What changed in this filing

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Item 1. Financial Statements

2024-08-08 compared with 2024-05-08 · 148 added, 671 removed, 264 unchanged (76% of the section changed)

23 unchanged sentences

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

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

15,359,481 shares issued and outstanding at June 30, 2024 and December 31, 2023

Additional paid-in capital

8 unchanged sentences

Three months ended

Six months ended

Non-recurring engineering

10 unchanged sentences

Operating loss

Other income:

Other income (expense):

Interest income, net

Total other income

Other expense

Total other income, net

Loss before provision for income taxes

7 unchanged sentences

(In thousands)

Three months ended

Other comprehensive income:

Foreign currency translation adjustments

Other comprehensive loss

comprehensive loss:

currency translation adjustments

comprehensive loss

The accompanying notes are an integral part of

2 unchanged sentences

(In thousands)

For the three months ended March 31, 2024 and

For the three and six months ended June 30,

2024 and 2023

Comprehensive

6 unchanged sentences

$ ( 219,698 )

Stock-based compensation

Foreign currency translation adjustment

Balances, June 30, 2024

$ ( 221,393 )

Comprehensive

7 unchanged sentences

$ ( 208,916 )

Stock-based compensation

Foreign currency translation adjustment

Balances, June 30, 2023

$ ( 210,423 )

The accompanying notes are an integral part of

2 unchanged sentences

(In thousands)

Three months ended

Six months ended

Cash flows from operating activities:

1 unchanged sentence

Stock-based compensation expense

Loss on disposal of assets

Depreciation and amortization

2 unchanged sentences

Changes in operating assets and liabilities:

Accounts receivable and unbilled revenue, net

Accounts receivable and unbilled revenues, net

Prepaid expenses and other current assets

3 unchanged sentences

Net cash used in operating activities

Cash flows from investing activities:

Purchase of property and equipment

Proceeds from sale of property and equipment

Net cash (used in) provided by investing activities

Cash flows from financing activities:

17 unchanged sentences

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 results of operations for the three and six months ended June 30, 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 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”).

consolidated financial statements for the three and six months ended June 30, 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

18 unchanged sentences

The Company incurred net losses of approximately $ 1.7 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.

and $ 3.8 million and $ 1.5 million and $ 2.9 million for the three and six months ended June 30, 2024 and June 30, 2023, respectively and

had an accumulated deficit of approximately $ 221.4 million and $ 217.6 million as of June 30, 2024 and December 31, 2023, respectively.

In addition, operating activities used cash of approximately $ 3.1 million and $ 2.3 million for the six months ended June 30, 2024 and

2023, respectively.

The condensed consolidated

1 unchanged sentence

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 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.

Management evaluated the significance

of the Company’s operating loss and negative cash flows from operations and determined that the Company’s current operating

plan and sources of liquidity would be sufficient to alleviate concerns about the Company’s ability to continue as a going concern.

Management has prepared an operating plan and believes that the Company has sufficient cash to meet its obligations as they come due for

a year from the date the financial statements were issued.

During July 2024, we sold an aggregate of 107,087 of our common stock under

the ATM Facility with aggregate net proceeds to us of $ 341,000 , after payment of commissions to Ladenburg and other expenses of $ 11,000 .

In the future, we may require

9 unchanged sentences

could impose restrictive covenants on us that could impair our ability to engage in certain business transactions.

We expect revenues will enable

us to reduce our operating losses in coming years.

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

efficiencies.

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

Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements have been prepared

in accordance with U.S.

GAAP and include the accounts of Neonode Inc.

The condensed consolidated

financial statements include the accounts of Neonode Inc.

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

The preparation of financial

statements in conformity with U.S.

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

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

Actual results could differ from these estimates and judgments.

Significant estimates and

judgments include, but are not limited to:

for revenue recognition, determining the nature and timing of satisfaction of performance obligations,

the standalone selling price of performance obligations, and transaction prices and assessing transfer of control;

measuring variable

consideration and other obligations such as product returns and refunds, and product warranties;

provisions for uncollectible receivables;

determining the net realizable value of inventory;

recoverability of capitalized project costs and long-lived assets;

for leases, determining

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

rates, and identifying reassessment events, such as modifications;

the valuation allowance related to our deferred tax assets;

fair value of options issued as stock-based compensation.

