Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies [Abstract]

6. Commitments and Contingencies

Non-Recurring Engineering Development Costs

Neonode and Texas Instruments Inc. (“TI”) entered into an Analog Device Development Agreement (“2010 TI Agreement”) on January 24, 2010 where TI integrated Neonode’s intellectual property into an Application Specific Integrated Circuit (“ASIC”) developed by TI. The TI ASIC is designated as NN1001 and can be sold by TI exclusively to licensees of Neonode. Under the terms of the 2010 TI Agreement, Neonode is obligated to contribute $500,000 of non-recurring engineering development costs (“NRE”) to TI based on shipments of the NN1001. Neonode will contribute to TI the NRE as follows:

For each of the first one million units sold: $0.08 per unit.

For the next eight million units sold: $0.05 per unit.

In the three and nine months ended September 30, 2013, $74,000 and $344,000, respectively, of NRE expense related to this agreement is included in product research and development in the condensed consolidated statement of operations. Through September 30, 2013, the Company has made total payments of $344,000 under the 2010 TI Agreement. No amounts were recorded in the three and nine months ended September 30, 2012 as no shipments of NN1001 took place.

Neonode and TI entered into an additional Analog Device Development Agreement (“2013 TI Agreement”) on April 25, 2013 where TI will integrate Neonode’s intellectual property into an ASIC developed by TI. The TI ASIC is designated as NN1002 and can be sold by TI exclusively to licensees of Neonode. Under the terms of the 2013 TI Agreement, Neonode is obligated to contribute $500,000 of NRE to TI based on shipments of the NN1002. The NN1002 is currently in development and has not been released to mass production.

When the NN1002 is released in the future to mass production, Neonode will contribute to TI the NRE fee of $0.25 per unit for each of the first two million units sold.

Operating Leases

NTAB has a lease with Vasakronan Fastigheter AB for 2,723 square feet of office space located at Linnegatan 89D, Stockholm, Sweden for approximately $8,000 per month including property tax (excluding VAT). The annual payment for this space equates to approximately $93,000 per year including property tax (excluding VAT). This lease is valid thru December 31, 2014, with a nine month notice period. On September 12, 2013, the Company entered into a sublease agreement with Goo Technologies AB (“Goo”) for this office space. Goo will pay monthly sublease payment of approximately $9,700 to the Company until December 31, 2014.

On April 15, 2012, NTAB entered into a lease with No Picnic for 2,853 square feet of office space located at Storgatan 23C, Stockholm, Sweden for approximately $14,000 per month including property tax (excluding VAT). The annual payment for this space equates to approximately $174,000 per year including property tax (excluding VAT). This lease was valid through April 15, 2013. On April 16, 2013, this lease was extended for one year until April 15, 2014 under the same terms and conditions. Rent remained at approximately $14,000 per month including property tax (excluding VAT). This lease was terminated on July 1, 2013.

On March 22, 2012, we entered into a three year lease with 2350 Mission Investors LLC for 3,185 square feet of office space located at 2350 Mission College Blvd, Suite 190, Santa Clara, CA 95054 USA. The initial lease payment is $7,007 per month, increasing to $7,657 per month over the term of the lease. This lease is valid through July 31, 2015. The annual payment for this space equates to approximately $86,000 per year.

On October 12, 2012, we entered into a two year lease with Space Design Inc., Meiko Building 3F, 1-18-2 Shimbashi, Minato-ku, 105-0004 Tokyo for office space located at 608 Bureau Shinagawa, 4-1-6 Konan, Minato-ku, 108-0075 Tokyo, Japan. The lease payment is approximately $3,000 per month. This lease is valid through October 12, 2014. The annual payment for this space equates to approximately $36,000 per year.

On July 1, 2013, NTAB entered into a lease with No Picnic for 5,480 square feet of office space located at Storgatan 23C, Stockholm, Sweden for approximately $38,000 per month including property tax (excluding VAT). The annual payment for this space equates to approximately $458,000 per year including property tax (excluding VAT). This lease is valid through June 30, 2014. The lease can be extended on a yearly basis with three months written notice.

For the nine months ended September 30, 2013 and 2012, the Company recorded approximately $399,000 and $235,000, respectively, for rent expense.

A summary of future minimum payments under non-cancellable operating lease commitments as of September 30, 2013 is as follows (in thousands):

Year ending December 31,	Total
2013 (remaining three months)	$	140
2014		319
2015		53
	$	512

- Definition

The entire disclosure for commitments and contingencies.

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