10-Q

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 September 30, 2018

☐    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 of incorporation or organization)	(IRS Employer Identification No.)

Storgatan 23C, 114 55 Stockholm, Sweden

(Address of principal executive offices and zip code)

+46 (0) 8 667 17 17

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
(do not check if a smaller reporting company)		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes ☐   No ☒

The number of shares of the registrant’s common stock outstanding as of November 2, 2018 was 5,859,414.

NEONODE INC.

Form 10-Q

For the Fiscal Quarter Ended September 30, 2018

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
	Item 1	Financial Statements	1
		Condensed Consolidated Balance Sheets as of September 30, 2018 (Unaudited) and December 31, 2017 (Audited)	1
		Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017	2
		Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2018 and 2017	3
		Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	4
		Notes to Unaudited Condensed Consolidated Financial Statements	5
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3	Quantitative and Qualitative Disclosures about Market Risk	32
	Item 4	Controls and Procedures	32
PART II	OTHER INFORMATION
	Item 1	Legal Proceedings	33
	Item 1A	Risk Factors	33
	Item 5	Other Information	33
	Item 6	Exhibits	33
SIGNATURES			34
EXHIBITS

i

PART I. Financial Information

Item 1. Financial Statements

NEONODE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	September 30,			December 31,
	2018			2017
ASSETS	(Unaudited)			(Audited)
Current assets:
Cash	$	2,689		$	5,796
Accounts receivable and unbilled revenue, net		1,459			1,010
Projects in process		-			1
Inventory		1,258			1,154
Prepaid expenses and other current assets		1,596			1,836
Total current assets		7,002			9,797
Investment in joint venture		3			3
Property and equipment, net		2,660			3,327
Total assets	$	9,665		$	13,127
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	523		$	509
Accrued payroll and employee benefits		862			1,081
Accrued expenses		180			177
Deferred revenues		224			1,248
Current portion of capital lease obligations		569			568
Total current liabilities		2,358			3,583
Capital lease obligations, net of current portion		1,275			1,681
Total liabilities		3,633			5,264
Commitments and contingencies
Stockholders’ equity:
Series B Preferred stock, 54,425 shares authorized with par value $0.001 per share; 83 shares issued and outstanding at September 30, 2018 and December 31, 2017. (In the event of dissolution, each share of Series B Preferred stock has a liquidation preference equal to par value of $0.001 per share over the shares of common stock)		-			-
Common stock, 10,000,000 shares authorized with par value $0.001 per share; 5,859,414 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively		6			6
Additional paid-in capital		192,891			192,861
Accumulated other comprehensive loss		(516	)		(99	)
Accumulated deficit		(184,629	)		(183,745	)
Total Neonode Inc. stockholders’ equity		7,752			9,023
Noncontrolling interests		(1,720	)		(1,160	)
Total stockholders’ equity		6,032			7,863
Total liabilities and stockholders’ equity	$	9,665		$	13,127

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

NEONODE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Revenues:
License fees	$	1,597		$	2,072		$	5,681		$	6,158
Sensor module		39			211			176			634
Non-recurring engineering		287			22			317			174
Total revenues		1,923			2,305			6,174			6,966
Cost of revenues:
Sensor module		57			151			191			510
Non-recurring engineering		282			-			283			137
Total cost of revenues		339			151			474			647
Total gross margin		1,584			2,154			5,700			6,319
Operating expenses:
Research and development		1,113			1,668			3,993			4,283
Sales and marketing		446			743			1,472			2,158
General and administrative		959			1,154			3,209			3,365
Total operating expenses		2,518			3,565			8,674			9,806
Operating loss		(934	)		(1,411	)		(2,974	)		(3,487	)
Other expense:
Interest expense		12			24			39			59
Total other expense		12			24			39			59
Loss before provision for income taxes		(946	)		(1,435	)		(3,013	)		(3,546	)
(Benefits from) provision for income taxes		5			(24	)		13			(71	)
Net loss including noncontrolling interests		(951	)		(1,411	)		(3,026	)		(3,475	)
Less: Net loss attributable to noncontrolling interests		142			296			560			489
Net loss attributable to Neonode Inc.	$	(809	)	$	(1,115	)	$	(2,466	)	$	(2,986	)
Loss per common share:
Basic and diluted loss per share	$	(0.14	)	$	(0.20	)	$	(0.42	)	$	(0.59	)
Basic and diluted – weighted average number of common shares outstanding		5,859			5,517			5,859			5,096

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

NEONODE INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Net loss	$	(951	)	$	(1,411	)	$	(3,026	)	$	(3,475	)
Other comprehensive income (loss):
Foreign currency translation adjustments		13			83			(417	)		205
Comprehensive loss		(938	)		(1,328	)		(3,443	)		(3,270	)
Less: Comprehensive loss attributable to noncontrolling interests		142			296			560			489
Comprehensive loss attributable to Neonode Inc.	$	(796	)	$	(1,032	)	$	(2,883	)	$	(2,781	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

NEONODE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine months ended September 30,
	2018			2017
Cash flows from operating activities:
Net loss (including noncontrolling interests)	$	(3,026	)	$	(3,475	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		29			56
Depreciation and amortization		785			672
Changes in operating assets and liabilities:
Accounts receivable		866			933
Projects in process		1			(299	)
Inventory		(198	)		(1,222	)
Prepaid expenses and other current assets		116			(52	)
Accounts payable and accrued expenses		(91	)		(675	)
Deferred revenues		(757	)		(629	)
Net cash used in operating activities		(2,275	)		(4,691	)
Cash flows from investing activities:
Purchase of property and equipment		(184	)		(643	)
Net cash used in investing activities		(184	)		(643	)
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants, net of offering costs		-			9,082
Proceeds from note payable		-			1,713
Payments on note payable		-			(1,713	)
Principal payments on capital lease obligations		(413	)		(301	)
Net cash (used in) provided by financing activities		(413	)		8,781
Effect of exchange rate changes on cash		(235	)		(51	)
Net increase (decrease) in cash		(3,107	)		3,396
Cash at beginning of period		5,796			3,476
Cash at end of period	$	2,689		$	6,872
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	13		$	15
Cash paid for interest	$	39		$	59
Supplemental disclosure of non-cash investing and financing activities
Purchase of equipment with capital lease obligations	$	169		$	1,287

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

NEONODE INC.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. Interim Period Reporting

The accompanying unaudited interim condensed consolidated financial statements, include all adjustments, consisting of normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash flows for the interim periods presented. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of results for a full fiscal year or any other period.

The accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2018 and 2017 have been prepared by us, pursuant to the rules and regulations of the United States (“U.S.”) 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 U.S. (“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, 2017.

We adopted the new accounting standard for revenue recognition effective January 1, 2018. We elected to use the modified retrospective (“cumulative-effect”) approach for adoption of the new standard. Use of the cumulative-effect approach required us to make an opening adjustment to equity rather than recast prior year financial data, therefore comparability of financial statements was impacted. Beginning with the first quarter of 2018, our financial results reflect adoption of the standard. See Note 2 for further discussion.

Operations

Neonode Inc. (collectively with its subsidiaries, is referred to in this Form 10-Q Report as “Neonode”, “we”, “us”, “our”, “registrant”, or “Company”) develops optical touch and gesture solutions for human interaction with devices. In 2010 we began licensing our technology to Original Equipment Manufacturers (“OEMs”) and Tier 1 suppliers who in-turn embed our technology into products they develop, manufacture and sell. Since 2010, our customers have sold over 64 million devices under our licensing agreements that use our technology. In 2016, we augmented our licensing business and started to manufacture and sell standardized embedded sensors that incorporate our technology to OEMs, Tier 1 Suppliers, distributors and our branded products sold directly to consumers.

Liquidity

We have incurred significant operating losses and negative cash flows from operations since our inception. The Company incurred net losses of approximately $0.8 million and $2.5 million and $1.1 million and $3.0 million for the three and nine months ended September 30, 2018 and 2017, respectively, and had an accumulated deficit of approximately $184.6 million and $183.7 million as of September 30, 2018 and December 31, 2017, respectively. In addition, operating activities used cash of approximately $2.3 million and $4.7 million for the nine months ended September 30, 2018 and 2017, respectively.

We expect our revenues from license fees, non-recurring engineering fees and embedded sensor module sales will enable us to reduce our operating losses going forward. In addition, we have improved the overall cost efficiency of our operations, as a result of the transition from providing our customers a full custom design solution to providing standardized sensor modules which require limited custom design work. We intend to continue to implement various measures to improve our operational efficiencies. No assurances can be given that management will be successful in meeting its revenue targets and reducing its operating loss.

The condensed consolidated financial statements included herein have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and the repayment of liabilities in the ordinary course of business. Management evaluated the significance of the Company’s operating loss and determined that the Company’s current operating plan and sources of capital would be sufficient to alleviate concerns about the Company’s ability to continue as a going concern.

As described immediately below, we have obtained capital through private placements in recent years and currently have the ability to raise capital pursuant to an effective shelf registration statement.

5

In the future, we may require sources of capital in addition to cash on hand to continue operations and to implement our strategy. If our operations do not become cash flow positive, we may be forced to seek equity investments or debt arrangements. No assurances can be given that we will be successful in obtaining such additional financing on reasonable terms, or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, results of operations and financial condition. In addition, if funds are available, the issuance of equity securities or securities convertible into equity could dilute the value of shares of our common stock and cause the market price to fall, and the issuance of debt securities could impose restrictive covenants that could impair our ability to engage in certain business transactions.

Reverse Stock Split

As previously disclosed, at the annual meeting of stockholders on June 7, 2018, Neonode stockholders approved an amendment to the restated certification of incorporation to effect a reverse stock split of the Company’s common stock, in the range of 1-for-5 to 1-for-15 at the discretion of the board of directors. The board approved a 1-for-10 reverse stock split of the Company’s issued and outstanding shares of common stock, and on September 27, 2018, the Company filed the certificate of first amendment to its restated certificate of incorporate with the state of Delaware to effect the reverse stock split, effective October 1, 2018.

As a result of the reverse stock split, every ten shares of issued and outstanding common stock were converted into one share of common stock, without any change in the par value per share. No fractional shares were issued, therefore shareholders entitled to receive a fractional share in connection with the reverse stock split received a cash payment instead. There was no financial impact to the Company’s condensed consolidated financial statements. All shares and per share information in this Form 10-Q has been retroactively adjusted for all periods presented to reflect the reverse stock split, including reclassifying any amount equal to the reduction in par value of common stock to additional paid-in capital.

Trading of the Company’s common stock continued on the NASDAQ Capital Market on a reverse stock split-adjusted basis beginning on October 1, 2018.

At the annual meeting of stockholders on June 7, 2018, stockholders of the Company also approved the reduction in the number of authorized shares of common stock in corresponding proportion to the reverse stock split. As a result, the Company filed a certificate of second amendment to its restated certificate of incorporation with the state of Delaware to reduce the number of authorized shares of common stock from 100,000,000 to 10,000,000 shares. The filing did not affect the number of authorized preferred stock of 1,000,000 shares.

NASDAQ

As previously disclosed, the NASDAQ Stock Market informed us in a deficiency notice dated December 27, 2017 that we failed to meet the minimum closing bid price requirement of $1.00 for the previous thirty consecutive trading days; we were initially granted 180 days to regain compliance. Because we met all other listing requirements with the exception of the minimum closing bid price requirement, we received second 180-day compliance period to regain compliance on June 27, 2018. On October 15, 2018, we received a letter from The NASDAQ Stock Market stating that we had regained compliance with The NASDAQ Capital Markets minimum bid price requirements for continued listing, because the closing bid price on our stock had exceeded the $1.00 minimum requirement for at least ten consecutive trading days prior to the date of the letter.

August 2017 Private Placement

In August 2017, we entered into a Securities Purchase Agreement with accredited investors as part of a private placement pursuant to which we issued a total of 975,000 shares of common stock at $10.00 per share, and warrants, for of an aggregate purchase price of $9.75 million in gross proceeds. We received approximately $9.1 million in net proceeds. Under the terms of the 2017 Securities Purchase Agreement, we also issued warrants (the “2017 Warrants”) to investors in the private placement to purchase up to a total of 325,000 shares of common stock at an exercise price of $20.00 per share. The 2017 Warrants became exercisable on August 8, 2018, and will expire on August 9, 2020. If the 2017 Warrants are fully exercised, we will receive approximately $6.5 million in proceeds. There are no registration rights associated with the securities to be issued and sold pursuant to the 2017 Securities Purchase Agreement.

Shelf Registration Statement

In March 2017, we filed a $20 million shelf registration statement with the SEC that became effective on March 24, 2017. We may from time to time issue shares of our common stock under our shelf registration in amounts, at prices, and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in a prospectus supplement and any other offering materials, at the time of the offering. Our shelf registration statement will expire on March 24, 2020.

6

2. Summary of Significant Accounting Policies

Principles of Consolidation

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, as well as Pronode Technologies AB, a 51% majority owned subsidiary of Neonode Technologies AB. The remaining 49% of Pronode Technologies AB is owned by Propoint AB, located in Gothenburg, Sweden. Pronode Technologies AB was organized to sell engineering services within the automotive markets. All inter-company accounts and transactions have been eliminated in consolidation.

Neonode consolidates entities in which we have a controlling financial interest. We consolidate subsidiaries in which we hold, directly or indirectly, more than 50% of the voting rights, and variable interest entities (VIEs) in which Neonode is the primary beneficiary.

In June 2016, we entered into a Joint Venture (“JV”) with a Swedish based eye-tracking company SMART EYE AB. By combining our technologies, we plan to bring multi-chip modules to the market for the consumer and automotive markets that provide new opportunities for interaction with cars and devices. The name of the JV is Neoeye AB (“Neoeye”). 

We use the equity method of accounting to record our investments in the common stock of each entity in which Neonode has the ability to exercise significant influence, but does not own a majority equity interest. Under the equity method, our investment is originally included in equity interests at cost, and is adjusted to recognize our share of net earnings or losses of the investee, in our condensed consolidated balance sheets; our share of net income (loss) is reported in our condensed consolidated statements of operations according to our equity ownership in each entity.

The condensed consolidated balance sheets at September 30, 2018 and December 31, 2017 and the condensed consolidated statements of operations, comprehensive loss and cash flows for the three and nine months ended September 30, 2018 and 2017 include our accounts and those of our wholly owned subsidiaries, Neonode Technologies AB (Sweden), Neonode Americas Inc. (U.S.), Neonode Japan Inc. (Japan), NEON Technology Inc. (U.S.), Neno User Interface Solutions AB (Sweden), Neonode Korea Ltd. (South Korea) and Neonode Taiwan Ltd. (Taiwan), as well as Pronode Technologies AB (Sweden), a 51% majority owned subsidiary of Neonode Technologies AB.

