Neonode Inc

Previous wording

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report and consolidated financial statements for the year ended December 31, 2023 included in our most recent Annual Report on Form 10-K.

Current wording

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report and consolidated financial statements for the year ended December 31, 2023 included in our most recent Annual Report on Form 10-K. All information in the following discussion and analysis present the results of continuing operations and exclude amounts related to discontinued operations for all periods presented unless otherwise stated.

Previous wording

As of June 30, 2024, we had 36 valid technology license agreements with global OEMs, Original Design Manufacturers (“ODMs”) and automotive Tier 1 suppliers.

Current wording

As of September 30, 2024, we had 37 valid technology license agreements with global OEMs, Original Design Manufacturers (“ODMs”) and automotive Tier 1 suppliers.

Previous wording

All of our sales for the three 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.

Current wording

All of our sales for the three and nine months ended September 30, 2024 and 2023 were to customers located in the United States, Europe and Asia.

Previous wording

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.

Current wording

Total revenues were $0.8 million and $2.5 million for the three and nine months ended September 30 2024, respectively, compared to $0.8 million and $3.1 million for the same periods in 2023, respectively. The decrease in total revenues of 0.2% and 21.0% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023, are explained by lower license fees offset by higher non-recurring revenues.

Previous wording

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.

Current wording

Revenues from license fees were $0.7 million and $2.1 million for the three and nine months ended September 30, 2024, respectively, compared to $0.8 million and $3.1 million for the three and nine months ended September 30, 2023, respectively. The decrease of 12.6% and 31.2% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023, were mainly due to lower demand for our legacy customers products within printer and passenger car touch applications offset by revenues from new licensing customers.

Previous wording

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.

Current wording

Revenues from non-recurring engineering were $107,000 and $335,000 for the three and nine months ended September 30, 2024, respectively, compared to $4,000 and $29,000 for the three and nine months ended September 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 2,575.0% and 1,055.2% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 was the result of TSM licensing projects and the new MultiSensing project with a commercial vehicle OEM.

Previous wording

The following tables presents the net revenues by market and revenue stream for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):

Current wording

The following tables presents the net revenues by market and revenue stream for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):

Previous wording

Our cost of revenues includes the direct cost of production of certain customer prototypes, costs of engineering personnel, engineering consultants to complete the engineering design contracts. Cost of goods sold for TSMs includes fully burdened manufacturing costs, outsourced final assembly costs, and component costs of TSMs.

Current wording

Our cost of revenues includes the direct cost of production of certain customer prototypes, costs of engineering personnel, engineering consultants to complete the engineering design contracts.

Previous wording

Research and development (“R&D”) 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.

Current wording

Research and development (“R&D”) expenses were $0.8 million and $2.7 million for the three and nine months ended September 30, 2024, respectively, compared to $0.8 million and $2.7 million for the three and nine months ended September 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 R&D expenses for the three and nine months ended September 30, 2024 were in line with the same periods in 2023.

Previous wording

Sales and marketing expenses 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.

Current wording

Sales and marketing expenses were $0.5 million and $1.8 million for the three and nine months ended September 30, 2024, respectively, compared to $0.5 million and $1.8 million for the three and nine months ended September 30, 2023, respectively. The decrease of 6.2% for the three months ended September 30, 2024 compared to the same period in 2023 was primarily related to lower payroll and related costs offset by higher professional fees. The decrease of 2.6% for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily related to lower payroll and related costs offset by higher professional fees and advertising costs.

Previous wording

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.

Current wording

Other income was $0.2 million and $0.5 million for the three and nine months ended September 30, 2024, respectively compared to $0.2 million and $0.6 million for the three and nine months ended September 30, 2023, respectively. The other income for the periods was mainly related to interest income earned.

Previous wording

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.

Current wording

Our effective tax rate was 1.0% and (0.2)% for the three and nine months ended September 30, 2024, respectively, compared to (3.4)% and (2.8)% and for the three and nine months ended September 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.

Previous wording

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.

Current wording

As a result of the factors discussed above, we recorded a net loss from continuing operations of $1.1 million and $4.4 million for the three and nine months ended September 30, 2024, respectively, and $1.1 million and $3.5 million for the same periods in 2023.

