What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-08 · 301 added, 222 removed, 209 unchanged (71% of the section changed)

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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.

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

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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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

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

adequate capital to fund future operations, and general economic conditions, including inflation, or other effects related to 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 statement.

We do not undertake responsibility

to update or revise any of these factors or to announce publicly any revision to forward-looking statements, whether as a result of new

information, future events or otherwise.

The following discussion and

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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.

As of June 30, 2024, we had

36 valid technology license agreements with global OEMs, Original Design Manufacturers (“ODMs”) and automotive Tier 1 suppliers.

Our licensing customer base

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Product Sales

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.

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

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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.

We commenced the phase out of our TSM product business during

the first quarter of 2024 through licensing of the TSM technology to strategic partners or outsourcing.

we stopped producing TSMs and started to shut down the factory.

Non-recurring Engineering Services

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Three months ended

Variance in Dollars

Variance in Percent

Percentage of revenue

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Net loss per share

Six months ended

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 per share

All of our sales for the three

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.

and six months ended June 30, 2024 were to customers located in the United States, Europe, Asia and Oceania.

All of our sales for the

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

Total revenues were $1.4 million

and $2.4 million for the three and six months ended June 30 2024, respectively, compared to $1.2 million and $2.5 million for the same

periods in 2023, respectively.

The increase in total revenues by 18.7% and decrease by 0.6% for the three and six months ended June 30,

2024, respectively, as compared to the same periods in 2023 are explained by higher products revenues and non-recurring revenues offset

by lower license fees.

Revenues from license fees

were $0.6 million and $1.4 million for the three and six months ended June 30, 2024, respectively, compared to $1.1 million and $2.2 million

for the three and six months ended June 30, 2023, respectively.

The decrease of 43.9% and 38.1% for the three and six months ended June

30, 2024, respectively, as compared to the same periods in 2023, are mainly due to lower demand for our legacy customers’ products,

resulting lower revenues for us.

Revenues from products were

$0.6 million and $0.8 million for the three and six months ended June 30, 2024, respectively, compared to $0.1 million and $0.2 million

for the three and six months ended June 30, 2023, respectively.

The increase of 641.7% and 342.5% for the three and six months ended June

30, 2024, respectively, as compared to the same periods 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 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.

Revenues from non-recurring

engineering were $187,000 and $228,000 for the three and six months ended June 30, 2024, respectively, compared to $22,000 and $25,000

for the three and six months ended June 30, 2023, 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.

The increase of

750.0% and 812.0% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023 was the result

of a potential TSM licensing project and the new MultiSensing project with a commercial vehicle OEM.

The following tables presents

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

the net revenues by market and revenue stream 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

Non-recurring engineering

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Non-recurring engineering

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.

Six months ended

June 30, 2024

Six months ended

June 30, 2023

Non-recurring engineering

IT & Industrial

Non-recurring engineering

Our combined total gross margin

was 65.9% and 63.8% for the three and six months ended June 30, 2024, respectively, compared to 96.9% and 96.6% for the three and six

months ended June 30, 2023, respectively.

For the three and six months ended June 30, 2024, gross margin related to products was 26.0%

and (2.2)%, respectively, compared to 66.7% and 59.7% for the three and six months ended June 30, 2023, respectively.

The decrease in

gross margin for products for the three and six months ended June 30, 2024 as compared to the same periods in 2023 was primarily due to

a cost of $8,000 and $286,000 incurred during the three and six months ended June 30, 2024, respectively, related to a write-down on inventory

due to the phasing out of the TSM manufacturing.

Our cost of revenues includes

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Research and development (“R&D”)

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.

expenses were $1.0 million and $1.9 million for the three and six months ended June 30, 2024, respectively, compared to $1.1 million and

$1.9 million for the three and six months ended June 30, 2023, 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 of 8.3% for the three months ended June 30, 2024 compared to the same period in 2023 was primarily

related to lower payroll and related costs.

Sales and Marketing

Sales and marketing expenses

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.

were $0.5 million and $1.4 million for the three and six months ended June 30, 2024, respectively, compared to $0.7 million and $1.3 million

for the three and six months ended June 30, 2023, respectively.

The decrease of 21.0% for the three months ended June 30, 2024 compared

to the same period in 2023 was primarily related to lower payroll and related costs.

The increase of 6.2% for the six months ended June

30, 2024 compared to the same period in 2023 was primarily related to higher costs for participation in technology events offset by lower

payroll and related costs.

