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Item 8. Financial Statements and Supplementary Data

2024-02-28 compared with 2023-03-09 · 461 added, 507 removed, 705 unchanged (58% of the section changed)

17 unchanged sentences

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.

2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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.

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.

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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.

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

Critical Audit Matter

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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.

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

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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.

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

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

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Irvine, California

March 9, 2023

February 28, 2024

CONSOLIDATED BALANCE SHEETS

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Current assets:

Cash and cash equivalents

Accounts receivable and unbilled revenues, net

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Accumulated deficit

Total Neonode Inc.

stockholders’ equity

Noncontrolling interests

Total stockholders’ equity

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Non-recurring engineering

Loss on purchase commitment

Total cost of revenues

Total gross margin

Total gross (loss) margin

Operating expenses:

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Operating loss

Other income (expense):

Interest income (expense), net

Total other income (expense)

Other income:

Interest income, net

Total other income

Loss before provision for income taxes

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Net loss including noncontrolling interests

Other comprehensive income (loss):

Other comprehensive income:

Foreign currency translation adjustments

Comprehensive loss

Other comprehensive loss

comprehensive loss attributable to noncontrolling interests

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Balances, January 31, 2022

$ ( 196,158 )

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 )

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

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$ ( 217,614 )

The accompanying notes are an integral part of

these consolidated financial statements.

The accompanying notes are an

integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Amortization of operating lease right-of-use assets

Inventory impairment loss

Recoveries of bad debt

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Accounts receivable and unbilled revenue, net

Projects in process

Prepaid expenses and other current assets

Accounts payable and accrued expenses

Deferred revenues

Accounts payable, accrued payroll and employee benefits, and accrued expenses

Contract liabilities

Operating lease obligations

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Net cash provided by financing activities

Effect of exchange rate changes on cash

Net change in cash

Cash at beginning of year

Cash at end of year

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental disclosure of cash flow information:

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Supplemental disclosure of non-cash investing and financial activities:

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

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

Acquisition of Pronode shares

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(South Korea) (established in 2014).

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 Korea Ltd.

is currently dormant.

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

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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

and gesture sensing, and object detection products and solutions based on our zForce technology platform, and our scene analysis 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

agency agreement with Pareto Securities Inc.

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

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

on October 26, 2021 (the “Offering”).

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

placement agent fees and offering expenses.

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

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

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.

With the new, sharpened strategy,

announced in December 2023, we focus solely on the licensing business.

This allows customers to license our unique and advanced technology

to create bespoke products and solutions that bring value to end customers.

We have incurred significant operating losses and

negative cash flows from operations since our inception.

The Company incurred net losses of approximately $ 10.1 million and $ 4.9 million

for the years ended December 31, 2023 and 2022, respectively, and had an accumulated deficit of approximately $ 217.6 million as of December

In addition, operating activities used cash of approximately $ 6.3 million and $ 6.8 million for the years ended December 31,

2023 and 2022, respectively.

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.

Pursuant to the Sale Agreement, we may sell the

Pursuant to the Sales Agreement, we may sell the

shares through B.

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or other customary parameters or conditions we may impose).

We will pay B.

Riley Securities a commission of 3.0 % of the gross sales price

per share sold under the Sales Agreement.

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 a commission of 3.0 % of the gross sales price per

share sold under the Sales Agreement.

We are not obligated to sell any shares under the

Sales Agreement.

The offering of shares pursuant to the Sales 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 Sales Agreement in

accordance with its terms.

During the year ended December 31, 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 .

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.

During the year 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 to B.

Riley Securities and other expenses of $ 167,000 .

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

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

repayment of liabilities in the ordinary course of business.

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

ability to continue as a going concern.

We expect our revenues from our three business

areas will enable us to reduce our operating losses in coming years.

In addition, we intend to continue to implement various measures

to improve our operational efficiencies.

No assurances can be given that management will be successful in meeting its revenue targets

and reducing its operating loss.

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.

No assurances can be given, however, that we will

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

If adequate funds are not available on acceptable

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

of operations and financial condition.

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

of our authorized shares of common stock if needed.

