What changed in this filing

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Item 1. Financial Statements

2024-05-08 compared with 2023-11-09 · 272 added, 403 removed, 663 unchanged (50% of the section changed)

2 unchanged sentences

(In thousands, except share and per share amounts)

September 30,

Current assets:

15 unchanged sentences

Finance lease obligations, net of current portion

Operating lease obligations, net of current portion

Total liabilities

2 unchanged sentences

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

15,359,481 and 14,455,765 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

15,359,481 shares issued and outstanding at March 31, 2024 and December 31, 2023

Additional paid-in capital

8 unchanged sentences

Three months ended

September 30,

Nine months ended

September 30,

Non-recurring engineering

10 unchanged sentences

Operating loss

Other income (expense):

Interest income (expense), net

Total other income, net

Other income:

Interest income, net

Total other income

Loss before provision for income taxes

Provision for income taxes

Net loss including noncontrolling interests

net loss attributable to noncontrolling interests

Net loss attributable to Neonode Inc.

Loss per common share:

6 unchanged sentences

Three months ended

September 30,

Nine months ended

September 30,

Other comprehensive income (loss):

Other comprehensive income:

Foreign currency translation adjustments

Other comprehensive loss

comprehensive loss attributable to noncontrolling interests

Other comprehensive loss attributable to Neonode Inc.

The accompanying notes are an integral part of

2 unchanged sentences

(In thousands)

For the three and nine months ended September

30, 2023 and 2022

For the three months ended March 31, 2024 and

Comprehensive

Stockholders’

Noncontrolling

Stockholders’

Balances, December 31, 2023

1 unchanged sentence

Stock-based compensation

Issuance of shares for cash, net of offering costs

Foreign currency translation adjustment

1 unchanged sentence

$ ( 219,698 )

Stock-based compensation

Foreign currency translation adjustment

Balances, June 30, 2023

$ ( 210,423 )

Stock-based compensation

Foreign currency translation adjustment

Balances, September 30, 2023

$ ( 211,689 )

Comprehensive

Stockholders’

Noncontrolling

Stockholders’

Balances, December 31, 2022

1 unchanged sentence

Stock-based compensation

Issuance of shares for cash, net of offering costs

Foreign currency translation adjustment

1 unchanged sentence

$ ( 208,916 )

Stock-based compensation

Foreign currency translation adjustment

Balances, June 30, 2022

$ ( 205,536 )

Stock-based compensation

Repurchase and retirement of stock

Foreign currency translation adjustment

Balances, September 30, 2022

$ ( 206,336 )

The accompanying notes are an integral part of

2 unchanged sentences

(In thousands)

Nine months ended

September 30,

Three months ended

Cash flows from operating activities:

Net loss (including noncontrolling interests)

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

2 unchanged sentences

Amortization of operating lease right-of-use assets

Recoveries of bad debt

Inventory impairment loss

Changes in operating assets and liabilities:

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Net cash used in operating activities

Cash flows from investing activities:

Purchase of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock, net of offering costs

Repurchase of common stock

Principal payments on finance lease obligations

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of period

3 unchanged sentences

Cash paid for interest

Supplemental disclosure of non-cash investing and financial activities:

Property and equipment obtained in exchange for lease obligations

The accompanying notes are an integral part of

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

periods presented.

The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of

results for a full fiscal year or any other period.

period presented.

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of results for a

full fiscal year or any other period.

The accompanying condensed

consolidated financial statements for the three and nine months ended September 30, 2023 and 2022 have been prepared by us, pursuant to

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

Certain information and footnote

disclosures normally contained in financial statements prepared in accordance with accounting principles generally accepted in the United

States of America (“U.S.

consolidated financial statements for the three months ended March 31, 2024 and 2023 have been prepared by us, pursuant to the rules and

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

Certain information and footnote disclosures

normally contained in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”) have been condensed or omitted.

These condensed consolidated financial statements should be

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

the fiscal year ended December 31, 2022.

These condensed consolidated financial statements should be read in conjunction with the

audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31,

Neonode Inc., which is collectively

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

In our operations, we have

historically focused on three different business areas, human machine interface (“HMI”) Solutions, HMI Products and Remote

Sensing Solutions.

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”).

We 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.

We have incurred significant operating

losses and negative cash flows from operations since our inception.

The Company incurred net losses of approximately $ 1.3 million 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.

