020, respectively.

touch, touch, gesture sensing, and object detection and machine perception solutions using advanced machine learning algorithms to detect

and track persons and objects in video streams for cameras and other types of imagers.

We market and sell our contactless touch, touch,

gesture sensing, and object detection products and solutions based on our zForce technology platform, and our machine perception solutions

based on our MultiSensing technology platform.

We offer our solutions to customers in many different markets and segments including,

but not limited to, office equipment, automotive, industrial automation, medical, military and avionics.

We incurred net losses of approximately $ 4.9 million

and $ 6.5 million for the years ended December 31, 2022 and 2021, respectively, and had an accumulated deficit of approximately $ 207.5

million as of December 31, 2022.

In addition, we used cash in operating activities of approximately $ 6.8 million and $ 7.7 million for

the years ended December 31, 2022 and 2021, respectively.

On October 21, 2021, we entered into a placement

5 unchanged sentences

placement agent fees and offering expenses.

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

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

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

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

Riley Securities, Inc.

Riley Securities”) with respect to

an “at the market” offering program (the “ATM Facility”), under which we may, from time to time, in our sole discretion,

issue and sell through B.

Riley Securities”) with

respect to an “at the market” offering program (the “ATM Facility”), under which we may, from time to time, in

our sole discretion, issue and sell through B.

Riley Securities, acting as sales agent, up to $ 25 million of shares of our common stock.

9 unchanged sentences

per share sold under the Sales Agreement.

We are not obligated to sell any shares under the

Sale Agreement.

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

sale, through B.

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

with its terms.

We are not obligated to sell any shares under

the Sale Agreement.

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

and sale, through B.

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

in accordance with its terms.

During the twelve months ended December 31, 2022, we sold an aggregate

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

Riley Securities and other expenses of $ 167,000 .

During the twelve months ended December 31, 2021,

we sold an aggregate of 235,722 shares of common stock under the ATM Facility, resulting in net proceeds of approximately $ 1,984,000 after

payment of commissions to B.

we sold an aggregate of 235,722 shares of common stock under the ATM Facility, resulting in net proceeds of approximately $ 1,984,000

after payment of commissions to B.

Riley Securities and other expenses of $ 66,000 .

During January 2023, we sold an aggregate of 903,716 shares of our

common stock under the ATM Facility with aggregate net proceeds to us of $ 7,868,000 , after payment of commissions to B.

Riley Securities

and other expenses of $ 244,000 .

The consolidated financial statements included

2 unchanged sentences

Management evaluated the significance of the Company’s operating loss

and determined that the Company’s cash position following the Offering and considering the Company’s current operating

plan and other sources of potential capital, including the ATM Facility, would be sufficient to alleviate concerns about the Company’s

and determined that the Company’s cash position following the Offering and considering the Company’s current operating plan

and other sources of potential capital, including the ATM Facility, would be sufficient to alleviate concerns about the Company’s

ability to continue as a going concern.

6 unchanged sentences

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.

No assurances can be given that we will be successful in obtaining such

additional financing on reasonable terms, or at all.

If adequate funds are not available on acceptable terms, or at all, we may be unable

to adequately fund our business plans and it could have a negative effect on our business, results of operations and financial condition.

In addition, if funds are available, the issuance of equity securities or securities convertible into equity could dilute the value of

shares of our common stock and cause the market price to fall, and the issuance of debt securities could impose restrictive covenants

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

in addition to cash on hand and our ATM Facility (described below) 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.

Summary of Significant Accounting policies

5 unchanged sentences

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

Neonode Technologies AB.

The remaining 49 % of Pronode Technologies AB is owned by Propoint AB, located in Gothenburg, Sweden.

Technologies AB was organized to sell engineering services within the automotive markets.

All inter-company accounts and transactions

have been eliminated in consolidation.

Neonode consolidates entities in which it has a

controlling financial interest.

Neonode Technologies AB, through September 30, 2022.

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

Propoint AB, located in Gothenburg, Sweden.

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

Neonode consolidates entities in which it has

a controlling financial interest.

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

1 unchanged sentence

2022 and 2021 and the consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the years

ended December 31, 2021 and 2020 include our accounts and those of our wholly owned subsidiaries as well as Pronode Technologies AB.

ended December 31, 2022 and 2021 include our accounts and those of our wholly owned subsidiaries.

The preparation of financial statements in conformity

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

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

Actual results could

differ from these estimates and judgments.