The issuance of equity securities or securities convertible into equity could dilute

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

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

The consolidated financial statements included herein have been prepared

on a going concern basis, which contemplates continuity of operations and the realization of assets and the repayment of liabilities in

the ordinary course of business.

Management has evaluated the significance of the Company’s operating loss and has determined that

the Company’s current operating plan and sources of potential capital (including the Company’s at-the-market facility described

above) are sufficient to alleviate concerns about the Company’s ability to continue as a going concern.

In the future, we may require additional sources

of capital 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 to us on acceptable terms, or at all, we may be unable to adequately

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

available through the issuance of equity or debt securities, 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 on us that could impair our ability to engage in certain business transactions.

We expect revenues will enable us to reduce our

operating losses in coming years.

In addition, we intend to continue to implement various measures to improve our operational efficiencies.

No assurances can be given that management will be successful in meeting its revenue targets and reducing its operating loss.

Summary of Significant Accounting policies

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the accounts of Neonode Inc.

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

Neonode Technologies AB, through September 30, 2022.

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

of Neonode Technologies AB, until September 30, 2022.

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

Propoint AB, located in Gothenburg, Sweden.

2X Communication 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.

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.

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ended December 31, 2023 and 2022 include our accounts and those of our wholly owned subsidiaries.

Estimates and Judgements

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

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net realizable value of inventory;

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;

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;

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 options issued as stock-based compensation.

Cash and Cash Equivalents

We have not had any liquid investments other than

normal cash deposits with bank institutions to date.

The Company considers all highly liquid investments with original maturities of

three months of less to be cash equivalents.

The Company considers all highly liquid investments

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

Concentration of Cash Balance Risks

Cash balances are maintained 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.

Federal Deposit Insurance

Corporation, provides basic deposit coverage with limits up to $250,000 per owner.

The Swedish government provides insurance coverage

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

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 the required payments.

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

Should all efforts

fail to recover the related receivable, we will write off the account.

We also record an allowance for all customers based on certain

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

Our allowance

for doubtful accounts was approximately $ 30,000 and $ 79,000 as of December 31, 2022 and 2021, respectively.

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, 2022 and 2021.

Cash and cash equivalents balances are maintained

at various banks in the United States, Japan, Taiwan and Sweden.

For deposits held with financial institutions in the United States, the

Federal Deposit Insurance Corporation provides basic deposit coverage with limits up to $ 250,000 per owner.

The Swedish government

provides insurance coverage up to 1,050,000 Krona per customer and covers deposits in all types of accounts.

For bank accounts of the

category held by Neonode, the Japanese government provides full insurance coverage.

The 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.

Accounts Receivable and Credit Losses

Accounts receivable is stated

at net realizable value.

We estimate and record a provision for expected credit losses related to our financial instruments, including

our trade receivables.

We consider historical collection rates, the current financial status of our customers, macroeconomic factors,

and other industry-specific factors when evaluating for current expected credit losses.

Forward-looking information is also considered

in the evaluation of current expected credit losses.

However, because of the short time to the expected receipt of accounts receivable,

we believe that the carrying value, net of expected losses, approximates fair value and therefore, we rely more on historical and current

analysis of such financial instruments, including our trade receivables.

Further, we consider macroeconomic

factors and the status of the technology industry to estimate if there are current expected credit losses within our trade receivables

based on the trends and our expectation of the future status of such economic and industry-specific factors.

Also, specific allowance

amounts are established based on review of outstanding invoices to record the appropriate provision for customers that have a higher probability

The accounts receivable balance

on our consolidated balance sheet as of December 31, 2023 was $ 0.9 million, net of approximately $ 30,000 of allowances.

The following

table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable

to present the net amount expected to be collected at December 31, 2023:

Balance at January 1, 2023

Change in expected credit losses

Write-offs, net of recoveries

Balance at December 31, 2023

The Company’s inventory

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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.

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 .

With the new, sharpened strategy, announced in

December 2023, the Company focuses solely on the licensing business.

Consequently, we will phase out the TSM product business through

licensing of the TSM technology to strategic partners or outsourcing.

Management has decided to impair TSM related inventories which are

expected to remain after production ends in 2024.