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 $ 2.1 million

and $ 1.4 million for the three months ended March 31, 2024 and March 31, 2023, respectively and had an accumulated deficit of approximately

$ 219.7 million and $ 217.6 million as of March 31, 2024 and December 31, 2023, respectively.

In addition, operating activities used cash

of approximately $ 1.9 million and $ 1.7 million for the three months ended March 31, 2024 and 2023, respectively.

The condensed consolidated

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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 below) are sufficient to alleviate concerns about the Company’s

ability to continue as a going concern.

During the nine months ended September 30, 2023, the Company sold an aggregate of 903,716 shares

of its common stock under the at-the-market facility with aggregate net proceeds to the Company of $ 7,866,000 , after payment of commissions

Riley Securities, the agent for the at-the-market facility, and other expenses of $ 244,000 .

Management evaluated the

significance of the Company’s operating loss and determined that the Company’s current operating plan and sources of

potential capital (including the Company’s ATM Facility, as defined and described below) would be sufficient to alleviate

concerns about the Company’s ability to continue as a going concern.

During the three months ended March 31, 2023, the Company

sold an aggregate of 903,716 shares of its common stock under the at-the-market facility with aggregate net proceeds to the Company

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

Riley Securities (as defined below), the agent for the ATM Facility, and other

expenses of $ 244,000 .

During the three months ended March 31, 2024, we sold no shares pursuant to the ATM Facility.

The condensed 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

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Principles of Consolidation

The condensed consolidated

financial statements have been prepared in accordance with U.S.

The condensed consolidated financial statements have been prepared

in accordance with U.S.

GAAP and include 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, until September 30, 2022.

On October 1,

2022, the remaining 49 % of Pronode Technologies AB was acquired from 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.

We consolidate subsidiaries in which we hold, directly or indirectly, more than 50 %

of the voting rights.

The condensed consolidated

balance sheets at September 30, 2023 and December 31, 2022 and the condensed consolidated statements of operations, comprehensive loss,

stockholders’ equity and cash flows for the three and nine months ended September 30, 2023 and 2022 include our accounts and those

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

and its intercompany subsidiaries.

All inter-company accounts and

transactions have been eliminated in consolidation.

The condensed consolidated balance sheets at March 31, 2024 and December

31, 2023 and the condensed consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the

three months ended March 31, 2024 and 2023 include our accounts and those of our intercompany subsidiaries.

Estimates and Judgments

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The accounts receivable balance

on our consolidated balance sheet as of September 30, 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 September 30, 2023:

on our consolidated balance sheet as of March 31, 2024 was $ 1.1 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 March 31, 2024:

Balance at January 1, 2024

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Write-offs, net of recoveries

Balance at September 30, 2023

Balance at March 31, 2024

The Company’s inventory

consists primarily of components that will be used in the manufacturing of our touch sensor modules (“TSMs”).

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

consists of components that will be used in the manufacturing of our touch sensor modules (“TSMs”).

We classify inventory

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

Inventory is stated at the

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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.

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

it is stored.

The AirBar inventory reserve was $ 0.3 million and $ 0.3 million as of September 30, 2023 and December 31, 2022, respectively.

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 was $ 3.6 million for the year ended December

31, 2023 and another $ 0.3 million in the three months ended March 31, 2024.

In December 2023, management

decided to dispose of the fully reserved AirBar inventory.

Raw materials, work-in-process,

and finished goods are as follows (in thousands):

September 30,

Raw materials

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based upon estimated useful lives of the assets as follows:

Estimated useful lives

Computer equipment

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We assess any impairment by

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

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

If the estimated undiscounted

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of these assets.

As of September 30, 2023, we believe there was no impairment of our long-lived assets.

There can be no assurance,

however, that market conditions will not change or sufficient demand for our products and services will continue, which could result in

impairment of long-lived assets in the future.

As of March 31, 2024, we believe there was no impairment of our long-lived assets.

There can be no assurance, however,

that market conditions will not change or sufficient demand for our products and services will continue, which could result in impairment

of long-lived assets in the future.

Foreign Currency Translation and Transaction

Gains and Losses

The functional currency of

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

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

Dollars is performed for balance sheet accounts

using current exchange rates in effect at the balance sheet date and for income statement accounts using a weighted-average exchange rate

during the period.

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

income (loss).

Foreign currency translation gains (losses) were $( 48,000 ) and $( 154,000 ) and $ 30,000 and $ 104,000 during the three and

nine months ended September 30, 2023 and 2022, respectively.

