UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2021 ☐ Transition report pursuant to section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from _______ to ________ Commission file number 1-35526 NEONODE INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or ...

Neonode Inc. (NASDAQ:NEON) Q4 2020 Results Conference Call March 10, 2021 10:00 AM ET Company Participants David Brunton - Investor Relations Urban Forssell - Chief Executive Officer Maria Ek - Chief Financial Officer Johan Swartz - Vice President of HMI Products Jonas W??rn - Vice President of HMI Solutions Conference Call Participants Tyler Burmeister - Craig-Hallum Viktor Westman - Redeye Operator Hello, everyone. Thank you for standing by, and welcome to Neonode???s Fourth Quarter 2020 Earnings Conferen ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 (Address of Principal Executive Of ice and Zip Code) +46 (0) 8 667 17 17 (Registrant's Telephone Number, including Area Code) Securities registered pursuant to Section 12(b) of the Act: or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition ...

Neonode, Inc. (NASDAQ:NEON) Q3 2020 Earnings Conference Call November 10, 2020 10:00 AM ET Company Participants David Brunton - IR Urban Forssell - CEO Maria Ek - CFO Conference Call Participants Viktor Westman - Redeye Operator Hello, everyone. Thank you for standing by, and welcome to Neonode???s Third Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session with the company???s coverin ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201%20Financial%20Statements) This section presents Neonode Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, financial position, and performance for the periods ended September 30, 2020 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | Sep 30, 2020 (Unaudited, $ thousands) | Dec 31, 2019 (Audited, $ thousands) | | :----- | :------------------------------------ | :---------------------------------- | | Total Assets | 16,625 | 7,436 | | Total Liabilities | 3,642 | 3,589 | | Total Stockholders' Equity | 12,983 | 3,847 | - Total assets significantly increased from **$7.4 million** to **$16.6 million**, primarily driven by an increase in cash from **$2.4 million** to **$12.2 million**[9](index=9&type=chunk) [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) **Three months ended September 30:** | Metric | 2020 ($ thousands) | 2019 ($ thousands) | YoY Change ($ thousands) | YoY Change (%) | | :----- | :----------------- | :----------------- | :----------------------- | :------------- | | Total Revenues | 1,495 | 1,310 | 185 | 14.1% | | Total Gross Margin | 1,294 | 1,246 | 48 | 3.9% | | Operating Loss | (1,746) | (1,189) | (557) | (46.8)% | | Net Loss attributable to Neonode Inc. | (1,638) | (1,086) | (552) | 50.8% | | Basic and Diluted Loss per Share | (0.16) | (0.12) | (0.04) | 33.3% | **Nine months ended September 30:** | Metric | 2020 ($ thousands) | 2019 ($ thousands) | YoY Change ($ thousands) | YoY Change (%) | | :----- | :----------------- | :----------------- | :----------------------- | :------------- | | Total Revenues | 3,547 | 5,032 | (1,485) | (29.5)% | | Total Gross Margin | 3,179 | 4,796 | (1,617) | (33.7)% | | Operating Loss | (4,591) | (3,171) | (1,420) | 44.8% | | Net Loss attributable to Neonode Inc. | (4,260) | (2,923) | (1,337) | 45.7% | | Basic and Diluted Loss per Share | (0.45) | (0.33) | (0.12) | 36.4% | [Unaudited Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) | Metric | Three months ended Sep 30, 2020 ($ thousands) | Three months ended Sep 30, 2019 ($ thousands) | Nine months ended Sep 30, 2020 ($ thousands) | Nine months ended Sep 30, 2019 ($ thousands) | | :----- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net loss | (1,748) | (1,199) | (4,626) | (3,213) | | Foreign currency translation adjustments | (228) | (145) | (251) | (300) | | Comprehensive loss attributable to Neonode Inc. | (1,866) | (1,231) | (4,511) | (3,223) | [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric | Sep 30, 2020 ($ thousands) | Dec 31, 2019 ($ thousands) | | :----- | :------------------------- | :------------------------- | | Common stock | 11 | 9 | | Additional paid-in capital | 211,587 | 197,543 | | Accumulated other comprehensive loss | (890) | (639) | | Accumulated deficit | (194,813) | (190,520) | | Total Neonode Inc. stockholders' equity | 15,895 | 6,393 | - Total stockholders' equity increased significantly from **$3.8 million** at December 31, 2019, to **$12.9 million** at September 30, 2020, primarily due to the issuance of shares for cash and preferred stock conversions[11](index=11&type=chunk)[16](index=16&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric | Nine months ended Sep 30, 2020 ($ thousands) | Nine months ended Sep 30, 2019 ($ thousands) | | :----- | :------------------------------------------- | :------------------------------------------- | | Net cash used in operating activities | (3,707) | (2,873) | | Net cash used in investing activities | (17) | (89) | | Net cash provided by (used in) financing activities | 13,778 | (403) | | Net increase (decrease) in cash | 9,855 | (3,530) | | Cash at end of period | 12,212 | 3,025 | - A significant increase in cash at the end of the period (from **$3.0 million** to **$12.2 million**) was primarily driven by net cash provided by financing activities, including proceeds from preferred and common stock issuance[19](index=19&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [1. Interim Period Reporting](index=9&type=section&id=1.%20Interim%20Period%20Reporting) - Neonode develops optical touch and gesture control solutions for human interaction with devices and remote sensing solutions for driver and cabin monitoring in automotive and other applications[23](index=23&type=chunk) - The company incurred net losses attributable to Neonode Inc. of approximately **$1.6 million** for the three months and **$4.3 million** for the nine months ended September 30, 2020, and had an accumulated deficit of approximately **$194.8 million** as of September 30, 2020[25](index=25&type=chunk) - On August 7, 2020, Neonode completed a private placement, issuing common stock and convertible preferred stock for an aggregate purchase price of **$13.9 million** in gross proceeds, which are being used for working capital purposes[30](index=30&type=chunk)[32](index=32&type=chunk) - Management believes the company's cash position after the private placement, current operating plan, and sources of potential capital are sufficient to alleviate concerns about its ability to continue as a going concern[36](index=36&type=chunk) [2. Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) - The financial statements are prepared in accordance with U.S. GAAP and include Neonode Inc. and its majority-owned subsidiary, Pronode Technologies AB[39](index=39&type=chunk) - Revenue is recognized when control of products or services is transferred to customers, disaggregated into HMI Solutions (license fees, engineering) and HMI Products (sensor modules, engineering)[63](index=63&type=chunk)[65](index=65&type=chunk)[108](index=108&type=chunk) **Disaggregated Revenues by Market (Three months ended Sep 30, 2020):** | Market | Amount ($ thousands) | Percentage | | :----- | :------------------- | :--------- | | HMI Solutions (Automotive) | 538 | 44% | | HMI Solutions (Consumer Electronics) | 673 | 56% | | HMI Products (Medical) | 56 | 20% | | HMI Products (Distributors and other) | 228 | 80% | - The company has significant customer concentration, with four customers representing approximately **75% of consolidated accounts receivable and unbilled revenues** as of September 30, 2020[61](index=61&type=chunk) [3. Short-Term Borrowings](index=24&type=section&id=3.%20Short-Term%20Borrowings) - Neonode received a **$563 thousand** Swedish government COVID-19 tax credit, which was repaid in August 2020[109](index=109&type=chunk) - The company entered into short-term loan facilities totaling approximately **$1.7 million** with two directors, drawing down **$1.0 million**, which was subsequently repaid or settled by issuing Series C-2 Preferred Stock in August 2020[110](index=110&type=chunk)[112](index=112&type=chunk) [4. Stockholders' Equity](index=26&type=section&id=4.%20Stockholders'%20Equity) | Metric | Sep 30, 2020 ($ thousands) | Dec 31, 2019 ($ thousands) | | :----- | :------------------------- | :------------------------- | | Common stock | 11 | 9 | | Additional paid-in capital | 211,587 | 197,543 | | Accumulated other comprehensive loss | (890) | (639) | | Accumulated deficit | (194,813) | (190,520) | | Total Neonode Inc. stockholders' equity | 15,895 | 6,393 | - Total stockholders' equity increased significantly from **$3.8 million** at December 31, 2019, to **$12.9 million** at September 30, 2020, primarily due to the issuance of shares for cash and preferred stock conversions[11](index=11&type=chunk)[16](index=16&type=chunk) [5. Stock-Based Compensation](index=28&type=section&id=5.%20Stock-Based%20Compensation) - No stock-based compensation expense was recorded for the three and nine months ended September 30, 2020 and 2019[121](index=121&type=chunk) - As of September 30, 2020, the company had **10,500 stock options outstanding** with an aggregate intrinsic value of **$0**[125](index=125&type=chunk) [6. Commitments and Contingencies](index=29&type=section&id=6.%20Commitments%20and%20Contingencies) - Neonode is a defendant in a putative class action lawsuit in the Delaware Court of Chancery for alleged breach of fiduciary duty related to disclosures concerning a private placement, which management believes is without merit[128](index=128&type=chunk) - A separate class action lawsuit in the U.S. District Court with similar allegations was voluntarily dismissed by the plaintiff on October 20, 2020[129](index=129&type=chunk) - The company has a bank guarantee of **$210 thousand** for AirBar inventory at a manufacturing partner, which management expects to sell, thereby avoiding the need to record a liability[134](index=134&type=chunk)[135](index=135&type=chunk) - An Aequitas subsidiary, Neonode Smartphone LLC, filed patent infringement lawsuits against Apple Inc. and Samsung Electronics Co. Ltd. in U.S. federal court in September 2020[137](index=137&type=chunk) [7. Segment Information](index=31&type=section&id=7.%20Segment%20Information) **Net Revenues by Geographic Area (Three months ended Sep 30):** | Region | 2020 Amount ($ thousands) | 2020 Percentage | 2019 Amount ($ thousands) | 2019 Percentage | | :----- | :------------------------ | :---------------- | :------------------------ | :---------------- | | United States | 486 | 33% | 548 | 42% | | Japan | 395 | 26% | 498 | 38% | | South Korea | 240 | 16% | - | -% | | China | 154 | 10% | 49 | 4% | | Germany | 130 | 9% | 106 | 8% | | Switzerland | 54 | 4% | 52 | 4% | | Other | 36 | 2% | 57 | 3% | | **Total** | **1,495** | **100%** | **1,310** | **100%** | **Net Revenues by Geographic Area (Nine months ended Sep 30):** | Region | 2020 Amount ($ thousands) | 2020 Percentage | 2019 Amount ($ thousands) | 2019 Percentage | | :----- | :------------------------ | :---------------- | :------------------------ | :---------------- | | United States | 1,340 | 38% | 2,510 | 50% | | Japan | 1,229 | 35% | 1,515 | 30% | | Germany | 274 | 8% | 477 | 9% | | South Korea | 267 | 7% | - | -% | | China | 203 | 6% | 177 | 4% | | Switzerland | 161 | 4% | 109 | 2% | | France | - | -% | 152 | 3% | | Other | 72 | 2% | 61 | 1% | | **Total** | **3,547** | **100%** | **5,032** | **100%** | **Total Assets by Geographic Region:** | Region | Sep 30, 2020 ($ thousands) | Dec 31, 2019 ($ thousands) | | :----- | :------------------------- | :------------------------- | | U.S. | 6,602 | 2,898 | | Sweden | 9,914 | 4,430 | | Asia | 109 | 108 | | **Total** | **16,625** | **7,436** | [8. Leases](index=33&type=section&id=8.%20Leases) - The company has operating leases for corporate offices and a manufacturing facility, and finance leases for equipment, with remaining lease terms ranging from two months to 2.42 years[142](index=142&type=chunk) **Lease Costs (Three months ended Sep 30):** | Lease Type | 2020 ($ thousands) | 2019 ($ thousands) | | :--------- | :----------------- | :----------------- | | Operating lease cost | 139 | 145 | | Total finance lease cost | 167 | 161 | **Lease Liabilities (as of Sep 30, 2020):** | Metric | Sep 30, 2020 ($ thousands) | Dec 31, 2019 ($ thousands) | | :----- | :------------------------- | :------------------------- | | Total operating lease liabilities | 118 | 390 | | Total finance lease liabilities | 927 | 1,076 | [9. Net Loss per Share](index=36&type=section&id=9.