Estimates

The preparation of financial statements in conformity with U.S. GAAP requires making estimates and assumptions that affect, at the date of the financial statements, the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Actual results could differ from these estimates. Significant estimates include, but are not limited to: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price of performance obligations, variable consideration, and other obligations such as product returns and refunds, and product warranties; provisions for uncollectible receivables; net realizable value of inventory; recoverability of capitalized project costs and long-lived assets; the valuation allowance related to our deferred tax assets; and the fair value of options and warrants issued for stock-based compensation.

7

Cash

We have not had any liquid investments other than normal cash deposits with bank institutions to date. The Company considers all highly liquid investments with original maturities of three months of less to be cash equivalents.

Concentration of Cash Balance Risks

Cash balances are maintained at various banks in the U.S., Japan, Korea, Taiwan and Sweden. For deposits held with financial institutions in the U.S. the U.S. Federal Deposit Insurance Corporation, provides basic deposit coverage with limits up to $250,000 per owner. The Swedish government provides insurance coverage up to 100,000 Euro per customer and covers deposits in all types of accounts. The Japanese government provides insurance coverage up to 10,000,000 Yen per customer. The Korea Deposit Insurance Corporation provides insurance coverage up to 50,000,000 Won per customer. The Central Deposit Insurance Corporation in Taiwan provides insurance coverage up to 3,000,000 Taiwan Dollar per customer. At times, deposits held with financial institutions may exceed the amount of insurance provided.

Accounts Receivable and Allowance for Doubtful Accounts  

Accounts receivable is stated at net realizable value. Our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments. Credit limits are established through a process of reviewing the financial history and stability of each customer. Where appropriate, we obtain credit rating reports and financial statements of the customer when determining or modifying its credit limits. We regularly evaluate the collectability of our trade receivable balances based on a combination of factors. When a customer’s account balance becomes past due, we initiate dialogue with the customer to determine the cause. If it is determined that the customer will be unable to meet its financial obligation, such as in the case of a bankruptcy filing, deterioration in the customer’s operating results or financial position or other material events impacting its business, we record a specific allowance to reduce the related receivable to the amount we expect to recover. Should all efforts fail to recover the related receivable, we will write off the account. We also record an allowance for all customers based on certain other factors including the length of time the receivables are past due and historical collection experience with customers. Our allowance for doubtful accounts was approximately $149,000 as of September 30, 2018 and December 31, 2017.

Projects in Process

Projects in process consist of costs incurred toward the completion of various projects for certain customers. These costs are primarily comprised of direct engineering labor costs and project-specific equipment costs. These costs are capitalized on our condensed consolidated balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition policy. There were no costs capitalized in projects in process as of September 30, 2018. Costs capitalized in projects in process were $1,000 as of December 31, 2017.

Inventory

Inventory is stated at the lower of cost, computed using the first-in, first-out method (“FIFO”) and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. As of September 30, 2018, and December 31, 2017, the Company’s inventory consists primarily of components that will be used in the manufacturing of our sensor modules. We segregate inventory for reporting purposes by raw materials, work-in-process, and finished goods.

Raw materials, work-in-process, and finished goods are as follows (in thousands):

	September 30,		December 31,
	2018		2017
Raw materials	$	147	$	164
Work-in-Process		210		231
Finished goods		901		759
Ending inventory	$	1,258	$	1,154

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Investment in JV

We have invested $3,000 for a 50% interest in Neoeye AB (see above). We account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and will be recognized in the consolidated statements of operations and will also be adjusted by contributions to and distributions from Neoeye. The Company is not required to guarantee any obligations of the JV. There have been no operations of Neoeye through September 30, 2018.

Neoeye, as an unconsolidated equity investee, will recognize revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of revenue is assured, which is generally upon the receipt of the license proceeds. Neoeye may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones have been met.

We periodically review our investment in Neoeye to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near-term prospects of Neoeye. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method based upon estimated useful lives of the assets as follows:

Estimated useful lives

Computer equipment	3 years
Furniture and fixtures	5 years
Equipment	7 years

Equipment purchased under a capital lease is recognized over the term of the lease, if that lease term is shorter than the estimated useful life.

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Upon retirement or sale of property and equipment, cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the condensed consolidated statement of operations. Maintenance and repairs are charged to expense as incurred. 

Long-lived Assets

We assess any impairment by estimating the future cash flow from the associated asset in accordance with relevant accounting guidance. If the estimated undiscounted future cash flow related to these assets decreases or the useful life is shorter than originally estimated, we may incur charges for impairment of these assets. As of September 30, 2018, we believe there was no impairment of our long-lived assets. There can be no assurance, however, that market conditions will not change or sufficient demand for our products and services will continue, which could result in impairment of long-lived assets in the future.

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, the South Korean Won and the Taiwan Dollar. The translation from Swedish Krona, Japanese Yen, South Korean Won and Taiwan Dollar to U.S. Dollars is performed for balance sheet accounts using current exchange rates in effect at the 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 income (loss). Foreign currency translation gains (losses) were $13,000 and $(417,000) during the three and nine months ended September 30, 2018, respectively, compared to translation gains of $83,000 and $205,000 during the three and nine months ended September 30, 2017, respectively. Losses resulting from foreign currency transactions are included in general and administrative expenses in the accompanying condensed consolidated statements of operations and were $13,000 and $34,000 during the three and nine months ended September 30, 2018, respectively, compared to $45,000 and $24,000 during the same periods in 2017, respectively.

Concentration of Credit and Business Risks

Our customers are located in U.S., Europe and Asia.

As of September 30, 2018, four customers represented approximately 73% of the Company’s accounts receivable. 

As of December 31, 2017, two customers represented approximately 69% of the Company’s accounts receivable. 

Customers who accounted for 10% or more of our net revenues during the three months ended September 30, 2018 are as follows:

● Hewlett Packard Company – 33%

● Faraday & Future Inc.– 15%

● Seiko Epson – 16%

● Canon – 10%

● Bosch – 10%

Customers who accounted for 10% or more of our net revenues during the nine months ended September 30, 2018 are as follows:

● Hewlett Packard Company – 34%

● Seiko Epson – 14%

● Canon – 13%

Customers who accounted for 10% or more of our net revenues during the three months ended September 30, 2017 are as follows:

● Hewlett Packard Company – 30%

● Canon – 17%

● Seiko Epson – 12%

● Bosch – 11%

Customers who accounted for 10% or more of our net revenues during the nine months ended September 30, 2017 are as follows:

● Hewlett Packard Company – 31%

● Canon – 15%

● Bosch – 11%

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Revenue Recognition

We recognize revenue when control of products is transferred to our customers, and when services are completed and accepted by our customers; the amount of revenue we recognize reflects the consideration we expect to receive for those products or services. Our contracts with customers may include combinations of products and services, for example, a contract that includes products and related engineering services. We structure our contracts such that distinct performance obligations, such as product sales or license fees, and related engineering services, are clearly defined in each contract.

Sales of license fees and AirBar and sensor modules are on a per-unit basis; therefore, we generally satisfy performance obligations as units are shipped to our customers. Non-recurring engineering service performance obligations are satisfied as work is performed and accepted by our customers.

We recognize revenue net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. We treat all product shipping and handling charges (regardless of when they occur) as activities to fulfill the promise to transfer goods, therefore we treat all shipping and handling charges as expenses.

Licensing Revenues:

We earn revenue from licensing our internally developed intellectual property (“IP”). We enter into IP licensing agreements that generally provide licensees the right to incorporate our IP components in their products, with terms and conditions that vary by licensee. Fees under these agreements may include license fees relating to our IP, and royalties payable to us following the distribution by our licensees of products incorporating the licensed technology. The license for our IP has standalone value and can be used by the licensee without maintenance and support.

For technology license arrangements that do not require significant modification or customization of the underlying technology, we recognize technology license revenue when the license is made available to the customer and the customer has a right to use that license. At the end of each reporting period, we record unbilled license fees, using prior royalty revenue data by customer to make accurate estimates of those royalties.

Explicit return rights are not offered to customers. There have been no returns through September 30, 2018.

Engineering Services:

For technology license or sensor module contracts that require modification or customization of the underlying technology to adapt that technology to customer use, we determine whether the technology license or sensor module, and engineering consulting services represent separate performance obligations. We perform our analysis on a contract-by-contract basis. If there are separate performance obligations, we determine the standalone selling price (“SSP”) of each separate performance obligation to properly recognize revenue as each performance obligation is satisfied. We provide engineering consulting services to our customers under a signed Statement of Work (“SOW”). Deliverables and payment terms are specified in each SOW. We generally charge an hourly rate for engineering services, and we recognize revenue as engineering services specified in contracts are completed and accepted by our customers. Any upfront payments we receive for future non-recurring engineering services are recorded as unearned revenue until that revenue is earned.

We believe that recognizing non-recurring engineering services revenues as progress towards completion of engineering services and customer acceptance of those services occurs best reflects the economics of those transactions, because engineering services as tracked in our systems correspond directly with the value to our customers of our performance completed to date. Hours performed for each engineering project are tracked and reflect progress made on each project, and are charged at a consistent hourly rate.

Revenues from engineering services contracts that are short-term in nature are recorded when those services are complete and accepted by customers.

Revenues from engineering services contracts with substantive defined deliverables for which payment terms in the SOW are commensurate with the efforts required to produce such deliverables are recognized as they are completed and accepted by customers.

Estimated losses on all SOW projects are recognized in full as soon as they become evident. In the quarters ended September 30, 2018 and 2017, no losses related to SOW projects were recorded.

Optical Sensor Modules Revenues:

We earn revenue from sales of sensor modules hardware products to our OEM and Tier 1 supplier customers, who embed our hardware into their products, and from sales of branded consumer products that incorporate our sensor modules sold through distributors or directly to end users. These distributors are generally given business terms that allow them to return unsold inventory, receive credits for changes in selling prices, and participate in various cooperative marketing programs. Our sales agreements generally provide customers with limited rights of return and warranty provisions.

The timing of revenue recognition related to AirBar modules depends upon how each sale is transacted - either point-of-sale or through distributors. We recognize revenue for AirBar modules sold point-of-sale (online sales and other direct sales to customers) when we provide the promised product to the customer.

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Because we generally use distributors to provide AirBar and sensor modules to our customers, however, we analyze the terms of distributor agreements to determine when control passes from us to our distributors. For sales of AirBar and sensor modules sold through distributors, revenues are recognized when our distributors obtain control over our products. Control passes to our distributors when we have a present right to payment for products sold to distributors, the distributors have legal title to and physical possession of products purchased from us, and the distributors have significant risks and rewards of ownership of products purchased.

Distributors participate in various cooperative marketing and other incentive programs, and we maintain estimated accruals and allowances for these programs. If actual credits received by distributors under these programs were to deviate significantly from our estimates, which are based on historical experience, our revenue could be adversely affected.

Under U.S. GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns. Our AirBar returns and warranty experience to date has enabled us to make reasonable returns estimates, which are supported by the fact that our product sales involve homogenous transactions. The reserve for future sales returns is recorded as a reduction of our accounts receivable and revenue and was insignificant as of September 30, 2018 and December 31, 2017. If the actual future returns were to deviate from the historical data on which the reserve had been established, our revenue could be adversely affected.

The following table presents disaggregated revenues by market for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):

	Three months ended September 30, 2018					Three months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
Net license revenues from automotive	$	248		13	%	$	457		20	%
Net license revenues from consumer electronics		1,349		70	%		1,615		70	%
Net revenues from sensor modules		39		2	%		211		9	%
Net revenues from non-recurring engineering		287		15	%		22		1	%
	$	1,923		100	%	$	2,305		100	%

	Nine months ended September 30, 2018					Nine months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
Net license revenues from automotive	$	1,151		19	%	$	1,714		25	%
Net license revenues from consumer electronics		4,530		73	%		4,444		64	%
Net revenues from sensor modules		176		3	%		634		9	%
Net revenues from non-recurring engineering		317		5	%		174		2	%
	$	6,174		100	%	$	6,966		100	%

Significant Judgments

Our contracts with customers may include promises to transfer multiple products and services to a customer, particularly when one of our customers contracts with us for a product and related engineering services fees for customizing that product for our customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately may require significant judgment. Judgment may also be required to determine the SSP for each distinct performance obligation identified, although we generally structure our contracts such that performance obligations and pricing for each performance obligation are specifically addressed. We currently have no outstanding contracts with multiple performance obligations; however, we recently negotiated a contract that may include multiple performance obligations in the future.

Judgment is also required to determine when control of products passes from us to our distributors, as well as the amounts of product that may be returned to us. Our products are sold with a right of return, and we may provide other credits or incentives to our customers, which could result in variability when determining the amount of revenue to recognize. At the end of each reporting period, we use product returns history and additional information that becomes available to estimate returns and credits. We do not recognize revenue if it is probable that a significant reversal of any incremental revenue would occur.

Finally, judgment is required to determine the amount of unbilled license fees at the end of each reporting period.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when we have an unconditional right to receive future payments from customers, and we record unearned revenue when we receive prepayments or upfront payments for goods or services from our customers.

	September 30, 2018		December 31, 2017
Accounts receivable and unbilled revenue	$	1,459	$	1,010
Deferred revenues		224		1,248

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The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled revenues (contract assets), and customer advances and deposits or deferred revenue (contract liabilities) on the consolidated balance sheet. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets; contract assets are generally classified as current. The Company sometimes receives advances or deposits from its customers before revenue is recognized, which are reported as contract liabilities and are generally classified as current. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.

The opening balance of current accounts receivable, net of allowance for doubtful accounts, was $2.2 million as of January 1, 2018. As of September 30, 2018, and December 31, 2017, accounts receivable, net of allowance for doubtful accounts, were $1.5 million and $1.0 million, respectively, and are included in current assets on our condensed consolidated balance sheets. There are no long-term accounts receivable related to contracts.

The opening balance of deferred revenues was $0.9 million as of January 1, 2018. As of September 30, 2018, and December 31, 2017, deferred revenues was $0.2 million and $1.2 million, respectively, and is included in current liabilities on our consolidated balance sheets. There are no long-term liabilities related to contracts.

We do not anticipate impairment of our contract asset related to license fee revenues, given the creditworthiness of our customers whose invoices comprise the balance in that asset account. We will continue to monitor the timeliness of receipts from those customers, however, to assess whether the contract asset has been impaired.

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. The balance in the allowance for doubtful accounts was $149,000 as of September 30, 2018 and December 31, 2017.

Payment terms and conditions vary by the type of contract; however, payments generally occur 30-60 days after invoicing for license fees and sensor modules to our resellers and distributors. Where revenue recognition timing differs from invoice timing, we have determined that our contracts do not include a significant financing component. Our intent is to provide our customers with consistent invoicing terms for the convenience of our customers, not to receive financing from our customers.

Costs to Obtain Contracts

We record the incremental costs of obtaining a contract with a customer as an asset, if we expect the benefit of those costs to cover a period greater than one year. We currently have no incremental costs that must be capitalized.

