What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-10 · 146 added, 129 removed, 340 unchanged (45% of the section changed)

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For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking

statements, please see the discussion under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, our Annual

Report on Form 10-K for the fiscal year ended December 31, 2022 and in our publicly available filings with the Securities and Exchange

Forward-looking statements reflect our analysis only as of the date of this Quarterly Report on Form 10-Q.

Because actual

events or results may differ materially from those discussed in or implied by forward-looking statements made by us or on our behalf,

you should not place undue reliance on any forward-looking statement.

We do not undertake responsibility to update or revise any of these

factors or to announce publicly any revision to forward-looking statements, whether as a result of new information, future events or otherwise.

statements, please see the discussion under “Risk Factors” and elsewhere in this Quarterly Report, our Annual Report on Form

10-K for the fiscal year ended December 31, 2022 and in our publicly available filings with the Securities and Exchange Commission.

Forward-looking

statements reflect our analysis only as of the date of this Quarterly Report.

Because actual events or results may differ materially from

those discussed in or implied by forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking

We do not undertake responsibility to update or revise any of these factors or to announce publicly any revision to forward-looking

statements, whether as a result of new information, future events or otherwise.

The following discussion and

analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item 1 of

this Quarterly Report on Form 10-Q and consolidated financial statements for the year ended December 31, 2022 included in our most recent

Annual Report on Form 10-K.

this Quarterly Report and consolidated financial statements for the year ended December 31, 2022 included in our most recent Annual Report

on Form 10-K.

Neonode Inc., collectively

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We license our zForce technology

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

Since 2010, our licensing

customers have sold approximately 90 million devices that use our patented technology.

As of June 30, 2023, we had

35 valid technology license agreements with global OEMs, ODMs and Tier 1 suppliers.

to Original Equipment Manufacturer (“OEMs”), Original Design Manufacturer (“ODMs”) and Tier 1 suppliers who embed

our technology into products they develop, manufacture and sell.

Since 2010, our licensing customers have sold approximately 95 million

devices that use our patented technology.

As of September 30, 2023,

we had 35 valid technology license agreements with global OEMs, ODMs and Tier 1 suppliers.

Our licensing customer base

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In addition to our technical

solutions business, we design and manufacture TSMs that incorporate our patented technology.

We sell our TSMs to OEMs, ODMs and systems

integrators for use in their products.

We also sell our Neonode branded AirBar product that incorporates one of our TSMs through distributors.

solutions business, we design and manufacture Touch Sensor Modules (“TSMs”) that incorporate our patented technology.

our TSMs to OEMs, ODMs and systems integrators for use in their products.

We also sell our Neonode branded AirBar product that incorporates

one of our TSMs through distributors.

We utilize a robotic manufacturing

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In both cases we can offer NRE services and earn NRE revenues.

Impact of War in Ukraine

Global Conflicts

The ongoing war in Ukraine

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or Russia, but the war in Ukraine may further exacerbate ongoing supply chain disruptions that are occurring across the globe.

precise effects on global economies from the war and related sanctions remain uncertain, there has been significant volatility in the

financial markets, fluctuations in currency exchange rates, and an increase in energy and commodity prices globally.

Should the war continue

or escalate, there may be various economic and security consequences including, but not limited to, additional supply shortages of different

the war in Israel and Gaza and the possible expansion of such war has created political and potential economic uncertainty in the Middle

While the precise effects on global economies from the Israel-Hamas war, the war in Ukraine and related sanctions remain uncertain,

there has been significant volatility in the financial markets, fluctuations in currency exchange rates, and an increase in energy and

commodity prices globally.

Should the wars continue or escalate, there may be various economic and security consequences including, but

not limited to, additional supply shortages of different kinds;

further increases in prices of commodities;

significant disruptions in logistics infrastructure and telecommunications services;

and risks relating to the unavailability of information technology systems and infrastructure.

The resulting impacts on the global economy,

financial markets, inflation, interest rates, and unemployment, among others, could adversely impact economic and financial conditions.

significant disruptions in

logistics infrastructure and telecommunications services;

and risks relating to the unavailability of information technology systems and

infrastructure.

The resulting impacts on the global economy, financial markets, inflation, interest rates, and unemployment, among others,

could adversely impact economic and financial conditions.

Results of Operations

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Three months ended

September 30,

Percentage of revenue

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Net loss per share attributable to Neonode Inc.

Six months ended

Nine months ended

September 30,

Percentage of revenue

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All of our sales for the three

and six months ended June 30, 2023 and 2022 were to customers located in the United States, Europe and Asia.