Gains (losses) resulting from foreign currency transactions are included

in general and administrative expenses in the accompanying condensed consolidated statements of operations and were $ 7,000 and $ 2,000

during the three and nine months ended September 30, 2023, respectively, compared to $ 18,000 and $ 47,000 during the same periods in 2022,

respectively.

The functional currency of our foreign subsidiaries is the applicable

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

The translation from Swedish Krona, Japanese

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

Dollars is performed for balance sheet accounts using current exchange rates in effect

at the balance sheet date and for income statement accounts using a weighted-average exchange rate during the period.

Gains or (losses)

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

Foreign currency translation

gains (losses) were $( 34,000 ) and $ 35,000 during the three months ended March 31, 2024 and 2023, respectively.

Gains (losses) resulting

from foreign currency transactions are included in general and administrative expenses in the accompanying condensed consolidated statements

of operations and were $ 5,000 and $( 5,000 ) during the three months ended March 31, 2024 and 2023, respectively.

Concentration of Credit and Business Risks

Our customers are located

in the United States, Europe and Asia.

As of September 30, 2023,

four of our customers represented approximately 75 % of our consolidated accounts receivable and unbilled revenues.

As of December 31, 2022, five

in the United States, Europe, Oceania and Asia.

As of March 31, 2024, four

of our customers represented approximately 64.8 % of our consolidated accounts receivable and unbilled revenues.

Customers who accounted for

10 % or more of our net revenues during the three months ended September 30, 2023 are as follows:

● Seiko Epson Corporation – 21 %

● Hewlett-Packard Company – 21 %

● Alpine Electronics, Inc – 16 %

● LG Electronics Inc.

Customers who accounted for

10 % or more of our net revenues during the nine months ended September 30, 2023 are as follows:

Hewlett-Packard Company – 30%

Seiko Epson Corporation – 18%

Alpine Electronics, Inc – 15%

LG Electronics Inc.

As of December 31, 2023, four

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

Customers who accounted for

10 % or more of our net revenues during the three months ended September 30, 2022 are as follows:

10.0% or more of our net revenues during the three months ended March 31, 2024 are as follows:

● Hewlett-Packard Company – 24.8 %

● Seiko Epson Corporation – 26 %

● LG Electronics Inc.

● Alpine Electronics, Inc – 11 %

● Alps Alpine – 18.4 %

● Seiko Epson – 15.7 %

Customers who accounted for

10 % or more of our net revenues during the nine months ended September 30, 2022 are as follows:

10.0% or more of our net revenues during the three months ended March 31, 2023 are as follows:

● Hewlett-Packard Company – 30.7 %

● Seiko Epson Corporation – 20 %

● LG Electronics Inc.

● Alpine Electronics, Inc – 10 %

● Seiko Epson – 20.2 %

● Alps Alpine – 14.7 %

● LG – 13.7 %

Revenue Recognition

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License fees and sales of

our AirBar and TSMs are on a per-unit basis.

our TSMs are on a per-unit basis.

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

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

Non-recurring

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

We recognize revenue net of

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not offered to customers.

There have been no returns through September 30, 2023.

There have been no returns through March 31, 2024.

Product Sales

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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 TSMs and AirBars 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 and AirBars 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.

to provide 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 purchased.

Distributors participate in

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may make reasonable aggregations and approximations of returns data to accurately estimate returns.

Our TSM and AirBar 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 as of September 30, 2023 and $ 9,000 as of December 31, 2022.

The warranty reserve is recorded as an accrued expense and cost of

sales and was $ 39,000 as of September 30, 2023 and $ 49,000 as of December 31, 2022.

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.

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 $ 7,000 as

of March 31, 2024 and $ 8,000 as of December 31, 2023.

The warranty reserve is recorded as an accrued expense and cost of sales and was

$ 31,000 as of March 31, 2024 and $ 30,000 as of December 31, 2023.

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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projects are recognized in full as soon as they become evident.

During the three and nine months ended September 30, 2023 and 2022, no

losses related to SOW projects were recorded.