Cash and Cash Equivalents

The Company considers all

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

Concentration of Cash Balance Risks

Cash and cash equivalents

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

For deposits held with financial institutions

in the United States, the U.S.

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

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

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

The Central Deposit Insurance

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

At times, deposits held with financial institutions

may exceed the amount of insurance provided.

Receivable and Credit Losses

Accounts receivable is stated

at net realizable value.

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

our trade receivables.

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

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

Forward-looking information is also considered

in the evaluation of current expected credit losses.

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

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

analysis of such financial instruments, including our trade receivables.

Further, we consider macroeconomic

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

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

Also, specific allowance

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

The accounts receivable balance

on our consolidated balance sheet as of 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

Change in expected credit losses

Write-offs, net of recoveries

Balance at March 31, 2024

The Company’s inventory

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

lower of cost or net realizable value, using the first-in, first-out (“FIFO”) valuation method.

Net realizable value is the

estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.

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):

Raw materials

Work-in-process

Finished goods

Ending inventory

Property and Equipment

Property and equipment are

stated at cost, net of accumulated depreciation and amortization.

Depreciation and amortization are computed using the straight-line method

based upon estimated useful lives of the assets as follows:

Computer equipment

Furniture and fixtures

Depreciation of equipment

purchased under a finance lease is depreciated over the term of the lease if that lease term is shorter than the estimated useful life.

Upon retirement or sale of

property and equipment, cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected

in the condensed consolidated statement of operations.

Maintenance and repairs are charged to expense as incurred.

Right-of-Use Assets

A right-of-use asset represents

a lessee’s right to use a leased asset for the term of the lease.

Our right-of-use assets generally consist of operating leases

for buildings.

Right-of-use assets are measured

initially at the present value of the lease payments, plus any lease payments made before a lease began and any initial direct costs,

such as commissions paid to obtain a lease.

Right-of-use assets are subsequently

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

costs not yet expensed.

Long-lived Assets

We assess any impairment by

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

If the estimated undiscounted

future cash flow related to these assets decreases or the useful life is shorter than originally estimated, we may incur charges for impairment

of these assets.

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.

All inter-company accounts and transactions

have been eliminated in consolidation.

The condensed consolidated

balance sheets at June 30, 2024 and December 31, 2023 and the condensed consolidated statements of operations, comprehensive loss, stockholders’

equity and cash flows for the three and six months ended June 30, 2024 and 2023 include our accounts and those of our intercompany subsidiaries.

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 $( 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.

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 condensed consolidated 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 ($ 32,000 ) and ($ 66,000 ) and $( 141,000 ) and $( 106,000 ) during

the three and six months ended June 30, 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 $( 3,000 ) and $ 2,000

during the three and six months ended June 30, 2024, respectively, compared to $ 0 and $( 5,000 ) during the same periods in 2023, respectively.

Concentration of Credit and Business Risks

Our customers are located

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.

Our customers are located in

the United States, Europe, Oceania and Asia.

As of June 30, 2024, six of

our customers represented approximately 82.0 % of our consolidated accounts receivable and unbilled revenues.

As of December 31, 2023, four

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Customers who accounted for

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

10.0% or more of our net revenues during the three months ended June 30, 2024 are as follows:

● Seiko Epson – 14.3 %

● Commercial Vehicle OEM – 13.9 %

● Alps Alpine – 13.0 %

● Propoint – 11.5 %

Customers who accounted for

10.0% or more of our net revenues during the six months ended June 30, 2024 are as follows:

● Hewlett-Packard Company – 15.9 %

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Customers who accounted for

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

10.0% or more of our net revenues during the three months ended June 30, 2023 are as follows:

● Hewlett-Packard Company – 37.4 %

● Alps Alpine – 15.3 %

● Seiko Epson – 13.7 %

● LG – 12.5 %

Customers who accounted for

10.0% or more of our net revenues during the six months ended June 30, 2023 are as follows:

● Hewlett-Packard Company – 34.0 %

● Seiko Epson – 17.0 %

● Alps Alpine – 15.0 %

● LG – 13.1 %

Revenue Recognition

We recognize revenue when

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

the amount of revenue

we recognize reflects the consideration we expect to receive for those products or services.

