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Commitments and Contingencies

12 Months Ended

Dec. 31, 2015

Commitments and Contingencies [Abstract]

Commitments and Contingencies

10.

Commitments and Contingencies

Indemnities and Guarantees

Our bylaws require that we indemnify each of our executive officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. However, we have a directors’ and officers’ liability insurance policy that should enable us to recover a portion of future amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal and we have no liabilities recorded for these agreements as of December 31, 2015 and 2014.

We enter into indemnification provisions under our agreements with other companies in the ordinary course of business, typically with business partners, contractors, customers and landlords. Under these provisions we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of our activities or, in some cases, as a result of the indemnified party’s activities under the agreement. These indemnification provisions often include indemnifications relating to representations made by us with regard to intellectual property rights. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these indemnification provisions as of December 31, 2015 and 2014.

Non-Recurring Engineering Development Costs

On February 4, 2011, we entered into an Analog Device Development Agreement with an effective date of January 24, 2010 (the “NN1001 Agreement”) with Texas Instruments pursuant to which Texas Instruments integrated Neonode’s intellectual property into an Application Specific Integrated Circuit (“ASIC”). The NN1001 ASIC only can be sold by Texas Instruments exclusively to licensees of Neonode. Under the terms of the NN1001 Agreement, we have reimbursed Texas Instruments $500,000 of non-recurring engineering development costs based on shipments of the NN1001. Under the terms of the NN1001 Agreement, we have reimbursed Texas Instruments a non-recurring engineering fee of $0.08 per unit for each of the first one million units sold and $0.05 for the next eight million units sold. During the years ended December 31, 2015 and 2014, approximately $20,000 and $93,000, respectively of non-recurring engineering expense related to the NN1001 Agreement is included in research and development in the consolidated statements of operations. As of December 31, 2015, all payments under the NN1001 Agreement have been made.

On April 25, 2013, we entered into an additional Analog Device Development Agreement with an effective date of December 6, 2012 (the “NN1002 Agreement”) with Texas Instruments pursuant to which Texas Instruments will integrate Neonode’s intellectual property into an ASIC. The NN1002 ASIC only can be sold by Texas Instruments exclusively to licensees of Neonode. Under the terms of the NN1002 Agreement, we will reimburse Texas Instruments up to $500,000 of non-recurring engineering costs based on shipments of the NN1002. Under the terms of the NN1002 Agreement we will reimburse Texas Instruments a non-recurring engineering fee of $0.25 per unit for each of the first two million units sold. The NN1002 began sampling to customers in May 2014. As of December 31, 2015, we had made no payments under the NN1002 Agreement.

On December 4, 2014, we entered into an additional Analog Device Development Agreement (the “NN1003 Agreement”) with STMicroelectronics International N.V pursuant to which STMicroelectronics will integrate Neonode’s intellectual property into an ASIC. The NN1003 ASIC only can be sold by STMicroelectronics exclusively to licensees of Neonode. Under the terms of the NN1003 Agreement, we will reimburse STMicroelectronics up to $885,000 of non-recurring engineering costs as follows:

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$235,000 at the feasibility review and contract signature (paid on January 20, 2015)

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$300,000 on completion of tape-out (paid on October 31, 2015)

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$300,000 on completion on product validation (not completed)

Under the terms of the NN1003 Agreement, we also will reimburse STMicroelectronics a non-recurring engineering fee of $5.00 per each of the first 10,000 units sold. As of December 31, 2015, we had made no payments under the NN1003 Agreement.

Operating Leases

We lease 6,508 square feet of office space located at 2674 North First Street, San Jose, CA 95134 USA. The annual payment for this space equates to approximately $160,000 per year. The lease is valid through July 31, 2018.

Our subsidiary Neonode Technologies AB leases 7,007 square feet of office space located at Storgatan 23C, Stockholm, Sweden. The annual payment for this space equates to approximately $431,000 per year including property tax (excluding VAT). The lease is valid through November 30, 2017. The lease can be extended on a yearly basis.

Our subsidiary Neonode Japan Inc. leases 430 square feet of office space located at 608 Bureau Shinagawa, 4-1-6 Konan, Minato-ku, 108-0075 Tokyo, Japan. The annual expense for this space is approximately $28,000 per year. The lease is valid through October 31, 2016.

Our subsidiary Neonode Korea Ltd. leases 112 square feet located at B-1807, Daesung D-Polis. 543-1, Seoul, South Korea. The annual expense for this space is approximately $22,000 per year. The lease is valid through February 13, 2017.

Our subsidiary Neonode Taiwan Ltd leases office space located at Rm. 2406, International Trade Building, Keelung Rd., Sec.1, Taipei 11012, Taiwan. The annual expense for this space is approximately $31,000 per year. The lease can be terminated with a three months’ notice.

Neonode Technologies AB’s majority-owned subsidiary Pronode Technologies AB entered leases agreement 9,040 square feet of workshop located at Faktorvägen 17, Kungsbacka, Sweden for approximately $95,000 per year. The lease is valid through December 9, 2017.

For the years ended December 31, 2015, 2014 and 2013, we recorded approximately $641,000, $633,000 and $556,000, respectively, for rent expense.

We believe our existing facilities are in good condition and suitable for the conduct of our business.

A summary of future minimum payments under non-cancellable operating lease commitments as of December 31, 2015 is as follows (in thousands):

Years ending December 31,		Total
2016		$	741
2017			646
2018			93
		$	1,480

Equipment Subject to Capital Lease

In April 2014, we entered into a lease for certain specialized milling equipment. Under the terms of the lease agreement we are obligated to purchase the equipment at the end of the original 6 year lease term for 10% of the original purchase price of the equipment. In accordance with relevant accounting guidance the lease is classified as a capital lease. The lease payments and depreciation period began on July 1, 2014 when the equipment went into service. The equipment is being amortized to research and development expense on a straight line basis over 6 years at the rate of approximately $16,000 per quarter. The interest rate of the lease is 4% per annum.

The following is a schedule of minimum future rentals on the non-cancelable capital lease as of December 31, 2015 (in thousands):

Year ending December 31,		Total
2016		$	72
2017			72
2018			72
2019			72
2020			94
Total minimum payments required:			382
Less amount representing interest:			(42	)
Present value of net minimum lease payments:			340
Less current portion			(57	)
		$	283

Equipment under capital lease		$	427
Less: accumulated depreciation			(95	)
Net book value		$	332