What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-09 · 236 added, 291 removed, 195 unchanged (73% of the section changed)

2 unchanged sentences

Forward Looking Statements

This Quarterly Report on

Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities

This Quarterly Report

on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities

Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities

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and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position.

number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking

A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking

statements, including, but not limited to our history of losses since inception, our dependence on a limited number of customers, our

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a product development and release cycle, our and our customers’ reliance on component suppliers, the difficulty in verifying royalty

amounts owed to us, our limited experience manufacturing hardware devices, our ability to remain competitive in response to new technologies,

our dependence on key members of our management and development team, the costs to defend, as well as risks of losing, patents and intellectual

property rights, our ability to obtain adequate capital to fund future operations, and general economic conditions, including inflation,

or other effects related to the COVID-19 pandemic or future pandemics or epidemics, or geopolitical conflicts such as the ongoing war

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

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

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

Forward-looking

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

Because actual events or results may differ materially from

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

amounts owed to us, our ability to remain competitive in response to new technologies, our dependence on key members of our management

and development team, the costs to defend, as well as risks of losing, patents and intellectual property rights, our ability to obtain

adequate capital to fund future operations, and general economic conditions, including inflation, or other effects related to the COVID-19

pandemic or future pandemics or epidemics, or geopolitical conflicts such as the ongoing war in Ukraine or the Gaza Strip.

For a discussion

of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please

see the discussion under “Risk Factors” and elsewhere in this Quarterly Report, our Annual Report on Form 10-K for the fiscal

year ended December 31, 2023 and in our publicly available filings with the Securities and Exchange Commission.

Forward-looking statements

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

Because actual events or results may differ materially from those

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

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

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Our company provides advanced

optical sensing solutions for contactless touch, touch, and gesture sensing.

optical sensing solutions for touch, contactless touch, and gesture sensing.

We also provide software solutions for machine perception

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

License Sales

We license our zForce technology

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

our technology into products they develop, manufacture and sell.

Since 2010, our licensing customers have sold approximately 95 million

devices that use our patented technology.

As of September 30, 2023,

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

to Original Equipment Manufacturers (“OEMs”) and automotive Tier 1 suppliers who embed our technology into products that they

develop, manufacture and sell.

Since 2010, our licensing customers have sold approximately 95 million devices that use our patented technology.

As of March 31, 2024, we had 34 valid technology license agreements with

global OEMs, Original Design Manufacturers (“ODMs”) and automotive Tier 1 suppliers.

Our licensing customer base

is primarily in the automotive and printer segments.

Eleven of our licensing customers are currently shipping products that embed our

Ten of our licensing customers are currently shipping products that embed our technology.

We anticipate current customers will continue to ship products with our technology in 2024 and in future years.

We also expect

to expand our customer base with a number of new customers who will be looking to ship new products incorporating our zForce and MultiSensing

technologies as they complete final product development and release cycles.

We typically earn our license fees on a per unit basis when

our customers ship products using our technology, but in the future, we may use other business models as well.

We also expect to expand

our customer base with a number of new customers who will be looking to ship new products incorporating our zForce and MultiSensing technologies

as they complete final product development and release cycles.

We typically earn our license fees on a per unit basis when our customers

ship products using our technology, but in the future we may use other business models as well.

Product Sales

In addition to our technical

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

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

We also sell our Neonode branded AirBar product that incorporates

one of our TSMs through distributors.

In addition to our licensing business, we design and manufacture Touch

Sensor Modules (“TSMs”) that incorporate our patented technology.

We sell our TSMs to OEMs, ODMs and systems integrators for

use in their products.

We utilize a robotic manufacturing

process designed specifically for our components.

Our TSMs are commercial-off-the-shelf products based on our patent-protected zForce

technology platform and can support the development of contactless touch, touch, gesture and object sensing solutions that, paired with

our technology licensing offering, give us a full range of options to enter and compete in key markets.

In October 2017, we began

selling our TSMs to customers in the industrial and consumer electronics segments.

Over time, we expect a significant portion of our revenues

will be derived from TSM sales.

Sales of Non-recurring Engineering Services

process designed specifically for our TSMs.

The TSMs are commercial-off-the-shelf products based on our patent-protected zForce technology

platform and can support the development of contactless touch, touch, gesture and object sensing solutions that, paired with our technology

licensing offering, give us a full range of options to enter and compete in key markets.

We began selling our TSMs

to customers in the industrial and consumer electronics segments in 2017.

We will phase out the TSM product business during 2024 through

licensing of the TSM technology to strategic partners or outsourcing.