During the three months ended March 31, 2024 and 2023, we recorded no

The following tables present

the net revenues distribution by geographical area and market for the three and nine months ended September 30, 2023 and 2022 (dollars

in thousands):

the net revenues distribution by geographical area and market for the three months ended March 31, 2024 and 2023 (dollars in thousands):

Three months ended

September 30, 2023

March 31, 2024

Three months ended

September 30, 2022

Net revenues from consumer electronics

Net revenues from distributors and other

Net revenues from automotive

Net revenues from consumer electronics

Net revenues from distributors and other

March 31, 2023

North America

Net revenues from Automotive

Net revenues from medical

Net revenues from distributors and other

Nine months ended

September 30, 2023

Nine months ended

September 30, 2022

Net revenues from consumer electronics

Net revenues from distributors and other

Net revenues from IT & Industrial

Net revenues from Automotive

Net revenues from consumer electronics

Net revenues from distributors and other

Net revenues from IT & Industrial

Europe, Middle East and Africa

Net revenues from Automotive

Net revenues from medical

Net revenues from distributors and other

Net revenues from IT & Industrial

Significant Judgments

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The following table presents

accounts receivable and deferred revenues as of September 30, 2023 and December 31, 2022 (in thousands):

September 30,

accounts receivable and deferred revenues as of March 31, 2024 and December 31, 2023 (in thousands):

Accounts receivable and unbilled revenue, net

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

September 30,

Balance at beginning of period

Provisions for warranty issued

Provisions for (adjustments to) warranty issued

Balance at end of period

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our deferred revenues by source (in thousands):

September 30,

Deferred revenues license fees

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Deferred revenues non-recurring engineering

During the three and nine

months ended September 30, 2023, the Company recognized revenues of approximately $ 4,000 and $ 18,000 , respectively, related to contract

liabilities outstanding at the beginning of the year.

During the three months ended

March 31, 2024, the Company recognized revenues of approximately $ 2,000 related to contract liabilities outstanding at the beginning of

Advertising costs are expensed

Advertising costs for the three and nine months ended September 30, 2023 and 2022 amounted to approximately $ 49,000 and $ 161,000

and $ 21,000 and $ 105,000 , respectively.

Advertising costs for the three months ended March 31, 2024 and 2023 amounted to approximately $ 175,000 and $ 54,000 , respectively.

Research and Development

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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 condensed consolidated financial

A noncontrolling interest represents the portion of equity ownership in a less-than-wholly owned subsidiary not attributable

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

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

We include the amount of net income (loss) attributable

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

The Company provides either

in the condensed consolidated statement of stockholders’ equity, if presented, or in the notes to condensed consolidated financial

statements, a reconciliation at the beginning and the end of the period of the carrying amount of total equity (net assets), equity (net

assets) attributable to the 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;

Each component of other comprehensive income or loss.

We recognize deferred tax

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Based on the uncertainty of

future pre-tax income, we fully reserved our net deferred tax assets as of September 30, 2023 and December 31, 2022.

future pre-tax income, we fully reserved our net deferred tax assets as of March 31, 2024 and December 31, 2023.

In the event we were

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

As of September 30, 2023 and

December 31, 2022, we had no unrecognized tax benefits.

As of March 31, 2024 and December

31, 2023, we had no unrecognized tax benefits.

Net Loss per Share

Net loss per share amounts

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

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 the three and nine months ended September

have been computed based on the weighted average number of shares of common stock outstanding during the three months ended March 31,

2024 and 2023.

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 the three months ended March

31, 2024 and 2023 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note 8).

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(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 condensed consolidated

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 condensed consolidated

balance sheets.

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exchange rates for the condensed consolidated statements of operations were as follows:

Nine months ended

September 30,

Three months ended

Swedish Krona

South Korean Won

Taiwan Dollar

The exchange rates for the

condensed consolidated balance sheets were as follows:

September 30,

Swedish Krona

South Korean Won

Taiwan Dollar

Fair Value of Financial Instruments

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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.

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

Recent Accounting Pronouncements

In September 2016, the FASB

issued ASU No.

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

2016-13”), supplemented by subsequent accounting standards updates.

The new standard requires entities to measure all expected credit

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

ASU 2016-13, as amended, is effective for fiscal years beginning after December 15, 2022, as we were a smaller reporting company

as of November 15, 2019, the determination date.

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 condensed consolidated financial statements or disclosures.

Specifically, our estimate of expected credit

losses as of September 30, 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 (Topic 280):

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.

The ASU also 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 740):

Improvements to Income Tax Disclosures , which updates several disclosures regarding

the accounting for income taxes.

ASU 2023-09 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.

Stockholders’ Equity

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$ 25 million of shares of our common stock.

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

to the Sales Agreement, we may sell the shares through B.

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

6 unchanged sentences

of the gross sales price per share sold under the Sales Agreement.

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.

As of September 30, 2023 and

December 31, 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

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 .

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.