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

7 unchanged sentences

net realizable value of inventory;

recoverability of capitalized project costs and long-lived assets;

for leases, determining whether

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

and identifying reassessment events, such as modifications;

recoverability of long-lived assets;

for leases, determining whether a contract contains a lease, allocating

consideration between lease and non-lease components, determining incremental borrowing rates, and identifying reassessment events, such

as modifications;

the valuation allowance related to our deferred tax assets;

and the fair value

of shares and options issued for stock-based compensation.

and the fair value of shares and options issued for stock-based

compensation.

Cash and Cash Equivalents

1 unchanged sentence

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.

The Company considers all highly liquid investments with original maturities of

three months of less to be cash equivalents.

Concentration of Cash Balance Risks

Cash balances are maintained at various banks in

the U.S., Japan, Korea, Taiwan and Sweden.

Cash balances are maintained at various banks

in the U.S., Japan, Korea, Taiwan and Sweden.

For deposits held with financial institutions in the U.S., the U.S.

3 unchanged sentences

up to 100,000 Euro per customer and covers deposits in all types of accounts.

The Japanese government provides insurance coverage up to

10,000,000 Yen per customer.

The Japanese government provides insurance coverage up

to 10,000,000 Yen per customer.

The Korea Deposit Insurance Corporation provides insurance coverage up to 50,000,000 Won per customer.

Central Deposit Insurance Corporation in Taiwan provides insurance coverage up to 3,000,000 Taiwan Dollar per customer.

At times, deposits

held with financial institutions may exceed the amount of insurance provided.

The Central Deposit Insurance Corporation in Taiwan provides insurance coverage up to 3,000,000 Taiwan Dollar per customer.

deposits held with financial institutions may exceed the amount of insurance provided.

Accounts Receivable and Allowance for Doubtful

Accounts receivable is stated at net realizable

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

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

Credit limits are established through a process of reviewing the financial history and stability of each customer.

6 unchanged sentences

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 consolidated 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, 2021 and 2020.

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 consolidated 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, 2022 and 2021.

The Company’s inventory

1 unchanged sentence

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

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

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 and finished goods.

The AirBar inventory reserve was $ 0.3 million and $ 0.8 million as of December 31, 2022 and 2021, respectively.

decided to reserve for TSM inventory related to a quality issue in production.

Management decided to reserve for TSM inventory related to a quality

issue in production.

The TSM inventory reserve was $ 0.2 million as of December 31, 2021.

During 2022 the affected inventory was scrapped

and as of December 31, 2022 the inventory reserve was zero .

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

21 unchanged sentences

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

Right-of-use assets are measured initially at the

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

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.

Right-of-use assets are subsequently measured

at the present value of the remaining lease payments, adjusted for incentives, prepaid or accrued rent, and any initial direct costs

not yet expensed.

Long-Lived Assets

22 unchanged sentences

Europe and Asia.

As of December 31, 2021, four of our customers represented approximately

76 % of our consolidated accounts receivable and unbilled revenues.

As of December 31, 2022, five of our customers

represented approximately 83 % of our consolidated accounts receivable and unbilled revenues.

As of December 31, 2021, four of our customers

4 unchanged sentences

● Seiko Epson – 19 %

● Alpine Electronics – 10 %

Customers who accounted for 10 % or more of our

1 unchanged sentence

● Hewlett-Packard Company – 32 %

● Epson – 19 %

● Alpine – 11 %

The Company conducts business in the United States, Europe and Asia.

As of December 31, 2021, the Company maintained approximately $ 17,198,000 , $ 2,611,000 and $ 28,000 of its net assets in the United States,

Europe and Asia, respectively.

As of December 31, 2020, the Company maintained approximately $ 6,923,000 , $ 4,903,000 and $ 64,000 of its

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

● Seiko Epson – 18 %

The Company conducts business in the United States,

Europe and Asia.

As of December 31, 2022, the Company maintained approximately $ 15,535,000 , $ 3,857,000 and $ 26,000 of its net assets in

the United States, Europe and Asia, respectively.

As of December 31, 2021, the Company maintained approximately $ 17,198,000 , $ 2,611,000

and $ 28,000 of its net assets in the United States, Europe and Asia, respectively.

Revenue Recognition

We recognize revenue when control of products is

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

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

4 unchanged sentences

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

License fees and sales of our AirBar and TSMs are

on a per-unit basis.

License fees and sales of our AirBar and TSMs

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.