Non-recurring Engineering Services

We also offer non-recurring

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Three months ended

September 30,

Percentage of revenue

Non-recurring engineering

Percentage of revenue

Total Revenue

Cost of revenues:

Percentage of revenue

Non-recurring engineering

Percentage of revenue

Total cost of revenues

Total gross margin

Operating expenses:

Research and development

Percentage of revenue

Sales and marketing

Percentage of revenue

General and administrative

Percentage of revenue

Total operating expenses

Percentage of revenue

Operating loss

Percentage of revenue

Other income (expense)

Percentage of revenue

Provision for income taxes

Percentage of revenue

net loss attributable to noncontrolling interests

Percentage of revenue

Net loss attributable to Neonode Inc.

Percentage of revenue

Net loss per share attributable to Neonode Inc.

Nine months ended

September 30,

Variance in Dollars

Variance in Percent

Percentage of revenue

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Percentage of revenue

net loss attributable to noncontrolling interests

Percentage of revenue

Net loss attributable to Neonode Inc.

Percentage of revenue

Net loss per share attributable to Neonode Inc.

Net loss per share

All of our sales for the three

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

Total net revenues were $1.0

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

million for the same periods in 2022, respectively.

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

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

products revenues.

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

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

Revenues from license fees were

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

million for the same periods in 2022, respectively.

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

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

Product Sales

Revenues from product sales

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

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

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

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

to our partner network.

months ended March 31, 2024 were to customers located in the United States, Europe, Asia and Oceania.

All of our sales for the months

ended March 31, 2023 were to customers located in the United States, Europe and Asia.

Total net revenues were $1.0 million and $1.3 million for the three months

ended March 31 2024 and 2023, respectively.

The decrease in total net revenues by 19.1% for the three months ended March 31, 2024 as compared

to the same period in 2023 was caused by lower license revenues offset by higher products and NRE revenues.

Revenues from license fees were $0.8 million and $1.1 million for the

three months ended March 31, 2024 and 2023, respectively.

The decrease of 32.7% for the three months ended March 31, 2024 as compared

to the same period in 2023, mainly due to lower demand for our legacy customers’ products, resulting in high inventory levels at

some customers and thus lower revenues for us.

Revenues from product were $0.2 million and $0.1 million for the three

months ended March 31, 2024 and 2023, respectively.

The increase of 96.1% for the three months ended March 31, 2024 as compared to the

same period in 2023 was primarily due to customers securing TSM inventory after receiving news about our company phasing out TSM manufacturing.

Non-recurring Engineering

Revenues from non-recurring

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

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

Most of our non-recurring engineering revenues are related

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

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

Revenues from non-recurring engineering were $41,000 and $3,000 for

the three months ended March 31, 2024 and 2023.

Most of our non-recurring engineering revenues are related to application development

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

The increase for the three months

ended March 31, 2024, compared to the same periods in 2023 was the result of a potential TSM licensing project after announcing our change

in strategy, with full focus on our licensing business and a phase-out of our products business.

The following tables presents

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

the net revenues by market and revenue stream 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

Non-recurring engineering

Nine months ended

September 30, 2023

Nine months ended

September 30, 2022

Non-recurring engineering

March 31, 2023

Non-recurring engineering

IT & Industrial

Non-recurring engineering

Our combined total gross margin

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

ended September 30, 2022, respectively.

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

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

The gross margin for products for the three

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

Our cost of sales includes

Our combined total gross margin was 60.8% and 96.2% for the three months

ended March 31, 2024 and 2023, respectively.

For the three months ended March 31, 2024 and 2023, gross margin related to products was

(90.0)% and 53.9%, respectively.

The gross margin for products for the three months ended March 31, 2024 was impacted by a cost of $278,000

related to a write-down on inventory due to the phasing out of the TSM manufacturing.

Our cost of revenues includes

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

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Research and development (“R&D”)

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

For the same periods

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

R&D expenses primarily consist of personnel-related

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

and building new product prototypes.

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

related costs.

expenses for the three months ended March 31, 2024 and 2023 were $0.9 million and $0.8 million, respectively.

R&D expenses primarily

consist of personnel-related costs in addition to external consultancy costs, such as testing, certifying and measurements, along with

costs related to developing and building new product prototypes.

The increase of 11.6% for the three months ended March 31, 2024 compared

to the same period in 2023 was primarily related to higher product development costs.

Sales and Marketing

Sales and marketing expenses

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

The sales and marketing costs

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

The increase for the three months ended September 30, 2023

was primarily due to higher marketing costs.

for the three months ended March 31, 2024 and 2023 were $0.8 million and $0.6 million, respectively.

The increase of 37.8% for the three

months ended March 31, 2024 compared to the same period in 2023 was primarily related to participation in technology events.