The TSM inventory impairment charge was $ 3.6 million for the year ended December 31,

2023 and has been included as a component of cost of revenues for products.

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.

inventory reserve was $ 0.3 million as of December 31, 2022.

In 2023, management decided to

scrap the fully reserved AirBar inventory.

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

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Property and Equipment

Property and equipment are stated at cost, net

of accumulated depreciation and amortization.

Property and equipment are stated at cost, net of

accumulated depreciation and amortization.

Depreciation and amortization are computed using the straight-line method based upon estimated

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Furniture and fixtures

Equipment purchased under a finance lease is depreciated

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

Depreciation of equipment purchased under a finance

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

Upon retirement or sale of property and equipment,

cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the consolidated

statement of operations.

cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the condensed

consolidated statement of operations.

Maintenance and repairs are charged to expense as incurred.

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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

We assess any impairment by estimating the future

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

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

If the estimated undiscounted future cash flow related

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The translation from

Swedish Krona, Japanese Yen, South Korean Won or the Taiwan Dollar to U.S.

Swedish Krona, Japanese Yen, South Korean Won and Taiwan Dollar to U.S.

Dollars is performed for balance sheet accounts using current

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

Foreign currency translation gains (losses) were $( 56,000 ) and $ 68,000 during the years ended December 31, 2023 and 2022, respectively.

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

consolidated statements of operations and were $( 5,000 ) and $ 35,000 during the years ended December 31, 2023 and 2022, respectively.

Foreign currency translation gains (losses) were $ 68,000 and $( 4,000 ) during the years ended December 31, 2022 and 2021, respectively.

Concentration of Credit and Business Risks

Our customers are located in the United States,

Europe and Asia.

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

represented approximately 76 % of our consolidated accounts receivable and unbilled revenues.

Customers who accounted for 10 % or more of our

revenues during the year ended December 31, 2022 are as follows.

Europe, Oceania and Asia.

As of December 31, 2023, four of our customers represented

approximately 76.4 % of our consolidated accounts receivable and unbilled revenues.

As of December 31, 2022, five of our customers represented

approximately 82.5 % of our consolidated accounts receivable and unbilled revenues.

Customers who accounted for 10% or more of our revenues

during the year ended December 31, 2023 are as follows.

● Hewlett-Packard Company – 22.1 %

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● Alpine Electronics – 16.6 %

Customers who accounted for 10 % or more of our

revenues during the year ended December 31, 2021 are as follows.

Customers who accounted for 10% or more of our revenues

during the year ended December 31, 2022 are as follows.

● Hewlett-Packard Company – 27.1 %

● Seiko Epson – 19.4 %

● LG – 12.2 %

● Alpine Electronics – 10.0 %

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.

Europe, Oceania and Asia.

As of December 31, 2023, the Company maintained approximately $ 16,030,000 , $ 1,100,000 , and $ 33,000 of its net

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

As of December 31, 2022, the Company maintained approximately $ 15,535,000 ,

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Revenue Recognition

We recognize revenue when control of products

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

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

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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 TSMs are on a per-unit

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

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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 technology.

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

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

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

The timing of revenue recognition related to AirBar

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

We recognize revenue for AirBar modules

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

Because we generally use distributors to provide

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

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.

TSMs to our customers, we must analyze the terms of our distributor agreements to determine when control passes from us to our distributors.

For sales of 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

Distributors participate in various cooperative

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If actual credits received

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

revenue could be adversely affected.

GAAP, companies may make reasonable

aggregations and approximations of returns data to accurately estimate returns.

Our AirBar and TSM returns and warranty experience to

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

The reserve for future sales returns is recorded as a reduction of our accounts receivable and revenue and was $ 9,000 and $ 69,000 as

of December 31, 2022 and 2021, respectively.

The warranty reserve is recorded as an accrued expense and cost of sales and was $ 49,000

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.

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

could be adversely affected.

GAAP, companies may make reasonable aggregations

and approximations of returns data to accurately estimate returns.

Our TSM returns and warranty experience to date has enabled us to make

reasonable returns estimates, which are supported by the fact that our product sales involve homogenous transactions.

