Neonode Inc.

Previous wording

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Current wording

ITEM 7. MANAGEMENT**’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Previous wording

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report. 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.

Current wording

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report. All information in the following discussion and analysis presents the results of continuing operations and excludes amounts related to discontinued operations for all periods presented unless otherwise stated.

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

The following table provides our consolidated results for the continuing operations:

Current wording

The following table provides our consolidated results (in thousands, except percentages):

Previous wording

Total net revenues were $3.1 million and $3.8 million for the years ended December 31, 2024 and 2023, respectively. The decrease in total net revenues by 18.8% for the year ended December 31, 2024 as compared to 2023 was caused by lower revenues from license revenues offset by higher revenues from non-recurring engineering.

Current wording

Total net revenues were $2.1 million and $3.1 million for the years ended December 31, 2025 and 2024, respectively. The decrease in total net revenues by 33.7% for the year ended December 31, 2025 as compared to 2024 was caused by lower revenues from both license revenues and non-recurring engineering.

Previous wording

The following table present the net revenues distribution by business area and revenue stream:

Current wording

The following table presents the net revenues distribution by business area and revenue stream (in thousands, except percentages):

Previous wording

The following table presents disaggregated revenues by revenue stream:

Current wording

The following table presents disaggregated revenues by revenue stream (in thousands, except percentages):

Previous wording

Revenues from license fees were $2.7 million and $3.8 million for the years ended December 31, 2024 and 2023, respectively. The decreased of 29.3% in 2024 as compared to 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.

Current wording

Revenues from license fees were $1.8 million and $2.7 million for the years ended December 31, 2025 and 2024, respectively. The decrease of 32.2% in 2025 as compared to 2024 was 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 revenues were $0.4 million and $26,000 for the years ended December 31, 2024 and 2023. 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 1,519.2% in 2024 compared to 2023 was mainly attributable to the DMS project with the commercial vehicle OEM customer that was announced at the end of 2023 and the new agreement with NEXTY Electronics for an evolution of our licensable Touch Sensor Module (“TSM”) technology.

Current wording

Revenues from non-recurring engineering revenues were $0.2 million and $0.4 million for the years ended December 31, 2025 and 2024. 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 43.0% in 2025 compared to 2024 was the result of decreased delivery in projects.

Previous wording

Our gross margin was 96.3% in 2024 compared to 99.7% in 2023. The decrease in 2024 compared to 2023 were due to more NRE projects.

Current wording

Our gross margin was 98.7% in 2025 compared to 96.3% in 2024. The increase in 2025 compared to 2024 were due to decrease in NRE revenues.

Previous wording

R&D expenses for 2024 and 2023 were $3.4 million and $3.8 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 decrease of 10.1% in 2024 compared to 2023 was primarily related to lower payroll and related costs.

Current wording

R&D expenses for 2025 and 2024 were $3.8 million and $3.4 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 9.7% in 2025 compared to 2024 was primarily related to unfavorable exchange rate development and lower NRE revenues causing less costs to be allocated to cost of sales.

Previous wording

General and administrative (“G&A”) expenses for 2024 and 2023 were $3.8 million and $3.3 million, respectively. The increase of 15.3% from 2023 was primarily due to higher for cost payroll and related costs and professional fees. There is approximately $3,000 of non-cash stock-based compensation included in G&A expenses for the year ended December 31, 2024 compared to $50,000 for the year ended December 31, 2023.

Current wording

General and administrative (“G&A”) expenses for 2025 and 2024 were $4.1 million and $3.8 million, respectively. The increase of 9.5% compared to 2024 was primarily due to unfavorable exchange rate development and higher professional fees. There is no non-cash stock-based compensation included in G&A expenses for the year ended December 31, 2025 compared to $3,000 for the year ended December 31, 2024.

Previous wording

Other income for the year ended December 31, 2024 was $0.7 compared to $0.7 million for the year ended December 31, 2023. The other income for 2024 and 2023 was mainly related to interest income earned.

Current wording

Other income for the year ended December 31, 2025 was $0.7 million compared to $0.7 million for the year ended December 31, 2024. The other income for 2025 and 2024 was mainly related to interest income earned.

Previous wording

Our effective tax rate was (0.3)% for the year ended December 31, 2024 and (2.3)% for the year ended December 31, 2023. We recorded valuation allowances in 2024 and 2023 for deferred tax assets related to net operating losses due to the uncertainty of realization.

Current wording

Our effective tax rate was (0.1)% for the year ended December 31, 2025 and (0.3)% for the year ended December 31, 2024. We recorded valuation allowances in 2025 and 2024 for deferred tax assets related to net operating losses due to the uncertainty of realization.

Previous wording

As a result of the factors discussed above, we recorded a net loss of $5.9 million for the year ended December 31, 2024, compared to a net loss of $5.1 million for the year ended December 31, 2023.

Current wording

As a result of the factors discussed above, we recorded a net income of $8.0 million for the year ended December 31, 2025, compared to a net loss of $5.9 million for the year ended December 31, 2024.