Previous wording

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. Based on our current cash position, and assuming currently planned expenditures and level of operations, we believe we have sufficient capital to fund operations for the twelve-month period subsequent to the date of this Report.

Current wording

As of September 30, 2024, we had cash and cash equivalents of $17.6 million, as compared to $16.2 million as of December 31, 2023. Based on our current cash position, and assuming currently planned expenditures and level of operations, we believe we have sufficient capital to fund operations for the twelve-month period subsequent to the date of this Report.

Previous wording

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

Current wording

Working capital (current assets less current liabilities) was $17.7 million as of September 30, 2024, compared to $16.1 million as of December 31, 2023.

Previous wording

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.

Current wording

Net cash used in operating activities for combined continuing and discontinued operations for the nine months ended September 30, 2024, was $4.4 million and was primarily the result of a net loss of $4.9 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 $28,000. Net cash provided by financing activities for the nine months ended September 30, 2024, was approximately 5.8 million and was primarily the result of proceeds from issuance of common stock, net of offering costs.

Previous wording

Accounts receivable and unbilled 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.

Current wording

Accounts receivable and unbilled revenues for combined continuing and discontinued operations decreased by approximately $105,000 as of September 30, 2024, compared to December 31, 2023. This was mainly due to the timing of receipts of customer payments.

Previous wording

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.

Current wording

Inventory for discontinued operations decreased by approximately $132,000 during the nine months ended September 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.

Previous wording

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.

Current wording

Accounts payable, accrued payroll and employee benefits, and accrued expenses for combined continuing and discontinued operations decreased approximately $115,000 during the nine months ended September 30, 2024 compared to December 31, 2023, due to various payroll related expenses.

Previous wording

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. Riley ATM Facility (as defined below).

Current wording

Net cash provided by financing activities of $7.8 million during the nine months ended September 30, 2023 was the result of issuance of common stock under the B. Riley ATM Facility (as defined below).

Previous wording

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 six months ended June 30, 2024 and 2023, respectively.

Current wording

We have incurred significant operating losses and negative cash flows from operations since our inception. The Company incurred net losses for combined continuing and discontinued operations of approximately $1.1 million and $4.9 million for the three and nine months ended September 30, 2024, respectively, compared to $1.3 million and $4.2 million for the three and nine months ended September 30, 2023, respectively, and had an accumulated deficit of approximately $222.5 million and $217.6 million as of September 30, 2024 and December 31, 2023, respectively. In addition, operating activities used cash of approximately $4.4 million and $4.1 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

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. 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.

Current wording

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. 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 the three months ended September 30, 2024, we sold an aggregate of 1,423,441 of our common stock under the ATM Facility with aggregate net proceeds to us of $5.8 million, after payment of commissions to Ladenburg and other expenses of $0.2 million.

Previous wording

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.

Current wording

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. The facility lease terminated on September 30, 2024 and was not renewed.

Previous wording

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.

Current wording

For total rent expense for combined continuing and discontinued operations, we recorded $127,000 and $376,000 for the three and nine months ended September 30, 2024, respectively, compared to $120,000 and $365,000, respectively, for the three and nine months ended September 30, 2023.

Previous wording

During 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, under the B. 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.

Current wording

During the three and nine months ended September 30, 2024, we sold an aggregate of 1,423,441 shares of our common stock, respectively, under the Ladenburg ATM Facility with aggregate net proceeds to us of $5.8 million, after payment of commissions to Ladenburg and other expenses of $0.2 million. During the three and nine months ended September 30, 2023, we sold an aggregate of zero and 903,716 shares of our common stock, respectively, under the B. Riley ATM Facility with aggregate net proceeds to us of $7,9 million, after payment of commissions to B. Riley Securities and other expenses of $0.2 million.

Previous wording

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

Current wording

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-00505-ADA), and Samsung Electronics Co., Ltd., and Samsung Electronics America, Inc. (collectively, “Samsung”) (assigned docket number 6:20-cv -00507-ADA; see also 6:23-cv-00204-ADA), in the Western District of Texas alleging infringement of two patents, U.S. Patent Nos. 8,095,879 and 8,812,993.

Previous wording

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. 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.

Current wording

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. 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, 2024.