The reserve for

future sales returns is recorded as a reduction of our accounts receivable and revenue and was $ 8,000 and $ 9,000 as of December 31, 2023

and 2022, respectively.

The warranty reserve is recorded as an accrued expense and cost of sales and was $ 30,000 and $ 49,000 as of December

31, 2023 and 2022, 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.

Non-Recurring Engineering

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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

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During the years ended December 31, 2023 and 2022, 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):

The following tables present the net revenues distribution

by geographical area and market for the years ended December 31, 2023 and 2022 (dollars in thousands):

North America

Net revenues from consumer electronics

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Net revenues from distributors and other

Europe, Middle East and Africa

Net revenues from automotive

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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 obligations;

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

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

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revenue would occur.

Finally, judgment is required to determine the

amount of unbilled license fees at the end of each reporting period.

Finally, judgment is required to determine the amount

of unbilled license fees at the end of each reporting period.

Contract Balances

Timing of revenue recognition may differ from

the timing of invoicing to customers.

Timing of revenue recognition may differ from the

timing of invoicing to customers.

We record a receivable when we have an unconditional right to receive future payments from customers,

and we record unearned deferred revenue when we receive prepayments or upfront payments for goods or services from our customers.

The following table presents accounts receivable,

unbilled revenues and deferred revenues as of December 31, 2022 and 2021 (in thousands):

The following table presents our accounts receivable and unbilled

revenues, and deferred revenues as of December 31, 2023 and 2022 (in thousands):

Accounts receivable and unbilled revenues

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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

best estimate of probable losses inherent in the accounts receivable balance.

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

The allowance for credit losses reflects our best

estimate of probable losses inherent in the accounts receivable balance.

We determine the allowance based on known troubled accounts,

historical experience, and other currently available evidence.

Payment terms and conditions vary by the type

Payment terms and conditions vary by the type of

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

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Costs to Obtain Contracts

We record the incremental costs of obtaining a

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 record the incremental costs of obtaining a contract

with a customer as a contract 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.

We expense as incurred costs of obtaining a contract

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Balance at beginning of period

Provisions for warranty issued

Provisions for (adjustments to) warranty issued

Balance at end of period

The Company accrues for warranty costs as part

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

The Company accrues for warranty costs as part of

its cost of sales of TSMs based on estimated costs.

The Company’s products are generally covered by a warranty for a period of 12

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Deferred revenues products

Deferred non-recurring engineering

Deferred revenues non-recurring engineering

Deferred revenue not yet recognized was $ 10,000

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costs are expensed as incurred.

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

such as testing, certifying and measurements.

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

as testing, certifying and measurements.

Stock-Based Compensation Expense

We measure the cost of employee services received

in exchange for an award of equity instruments, including share options, based on the estimated fair value of the award on the grant

date, and recognize the value as compensation expense over the period the employee is required to provide services in exchange for the

award, usually the vesting period.

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

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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

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

Noncontrolling Interests

We recognize any noncontrolling interest, also

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

We recognize any noncontrolling interest, also known

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

A noncontrolling

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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

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

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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, 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).

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, 2023 and 2022.

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, 2023 and 2022 exclude the potential common

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

Other Comprehensive Income (Loss)

Our other comprehensive income (loss) includes

foreign currency translation gains and losses.

The cumulative amount of translation gains and losses are reflected as a separate component

of stockholders’ equity in the consolidated balance sheets.

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 as accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets.

Cash Flow Information

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

The weighted-average exchange

rate for the consolidated statements of operations was as follows:

The weighted-average exchange rates

for the consolidated statements of operations were as follows:

Swedish Krona

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Fair Value of Financial Instruments

We disclose the estimated fair values for all

financial instruments for which it is practicable to estimate fair value.

Financial instruments including cash, accounts receivable,

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

New Accounting Pronouncements

We disclose the estimated fair values for all financial instruments

for which it is practicable to estimate fair value.

Financial instruments including cash and cash equivalents, accounts receivable, accounts

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

Recent Accounting Pronouncements

In September 2016, the FASB issued ASU No.

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

supplemented by subsequent accounting standards updates.