Our contracts with customers may include

combinations of products and services (e.g., a contract that includes products and related engineering services).

We structure our contracts

such that distinct performance obligations, such as product sales or license fees, and related engineering services, are clearly defined

in each contract.

License fees and sales of

our 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.

We recognize revenue net of

allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

product shipping and handling charges (regardless of when they occur) as activities to fulfill the promise to transfer goods, therefore

we treat all shipping and handling charges as expenses.

We earn revenue from licensing

our internally developed intellectual property (“IP”).

We enter into IP licensing agreements that generally provide licensees

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

Fees under these agreements

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

the licensed technology.

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

For technology license arrangements

that do not require significant modification or customization of the underlying technology, we recognize technology license revenue when

the license is made available to the customer and the customer has a right to use that license.

At the end of each reporting period, we

record unbilled license fees, using prior royalty revenue data by customer to make estimates of those royalties.

Explicit return rights are

not offered to customers.

There have been no returns through March 31, 2024.

Product Sales

We earn revenue from sales

of TSM hardware products to our Original Equipment Manufacturer (“OEM”), Original Design Manufacturer (“ODM”)

and Tier 1 supplier customers, who embed our hardware into their products, and from sales of branded consumer products that incorporate

our TSMs that are sold through distributors or directly to end users.

These distributors are generally given business terms that allow

them to return unsold inventory, receive credits for changes in selling prices, and participate in various cooperative marketing programs.

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

Because we generally use distributors

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

various cooperative marketing and other incentive programs, and we maintain estimated accruals and allowances for these programs.

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

experience, our revenue could be adversely affected.

GAAP, companies

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

Our 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

For technology license or

TSM contracts that require modification or customization of the underlying technology to adapt the technology to customer use, we determine

whether the technology license or TSM, and required engineering consulting services represent separate performance obligations.

our analysis on a contract-by-contract basis.

If there are separate performance obligations, we determine the standalone selling price

(“SSP”) of each separate performance obligation to properly recognize revenue as each performance obligation is satisfied.

We provide engineering consulting services to our customers under a signed Statement of Work (“SOW”).

Deliverables and payment

terms are specified in each SOW.

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

services specified in contracts are completed and accepted by our customers.

Any upfront payments we receive for future non-recurring

engineering services are recorded as unearned revenue until that revenue is earned.

We believe that recognizing

non-recurring engineering services revenues as progress towards completion of engineering services and customer acceptance of those services

occurs best reflects the economics of those transactions, because engineering services as tracked in our systems correspond directly with

the value to our customers of our performance completed to date.

Hours performed for each engineering project are tracked and reflect

progress made on each project and are charged at a consistent hourly rate.

Revenues from non-recurring

engineering contracts that are short-term in nature are recorded when those services are complete and accepted by customers.

Revenues from non-recurring

engineering contracts with substantive defined deliverables for which payment terms in the SOW are commensurate with the efforts required

to produce such deliverables are recognized as they are completed and accepted by customers.

Estimated losses on all SOW

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

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 months ended March 31, 2024 and 2023 (dollars in thousands):

the net revenues distribution by geographical area and market for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):

Three months ended

March 31, 2024

June 30, 2024

Three months ended

March 31, 2023

June 30, 2023

North America

6 unchanged sentences

Net revenues from IT & Industrial

Significant Judgments

Our contracts with customers

may include promises to transfer multiple products and services to a customer, particularly when one of our customers contracts with us

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

Determining whether products and services

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

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

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

We currently have no outstanding

contracts with multiple performance obligations;

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

in the future.

Judgment is also required

to determine when control of products passes from us to our distributors, as well as the amounts of product that may be returned to us.