Our sales and marketing activities

focus on OEM, ODM and Tier 1 customers who will license our technology or purchase and embed our TSMs into their products.

focus on OEM, ODM and Tier 1 customers who will license our technology.

General and Administrative

General and administrative

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

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

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

Our effective tax rate was

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

September 30, 2022, respectively.

expenses for the three months ended March 31, 2024 and 2023 were $1.2 million and $1.4 million, respectively.

The decrease of 16.2% from

the same period 2023 was primarily due to lower cost for professional fees.

Other income for the three

months ended March 31, 2024 and 2023 were $0.2 million and $0.2 million, respectively.

The other income for both periods was mainly related

to interest income earned.

Our effective tax rate was (0.5)% for the three months ended March

31, 2024 and (0.8)% for the three months ended March 31, 2023.

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

We recorded valuation allowances for the

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

to the uncertainty of realization.

As a result of the factors

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

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

Contractual Obligations and Off-Balance

Sheet Arrangements

We do not have any transactions,

arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources

other than the operating leases incurred in the normal course of business.

We have no special purpose

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

We do not engage in

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

of the consolidated financial statements.

Contractual Obligations and Commercial Commitments

Non-Recurring Engineering Development Costs

On April 25, 2013, we entered

into an Analog Device Development Agreement with an effective date of December 6, 2012 (the “NN1002 Agreement”) with Texas

Instruments (“TI”) pursuant to which TI agreed to integrate our intellectual property into an ASIC, which is used in our licensed

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

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

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

Operating Leases

operates solely

through a virtual office in California.

On December 1, 2020, Neonode

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

agreement has been extended and is valid through November 2023.

It is extended on a yearly basis unless written notice is provided nine

months prior to the expiration date.

On December 1, 2015, Pronode

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

lease agreement has been extended and is valid through September 2024.

It is extended on a three-year basis unless written notice is given

nine months prior to the expiration date.

For the three and nine months

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

For the three and nine months ended

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

See Note 7 – Leases

in the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1) for further discussions.

Equipment Subject to Finance Lease

Between the second and fourth

quarters of 2016, we entered into six leases for component production equipment.

Under the terms of five of the lease agreements, we are

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

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

The lease payments and depreciation periods

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

The implicit interest rate of the leases is currently approximately

3% per annum.

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

In accordance

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

The lease payments and depreciation period began on July

1, 2016 when the equipment went into service.

The implicit interest rate of the lease is currently approximately 3% per annum.

1, 2022, one of lease contracts was extended for three years.

The implicit interest rate of the extended lease period is 2.7% per annum.

In 2017, we entered into a

lease for component production equipment.

Under the terms of the lease agreement the lease will be renewed within one year of the end

of the original four-year lease term.

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

lease payments and depreciation periods began in May 2017 when the equipment went into service.

The implicit interest rate of the lease

is currently approximately 1.5% per annum.

On November 1, 2021, the lease contract was extended for two years.

The implicit interest rate

of the extended lease period is 1.5% per annum.

In 2018, we entered into a

lease for component production equipment.

Under the terms of the agreement, the lease will be renewed within one year of the original

four-year lease term.

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

The lease payments and

depreciation periods began in August 2018 when the equipment went into service.

The implicit interest rate of the lease is currently approximately

1.5% per annum.

In 2022, we entered into a

lease for soundproof office pods.

Under the terms of the agreement, the lease will be renewed within one year of the original three-year

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

The lease payments and depreciation

periods began in May 2022 when the equipment went into service.

The implicit interest rate of the lease is currently approximately 3.0%

See Note 7 – Leases

in the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1) for further discussion.

As a result of the factors discussed above, we recorded a net loss

of $2.1 million for the three months ended March 31, 2024, and $1.4 million for the same period in 2023.

Liquidity and Capital Resources

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licensing of our technology;

purchases of our TSMs and AirBars;

purchases of our TSMs;

operating expenses;

2 unchanged sentences

gross profit margin;

our ability to raise additional capital, if necessary.

As of September 30, 2023,

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

ability to raise additional capital, if necessary.

As of March 31, 2024, we had

cash and cash equivalents of $14.3 million, as compared to $16.2 million as of December 31, 2023.

Based on our current cash position,

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

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

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

Working capital (current assets

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

Net cash used in operating

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

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

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

Net cash used in operating

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

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

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

less current liabilities) was $14.7 million as of March 31, 2024, compared to $16.8 million as of December 31, 2023.

Net cash used in operating activities for the three months ended March

31, 2024, was $1.9 million and was primarily the result of a net loss of $2.1 million and approximately $0.3 million in non-cash operating

expenses, comprised of stock-based compensation expense, depreciation and amortization, amortization of operating lease right-of-use assets

and inventory impairment loss and changes in operating assets and liabilities of $0.2 million.