Our sales and marketing activities

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General and administrative

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.

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.

expenses were $1.2 million and $2.4 million for the three and six months ended June 30, 2024, respectively, compared to $1.0 million and

$2.4 million for the three and six months ended June 30, 2023, respectively.

The increase of 18.2% for the three months ended June 30,

2024 compared to the same period in 2023 was primarily due to higher cost for professional fees.

The decrease of 1.4% for the six months

ended June 30, 2024 compared to the same period in 2023 was primarily due to moving overhead costs to finished goods.

Other income were $0.1 million

and $0.3 million for the three and six months ended June 30, 2024, respectively compared to $0.2 million and $0.3 million for the three

and six months ended June 30, 2023, respectively.

The other income for the periods was mainly related to interest income earned.

Our effective tax rate was

(0.7)% and (0.6)% for the three and six months ended June 30, 2024, respectively, compared to (3.4)% and (2.1)% and for the three and

six months ended June 30, 2023, respectively.

The negative tax rate is due to withholding taxes from sales and the decrease is due to

lower license revenue during 2024.

As a result of the factors

discussed above, we recorded a net loss of $1.7 million and $3.8 million for the three and six months ended June 30, 2024, respectively,

and $1.5 million and $2.9 million for the same periods in 2023.

Liquidity and Capital Resources

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ability to raise additional capital, if necessary.

As of March 31, 2024, we had

As of June 30, 2024, we had

cash and cash equivalents of $13.1 million, as compared to $16.2 million as of December 31, 2023.

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Working capital (current assets

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.

less current liabilities) was $13.2 million as of June 30, 2024, compared to $16.8 million as of December 31, 2023.

Net cash used in operating

activities for the six months ended June 30, 2024, was $3.1 million and was primarily the result of a net loss of $3.8 million and approximately

$0.4 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 six months ended June 30, 2024, was approximately $13,000 and was primarily the result of

principal payments on finance lease.

Accounts receivable and unbilled

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

revenues increased by approximately $0.3 million as of June 30, 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.

Inventory decreased by approximately

$89,000 during the six months ended June 30, 2024, compared to December 31, 2023, mainly as a result of increased sales of TSMs to customers

and decreased purchases after the factory closure.

Accounts payable, accrued payroll and employee benefits, and accrued

expenses increased approximately $149,000 during the six months ended June 30, 2024 compared to December 31, 2023, due to various payroll

related expenses.

Net cash provided by financing

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

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 $1.7 million

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

and six months ended 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 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.

million for the six months ended June 30, 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 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.

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

sources of capital in addition to cash on hand and our ATM Facility to continue operations and to implement our strategy.

If our operations

do not become cash flow positive, we may be forced to seek equity investments or debt arrangements.

Historically, we have been able to

access the capital markets through sales of common stock and warrants to generate liquidity.

Our management believes it could raise capital

through public or private offerings if needed to provide us with sufficient liquidity.

sources of capital in addition to cash on hand and our Ladenburg ATM Facility to continue operations and to implement our strategy.

our operations do not become cash flow positive, we may be forced to seek equity investments or debt arrangements.

Historically, we have

been able to access the capital markets through sales of common stock and warrants to generate liquidity.

Our management believes it could

raise capital through public or private offerings if needed to provide us with sufficient liquidity.

No assurances can be given,

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

Contractual Obligations and Off-Balance Sheet

Contractual Obligations and Off-Balance

Sheet Arrangements

We do not have any transactions,

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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.

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.

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 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.

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

For total rent expense, we

recorded $123,000 and $249,000 for the three and six months ended June 30, 2024, respectively, compared to $123,000 and $245,000, respectively,

for the three and six months ended June 30, 2023.

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.

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 June 30, 2024, we had made no payments to TI under the NN1002

At-the-Market Offering Program

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, 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.

May 29, 2024, we terminated the B.

Riley Sales Agreement with B.

Riley Securities.

June 4, 2024, we entered into an At The Market Offering Agreement (the “Ladenburg Sales Agreement”) with Ladenburg Thalmann

(“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 Sales Agreement, we may sell the shares through B.

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

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.

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.

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 the Company 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 the shares pursuant to the Ladenburg Sales Agreement

will terminate upon the earlier to occur of (i) the issuance and sale, through or to 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.

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 $12,909,525, which was equal to one-third of the aggregate market value of our common

stock held by non-affiliates as of June 3, 2024.

On June 4, 2024, we filed a prospectus supplement to the prospectus, dated May 16, 2024,

to the Form S-3 (File No.

333-279252) that reflects the sale restrictions pursuant to General Instruction I.B.6 of Form S-3 and to register

for sale of up to $10,366,156 of our common stock through the Ladenburg ATM Facility.

the six months ended June 30, 2024, we did not sell shares of our common stock under the B.

Riley ATM Facility or the Ladenburg ATM Facility.

During the three and six months ended June 30, 2023, we sold an aggregate of zero and 903,716 shares of our common stock, respectively,

Riley 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.

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.

We currently have no outstanding

contracts with multiple performance obligations;

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

in the future.

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

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

have no outstanding contracts with multiple performance obligations;

however, we recently negotiated a contract that may include multiple

performance obligations in the future.

Judgment is also required

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from the critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31,

Patent Assignment

On May 6, 2019, the Company

assigned a portfolio of patents to Aequitas Technologies LLC (“Aequitas”), an unrelated third party.

The assignment provides

the Company the right to share the potential net proceeds generated from possible licensing and monetization program that Aequitas may

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

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

in connection with the original assignment to Aequitas.

As reflected in publicly available

court filings, on June 8, 2020, Neonode Smartphone LLC, an unrelated third party that is a subsidiary of Aequitas (“Aequitas Sub”),

filed complaints against Apple Inc.

(“Apple”) (assigned docket number 6:20-cv-00507-ADA, current docket number 6:23-cv-00204-ADA),

and Samsung Electronics Co., Ltd., and Samsung Electronics America, Inc.

(collectively, “Samsung”) (assigned docket number

6:20-cv-00505-ADA), in the Western District of Texas alleging infringement of two patents, U.S.

8,095,879, and 8,812,993.

In November 2020, Samsung

and Apple filed a petition for inter partes review of certain challenged claims in U.S.

8,095,879, assigned proceeding number

IPR2021-00144.

As reflected in publicly available records, the U.S.

Patent and Trademark Office Patent Trial and Appeal Board (“PTAB”)

denied the petition in June 2021.

Apple and Samsung filed a request for rehearing, which was ultimately granted on December 3, 2021, and

inter partes review was instituted.

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

November 2021 and assigned docket number 3:21-cv-08872, which was subsequently stayed pending the PTAB’s decision.

The case against

Samsung in the Western District of Texas was likewise stayed pending PTAB ruling.

Meanwhile, in June 2021, Google

LLC (“Google”) filed a separate petition with the PTAB seeking inter partes review of certain challenged claims in U.S.

8,095,879, assigned proceeding number IPR2021-01041.

As reflected in publicly available records, the PTAB granted the petition in

The PTAB found in favor of

Aequitas Sub and against Apple and Samsung in December 2022 in connection with the inter partes review proceedings, ruling that none of

the challenged claims were unpatentable.

The PTAB similarly held in favor of Aequitas Sub and against Google in January 2023.

Samsung appealed to the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) in February 2023 (assigned

docket number 23-1464, and Google filed its appeal in the Federal Circuit in March 2023 (assigned docket number 23-1638.

On July 18, 2024,

the Federal Circuit affirmed the PTAB’s rulings, found in favor of Aequitas Sub and against Google and Apple/Samsung, and held that

none of the challenged claims in U.S.

8,095,879 are unpatentable.

As reflected in publicly available

court records, on July 14, 2023, the United States District Court for the Western District of Texas entered its final claim constructions

in the Samsung case, and based on those claim constructions, entered judgment in favor of Samsung and against Aequitas Sub.

filed an appeal with the Federal Circuit in August 2023 (assigned docket number 23-2304)[, and oral argument was held on June 6, 2024].

No decision from the Federal Circuit has yet been issued.

The case against Apple remains pending in the United States District Court for

the Northern District of California, and the PTAB stay has not yet been lifted.

Based on information in public records, in November 2020, Samsung and Apple collectively sought inter partes

review of certain claims in U.S.

8,812,993 (assigned proceeding number IPR2021-00145).

In June 2022, the PTAB invalidated U.S.

8,812,993, which Aequitas Sub appealed to the Federal Circuit in August 2022 (assigned docket number 22-2134).

Circuit affirmed the PTAB’s decision on June 11, 2024.

Quantitative and Qualitative Disclosures

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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