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

3 unchanged sentences

and handling charges as expenses.

We earn revenue from licensing our internally developed

intellectual property (“IP”).

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

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

Fees under these agreements may include license

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

We earn revenue from licensing our internally

developed intellectual property (“IP”).

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

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

Fees under these agreements may

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

the licensed technology.

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

21 unchanged sentences

our distributors.

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

our products.

Control passes to our distributors when we have a present right to payment for products sold to the distributors, the distributors

have legal title to and physical possession of products purchased from us, and the distributors have significant risks and rewards of

ownership of products purchased.

For sales of AirBar and TSMs sold through distributors, we recognize revenues when our distributors obtain control

over our products.

Control passes to our distributors when we have a present right to payment for products sold to the distributors,

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

and rewards of ownership of products purchased.

Distributors participate in various cooperative

1 unchanged sentence

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.

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

6 unchanged sentences

and $ 36,000 as of December 31, 2022 and 2021, respectively.

If the actual future returns were to deviate from the historical data on which

the reserve had been established, our revenue could be adversely affected.

If the actual future returns were to deviate from the historical data on

which the reserve had been established, our revenue could be adversely affected.

Non-Recurring Engineering

9 unchanged sentences

Deliverables and payment terms are specified

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

contracts are completed and accepted by our customers.

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

recorded as unearned revenue until that revenue is earned.

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

in contracts are completed and accepted by our customers.

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

are recorded as unearned revenue until that revenue is earned.

We believe that recognizing non-recurring engineering

11 unchanged sentences

in full as soon as they become evident.

During the year ended December 31, 2021, we recorded no losses and during the year ended December

31, 2020, we recorded $ 47,000 of losses.

The following tables present the net revenues distribution

by geographical area and market for the years ended December 31, 2021 and 2020 (dollars in thousands):

During the years ended December 31, 2022 and 2021, we recorded no losses.

The following tables present the net revenues

distribution by geographical area and market for the years ended December 31, 2022 and 2021 (dollars in thousands):

Net revenues from consumer electronics

8 unchanged sentences

Our contracts with customers may include promises

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

engineering services fees for customizing that product for our customer.

Determining whether products and services are considered distinct

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

Judgment may also be required to determine

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

and pricing for each performance obligation are specifically addressed.

We currently have no outstanding contracts with multiple performance

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

related engineering services fees for customizing that product for our customer.

Determining whether products and services are considered

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

Judgment may also be required

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

obligations and pricing for each performance obligation are specifically addressed.

We currently have no outstanding contracts with multiple

performance obligations;

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

11 unchanged sentences

Contract Balances

Timing of revenue recognition may differ from the

timing of invoicing to customers.

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,

3 unchanged sentences

Accounts receivable and unbilled revenues

Deferred revenues

Contract liabilities (deferred revenues)

The timing of revenue recognition, billings and

6 unchanged sentences

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

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

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

We do not anticipate impairment of our contract

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.

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

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

The allowance for doubtful accounts reflects our

2 unchanged sentences

historical experience, and other currently available evidence.

Payment terms and conditions vary by the type of

Payment terms and conditions vary by the type

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

4 unchanged sentences

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 year.

We currently have

no incremental costs that must be capitalized.

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

have no incremental costs that must be capitalized.

We expense as incurred costs of obtaining a contract

7 unchanged sentences

The 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 to 36 months from the customer receipt of the product.

Deferred Revenues

Deferred revenues consist primarily of prepayments

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

We earn the revenue when we transfer control of the

product or service.

Deferred revenues may also include upfront payments for consulting services to be performed in the future, such as

non-recurring engineering services.

of its cost of sales of TSMs based on estimated costs.

The Company’s products are generally covered by a warranty for a period of

12 months from the customer receipt of the product included as a component of accrued expenses on the consolidated balance sheet.

Contract Liabilities

Contract liabilities (deferred revenues) consist

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

We earn the revenue when

we transfer control of the product or service.

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

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

We defer license fees until we have met all accounting

3 unchanged sentences

by source (in thousands):

Deferred license revenues

Deferred NRE revenues

Deferred AirBar revenues

Deferred sensor modules revenues

Contracted revenue not yet recognized was $ 106,000

Deferred revenues license fees

Deferred revenues products

Deferred non-recurring engineering

Deferred revenue not yet recognized was $ 36,000

as of December 31, 2022.