We expense as incurred costs of obtaining a contract when the amortization period of those costs would have been less than or equal to one year.

Product Warranty

The following table summarizes the activity related to the product warranty liability (in thousands):

	September 30, 2018		December 31, 2017
Balance at beginning of period	$	35	$	11
Provisions for warranty issued		-		24
Balance at end of period	$	35	$	35

We accrue for warranty costs as part of cost of sales of sensor modules based on estimated costs. Our products are generally covered by a warranty for a period of 12 to 36 months from customer receipt of the product.

Deferred Revenues

Deferred revenues consist primarily of prepayments for license fees, and other products or services for which we have been paid in advance, and earn the revenue when we transfer control of the product or service. Deferred revenues may also include upfront payments for consulting services to be performed in the future, such as non-recurring engineering services.

We defer license fees until we have met all accounting requirements for revenue recognition as per unit royalty products are distributed and available to our customers. Engineering development fee revenues are deferred until the engineering work has been completed and accepted by our customers.

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

	September 30, 2018		December 31, 2017
Deferred license fees	$	138	$	1,089
Deferred AirBar revenues		70		137
Deferred sensor modules revenues		16		22
	$	224	$	1,248

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The opening balance of deferred revenues after adjustment pursuant to ASC 606 was $0.9 million as of January 1, 2018.

Changes in deferred revenues were as follows (in thousands):

	September 30, 2018
	Balances excluding revenue standard		Impact of Revenue Standard			As Reported
Deferred revenues	$	366	$	(142	)	$	224

Contracted revenue not yet recognized was $0.2 million as of September 30, 2018; we expect to recognize approximately 100% of that revenue over the next twelve months.

Advertising

Advertising costs are expensed as incurred. Advertising costs for the three and nine months ended September 30, 2018 amounted to approximately $14,000 and $84,000 respectively. Advertising costs for the three and nine months ended September 30, 2017 amounted to approximately $216,000 and $529,000, respectively.

Research and Development

Research and development (“R&D”) costs are expensed as incurred. R&D costs consist primarily of personnel related costs in addition to some external consultancy costs such as testing, certifying and measurements.

Stock-Based Compensation Expense

We measure the cost of employee services received in exchange for an award of equity instruments, including share options, based on the estimated fair value of the award on the grant date, and recognize the value as compensation expense over the period the employee is required to provide services in exchange for the award, usually the vesting period.

We account for equity instruments issued to non-employees at their estimated fair value. The measurement date for the estimated fair value for the equity instruments issued is determined at the earlier of (1) the date at which a commitment for performance by the consultant or vendor is reached, or (2) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instruments is primarily recognized over the term of the consulting agreement. The estimated fair value of the stock-based compensation is periodically re-measured and income or expense is recognized during the vesting term.

When determining stock-based compensation expense involving options and warrants, we determine the estimated fair value of options and warrants using the Black-Scholes option pricing model.

Noncontrolling Interests

The Company recognizes noncontrolling interests as equity in the condensed consolidated financial statements separate from the parent company’s equity. Noncontrolling interests’ partners have less than 50% share of voting rights at any one of the subsidiary level companies. The amount of net income (loss) attributable to non-controlling interests is included in consolidated net income (loss) on the face of the condensed consolidated statements of operations. Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income (loss) when a subsidiary is deconsolidated. Such gain or loss is measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Additionally, operating losses are allocated to noncontrolling interests even when such allocation creates a deficit balance for the noncontrolling interest partner.

The Company provides either in the condensed consolidated statement of stockholders’ equity, if presented, or in the notes to condensed consolidated financial statements, a reconciliation at the beginning and the end of the period of the carrying amount of total equity (net assets), equity (net assets) attributable to the parent, and equity (net assets) attributable to the noncontrolling interest that separately discloses:

(1)	Net income or loss.
(2)	Transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners.
(3)	Each component of other comprehensive income or loss.

Income Taxes

We recognize deferred tax liabilities and assets for the expected future tax consequences of items that have been included in the 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.

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Based on the uncertainty of future pre-tax income, we fully reserved our net deferred tax assets as of September 30, 2018 and December 31, 2017. 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 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 September 30, 2018, and December 31, 2017, we had no unrecognized tax benefits.

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the “Tax Act”) was signed into law and the new legislation contains several key tax provisions that affected us, including the one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018, among other changes. We are required to recognize the effect of the tax law changes in the period of enactment. Since we have negative accumulated foreign earnings, we are not subject to the one-time repatriation tax. We have re-measured our U.S. deferred tax assets and liabilities, which resulted in a reduction of our net deferred tax assets with a corresponding adjustment to valuation allowance. As a result, no tax expense is recorded related to the enactment of the Tax Act. We have considered the accounting of deferred tax re-measurement and one-time transition tax calculation to be complete.

Net Loss per Share

Net loss per share amounts has been computed based on the weighted average number of shares of common stock outstanding during the three and nine months ended September 30, 2018 and 2017. Net loss per share, assuming dilution amounts from common stock equivalents, is computed based on the weighted-average number of shares of common stock and potential common stock equivalents outstanding during the period. The weighted-average number of shares of common stock and potential common stock equivalents used in computing the net loss per share for the three and nine months ended September 30, 2018 and 2017 exclude the potential common stock equivalents, as the effect would be anti-dilutive (See Note 7).

Other Comprehensive Income (Loss)

Our other comprehensive income (loss) includes foreign currency translation gains and losses. The cumulative amount of translation gains and losses are reflected as a separate component of stockholders’ equity in the condensed consolidated balance sheets as accumulated other comprehensive loss.

Cash Flow Information

Cash flows in foreign currencies have been converted to U.S. Dollars at an approximate weighted-average exchange rate for the respective reporting periods. The weighted-average exchange rate for the condensed consolidated statements of operations was as follows:

	Nine months ended September 30,
	2018		2017
Swedish Krona		8.57		8.62
Japanese Yen		109.63		111.91
South Korean Won		1,090.03		1,136.27
Taiwan Dollar		29.90		30.51

Exchange rate for the consolidated balance sheets was as follows:

	As of
	September 30,		December 31,
	2018		2017
Swedish Krona		8.87		8.21
Japanese Yen		113.69		112.65
South Korean Won		1,109.21		1,066.31
Taiwan Dollar		30.45		29.66

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Fair Value of Financial Instruments

We disclose the estimated fair values for all financial instruments for which it is practicable to estimate fair value. Financial instruments including cash, accounts receivable, accounts payable and accrued expenses and are deemed to approximate fair value due to their short maturities.

New Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update 2014-09 to address the new revenue recognition accounting standard, ASC 606 - Revenues from Contracts with Customers. The new standard was effective January 1, 2018 for public entities. Under the new standard, revenue is recognized upon transfer of control of goods or services to customers, and the amount of revenue recognized should reflect the consideration expected to be received for the transfer of those goods or services to customers. Disclosures are required to describe the nature, amount, timing, and uncertainty of revenue and cash flows that may arise from contracts with customers.

We adopted the new standard on January 1, 2018. For cost and time efficiency purposes, we used the modified retrospective (“cumulative-effect”) approach to implement the new revenue recognition standard. We elected to apply that approach only to contracts not substantially complete at January 1, 2018.

We may from time to time negotiate contract modifications to contracts with our customers. While using the cumulative-effect approach for our revenue recognition implementation, we found that there was one contract that was modified before the beginning of the earliest reporting period presented. We elected to not apply the practical expedient related to contract modification because that contract was the only contract modified during the past several years, and we determined that the modified contract in substance represented a new contract for a new product. Therefore, the original contract and contract modification were treated as separate contracts for purposes of contract analysis.

Use of the cumulative-effect approach required us to make an opening adjustment to equity rather than recast prior year financial data; therefore, comparability of financial statements was impacted.

The most significant impact of the standard going forward relates to our accounting for license fee revenues. In prior years, we recognized license fee revenues after receipt of royalty reports from our customers; those royalty reports were often subject to reporting lags of five days to three months. We have requested that our customers provide more timely license fee royalty reports (with a maximum one-month lag), and we estimate any license fee revenue still subject to lag reporting. We use our royalty history with each customer to most accurately estimate the remaining royalties not yet reported to us at the end of each reporting period.

There was no adjustment related to AirBar and sensor modules; however, there will be a change in the timing of revenue recognition in the future. The timing of revenue recognition related to our AirBar and sensor modules depends upon how each sale is transacted - either point-of-sale or through distributors. Revenue recognition timing for AirBar modules sold point-of-sale (online sales and other direct sales to consumers) remains unchanged; revenue is recognized when we provide the promised product to the customer. In prior years, we did not recognize revenues related to our AirBar and sensor modules sold through distributors until those products were sold through to end customers. For sales of AirBar and sensor modules through distributors, revenues are now recognized when our distributors obtain control over our products; control passes to our distributors depending upon a number of factors.

Although we are entitled to an optional exemption from disclosure of variable consideration related to AirBar and sensor modules under the new standard, we plan to continue to disclose variable consideration related to sales of AirBar and sensor modules.

There was no cumulative adjustment related to non-recurring engineering fees, because all outstanding engineering projects were completed as of December 31, 2017.

The following table summarizes the impact of the new revenue standard on the Company’s condensed consolidated statement of operations for the three and nine months ended September 30, 2018 and condensed consolidated balance sheet as of September 30, 2018:

	Three months ended September 30, 2018
	Balances excluding revenue standard		Impact of Revenue Standard			As Reported
Revenue
License fees	$	1,919	$	(322	)	$	1,597
Sensor modules		39		-			39
Non-recurring engineering		287		-			287
Total Revenues	$	2,245	$	(322	)	$	1,923

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	Nine months ended September 30, 2018
	Balances excluding revenue standard		Impact of Revenue Standard			As Reported
Revenue
License fees	$	5,939	$	(258	)	$	5,681
Sensor modules		176		-			176
Non-recurring engineering		317		-			317
Total Revenues	$	6,432	$	(258	)	$	6,174

	September 30, 2018
	Balances excluding revenue standard			Impact of Revenue Standard			As Reported
Assets
Accounts receivable and unbilled revenue, net	$	276		$	1,183		$	1,459
Liabilities
Deferred revenues	$	366		$	(142	)	$	224
Equity
Accumulated deficit	$	(185,954	)	$	1,325		$	(184,629	)

Adoption of the new standard resulted in an increase in accounts receivable and unbilled revenue, due to an adjustment to equity to record license fees that had not yet been reported, as well as a reduction of deferred revenues, due to an adjustment to equity to apply license fee prepayments to revenues.

Adoption of the new revenue recognition standard had no impact on cash provided by or used in operating, financing, or investing activities on our condensed consolidated statements of cash flows.

We implemented internal controls effective January 1, 2018 to ensure that we properly evaluate our contracts and review assumptions we make for revenue estimates, and we assessed the impact of the new accounting standard related to revenue recognition on our consolidated financial statements to facilitate our adoption of the new standard on January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, lessees will be required recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

The effective date of the new lease standard (ASC 842) is January 1, 2019, and we plan to adopt the new standard on that date. We have drafted our lease standard implementation plan, and that plan is currently under final review by executive management. We will use the required modified retrospective approach, which allows us to make any necessary transition adjustments at January 1, 2019. We will elect the optional transition method, which will allow us to continue to use disclosures required by the prior standard during 2019, the year of adoption. There are also several practical expedients available to make the transition more efficient and cost-effective for companies. We plan to elect the package of three practical expedients available to us; doing so will allow us to not reassess existing leases, therefore we will not be required to search existing contracts for embedded leases.

We currently have a limited number of leased capital assets, all of which will be classified as finance leases under the new lease standard. We maintain a lease inventory for those assets; they are currently reported on our condensed consolidated balance sheets and will continue to be reported on our condensed consolidated balance sheets under the new standard. We also have a small number of leases which are currently classified as operating leases; we have compiled a list of those leases and will analyze them as we transition to the new standard. We expect that the transition may result in the inclusion of a few operating leases on our condensed consolidated balance sheets, as well as more robust disclosures.

Because of the small number of assets we lease, we do not need to make systems changes to comply with the new standard. We plan to continue to track those leased assets outside of our accounting systems. We will assess the accounting and possible tax impacts during the coming months; however, we do not expect material changes in financial ratios, leasing practices, or tax reporting.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). The new standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 will become effective for us for fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact ASU 2016-13 will have on our consolidated financial statements.

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3. Stockholders’ Equity

Common Stock

During the nine months ended September 30, 2018, there were no activities that affected common stock. The Company effected a reverse stock split, effective October 1, 2018 (see Note 1).

August 2017 Private Placement

On August 2, 2017, we entered into a Securities Purchase Agreement with accredited investors as part of a private placement pursuant to which we issued a total of 975,000 shares of common stock at $10.00 per share, and warrants, for an aggregate purchase price of $9.75 million in gross proceeds (see Note 1 for additional details). 

Preferred Stock

We have one class of preferred stock outstanding. There were no activities that affected preferred stock during the nine months ended September 30, 2018.

Conversion of Preferred Stock Issued to Common Stock

The following table summarizes the amounts as of September 30, 2018. 

	Shares of Preferred Stock Not Exchanged as of September 30, 2018		Conversion Ratio		Shares of Common Stock after Conversion of all Outstanding Shares of Preferred Stock Not yet Exchanged at September 30, 2018
Series B Preferred stock		83		132.07		10,962

Warrants

As of both September 30, 2018 and December 31, 2017, there were 1,116,368 warrants to purchase common stock outstanding, respectively. During 2017, we agreed to issue the 2017 Warrants to investors in the August 2017 private placement to purchase up to a total of approximately 325,000 shares of common stock at an exercise price of $20.00 per share. The 2017 Warrants will become exercisable 12 months from the date of issuance and will expire three years from the date of issuance. If the 2017 Warrants are fully exercised, we will receive approximately $6.5 million in cash.

4. Stock-Based Compensation

There was no stock-based compensation expense for the three months ended September 30, 2018, nor is there any remaining unrecognized stock-based compensation expense at September 30, 2018. The stock-based compensation expense for the nine months ended September 30, 2018 and 2017 reflects the estimated fair value of the vested portion of options granted to employees, directors and eligible consultants. On April 11, 2018, the Company issued to the CEO, Håkan Persson, a total of 30,000 immediately vested options to purchase shares of the Company’s common stock at an exercise price of $15.00 per share that expire on April 11, 2021. The purchase price of the stock options was determined to be $0.40 per option for a total amount of $12,000. Under Sweden law, the CEO is required to purchase the stock options from the Company, therefore the $12,000 was recorded as stock-based compensation expense. At the discretion of the board of directors, the Company absorbed the cost and recorded the amount as a bonus to this employee on date of grant. Stock-based compensation expense in the accompanying condensed consolidated statements of operations is as follows (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Sales and marketing		-		11		6		39
General and administrative		-		6		23		17
Total stock-based compensation expense	$	-	$	17	$	29	$	56

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	Remaining unrecognized expense at September 30, 2018
Stock-based compensation	$	-

The estimated fair value of stock-based awards is calculated using the Black-Scholes option pricing model, even though this model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from our stock options. The Black-Scholes model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term and forfeiture rate of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior, as well as expected behavior on outstanding options. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. The expected volatility is based on the historical volatility of our stock price. These factors could change in the future, which would affect fair values of stock options granted in such future periods, and could cause volatility in the total amount of the stock-based compensation expense reported in future periods.