The decrease of 5.3% and 5.1% in total net revenues for the three and

six months ended June 30, 2023, respectively, as compared to the same periods in 2022 is mainly explained by lower products and non-recurring

revenues offset by higher license fees.

The increase in license fee

revenues for the three and six months ended June 30, 2023 compared to the same periods in 2022 was primarily the result of an increase

in volume as the global supply chain challenges related to semiconductor supply shortages that hampered our printer and automotive customers’

production and sales for the last two years have improved and the demand for our customers’ products remains strong.

and nine months ended September 30, 2023 and 2022 were to customers located in the United States, Europe, Asia and Oceania.

Total net revenues were $1.0

million and $3.5 million for the three and nine months ended September 30, 2023, respectively, compared to $1.2 million and $3.8

million for the same periods in 2022, respectively.

The decrease of 17.5% in total net revenues for the three months ended September

30, 2023, as compared to the same period in 2022 is explained by lower license fees and non-recurring revenues offset by higher

products revenues.

The decrease of 9.1% in total net revenues for the nine months ended September 30, 2023, as compared to the same

period in 2022 is explained by lower revenues in all three revenue streams.

Revenues from license fees were

$0.8 million and $3.1 million for the three and nine months ended September 30, 2023, respectively, compared to $1.0 million and $3.1

million for the same periods in 2022, respectively.

The decrease in license fee revenues for the three and nine months ended September

30, 2023 compared to the same periods in 2022 was primarily due to lower sales volumes for our customers.

Product Sales

Revenues from product sales

were $0.1 million and $0.2 million for the three and six months ended June 30, 2023, respectively, compared to $0.2 million and $0.4 million

for the same periods in 2022.

The reason for the decrease is mainly low customer demand, which we are addressing with focused marketing

and sales campaigns and updates to our partner network.

were $0.2 million and $0.3 million for the three and nine months ended September 30, 2023, respectively, compared to $0.2 million and

$0.5 million for the same periods in 2022, respectively.

The decrease for the nine months ended September 30, 2023 compared to the same

period last year was mainly due to low customer demand, which we are addressing with focused marketing and sales campaigns and updates

to our partner network.

Non-recurring Engineering

Most of our non-recurring

engineering revenues are related to application development and proof-of-concept projects related to our TSMs or to our zForce and MultiSensing

technology platforms.

Non-recurring revenues decreased for the three and six months ended June 30, 2023 compared to the same periods in

Revenues from non-recurring

engineering revenues were $4 thousand and $ 29 thousand for the three and nine months ended September 30, 2023, respectively, compared

to $16 thousand and $187 thousand for the same periods in 2022, respectively.

Most of our non-recurring engineering revenues are related

to application development and proof-of-concept projects related to our TSMs or to our zForce and MultiSensing technology platforms.

decrease for the three and nine months ended September 30, 2023 was mainly due to fewer projects compared to the same periods in 2022.

The following tables presents

the net revenues by geographical area and revenue stream for the three and six months ended June 30, 2023 and 2022 (dollars in thousands):

the net revenues by geographical area and revenue stream for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):

Three months ended

June 30, 2023

September 30, 2023

Three months ended

June 30, 2022

September 30, 2022

Non-recurring engineering

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Non-recurring engineering

Six months ended

June 30, 2023

Six months ended

June 30, 2022

Nine months ended

September 30, 2023

Nine months ended

September 30, 2022

Non-recurring engineering

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Our combined total gross margin

was 97% and 97% for the three and six months ended June 30, 2023, respectively, and 91% and 93% for the three and six months ended June

30, 2022, respectively.

For the three and six months ended June 30, 2023, gross margin related to products was 67% and 60%, respectively,

compared to 56% and 60% for the same periods in 2022, respectively.

The gross margin for products is higher for low order volumes and

also varies with the product mix.

was 77% and 91% for the three and nine months ended September 30, 2023, respectively, compared to 94% and 93% for the three and nine months

ended September 30, 2022, respectively.

For the three and nine months ended September 30, 2023, gross margin related to products was (39)%

and 13%, respectively, compared to 48% and 56% for the same periods in 2022, respectively.

The gross margin for products for the three

months ended September 30, 2023 was impacted by a one-time cost of $143,000 related to a customer claim.

Our cost of sales includes

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Research and development (“R&D”)

expenses for the three and six months ended June 30, 2023 were $1.1 million and $1.9 million, respectively.