Previous wording

As of December 31, 2024, we had cash and cash equivalents of $16.4 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 Annual Report.

Current wording

As of December 31, 2025, we had cash and cash equivalents of $25.4 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 Annual Report.

Previous wording

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

Current wording

Working capital (current assets less current liabilities) was $24.1 million as of December 31, 2025, compared to working capital of $16.1 million as of December 31, 2024.

Previous wording

Net cash used in operating activities for combined continuing and discontinued operations for the year ended December 31, 2024 was $5.6 million and was primarily the result of a net loss of $6.4 million and approximately $0.5 million in non-cash operating expenses, comprised of stock-based compensation expense, inventory impairment loss, depreciation and amortization and amortization of operating lease right-of-use assets, and changes in operating assets and liabilities of $0.3 million. Net cash used in operating activities for the year ended December 31, 2023 was $6.3 million and was primarily the result of a net loss of $10.1 million and approximately $3.8 million in non-cash operating expenses, comprised of stock-based compensation expense, inventory impairment loss, depreciation and amortization and amortization of operating lease right-of-use assets, and changes in operating assets and liabilities of $25,000.

Current wording

Net cash used in operating activities for combined continuing and discontinued operations for the year ended December 31, 2025 was $10.3 million and was primarily the result of a net income of $8.5 million and approximately $19.2 million in adjustments to reconcile net loss to net cash used in operating activities, comprised of recoveries of bad debt, gain from patent assignment, loss on disposal of assets, depreciation and amortization and amortization of operating lease right-of-use assets, and changes in operating assets and liabilities of $444,000. Net cash used in operating activities for the year ended December 31, 2024 was $5.6 million and was primarily the result of a net loss of $6.5 million and approximately $687,000 in non-cash operating expenses, comprised of stock-based compensation expense, bad debt expense, loss on disposal of assets, depreciation and amortization, amortization of operating lease right-of-use assets, and inventory impairment loss and changes in operating assets and liabilities of $187,000.

Previous wording

Accounts receivable and unbilled revenues for combined continuing and discontinued operations decreased by approximately $134,000 as of December 31, 2024 compared to December 31, 2023, due to lower revenues.

Current wording

Accounts receivable and unbilled revenues for combined continuing and discontinued operations decreased by approximately $300,000 as of December 31, 2025 compared to December 31, 2024, due to lower revenues. Prepaid expenses and other current assets for combined continuing and discontinued operations increased by approximately $20,000, mainly due to increased tax receivables. Accounts payable, accrued payroll and employee benefits, and accrued expenses for combined continuing and discontinued operations increased approximately $395,000 as of December 31, 2025 compared to December 31, 2024.

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 $6.5 million and $10.1 million for the years ended December 31, 2024 and 2023, respectively, and had an accumulated deficit of approximately $224.1 million and $217.6 million as of December 31, 2024 and 2023, respectively. In addition, operating activities used cash of approximately $5.6 million and $6.3 million for the years ended December 31, 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 income for combined continuing and discontinued operations of approximately $8.5 million for the year ended December 31, 2025 and net loss of $6.5 million for the year ended December 31, 2024, and had an accumulated deficit of approximately $215.6 million and $224.1 million as of December 31, 2025 and 2024, respectively. In addition, operating activities used cash of approximately $10.3 million and $5.6 million for the years ended December 31, 2025 and 2024, respectively.

Previous wording

The 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 year ended December 31, 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.

Current wording

The 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 year ended December 31, 2024, we sold an aggregate of 1,423,441 of our common stock under the Ladenburg ATM Facility (as defined below) with aggregate net proceeds to us of $5.8 million, after payment of commissions to Ladenburg Thalmann & Co. Inc. (“Ladenburg”) and other expenses of $0.2 million. During the year ended December 31, 2025, no shares were sold under the Ladenburg ATM Facility.

Previous wording

For the years ended December 31, 2024 and 2023, we recorded approximately $449,000 and $428,000, respectively, for rent expense in continuing operations.

Current wording

For the years ended December 31, 2025 and 2024, we recorded approximately $455,000 and $449,000, respectively, for rent expense in continuing operations.

Previous wording

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 term. 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% per annum.

Current wording

In 2025, we entered into a lease for a Volkswagen ID Buzz to be used as a demo car for our technology. Under the terms of the agreement, the lease will be renewed within two years of the original three-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 March 2025 when the equipment went into service. The implicit interest rate of the lease is currently approximately 3.47% per annum.

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.

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. As of September 2, 2025, 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. 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. On December 15, 2025, the Court entered a modified order for scheduling. Among other dates, the Court ordered (i) a close of fact discovery on July 31, 2026, (ii) mediation by December 8, 2026, and (iii) trial by February 22, 2027. The Court also ordered claim construction briefing beginning March 27, 2026 and concluding April 17, 2026. Further, on February 10, 2026, the case was referred to private alternative dispute resolution to be completed by December 8, 2026.