Stock Options

We have adopted equity incentive plans for which stock options and restricted stock awards are available to grant to employees, consultants and directors. Except for the 30,000 options issued to the CEO (see above), all employee, consultant and director stock options granted under our stock option plans have an exercise price equal to the market value of the underlying common stock on the grant date. There are no vesting provisions tied to performance conditions for any options, as vesting for all outstanding option grants was based only on continued service as an employee, consultant or director. All of our outstanding stock options and restricted stock awards are classified as equity instruments.

As of September 30, 2018, we had two equity incentive plans:

● The 2006 Equity Incentive Plan; and

● The 2015 Stock Incentive Plan

A summary of the combined activity under all of the stock option plans is set forth below:

	Number of Options Outstanding			Weighted Average Exercise Price
Outstanding at January 1, 2018		175,600		$	42.00
Granted		30,000			15.00
Cancelled		(78,300	)		41.30
Expired		(26,000	)		41.50
Outstanding at September 30, 2018		101,300		$	34.65

The aggregate intrinsic value of the 101,300 stock options that are outstanding, vested and expected to vest as of September 30, 2018 was $0.

For the three and nine months ended September 30, 2018 and 2017, we recorded $0 and $29,000 and $17,000 and $56,000, respectively, of compensation expense related to the vesting of stock options. The fair value of the stock-based compensation was calculated using the Black-Scholes option pricing model as of the date of grant of the stock option.

During the nine months ended September 30, 2018, we granted 30,000 options to purchase shares of our common stock to the CEO with a grant fair value of $6,000 computed using the Black-Scholes option pricing model. The weighted average grant date fair value of the options during the nine months ended September 30, 2018 was $0.20. We did not grant any options to purchase shares to any of the members of our board of directors.

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See below for assumptions used in the valuation of stock options: 

	For the nine months ended
	September 30, 2018
Annual dividend yield		-
Expected life (years)		1.50
Risk-free interest rate		2.2	%
Expected volatility		71	%

Stock options granted under the 2006 and 2015 Plans are exercisable over a maximum term of ten years from the date of grant, vest in various installments over a one to four-year period and have exercise prices reflecting the market value of the shares of common stock on the date of grant.

5. 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 September 30, 2018 and December 31, 2017.

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 September 30, 2018 and December 31, 2017.

Non-Recurring Engineering Development Costs

On April 25, 2013, we entered into an Analog Device Development Agreement with an effective date of December 6, 2012 (the “NN1002 Agreement”) with Texas Instruments pursuant to which Texas Instruments agreed to integrate Neonode’s intellectual property into an application specific integrated circuit (“ASIC”). The NN1002 ASIC can only be sold by Texas Instruments exclusively to licensees of Neonode. Under the terms of the NN1002 Agreement, we agreed to 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 also agreed to 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 shipping to customers in 2015. As of September 30, 2018, we had made no payments under the NN1002 Agreement.

On December 4, 2014, we entered into an Analog Device Development Agreement (the “NN1003 Agreement”) with ST Microelectronics International N.V. pursuant to which ST Microelectronics agreed to integrate Neonode’s intellectual property into an ASIC (“NN1003 ASIC”). The NN1003 ASIC can only be sold by ST Microelectronics exclusively to licensees of Neonode. Under the terms of the NN1003 Agreement, we agreed to reimburse ST Microelectronics up to $835,000 of non-recurring engineering costs as follows:

● $235,000 at the feasibility review and contract signature (paid in full);

● $300,000 on completion of tape-out (paid in full); and

● $300,000 on completion on product validation (paid in full).

Under the terms of the NN1003 Agreement, we also will reimburse ST Microelectronics a non-recurring engineering fee of $5.00 per each of the first 10,000 units sold. As of September 30, 2018, we had made no additional payments under the NN1003 Agreement.

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6. Segment Information

We have one reportable segment, which is comprised of the touch technology licensing and sensor module business. All of our sales for the three and nine months ended September 30, 2018 and 2017 were to customers located in the U.S., Europe and Asia. The Company reports revenues from external customers based on the country where the customer is located. Of our total assets, 35% and 28% were held in the U.S. as of September 30, 2018 and December 31, 2017, respectively, and 64% and 71% were held in Sweden as of September 30, 2018 and December 31, 2017, respectively.

The following table presents net revenues by geographic area for the three and nine months ended September 30, 2018 and 2017 (in thousands):

	Three months ended September 30, 2018						Three months ended September 30, 2017
	Amount			Percentage			Amount		Percentage
United States	$	1,101			57	%	$	977		42	%
Japan		623			32	%		771		33	%
Germany		195			10	%		341		15	%
China		(67	)		(3	)%		92		4	%
Taiwan		49			3	%		43		2	%
Other		22			1	%		81		4	%
	$	1,923			100	%	$	2,305		100	%

	Nine months ended September 30, 2018					Nine months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
United States	$	3,033		49	%	$	3,203		46	%
Japan		2,119		34	%		1,666		24	%
Germany		604		10	%		911		13	%
China		130		2	%		631		9	%
Taiwan		159		3	%		137		2	%
Sweden		10		-	%		106		2	%
Singapore		-		-	%		141		2	%
Other		119		2	%		171		2	%
	$	6,174		100	%	$	6,966		100	%

The following table presents long-lived assets by geographic region (in thousands):

	September 30, 2018		December 31, 2017
Long-lived assets in North America	$	2	$	3
Long lived assets in Asia		3		6
Long-lived assets in Europe		2,655		3,318
	$	2,660	$	3,327

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7. Net Loss per Share

Basic net loss per common share for the three and nine months ended September 30, 2018 and 2017 was computed by dividing the net loss attributable to Neonode Inc. for the relevant period by the weighted average number of shares of common stock outstanding. Diluted loss per common share is computed by dividing net loss attributable to Neonode Inc. by the weighted average number of shares of common stock and common stock equivalents outstanding.

Potential common stock equivalents of approximately 0 and 0 outstanding stock options and 350,000 and 440,000 outstanding stock warrants under the treasury stock method, and 11,000 and 11,000 shares issuable upon conversion of preferred stock are excluded from the diluted earnings per share calculation for the nine months ended September 30, 2018 and 2017, respectively, due to their anti-dilutive effect.

(in thousands, except per share amounts)	Three months ended September 30,
	2018			2017
BASIC AND DILUTED
Weighted average number of common shares outstanding		5,859			5,517
Net loss attributable to Neonode Inc.	$	(809	)	$	(1,115	)
Net loss per share - basic and diluted	$	(0.14	)	$	(0.20	)

(in thousands, except per share amounts)	Nine months ended September 30,
	2018			2017
BASIC AND DILUTED
Weighted average number of common shares outstanding		5,859			5,096
Net loss attributable to Neonode Inc.	$	(2,466	)	$	(2,986	)
Net loss per share - basic and diluted	$	(0.42	)	$	(0.59	)

8. Subsequent Events 

We have evaluated subsequent events through the filing date of this Form 10-Q, and determined that the following subsequent events have occurred that would require disclosure in the notes thereto other than as discussed in the accompanying notes.

As previously disclosed, at the annual meeting of stockholders on June 7, 2018, Neonode stockholders approved an amendment to the restated certification of incorporation to effect a reverse stock split of the Company’s common stock, in the range of 1-for-5 to 1-for-15 at the discretion of the board of directors. The board approved a 1-for-10 reverse stock split of the Company’s issued and outstanding shares of common stock, and on September 27, 2018, the Company filed the certificate of first amendment to its restated certificate of incorporate with the state of Delaware to effect the reverse stock split, effective October 1, 2018.

As a result of the reverse stock split, every ten shares of issued and outstanding common stock were converted into one share of common stock, without any change in the par value per share. No fractional shares were issued, therefore shareholders entitled to receive a fractional share in connection with the reverse stock split received a cash payment instead. There was no financial impact to the Company’s condensed consolidated financial statements. All shares and per share information in this Form 10-Q has been retroactively adjusted for all periods presented to reflect the reverse stock split, including reclassifying any amount equal to the reduction in par value of common stock to additional paid-in capital.

Trading of the Company’s common stock continued on the NASDAQ Capital Market on a reverse stock split-adjusted basis beginning on October 1, 2018.

At the annual meeting of stockholders on June 7, 2018, stockholders of the Company also approved the reduction in the number of authorized shares of common stock in corresponding proportion to the reverse stock split. As a result, the Company filed a certificate of second amendment to its restated certificate of incorporation with the state of Delaware to reduce the number of authorized shares of common stock from 100,000,000 to 10,000,000 shares.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking. You can identify some forward-looking statements by the use of words such as “believe,” “anticipate,” “expect,” “intend,” “goal,” “plan,” and similar expressions. Forward looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements, including, but not limited to risks relating to our limited experience manufacturing hardware devices, the uncertainty of growth in market acceptance for our technology, our history of losses since inception, our ability to remain competitive in response to new technologies, the costs to defend, as well as risks of losing, patents and intellectual property rights, a reliance on our future customers’ ability to develop and sell products that incorporate our technology, our customer concentration and dependence on a limited number of customers, the uncertainty of demand for our technology in certain markets, the length of a product development and release cycle, our ability to manage growth effectively, our dependence on key members of our management and development team, our ability to maintain the NASDAQ listing of our common stock, and our ability to obtain adequate capital to fund future operations, For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and in our publicly available filings with the Securities and Exchange Commission. Forward-looking statements reflect our analysis only as of the filing date of this Quarterly Report on Form 10-Q. Because actual events or results may differ materially from those discussed in or implied by forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statement. We do not undertake responsibility to update or revise any of these factors or to announce publicly any revision to forward-looking statements, whether as a result of new information, future events or otherwise.

The following Management’s Discussion and Analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and consolidated financial statements for the year ended December 31, 2017 included in our Annual Report on Form 10-K.

Neonode Inc., collectively with its subsidiaries, is referred to in this Form 10-Q as “Neonode”, “we”, “us”, “our”, “registrant”, or the “Company”.

Overview

Neonode Inc. develops user interface and optical interactive touch and gesture solutions. Our patented technology offers multiple features including the ability to sense an object’s size, depth, velocity, pressure, and proximity to any type of surface. In 2010 we began licensing our technology to Original Equipment Manufacturers (“OEMs”) and Tier 1 suppliers who embed our technology into products they develop, manufacture and sell. Since 2010, our customers have sold approximately 64 million devices that use our technology. In 2016, we augmented our licensing business and started to manufacture and sell standardized sensor modules that incorporate our technology to OEMs and Tier 1 suppliers, distributors and our branded products directly to consumers.

We offer our technology to current and new customers under either a license agreement or a supply agreement. We anticipate our revenue will be generated by a combination of royalties from existing and new license customers plus sales of our sensor modules.

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Licensing

As of September 30, 2018, we had entered into forty-one technology license agreements with global OEMs and Tier 1 suppliers. Our technology licensing agreements typically have an initial term of three years with automatic one year renewal periods. During the nine months ended September 30, 2018, we had sixteen customers using our touch technology in products that were being shipped to customers. In addition, we are currently developing prototype products and are engaged in product engineering design discussions with numerous global OEMs and ODMs who are in the process of qualifying our touch technology for incorporation in various products. The development and release cycle for these products typically takes six to thirty-six months. We continue to offer licensing options to current and new customers primarily using our zForce CORE technology.

We also offer engineering consulting services to our OEM and ODM customers on a flat rate or hourly rate basis. Typically, our customers require engineering support during the development and initial manufacturing phase for their products using our technology.

Sensor Modules

In 2015, we completed the first stage of development on zForce AIR. This optical interactive touch and gesture enabling technology led to the development of a series of standardized sensors that provide our customers with an easy to install touch and gesture enabling solution in a sensor module.

During 2016, we invested in developing a new robotic manufacturing process designed specifically for zForce AIR sensor modules and in the last quarter of 2016 we started production of our first sensor modules that are used to power our AirBar product line. Industry specific standardized sensor modules using a common technology platform will allow us to enter and compete in numerous markets without being encumbered with the project specific custom design solutions of our licensing business.

In October 2017, we launched the zForce AIR Touch Sensor, our first range of sensor modules to be integrated into various applications. The Touch Sensors are available for immediate shipment worldwide through Digi-Key Electronics, a global electronic components distributor. The zForce AIR Touch Sensor enables touch interaction on any device with a USB or I2C interface. The sensor simplifies integration into any host based application supporting the most common interfaces, by integrating precision optics, lasers along with a Neonode proprietary controller IC. The zForce AIR Touch Sensor reports touch coordinates up to 300 times per second for virtually zero delay. The zForce AIR Touch Sensor is available in two types (0° and 90° type) to enable both vertical and horizontal integration and is available in sizes from 43 to 346 mm in order to fit into a wide range of products. We currently have development projects with customers in the automotive market to embed our sensor modules in entry system products and with an OEM developing an aircraft cockpit instrumentation systems.

We expect the integration of our sensor modules will continue to gain momentum as we expand our product offerings. Over time, we expect a large portion of our revenue to be derived from the sale of sensor modules.

Consumer Products

In 2016, we developed our only consumer product, AirBar. As a plug and play accessory, AirBar enables touch and gesture functionality for notebook computers. AirBar is powered by one of our sensor modules.

In the fourth quarter of 2016, we started production of the 15.6 inch version of AirBar and began initial shipments to Ingram Micro and direct customers in the United States and Europe. In the second quarter of 2017, we began initial production and sales of our AirBar versions for 13.3 inch and 14 inch Windows-based notebook PCs.

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We produce the sensor modules for AirBar at our manufacturing facility in Sweden and ship the completed sensor modules to Salutica Allied Solutions (“Salutica”) in Malaysia for the final product assembly, packaging and distribution to our global distribution partner, Ingram Micro and other customers.

At September 30, 2018, we have sufficient quantities of long lead-time critical components in inventory to meet our estimated near-term requirements to produce sensor modules for AirBar and our embedded sensor module customers.