%20Net%20Loss%20per%20Share) **Basic and Diluted Loss per Share (Three months ended Sep 30):** | Metric | 2020 | 2019 | | :----- | :--- | :--- | | Weighted average number of common shares outstanding (thousands) | 10,128 | 8,811 | | Net loss attributable to common shareholders of Neonode Inc. ($ thousands) | (1,671) | (1,086) | | Net loss per share - basic and diluted | (0.16) | (0.12) | **Basic and Diluted Loss per Share (Nine months ended Sep 30):** | Metric | 2020 | 2019 | | :----- | :--- | :--- | | Weighted average number of common shares outstanding (thousands) | 9,492 | 8,804 | | Net loss attributable to common shareholders of Neonode Inc. ($ thousands) | (4,293) | (2,923) | | Net loss per share - basic and diluted | (0.45) | (0.33) | - Potential common stock equivalents (stock options, warrants, and shares issuable upon conversion of preferred stock) were excluded from the diluted earnings per share calculation due to their anti-dilutive effect[153](index=153&type=chunk) [10. Subsequent Events](index=36&type=section&id=10.%20Subsequent%20Events) - No subsequent events requiring recognition or disclosure occurred through the filing date, other than the ongoing analysis of COVID-19's potential impacts on the company's operational and financial performance[155](index=155&type=chunk)[156](index=156&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Neonode's financial condition and results of operations, covering business overview, the impact of COVID-19, detailed financial performance analysis, off-balance sheet arrangements, contractual obligations, liquidity, and critical accounting policies for the periods ended September 30, 2020 [Overview](index=38&type=section&id=Overview) - Neonode provides advanced optical sensing solutions for human-machine interface (HMI) and remote sensing for driver and cabin monitoring, primarily operating in B2B markets[160](index=160&type=chunk)[161](index=161&type=chunk) - HMI Solutions involves licensing technology to OEMs and Tier 1 suppliers, with **36 valid agreements** and **15 customers** currently shipping products[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - HMI Products includes designing and manufacturing sensor modules for OEMs/ODMs/Tier 1 suppliers, and previously included the consumer product AirBar, for which no new branded products are planned[166](index=166&type=chunk)[170](index=170&type=chunk) - Remote Sensing Solutions is a newly formed business area focused on cost-effective driver and cabin monitoring systems, expecting revenues from technology licensing and engineering consulting services[171](index=171&type=chunk) [Impact of COVID-19](index=39&type=section&id=Impact%20of%20COVID-19) - The COVID-19 pandemic has adversely impacted the company's near-term growth, causing challenges in obtaining component deliveries and potential difficulties in product delivery to customers[172](index=172&type=chunk) - Neonode implemented cost-reduction measures, including a Swedish government-backed program of short-term layoffs, to mitigate the financial effects of the pandemic[172](index=172&type=chunk) - The pandemic has created an increased interest in the company's germ-free contactless touch technology[156](index=156&type=chunk)[172](index=172&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) [Net Revenues](index=42&type=section&id=Net%20Revenues) - Total net revenues increased by **14.1%** for the three months ended September 30, 2020, primarily due to significantly higher sensor module sales, but decreased by **29.5%** for the nine-month period due to lower license revenues within HMI Solutions[177](index=177&type=chunk) **Revenue Distribution by Business Area (Three months ended Sep 30):** | Business Area | 2020 Amount ($ thousands) | 2020 Percentage | 2019 Amount ($ thousands) | 2019 Percentage | | :------------ | :------------------------ | :---------------- | :------------------------ | :---------------- | | HMI Solutions | 1,211 | 81.0% | 1,214 | 92.7% | | HMI Products | 284 | 19.0% | 96 | 7.3% | | **Total** | **1,495** | **100%** | **1,310** | **100%** | **Revenue Distribution by Business Area (Nine months ended Sep 30):** | Business Area | 2020 Amount ($ thousands) | 2020 Percentage | 2019 Amount ($ thousands) | 2019 Percentage | | :------------ | :------------------------ | :---------------- | :------------------------ | :---------------- | | HMI Solutions | 3,071 | 86.6% | 4,625 | 91.9% | | HMI Products | 476 | 13.4% | 407 | 8.1% | | **Total** | **3,547** | **100%** | **5,032** | **100%** | [Gross Margin](index=43&type=section&id=Gross%20Margin) - The combined total gross margin decreased from **95% in 2019 to 87%** for the three months and **90%** for the nine months ended September 30, 2020, primarily due to higher costs relating to inventory write-offs in 2020[179](index=179&type=chunk) [Research and Development](index=43&type=section&id=Research%20and%20Development) **R&D Expenses:** | Period | 2020 ($ thousands) | 2019 ($ thousands) | YoY Change ($ thousands) | YoY Change (%) | | :----- | :----------------- | :----------------- | :----------------------- | :------------- | | Three months | 901 | 1,167 | (266) | (22.8)% | | Nine months | 2,939 | 3,878 | (939) | (24.2)% | - The decrease in R&D expenses was primarily related to lower staff expenses for the nine months ended September 30, 2020, and a large number of scrapped inventory during the three months ended September 30, 2019[182](index=182&type=chunk) [Sales and Marketing](index=43&type=section&id=Sales%20and%20Marketing) **Sales and Marketing Expenses:** | Period | 2020 ($ thousands) | 2019 ($ thousands) | YoY Change ($ thousands) | YoY Change (%) | | :----- | :----------------- | :----------------- | :----------------------- | :------------- | | Three months | 604 | 491 | 113 | 23.0% | | Nine months | 1,797 | 1,431 | 366 | 25.6% | - The increase in sales and marketing expenses was primarily due to higher staff expenses resulting from a reallocation of employees to the marketing function[183](index=183&type=chunk) [General and Administrative](index=43&type=section&id=General%20and%20Administrative) **G&A Expenses:** | Period | 2020 ($ thousands) | 2019 ($ thousands) | YoY Change ($ thousands) | YoY Change (%) | | :----- | :----------------- | :----------------- | :----------------------- | :------------- | | Three months | 1,535 | 777 | 758 | 97.6% | | Nine months | 3,034 | 2,658 | 376 | 14.1% | - The increase in G&A expenses was primarily due to costs relating to a lawsuit, as further described in Note 8 – Commitments and Contingencies – Litigation[185](index=185&type=chunk) [Income Taxes](index=43&type=section&id=Income%20Taxes) - The effective tax rate was **0%** for both the three and nine months ended September 30, 2020 and 2019, with valuation allowances recorded for deferred tax assets due to the uncertainty of realization[186](index=186&type=chunk) [Preferred Dividends](index=43&type=section&id=Preferred%20Dividends) - Preferred dividends of **$33 thousand** were accrued for the Series C-1 and C-2 Preferred Stock issued pursuant to the Securities Purchase Agreement on August 7, 2020[187](index=187&type=chunk) [Net Loss](index=43&type=section&id=Net%20Loss) **Net Loss attributable to common shareholders of Neonode Inc.:** | Period | 2020 ($ thousands) | 2019 ($ thousands) | YoY Change ($ thousands) | YoY Change (%) | | :----- | :----------------- | :----------------- | :----------------------- | :------------- | | Three months | (1,671) | (1,086) | (585) | 53.9% | | Nine months | (4,293) | (2,923) | (1,370) | 46.9% | [Off-Balance Sheet Arrangements](index=45&type=section&id=Off-Balance%20Sheet%20Arrangements) - The company has a bank guarantee of **$210 thousand** for AirBar packaging material held at a manufacturing partner[190](index=190&type=chunk) - Neonode does not have any other significant off-balance sheet arrangements that are reasonably likely to affect its liquidity or capital resources[190](index=190&type=chunk) [Contractual Obligations and Commercial Commitments](index=45&type=section&id=Contractual%20Obligations%20and%20Commercial%20Commitments) [Non-Recurring Engineering Development Costs](index=45&type=section&id=Non-Recurring%20Engineering%20Development%20Costs) - Neonode has an agreement with Texas Instruments to pay **$500 thousand** in non-recurring engineering costs at a rate of **$0.25 per ASIC** for the first **2 million ASICs** sold, with no payments made as of September 30, 2020[191](index=191&type=chunk) [Operating Leases](index=45&type=section&id=Operating%20Leases) - The company has various operating lease agreements for office and workshop spaces in Sweden, South Korea, Taiwan, Japan, and the U.S., with varying terms and renewal options[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) - A new lease for **621 square meters** of office space in Stockholm, Sweden, is effective December 1, 2020, valid through November 2022, with yearly extension options[196](index=196&type=chunk) [Finance Leases](index=46&type=section&id=Finance%20Leases) - Neonode has several finance lease agreements for specialized milling and component production equipment, with obligations to purchase the equipment at the end of the lease terms[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - The implicit interest rates for these finance leases range from approximately **1.5% to 4% per annum**[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) **Liquidity Metrics:** | Metric | Sep 30, 2020 ($ millions) | Dec 31, 2019 ($ millions) | | :----- | :------------------------ | :------------------------ | | Cash | 12.2 | 2.4 | | Working Capital | 12.0 | 2.4 | - Net cash used in operating activities was **$3.7 million** for the nine months ended September 30, 2020, primarily due to a net loss of **$4.6 million**[204](index=204&type=chunk) - Net cash provided by financing activities was **$13.7 million** for the nine months ended September 30, 2020, mainly from proceeds of preferred and common stock issuance (**$13.5 million**) and short-term borrowings (**$1.0 million**)[209](index=209&type=chunk) - The company has incurred significant operating losses and negative cash flows from operations since inception, with an accumulated deficit of **$194.8 million** as of September 30, 2020[210](index=210&type=chunk) - A private placement in August 2020 generated **$13.9 million** in gross proceeds, used for working capital, and involved the conversion of preferred shares into **684,378 shares of common stock**[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) - Management believes current cash and operating plans are sufficient, but future capital may be required, potentially through equity investments or debt arrangements, which could dilute existing shareholders[220](index=220&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) [Critical Accounting Policies](index=50&type=section&id=Critical%20Accounting%20Policies) - Significant judgment is required for revenue recognition, particularly in determining distinct performance obligations for contracts with multiple products and services, and in estimating product returns and credits[224](index=224&type=chunk)[225](index=225&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=50&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company for the reporting period - This section is marked as 'Not applicable' for the current report[227](index=227&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Evaluation of disclosure controls and procedures](index=50&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) - Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[228](index=228&type=chunk) [Changes in internal control over financial reporting](index=50&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) - There were no changes in internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[230](index=230&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=52&type=section&id=Item%201%20Legal%20Proceedings) This section refers to the detailed description of legal proceedings provided in the notes to the financial statements and confirms no other material legal proceedings are currently ongoing - For a description of legal proceedings, the company refers to Note 8 – Commitments and Contingencies – Litigation in the Notes to Unaudited Condensed Consolidated Financial Statements[232](index=232&type=chunk) - The company is not currently involved in any other material legal proceedings[232](index=232&type=chunk) [Item 1A. Risk Factors](index=52&type=section&id=Item%201A%20Risk%20Factors) This section updates the risk factors, highlighting new and heightened risks related to the COVID-19 pandemic and ongoing litigation - The company faces heightened risks related to the impact of the COVID-19 pandemic, affecting its workforce, operations, customers, vendors, suppliers, and partners[234](index=234&type=chunk)[235](index=235&type=chunk) - Neonode and its directors are defendants in a purported class action lawsuit in the Delaware Court of Chancery concerning disclosures related to a private placement, with potential for additional lawsuits[236](index=236&type=chunk) [Item 6. Exhibits](index=53&type=section&id=Item%206%20Exhibits) This section provides a comprehensive list of all exhibits filed as part of this Form 10-Q, including corporate governance documents, agreements, and certifications - The section lists various exhibits filed with the Form 10-Q, including the Restated Certificate of Incorporation, Loan Agreements, Securities Purchase Agreement, Registration Rights Agreement, and certifications[238](index=238&type=chunk) [SIGNATURES](index=54&type=section&id=SIGNATURES) This section contains the official signature certifying the accuracy and completeness of the report on behalf of the registrant - The report is signed by Maria Ek, Chief Financial Officer, Vice President, Finance, Treasurer and Secretary, on behalf of Neonode Inc. on November 10, 2020[241](index=241&type=chunk)

Neonode, Inc (NASDAQ:NEON) Q2 2020 Results Conference Call August 14, 2020 10:00 AM ET Company Participants David Brunton - Head of Corporate Investor Relations Urban Forssell - Chief Executive Officer Maria Ek - Chief Financial Officer Operator Hello, everyone. Thank you for standing by, and welcome to Neonode???s Second Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers??? remarks there will be a question-and-answer session with th ...

Business Overview - Neonode's contactless touch technology is deployed in over 75 million products[14] - The company has secured more than 120 patents and patents pending worldwide[14] - The legacy licensing business generates $5-7 million in annual revenue[21] - As of December 31, 2019, Neonode has entered into 42 zForce® technology license agreements with global OEMs, ODMs, and Tier 1 suppliers[34] Market Opportunities - The global kiosk market was valued at $14.8 billion in 2018 and is projected to reach $32.5 billion in 2027[25] - The self-checkout kiosk market in the Americas is growing at a 10.9% CAGR, expected to reach $7.1 billion by 2024[25] - The ATM market is valued at over $20 billion today and is expected to reach $30 billion by 2027[28] - The global elevator market is expected to grow from $93.8 billion in 2018 to $135.5 billion in 2026, representing a 4.5% CAGR[30] Financial Performance - Q2 2020 revenues were $0.7 million, compared to $1.7 million in Q2 2019, a decrease of 55.7%[51] - Q2 2020 operating expenses were $2.4 million, compared to $3.0 million in Q2 2019, a decrease of 19%[51] - The company completed a private placement on August 7, 2020, receiving net cash proceeds of $13.1 million[42]

PART I FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the period ended June 30, 2020, detailing balance sheets, operations, and cash flows, revealing significant revenue decline, wider net loss, and decreased cash and equity, with notes on liquidity and a crucial August 2020 private placement [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of June 30, 2020, shows total assets decreased to **$5.6 million** from **$7.4 million**, total liabilities increased to **$4.6 million** from **$3.6 million**, and total stockholders' equity declined sharply from **$3.8 million** to **$0.9 million** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (Unaudited) | December 31, 2019 (Audited) | | :--- | :--- | :--- | | **Total Current Assets** | $4,150 | $5,434 | | **Total Assets** | **$5,588** | **$7,436** | | **Total Current Liabilities** | $4,229 | $3,023 | | **Total Liabilities** | **$4,642** | **$3,589** | | **Total Stockholders' Equity** | **$946** | **$3,847** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q2 2020, total revenues fell **55.7%** year-over-year to **$0.76 million**, operating loss widened to **$1.76 million**, and net loss increased to **$1.61 million**, or **($0.18)** per share Q2 2020 vs Q2 2019 Statement of Operations (in thousands, except per share amounts) | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Total Revenues | $758 | $1,710 | | Gross Margin | $635 | $1,639 | | Operating Loss | $(1,756) | $(1,314) | | Net Loss attributable to Neonode Inc. | $(1,612) | $(1,264) | | Basic and Diluted Loss per Share | $(0.18) | $(0.14) | H1 2020 vs H1 2019 Statement of Operations (in thousands, except per share amounts) | Metric | H1 2020 | H1 2019 | | :--- | :--- | :--- | | Total Revenues | $2,052 | $3,722 | | Gross Margin | $1,885 | $3,550 | | Operating Loss | $(2,845) | $(1,982) | | Net Loss attributable to Neonode Inc. | $(2,622) | $(1,837) | | Basic and Diluted Loss per Share | $(0.29) | $(0.21) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For H1 2020, net cash used in operating activities increased to **$1.9 million**, financing activities provided **$1.3 million**, resulting in a net cash decrease of **$0.6 million** and an ending cash balance of **$1.8 million** Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,928) | $(1,475) | | Net cash used in investing activities | $(7) | $(77) | | Net cash provided by (used in) financing activities | $1,344 | $(272) | | **Net decrease in cash** | **$(584)** | **$(1,917)** | | **Cash at end of period** | **$1,773** | **$4,638** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's operational focus, significant liquidity challenges, a crucial **$13.9 million** private placement in August 2020, revenue concentration from key customers, and patent infringement lawsuits against Apple and Samsung - The company has incurred significant operating losses and negative cash flows since inception, with a net loss of **$2.6 million** for the first six months of 2020[27](index=27&type=chunk) - In August 2020, the company completed a private placement, issuing common and preferred stock for an aggregate of **$13.9 million** in gross proceeds to be used for working capital, crucial for alleviating going concern risks[29](index=29&type=chunk)[31](index=31&type=chunk)[34](index=34&type=chunk) - As of June 30, 2020, four customers represented approximately **79%** of consolidated accounts receivable, with Q2 2020 major revenue contributors being Epson (**35%**), Hewlett Packard (**27%**), and Alpine (**12%**)[64](index=64&type=chunk)[67](index=67&type=chunk) - In June 2020, a subsidiary of Aequitas Technologies LLC, to which Neonode had assigned patents, filed patent infringement lawsuits against Apple Inc. and Samsung Electronics Co. Ltd.[137](index=137&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant negative impact of the COVID-19 pandemic, leading to a **44.9%** decrease in H1 2020 revenues, a wider operating loss, and highlights the critical **$13.9 million** private placement in August 2020 for future operations [Business Overview](index=34&type=section&id=Business%20Overview) The company provides optical sensing solutions for HMI and remote sensing, operating in B2B markets with three main business areas, and as of June 30, 2020, had **36** technology license agreements with **15** actively shipping customers - The company's business is divided into three main areas: HMI Solutions, HMI Products, and Remote Sensing Solutions[161](index=161&type=chunk)[165](index=165&type=chunk)[170](index=170&type=chunk) - As of June 30, 2020, Neonode had **36** valid technology license agreements, with **15** customers shipping products incorporating its technology, and customer product development cycles typically range from **6 to 36 months**[162](index=162&type=chunk)[163](index=163&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Total net revenues for Q2 2020 decreased **55.7%** to **$0.8 million** and for H1 2020 decreased **44.9%** to **$2.1 million**, primarily due to lower HMI Solutions license revenues, resulting in a wider operating loss despite reduced expenses Financial Performance Summary (Q2 2020 vs Q2 2019) | Metric | Q2 2020 | Q2 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $758k | $1,710k | (55.7)% | | Gross Margin | $635k | $1,639k | (61.3)% | | Operating Loss | $(1,756k) | $(1,314k) | 33.6% | | Net Loss (to Neonode Inc.) | $(1,612k) | $(1,264k) | 27.5% | - The significant decrease in total net revenues was primarily related to lower license revenues within the HMI Solutions business area and lower estimates for unbilled license fees due to global economic uncertainty[176](index=176&type=chunk) - Operating expenses decreased due to lower R&D and G&A costs, partially offset by an increase in Sales and Marketing expenses[180](index=180&type=chunk)[182](index=182&type=chunk)[184](index=184&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company, with a history of losses and negative cash flows, had **$1.8 million** cash at June 30, 2020, and addressed liquidity needs through short-term loans and a critical **$13.9 million** private placement in August 2020 for working capital - As of June 30, 2020, the company had cash of **$1.8 million**, down from **$2.4 million** at December 31, 2019, with working capital at negative **$(0.1) million**[200](index=200&type=chunk) - In August 2020, the company raised **$13.9 million** in gross proceeds (**$13.1 million** net) through a private placement of common and preferred stock to fund working capital[209](index=209&type=chunk)[211](index=211&type=chunk)[214](index=214&type=chunk) - The company also issued preferred shares to repay approximately **$1.03 million** of outstanding debt owed to company directors under loan agreements established in June 2020[208](index=208&type=chunk)[213](index=213&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company states that this section is not applicable for the current reporting period - The company has determined that quantitative and qualitative disclosures about market risk are not applicable for this reporting period[226](index=226&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 30, 2020, management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period[227](index=227&type=chunk) - No changes occurred in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[229](index=229&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not currently involved in any material legal proceedings - As of the filing date, the company is not a party to any material legal proceedings[231](index=231&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) The company highlights that risks disclosed in its Annual Report on Form 10-K are heightened by the COVID-19 pandemic, posing significant threats to its workforce, operations, customers, suppliers, and the broader economy - The company faces heightened risks related to the COVID-19 pandemic, which could adversely affect its business, results of operations, and financial condition through impacts on its operations, customers, and the global economy[233](index=233&type=chunk) [Item 6. Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including key agreements related to the August 2020 private placement, June 2020 loan agreements, and standard officer certifications - The filing includes key agreements as exhibits, such as the Securities Purchase Agreement and Registration Rights Agreement from August 2020, and Loan Agreements from June 2020[235](index=235&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2020 ☐ Transition report pursuant to section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from _______ to ________ Commission file number 1-35526 NEONODE INC. (Exact name of registrant as specified in its charter) Delaware 94-1517641 (State or other jurisdiction ...

[Special Note on Forward-Looking Statements](index=4&type=section&id=SPECIAL%20NOTE%20ON%20FORWARD-LOOKING%20STATEMENTS) This report contains forward-looking statements subject to inherent risks and uncertainties that may affect future plans, business strategy, results of operations, and financial position - This report contains forward-looking statements subject to inherent risks and uncertainties that may affect future plans, business strategy, results of operations, and financial position[15](index=15&type=chunk) - Key factors that could cause actual results to differ materially include a history of losses, dependence on limited customers, reliance on customer product development, supply chain issues, difficulty verifying royalties, limited manufacturing experience, competition, dependence on key management, intellectual property defense costs, capital needs, and stock listing status[15](index=15&type=chunk) - The company does not undertake responsibility to update or revise any forward-looking statements[15](index=15&type=chunk) [PART I](index=5&type=section&id=PART%20I) This section details the company's business operations, risk factors, properties, and legal proceedings [Item 1. Business](index=5&type=section&id=ITEM%201.%20BUSINESS) Neonode Inc. develops optical touch and gesture control solutions (zForce) and remote sensing for human-machine interface (HMI), primarily licensing its technology to Original Equipment Manufacturers (OEMs) and Tier 1 suppliers. The company also designs and manufactures zForce AIR sensor modules and sells the AirBar consumer product, aiming to expand into new markets and develop next-generation products [Our Company](index=5&type=section&id=Our%20Company) Neonode Inc. was incorporated in Delaware in 1997, with its principal executive office in Stockholm, Sweden, and several wholly-owned subsidiaries - Neonode Inc. was incorporated in Delaware on September 4, 1997, with its principal executive office in Stockholm, Sweden, and a U.S. office in San Jose, California[23](index=23&type=chunk) - The company has established several wholly-owned subsidiaries and a majority-owned consolidated subsidiary (Pronode Technologies AB) and entered into a joint venture (Neoeye AB) since 2008[24](index=24&type=chunk)[252](index=252&type=chunk) [Strategy and Focus Areas](index=5&type=section&id=Strategy%20and%20Focus%20Areas) Neonode's strategy is to deliver value-adding HMI and remote sensing solutions and products, offering specialized engineering services for integration into customer systems - Neonode's strategy is to deliver value-adding HMI and remote sensing solutions and products, offering specialized engineering services for integration into customer systems[25](index=25&type=chunk) - The company aims to remain a leader in optical touch and gesture control, pursuing opportunities in both licensing and product sales, expanding to new markets, and developing next-generation products with better price, performance, and architectural advantages[26](index=26&type=chunk) [Business Model](index=6&type=section&id=Business%20Model) Neonode's business model primarily involves licensing its zForce technology and selling zForce AIR sensor modules, with engineering services offered for integration [Licensing](index=6&type=section&id=Licensing) The company licenses its technology to OEMs and Tier 1 suppliers, earning per-unit royalties and offering engineering consulting services - As of December 31, 2019, Neonode had **42** technology license agreements with global OEMs, ODMs, and Tier 1 suppliers, with **16** customers actively shipping products embedding their technology[28](index=28&type=chunk)[29](index=29&type=chunk)[118](index=118&type=chunk) - The company earns royalties on a per-unit basis when customers ship products using its technology, typically after a product development and release cycle of **6** to **36** months[29](index=29&type=chunk) - Licensing customers must use Neonode's Application Specific Integrated Circuit (ASIC) controllers, developed with and sold by Texas Instruments and ST Microelectronics[30](index=30&type=chunk) - Engineering consulting services are offered to licensing customers on a flat or hourly rate basis, primarily during the development and initial manufacturing phases[31](index=31&type=chunk) [Product Sales](index=6&type=section&id=Product%20Sales) Neonode designs and manufactures zForce AIR sensor modules for various markets and sells the AirBar consumer product through distributors - Neonode designs and manufactures zForce AIR sensor modules for OEMs, ODMs, and Tier 1 suppliers in medical, automotive, and aeronautic markets[32](index=32&type=chunk)[34](index=34&type=chunk) - The company also sells its Neonode branded AirBar product, a plug-and-play accessory for notebook computers, through distributors[33](index=33&type=chunk) - Over time, Neonode expects a significant portion of its revenues to be derived from sales of sensor modules[34](index=34&type=chunk)[120](index=120&type=chunk) [Markets](index=6&type=section&id=Markets) Neonode's solutions are applied in automotive, printers, office equipment, medical technology, industrial control systems, and avionics markets - In the automotive market, Neonode's solutions address HMI and remote sensing needs, acting as a Tier 2 component supplier with license agreements with several Tier 1 suppliers[35](index=35&type=chunk)[36](index=36&type=chunk) - Customer product shipments in the automotive segment decreased from approximately **1.1 million** in 2018 to **0.9 million** in 2019[37](index=37&type=chunk) - In the printers and office equipment market, Neonode has operational license agreements with three leading global OEMs, with customers shipping approximately **5 million** printers in 2019 and **37 million** cumulatively since mid-2014[38](index=38&type=chunk) - Other markets served include medical technology, industrial control systems, and avionics, with ongoing development projects and increasing demand for remote sensing solutions[39](index=39&type=chunk)[40](index=40&type=chunk) [Product Backlog](index=8&type=section&id=Product%20Backlog) The zForce AIR sensor module product backlog was approximately **$56,000** as of February 26, 2020, for orders expected within 60 days - The zForce AIR sensor module product backlog was approximately **$56,000** as of February 26, 2020, for orders confirmed to be shipped within **60** days to two customers[41](index=41&type=chunk) - The company does not believe its product backlog is necessarily indicative of actual product revenue for any future period due to short cycle times and potential order cancellations[41](index=41&type=chunk) [Distribution, Sales and Marketing](index=8&type=section&id=Distribution%2C%20Sales%20and%20Marketing) Neonode manages sales and marketing from Stockholm, Sweden, with offices globally, serving OEMs, ODMs, and Tier 1 suppliers through licensing and sensor module sales - For licensing, OEMs, ODMs, and Tier 1 suppliers are primary customers, with technology licensing agreements typically having an initial term of three years and automatic one-year renewals[42](index=42&type=chunk) - Engineering services (NRE) are sold during the development and launch phases of customer products[42](index=42&type=chunk) - For sensor module sales, OEMs, ODMs, and Tier 1 suppliers are primary customers, with modules manufactured by the majority-owned subsidiary Pronode in Sweden[44](index=44&type=chunk) - Sales and marketing operations are managed from Stockholm, Sweden, with sales offices in the United States, Sweden, South Korea, Japan, and Taiwan, and products also sold through external sales representatives, partners, and distributors[45](index=45&type=chunk) [Customers](index=8&type=section&id=Customers) Neonode has **42** technology license agreements with **16** active shipping customers, but faces high customer concentration with three customers representing **72%** of receivables - As of December 31, 2019, Neonode had **42** technology license agreements (up from **41** in 2018), with **16** customers currently shipping products such as e-readers, tablets, printers, automotive consoles, and GPS devices[47](index=47&type=chunk)[118](index=118&type=chunk)[181](index=181&type=chunk) - Customer concentration is high, with three customers representing approximately **72%** of consolidated accounts receivable and unbilled revenues as of December 31, 2019 (compared to four customers representing **67%** in 2018)[48](index=48&type=chunk)[285](index=285&type=chunk) Major Revenue Contributors (10% or more of revenues) | Customer | 2019 Revenue % | 2018 Revenue % | | :--------------------- | :------------- | :------------- | | Hewlett-Packard Company | 38% | 35% | | Epson | 14% | 16% | | Alpine | - | 15% | | Canon | 12% | - | [Revenues by Market and Geography](index=10&type=section&id=Revenues%20by%20Market%20and%20Geography) Revenue distribution by market shows consumer electronics as the largest segment, while geographically, the U.S. and Japan are primary contributors Revenues by Market (as % of total revenues) | Market | 2019 | 2018 | | :----------------- | :--- | :--- | | Automotive | 28% | 19% | | Consumer electronics | 62% | 74% | | Sensor modules | 8% | 3% | | NRE | 2% | 4% | | **Total** | **100%** | **100%** | Revenues by Geographic Region (as % of total revenues) | Region | 2019 | 2018 | | :------- | :--- | :--- | | U.S. | 48% | 50% | | Japan | 32% | 34% | | China | 5% | 3% | | Germany | 9% | 9% | | Other | 6% | 4% | | **Total**| **100%** | **100%** | Total Assets by Geographic Region (in thousands) | Region | 2019 | 2018 | | :-------- | :------ | :------- | | U.S. | $2,898 | $2,828 | | Sweden | $4,430 | $10,308 | | Asia | $108 | $106 | | **Total** | **$7,436** | **$13,242** | [Competition](index=10&type=section&id=Competition) Neonode faces competition from various touch and gesture control technologies, including resistive, capacitive, other optical, ultrasonic, and radar solutions - Neonode faces competition from various touch and gesture control technologies, including resistive, capacitive, other optical, ultrasonic, and radar solutions[55](index=55&type=chunk) - Projective capacitive technology is a prevalent standard in mobile phones and tablets, posing significant competition, requiring continuous technology development and improvement to maintain market share[55](index=55&type=chunk) [Intellectual Property](index=11&type=section&id=Intellectual%20Property) Neonode protects its technology through patents, copyrights, trademarks, and trade secrets, and assigned a patent portfolio to Aequitas Technologies LLC for monetization - Neonode relies on patents, copyrights, trademarks, and trade secrets to protect its proprietary technology, covering user interfaces, optics, controller integrated circuits, drivers, and applications[57](index=57&type=chunk)[58](index=58&type=chunk) Patent Portfolio (as of December 31, 2019) | Jurisdiction | No. of Issued Patents | No. of Patents Pending | | :---------------------- | :-------------------- | :--------------------- | | United States | 59 | 9 | | Europe | 11 | 5 | | Japan | 11 | 0 | | China | 8 | 0 | | South Korea | 12 | 0 | | Canada | 2 | 0 | | Australia | 1 | 0 | | Singapore | 2 | 0 | | Patent Convention Treaty | Not Applicable | 2 | | **Total:** | **106** | **16** | - On May 6, 2019, Neonode assigned a patent portfolio to Aequitas Technologies LLC for monetization, retaining a non-exclusive, royalty-free, perpetual license and the right to receive **50%** of net proceeds[60](index=60&type=chunk)[376](index=376&type=chunk) - The company protects its brand by registering trademarks globally, including Neonode, zForce, AirBar, and others[62](index=62&type=chunk) [Research and Development](index=12&type=section&id=Research%20and%20Development) Research and development expenses were **$5.2 million** in 2019, primarily focused on in-house technology and software platform development Research and Development Expenses (in millions) | Year | R&D Expenses | | :--- | :----------- | | 2019 | $5.2 | | 2018 | $5.3 | - Research and development activities are predominantly in-house but may also involve collaboration with external partners and specialists[63](index=63&type=chunk) [Employees](index=12&type=section&id=Employees) As of December 31, 2019, Neonode had **46** employees and **14** consultants across engineering, administration, sales, marketing, and production - As of December 31, 2019, Neonode had **46** employees and **14** full-time consultants, with **27** in engineering, **9** in general and administrative, **6** in sales and marketing, and **4** in production[64](index=64&type=chunk) - Employees and consultants are located in the United States, Sweden, Japan, South Korea, and Taiwan[64](index=64&type=chunk) [Additional Information](index=12&type=section&id=Additional%20Information) Neonode is subject to SEC informational requirements, with reports available on the SEC's and company's websites - Neonode is subject to SEC informational requirements and files reports (e.g., 10-K, 10-Q, 8-K) which are available on the SEC's website (www.sec.gov) and the company's website (www.neonode.com)[65](index=65&type=chunk)[66](index=66&type=chunk) [Item 1A. Risk Factors](index=13&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section outlines significant risks that could materially harm Neonode's business, financial condition, results of operations, or cash flows. These risks include a history of losses, high customer concentration, reliance on third-party product development and component suppliers, challenges in manufacturing and new technology introduction, operational fluctuations, dependence on key personnel, intellectual property enforcement issues, foreign currency exposure, cybersecurity threats, and various stock-related risks such as price volatility and potential delisting [Risks Related to Our Business](index=13&type=section&id=Risks%20Related%20to%20Our%20Business) Neonode faces risks including a history of losses, high customer concentration, reliance on third-party product development and suppliers, and dependence on key personnel - Neonode has a history of substantial net losses since inception and may require additional capital, which might not be available on commercially attractive terms or at all[68](index=68&type=chunk) - The company is highly dependent on a limited number of customers; in 2019, three customers represented approximately **72%** of consolidated net revenues, and the loss or reduction in business from a major customer could have a material adverse effect[69](index=69&type=chunk) - Revenues rely on customers' ability to design, manufacture, and sell products incorporating Neonode's touch technology, and lengthy, unpredictable product development cycles (**18** to **60** months) can cause revenue fluctuations[70](index=70&type=chunk)[71](index=71&type=chunk) - Reliance on component suppliers (e.g., Texas Instruments, ST Microelectronics) for ASICs and microcontrollers, with potential disruptions from global events like COVID-19, could adversely affect manufacturing and sales[72](index=72&type=chunk) - Limited experience in manufacturing hardware products and the need to continuously develop and introduce new, cost-effective touch technology are significant risks to competitiveness and revenue generation[74](index=74&type=chunk)[76](index=76&type=chunk) - Operating results may fluctuate significantly due to factors such as competitor actions, infrastructure upgrades, key personnel retention, technical difficulties, economic conditions (including COVID-19), and strategic pricing decisions[79](index=79&type=chunk)[80](index=80&type=chunk) - The company is dependent on key personnel, including its CEO and CFO, and the unplanned loss of any management member could have a materially adverse effect[83](index=83&type=chunk) [Risks Related to Our Intellectual Property](index=18&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) The company's growth depends on intellectual property licensing, with risks in protection, enforcement, and the success of patent monetization efforts - Neonode's revenues and growth depend on licensing fees from its intellectual property, and failure to protect or enforce these rights successfully could harm its competitive position and results of operations[84](index=84&type=chunk) - Strategic efforts around patent monetization, including the assignment of a portfolio to Aequitas Technologies LLC, may not be successful and could negatively impact financial condition[85](index=85&type=chunk) - Enforcing intellectual property rights against infringement can be expensive and time-consuming, with no assurance of success, and foreign countries may not provide the same level of protection as the United States[86](index=86&type=chunk)[87](index=87&type=chunk) [Risks Related to Our International Presence and IT Infrastructure](index=18&type=section&id=Risks%20Related%20to%20Our%20International%20Presence%20and%20IT%20Infrastructure) International operations expose Neonode to currency risks, while cybersecurity threats and internal control weaknesses pose operational and financial reporting risks - Neonode's international presence exposes it to currency risks, primarily the Swedish Krona relative to the U.S. dollar, which could adversely affect operating results[88](index=88&type=chunk) - Security breaches and other disruptions to information technology infrastructure, including those managed by third parties, could interfere with operations, compromise confidential information, and expose the company to liability[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) - Failure to detect material weaknesses in internal control over financial reporting could adversely affect financial reporting and public confidence[92](index=92&type=chunk) [Risks Related to Owning Our Stock](index=20&type=section&id=Risks%20Related%20to%20Owning%20Our%20Stock) Stock ownership risks include potential dilution from future sales, price volatility, and impacts from delisting or a limited number of controlling stockholders - Future sales of common stock, including through capital-raising activities, could adversely affect its price and dilute existing stockholders' investments[93](index=93&type=chunk) - The company is eligible to terminate its U.S. public company registration due to having fewer than **300** stockholders of record, which would reduce disclosure requirements[94](index=94&type=chunk) - Delisting from the Nasdaq Stock Market or a potential listing on Nasdaq Stockholm could adversely affect liquidity, trading prices, and the ability to raise capital[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) - The company's stock price has been volatile due to various factors, including operating results, competitor actions, new technologies, economic conditions, and analyst recommendations[98](index=98&type=chunk)[102](index=102&type=chunk) - A limited number of stockholders, including directors, hold a significant portion of outstanding common stock, which could impact stockholder votes and delay or prevent a change in control[100](index=100&type=chunk)[101](index=101&type=chunk) [Item 1B. Unresolved Staff Comments](index=24&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments [Item 2. Properties](index=24&type=section&id=ITEM%202.%20PROPERTIES) As of December 31, 2019, Neonode leased approximately 7,000 square feet for its corporate headquarters in Stockholm, Sweden, and additional office facilities in the United States, Japan, South Korea, and Taiwan. Its majority-owned subsidiary, Pronode Technologies AB, leased a 9,000 square foot workshop in Kungsbacka, Sweden. The company believes its current facilities are adequate for its needs - Leased approximately **7,000** square feet for corporate headquarters in Stockholm, Sweden, and additional office facilities in the United States, Japan, South Korea, and Taiwan[105](index=105&type=chunk) - Majority subsidiary Pronode Technologies AB leased a workshop of approximately **9,000** square feet in Kungsbacka, Sweden[105](index=105&type=chunk) - The company believes its facilities are adequate and suitable for current needs[106](index=106&type=chunk) [Item 3. Legal Proceedings](index=24&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) Neonode is not currently involved in any material legal proceedings, although it may become subject to claims and litigation in the ordinary course of business - The company is not currently involved in any material legal proceedings[107](index=107&type=chunk) - From time to time, Neonode may become subject to legal proceedings, claims, and litigation arising in the ordinary course of business[107](index=107&type=chunk) [Item 4. Mine Safety Disclosures](index=24&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to Neonode Inc [PART II](index=25&type=section&id=PART%20II) This section covers the market for Neonode's common equity, selected financial data, management's discussion and analysis, and financial statements [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=25&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Neonode's common stock is quoted on the Nasdaq Stock Market under the symbol NEON. As of March 2, 2020, there were approximately 150 stockholders of record. The Board of Directors intends to retain all earnings for business use and does not anticipate paying cash dividends in the foreseeable future - Neonode's common stock is quoted on the Nasdaq Stock Market under the symbol NEON[111](index=111&type=chunk) - As of March 2, 2020, there were approximately **150** stockholders of record of the common stock[112](index=112&type=chunk) - The Board of Directors intends to retain all earnings for use in the business and does not anticipate paying cash dividends in the foreseeable future[113](index=113&type=chunk) [Item 6. Selected Financial Data](index=25&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This item is marked as 'Not Applicable' in the report [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides an overview of Neonode's business, critical accounting policies, and a detailed analysis of its financial performance for 2019 and 2018. The company experienced a total revenue decrease of **22.2%** in 2019, primarily due to a decline in license fees and non-recurring engineering (NRE) fees, partially offset by a significant increase in sensor module sales. Neonode reported a net loss of **$5.3 million** in 2019, an increase of **73.1%** from 2018, driven by operating expenses that outpaced revenue. The company's liquidity decreased, and it continues to operate on a going concern basis, potentially requiring additional capital [Overview](index=26&type=section&id=Overview) Neonode develops user interface and optical interactive touch and gesture solutions, licensing its technology and manufacturing sensor modules, with plans to expand product offerings - Neonode develops user interface and optical interactive touch and gesture solutions, licensing its technology to OEMs and Tier 1 suppliers, who have sold approximately **73 million** devices using the technology since 2010[116](index=116&type=chunk)[117](index=117&type=chunk)[177](index=177&type=chunk) - In October 2017, Neonode augmented its licensing business by manufacturing and shipping sensor modules, and it plans to expand these offerings in 2020, expecting sensor module sales to eventually constitute the majority of its revenue[117](index=117&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) - As of December 31, 2019, the company had **42** technology license agreements (up from **41** in 2018), with **16** customers actively shipping products using its touch technology[118](index=118&type=chunk)[181](index=181&type=chunk) - The company started selling AirBar, a Neonode branded consumer product, in Q4 2016 but has no current plans to develop new Neonode branded products for consumer markets[121](index=121&type=chunk) [Critical Accounting Policies and Estimates](index=27&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section details Neonode's critical accounting policies and estimates, including revenue recognition, inventory valuation, and the adoption of new accounting pronouncements [Estimates](index=27&type=section&id=Estimates) Financial statement preparation requires significant estimates and judgments for revenue recognition, asset recoverability, leases, and stock-based compensation - The preparation of financial statements in conformity with U.S. GAAP requires making significant estimates and judgments that affect reported amounts of assets, liabilities, revenue, and expenses[126](index=126&type=chunk)[127](index=127&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk) - Key estimates include revenue recognition (performance obligations, standalone selling price, transaction prices, transfer of control), variable consideration, uncollectible receivables, inventory net realizable value, asset recoverability, leases, deferred tax assets valuation allowance, and fair value of stock-based compensation[127](index=127&type=chunk)[267](index=267&type=chunk) [Revenue Recognition](index=27&type=section&id=Revenue%20Recognition) Revenue is recognized upon transfer of control or service completion, with specific policies for licensing, engineering services, and sensor module sales - Revenue is recognized when control of products is transferred to customers or when services are completed and accepted, reflecting the consideration expected for those products or services[128](index=128&type=chunk)[290](index=290&type=chunk) - Licensing revenues are recognized when the intellectual property license is made available and the customer has the right to use it, with unbilled license fees estimated based on prior royalty data[132](index=132&type=chunk)[133](index=133&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk) - Engineering services revenues are recognized as work is performed and accepted by customers, typically on an hourly rate basis, with upfront payments recorded as unearned revenue[135](index=135&type=chunk)[137](index=137&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk) - Sensor module revenues are recognized when distributors obtain control over products, or at point-of-sale for direct sales, with allowances for returns and cooperative marketing programs based on historical experience[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk) [Accounts Receivable and Allowance for Doubtful Accounts](index=29&type=section&id=Accounts%20Receivable%20and%20Allowance%20for%20Doubtful%20Accounts) Accounts receivable are stated at net realizable value, with allowances for estimated losses based on customer financial history and collection experience - Accounts receivable are stated at net realizable value, with allowances maintained for estimated losses from customers' inability to make payments, based on financial history, past due status, and historical collection experience[145](index=145&type=chunk)[271](index=271&type=chunk) Allowance for Doubtful Accounts (in thousands) | Year | Allowance for Doubtful Accounts | | :--- | :------------------------------ | | 2019 | $85 | | 2018 | $149 | [Inventory](index=30&type=section&id=Inventory) Inventory is valued at the lower of cost or net realizable value using FIFO, with write-downs for advance payments and slow-moving components - Inventory is stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method[147](index=147&type=chunk)[273](index=273&type=chunk) - In 2019, the company wrote down **$0.3 million** for advance payments for module components and reserved **100%** of slow-moving AirBar components; in 2018, a **$0.4 million** write-down was recorded for obsolete or slow-moving AirBar inventory[147](index=147&type=chunk)[187](index=187&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk) Inventory Composition (in thousands) | Category | December 31, 2019 | December 31, 2018 | | :---------------- | :---------------- | :---------------- | | Raw materials | $396 | $246 | | Work-in-process | $186 | $220 | | Finished goods | $448 | $753 | | **Ending inventory** | **$1,030** | **$1,219** | [Investment in Joint Venture](index=30&type=section&id=Investment%20in%20Joint%20Venture) Neonode invested **$3,000** for a **50%** interest in Neoeye AB, accounted for using the equity method, with no operations through December 31, 2019 - Neonode invested **$3,000** for a **50%** interest in Neoeye AB, accounted for using the equity method, with no operations through December 31, 2019[149](index=149&type=chunk)[278](index=278&type=chunk) [Projects in Process](index=30&type=section&id=Projects%20in%20Process) Projects in process include capitalized direct engineering labor and project-specific equipment costs, deferred until revenue recognition - Projects in process consist of capitalized direct engineering labor and project-specific equipment costs, deferred until revenue recognition[150](index=150&type=chunk)[272](index=272&type=chunk) Projects in Process (in thousands) | Year | Projects in Process | | :--- | :------------------ | | 2019 | $8 | | 2018 | $0 | [Property and Equipment](index=31&type=section&id=Property%20and%20Equipment) Property and equipment are stated at cost, net of accumulated depreciation and amortization, computed using the straight-line method over estimated useful lives - Property and equipment are stated at cost, net of accumulated depreciation and amortization, computed using the straight-line method over estimated useful lives (**3-7** years)[152](index=152&type=chunk)[279](index=279&type=chunk) - Depreciation and amortization expense was **$0.9 million** in 2019 and **$1.0 million** in 2018[342](index=342&type=chunk) [Long-Lived Assets](index=31&type=section&id=Long-Lived%20Assets) Impairment of long-lived assets is assessed by estimating future cash flows; as of December 31, 2019, no impairment was believed to exist - Impairment of long-lived assets is assessed by estimating future cash flows; as of December 31, 2019, no impairment was believed to exist[154](index=154&type=chunk)[283](index=283&type=chunk) [Research and Development](index=31&type=section&id=Research%20and%20Development) Research and development costs, primarily personnel and external consultancy, are expensed as incurred - Research and development costs, primarily personnel and external consultancy costs, are expensed as incurred[155](index=155&type=chunk)[320](index=320&type=chunk) [Stock-Based Compensation Expense](index=31&type=section&id=Stock-Based%20Compensation%20Expense) The cost of employee services for equity awards is measured at estimated fair value on the grant date and recognized as compensation expense over the vesting period - The cost of employee services for equity awards, including share options, is measured at estimated fair value on the grant date and recognized as compensation expense over the vesting period[156](index=156&type=chunk)[321](index=321&type=chunk) - The Black-Scholes option pricing model is used to determine the estimated fair value of options and warrants[157](index=157&type=chunk)[322](index=322&type=chunk) [Non-controlling Interests](index=31&type=section&id=Non-controlling%20Interests) Non-controlling interests represent the portion of equity ownership in a less-than-wholly owned subsidiary not attributable to Neonode, recognized as a separate equity item - Non-controlling interests (minority interests) are recognized as a separate line item in equity and represent the portion of equity ownership in a less-than-wholly owned subsidiary not attributable to Neonode[158](index=158&type=chunk)[324](index=324&type=chunk) [Foreign Currency Translation and Transaction Gains and Losses](index=33&type=section&id=Foreign%20Currency%20Translation%20and%20Transaction%20Gains%20and%20Losses) Foreign currency translation gains/losses are included in accumulated other comprehensive income, while transaction gains/losses affect operating results - The functional currency of foreign subsidiaries is the local currency (Swedish Krona, Japanese Yen, South Korean Won, Taiwan Dollar); translation gains/losses are included as a separate component of accumulated other comprehensive income (loss)[161](index=161&type=chunk)[284](index=284&type=chunk) Foreign Currency Transaction Gains/(Losses) (in thousands) | Year | Transaction Gains/(Losses) | | :--- | :------------------------- | | 2019 | $105 | | 2018 | $(58) | Foreign Currency Translation Gains/(Losses) (in thousands) | Year | Translation Gains/(Losses) | | :--- | :------------------------- | | 2019 | $(183) | | 2018 | $(357) | [Net Loss per Share](index=33&type=section&id=Net%20Loss%20per%20Share) Net loss per share is computed based on the weighted-average number of common shares outstanding, adjusted for the 1-for-10 reverse stock split - Net loss per share is computed based on the weighted-average number of common shares outstanding, adjusted for the **1-for-10** reverse stock split on October 1, 2018[162](index=162&type=chunk)[163](index=163&type=chunk)[328](index=328&type=chunk) - Potential common stock equivalents (warrants, convertible preferred stock, stock options) are excluded from diluted EPS calculations for 2019 and 2018 due to their anti-dilutive effect[163](index=163&type=chunk)[395](index=395&type=chunk) [Other Comprehensive Income (Loss)](index=33&type=section&id=Other%20Comprehensive%20Income%20%28Loss%29) Other comprehensive income (loss) includes foreign currency translation gains and losses, reflected as a separate component of stockholders' equity - Other comprehensive income (loss) includes foreign currency translation gains and losses, reflected as a separate component of stockholders' equity[164](index=164&type=chunk)[329](index=329&type=chunk) [Cash Flow Information](index=33&type=section&id=Cash%20Flow%20Information) Cash flows in foreign currencies are converted to U.S. Dollars using approximate weighted-average exchange rates for the respective reporting periods - Cash flows in foreign currencies are converted to U.S. Dollars using approximate weighted-average exchange rates for the respective reporting periods[165](index=165&type=chunk)[330](index=330&type=chunk) Weighted-Average Exchange Rates for Consolidated Statements of Operations | Currency | 2019 | 2018 | | :---------------- | :----- | :----- | | Swedish Krona | 9.46 | 8.70 | | Japanese Yen | 109.01 | 110.43 | | South Korean Won | 1,165.70 | 1,100.50 | | Taiwan Dollar | 30.90 | 30.15 | Exchange Rates for Consolidated Balance Sheets (as of December 31) | Currency | 2019 | 2018 | | :---------------- | :------- | :------- | | Swedish Krona | 9.34 | 8.87 | | Japanese Yen | 108.66 | 109.69 | | South Korean Won | 1,154.56 | 1,113.63 | | Taiwan Dollar | 30.00 | 30.61 | [Deferred Revenues](index=34&type=section&id=Deferred%20Revenues) Deferred revenues consist of prepayments for license fees, products, or services, and upfront payments for future non-recurring engineering services - Deferred revenues consist of prepayments for license fees, products, or services, and upfront payments for future non-recurring engineering services, recognized when accounting requirements are met[167](index=167&type=chunk)[168](index=168&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk) Deferred Revenues by Source (in thousands) | Source | 2019 | 2018 | | :----------------------- | :--- | :--- | | Deferred license fees revenues | $28 | $- | | Deferred NRE revenues | $20 | $- | | Deferred AirBar revenues | $6 | $59 | | Deferred sensor modules revenues | $13 | $16 | | **Total** | **$67** | **$75** | - Contracted revenue not yet recognized was **$67,000** as of December 31, 2019, with approximately **100%** expected to be recognized over the next twelve months[318](index=318&type=chunk) [New Accounting Pronouncements](index=35&type=section&id=New%20Accounting%20Pronouncements) Neonode adopted ASU No. 2016-02 (Leases) in 2019 and is evaluating the impact of ASU No. 2016-13 (Credit Losses) and ASU 2019-12 (Income Taxes) - Neonode adopted ASU No. 2016-02, 'Leases (Topic 842),' on January 1, 2019, using the modified retrospective approach and electing practical expedients, resulting in the recognition of operating lease right-of-use assets and obligations[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[334](index=334&type=chunk)[335](index=335&type=chunk)[336](index=336&type=chunk) - The company is evaluating the impact of ASU No. 2016-13, 'Financial Instruments-Credit Losses (Topic 326),' which was delayed for smaller reporting companies until fiscal years beginning after December 15, 2022, and ASU 2019-12, 'Income Taxes (Topic 740),' effective for fiscal years beginning after December 15, 2020[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[338](index=338&type=chunk)[339](index=339&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of Neonode's financial performance, including revenues, gross margin, operating expenses, and net loss for 2019 and 2018 [Financial Results Summary](index=36&type=section&id=Financial%20Results%20Summary) Total revenue decreased by **22.2%** in 2019, leading to a **73.1%** increase in net loss attributable to Neonode Inc Summary of Financial Results (in thousands, except percentages) | Metric | 2019 | 2018 | Variance (Dollars) | Variance (Percent) | | :-------------------------------------- | :---------- | :---------- | :----------------- | :----------------- | | **Revenue:** | | | | | | License Fees | $5,966 | $7,954 | $(1,988) | (25.0)% | | Sensor Modules | $560 | $227 | $333 | 146.7% | | NRE | $120 | $357 | $(237) | (66.4)% | | **Total Revenue** | **$6,646** | **$8,538** | **$(1,892)** | **(22.2)%** | | **Cost of Sales:** | | | | | | Sensor Modules | $499 | $638 | $(139) | (21.8)% | | NRE | $184 | $283 | $(99) | (35.0)% | | **Total Cost of Sales** | **$683** | **$921** | **$(238)** | **(25.8)%** | | **Total Gross Margin** | **$5,963** | **$7,617** | **$(1,654)** | **(21.7)%** | | **Operating Expense:** | | | | | | Research and Development | $5,239 | $5,278 | $(39) | (0.7)% | | Sales and Marketing | $2,158 | $1,995 | $163 | 8.2% | | General and Administrative | $4,296 | $4,221 | $75 | 1.8% | | **Total Operating Expenses** | **$11,693** | **$11,494** | **$199** | **1.7%** | | **Operating Loss** | **$(5,730)**| **$(3,877)**| **$(1,853)** | **47.8%** |\ | **Net Loss attributable to Neonode Inc.** | **$(5,298)**| **$(3,060)**| **$(2,238)** | **73.1%** | | **Net Loss attributable to Neonode Inc. Per Share** | **$(0.60)** | **$(0.52)** | **$(0.08)** | **15.4%** | [Revenues](index=37&type=section&id=Revenues) Total revenues decreased by **22.2%** in 2019, driven by lower license fees from e-reader and printer customers, partially offset by increased sensor module sales - Total revenues decreased by **22.2%** to **$6.6 million** in 2019 from **$8.5 million** in 2018[178](index=178&type=chunk) - License fees, the majority of total revenue, decreased by **25%** in 2019 compared to 2018, primarily due to an **87%** decrease from e-reader customers and a **27%** decrease from printer customers, partially offset by a **13%** increase from automotive customers[182](index=182&type=chunk) - Sensor module sales increased by **146.7%** to **$560,000** in 2019 from **$227,000** in 2018, with efforts focused on markets like medical technology, industrial control systems, and avionics[178](index=178&type=chunk)[183](index=183&type=chunk) - Revenues from license fees and sensor module sales may be negatively impacted in 2020 due to the coronavirus (COVID-19) outbreak, affecting component availability and product demand[184](index=184&type=chunk) [Non-recurring engineering fees ("NRE")](index=38&type=section&id=Non-recurring%20engineering%20fees%20%28%22NRE%22%29) NRE fees decreased by **66%** in 2019 due to a decline in new license customers and related design projects, with a shift in project focus to avionics - NRE fees decreased **66%** in 2019 compared to 2018, due to a decline in new license customers and related design projects[185](index=185&type=chunk) - In 2019, **62%** of total NRE fees were earned from avionics projects (compared to **0%** in 2018), while **0%** were from automotive projects (compared to **80%** in 2018)[185](index=185&type=chunk) [Gross Margin](index=38&type=section&id=Gross%20Margin) The combined total gross margin slightly increased to **90%** in 2019, primarily due to higher margins on sensor module sales, despite lower NRE gross margins - The combined total gross margin slightly increased to **90%** in 2019 from **89%** in 2018, primarily due to higher margins on sensor module sales, partially offset by increased valuation reserves for slow-moving/obsolete inventory and lower NRE gross margins[186](index=186&type=chunk) - License fees maintained a **100%** gross margin, while NRE projects had a (**53%)** gross margin in 2019 (compared to **21%** in 2018) due to investments in customer projects in new markets[187](index=187&type=chunk) - In 2019, the company wrote down **$0.3 million** for an advance payment for module components and a reservation of AirBar components[187](index=187&type=chunk) [Research and Development](index=38&type=section&id=Research%20and%20Development) R&D expenses decreased by **1%** in 2019, representing **79%** of total revenue, with a focus on developing technology and software platforms for sensor modules - R&D expenses decreased by **1%** in 2019 compared to 2018 (primarily currency related), representing **79%** of total revenue in 2019 (compared to **62%** in 2018)[189](index=189&type=chunk) - The R&D department had **27** employees and **7** consultants in 2019, focusing on developing technology and software platforms for sensor modules and customer integration[189](index=189&type=chunk)[190](index=190&type=chunk) [Sales and Marketing](index=38&type=section&id=Sales%20and%20Marketing) Sales and marketing expenses increased by **8.2%** in 2019, primarily due to investment in a new partner program, representing **32%** of total revenue - Sales and marketing expenses increased by **8.2%** in 2019 compared to 2018, primarily due to investment in a new partner program, representing **32%** of total revenue (compared to **23%** in 2018)[191](index=191&type=chunk) - The sales team focuses on OEM, ODM, and Tier 1 customers for technology licensing or sensor module purchases, with plans to expand activities in 2020 and future years[192](index=192&type=chunk) [General and Administrative](index=38&type=section&id=General%20and%20Administrative) General and administrative expenses increased by **2%** in 2019, primarily due to a write-down of prepaid prototype work, representing **65%** of revenue - General and administrative (G&A) expenses increased by **2%** in 2019 from 2018, primarily due to a write-down of prepaid prototype work, representing **65%** of revenue (compared to **49%** in 2018)[193](index=193&type=chunk) - As of December 31, 2019, the G&A department had nine full-time employees and one consultant[193](index=193&type=chunk) [Interest Expense](index=39&type=section&id=Interest%20Expense) Interest expense, primarily related to finance leases, decreased from **$49,000** in 2018 to **$34,000** in 2019 Interest Expense (in thousands) | Year | Interest Expense | | :--- | :--------------- | | 2019 | $34 | | 2018 | $49 | - Interest expense was mainly related to finance leases[194](index=194&type=chunk) [Foreign Currency Translation and Transaction Gains and Losses](index=39&type=section&id=Foreign%20Currency%20Translation%20and%20Transaction%20Gains%20and%20Losses) Foreign currency transaction gains were **$105,000** in 2019, while translation losses were **$(183,000)**, impacting operating results and comprehensive income - Foreign currency transaction gains were **$105,000** in 2019 (compared to losses of **$(58,000)** in 2018), included in general and administrative expenses[195](index=195&type=chunk) - Foreign currency translation losses were **$(183,000)** in 2019 (compared to **$(357,000)** in 2018), included as a separate component of accumulated other comprehensive income (loss)[195](index=195&type=chunk) [Income Taxes](index=39&type=section&id=Income%20Taxes) The effective tax rate was **0%** in both 2019 and 2018, with valuation allowances recorded for deferred tax assets due to uncertainty of realization - The effective tax rate was **0%** in both 2019 and 2018, with valuation allowances recorded for deferred tax assets due to uncertainty of realization[196](index=196&type=chunk) [Net Loss](index=39&type=section&id=Net%20Loss) Net loss increased to **$5.3 million** in 2019 from **$3.1 million** in 2018 Net Loss (in millions) | Year | Net Loss | | :--- | :------- | | 2019 | $5.3 | | 2018 | $3.1 | [Contractual Obligation and Off-Balance Sheet Arrangements](index=39&type=section&id=Contractual%20Obligation%20and%20Off-Balance%20Sheet%20Arrangements) Neonode has a **$210,000** bank guarantee for AirBar packaging material and no other material off-balance sheet arrangements - Neonode has a bank guarantee of **$210,000** in favor of a manufacturing partner for AirBar packaging material, valid until December 31, 2020[198](index=198&type=chunk)[374](index=374&type=chunk) - The company does not have any other material off-balance sheet arrangements or special purpose entities that would affect its liquidity or capital resources[198](index=198&type=chunk)[200](index=200&type=chunk) [Operating Leases](index=40&type=section&id=Operating%20Leases) Neonode leases office facilities and a workshop in various global locations, with rent expense of **$649,000** in 2019 - Neonode leases office facilities in San Jose, Stockholm, Seoul, Taipei, and Tokyo, and a workshop in Kungsbacka, Sweden[201](index=201&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk) Rent Expense (in thousands) | Year | Rent Expense | | :--- | :----------- | | 2019 | $649 | | 2018 | $687 | [Equipment Subject to Finance