Our products are sold with a right of return, and we may provide other credits or incentives to our customers, which could result in variability

when determining the amount of revenue to recognize.

At the end of each reporting period, we use product returns history and additional

information that becomes available to estimate returns and credits.

We do not recognize revenue if it is probable that a significant reversal

of any incremental revenue would occur.

Finally, judgment is required

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

Contract Balances

Timing of revenue recognition

may differ from the timing of invoicing to customers.

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

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

The following table presents

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

Accounts receivable and unbilled revenue, net

Contract liabilities (deferred revenues)

The timing of revenue recognition,

billings and cash collections results in billed accounts receivable, unbilled revenues (contract assets), and customer advances and deposits

or deferred revenue (contract liabilities) on the consolidated balance sheets.

Generally, billing occurs subsequent to revenue recognition,

resulting in contract assets;

contract assets are generally classified as current.

The Company sometimes receives advances or deposits

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

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

We do not anticipate impairment

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

in that asset account.

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

have been impaired.

The allowance for credit losses

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

We determine the allowance based on known troubled

accounts, historical experience, and other currently available evidence.

Payment terms and conditions

vary by the type of contract;

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

resellers and distributors.

Where revenue recognition timing differs from invoice timing, we have determined that our contracts do not

include a significant financing component.

Our intent is to provide our customers with consistent invoicing terms for the convenience

of our customers, not to receive financing from our customers.

Costs to Obtain Contracts

We record the incremental

costs of obtaining a contract with a customer as a contract asset if we expect the benefit of those costs to cover a period greater than

We currently have no incremental costs that must be capitalized.

We expense as incurred costs

of obtaining a contract when the amortization period of those costs would have been less than or equal to one year.

Six months ended

June 30, 2024

Six months ended

June 30, 2023

North America

Net revenues from Automotive

Net revenues from IT & Industrial

Net revenues from Automotive

Net revenues from IT & Industrial

Europe, Middle East and Africa

Net revenues from Automotive

Net revenues from IT & Industrial

Product Warranty

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Contract Liabilities

Contract liabilities (deferred

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

the revenue when we transfer control of the product or service.

Deferred revenues may also include upfront payments for consulting services

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

We defer license fees until

we have met all accounting requirements for revenue recognition, which is when a license is made available to a customer and that customer

has a right to use the license.

Non-recurring engineering fee revenues are deferred until engineering services have been completed and

accepted by our customers.

The following table presents

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Deferred revenues non-recurring engineering

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 months ended March 31, 2024 and 2023 amounted to approximately $ 175,000 and $ 54,000 , respectively.

Research and Development

Research and development (“R&D”)

costs are expensed as incurred.

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

as testing, certifying and measurements.

Stock-Based Compensation Expense

We measure the cost of employee

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

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

for the award, usually the vesting period.

We account for equity instruments

issued to non-employees at their estimated fair value.

When determining stock-based

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

option pricing model.

We recognize deferred tax

liabilities and assets for the expected future tax consequences of items that have been included in the consolidated financial statements

During the three and six

months ended June 30, 2024, the Company recognized revenues of approximately $ 7,000 and $ 10,000 , respectively, related to contract liabilities

outstanding at the beginning of the year.

During the three and six months ended June 30, 2023, the Company recognized revenues of approximately

$ 9,000 and 14,000 , respectively, related to contract liabilities outstanding at the beginning of the year.

We recognize deferred tax liabilities

and assets for the expected future tax consequences of items that have been included in the condensed consolidated financial statements

or tax returns.

8 unchanged sentences

Based on the uncertainty of

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

to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase

future pre-tax income, we fully reserved our net deferred tax assets as of June 30, 2024 and December 31, 2023.

In the event we were to

determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase

income in the period such determination was made.

5 unchanged sentences

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

As of March 31, 2024 and December

As of June 30, 2024 and December

31, 2023, we had no unrecognized tax benefits.

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Net loss per share amounts

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

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

30, 2024 and 2023.

2 unchanged sentences

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).

Other Comprehensive Income (Loss)

Our other comprehensive income

(loss) includes foreign currency translation gains and losses.