Results of Operations

A summary of our financial results is as follows (in thousands, except percentages):

	Three months ended												Nine months ended
	September 30,						Change						September 30,						Change
	2018			2017			$			%			2018			2017			$			%
Revenue:
License Fees	$	1,597		$	2,072		$	(475	)		(22.9	)%	$	5,681		$	6,158		$	(477	)		(7.7	)%
Percentage of revenue		83.0	%		89.9	%								92.0	%		88.4	%
Sensor Modules	$	39		$	211		$	(172	)		(81.5	)%	$	176		$	634		$	(458	)		(72.2	)%
Percentage of revenue		2.0	%		9.2	%								2.9	%		9.1	%
NRE	$	287		$	22		$	265			(1,204.5	)%	$	317		$	174		$	143			82.2	%
Percentage of revenue		14.9	%		1.0	%								5.1	%		2.5	%
Total Revenue	$	1,923		$	2,305		$	(382	)		(16.6	)%	$	6,174		$	6,966		$	(792	)		(11.4	)%
Cost of Sales:
Sensor Modules	$	57		$	151		$	(94	)		(62.3	)%	$	191		$	510		$	(319	)		(62.5	)%
Percentage of revenue		3.0	%		6.6	%								3.1	%		7.3	%
NRE	$	282		$	-		$	282			100	%	$	283		$	137		$	146			106.6	%
Percentage of revenue		14.7	%		-	%								4.6	%		2.0	%
Total Cost of Sales	$	339		$	151		$	188			124.5	%	$	474		$	647		$	(173	)		(26.7	)%
Total Gross Margin	$	1,584		$	2,154		$	(570	)		(26.5	)%	$	5,700		$	6,319		$	(619	)		(9.8	)%
Operating Expense:
Research and development	$	1,113		$	1,668		$	(555	)		(33.3	)%	$	3,993		$	4,283		$	(290	)		(6.8	)%
Percentage of revenue		57.9	%		72.4	%								64.7	%		61.5	%
Sales and marketing		446			743			(297	)		(40.0	)%		1,472			2,158			(686	)		(31.8	)%
Percentage of revenue		23.2	%		32.2	%								23.8	%		31.0	%
General and administrative		959			1,154			(195	)		(16.9	)%		3,209			3,365			(156	)		(4.6	)%
Percentage of revenue		49.9	%		50.1	%								52.0	%		48.3	%
Total Operating Expenses	$	2,518		$	3,565		$	(1,047	)		(29.4	)%	$	8,674		$	9,806		$	(1,132	)		(11.5	)%
Percentage of revenue		130.9	%		154.7	%								140.5	%		140.8	%
Operating Loss	$	(934	)	$	(1,411	)	$	477			(33.8	)%	$	(2,974	)	$	(3,487	)	$	513			(14.7	)%
Percentage of revenue		(48.6	)%		(61.2	)%								(48.2	)%		(50.1	)%
Other Expenses		12			24			12			(50.0	)%		39			59			20			(33.9	)%
Percentage of revenue		0.6	%		1.0	%								0.6	%		0.8	%
(Benefits from) Provision for income taxes		5			(24	)		29			(120.8	)%		13			(71	)		84			(118.3	)%
Percentage of revenue		0.3	%		(1.0	)%								0.2	%		(1.0	)%
Less: net loss attributable to noncontrolling interests		142			296			(154	)		(52.0	)%		560			489			71			14.5	%
Percentage of revenue		7.4	%		12.8	%								9.1	%		7.0	%
Net Loss attributable to Neonode Inc.		(809	)		(1,115	)		306			(27.4	)%		(2,466	)		(2,986	)		520			(17.4	)%
Percentage of revenue		(42.1	)%		(48.4	)%								(39.9	)%		(42.9	)%
Net Loss attributable to Neonode Inc. per share	$	(0.14	)	$	(0.20	)	$	0.06			(30.0	)%	$	(0.42	)	$	(0.59	)	$	0.17			(28.8	)%
Percentage of revenue		0.0	%		0.0	%								0.0	%		0.0	%

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Net Revenues

All of our sales for the nine months ended September 30, 2018 and 2017 were to customers located in the U.S., Europe and Asia.

The decrease of 17% in total net revenues for the three-month period in 2018 as compared to the same period in 2017 is primarily related to a reduction of printer and automotive license fees. The decrease in automotive license fees is primarily due to a lower shipments of automobiles that use our technology by our customer in China. The decrease due to reduced license fees generated by our Chinese customers has been partially offset by increases from customers such as Volvo and Suzuki. The decrease of $0.2 million in revenue from the sales of sensor for the three months ended September 30, 2018 compared to the same period in 2017 is due to the Company shifting sales focus from our AirBar consumer products to B2B embedded product customers. Our AirBar sales are not expected to be a significant portion of our revenue in the future. We are evaluating options to monetize our AirBar investment through partner collaborations. The decrease of 11% in total net revenues for the nine-month period in 2018 as compared to the same period in 2017 is due to a decrease of 72% in sensor modules revenues and 8% decrease in license fees.

Our net revenues for the three and nine months ended September 30, 2018 included $1.6 million and $5.7 million, respectively, from technology license fees, $39,000 and $0.2 million, respectively, from sales of sensor modules plus $0.3 million and $0.3 million, respectively, from non-recurring engineering fees. Our net revenues for the three and nine months ended September 30, 2017 included $2.1 million and $6.2 million, respectively, from technology license fees plus $22,000 and $0.2 million, respectively, in NRE fees. In addition, we earned $0.2 million and $0.6 million from sales of sensor modules for the three and nine months ended September 30, 2017, respectively. 

Effective January 1, 2018, we adopted the new revenue recognition standard (ASC 606), which requires us to report all revenues in the quarter that corresponds to actual customer sales. Previously, we reported revenues in the quarter in which sales reports were received from our customers. ASC 606 requires us to estimate revenues in cases where actual customer sales reports are not received by the financial report filing date. Adoption of the new standard resulted in an increase in accounts receivable and unbilled revenue, due to an adjustment to equity to record license fees that had not yet been reported, as well as a reduction of deferred revenues, due to an adjustment to equity to apply license fee prepayments to revenues, resulting in a net reduction in the beginning accumulated deficit of $1,353,000. The total net impact of the adoption of ASC 606 is an approximately $0.3 million decrease in total net license fee revenues reported in the first nine months of 2018.

The following table presents the license fee revenue distribution per market for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):

	Three months ended September 30, 2018					Three months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
Printers	$	1,159		73	%	$	1,383		67	%
E-Readers and tablets		190		11	%		232		11	%
Automotive		248		16	%		457		22	%
	$	1,597		100	%	$	2,072		100	%

	Nine months ended September 30, 2018					Nine months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
Printers	$	3,830		68	%	$	3,562		58	%
E-Readers and tablets		700		12	%		882		14	%
Automotive		1,151		20	%		1,714		28	%
	$	5,681		100	%	$	6,158		100	%

Gross Margin

Our combined total gross margin was 82% and 92% and 93% and 91% in the three and nine months ended September 30, 2018 and 2017, respectively. The decrease in total gross margin for the three months 2018 as compared to 2017 is primarily due to that there were negative gross margin on sensor module revenues in 2018 compared to 2017. This is mainly due to shipping expenses for returned AirBars from Ingram Micro. There were $0.3 million and $0.3 million and $22,000 and $0.2 million of NRE revenues in the three and nine months ended September 30, 2018 and 2017, respectively.

Our cost of revenues includes the direct cost of production of certain customer prototypes, costs of engineering personnel, engineering consultants to complete the engineering design contracts and cost of goods sold for sensor modules includes fully burdened manufacturing costs, outsourced final assembly costs, and component costs of sensor modules.

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Research and Development

Research and development (“R&D”) expenses for the three and nine months ended September 30, 2018 decreased by 33% and 7%, compared to the same periods in 2017, respectively. The decrease is primarily related to fewer NRE projects where we capitalize the ongoing costs including salaries until the project is completed so we can match costs with revenues. There was also an increase in depreciation expenses due to an increase in purchases of lease equipment related to our sensor module manufacturing from mid-2017. R&D expenses primarily consist of personnel-related costs in addition to some external consultancy costs, such as testing, certifying and measurements, along with costs related to developing and building new product prototypes. 

Sales and Marketing

Sales and marketing expenses decreased 40% and 32% in the three and nine months ended September 30, 2018, respectively, compared to the same periods last year. The expenses for the three and nine months ended September 30, 2018 had a reduction compared to the same period in 2017, primarily due to a reduction in advertising expenses and professional fees, primarily related to AirBar. Non-cash stock-option expense was $0 and $6,000 for the three and nine months ended September 30, 2018, compared to $11,000 and $39,000 for the same periods in 2017. 

Our sales activities focus on OEM and Tier 1 customers who will license our technology or purchase and embed our touch sensor modules into their products. Our OEM customers will then sell and market their products incorporating our technology to their customers. We expect to expand our sensor module sales and marketing activities in 2018 and future years to capture B2B market share in our target markets.

General and Administrative

General and administrative (“G&A”) expenses decreased by 17% and 5% in the three and nine months ended September 30, 2018, respectively, compared to the same periods last year. Non-cash stock-option expense was $0 and $23,000 for the three and nine months ended September 30, 2018, compared to $6,000 and $17,000 for the same periods in 2017. 

Income Taxes

Our effective tax rate was 0% for the three and nine months ended September 30, 2018, respectively, and 2% for the three and nine months ended September 30, 2017. We recorded valuation allowances for the nine month periods ended September 30, 2018 and 2017 for deferred tax assets related to net operating losses due to the uncertainty of realization.

Net Loss

As a result of the factors discussed above, we recorded a net loss attributable to Neonode Inc. of $0.8 million and $2.5 million for the three and nine months ended September 30, 2018, respectively, compared to a net loss of $1.1 million and $3.0 million in the comparable periods in 2017.

Off-Balance Sheet Arrangements

We do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources other than operating leases. We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support; or engage in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected on the face of the condensed consolidated financial statements.

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Contractual Obligations and Commercial Commitments

Non-Recurring Engineering Development Costs

On April 25, 2013, we entered into an 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 shipping to customers in 2015. As of September 30, 2018, we had made no payments under the NN1002 Agreement.

On December 4, 2014, we entered into an analog Device Development Agreement (the “NN1003 Agreement”) with ST Microelectronics International N.V pursuant to which ST Microelectronics will integrate Neonode’s intellectual property into an ASIC (“NN1003 ASIC”). The NN1003 ASIC only can be sold by ST Microelectronics exclusively to licensees of Neonode. Under the terms of the NN1003 Agreement, we will reimburse ST Microelectronics up to $835,000 of non-recurring engineering costs as follows:

● $235,000 at the feasibility review and contract signature (paid in full);

● $300,000 on completion of tape-out (paid in full); and

● $300,000 on completion on product validation (paid in full).

Under the terms of the NN1003 Agreement, we also will reimburse ST Microelectronics a non-recurring engineering fee of $5.00 per each of the first 10,000 units sold. As of September 30, 2018, we had made no additional payments under the NN1003 Agreement.

Operating Leases

We lease office space located at 2880 Zanker Road, San Jose, CA 95134 USA. The annual payment for this space equates to approximately $15,000. This lease was effective on August 22, 2016 and can be terminated with one month’s notice.

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 is approximately $423,000 per year including property tax (excluding VAT). This lease is valid through November 30, 2019. The lease can be extended on a yearly basis.

Neonode Technologies AB’s majority-owned subsidiary Pronode Technologies AB leases 9,040 square feet of workshop located at Faktorvägen 17, Kungsbacka, Sweden. The annual payment for this space equates to approximately $93,000 per year. The lease is valid through December 9, 2020.

Our subsidiary Neonode Japan K.K. leases office space located at 405 Elpulimento Shinjuku, 6-7-1, Shinjuku-ku, Tokyo. The annual payment for this space equates to approximately $22,000 per year. The lease can be terminated with two months’ notice.

Our subsidiary Neonode Korea Ltd. entered into a lease agreement located at B-1807, Daesung D-Polis. 543-1, Seoul, South Korea in January, 2015. The annual payment for this space equates to approximately $9,000 per year. We can terminate the lease with two months written notice.

Our subsidiary Neonode Taiwan Ltd. entered into a lease agreement located at Rm. 2406, International Trade Building, Keelung Rd., Sec.1, Taipei, Taiwan. The annual payment for this space equates to approximately $14,000 per year. The lease is renewed every three months unless termination is notified.

For the three and nine months ended September 30, 2018, we recorded approximately $165,000 and $523,000, respectively, for rent expense, compared to $177,000 and $506,000 for the same periods in 2017.

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

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A summary of future minimum payments under non-cancellable operating lease commitments as of September 30, 2018 is as follows (in thousands):

Years ending December 31,	Total
2018	$	158
2019		484
2020		93
	$	735

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 six-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 implicit interest rate of the lease is 4% per annum.

In 2016, we have entered into six leases for component production equipment. Under the terms of five of the lease agreements we are obligated to purchase the equipment at the end of the original 3-5 year lease terms for 5-10% of the original purchase price of the equipment. In accordance with relevant accounting guidance the leases are classified as capital leases. The lease payments and depreciation periods began between June and November 2016 when the equipment went into service. The implicit interest rate of the leases is currently approximately 3% per annum. One of the leases is a hire-purchase agreement where the equipment will be paid off after 5 years. In accordance with relevant accounting guidance the lease is classified as a capital lease. The lease payments and depreciation period began on July 1, 2016 when the equipment went into service. The implicit interest rate of the lease is currently approximately 3% per annum.

In 2017, we have entered into one lease for component production equipment. Under the terms of the lease agreement the lease will be renewed with one year at the time at the end of the original four-year lease term. In accordance with relevant accounting guidance the lease is classified as a capital lease. The lease payments and depreciation periods began in May 2017 when the equipment went into service. The implicit interest rate of the lease is currently approximately 1.5% per annum.

In 2018, we have entered into one lease for component production equipment. Under the terms the lease agreement we are obligated to purchase the equipment at the end of the original 4 year lease terms 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 periods began in August 2018 when the equipment went into service. The implicit interest rate of the lease is currently approximately 1.5% per annum.

The following is a schedule of minimum future rentals on the non-cancelable capital leases as of September 30, 2018 (in thousands):

Year ending December 31,	Total
2018	$	151
2019		602
2020		609
2021		502
2022		39
Total minimum payments required:		1,903
Less amount representing interest:		(59	)
Present value of net minimum lease payments:		1,844
Less current portion		(569	)
	$	1,275
Equipment under capital lease	$	3,524
Less: accumulated depreciation		(1,219	)
Net book value	$	2,305

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Liquidity and Capital Resources

Our liquidity is dependent on many factors, including sales volume, operating profit and the efficiency of asset use and turnover. Our future liquidity will be affected by, among other things:

● actual versus anticipated licensing and of sales of sensor modules with of our technology;

● actual versus anticipated operating expenses;

● timing of our OEM customer product shipments;

● timing of payment for our technology licensing agreements or purchases of our sensor modules;

● actual versus anticipated gross profit margin;

● ability to raise additional capital, if necessary; and

● ability to secure credit facilities, if necessary.

As of September 30, 2018, we had cash of $2.7 million compared to $5.8 million as of December 31, 2017.

Working capital (current assets less current liabilities) was $4.6 million as of September 30, 2018, compared to $6.2 million as of December 31, 2017.

Net cash used in operating activities for the nine months ended September 30, 2018 was $2.3 million and was primarily the result of (1) a net loss of $3.0 million and (2) approximately $ 0.1 million in net cash used in changes in operating assets and liabilities and (3) $0.8 million in non-cash operating expenses, comprised primarily of depreciation and amortization. 

Accounts receivable and unbilled revenues decreased by approximately $0.9 million as of September 30, 2018 compared with December 31, 2017. This is due to the timing of the payments received from customers.

Inventory increased by approximately $0.2 million during the nine months ended September 30, 2018 compared with December 31, 2017. This is primarily due to distributor returns of unsold AirBars.

Deferred revenues decreased by approximately $0.8 million during the nine months ended September 30, 2018 compared with December 31, 2017, primarily due to recognition of revenue from customers that have prepaid license fees.

Net cash used in operating activities for the nine months ended September 30, 2017 was $4.7 million and was primarily the result of (1) a net loss of approximately $3.5 million and (2) approximately $1.9 million in net cash used in changes in operating assets and liabilities and (3) approximately $0.7 million in non-cash operating expenses, comprised of depreciation and amortization.

Accounts receivable decreased approximately $0.9 million as of September 30, 2017 compared with December 31, 2016. This is due to the timing of the payments received from customers.

Inventory increased by approximately $1.2 million during the nine months ended September 30, 2017 compared with December 31, 2016. This is to support the increased production of AirBar and other sensor components.

Deferred revenues decreased by approximately $0.6 million during the nine months ended September 30, 2017 compared with December 31, 2016, mainly due to recognition of revenue from customers that have prepaid license fees, partly offset by increased prepayments for NRE projects and reserved AirBar revenues from Ingram Micro.

In the nine months ended September 30, 2018 and 2017, we purchased approximately $184,000 and $643,000 respectively, of property and equipment, primarily furniture and test equipment.

Net cash used in financing activities of $413,000 during the nine months ended September 30, 2018 was the result of principal payments on a capital leases.

Net cash provided by financing activities of $8.8 million during the nine months ended September 30, 2017 was the result of net cash proceeds of approximately $9.1 million from issuance of shares of our common stock and warrants, offset by $0.3 million in principal payments on capital leases. 

We incurred significant operating losses and negative cash flows from operations since our inception. The Company incurred net losses of approximately $0.8 million and $2.5 million and $1.1 million and $3.0 million for the three and nine months ended September 30, 2018 and 2017, respectively, and had an accumulated deficit of approximately $184.6 million and $183.7 million as of September 30, 2018 and December 31, 2017, respectively. In addition, operating activities used cash of approximately $2.3 million and $4.7 million for the nine months ended September 30, 2018 and 2017.

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As previously disclosed, at the Annual Meeting of Stockholders on June 7, 2018, Neonode stockholders approved an amendment to the Restated Certification of Incorporation to effect a reverse stock split of the Company’s common stock, in the range of 1-for-5 to 1-for-15 at the discretion of the Board of Directors. The Board approved a 1-for-10 reverse stock split of the Company’s issued and outstanding shares of Common Stock, and on September 27, 2018, the Company filed the Certificate of First Amendment to its restated Certificate of Incorporate with the State of Delaware to effect the reverse stock split, effective October 1, 2018. See Note 8 – Subsequent Events for more information.

As previously disclosed, the NASDAQ Stock Market notified us in a deficiency notice dated December 27, 2017 that we failed to meet the minimum closing bid price requirement of $1.00 for the previous thirty consecutive trading days; we were initially granted 180 days to regain compliance. Because we met all other listing requirements with the exception of the minimum closing bid price requirement, we received second 180-day compliance period to regain compliance on June 27, 2018. On October 15, 2018, we received a letter from The NASDAQ Stock Market stating that we had regained compliance with The NASDAQ Capital Markets minimum bid price requirements for continued listing, because the closing bid price on our stock had exceeded the $1.00 minimum requirement for at least ten consecutive trading days prior to the date of the letter.

In August 2017, we entered into a Securities Purchase Agreement with accredited investors as part of a private placement pursuant to which we issued a total of 975,000 shares of common stock at $10.00 per share, and warrants, for of an aggregate purchase price of $9.75 million in gross proceeds. We received approximately $9.1 million in net proceeds. Under the terms of the 2017 Securities Purchase Agreement, we also issued warrants (the “2017 Warrants”) to investors in the private placement to purchase up to a total of 325,000 shares of common stock at an exercise price of $20.00 per share. The 2017 Warrants became exercisable on August 9, 2018, and will expire on August 9, 2020. If the 2017 Warrants are fully exercised, we will receive approximately $6.5 million in cash proceeds. There are no registration rights associated with the securities to be issued and sold pursuant to the 2017 Securities Purchase Agreement.

We expect that our revenues will increase, which will provide us with improved cash flows from operations for at least the next twelve months. In the event that we are unable to meet our revenue targets, we will have to explore alternative methods to conserve our cash position. Should we find it necessary to delay or scale back certain activities, our business, financial condition, and results of operations could be materially affected. While there is no assurance that the Company can meet its revenue targets, management anticipates that it can continue operations for at least the next twelve months.

In the future, we may require sources of capital in addition to cash on hand to continue operations and to implement our strategy. If our operations do not become cash flow positive, we may be forced to seek credit line facilities from financial institutions, equity investments or debt arrangements. No assurances can be given that we will be successful in obtaining such additional financing on reasonable terms, or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, results of operations and financial condition. In addition, if funds are available, the issuance of equity securities or securities convertible into equity could dilute the value of shares of our common stock and cause the market price to fall, and the issuance of debt securities could impose restrictive covenants that could impair our ability to engage in certain business transactions.

The functional currency of our foreign subsidiaries is the applicable local currency, the Swedish Krona, the Japanese Yen, the South Korean Won and the Taiwan Dollar. They are subject to foreign currency exchange rate risk. Any increase or decrease in the exchange rate of the U.S. Dollar compared to the Swedish Krona, Japanese Yen, South Korean Won or Taiwan Dollar will impact our future operating results.

Critical Accounting Policies

We adopted the new accounting standard for revenue recognition effective January 1, 2018. We elected to use the modified retrospective (“cumulative-effect”) approach for adoption of the new standard. Use of the cumulative-effect approach required us to make an opening adjustment to equity rather than recast prior year financial data, therefore comparability of financial statements was impacted.

Beginning with the first quarter of 2018, our financial results reflect adoption of the standard. See Note 2 – Summary of Significant Accounting Policies in the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1) for further discussion.

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Our contracts with customers may include promises to transfer multiple products and services to a customer, particularly when one of our customers contracts with us for a product and related engineering services fees for customizing that product for our customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately may require significant judgment. Judgment may also be required to determine the stand-alone selling price (SSP) for each distinct performance obligation identified, although we generally structure our contracts such that performance obligations and pricing for each performance obligation are distinct. We currently have no outstanding contracts with multiple performance obligations, however we recently negotiated a contract that may include multiple performance obligations in the future.

Our products are sold with a right of return, and we may provide other credits or incentives to our customers, which could result in variability when determining the amount of revenue to recognize. At the end of each reporting period, we use product returns history and additional information that becomes available to estimate returns and credits. We do not recognize revenue if it is probable that a significant reversal of any incremental revenue would occur.

The new lease standard (ASC 842) takes effect on January 1, 2019, and we plan to adopt it on that date. We have drafted a plan to implement the new lease standard, and that implementation plan is under final review by executive management. We expect that the transition may result in the inclusion of a few operating leases on our condensed consolidated balance sheets, as well as more robust disclosures. See Note 2 – Summary of Significant Accounting Policies for more information.

There have been no other changes from the critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2018. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.   Other Information

Item 1. Legal Proceedings

We are not currently involved in any material legal proceedings. However, from time to time, we may become subject to legal proceedings, claims, and litigation arising in the ordinary course of business, including, but not limited to, employee, customer and vendor disputes.

Item 1A.  Risk Factors

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

Item 5.  Other Information

On November 6, 2018, our Board of Directors adopted resolutions to restate our Certificate of Incorporation. The Restated Certificate of Incorporation of Neonode Inc., which became effective November 7, 2018, only integrates and does not further amend the previous Restated Certificate of Incorporation of Neonode Inc., dated April 27, 2018, as amended September 27, 2018. The full text of the Restated Certificate of Incorporation of Neonode, Inc., dated November 7, 2018, is filed as Exhibit 3.1.4 to this report and is incorporated by reference herein.

On and effective November 6, 2018, our Board of Directors adopted new Bylaws of Neonode Inc. Compared to our previous bylaws, the material changes in the new Bylaws of Neonode Inc. include provisions to:

● authorize the Board to hold a meeting of stockholders by means of remote communication;

● clarify that special meetings of stockholders may be called only as provided in our Certificate of Incorporation, as amended or restated;

● govern the appointment of inspector(s) of election;

● specify that a reduction in the authorized number of directors shall not have the effect of removing any director before that director’s term of office expires;

● clarify that the classes of directors and the ability to remove a director are only as provided in our Certificate of Incorporation, as amended or restated;

● eliminate the requirement to hold an annual meeting of directors, enable a majority of the Board to call a special meeting of the directors, and update certain mechanics of meetings of directors;

● designate the officer positions of chief executive officer and treasurer, in addition to president, secretary and chief financial officer (and eliminate the officer positions of assistant secretary and assistant financial officer) and clarify their roles;

● delete a provision regarding loans that predated the Sarbanes-Oxley Act of 2002; and

● add a new Section 46, Forum for Adjudication of Disputes, which provides that, unless Neonode Inc. consents in writing to the selection of an alternative forum, Delaware state and federal courts will be the exclusive forum for certain specified corporate law-based suits involving Neonode Inc.

The foregoing summary of our Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Bylaws of Neonode, Inc., which is filed as Exhibit 3.2 to this report and is incorporated by reference herein.

Item 6. Exhibits

Exhibit #	Description
3.1.1	Restated Certificate of Incorporation of Neonode Inc., dated April 25, 2018 (incorporated by reference to Exhibit 3.1 of the registrant’s Quarterly Report on Form 10-Q filed on May 8, 2018 (file no. 1-35526))
3.1.2	Certificate of First Amendment to the Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the registrant’s Current Report on Form 8-K, filed on October 1, 2018 (file no. 1-35526))
3.1.3	Certificate of Second Amendment to the Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 of the registrant’s Current Report on Form 8-K, filed on October 1, 2018 (file no. 1-35526))
3.1.4	Restated Certificate of Incorporation of Neonode Inc., dated November 7, 2018*
3.2	Bylaws of Neonode Inc.*
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002*
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002*
32.1	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101. CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101. DEF	XBRL Taxonomy Extension Definition Linkbase Document
101. LAB	XBRL Taxonomy Extension Label Linkbase Document
101. PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

+ Management contract or compensatory plan or arrangement

33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NEONODE INC.
Date: November 8, 2018	By:	/s/ Lars Lindqvist
		Lars Lindqvist
		Chief Financial Officer,
		Vice President, Finance,
		Treasurer and Secretary
		(Principal Financial and Accounting Officer)

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EX-3.1.4

Exhibit 3.1.4

RESTATED CERTIFICATE OF INCORPORATION

OF

NEONODE INC.

ARTICLE I.

The name of this Corporation is Neonode Inc.

ARTICLE II.

The address of the registered office of the corporation in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, and the name of the registered agent of the corporation in the State of Delaware at such address is The Corporation Trust Company.

ARTICLE III.

The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware.

ARTICLE IV.

A. This corporation is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the corporation is authorized to issue is Eleven Million (11,000,000) shares, of which Ten Million (10,000,000) shares will be Common Stock, par value $0.001 per share, and One Million (1,000,000) shares will be Preferred Stock, par value $0.001 per share, of which 444,541 shares shall be designated as Series A Preferred Stock and 54,425 shares shall be designated as Series B Preferred Stock.

B. Series A Preferred Stock and Series B Preferred Stock

Subject to Article IV Section C below, a description of the respective classes of stock and a statement of the designations, preferences, voting powers (or the lack of voting powers), relative, participating, optional or other special rights and privileges and the qualifications, limitations and restrictions of the Series A Preferred Stock and the Series B Preferred Stock are as follows:

Series A Preferred Stock

1. Dividends and Distributions. The holders of shares of Series A Preferred Stock will be entitled to participate with the holders of the Common Stock of the Corporation with respect to any dividends declared on the Common Stock in proportion to the number of shares of Common Stock issuable upon conversion of the shares of Series A Preferred Stock held by them.

2. Liquidation Preference. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, subject to the rights of any other series of Preferred Stock to be established by the Board of Directors of the Corporation (the “Senior Preferred Stock”), the holders of Series A Preferred Stock shall be entitled to receive, after any distribution with respect to the Senior Preferred Stock and prior to and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of the ownership thereof, $0.001 for each share of Series A Preferred Stock then outstanding.

3. Voting. The holders of shares of Series A Preferred Stock shall have one vote for each share of Series A Preferred Stock held by them.

4. Conversion.

(i) Subject to the availability of a sufficient number of authorized but unissued shares of Common Stock to effect the conversion of shares of Series A Preferred Stock, each share of Series A Preferred Stock shall be convertible into the number of shares of Common Stock that results from multiplying such share by the conversion rate for the Series A Preferred Stock that is in effect at the time of conversion (the “Conversion Rate”).

(ii) The Conversion Rate for the Series A Preferred Stock shall be 480.63 shares of Common Stock for each share of Series A Preferred Stock.

(iii) Subject to the availability of a sufficient number of authorized but unissued shares of Common Stock to effect the conversion of shares of Series A Preferred Stock, each share of Series A Preferred Stock may be converted into share(s) of Common Stock at the option of the holder thereof.

Series B Preferred Stock

1. Dividends and Distributions. The holders of shares of Series B Preferred Stock will be entitled to participate with the holders of the Common Stock of the Corporation with respect to any dividends declared on the Common Stock in proportion to the number of shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock held by them.

2. Liquidation Preference. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary of involuntary, subject to the rights of the Series A Preferred Stock and any other series of Preferred Stock to be established by the Board of Directors of the Corporation (collectively, the “Senior Preferred Stock”), the holders of Series B Preferred Stock shall be entitled to receive, after any distribution with respect to the Senior Preferred Stock and prior to and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of the ownership thereof, $0.001 for each share of Series B Preferred Stock then outstanding.

3. Voting. The holders of shares of Series B Preferred Stock shall have one vote for each share of Series B Preferred Stock held by them.

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4. Conversion.

(i) Subject to the availability of a sufficient number of authorized but unissued shares of Common Stock to effect the conversion of shares of Series B Preferred Stock, each share of Series B Preferred Stock shall be convertible into the number of shares of Common Stock that results from multiplying such share by the conversion rate for the Series B Preferred Stock that is in effect at the time of conversion (the “Conversion Rate”).

(ii) The Conversion Rate for the Series B Preferred Stock shall be 132.07 shares of Common Stock for each share of Series B Preferred Stock.