3 unchanged sentences

Advertising costs are expensed as incurred.

will classify any reseller marketing allowances related to AirBar in general as sales expense unless we can define an identifiable benefit

to us from the reseller marketing allowance.

Advertising costs amounted to approximately $ 208,000 and $ 70,000 for the years ended

December 31, 2021 and 2020, respectively.

costs amounted to approximately $ 158,000 and $ 208,000 for the years ended December 31, 2022 and 2021, respectively.

Research and Development

1 unchanged sentence

costs are expensed as incurred.

R&D costs consist mainly of personnel-related costs in addition to some external consultancy costs

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

such as testing, certifying and measurements.

1 unchanged sentence

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.

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

1 unchanged sentence

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.

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

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 holds less

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

however, there are other factors, such as decision-making

rights, that are considered as well.

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

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

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

A noncontrolling

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

Generally, any interest

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

however, there are other factors,

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

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

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

The Company provides either in the consolidated

statements 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 noncontrolling interest that separately discloses:

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 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;

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.

13 unchanged sentences

to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase income in the period such determination

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

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

current period.

We follow U.S.

GAAP related to uncertain tax positions,

which provisions include a two-step approach to recognizing, de-recognizing and measuring uncertain tax positions.

As a result, we did

not recognize a liability for unrecognized tax benefits.

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

Net Loss per Share

Net loss per share amounts have been computed based

on the weighted-average number of shares of common stock outstanding during the years ended December 31, 2021 and 2020.

GAAP related accounting for uncertainty

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

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

As of December 31, 2022 and 2021, we had no unrecognized

tax benefits.

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, 2021 and 2020 exclude the potential common

stock equivalents, as the effect would be anti-dilutive (see Note 15).

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, 2022 and 2021.

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, 2022 and 2021 exclude the potential

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

Other Comprehensive Income (Loss)

Our 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.

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.

Cash Flow Information

1 unchanged sentence

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:

The weighted-average exchange

rate for the consolidated statements of operations was as follows:

Swedish Krona

7 unchanged sentences

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 and are deemed to approximate fair value due to their short maturities.

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

8 unchanged sentences

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

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

Income Taxes (Topic 740):

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

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

We adopted this standard as of

January 1, 2021 and concluded that there was no impact to our consolidated financial statements.

Reclass of Presentation in our Consolidated Statements

6 unchanged sentences

for each of our revenue streams consisting of license fees, product sales and non-recurring engineering fees.

The presentation in our

consolidated financial statements has therefore been changed accordingly for the year ended December 31, 2020 with no net impact on our

previously reported consolidated statement of operations.

Prepaid Expenses and Other Current Assets

1 unchanged sentence

of the following (in thousands):

As of December 31,

Prepaid insurance

5 unchanged sentences

(in thousands):

As of December 31,

Computers, software, furniture and fixtures

Equipment under finance leases

Less accumulated depreciation and amortization

Property and equipment, net

Depreciation and amortization expense was $ 0.6 million and $ 0.8 million

for the years ended December 31, 2021 and 2020, respectively.

Depreciation and amortization expense was $ 0.1

million and $ 0.6 million for the years ended December 31, 2022 and 2021, respectively.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

As of December 31,

Accrued expenses consist of the following (in

Accrued returns and warranty

1 unchanged sentence

Total accrued expenses

Short-Term Borrowings

During the year ended December

31, 2020, the Company was granted a credit from the Swedish Tax Authority covering social charges and staff withholding taxes relating

to January through March 2020 payroll, as part of Swedish governmental COVID-19 support.

The total amount was $ 563,000 and the credit

was for 12 months but could be repaid earlier if desired.

There was a 1.25% annual non-deductible interest and a credit fee of 0.2% from

the seventh month of the granted credit.

The tax credit was repaid in August 2020 along with interest of $ 2,000 .

On June 17, 2020, the Company entered into the

Loan Agreements with two entities beneficially owned respectively by each of Ulf Rosberg and Peter Lindell, directors of Neonode (each,

a “Director”).

Pursuant to the Loan Agreements, each entity beneficially owned by the Director made approximately $1.7 million

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.

Each of the Loan Agreements provided for a credit

fee of 0.75% per annum, calculated on a daily basis from the date of the Loan Agreement, and any outstanding amount incurred interest

at a fixed rate of 3.25% per annum, calculated on a daily basis from the drawdown date.

Drawdowns under the Loan Agreements became unavailable

upon the earlier to occur of the execution of a capital raise by Neonode or December 31, 2020.

Upon completion of a capital raise before

December 31, 2020, any outstanding amount under the Loan Agreements, including any credit fee and interest, became payable as soon as

practicably possible after such capital raise.

If a capital raise was not completed by December 31, 2020, or if the funds from the capital

raise were insufficient to repay the full outstanding amount under the Loan Agreements, then the outstanding amount under the Loan Agreements,

including any credit fee and interest, would have become due and payable on February 28, 2021.

On August 7, 2020, 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 AB.

result of the repayments to each of UMR Invest AB and Cidro Holding AB, the Loan Agreements terminated in accordance with their terms.

Fair Value Measurements

15 unchanged sentences

Stockholders’ Equity

At the Annual Meeting of our Company held on September

29, 2020, stockholders approved a proposal to increase the number of authorized shares of our common stock to 25,000,000 shares.

on November 5, 2020, we filed an amendment to the Neonode Inc.

Restated Certificate of Incorporation, as amended (our “Certificate

of Incorporation”), with the Secretary of State of the State of Delaware to increase the number of authorized shares of our common

stock to 25,000,000 shares.

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 9).

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

common stock to key employees pursuant to our 2020 LTIP (see Note 9).

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

As of December 31, 2022 and 2021, our Restated Certificate of Incorporation,

as amended (our “Certificate of Incorporation”), authorized us to issue up to 25,000,000 shares of common stock, par value

$ 0.001 per share.

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

our common stock to key employees pursuant to our 2020 long-term incentive program (“2020 LTIP”) (see Note 8).

During the twelve months ended December 31, 2021,

we sold an aggregate of 235,722 shares of common stock under the ATM Facility, resulting in net proceeds to us of approximately $ 1,984,000

after payment of commissions to B.

Riley and other expenses of $ 66,000 .

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

of our common stock to key employees pursuant to our 2020 long-term incentive program (“2020 LTIP”) (see Note 8).

On October 21, 2021, we entered into a placement

5 unchanged sentences

placement agent fees and offering expenses.

During the twelve months ended December 31, 2021,

we sold an aggregate of 235,722 shares of common stock under the ATM Facility, resulting in net proceeds to us of approximately $ 1,984,000

after payment of commissions to B.

Riley and other expenses of $ 66,000 .

During the twelve months ended December 31, 2022, we sold an aggregate

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

Riley Securities and other expenses of $ 167,000 .

Warrants and Other Common Stock Activity

During the year ended December 31, 2021, no warrants

expired and no warrants were exercised.

During the year ended December 31, 2020, 325,000 warrants expired and no warrants were exercised.

During the year ended December 31, 2022, 431,368

warrants expired and no warrants were exercised.

During the year ended December 31, 2021, no warrants expired and no warrants were exercised.

A summary of all warrant activity is set forth

5 unchanged sentences

December 31, 2022

Outstanding Warrants to Purchase Common Stock as

of December 31, 2021:

August 2016 Purchase Warrants

We have no outstanding warrants to purchase common

stock as of December 31, 2022.

Preferred Stock

During the year ended December 31, 2019, the only

shares of our preferred stock issued and outstanding were Series B Preferred Stock.

Effective July 1, 2019, all outstanding shares of

our Series B Preferred Stock were converted into shares of our common stock.

On 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.

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

684,378 shares of Neonode common stock.

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 .

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.

No shares of preferred stock were issued and outstanding

as of and during the year ended December 31, 2021.

Details of the preferred stock activities for the

year ended December 31, 2020 are set forth below:

Balances, January 1, 2020

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 December 31, 2022 and 2021, our Certificate of Incorporation

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

There were no transactions in our preferred stock

during the years ended December 31, 2022 and 2021.

No shares of preferred stock were issued and outstanding as of December 31, 2022.

Stock-Based Compensation

We have adopted equity incentive plans for which

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

Except for certain options granted

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

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

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

Except for certain options

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

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

There are no vesting provisions tied to performance

conditions for any options, as vesting for all outstanding option grants was based only on continued service as an employee, consultant

conditions for any options.

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

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

1 unchanged sentence

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.

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

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

Although no new awards

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

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

Accordingly, as of December 31, 2021, we had three

equity incentive plans:

the 2006 Plan;

the 2015 Plan;

the 2020 Plan.

In 2020 we established the Neonode Inc.

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 Company.

Through the 2020 LTIP,

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

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

On December 29, 2020, we issued 37,288 shares of common stock to key

employees pursuant to the 2020 LTIP.

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

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

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

Neonode has reported

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

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

over the two-year lock-up period.

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

stock to a key employee pursuant to the 2020 LTIP.

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

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

There are no awards outstanding under the 2006 Plan.

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

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

The terms of the awards granted under the 2020 Plan are

set by our compensation committee at its discretion.

In 2020, we established the 2020 LTIP to provide

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

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

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

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

grant of shares of the Company’s common stock.

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

of common stock to key employees pursuant to the 2020 LTIP.

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

after 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 termination date.

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

$ 77,000 ) was recognized immediately in the consolidated statement of operations for the year ended December 31, 2020, with the remainder

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

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

common stock to a key employee pursuant to the 2020 LTIP.

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

after issuance.

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

lock-up period, the Company will repurchase the shares at a price equal to 30 % of the lower of market value at issuance and the termination

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

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

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

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

of common stock to key employees pursuant to the 2020 LTIP.

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

after 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 termination date.

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

$ 38,000 ) was recognized immediately in the consolidated statements of operations for the year ended December 31, 2021, with the remainder

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

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

stock to a director pursuant to the 2020 Plan.

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

4 unchanged sentences

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

On December 29, 2021, we issued 14,735 shares of common stock to key

employees pursuant to the 2020 LTIP.

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

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

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

Neonode has reported

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

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

over the two-year lock-up period.

During the year ended December 31, 2021, we recognized

$ 94,000 of stock-based compensation for the amortization of the LTIP over the respective lock-up periods.

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

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

the terms of the 2020 LTIP.

During the years ended December 31, 2022 and 2021, we recognized $ 122,000

and $ 157,000 , respectively, of stock-based compensation for the amortization of the LTIP over the respective lock-up periods.

The following table summarizes information with

3 unchanged sentences

$ 0 - $ 15.00

$ 15.01 - $ 30.40

A summary of the combined activity under all of

16 unchanged sentences

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

Stock options granted under the 2006 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.

Stock 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.

Stock-Based Compensation

11 unchanged sentences

Commitments and Contingencies

On August 26, 2020, a putative stockholder of Neonode

filed a purported class action lawsuit (C.A.

2020-0701-AGB) in the Delaware Court of Chancery (the “Court”) against Neonode

and the Board of Directors of Neonode for alleged breach of fiduciary duty 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 September 13, 2020, the plaintiff amended his

complaint to also enjoin the stockholder vote on Proposal 1 in the Proxy Statement concerning election of directors.

and the other named defendants believe that the disclosures set forth in the Proxy Statement complied fully with all applicable law, that

no supplemental disclosure was required, and that the plaintiffs’ allegations are without merit.

However, in an effort to avoid

the nuisance and ongoing expense relating to the claims in the lawsuit, Neonode filed definitive additional materials to the Proxy

Statement on September 18, 2020.

The plaintiff withdrew his motion to preliminarily enjoin the stockholder votes on Proposals 1, 5, and

6 based upon the definitive additional materials to the Proxy Statement.

On November 23, 2020, the Court entered an order to dismiss the

On September 2, 2020, a putative stockholder of

2 unchanged sentences

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”).

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,

4 unchanged sentences

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.

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.

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

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.

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.

2 unchanged sentences

Indemnities 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.

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 December 31, 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 December 31, 2022 and December 31, 2021.

We enter into indemnification provisions under

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

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

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 December 31, 2021 and December 31, 2020.

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.

In December, 2021 the bank guarantee

was cancelled.

The maximum potential amount

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

We have not incurred material costs

to defend lawsuits or settle claims related to these indemnification agreements.

As a result, we believe the estimated fair value of

these agreements is minimal.

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

and December 31, 2021.

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.

In December 2021, the bank guarantee was cancelled.

Patent Assignment

1 unchanged sentence

of patents to Aequitas Technologies LLC.

The assignment provides the Company the right to share potential proceeds generated from a licensing

and monetization program.

The assignment provides the Company the right to share the potential net proceeds generated from

a licensing and monetization program.

Net proceeds shall here be understood as gross proceeds less out of pocket expenses and legal fees.

On June 8, 2020, Neonode Smartphone LLC, a subsidiary

of Aequitas Technologies LLC filed complaints against Apple and Samsung in the Western District of Texas for infringing two patents.

litigation matters are still ongoing.