For the same periods in 2022,

the R&D expenses were $1.1 million and $2.2 million, respectively.

R&D expenses primarily consist of personnel-related costs in

addition to external consultancy costs, such as testing, certifying and measurements, along with costs related to developing and building

new product prototypes.

The decrease was primarily related to lower personnel and related costs.

expenses for the three and nine months ended September 30, 2023 were $0.8 million and $2.7 million, respectively.

For the same periods

in 2022, the R&D expenses were $0.8 million and $3.0 million, respectively.

R&D expenses primarily consist of personnel-related

costs in addition to external consultancy costs, such as testing, certifying and measurements, along with costs related to developing

and building new product prototypes.

The decrease for nine months ended September 30, 2023 was primarily related to lower personnel and

related costs.

Sales and Marketing

Sales and marketing expenses

for the three and six months ended June 30, 2023 were $0.7 million and $1.3 million, respectively.

The sales and marketing costs for the

same periods in 2022 were $0.6 million and $1.3 million, respectively.

The increase for the three months ended June 30, 2023 was primarily

due to higher personnel and related costs.

for the three and nine months ended September 30, 2023 were $0.5 million and $1.8 million, respectively.

The sales and marketing costs

for the same periods in 2022 were $0.3 million and $1.6 million, respectively.

The increase for the three months ended September 30, 2023

was primarily due to higher marketing costs.

Our sales and marketing activities

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General and administrative

(“G&A”) expenses for the three and six months ended June 30, 2023 were $1.0 million and $2.4 million, respectively.

G&A expenses for the three and six months ended June 30, 2022 were $1.1 million and $2.1 million, respectively.

The increase for the

six months ended June 30, 2023 was primarily related to higher professional fees.

(“G&A”) expenses for the three and nine months ended September 30, 2023 were $0.9 million and $3.3 million, respectively.

The G&A expenses for the three and nine months ended September 30, 2022 were $1.0 million and $3.0 million, respectively.

for the nine months ended September 30, 2023 was primarily related to higher professional fees.

Our effective tax rate was

(3)% and (2)% for the three and six months ended June 30, 2023, respectively, and (2)% and (2)% for the three and six months ended June

30, 2022, respectively.

(3)% and (2)% for the three and nine months ended September 30, 2023, respectively, and (3)% and (3)% for the three and nine months ended

September 30, 2022, respectively.

The negative tax rate is due to withholding taxes from sales.

We recorded valuation allowances for the three and

six-month periods ended June 30, 2023 and June 30, 2022 for deferred tax assets related to net operating losses due to the uncertainty

of realization.

We recorded valuation allowances for the

three and nine-month periods ended September 30, 2023 and September 30, 2022 for deferred tax assets related to net operating losses due

to the uncertainty of realization.

As a result of the factors

discussed above, we recorded a net loss attributable to Neonode of $1.5 million and $2.9 million for the three and six months ended June

discussed above, we recorded a net loss attributable to Neonode of $1.3 million and $4.2 million for the three and nine months ended September

30, 2023, respectively, compared to $0.8 million and $3.7 million for the same periods in 2022, respectively.

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per ASIC for each of the first 2 million ASICs sold.

As of June 30, 2023, we had made no payments to TI under the NN1002 Agreement.

As of September 30, 2023, we had made no payments to TI under the NN1002 Agreement.

Operating Leases

We did not renew our lease

for the office space located at 2880 Zanker Road, San Jose, California 95134 in August 2020 and Neonode Inc.

now operates solely through

a virtual office in California.

operates solely

through a virtual office in California.

On December 1, 2020, Neonode

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nine months prior to the expiration date.

For the three and six months

ended June 30, 2023, we recorded approximately $123,000 and $245,000 for total rent expense.

For the three and six months ended June 30,

2022, we recorded approximately $146,000 and $307,000 for total rent expense, respectively.

For the three and nine months

ended September 30, 2023, we recorded approximately $120,000 and $365,000 for total rent expense.

For the three and nine months ended

September 30, 2022, we recorded approximately $157,000 and $501,000 for total rent expense, respectively.

See Note 7 – Leases

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gross profit margin;

our ability to raise

additional capital, if necessary.

As of June 30, 2023, we had

cash of $20.3 million compared to $14.8 million as of December 31, 2022.

Based on our current cash position, and assuming currently planned

expenditures and level of operations, we believe we have sufficient capital to fund operations for the twelve-month period subsequent

to the date of this Report.

our ability to raise additional capital, if necessary.

As of September 30, 2023,

we had cash and cash equivalents of $18.5 million compared to $14.8 million as of December 31, 2022.