(iii) Subject to the availability of a sufficient number of authorized but unissued shares of Common Stock to effect the conversion of shares of Series B Preferred Stock, each share of Series B Preferred Stock may be converted into share(s) of Common Stock at the option of the holder thereof.

C. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, by filing a certificate (a “Preferred Stock Designation”) pursuant to the Delaware General Corporation Law, to fix or alter from time or time the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions of any wholly unissued series of Preferred Stock, and to establish from time to time the number of shares constituting any such series or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series is decreased in accordance with the foregoing sentence, the shares constituting such decrease will resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.

ARTICLE V.

For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation, of its directors and of its stockholders of any class thereof, as the case may be, it is further provided that:

A.

(1) The management of the business and the conduct of the affairs of the corporation will be vested in its Board of Directors. The number of directors that will constitute the whole Board of Directors will be fixed exclusively by one or more resolutions adopted by the Board of Directors.

(2) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors will be divided into three classes designated as Class I, Class II and Class III, respectively. Directors will be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the adoption and filing of this Certificate of Incorporation, the term of office of the Class I directors will expire and Class I directors will be elected for a full term of three years. At the second annual meeting of stockholders following the adoption and filing of this Certificate of Incorporation the term of office of the Class II directors will expire and Class II directors will be elected for a full term of three years. At the third annual meeting of stockholders following the adoption and filing of this Certificate of Incorporation, the term of office of the Class III directors will expire and Class III directors will be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors will be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. Notwithstanding the foregoing provisions of this Article, each director will serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board of Directors will shorten the term of any incumbent director.

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(3) Subject to the rights of the holders of any series of Preferred Stock, no director will be removed without cause. Subject to any limitations imposed by law, the Board of Directors or any individual director may be removed from office at any time with cause by the affirmative vote of the holders of sixty-six and two thirds percent (66-2/3%) of the voting power of all the then-outstanding shares of voting stock of the corporation entitled to vote at an election of directors (the “Voting Stock”).

(4) Subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors will, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships will be filled by the stockholders, except as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence will hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor has been elected and qualified.

(5) In the event that Section 2115(a) of the California Corporations Code is applicable to this corporation, then the following will apply:

(a) Every stockholder entitled to vote in any election of directors of this corporation may cumulate such stockholder’s votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the stockholder’s shares are otherwise entitled, or distribute the stockholder’s votes on the same principle among as many candidates as such stockholder thinks fit;

(b) No stockholder, however, may cumulate such stockholder’s votes for one or more candidates unless (A) the names of such candidates have been properly placed in nomination, in accordance with the Bylaws of the corporation, prior to the voting, (B) the stockholder has given advance notice to the corporation of the intention to cumulative votes pursuant to the Bylaws, and (C) the stockholders has given proper notice to the other stockholders at the meeting, prior to voting, of such stockholder’s intention to cumulate such stockholder’s votes; and

(6) If any stockholder has given proper notice, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. The candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares shall be declared elected.

4

B.

(1) Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of sixty-six and two thirds percent (66-2/3%) of the then outstanding shares of the Voting Stock. The Board of Directors will also have the power to adopt, amend, or repeal Bylaws.

(2) The directors of the corporation need not be elected by written ballot unless the Bylaws so provide.

(3) Following the filing with the Secretary of State of the State of Delaware of the Agreement and Plan of Merger effecting the merger between the corporation and SBE, Inc., a California corporation, no action will be taken by the stockholders of the corporation except at an annual or special meeting of stockholders called in accordance with the Bylaws.

(4) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (A) the Chairman of the Board of Directors, (B) the Chief Executive Officer, or (C) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (D) by the holders of the shares entitled to cast not less than sixty-six and two thirds percent (66-2/3%) of the votes at the meeting, and will be held at such place, on such date, and at such time as the Board of Directors fix therefor.

(5) Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the corporation must be given in the manner provided in the Bylaws of the corporation.

ARTICLE VI.

A. A director of the corporation will not be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law (3) under Section 174 of the Delaware General Corporation Law, or (4) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director will be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended.

B. Any repeal or modification of this Article VI will be prospective and will not affect the rights under this Article VI in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification.

ARTICLE VII.

A. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in paragraph B. of this Article VII, and all rights conferred upon the stockholders herein are granted subject to this reservation.

B. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, this Certificate of Incorporation or any Preferred Stock Designation, the affirmative vote of the holders of sixty-six and two thirds percent (66-2/3%) of the then outstanding shares of the Voting Stock, voting together as a single class, will be required to alter, amend or repeal Articles V, VI, and VII.

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EX-3.2

Exhibit 3.2

BYLAWS

OF

NEONODE INC.

Article I
OFFICES

1. REGISTERED OFFICE. The registered office of Neonode Inc. (the “Corporation”) shall be fixed in the Corporation’s Certificate of Incorporation. References in these Bylaws to the “Certificate of Incorporation” shall mean the Certificate of Incorporation of the Corporation, as amended or restated from time to time, including the terms of any certificate of designations of any series of Preferred Stock.

2. OTHER OFFICES. The Corporation will also have and maintain a principal executive office or principal place of business at such place as may be fixed by the Board of Directors of the Corporation (the “Board of Directors”), and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.

Article II
CORPORATE SEAL

3. CORPORATE SEAL. The Corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board of Directors. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

Article III
STOCKHOLDERS’ MEETINGS

4. PLACE OF MEETINGS. Meetings of the stockholders of the Corporation will be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the Corporation required to be maintained pursuant to Section 2 of these Bylaws. The Board of Directors may, in its sole discretion, determine that a meeting of the stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (the “DGCL”).

5. ANNUAL MEETING.

(a) The annual meeting of the stockholders of the Corporation, for the purpose of election of directors and for such other business as may lawfully come before it, will be held on such date and at such time as may be designated from time to time by the Board of Directors.

(b) At the annual meeting of the stockholders, only such business will be conducted as will have been properly brought before the meeting. To be properly brought before the annual meeting, business must be: (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before the annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive office of the Corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year’s proxy statement, notice by the stockholder to be timely must be so received not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or, in the event public announcement of the date of such annual meeting is first made by the Corporation fewer than seventy (70) days prior to the date of such annual meeting, the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation.

A stockholder’s notice to the Secretary will set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in his or her capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder’s meeting, stockholders must provide notice as required by the regulations promulgated under the Exchange Act. Notwithstanding anything in these Bylaws to the contrary, no business will be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting will, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if the chairman should so determine, he or she will so declare at the meeting that any such business not properly brought before the meeting will not be transacted.

(c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) will be eligible for election as directors. Nominations of persons for election to the Board of Directors may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the Corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors, will be made pursuant to timely notice in writing to the Secretary of the Corporation in accordance with the provisions of paragraph (b) of this Bylaw. Such stockholder’s notice will set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the Corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including without limitation such person’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Bylaw. At the request of the Board of Directors, any person nominated by a stockholder for election as a director will furnish to the Secretary of the Corporation that information required to be set forth in the stockholder’s notice of nomination which pertains to the nominee. No person will be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting will, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if the chairman should so determine, he or she will so declare at the meeting, and the defective nomination will be disregarded.

(d) For purposes of this Bylaw, “public announcement” will mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

6. SPECIAL MEETINGS.

(a) Special meetings of the stockholders of the Corporation, other than those required by statute, may be called only as provided in the Certificate of Incorporation.

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(b) If a special meeting is called in accordance with the Certificate of Incorporation by any person or persons other than the Board of Directors, the request will be in writing, specifying the general nature of the business proposed to be transacted, and will be delivered personally or sent by registered mail or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the Corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors will determine the time and place of such special meeting, which will be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request will cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within sixty (60) days after the receipt of the request, the person or persons requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) will be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.

7. NOTICE OF MEETINGS. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders will be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour, purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders in person or by proxy may be deemed to be present and vote at such meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his or her attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting will be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

8. QUORUM AND VOTING. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote will constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business will be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the vote cast, excluding abstentions and broker non-votes, at any meeting at which a quorum is present will be valid and binding upon the Corporation; provided, however, that directors will be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, will constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the votes cast, including abstentions and broker non-votes, by the holders of shares of such class or classes or series will be the act of such class or classes or series.

9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes, excluding abstentions and broker non-votes. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting.

10. VOTING RIGHTS. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the Corporation on the record date, as provided in Section 12 of these Bylaws, will be entitled to vote at any meeting of stockholders. Every person entitled to vote will have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy will be voted after three (3) years from its date of creation unless the proxy provides for a longer period.

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11. JOINT OWNERS OF STOCK. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting will have the following effect: (a) if only one (1) votes, his or her act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in Section 217(b) of the DGCL. If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) will be a majority or even-split in interest.

12. LIST OF STOCKHOLDERS. The Secretary will prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders of record entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list will be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place will be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list will be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

13. ACTION WITHOUT MEETING. No action will be taken by the stockholders except at the annual or special meeting of stockholders called in accordance with these Bylaws, and no action will be taken by the stockholders by written consent.

14. ORGANIZATION.

(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, will act as chairman. The Secretary, or, in his or her absence, a person directed to do so by the chairman of the meeting, will act as secretary of the meeting.

(b) The Board of Directors will be entitled to make such rules or regulations for the conduct of meetings of stockholders as it will deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting will have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the chairman will permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders will not be required to be held in accordance with rules of parliamentary procedure.

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(c) Before any meeting of stockholders, the Board of Directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment.  The number of inspectors shall be either one (1) or three (3).  If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting may appoint a person to fill that vacancy. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed and designated shall (i) ascertain the number of shares of capital stock of the Corporation outstanding and the voting power of each share, (ii) determine the shares of capital stock of the Corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the Corporation represented at the meeting and such inspector or inspectors’ count of all votes and ballots. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the Corporation, the inspector or inspectors may consider such information as is permitted by applicable law to be so considered. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all

Article IV
DIRECTORS

15. NUMBER AND TERM OF OFFICE. The Board of Directors shall consist of one or more members, each of whom shall be a natural person. The authorized number of directors of the Corporation will be fixed in accordance with the Certificate of Incorporation. Directors need not be stockholders unless so required by the Certificate of Incorporation. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

16. POWERS. The powers of the Corporation will be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.

17. CLASSES OF DIRECTORS. The directors will be divided into classes as set forth in the Certificate of Incorporation.

18. VACANCIES. Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, will unless the Board of Directors determines by resolution that any such vacancies or newly created directorships will be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence will hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor will have been elected and qualified. A vacancy in the Board of Directors will be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director.

19. RESIGNATION. Any director may resign at any time by delivering his or her written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it will be deemed effective at the pleasure of the Board of Directors. When one or more directors will resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, will have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations will become effective, and each Director so chosen will hold office for the unexpired portion of the term of the Director whose place will be vacated and until his or her successor will have been duly elected and qualified.

20. REMOVAL. A director may be removed from office only in accordance with the Certificate of Incorporation.

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21. MEETINGS.

(a) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. Regular meetings of the Board of Directors will be held in the principal executive office of the Corporation required to be maintained pursuant to Section 2 of these Bylaws. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolution of the Board of Directors or the written consent of all directors.

(b) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board of Directors, the President or a majority of the whole Board of Directors.

(c) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means will constitute presence in person at such meeting.

(d) NOTICE OF MEETINGS. Notice of the time and place of all special meetings of the Board of Directors will be orally or in writing, by telephone, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

(e) WAIVER OF NOTICE. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, will be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present will sign a written waiver of notice. All such waivers will be filed with the corporate records or made a part of the minutes of the meeting.

22. QUORUM AND VOTING.

(a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 of these Bylaws, for which a quorum will be one-third of the exact number of directors fixed from time to time in accordance with the Certificate of Incorporation, a quorum of the Board of Directors will consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.

(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business will be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.

23. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.

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24. FEES AND COMPENSATION. Directors will be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained will be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.

25. COMMITTEES.

(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution passed by a majority of the whole Board of Directors appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors will have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, including without limitation the power or authority to declare a dividend, to authorize the issuance of stock and to adopt a certificate of ownership and merger, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee will have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the bylaws of the Corporation.

(b) OTHER COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors will consist of one (1) or more members of the Board of Directors and will have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event will such committee have the powers denied to the Executive Committee in these Bylaws.

(c) TERM. Each member of a committee of the Board of Directors will serve a term on the committee coexistent with such member’s term on the Board of Directors. The Board of Directors, subject to the provisions of paragraph (a) or (b) of this Bylaw may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member will terminate on the date of his or her death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

(d) MEETINGS. Unless the Board of Directors will otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Bylaw will be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee will constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present will be the act of such committee.

(e) COMMITTEE MINUTES. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

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(f) SUBCOMMITTEES. Unless otherwise provided in the Certificate of Incorporation, these Bylaws or the resolutions of the Board of Directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.

26. ORGANIZATION. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the directors present, will preside over the meeting. The Secretary, or in his or her absence, a person directed to do so by the chairman of the meeting, will act as secretary of the meeting.

Article V
OFFICERS

27. OFFICERS DESIGNATED. The officers of the Corporation will be, if and when designated by the Board of Directors, a President, a Secretary and a Treasurer. The Corporation also may have, if and when designated at the discretion of the Board of Directors, a Chairman of the Board of Directors, one or more Vice Presidents, a Chief Executive Officer, and a Chief Financial Officer, The Board of Directors may also designate other officers and agents with such powers and duties as it will deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it will deem appropriate. The Board of Directors may empower the President of the Corporation to appoint such officers, other than the Chairman of the Board of Directors, Secretary, Chief Executive Officer or Chief Financial Officer, as the business of the Corporation may require. Any one person may hold any number of offices of the Corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the Corporation will be fixed by or in the manner designated by the Board of Directors.

28. TENURE AND DUTIES OF OFFICERS.

(a) GENERAL. All officers will hold office at the pleasure of the Board of Directors and until their successors will have been duly elected and qualified or duly appointed and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.

(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, when present, will preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors will perform other duties commonly incident to his or her office and will also perform such other duties and have such other powers as the Board of Directors will designate from time to time. If there is no President or Chief Executive Officer, then the Chairman of the Board of Directors will also serve as the general manager and chief executive officer of the Corporation and will have the powers and duties prescribed in paragraphs (c) and (f) of this Bylaw.

(c) DUTIES OF PRESIDENT. The President will preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The President will be general manager of the Corporation and will, subject to the control of the Board of Directors, have general supervision of the business and officers of the Corporation. The President will have discretion to prescribe the duties of other officers and employees of the Corporation in a manner not inconsistent with the provisions of these Bylaws and the directions of the Board of Directors. If there is no Chief Executive Officer, then the President will also serve as Chief Executive Officer and will have the powers and duties prescribed in paragraph (f) of this Bylaw. The President will perform other duties commonly incident to his or her office and will also perform such other duties and have such other powers as the Board of Directors will designate from time to time.