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

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

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

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

regarding our trade receivables;

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

Reclass of Presentation in our Consolidated Statements

of Operations

On May 4, 2021, we announced a new strategy and

organizational update targeting an increased focus on the Company’s contactless touch business and on current market opportunities

in North America (“AMER”), Asia-Pacific (“APAC”), and Europe, Middle East and Africa (“EMEA”).

thereby changed from a business area organization to a regional sales organization going forward.

Revenues are however primarily monitored

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

2016-13, Financial

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

by subsequent accounting standards updates.

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

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

ASU 2016-13, as

amended, is effective for fiscal years beginning after December 15, 2022.

We adopted ASU 2016-13 on January 1, 2023.

Based on the composition of our accounts receivable, and other financial

assets, including current market conditions and historical credit loss activity, the adoption of this standard did not have a material

impact on our consolidated financial statements or disclosures.

Specifically, our estimate of expected credit losses as of December

31, 2023, using our expected credit loss evaluation process described above, resulted in no adjustments to the provision for credit losses

and no cumulative-effect adjustment to accumulated deficit on the adoption date of the standard.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting

Improvements to Reportable Segment Disclosures (“ASU 2023-07”).

ASU 2023-07 requires, among other updates,

enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker.

clarifies that entities with a single reportable segment are subject to both new and existing reporting requirements under Topic 280.

This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after

December 15, 2024, and requires retrospective adoption.

Early adoption is permitted.

We are currently evaluating the impact of this guidance

on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic

Improvements to Income Tax Disclosures , which updates several disclosures regarding the accounting for income taxes.

will become effective for public business entities for fiscal years beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact ASU 2023-09 will have on our consolidated financial statements.

Prepaid Expenses and Other Current Assets

Prepaid expense and other current assets consist

Prepaid expenses and other current assets consist

of the following (in thousands):

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VAT receivable

Advances to suppliers

Total prepaid expenses and other current assets

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Property and equipment, net

Depreciation and amortization expense was $ 0.1

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

Depreciation and amortization expense was $ 0.1 million

for each of the years ended December 31, 2023 and 2022.

Accrued Expenses

Accrued expenses consist of the following (in

Accrued expenses consist of the following (in thousands):

Accrued returns and warranty

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described as follows:

Applies to assets or liabilities for

which there are observable quoted prices in active markets for identical assets and liabilities.

Applies to assets or liabilities for

which there are inputs other than quoted prices included in Level 1.

Applies to assets or liabilities for

which inputs are unobservable, and those inputs that are significant to the measurement of the fair value of the assets or liabilities.

Applies to assets or liabilities for which

there are observable quoted prices in active markets for identical assets and liabilities.

Applies to assets or liabilities for which

there are inputs other than quoted prices included in Level 1.

Applies to assets or liabilities for which

inputs are unobservable, and those inputs that are significant to the measurement of the fair value of the assets or liabilities.

There were no assets or liabilities recorded at

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Stockholders’ Equity

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).

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

agency agreement with Pareto Securities Inc.

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

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

on October 26, 2021 (the “Offering”).

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

placement agent fees and offering expenses.

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

As of December 31, 2023 and 2022, our Restated Certificate

of Incorporation, as amended, authorized us to issue up to 25,000,000 shares of common stock, par value $ 0.001 per share.

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

stock to a director pursuant to the Neonode Inc.

2020 Stock Incentive Plan (the “2020 Plan”) (see Note 8).

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 Long-Term Incentive Program (“2020 LTIP”).

During the year 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 to B.

Riley Securities and other expenses of $ 167,000 .

Warrants and Other Common Stock Activity

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

Outstanding and exercisable

January 1, 2021

Expired/forfeited

December 31, 2021

Expired/forfeited

December 31, 2022

We have no outstanding warrants to purchase common

stock as of December 31, 2022.

During the year ended December 31, 2023, we sold

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

commissions to B.

Riley Securities and other expenses of $ 244,000 .

Preferred Stock

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.

As of December 31, 2023 and 2022, our Restated Certificate

of Incorporation, as amended, 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

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No shares of preferred stock were issued and outstanding as of December 31, 2023.