Based on our current cash position,

and assuming currently planned expenditures and level of operations, we believe we have sufficient capital to fund operations for the

twelve-month period subsequent to the date of this Quarterly Report.

Working capital (current assets

less current liabilities) was $24.0 million as of June 30, 2023, compared to $19.1 million as of December 31, 2022.

less current liabilities) was $22.7 million as of September 30, 2023, compared to $19.1 million as of December 31, 2022.

Net cash used in operating

activities for the six months ended June 30, 2023 was $2.3 million and was primarily the result of a net loss of $2.9 million and approximately

$0.1 million in non-cash operating expenses, comprised of stock-based compensation expense, depreciation and amortization and amortization

of operating lease right-of-use assets, and changes in operating assets and liabilities of $0.5 million.

activities for the nine months ended September 30, 2023 was $4.1 million and was primarily the result of a net loss of $4.2 million and

approximately $0.2 million in non-cash operating expenses, comprised of stock-based compensation expense, depreciation and amortization

and amortization of operating lease right-of-use assets, and changes in operating assets and liabilities of $(0.1) million.

Net cash used in operating

activities for the six months ended June 30, 2022 was $5.2 million and was primarily the result of a net loss of $3.1 million and approximately

$0.3 million in non-cash operating expenses, comprised of depreciation and amortization and amortization of operating lease right-of-use

assets and recoveries of bad debt, and changes in operating assets and liabilities of $(2.4) million.

activities for the nine months ended September 30, 2022 was $5.7 million and was primarily the result of a net loss of $4.1 million and

approximately $0.5 million in non-cash operating expenses, comprised of depreciation and amortization and amortization of operating lease

right-of-use assets and recoveries of bad debt, and changes in operating assets and liabilities of $(2.0) million.

Accounts receivable and unbilled

revenues decreased by approximately $0.1 million as of June 30, 2023 compared to December 31, 2022.

revenues decreased by approximately $0.5 million as of September 30, 2023 compared to December 31, 2022.

This was due to lower revenues.

Inventory decreased by approximately

$17,000 during the six months ended June 30, 2023 compared to December 31, 2022.

Inventory increased by approximately

$0.7 million during the nine months ended September 30, 2023 compared to December 31, 2022, primarily due to purchase of components.

Net cash provided by financing

activities of $7.8 million during the six months ended June 30, 2023 was the result of the issuance of common stock under the ATM facility.

Net cash used in financing activities of $99,000 during the six months ended June 30, 2022 was the result of principal payments on the

finance lease obligation.

activities of $7.8 million during the nine months ended September 30, 2023 was the result of the issuance of common stock under the ATM

Facility (as defined and described below).

Net cash used in financing activities of $0.1 million during the nine months ended September

30, 2022 was the result of principal payments on the finance lease obligation.

We have incurred significant

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The Company incurred net losses of approximately $1.3 million

and $2.9 million and $1.5 million and $2.9 million for the three and six months ended June 30, 2023 and 2022, respectively, and had an

accumulated deficit of approximately $210.4 million and $207.5 million as of June 30, 2023 and December 31, 2022, respectively.

operating activities used cash of approximately $2.3 million and $5.2 million for the six months ended June 30, 2023 and 2022, respectively.

and $4.2 million and $0.8 million and $3.7 million for the three and nine months ended September 30, 2023 and 2022, respectively, and

had an accumulated deficit of approximately $211.7 million and $207.5 million as of September 30, 2023 and December 31, 2022, respectively.

In addition, operating activities used cash of approximately $4.1 million and $5.7 million for the nine months ended September 30, 2023

and 2022, respectively.

The condensed consolidated

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Management evaluated the significance of the

Company’s operating loss and determined that the Company’s cash position 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.

Company’s operating loss and determined that the Company’s cash position, 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.

In the future, we may require

sources of capital 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.

sources of capital in addition to cash on hand and our ATM Facility 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,

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Riley Securities and other expenses of $167,000.

the six months ended June 30, 2023, we sold an aggregate of 903,716 shares of our common stock under the ATM Facility with aggregate net

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

the three months ended September 30, 2023, no shares were sold under the ATM Facility.

During the nine months ended September 30, 2023,

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

payment of commissions to B.

Riley Securities and other expenses of $244,000.

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

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.

also be required to determine the standalone selling price 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.

have no outstanding contracts with multiple performance obligations;

however, we recently negotiated a contract that may include multiple

performance obligations in the future.

Judgment is also required

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis