Neonode Inc.

Previous wording

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management**’s Discussion and Analysis of Financial Condition and Results of Operations

Previous wording

Neonode provides advanced optical sensing solutions for touch, contactless touch, and gesture sensing. We also provide software solutions for machine perception that feature advanced machine learning algorithms to detect and track persons and objects in video streams from cameras and other types of imagers. We base our contactless touch, touch, and gesture sensing products and solutions using our zForce technology platform and our machine perception solutions on our MultiSensing technology platform. We market and sell our solutions to customers in many different markets and segments including, but not limited to, office equipment, automotive, industrial automation, medical, military and avionics.

Current wording

Neonode provides software solutions for machine perception that feature advanced machine learning algorithms to detect and track persons and objects in video streams from cameras and other types of imagers. We base our machine perception solutions on our MultiSensing® technology platform. We market and sell our solutions to customers mainly in the automotive market. However, our solution can also be used in many other markets, and we plan to expand our solutions into new markets in the future.

Previous wording

We license our zForce technology to Original Equipment Manufacturers (“OEMs”) and automotive Tier 1 suppliers who embed our technology into products that they develop, manufacture and sell. Since 2010, our licensing customers have sold over 95 million devices that use our patented technology.

Current wording

We license our MultiSensing and zForce technology to Original Equipment Manufacturers (“OEMs”) and automotive Tier 1 suppliers who embed our technology into products that they develop, manufacture and sell. Since 2010, our licensing customers have sold over 95 million devices that use our patented technology.

Previous wording

Our licensing customer base is primarily in the automotive and printer segments. Ten of our licensing customers are currently shipping products that embed our technology. We anticipate current customers will continue to ship products with our technology in 2025 and in future years. We also expect to expand our customer base with a number of new customers who will be looking to ship new products incorporating our zForce and MultiSensing technologies as they complete final product development and release cycles. We typically earn our license fees on a per unit basis when our customers ship products using our technology, but in the future, we may use other business models as well.

Current wording

Our licensing customer base is primarily in the automotive and printer segments. Ten of our licensing customers are currently shipping products that embed our technology. We anticipate current customers will continue to ship products with our technology in 2025 and in future years. We also expect to expand our customer base with a number of new customers who will be looking to ship new products incorporating our MultiSensing technologies as they complete final product development and release cycles. We typically earn our license fees on a per unit basis when our customers ship products using our technology, but in the future, we may use other business models as well.

Previous wording

We also offer non-recurring engineering (“NRE”) services related to application development linked to our TSMs and our zForce and MultiSensing technology platforms on a flat rate or hourly rate basis.

Current wording

We also offer non-recurring engineering (“NRE”) services related to application development linked to our technology platform on a flat rate or hourly rate basis.

Previous wording

Typically, our licensing customers require engineering support during the development and initial manufacturing phase for their products using our technology, while our TSM customers require hardware or software modifications to our standard products or support during the development and initial manufacturing phases of their products using our technology. In both cases we can offer NRE services and earn NRE revenues.

Current wording

Typically, our licensing customers require engineering support during the development and initial manufacturing phase for their products using our technology.

Previous wording

The ongoing war in Ukraine has impacted the global economy as the United States, the UK, the EU, and other countries have imposed broad export controls and financial and economic sanctions against Russia (a large exporter of commodities), Belarus, and specific areas of Ukraine, and may continue to impose additional sanctions or other measures. Russia may impose its own counteractive measures. We do not procure materials directly from Ukraine or Russia, but the war in Ukraine may further exacerbate ongoing supply chain disruptions that are occurring across the globe. In addition, the war in Israel and Gaza and the possible expansion of such war has created political and potential economic uncertainty in the Middle East. While the precise effects on global economies from the Israel-Hamas war, the war in Ukraine and related sanctions remain uncertain, there has been significant volatility in the financial markets, fluctuations in currency exchange rates, and an increase in energy and commodity prices globally. Should the wars continue or escalate, there may be various economic and security consequences including, but not limited to, additional supply shortages of different kinds; further increases in prices of commodities; significant disruptions in logistics infrastructure and telecommunications services; and risks relating to the unavailability of information technology systems and infrastructure. The resulting impacts on the global economy, financial markets, inflation, interest rates, and unemployment, among others, could adversely impact economic and financial conditions.

Current wording

The ongoing war in Ukraine has impacted the global economy as the United States, the UK, the EU, and other countries have imposed broad export controls and financial and economic sanctions against Russia (a large exporter of commodities), Belarus, and specific areas of Ukraine, and may continue to impose additional sanctions or other measures. Russia may impose its own counteractive measures. We do not procure materials directly from Ukraine or Russia, but the war in Ukraine may further exacerbate ongoing supply chain disruptions that are occurring across the globe. While the precise effects on global economies from the war in Ukraine and related sanctions remain uncertain, there has been significant volatility in the financial markets, fluctuations in currency exchange rates, and an increase in energy and commodity prices globally. Should the wars continue or escalate, there may be various economic and security consequences including, but not limited to, additional supply shortages of different kinds; further increases in prices of commodities; significant disruptions in logistics infrastructure and telecommunications services; and risks relating to the unavailability of information technology systems and infrastructure. The resulting impacts on the global economy, financial markets, inflation, interest rates, and unemployment, among others, could adversely impact economic and financial conditions.

Previous wording

A summary of our financial results is as follows:

Current wording

A summary of our financial results is as follows (in thousands, except percentages):

Previous wording

All of our sales for the three and six months ended June 30, 2025 and 2024 were to customers located in the United States, Europe and Asia.

Current wording

All of our sales for the three and nine months ended September 30, 2025 and 2024 were to customers located in the United States, Europe and Asia.

Previous wording

Total revenues were $0.6 million 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.

Current wording

Total revenues were $0.4 million and $1.5 million for the three and nine months ended September 30, 2025, respectively, compared to $0.8 million and $2.5 million for the same periods in 2024, respectively. The decrease in total revenues of 48.7% for the three months ended September 30, 2025, as compared to the same period in 2024, is explained by lower license fees and non-recurring revenues. The decrease in total revenues of 37.1% for the nine months ended September 30, 2025, as compared to the same period in 2024, is explained by lower license fees and non-recurring revenues.

Previous wording

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.

Current wording

Revenues from license fees were $0.4 million and $1.3 million for the three and nine months ended September 30, 2025, respectively, compared to $0.7 million and $2.1 million for the same periods in 2024, respectively. The decrease of 44.5% for the three months ended September 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 38.3% for the nine months ended September 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.

Previous wording

Revenues from non-recurring 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. The 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.

Current wording

Revenues from non-recurring engineering were $24,000 and $235,000 for the three and nine months ended September 30, 2025, respectively, compared to $107,000 and $335,000 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 technology platforms. The decrease of 77.6% for the three months ended September 30, 2025, as compared to the same period in 2024, was the result of decreased delivery in projects. The decrease of 29.9% for the nine months ended September 30, 2025, as compared to the same period in 2024, was the result of fewer projects.

Previous wording

The following tables presents the net revenues by market and revenue stream:

Current wording

The following tables presents the net revenues by market and revenue stream (in thousands):

Previous wording

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.

Current wording

Our gross margin was 97.9% and 98.4% for the three and nine months ended September 30, 2025, respectively, compared to 97.3% and 97.4% for the same periods in 2024, respectively.

Previous wording

Research and development (“R&D”) 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.

Current wording

Research and development (“R&D”) expenses were $0.8 million and $2.8 million for the three and nine months ended September 30, 2025, respectively, compared to $0.8 million and $2.7 million for the same periods in 2024, respectively. The decrease of 3.4% for the three months ended September 30, 2025 compared to the same period in 2024 was primarily related to lower cost for development of prototypes. The increase of 5.6% for the nine months ended September 30, 2025 compared to the same period in 2024 was primarily related to higher payroll and related costs.

Previous wording

Sales and marketing expenses 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.

Current wording

Sales and marketing expenses were $0.5 million and $1.7 million for the three and nine months ended September 30, 2025, respectively, compared to $0.5 million and $1.8 million for the same periods in 2024, respectively. The decrease of 3.7% for the three months ended September 30, 2025 compared to the same period in 2024 was primarily related to lower professional fees offset by higher spend in marketing. The decrease of 7.6% for the nine months ended September 30, 2025 compared to the same period in 2024 was primarily related to lower payroll and related costs, lower professional fees and lower spend in marketing.

Previous wording

Other income was $0.1 million 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.

Current wording

Other income was $0.1 million and $0.4 million for the three and nine months ended September 30, 2025, respectively, compared to $0.2 million and $0.5 million for the same periods in 2024, respectively. The other income for the period was mainly related to interest income earned.

Previous wording

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.

Current wording

Our effective tax rate was nil and (0.1)% for the three and nine months ended September 30, 2025, respectively, compared to 1.0% and (0.2)% for the same periods in 2024, respectively. The tax rate is due to global intangible low-taxed income and change in valuation allowance.

Previous wording

As a result of the factors 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.

Current wording

As a result of the factors discussed above, we recorded an income from continuing operations of $14.2 million and $10.6 million for the three and nine months ended September 30, 2025, respectively, and a loss of $1.1 million and $4.9 million for the same periods in 2024, respectively.

Previous wording

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. 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, 2025, we had cash and cash equivalents of $11.6 million, as compared to $16.4 million as of December 31, 2024. 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 $12.1 million as of June 30, 2025, compared to $16.1 million as of December 31, 2024.

Current wording

Working capital (current assets less current liabilities) was $26.2 million as of September 30, 2025, compared to $16.1 million as of December 31, 2024.

Previous wording

Net cash used in operating 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 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.

Current wording

Net cash used in operating activities for combined continuing and discontinued operations for the nine months ended September 30, 2025, was $4.6 million and was primarily the result of a net loss of $10.6 million and approximately $(19.2) 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 $4.0 million. 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.

Previous wording

Net cash used in investing activities for the six months ended June 30, 2025, was approximately $15,000 and was primarily the result of purchase of property and equipment. 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.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2025, was approximately $90,000 and was primarily the result of purchase of property and equipment. Net cash provided by investing activities for the nine months ended September 30, 2024, was approximately $153,000 and was primarily proceeds from sale of property and equipment offset by purchase of property and equipment.

Previous wording

Net cash used in financing 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.

Current wording

Net cash used in financing activities for the nine months ended September 30, 2025, was approximately $8,000 and was primarily the result of principal payments on finance leases. 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 the issuance of common stock, net of offering costs.

Previous 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 $1.9 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.

Current wording

We have incurred significant operating losses and negative cash flows from operations since our inception. The Company incurred net income for combined continuing and discontinued operations of approximately $14.2 million and $10.6 million for the three and nine months ended September 30, 2025, respectively, compared to a loss of $1.1 million and $4.9 million for the same periods in 2024, respectively, and had an accumulated deficit of approximately $213.5 million and $224.1 million as of September 30, 2025 and December 31, 2024, respectively. In addition, operating activities used cash of approximately $4.6 million and $4.4 million for the nine months ended September 30, 2025 and 2024, 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.

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 condensed consolidated financial statements were issued.

Previous wording

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.

Current wording

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 condensed consolidated financial statements.

Previous wording

For total rent expense for 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.

Current wording

For total rent expense for combined continuing and discontinued operations, we recorded $117,000 and $336,000 for the three and nine months ended September 30, 2025, respectively, compared to $127,000 and $376,000 for the same periods in 2024.

Previous wording

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

Current wording

During the three and nine months ended September 30, 2025, no shares were sold under the Ladenburg ATM Facility. 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.

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-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.

Current wording

As reflected in publicly available court filings, on June 8, 2020, 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 (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, 2024. 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.

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 (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, 2024. 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. On August 29, 2025, following a settlement between Aequitas Sub and Samsung, the parties submitted a joint motion to vacate the claim construction order and to dismiss the matter with prejudice. On September 2, 2025, the Court granted the motion. The case in the Western District of Texas is now closed. For additional information regarding the settlement, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Gain from Patent Assignment and Broker Fee from Patent Assignment.”

Previous wording

The case against Apple remains 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.

Current wording

The case against Apple remains 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. On September 15, 2025 the Court lifted the stay upon stipulation of the parties. On October 27, 2025, the parties submitted a stipulated scheduling order for the remainder of the case. Among other dates, the parties proposed (i) a close of fact discovery on August 28, 2025, (ii) mediation by January 19, 2027, and (iii) trial by April 5, 2027. The Court has yet to order the scheduling order.