The cumulative amount of translation gains and losses are reflected as

a separate component of stockholders’ equity as accumulated other comprehensive income (loss) in the accompanying condensed consolidated

balance sheets.

Cash Flow Information

Cash flows in foreign currencies

have been converted to U.S.

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

The weighted-average

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

Three months ended

Swedish Krona

South Korean Won

The exchange rates for the

condensed consolidated balance sheets were as follows:

Swedish Krona

South Korean Won

Fair Value of Financial Instruments

We disclose the estimated

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

Financial instruments including cash and

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

shares of common stock and potential common stock equivalents used in computing the net loss per share for the three and six months ended

June 30, 2024 and 2023 exclude the potential common stock equivalents, as the effect would be anti-dilutive (see Note 6).

Recent Accounting Pronouncements

20 unchanged sentences

At-the-Market Facility

May 10, 2021, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B.

Riley Securities, Inc.

Riley Securities”) with respect to an “at the market” offering program (the “ATM Facility”),

May 10, 2021, we entered into an At Market Issuance Sales Agreement (the “B.

Riley Sales Agreement”) with B.

Riley Securities,

Riley Securities”) with respect to an “at the market” offering program (the “B.

Riley ATM Facility”),

under which we may, from time to time, in our sole discretion, issue and sell through B.

Riley Securities, acting as sales agent, up to

$ 25 million of shares of our common stock.

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

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

$ 25 million of shares of our common stock, in any method permitted that is deemed an “at the market” offering as defined in

Rule 415 under the Securities Act of 1933, as amended.

On May 29, 2024, we terminated the B.

Riley Sales Agreement with B.

Riley Securities.

On June 4, 2024, we entered into an At The Market Offering Agreement

(the “Ladenburg Sales Agreement”) with Ladenburg Thalmann & Co.

(“Ladenburg”) with respect to an “at

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

issue and sell through Ladenburg, acting as agent or principal, up to approximately $ 10 million of shares of our common stock.

to the Ladenburg Sales Agreement, we may sell the shares through Ladenburg by any method permitted that is deemed an “at the market”

offering as defined in Rule 415 under the Securities Act of 1933, as amended.

Riley Securities will use commercially reasonable efforts

consistent with its normal trading and sales practices to sell the shares from time to time, based upon instructions from us (including

any price or size limits or other customary parameters or conditions we may impose).

We will pay B.

Riley Securities a commission of 3.0 %

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

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

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 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 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

We have adopted equity incentive

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

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

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

There are no vesting provisions

tied to performance conditions for any options.

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

consultant or director.

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

Stock Options and Long-Term Incentive Plan

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”).

Although no new awards may be made under the

2006 Plan or 2015 Plan, the 2015 Plan is still operative for awards previously granted under such plan.

There are no awards outstanding

under the 2006 Plan.

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

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

The terms of the awards granted under

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

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,

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

Through the 2020 LTIP, eligible employees of Neonode

may waive between 50.0 to 67.0 % of future unearned bonuses that may be awarded to them under the Company’s annual bonus arrangement

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

On 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

4,000 shares of common stock to a director pursuant to the 2020 Plan.

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

period after issuance.

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 $ 5,000 for the issued shares but only 30.0 % of the stock-based compensation

(totaling $ 5,000 ) was recognized immediately in the consolidated statements of operations for the year ended December 31, 2022, with the

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

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

the 2006, 2015 and 2020 Plans are exercisable over a maximum term of 10 years from the date of grant, vest in various installments over

a one to four-year period and have exercise prices reflecting the market value of the shares of common stock on the date of grant.

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

Our bylaws require that we

indemnify each of our executive officers and directors for certain events or occurrences arising because of the officer or director serving

in such capacity.

The term of the indemnification period is for the officer’s or director’s lifetime.

The maximum potential

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

However, we have a directors’

and officers’ liability insurance policy that should enable us to recover a portion of any future amounts paid.

As a result of our

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

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

We enter into indemnification

provisions under our agreements with other companies in the ordinary course of business, typically with business partners, contractors,

customers and landlords.

