What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-13 compared with 2025-05-14 · 161 added, 105 removed, 282 unchanged (49% of the section changed)

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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

Litigation Reform Act of 1995.

Statements that are not purely historical may be forward-looking.

For example, statements in this Quarterly

Report regarding our plans, strategy and focus areas are forward-looking statements.

You can identify some forward-looking statements

by the use of words such as “believe,” “anticipate,” “expect,” “intend,” “goal,”

“plan,” and similar expressions.

Forward-looking statements involve inherent risks and uncertainties regarding events, conditions

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

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

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

reliance on our customers’ ability to design, manufacture and sell products that incorporate our touch technology, the length of

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

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

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

adequate capital to fund future operations, and general economic conditions, including inflation, or other effects related to 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, 2024 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.

Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange

Act”), adopted pursuant to the Private Securities Litigation Reform Act of 1995.

Statements that are not purely historical may be

forward-looking.

For example, statements in this Quarterly Report regarding our plans, strategy and focus areas are forward-looking statements.

You can identify some forward-looking statements by the use of words such as “believe,” “anticipate,” “expect,”

“intend,” “goal,” “plan,” and similar expressions.

Forward-looking statements involve inherent risks

and uncertainties regarding events, conditions 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 statements, including, but not limited to our history of losses since inception,

our dependence on a limited number of customers, our reliance on our customers’ ability to design, manufacture and sell products

that incorporate our touch technology, the length of a product development and release cycle, our and our customers’ reliance on

component suppliers, the difficulty in verifying royalty amounts owed to us, our ability to remain competitive in response to new technologies,

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

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

or other effects related to 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, 2024 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.

The following discussion and

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

As of March 31, 2025, we had

As of June 30, 2025, we had

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

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Percentage of revenue

Loss per share from continuing operations

Loss per share from continuing operations - basic and diluted

Six months ended

(in thousands, except percentages)

Percentage of revenue

Non-recurring engineering

Percentage of revenue

Total Revenue

Cost of revenues:

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, net

Percentage of revenue

Provision for income taxes

Percentage of revenue

Loss from continuing operations

Percentage of revenue

Loss per share from continuing operations - basic and diluted

All of our sales for the three

months ended March 31, 2025 and 2024 were to customers located in the United States, Europe and Asia.

and six months ended June 30, 2025 and 2024 were to customers located in the United States, Europe and Asia.

Total revenues were $0.6 million

for the three months ended March 31 2025, compared to $0.8 million for the same period in 2024.

The decrease in total revenues of 37.0%

for the three months ended March 31, 2025, as compared to the same period in 2024, is explained by lower license fees and non-recurring

Revenues from license fees

were $0.5 million for the three months ended March 31, 2025, compared to $0.8 million for the three months ended March 31, 2024.

of 35.7% for the three months ended March 31, 2025, as compared to the same period in 2024, was mainly due to lower demand for our legacy

customers products within printer and passenger car touch applications.

and $1.1 million for the three and six months ended June 30 2025, respectively, compared to $0.8 million and $1.6 million for the same

periods in 2024, respectively.

The decrease in total revenues of 25.2% for the three months ended June 30, 2025, as compared to the same

period in 2024, is explained by lower license fees.

The decrease in total revenues of 31.1% for the six months ended June 30, 2025, as

compared to the same period in 2024, is explained by lower license fees and non-recurring revenues.

Revenues from license fees were $0.4 million and $0.9 million for the

three and six months ended June 30, 2025, respectively, compared to $0.6 million and $1.4 million for the same periods in 2024, respectively.

The decrease of 34.2% for the three months ended June 30, 2025, as compared to the same period in 2024, was mainly due to lower demand

for our legacy customers’ products within printer and passenger car touch applications.

The decrease of 35.0% for the six months

ended June 30, 2025, as compared to the same period in 2024, was mainly due to lower demand for our legacy customers’ products within

printer and passenger car touch applications.

Non-recurring Engineering

Revenues from non-recurring

engineering were $16,000 for the three months ended March 31, 2025, compared to $41,000 for the three months ended March 31, 2024.

of our non-recurring engineering revenues are related to application development and proof-of-concept projects related to our zForce and

MultiSensing technology platforms.

The decrease of 61.0% for the three months ended March 31, 2025, as compared to the same period in

2024 was the result of fewer projects.

engineering were $0.2 million and $0.2 million for the three and six months ended June 30, 2025, respectively, compared to $0.2 million

and $0.2 million for the same periods in 2024, respectively.

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

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

The increase of 4.3% for the three

months ended June 30, 2025, as compared to the same period in 2024, was the result of delivery in the Commercial OEM DMS project.

decrease of 7.5% for the six months ended June 30, 2025, as compared to the same period in 2024, was the result of fewer projects.

The following tables presents

the net revenues by market and revenue stream:

Three months ended March 31,

Three months ended June 30,

(in thousands)

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Non-recurring engineering

Our total gross margin was

98.2% for the three months ended March 31, 2025, compared to 97.9% for the three months ended March 31, 2024.