Net cash used in financing activities for

the three months ended March 31, 2024, was approximately $9,000 and was primarily the result of principal payments on finance lease.

Accounts receivable and unbilled

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

This was due to lower revenues.

Inventory increased by approximately

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

Net cash provided by financing

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

Facility (as defined and described below).

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

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

We have incurred significant

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.

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 evaluated the significance of the

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

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

to continue as a going concern.

revenues decreased by approximately $0.2 million as of March 31, 2024, compared to December 31, 2023.

This was mainly due to the timing

of receipts of customer payments.

Inventory decreased by approximately $0.3 million during the three months

ended March 31, 2024, compared to December 31, 2023.

Accounts payable and accrued expenses increased approximately $76,000

during the three months ended March 31, 2024 compared to December 31, 2023.

Net cash provided by financing activities of $7.8 million during the three

months ended March 31, 2023 was the result of issuance of common stock under the ATM Facility (as defined below).

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 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 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 ATM Facility) are sufficient

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

In the future, we may require

22 unchanged sentences

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

Contractual Obligations and Off-Balance Sheet

We do not have any transactions,

arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources

other than the operating leases incurred in the normal course of business.

We have no special purpose or

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

We do not engage in leasing,

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

consolidated financial statements.

Operating Leases

now operates solely

through a virtual office in California.

On December 1, 2020, Neonode Technologies

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

The lease agreement has

been extended and is valid through November 2024.

It is extended on a yearly basis unless written notice is provided nine months prior

to the expiration date.

On December 1, 2015, Pronode Technologies

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

Pronode Technologies

AB has informed the landlord of its intention to not renew its lease upon expiration in September 2024.

For the three months ended March

31, 2024 and 2023, we recorded approximately $126,000 and $122,000, respectively, for total rent expense.

See Note 7 – Leases in

the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1) for further discussions.

Equipment Subject to Finance Lease

Between the second and fourth

quarters of 2016, we entered into six leases for component production equipment.

Under the terms of five of the lease agreements, we are

obligated to purchase the equipment at the end of the original 3-5 year lease terms for 5.0-10.0% of the original purchase price of the

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

The lease payments and depreciation

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

The implicit interest rate of the leases is currently

approximately 3.0% per annum.

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

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

The lease payments and depreciation

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

The implicit interest rate of the lease is currently approximately

3.0% per annum.

On April 1, 2022, one of lease contracts was extended for three years.

The implicit interest rate of the extended lease

period is 2.7% per annum.

In 2017, we entered into a lease

for component production equipment.

Under the terms of the lease agreement the lease will be renewed within one year of the end of the

original four-year lease term.

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

The lease payments

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

The implicit interest rate of the lease was approximately

1.5% per annum.

In November, 2021, the lease contract was extended for two years.

The implicit interest rate of the extended lease period

was 1.5% per annum.

In November, 2023, the equipment was purchased.

In 2018, we entered into a lease

for component production equipment.

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

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

The lease payments and depreciation

periods began in August 2018 when the equipment went into service.

The implicit interest rate of the lease is currently approximately

1.5% per annum.

In 2022, we entered into a lease

for soundproof office pods.

Under the terms of the agreement, the lease will be renewed within one year of the original three-year lease

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

The lease payments and depreciation

periods began in May 2022 when the equipment went into service.

The implicit interest rate of the lease is currently approximately 3.0%

See Note 7 – Leases in the

Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1) for further discussion.

Non-Recurring Engineering Development Costs

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

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

which TI agreed to integrate our intellectual property into an ASIC, which is used in our licensed technology.

Under the terms of the

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

2 million ASICs sold.

As of March 31, 2024, we had made no payments to TI under the NN1002 Agreement.

At-the-Market Offering Program

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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.

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.

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

During the nine months ended September 30, 2023,

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

payment of commissions to B.

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.

the three months ended March 31, 2024, we sold no shares.

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.

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.

Critical Accounting Policies

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

also be required to determine the standalone selling price for each distinct performance obligation identified, although we generally

structure our contracts such that performance obligations and pricing for each performance obligation are specifically addressed.

have no outstanding contracts with multiple performance obligations;

however, we recently negotiated a contract that may include multiple

performance obligations in the future.

also be required to determine the standalone selling price for each distinct performance obligation identified, although we generally structure our contracts

such that performance obligations and pricing for each performance obligation are specifically addressed.

We currently have no outstanding

contracts with multiple performance obligations;

however, we recently negotiated a contract that may include multiple performance obligations

in the future.

Judgment is also required

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis