1. Organization and Summary of Significant Accounting Policies

Basis of Presentation and Preparation

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of Neonode Inc. and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared by us, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally contained in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Recently Issued Accounting Pronouncement Adopted

In  July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets ("ASU 2025-05"), which amends ASC 326-20 to provide a practical expedient for all entities when estimating expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606. The practical expedient assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset. ASU 2025-05 is effective for fiscal years beginning after  December 15, 2025 and interim periods within those fiscal years, with early adoption permitted, and should be applied on a prospective basis. The adoption did not have a material impact on our condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Pending Adoption

In  December 2025, the FASB issued ASU 2025-12, Codification Improvements ("ASU 2025-12"). ASU 2025-12 makes incremental improvements to the Accounting Standards Codification and U.S. GAAP. This guidance is effective for annual reporting periods beginning after  December 15, 2026 and interim reporting periods within those annual periods. Early adoption is permitted. We are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.

In  December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”). The amendments clarify and reorganize existing interim reporting guidance, including the scope of Topic 270 and interim disclosure requirements, and introduce a disclosure principle requiring entities to disclose material events or changes occurring since the most recent annual reporting period. ASU 2025-11 is effective for interim reporting periods within annual reporting periods beginning after  December 15, 2027. Early adoption is permitted. We are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.

In  September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which aims to modernize financial reporting by updating how entities recognize and disclose costs incurred for software developed for internal use. ASU 2025-06 is effective for fiscal years beginning after  December 15, 2027, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.

In  November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"), requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after  December 15, 2026, and for interim periods beginning after  December 15, 2027, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2024-03.

Foreign Currency Translation and Transaction Gains and Losses

The functional currency of our foreign subsidiaries is the applicable local currency, the Swedish Krona, the Japanese Yen and the South Korean Won. The translation from Swedish Krona, Japanese Yen and South Korean Won to U.S. Dollars is performed for balance sheet accounts using current exchange rates in effect at the condensed consolidated balance sheet date and for income statement accounts using a weighted-average exchange rate during the period. Gains or (losses) resulting from translation are included as a separate component of accumulated other comprehensive loss. Foreign currency translation gain (loss) was $21,000 and $(134,000) during the three months ended March 31, 2026 and 2025, respectively. Income (loss) resulting from foreign currency transactions are included in general and administrative expenses in the accompanying condensed consolidated statements of operations and were $(1,000) and $80,000 during the three months ended March 31, 2026 and 2025, respectively.

Liquidity

We have incurred significant operating losses and negative cash flows from operations since our inception. The Company incurred net income for combined continuing and discontinued operations of approximately $1.9 million and net loss of $1.7 million for the three months ended March 31, 2026 and 2025, respectively and had an accumulated deficit of approximately $217.5 million and $215.6 million as of March 31, 2026 and December 31, 2025, respectively. In addition, operating activities used cash of approximately $2.1 million and $1.4 million for the three months ended March 31, 2026 and 2025, respectively.

The condensed consolidated financial statements included in this report have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and the repayment of liabilities in the ordinary course of business.

Management has prepared an operating plan and believes that the Company has sufficient cash to meet its obligations as they come due for a year from the date the condensed consolidated financial statements were issued.

Concentration of Credit and Business Risks

Our customers are located in the United States, Europe and Asia.

As of March 31, 2026, four of our customers represented approximately 89.3% of our consolidated accounts receivable and unbilled revenues.

As of December 31, 2025, four of our customers represented approximately 95.4% of our consolidated accounts receivable and unbilled revenues.

Customers who accounted for 10.0% or more of our net revenues during the three months ended March 31, 2026 are as follows:

Customers who accounted for 10.0% or more of our net revenues during the three months ended March 31, 2025 are as follows:

Revenues

The following tables present the net revenues distribution by geographical area and market (in thousands):

Contract Balances

Timing of revenue recognition  may differ from the timing of invoice and receipt of consideration. We record a receivable or unbilled revenue when we have an unconditional right to receive consideration from customers. Contract assets represent revenue recognized for performance to date when the right to consideration is conditional on something other than the passage of time. We record contract liabilities when we receive prepayments or upfront payments ahead of performance.

The following table presents our accounts receivable, net, contract assets, and contract liabilities (in thousands):

Payment terms and conditions vary by the type of contract; however, payments generally occur 30-60 days after invoicing for license fees. Where revenue recognition timing differs from invoice timing, we have determined that our contracts do not include a significant financing component. Applying the practical expedient in Topic 606, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. Our intent is to provide our customers with consistent invoicing terms for the convenience of our customers, not to provide financing to our customers.

Contract Liabilities

Contract liabilities (deferred revenues) consist primarily of prepayments for license fees, and other services that we have been paid in advance. We earn the revenue when we transfer control of the service. Deferred revenues  may also include upfront payments for consulting services to be performed in the future, such as non-recurring engineering services.

The following table presents our deferred revenues by source (in thousands):

During the three months ended March 31, 2026 and 2025, the Company recognized revenues of approximately $9,000 and zero respectively, related to contract liabilities outstanding at the beginning of the period.

Income Taxes

We recognize deferred tax liabilities and assets for the expected future tax consequences of items that have been included in the condensed consolidated financial statements or tax returns. We estimate income taxes based on rates in effect in each of the jurisdictions in which we operate. Deferred income tax assets and liabilities are determined based upon differences between the financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The realization of deferred tax assets is based on historical tax positions and expectations about future taxable income. Valuation allowances are recorded against net deferred tax assets when, in our opinion, realization is uncertain based on the “more likely than not” criteria of the accounting guidance.

Based on the uncertainty of future pre-tax income, we fully reserved our net deferred tax assets as of March 31, 2026 and December 31, 2025. In the event we were to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase income in the period such determination was made. The provision for or benefit from income taxes represents the net change in deferred tax amounts, plus income taxes paid or payable for the current period.

We follow U.S. GAAP related accounting for uncertainty in income taxes, which provisions include a two-step approach to recognizing, de-recognizing and measuring uncertainty in income taxes. As a result, we did not recognize a liability for unrecognized tax benefits. As of March 31, 2026 and December 31, 2025, we had no unrecognized tax benefits.

On July 4, 2025, new U.S tax legislation was signed into law (known as the "One Big Beautiful Bill Act" or the "OBBBA") which makes permanent many of the tax provisions enacted in 2017 as part of the Tax Cuts and Jobs Act that were set to expire at the end of 2025. In addition, the OBBBA makes changes to certain U.S. corporate tax provisions, but many are generally not effective until 2026. The enactment of the OBBBA does not have a material impact on our results from operations for the current period nor do we expect the OBBBA to have a material impact on our results from operations in future periods.