Six months ended June 30,

(in thousands)

Non-recurring engineering

IT & Industrial

Non-recurring engineering

Our gross margin was 99.0%

and 98.7% for the three and six months ended June 30, 2025, respectively, compared to 97.0% and 97.5% for the same periods in 2024, respectively.

Our cost of revenues includes

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Research and development (“R&D”)

expenses were $1.0 million for the three months ended March 31, 2025, compared to $0.9 million for the three months ended March 31, 2024.

The increase of 8.9% for the three months ended March 31, 2025 compared to the same period in 2024 was primarily related to higher payroll

and related costs.

expenses were $1.1 million and $2.0 million for the three and six months ended June 30, 2025, respectively, compared to $1.0 million and

$1.9 million for the same periods in 2024, respectively.

The increase of 10.2% for the three months ended June 30, 2025 compared to the

same period in 2024 was primarily related to higher payroll and related costs.

The increase of 9.6% for the six months ended June 30,

2025 compared to the same period in 2024 was primarily related to higher payroll and related costs.

R&D expenses primarily

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Sales and marketing expenses

were $0.6 million for the three months ended March 31, 2025, compared to $0.8 million for the three months ended March 31, 2024.

of 21.3% for the three months ended March 31, 2025 compared to the same period in 2024 was primarily related to lower payroll and related

were $0.6 million and $1.2 million for the three and six months ended June 30, 2025, respectively, compared to $0.5 million and $1.4 million

for the same periods in 2024, respectively.

The increase of 9.6% for the three months ended June 30, 2025 compared to the same period

in 2024 was primarily related to higher payroll and related costs.

The decrease of 9.0% for the six months ended June 30, 2025 compared

to the same period in 2024 was primarily related to lower payroll and related costs and lower spend in marketing.

Our sales and marketing activities

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General and Administrative

General and administrative

expenses were $0.9 million for the three months ended March 31, 2025, compared to $1.0 million for the three months ended March 31, 2024.

The decrease of 12.3% for the three months ended March 31, 2025, compared to the same period in 2024 was primarily related to lower payroll

and related costs.

General and administrative expenses were $1.0 million and $1.9 million

for the three and six months ended June 30, 2025, respectively, compared to $1.0 million and $2.0 million for the same periods in 2024,

respectively.

The decrease of 1.3% for the three months ended June 30, 2025, compared to the same period in 2024, was primarily related

to lower professional fees offset by higher payroll and related costs.

The decrease of 6.6% for the six months ended June 30, 2025, compared

to the same period in 2024, was primarily related to lower overall costs.

Other income was $0.1 million

for the three months ended March 31, 2025, compared to $0.2 million for the three months ended March 31, 2024.

The other income for the

period was mainly related to interest income earned.

Our effective tax rate was 0.6% for the three months ended March 31,

2025, compared to (0.6)% for the three months ended March 31, 2024.

The tax rate is due to global intangible low-taxed income and change

in valuation allowance.

and $0.3 million for the three and six months ended June 30, 2025, respectively, compared to $0.1 million and $0.3 million for the same

periods in 2024, respectively.

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

Our effective tax rate was

zero and 0.3% for the three and six months ended June 30, 2025, respectively, compared to (0.7)% and (0.6)% for the same periods in 2024,

respectively.

The tax rate is due to global intangible low-taxed income and change in valuation allowance.

As a result of the factors

discussed above, we recorded a loss from continuing operations of $1.8 million for the three months ended March 31, 2025, and $1.7 million

for the same periods in 2024.

discussed above, we recorded a loss from continuing operations of $1.9 million and $3.7 million for the three and six months ended June

30, 2025, respectively, and $1.7 million and $3.4 million for the same periods in 2024, respectively.

Liquidity and Capital Resources

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ability to raise additional capital, if necessary.

As of March 31, 2025, we had

As of June 30, 2025, we had

cash and cash equivalents of $13.2 million, as compared to $16.4 million as of December 31, 2024.

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Working capital (current assets

less current liabilities) was $14.1 million as of March 31, 2025, compared to $16.1 million as of December 31, 2024.

less current liabilities) was $12.1 million as of June 30, 2025, compared to $16.1 million as of December 31, 2024.

Net cash used in operating

activities for combined continuing and discontinued operations for the three months ended March 31, 2025, was $1.4 million and was primarily

activities for combined continuing and discontinued operations for the six months ended June 30, 2025, was $3.1 million and was primarily

the result of a net loss of $3.6 million and approximately $0.1 million in non-cash operating expenses, comprised of depreciation and

amortization and amortization of operating lease right-of-use assets and changes in operating assets and liabilities of $0.4 million.