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

Both matters are still ongoing.

Non-Recurring Engineering Development Costs

1 unchanged sentence

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

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

Under the terms of the NN1002 Agreement, we agreed to

pay TI $500,000 of non-recurring engineering costs at the rate of $0.25 per ASIC for each of the first 2,000,000 ASICs sold.

As of December

31, 2021, we had made no payments to TI under the NN1002 Agreement.

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

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

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

As of December 31, 2022, we had made no payments to TI under the NN1002 Agreement.

We have operating leases for our corporate offices

and our manufacturing facility, and finance leases for equipment.

Our leases have remaining lease terms of six months to two years.

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 prolong;

Our leases have remaining lease terms of one month to three years.

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 prolong;

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.

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.

Our operating leases represent building leases

1 unchanged sentence

Our Stockholm corporate office lease has a remaining lease

term of one year 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.

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

written notice nine months prior to the respective expiration dates.

We report operating lease right-of-use assets,

3 unchanged sentences

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

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

finance lease obligations on our consolidated balance sheets.

Generally, interest rates are stated in our leases

23 unchanged sentences

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

As of December 31,

Operating leases

Operating lease right-of-use assets

Operating lease right-of-use assets, net

Current portion of operating lease obligations

18 unchanged sentences

Years ending December 31,

Total minimum payments required:

Less imputed interest

1 unchanged sentence

Less current portion

The following is a schedule of minimum future rentals

on the non-cancelable finance leases as of December 31, 2021 (in thousands):

The following is a schedule of minimum future

rentals on the non-cancelable finance leases as of December 31, 2022 (in thousands):

Year ending December 31,

4 unchanged sentences

Segment Information

Our Company has one reportable segment, which is

comprised of the touch technology licensing and sensor module business.

Our Company has one reportable segment, which

is comprised of the touch technology licensing and sensor module business.

We report revenues from external customers based

3 unchanged sentences

United States

Loss before provision for income taxes was distributed

13 unchanged sentences

Stock-based compensation

GILTI inclusion

Valuation allowance

8 unchanged sentences

Total net deferred tax assets

Valuation allowances are recorded to offset certain

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

Management applies a full valuation

allowance for the accumulated losses of Neonode Inc.

and its subsidiaries, since it is not determinable using the “more likely than

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

Valuation allowances are recorded to offset certain deferred tax assets

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

Management applies a full valuation allowance for the

accumulated losses of Neonode Inc.

and its subsidiaries, since it is not determinable using the “more likely than not” criteria

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

This is mainly due to our history of operating losses.

As of December 31, 2021, we had federal, state and foreign net operating losses of $ 74.5 million, $ 20.0 million and $ 23.6 million, respectively.

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

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

As of December

31, 2022, we had federal, state and foreign net operating losses of $ 75.6 million, $ 20.1 million and $ 40.4 million, respectively.

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

The foreign loss carryforward,

which is generated in Sweden, does not expire.

Utilization of the net operating loss and tax credit

15 unchanged sentences

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

New Accounting Pronouncements

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

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.

ASU 2019-12 has an immaterial impact on our consolidated

financial statements.

We file income tax returns in the U.S.

jurisdiction, California, Sweden, Japan, South Korea, and Taiwan.

The 2009 through 2020 tax years are open and may be subject to potential

examination in one or more jurisdictions.

jurisdiction, California, Sweden, and Japan.

The 2008 through 2021 tax years are open and may be subject to potential examination in one

or more jurisdictions.

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

24 unchanged sentences

of common stock and common stock equivalents outstanding during the year.

Potential common stock equivalents of approximately

0 and 0 outstanding stock warrants, 0 and 0 shares issuable upon conversion of preferred stock and 0 and 0 stock options are excluded

from the diluted earnings per share calculation for the years ended December 31, 2021 and 2020, respectively, due to their anti-dilutive

The Company had no potential common stock equivalents as of December

31, 2022 or 2021.

(In thousands, except per share amounts)

3 unchanged sentences

Net loss per share basic and diluted

Subsequent Events

During January 2023, we sold an aggregate of 903,716

shares of our common stock under the ATM Facility with aggregate net proceeds to us of $ 7,868,000 , after payment of commissions to B.

Riley Securities and other expenses of $244,000.

No other subsequent events have occurred that would

require recognition in the consolidated financial statements or disclosure in the notes thereto other than as discussed elsewhere in the

accompanying notes.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data