As of December 31, 2023 and 2022, the Company had no outstanding warrants

to purchase common stock.

During the year ended December 31, 2022, 431,368 warrants expired, and no warrants were exercised.

Stock-Based Compensation

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

Stock Options / Stock Awards

Stock Options and Long-Term Incentive Plan

During the year ended December 31, 2020, our stockholders

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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.

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

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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

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

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.

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 date.

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

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.

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

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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.

During the years ended December 31, 2023 and 2022,

we recognized $ 58,000 and $ 122,000 , respectively, of stock-based compensation for the amortization of the LTIP over the respective lock-up

The following table summarizes information with

respect to all options to purchase shares of common stock outstanding under the 2006 Plan, the 2015 Plan and the 2020 Plan at December

Options Outstanding

Range of Exercise Price

$ 0 - $ 15.00

A summary of the combined activity under all of

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Options outstanding and vested – December 31, 2023

No stock options were granted during the years

ended December 31, 2022 and 2021, respectively.

No stock options were granted during the years ended

December 31, 2023 and 2022.

During the years ended December 31, 2023 and 2022,

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Stock options granted under the 2006, 2015 and 2020

Plans are exercisable over a maximum term of ten years from the date of grant, vest in various installments over a one to four-year period

Plans are exercisable over a maximum term of 10 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.

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(in thousands):

(In thousands)

Sales and marketing

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expense related to stock options as of December 31, 2023.

Unrecognized compensation expense related to the 2020 LTIP as of December 31,

2022 was $ 60,000 , which will be recognized over two years.

Unrecognized compensation expense related to the 2020 Plan as of December 31,

2023 was $ 2,000 , which will be recognized during 2024.

Commitments and Contingencies

On September 2, 2020, a putative stockholder of

Neonode filed a purported class action lawsuit (Case No.

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

against Neonode, the Board of Directors of Neonode, and the Chief Executive Officer of Neonode for alleged violation of Sections 14(a)

and 20(a) of the Securities Exchange Act of 1934, as amended, in connection with disclosure of information concerning Proposal 5 and

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

(the “Proxy Statement”).

These proposals for shareholder approval related to the Private Placement by Neonode on August 5,

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

The relief sought by the plaintiff included a preliminary

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

On October 20, 2020, the plaintiff voluntarily dismissed the

lawsuit in the United States District Court.

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

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

Operating expenses for the year ended December

31, 2021 include costs in relation to the above-referenced lawsuits.

The Company is subject to legal proceedings and

claims that may arise in the ordinary course of business.

The Company is not aware of any pending or threatened litigation matters at

this time that would have a material impact on the operations of the Company.

Indemnities and Guarantees

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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.

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, 2023 and 2022.

We enter into indemnification provisions under our

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

Under these provisions we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified

party as a result of our activities or, in some cases, as a result of the indemnified party’s activities under the agreement.

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.

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.

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

Accordingly, we have no liabilities recorded for these indemnification provisions as of December 31, 2023 and 2022.

Patent Assignment

On May 6, 2019, the Company assigned a portfolio

of patents to Aequitas Technologies LLC.

The assignment provides the Company the right to share 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.

of patents to Aequitas Technologies LLC ("Aequitas"), an unrelated third party.

The assignment provides the Company the right

to share the potential net proceeds to Aequitas generated from possible licensing and monetization program that Aequitas may enter into.

Under the terms of the assignment, net proceeds means gross proceeds less out of pocket expenses and legal fees paid by Aequitas.

Company’s share would also be net of the Company’s own fees and expenses, including a brokerage fee payable by the Company

in connection with the original assignment to Aequitas.

On June 8, 2020, Neonode Smartphone LLC, an unrelated third party

that is a subsidiary of Aequitas (“Aequitas Sub"), filed complaints against Apple and Samsung in the Western District of Texas

for infringing two patents.

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

Both matters are still ongoing.

In December 2022,

the Patent Trial and Appeal Board invalidated one of the two patents, which Aequitas Sub is appealing.

On August 2, 2023, the United States

District Court for the Western District of Texas entered judgment in favor of Samsung.