Subsequent to the filing of our Form 10-K on February 28, 2024, the aggregate

market value of our outstanding common stock held by non-affiliates was approximately $ 26.7 million.

Pursuant to General Instruction I.B.6

of Form S-3, since the aggregate market value of our outstanding common stock held by non-affiliates was below $ 75.0 million at the time

of such Form 10-K filing, the aggregate amount of securities that we are permitted to offer and sell was reduced to $ 8,901,792 , which

was equal to one-third of the aggregate market value of our common stock held by non-affiliates as of February 27, 2024.

As of March 31, 2024 and December

31, 2023, 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.

During 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 of $ 7,866,000 , after payment of commissions to

March 31, 2024, no shares were sold under the ATM Facility.

During the three months ended March 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 .

Preferred Stock

As of September 30, 2023 and

December 31, 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.

As of March 31, 2024 and December 31, 2023, 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 during the three and nine months ended September 30, 2023 and 2022.

No shares of preferred stock were issued and

outstanding as of September 30, 2023 and December 31, 2022.

As of September 30, 2023 and

December 31, 2022, the Company had no outstanding warrants to purchase common stock.

in our preferred stock during the three months ended March 31, 2024 and 2023.

No shares of preferred stock were issued and outstanding

as of March 31, 2024 and December 31, 2023.

Stock-Based Compensation

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Stock Options and Long-Term Incentive Plan

During the year ended December

31, 2020, our stockholders approved the 2020 Plan which replaced our 2015 Stock Incentive Plan (the “2015 Plan”), which in

turn replaced our Neonode Inc.

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

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

in turn replaced our Neonode Inc.

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

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the 2020 Plan are set by our compensation committee at its discretion.

In 2020 we established the

In 2020 we established the 2020 long-term incentive program (the “2020

LTIP”) to provide eligible persons with the opportunity to acquire an equity interest, or otherwise increase their equity interest,

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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

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 date.

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

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

On August 12, 2021, we issued 12,830 shares of common stock to a key employee

pursuant to the 2020 Plan and through 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 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 30.0 % 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 30.0 % 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 Plan and through 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 30.0 % 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 30.0 % 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

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

On September 15, 2022, we

repurchased 10,252 shares of common stock from an employee who resigned during the two-year lock up period associated with such shares

for $ 12,000 , pursuant to the terms of the 2020 LTIP.

For the three and nine months

ended September 30, 2023 and 2022, we recognized $ 13,000 and $ 48,000 and $ 5,000 and $ 89,000 , respectively, of stock-based compensation

for the amortization of the fair value of stock awards issued under the 2020 LTIP and 2020 Plan over the respective lock-up periods.

A summary of the combined

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

Outstanding at January 1, 2023

Outstanding at September 30, 2023

As of September 30, 2023 we

had no outstanding options.

For the three and nine months

ended September 30, 2023 and 2022, we recorded no compensation expense related to the vesting of stock options.

During the three and nine

months ended September 30, 2023, we did not grant any options to purchase shares of our common stock to employees or members of our board

of directors.

For the three months ended March 31, 2024 and 2023, we recognized $ 2,000

and $ 18,000 , respectively, of stock-based compensation for the amortization of the 2020 Plan over the respective lock-up periods.

As of March 31, 2024 and December

31, 2023 we had no outstanding options.

For the three months ended March 31, 2024 and 2023, we recorded no compensation expense related

to the vesting of stock options.

During the three months ended

March 31, 2024, we did not grant any options to purchase shares of our common stock to employees or members of our board of directors.

Stock options granted under

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Commitments and Contingencies

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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insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal and we have no liabilities

recorded for these agreements as of September 30, 2023 and December 31, 2022.

recorded for these agreements as of March 31, 2024 and December 31, 2023.

We enter into indemnification

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fair value of these agreements is minimal.

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

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

31, 2024 and December 31, 2023.

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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.

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.

The case against

Apple is still ongoing.

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.

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 and an oral hearing is scheduled to be held on June 6, 2024.

The case against Apple is still pending in

the United States District Court for the Northern District of California.

Non-Recurring Engineering Development Costs

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at the rate of $ 0.25 per ASIC for each of the first 2,000,000 ASICs sold.

As of September 30, 2023, we had made no payments to TI under

the NN1002 Agreement.

As of March 31, 2024, we had made no payments to TI under the

NN1002 Agreement.

Segment Information

We have one reportable segment,

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

which is comprised of the technology licensing and products business.

We report revenues from external customers based on the country

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The following table presents

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

net revenues by geographic area for the three months ended March 31, 2024 and 2023, respectively (dollars in thousands):

Three months ended

September 30, 2023

March 31, 2024

Three months ended

September 30, 2022

United States

Nine months ended

September 30, 2023

Nine months ended

September 30, 2022

March 31, 2023

United States

The following table presents

our total assets by geographic region as of September 30, 2023 and December 31, 2022 (in thousands):

September 30,

our total assets by geographic region as of March 31, 2024 and December 31, 2023 (in thousands):

United States

We have operating leases for

our manufacturing facility, and finance leases for equipment.

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

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

to annually extend.

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

Our leases have remaining lease terms of three

months to 1.5 years.

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

Future renewal options that

are not likely to be executed as of the consolidated balance sheet date are excluded from right-of-use assets and related lease liabilities.

Our operating leases represent

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unless we provide written notice nine months prior to the respective expiration dates.

We report operating lease

right-of-use assets, as well as current and noncurrent operating lease obligations on our consolidated balance sheets for the right to

use those buildings in our business.

We report operating lease right-of-use assets, as well as current and

noncurrent operating lease obligations on our condensed consolidated balance sheets for the right to use those buildings in our business.

Our finance leases represent manufacturing equipment;

we report the manufacturing equipment, as well

as current and noncurrent finance lease obligations on our condensed consolidated balance sheets for our manufacturing equipment.

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

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

Generally, interest rates

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Three Months Ended

September 30,

Nine months ended

September 30,

Operating lease cost (1)

3 unchanged sentences

Total finance lease cost

(1) Includes short-term lease costs of $ 117,000 and $ 335,000 and $ 30,000 and $ 111,000 for the three and nine months ended September 30, 2023 and 2022, respectively.

(1) Includes short-term lease costs of $ 117,000 and $ 108,000 for the three months ended March 31, 2024 and 2023, respectively.

Supplemental cash flow information

1 unchanged sentence

Three Months Ended

September 30,

Nine months ended

September 30,

Cash paid for amounts included in leases:

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Operating leases

Finance leases

Supplemental balance sheet

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

September 30,

As of March 31,

As of December 31,

Operating leases

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Total finance lease liabilities

September 30,

Three Months Ended

Weighted Average Remaining Lease Term

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A summary of future minimum

payments under non-cancellable operating lease commitments as of September 30, 2023 is as follows (in thousands):

payments under non-cancellable operating lease commitments as of March 31, 2024 is as follows (in thousands):

Year ending December 31,

2023 (remaining months)

Less imputed interest

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The following is a schedule

of minimum future rentals on the non-cancellable finance leases as of September 30, 2023 (in thousands):

of minimum future rentals on the non-cancellable finance leases as of March 31, 2024 (in thousands):

Year ending December 31,

2023 (remaining months)

Total minimum payments required:

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Basic net loss per common

share for the three and nine months ended September 30, 2023 and 2022 was computed by dividing the net loss attributable to common shareholders

of Neonode Inc.

share for the three months ended March 31, 2024 and 2023 was computed by dividing the net loss attributable to common shareholders of

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

Diluted loss per common

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

for the relevant period by the weighted average

number of shares of common stock and common stock equivalents outstanding.

There were no potentially

dilutive common stock equivalents for the three and nine months ended September 30, 2023 and 2022, respectively.

Diluted loss per common share

is computed by dividing net loss attributable to common shareholders of Neonode Inc.

for the relevant period by the weighted average number

of shares of common stock and common stock equivalents outstanding.

The Company had no potential

common stock equivalents for the three months ended March 31, 2024 and 2023, respectively.

Three months ended

September 30,

Nine months ended

September 30,

(in thousands, except per share amounts)

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Subsequent Events

No other subsequent events

have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto other

than as discussed elsewhere in the accompanying notes.

On April 10, 2024, we and Dr.

Forssell entered into a Termination Agreement (the “Termination Agreement”), pursuant to which Dr.

Forssell was discharged

from his position as our President and Chief Executive Officer (“CEO”) and will act as a Senior Advisor to the management

team of Neonode Technologies AB, our subsidiary, and our board of directors until December 31, 2024.

In connection with the departure of Dr.

Forssell, our board of directors

appointed our Chief Financial Officer, Fredrik Nihlén, as our Interim President and CEO effective immediately.

will serve as Interim President and CEO until a new President and CEO is appointed.

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

What changed 10-Q

Item 1. Financial Statements