Lease](index=41&type=section&id=Equipment%20Subject%20to%20Finance%20Lease) Neonode has finance leases for specialized milling and component production equipment with varying terms and implicit interest rates - Neonode has finance leases for specialized milling equipment (entered April 2014, **6-year** term, **4%** implicit interest rate) and component production equipment (entered 2016-2018, **3-5** year terms, **1.5-3%** implicit interest rates)[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) [Non-Recurring Engineering Development Costs](index=41&type=section&id=Non-Recurring%20Engineering%20Development%20Costs) Neonode has NRE development agreements with Texas Instruments and STMicroelectronics for ASIC integration, having reimbursed STMicro **$835,000** - Under the NN1002 Agreement with Texas Instruments (TI), Neonode agreed to pay **$500,000** for ASIC integration, but no payments were made as of December 31, 2019[210](index=210&type=chunk)[377](index=377&type=chunk) - Under the NN1003 Agreement with STMicroelectronics (STMicro), Neonode reimbursed STMicro a total of **$835,000** for non-recurring engineering costs for ASIC integration as of December 31, 2019[211](index=211&type=chunk)[377](index=377&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) Neonode's liquidity depends on sales volume and operating profit, with cash decreasing to **$2.4 million** in 2019, and the company may require additional capital - Neonode's liquidity is dependent on sales volume, operating profit, and asset efficiency[213](index=213&type=chunk) Key Liquidity Metrics (in millions) | Metric | December 31, 2019 | December 31, 2018 | | :-------------- | :---------------- | :---------------- | | Cash | $2.4 | $6.6 | | Working Capital | $2.4 | $8.2 | Net Cash Used in Operating Activities (in millions) | Year | Net Cash Used in Operating Activities | | :--- | :------------------------------------ | | 2019 | $3.5 | | 2018 | $2.9 | - In December 2018, Neonode completed a private placement, issuing **2,940,767** shares of common stock for **$4.6 million** in net proceeds, with participation from directors, management, and employees[220](index=220&type=chunk)[259](index=259&type=chunk) - The company effected a **1-for-10** reverse stock split on October 1, 2018, and increased authorized common stock to **15,000,000** shares on June 11, 2019[222](index=222&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk) - Neonode operates on a going concern basis but may require additional capital through equity investments or debt arrangements if operations do not become cash flow positive, with no assurance of obtaining such financing on reasonable terms[224](index=224&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk)[260](index=260&type=chunk)[262](index=262&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This item is marked as 'Not applicable' in the report [Item 8. Financial Statements and Supplementary Data](index=45&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents Neonode's consolidated financial statements for the years ended December 31, 2019 and 2018, including the balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes. The independent registered public accounting firm issued an unqualified opinion on these financial statements [Report of Independent Registered Public Accounting Firm](index=46&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KMJ Corbin & Company LLP issued an unqualified opinion on Neonode Inc.'s consolidated financial statements for 2019 and 2018, noting a change in lease accounting - KMJ Corbin & Company LLP, the independent registered public accounting firm, issued an unqualified opinion on Neonode Inc.'s consolidated financial statements for the years ended December 31, 2019 and 2018[233](index=233&type=chunk) - The report notes that the company changed the manner in which it accounts for leases in 2019, as discussed in Note 2 to the consolidated financial statements[234](index=234&type=chunk) [Consolidated Balance Sheets](index=47&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets present Neonode's financial position, showing total assets of **$7.4 million** and total stockholders' equity of **$3.8 million** as of December 31, 2019 Consolidated Balance Sheets (in thousands) | ASSETS | Dec 31, 2019 | Dec 31, 2018 | | :-------------------------------------- | :----------- | :----------- | | Cash | $2,357 | $6,555 | | Accounts receivable and unbilled revenues, net | $1,324 | $1,830 | | Projects in process | $8 | $- | | Inventory | $1,030 | $1,219 | | Prepaid expenses and other current assets | $715 | $890 |\ | **Total current assets** | **$5,434** | **$10,494** | | Investment in joint venture | $3 | $3 | | Property and equipment, net | $1,583 | $2,484 | | Operating lease right-of-use assets | $416 | $- | | Other assets | $- | $261 | | **Total assets** | **$7,436** | **$13,242** | | **LIABILITIES AND STOCKHOLDERS' EQUITY**| | | | Accounts payable | $555 | $501 | | Accrued payroll and employee benefits | $960 | $902 | | Accrued expenses | $541 | $265 | | Deferred revenues | $67 | $75 | | Current portion of finance lease obligations | $568 | $570 | | Current portion of operating lease obligations | $332 | $- | | **Total current liabilities** | **$3,023** | **$2,313** | | Finance lease obligations, net of current portion | $508 | $1,133 | | Operating lease obligations, net of current portion | $58 | $- | | **Total liabilities** | **$3,589** | **$3,446** | | Common stock | $9 | $9 | | Additional paid-in capital | $197,543 | $197,507 | | Accumulated other comprehensive loss | $(639) | $(456) | | Accumulated deficit | $(190,520) | $(185,222) | | Total Neonode Inc. stockholders' equity | $6,393 | $11,838 | | Noncontrolling interests | $(2,546) | $(2,042) | | **Total stockholders' equity** | **$3,847** | **$9,796** | | **Total liabilities and stockholders' equity** | **$7,436** | **$13,242** | [Consolidated Statements of Operations](index=48&type=section&id=Consolidated%20Statements%20of%20Operations) The consolidated statements of operations detail Neonode's revenues, costs, operating expenses, and net loss for 2019 and 2018, showing a net loss of **$5.3 million** in 2019 Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 2019 | 2018 | | :-------------------------------------- | :---------- | :---------- | | Revenues: | | | | License fees | $5,966 | $7,954 | | Sensor modules | $560 | $227 | | Non-recurring engineering | $120 | $357 | | **Total revenues** | **$6,646** | **$8,538** | | Cost of revenues: | | | | Sensor modules | $499 | $638 | | Non-recurring engineering | $184 | $283 | | **Total cost of revenues** | **$683** | **$921** | | **Total gross margin** | **$5,963** | **$7,617** | | Operating expenses: | | | | Research and development | $5,239 | $5,278 | | Sales and marketing | $2,158 | $1,995 | | General and administrative | $4,296 | $4,221 | | **Total operating expenses** | **$11,693** | **$11,494** | | **Operating loss** | **$(5,730)**| **$(3,877)**| | Other expense | | | | Interest expense | $(34) | $(49) | | Other expense | $- | $(3) | | **Total other expense** | **$(34)** | **$(52)** | | **Loss before provision for income taxes**| **$(5,764)**| **$(3,929)**| | Provision for income taxes | $38 | $13 | | **Net loss including noncontrolling interests** | **$(5,802)**| **$(3,942)**| | Less: net loss attributable to noncontrolling interests | $504 | $882 | | **Net loss attributable to Neonode Inc.** | **$(5,298)**| **$(3,060)**| | Loss per common share: | | | | Basic and diluted loss per share | $(0.60) | $(0.52) | | Basic and diluted – weighted average number of common shares outstanding | 8,844 | 5,884 | [Consolidated Statements of Comprehensive Loss](index=49&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) The consolidated statements of comprehensive loss present the net loss and other comprehensive income (loss), primarily foreign currency translation adjustments Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 2019 | 2018 | | :-------------------------------------- | :---------- | :---------- | | Net loss including noncontrolling interests | $(5,802) | $(3,942) | | Other comprehensive income (loss): | | | | Foreign currency translation adjustments | $(183) | $(357) | | **Comprehensive loss** | **$(5,985)**| **$(4,299)**| | Less: Comprehensive loss attributable to noncontrolling interests | $504 | $882 | | **Comprehensive loss attributable to Neonode Inc.** | **$(5,481)**| **$(3,417)**| [Consolidated Statements of Stockholders' Equity](index=50&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) The consolidated statements of stockholders' equity detail changes in equity components, including stock option compensation, stock sales, and foreign currency adjustments - The consolidated statements of stockholders' equity show changes in Series B Preferred Stock, Common Stock, Additional Paid-in Capital, Accumulated Other Comprehensive Income (Loss), Accumulated Deficit, and Noncontrolling Interests for 2018 and 2019[247](index=247&type=chunk) - Key activities include an adjustment related to the adoption of ASC 606 revenue recognition in 2018, stock option compensation, conversion of Series B Preferred Stock to common stock, proceeds from common stock sales, and foreign currency translation adjustments[247](index=247&type=chunk) - Total stockholders' equity decreased from **$9,796 thousand** at December 31, 2018, to **$3,847 thousand** at December 31, 2019[247](index=247&type=chunk) [Consolidated Statements of Cash Flows](index=51&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The consolidated statements of cash flows show net cash used in operating activities of **$3.5 million** in 2019, with a net decrease in cash of **$4.2 million** Consolidated Statements of Cash Flows (in thousands) | Cash flows from operating activities: | 2019 | 2018 | | :------------------------------------------------------------------ | :---------- | :---------- | | Net loss (including noncontrolling interests) | $(5,802) | $(3,942) | | Adjustments to reconcile net loss to net cash used in operating activities: | | | | Stock-based compensation expense | $- | $29 | | Bad debt expense | $105 | $- | | Write-off of prepaids | $414 | $- | | Depreciation and amortization | $855 | $1,008 | | Amortization of operating lease right-of-use assets | $404 | $- | | Loss on disposal of property and equipment | $- | $6 | | Changes in operating assets and liabilities: | | | | Accounts receivable | $397 | $481 | | Projects in process | $(8) | $1 | | Inventory | $124 | $(142) | | Prepaid expenses and other current assets | $(19) | $556 | | Accounts payable and accrued expenses | $454 | $41 | | Deferred revenues | $(429) | $(897) | | Operating lease obligations | $(12) | $- | | **Net cash used in operating activities** | **$(3,517)**| **$(2,859)**| | Cash flows from investing activities: | | | | Purchase of property and equipment | $(89) | $(236) | | Proceeds from sale of property and equipment | $- | $4 | | **Net cash used in investing activities** | **$(89)** | **$(232)** | | Cash flow from financing activities: | | | | Proceeds from issuance of common stock and warrants, net of offering costs | $36 | $4,620 | | Principal payments on finance lease obligations | $(535) | $(551) | | **Net cash (used in) provided by financing activities** | **$(499)** | **$4,069** | | Effect of exchange rate changes on cash | $(93) | $(219) | | **Net change in cash** | **$(4,198)**| **$759** | | Cash at beginning of year | $6,555 | $5,796 | | **Cash at end of year**