Net cash used in operating activities for combined continuing and discontinued operations for the three months ended March 31, 2024, was

Net cash used in operating activities for combined continuing and discontinued operations 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,

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Net cash used in investing

activities for the three months ended March 31, 2025, was approximately $40,000 and was primarily the result of purchase of property and

Net cash used in investing activities for the three months ended March 31, 2024, was zero.

activities for the six months ended June 30, 2025, was approximately $15,000 and was primarily the result of purchase of property and

Net cash provided by investing activities for the six months ended June 30, 2024, was approximately $153,000 and was primarily

proceeds from sale of property and equipment offset by purchase of property and equipment.

Net cash used in financing

activities for the three months ended March 31, 2025 and 2024, was approximately $2,000 and $9,000, respectively, and was primarily the

activities for the six months ended June 30, 2025 and 2024, was approximately $5,000 and $13,000, respectively, and was primarily the

result of principal payments on finance leases.

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The Company incurred net losses for combined continuing

and discontinued operations of approximately $1.7 million for the three ended March 31, 2025, compared to $1.7 million for the three months

ended March 31, 2024, and had an accumulated deficit of approximately $225.8 million and $224.1 million as of March 31, 2025 and December

31, 2024, respectively.

In addition, operating activities used cash of approximately $1.4 million and $1.9 million for the three months

ended March 31, 2025 and 2024, respectively.

and discontinued operations of approximately $1.9 million and $3.6 million for the three and six months ended June 30, 2025, respectively,

compared to $1.7 million and $3.8 million for the same periods in 2024, respectively, and had an accumulated deficit of approximately

$227.7 million and $224.1 million as of June 30, 2025 and December 31, 2024, respectively.

In addition, operating activities used cash

of approximately $3.1 million and $3.1 million for the six months ended June 30, 2025 and 2024, respectively.

The condensed consolidated

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Operating Leases

solely through a virtual office in California.

operates solely

through a virtual office in California.

On December 1, 2020, Neonode

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For total rent expense for

combined continuing and discontinued operations, we recorded $104,000 for the three months ended March 31, 2025, compared to $126,000

for the three months ended March 31, 2024.

combined continuing and discontinued operations, we recorded $115,000 and $219,000 for the three and six months ended June 30, 2025, respectively,

compared to $123,000 and $249,000 for the same periods in 2024.

Non-Recurring Engineering Development Costs

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

As of March 31, 2025, we had made no payments to TI under the NN1002 Agreement.

As of June 30, 2025, we had made no payments to TI under the NN1002 Agreement.

At-the-Market Offering Program

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$25 million of shares of our common stock, 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.

Rule 415 under the Securities Act.

On May 29, 2024, we terminated the B.

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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.

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.

offering as defined in Rule 415 under the Securities Act.

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.

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

the three months ended March 31, 2025 and 2024, no shares were sold under the Ladenburg ATM Facility.

the three and six months ended June 30, 2025 and 2024, no shares were sold under the Ladenburg ATM Facility.

Patent Assignment

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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 (docket number

6:20-cv-507), and based on those claim constructions, entered judgment in favor of Samsung and against Aequitas Sub.

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 As reflected

on the public court docket, on August 20, 2024, the Federal Circuit issued its written opinion, reversing and remanding the case to the

Western District of Texas for further proceedings.

Specifically, the Federal Circuit held that claim 1 of the ‘879 patent was not

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 (docket number 6:20-cv-507), and based on those claim constructions, entered judgment in favor of Samsung and against

Aequitas Sub.

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 As reflected on the public court docket, on August 20, 2024, the Federal Circuit issued its written opinion,

reversing and remanding the case to the Western District of Texas for further proceedings.

Specifically, the Federal Circuit held that

claim 1 of the ‘879 patent was not indefinite.

Mandate issued returning the case to the Western District of Texas on September 26,

On November 5, 2024, Samsung filed

its Answer to the Complaint.

Under the current schedule order, the parties are set to conclude fact discovery on May 23, 2025.

is scheduled to begin on October 24, 2025.

On November 5, 2024, Samsung filed its Answer to the Complaint.

On June 13, 2025, the parties submitted a joint motion to stay all

deadlines for thirty (30) days as the parties had reached a “settlement in principle.” On June 20, 2025, the Court granted

the motion to stay and ordered that all deadlines be stayed until July 21, 2025.

On July 17, 2025, the parties submitted a joint motion to extend the stay for an additional thirty days “so that the settlement

agreement can be finalized and appropriate dismissal papers submitted.” On August 5, 2025, the Court granted the parties request

to extend the stay until August 20, 2025.

The case against Apple remains

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

On November 13, 2024, the Court granted the parties’

motion to continue the stay pending resolution of the Samsung case pending in the Western District of Texas (case number 20-cv-00507-ADA)

by settlement or final judgment.

pending in the United States District Court for the Northern District of California (docket number 21-cv-8872).

On November 13, 2024,

the Court granted the parties’ motion to continue the stay pending resolution of the Samsung case pending in the Western District

of Texas (case number 20-cv-00507-ADA) by settlement or final judgment.

Based on information in public

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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