Aequitas Sub has filed an appeal to change this

decision to the Federal Circuit.

The case against Apple is still pending in the United States District Court for the Northern District

of California.

Non-Recurring Engineering Development Costs

5 unchanged sentences

As of December 31, 2023, 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 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.

Our operating leases represent building leases

for our Stockholm corporate offices and our Kungsbacka manufacturing facility.

We have operating leases for our corporate offices and our manufacturing

facility, and finance leases for equipment.

Our leases have remaining lease terms of nine months to two years, and includes an option

to annually extend.

These 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 consolidated balance sheet date are excluded from right-of-use assets and related lease liabilities.

Our operating leases represent building leases for

our Stockholm corporate offices and our Kungsbacka manufacturing facility.

Our Stockholm corporate office lease has a remaining lease

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written notice nine months prior to the respective expiration dates.

We report operating lease right-of-use assets,

as well as current and noncurrent operating lease obligations on our consolidated balance sheets for the right to use those buildings

in our business.

We report operating lease right-of-use assets, as

well as current and noncurrent operating lease obligations on our consolidated balance sheets for the right to use those buildings in

our business.

Our finance leases represent manufacturing equipment;

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

finance lease obligations on our consolidated balance sheets.

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

Generally, interest rates are stated in our leases

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Total finance lease cost

(1) Includes short term lease costs of $ 180,000 and $ 127,000 for the years ended December 31, 2022 and 2021.

short term lease costs of $ 458,000 and $ 180,000 for the years ended December 31, 2023 and 2022, respectively.

Supplemental cash flow information

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Finance leases

Supplemental balance sheet

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

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

Operating leases

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Finance leases

(2) Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.

adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019 .

A summary of future minimum payments under non-cancellable

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Less current portion

The following is a schedule of minimum future

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

The following is a schedule of minimum future rentals

on the non-cancelable finance leases as of December 31, 2023 (in thousands):

Year ending December 31,

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Less current portion

Segment Information

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

on the country where the customer is located.

The following table presents revenues by geographic region for the years ended December

31, 2022 and 2021 (dollars in thousands):

We have one reportable segment, which is comprised

of the touch technology licensing and products business.

We report revenues from external customers based on the country where the customer

The following table presents net revenues by geographic

area for the years ended December 31, 2023 and 2022 (dollars in thousands):

United States

Loss before provision for income taxes was distributed

geographically for the years ended December 31, as follows (in thousands):

The provision (benefit) for income taxes is as

follows for the years ended December 31 (in thousands):

Change in deferred

Federal valuation allowance

State valuation allowance

Foreign valuation allowance

Total current

geographically for the years ended December 31, 2023 and 2022 as follows (in thousands):

The provision (benefit) for income taxes is as follows

for the years ended December 31, 2023 and 2022 (in thousands):

Total current expense

Change in valuation allowance

Total deferred expense

Total provision for income taxes

The differences between our effective income tax

rate and the U.S.

federal statutory federal income tax rate for the years ended December 31, are as follows:

federal statutory federal income tax rate for the years ended December 31, 2023 and 2022, are as follows:

Amounts at statutory tax rates

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Significant components of the deferred tax asset

balances at December 31 are as follows (in thousands):

balances at December 31, 2023 and 2022 are as follows (in thousands):

Deferred tax assets:

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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.

This is mainly due to our history of operating losses.

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.

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

As of December 31, 2023, we had federal, state and foreign net operating losses of $ 80.8 million, $ 20.1 million and $ 50.0 million,

respectively.

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

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

Utilization of the net operating loss and tax credit

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We file income tax returns in the U.S.

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.

federal jurisdiction,

California, Sweden, and Japan.

The 2008 through 2022 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.

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

The Company had no potential common stock equivalents as of December

31, 2022 or 2021.

The Company had no potential common stock equivalents

as of December 31, 2023 or 2022.

(In thousands, except per share amounts)

1 unchanged sentence

Weighted average number of common shares outstanding

Net loss attributable to common shareholders of Neonode Inc.

Net loss attributable to Neonode Inc.

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

No subsequent events have occurred that would require recognition in

the consolidated financial statements or disclosure in the notes thereto.

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