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

incurred by the indemnified party as a result of our activities or, in some cases, as a result of the indemnified party’s activities

under the agreement.

These indemnification provisions often include indemnifications relating to representations made by us regarding

intellectual property rights.

These indemnification provisions generally survive termination of the underlying agreement.

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

We have not incurred

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

As a result, we believe the estimated

fair value of these agreements is minimal.

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

31, 2024 and December 31, 2023.

Ladenburg will use commercially reasonable efforts consistent

with its normal trading and sales practices to sell the shares from time to time, based upon instructions from us (including any price

or size limits or other customary parameters or conditions we may impose).

We will pay Ladenburg a commission of 3.0 % of the gross sales

price per share sold under the Ladenburg Sales Agreement.

are not obligated to sell any shares under the Ladenburg Sales Agreement.

The offering of shares pursuant to the Ladenburg Sales Agreement

will terminate upon the earlier to occur of (i) the issuance and sale, through Ladenburg, of all of the shares of our common stock subject

to the Ladenburg Sales Agreement and (ii) termination of the Ladenburg Sales Agreement in accordance with its terms.

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.

Patent Assignment

4 unchanged sentences

Aequitas may enter into.

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

Under the terms of the assignment, net proceeds mean gross proceeds less out of pocket expenses and legal fees

paid by Aequitas.

1 unchanged sentence

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.

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

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 Application Specific Integrated

Circuit (“ASIC”).

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

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

As of 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 technology licensing and products business.

We report revenues from external customers based on the country

where the customer is located.

The following table presents

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

Three months ended

March 31, 2024

Three months ended

March 31, 2023

United States

The following table presents

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

Our operating leases represent

building leases for our Stockholm corporate offices and our Kungsbacka manufacturing facility.

Our Stockholm corporate office lease has

a remaining lease term of under one year and both of our leases are automatically renewed at a cost increase of 2.0 % on an annual basis,

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

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

Generally, interest rates

are stated in our leases for equipment.

When no interest rate is stated in a lease, however, we review the interest rates implicit in

our recent finance leases to estimate our incremental borrowing rate.

We determine the rate implicit in a lease by using the most recent

finance lease rate, or other method we think most closely represents our incremental borrowing rate.

The components of lease expense

were as follows (in thousands):

Three Months Ended

Operating lease cost (1)

Finance lease cost:

Amortization of leased assets

Interest on lease liabilities

Total finance lease cost

(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

related to leases was as follows (in thousands):

Three Months Ended

Cash paid for amounts included in leases:

Operating cash flows from operating leases

Operating cash flows from finance leases

Financing cash flows from finance leases

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

Finance leases

Supplemental balance sheet

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

As of March 31,

As of December 31,

Operating leases

Operating lease right-of-use assets

Current portion of operating lease obligations

Operating lease liabilities, net of current portion

Total operating lease liabilities

Finance leases

Property and equipment, at cost

Accumulated depreciation

Property and equipment, net

Current portion of finance lease obligations

Finance lease liabilities, net of current portion

Total finance lease liabilities

Three Months Ended

Weighted Average Remaining Lease Term

Operating leases

Finance leases

Weighted Average Discount Rate:

Operating leases (2)

Finance leases

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

A summary of future minimum

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

Year ending December 31,

Less imputed interest

Total lease liabilities

Less current portion

The following is a schedule

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

Year ending December 31,

Total minimum payments required:

Less amount representing interest:

Present value of net minimum lease payments:

Less current portion

Net Loss per Share

Basic net loss per common

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

Basic net loss per common share

for the three and six months ended June 30, 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.

4 unchanged sentences

The Company had no potential

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

common stock equivalents for the three and six months ended June 30, 2024 and 2023, respectively.

Three months ended

Six months ended

(in thousands, except per share amounts)

4 unchanged sentences

Subsequent Events

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.

During July 2024, we sold

an aggregate of 107,087 of our common stock under the ATM Facility with aggregate net proceeds to us of $ 341,000 , after payment of commissions

to Ladenburg and other expenses of $ 11,000 .

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.

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