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(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents will perform other duties commonly incident to their office and will also perform such other duties and have such other powers as the Board of Directors or the President will designate from time to time.

(e) DUTIES OF SECRETARY. The Secretary will attend all meetings of the stockholders and of the Board of Directors and will record all acts and proceedings thereof in the minute book of the Corporation. The Secretary will give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary will perform all other duties given him in these Bylaws and other duties commonly incident to his or her office and will also perform such other duties and have such other powers as the Board of Directors will designate from time to time.

(f) DUTIES OF CHIEF EXECUTIVE OFFICER. The chief executive officer will, subject to the control of the Board of Directors, have ultimate authority for decisions relating to the supervision, direction and management of the affairs and the business of the Corporation customarily and usually associated with the position of chief executive officer, including, without limitation, all powers necessary to direct and control the organizational and reporting relationships within the Corporation.

(g) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer will keep or cause to be kept the books of account of the Corporation in a thorough and proper manner and will render statements of the financial affairs of the Corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer will perform other duties commonly incident to his or her office and will also perform such other duties and have such other powers as the Board of Directors or the President will designate from time to time.

(h) DUTIES OF TREASURER. The Treasurer, subject to the order of the Board of Directors, will have the custody of all funds and securities of the Corporation. If there is no Chief Financial Officer, then the Treasurer will also serve as Chief Financial Officer and will have the powers and duties prescribed in paragraph (g) of this Bylaw. The Treasurer will perform other duties commonly incident to his or her office and will also perform such other duties and have such other powers as the Board of Directors or the President will designate from time to time

29. DELEGATION OF AUTHORITY. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.

30. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation will be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation will become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation will not be necessary to make it effective. Any resignation will be without prejudice to the rights, if any, of the Corporation under any contract with the resigning officer.

31. REMOVAL. Subject to the rights, if any, of the officer under any contract of employment, any officer may be removed from office at any time with or without cause by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.

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Article VI
EXECUTION OF CORPORATE INSTRUMENTS
AND VOTING OF SECURITIES OWNED BY THE CORPORATION

32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the Corporation any corporate instrument or document, or to sign on behalf of the Corporation the corporate name without limitation, or to enter into contracts on behalf of the Corporation, except where otherwise provided by law or these Bylaws, and such execution or signature will be binding upon the Corporation.

Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the Corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the Corporation, will be executed, signed or endorsed by the Chairman of the Board of Directors, or the President, and by the Secretary or Chief Financial Officer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors.

All checks and drafts drawn on banks or other depositaries on funds to the credit of the Corporation or in special accounts of the Corporation will be signed by such person or persons as the Board of Directors will authorize so to do.

Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee will have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other securities of other corporations owned or held by the Corporation for itself, or for other parties in any capacity, will be voted, and all proxies with respect thereto will be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the President or the Secretary.

Article VII
SHARES OF STOCK

34. FORM AND EXECUTION OF CERTIFICATES. The shares of the Corporation shall be represented by certificates unless the Board of Directors shall, by resolution, provide that some or all of any class or series of stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by certificate until the certificate is surrendered to the Corporation. Certificates for the shares of stock of the Corporation will be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the Corporation will be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board of Directors, or the President or any Vice President, and by the Chief Financial Officer or the Secretary, certifying the number of shares owned by him in the Corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate will have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate will state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or will, except as otherwise required by law, set forth on the face or back a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation will send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this Bylaw or otherwise required by law or with respect to this Bylaw a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series will be identical.

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35. LOST CERTIFICATES. A new certificate or certificates will be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The Corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it will require or to give the Corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

36. TRANSFERS.

(a) Transfers of record of shares of stock of the Corporation will be made only upon its books by the holders thereof, in person or by attorney duly authorized, upon compliance with the customary procedures for transferring shares in uncertificated form or upon surrender of a properly endorsed certificate or certificates for a like number of shares

(b) The Corporation will have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

37. FIXING RECORD DATES. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date will not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date will not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders will be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders will apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

38. REGISTERED STOCKHOLDERS. The Corporation will be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and will not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it will have express or other notice thereof, except as otherwise provided by the laws of Delaware.

Article VIII
OTHER SECURITIES OF THE CORPORATION

39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other corporate securities of the Corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary, or the Chief Executive Officer, or the Chief Financial Officer; provided, however, that where any such bond, debenture or other corporate security will be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security will be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, will be signed by the Chief Financial Officer or Treasurer of the Corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who will have signed or attested any bond, debenture or other corporate security, or whose facsimile signature will appear thereon or on any such interest coupon, will have ceased to be such officer before the bond, debenture or other corporate security so signed or attested will have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the Corporation and issued and delivered as though the person who signed the same or whose facsimile signature will have been used thereon had not ceased to be such officer of the Corporation.

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Article IX
DIVIDENDS

40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation.

41. DIVIDEND RESERVE. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors will think conducive to the interests of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

Article X
FISCAL YEAR

42. FISCAL YEAR. The fiscal year of the Corporation shall be the calendar year unless otherwise fixed by resolution of the Board of Directors.

Article XI
INDEMNIFICATION

43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS.

(a) DIRECTORS AND EXECUTIVE OFFICERS. The Corporation will indemnify its directors and executive officers (for the purposes of this Article XI, “executive officers will have the meaning defined in Rule 3b-7 promulgated under the Exchange Act) to the fullest extent not prohibited by the DGCL; provided, however, that the Corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the Corporation will not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the DGCL or (iv) such indemnification is required to be made under paragraph (d) of this Bylaw.

(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The Corporation will have power to indemnify its other officers, employees and other agents as set forth in the DGCL.

(c) EXPENSES. The Corporation will advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer, of the Corporation, or is or was serving at the request of the Corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise.

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Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance will be made by the Corporation to an executive officer of the Corporation (except by reason of the fact that such executive officer is or was a director of the Corporation in which event this paragraph will not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Corporation.

(d) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Bylaw will be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the Corporation and the director or executive officer. Any right to indemnification or advances granted by this Bylaw to a director or executive officer will be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, will be entitled to be paid also the expense of prosecuting his or her claim. In connection with any claim for indemnification, the Corporation will be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the Corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the Corporation) for advances, the Corporation will be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his or her conduct was lawful. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, will be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or executive officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or executive officer is not entitled to be indemnified, or to such advancement of expenses, under this Article XI or otherwise will be on the Corporation.

(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Bylaw will not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding office. The Corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL.

(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw will continue as to a person who has ceased to be a director, officer, employee or other agent and will inure to the benefit of the heirs, executors and administrators of such a person.

(g) INSURANCE. To the fullest extent permitted by the DGCL, the Corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw.

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(h) AMENDMENTS. Any repeal or modification of this Bylaw will only be prospective and will not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the Corporation.

(i) SAVING CLAUSE. If this Bylaw or any portion hereof will be invalidated on any ground by any court of competent jurisdiction, then the Corporation will nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Bylaw that will not have been invalidated, or by any other applicable law.

(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following definitions will apply:

(1) The term “proceeding” will be broadly construed and will include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.

(2) The term “expenses” will be broadly construed and will include, without limitation, court costs, attorneys’ fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.

(3) The term the “Corporation” will include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, will stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

(4) References to a “director,” “executive officer,” “officer,” “employee,” or “agent” of the Corporation will include, without limitation, situations where such person is serving at the request of the Corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.

(5) References to “other enterprises” will include employee benefit plans; references to “fines” will include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” will include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan will be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Bylaw.

Article XII
NOTICES

44. NOTICES.

(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it will be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his or her last known post office address as shown by the stock record of the Corporation or its transfer agent.

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(b) NOTICE TO DIRECTORS. Any notice required to be given to any director may be given by the method stated in paragraph (a) of this Bylaw, or by facsimile or electronic mail, except that such notice other than one which is delivered personally will be sent to such address as such director will have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.

(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly authorized and competent employee of the Corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, will in the absence of fraud, be prima facie evidence of the facts therein contained.

(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above provided, will be deemed to have been given as at the time of mailing, and all notices given by facsimile or electronic mail will be deemed to have been given as of the sending time recorded at time of transmission.

(e) METHODS OF NOTICE. It will not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.

(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, will not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice.

(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the Corporation, to any person with whom communication is unlawful, the giving of such notice to such person will not be required and there will be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which will be taken or held without notice to any such person with whom communication is unlawful will have the same force and effect as if such notice had been duly given. In the event that the action taken by the Corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate will state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the Corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his or her address as shown on the records of the Corporation and have been returned undeliverable, the giving of such notice to such person will not be required. Any action or meeting which will be taken or held without notice to such person will have the same force and effect as if such notice had been duly given. If any such person will deliver to the Corporation a written notice setting forth his or her then current address, the requirement that notice be given to such person will be reinstated. In the event that the action taken by the Corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph.

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Article XIII
AMENDMENTS

45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock. The Board of Directors will also have the power to adopt, amend, or repeal Bylaws. 

Article XIV
FORUM FOR ADJUDICATION OF DISPUTES

46. FORUM FOR ADJUDICATION OF DISPUTES. Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or stockholder of the Corporation to the Corporation or the Corporation’s stockholders, (c) any action or proceeding asserting a claim arising pursuant to, or seeking to enforce any right, obligation or remedy under, any provision of the DGCL, the Certificate of Incorporation or these Bylaws (as each may be amended from time to time), (d) any action or proceeding as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (e) any action or proceeding asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring or holding or owning (or continuing to hold or own) any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Bylaw.

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EX-31.1

Exhibit 31.1

Certification OF PRINCIPAL EXECUTIVE OFFICER Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

I, Håkan Persson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Neonode Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 8, 2018	By:	/s/ Håkan Persson
		Håkan Persson
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification OF PRINCIPAL FINANCIAL OFFICER Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

I, Lars Lindqvist, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Neonode Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fiscal fourth quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2018	By:	/s/ Lars Lindqvist
		Lars Lindqvist
		Chief Financial Officer,
		Vice President, Finance,
		Treasurer and Secretary

EX-32.1

Exhibit 32.1

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Neonode Inc. (the “Company”) on Form 10-Q for the fiscal period ended September 30, 2018 as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive officer and principal financial officer of the Company, each hereby certify, solely for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  November 8, 2018	By:	/s/ Håkan Persson
		Håkan Persson
		President and Chief Executive Officer
Date:  November 8, 2018	By:	/s/ Lars Lindqvist
		Lars Lindqvist
		Chief Financial Officer,
		Vice President, Finance,
		Treasurer and Secretary

This certification is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended, whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing.

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 02, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	Neonode Inc.
Entity Central Index Key	0000087050
Trading Symbol	NEON
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding		5,859,414

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current assets:
Cash	$ 2,689	$ 5,796
Accounts receivable and unbilled revenue, net	1,459	1,010
Projects in process		1
Inventory	1,258	1,154
Prepaid expenses and other current assets	1,596	1,836
Total current assets	7,002	9,797
Investment in joint venture	3	3
Property and equipment, net	2,660	3,327
Total assets	9,665	13,127
Current liabilities:
Accounts payable	523	509
Accrued payroll and employee benefits	862	1,081
Accrued expenses	180	177
Deferred revenues	224	1,248
Current portion of capital lease obligations	569	568
Total current liabilities	2,358	3,583
Capital lease obligations, net of current portion	1,275	1,681
Total liabilities	3,633	5,264
Commitments and contingencies
Stockholders' equity:
Series B Preferred stock, 54,425 shares authorized with par value $0.001 per share; 83 shares issued and outstanding at September 30, 2018 and December 31, 2017. (In the event of dissolution, each share of Series B Preferred stock has a liquidation preference equal to par value of $0.001 per share over the shares of common stock)
Common stock, 10,000,000 shares authorized with par value $0.001 per share; 5,859,414 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively	6	6
Additional paid-in capital	192,891	192,861
Accumulated other comprehensive loss	(516)	(99)
Accumulated deficit	(184,629)	(183,745)
Total Neonode Inc. stockholders' equity	7,752	9,023
Noncontrolling interests	(1,720)	(1,160)
Total stockholders' equity	6,032	7,863
Total liabilities and stockholders' equity	$ 9,665	$ 13,127

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Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2018	Dec. 31, 2017
Common stock, shares authorized	10,000,000	10,000,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares issued	5,859,450	5,859,450
Common stock, shares outstanding	5,859,450	5,859,450
Series B Preferred Stock
Preferred stock, shares authorized	54,425	54,425
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares issued	83	83
Preferred stock, shares outstanding	83	83
Preferred stock, liquidation preference	$ 0.001	$ 0.001

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Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenues:
License fees	$ 1,597	$ 2,072	$ 5,681	$ 6,158
Sensor module	39	211	176	634
Non-recurring engineering	287	22	317	174
Total revenues	1,923	2,305	6,174	6,966
Cost of revenues:
Sensor module	57	151	191	510
Non-recurring engineering	282		283	137
Total cost of revenues	339	151	474	647
Total gross margin	1,584	2,154	5,700	6,319
Operating expenses:
Research and development	1,113	1,668	3,993	4,283
Sales and marketing	446	743	1,472	2,158
General and administrative	959	1,154	3,209	3,365
Total operating expenses	2,518	3,565	8,674	9,806
Operating loss	(934)	(1,411)	(2,974)	(3,487)
Other expense:
Interest expense	12	24	39	59
Total other expense	12	24	39	59
Loss before provision for income taxes	(946)	(1,435)	(3,013)	(3,546)
(Benefits from) provision for income taxes	5	(24)	13	(71)
Net loss including noncontrolling interests	(951)	(1,411)	(3,026)	(3,475)
Less: Net loss attributable to noncontrolling interests	142	296	560	489
Net loss attributable to Neonode Inc.	$ (809)	$ (1,115)	$ (2,466)	$ (2,986)
Loss per common share:
Basic and diluted loss per share	$ (0.14)	$ (0.20)	$ (0.42)	$ (0.59)
Basic and diluted - weighted average number of common shares outstanding	5,859	5,517	5,859	5,096

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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Statement of Comprehensive Income [Abstract]
Net loss	$ (951)	$ (1,411)	$ (3,026)	$ (3,475)
Other comprehensive income (loss):
Foreign currency translation adjustments	13	83	(417)	205
Comprehensive loss	(938)	(1,328)	(3,443)	(3,270)
Less: Comprehensive loss attributable to noncontrolling interests	142	296	560	489
Comprehensive loss attributable to Neonode Inc.	$ (796)	$ (1,032)	$ (2,883)	$ (2,781)

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities:
Net loss (including noncontrolling interests)	$ (3,026)	$ (3,475)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	29	56
Depreciation and amortization	785	672
Changes in operating assets and liabilities:
Accounts receivable	866	933
Projects in process	1	(299)
Inventory	(198)	(1,222)
Prepaid expenses and other current assets	116	(52)
Accounts payable and accrued expenses	(91)	(675)
Deferred revenues	(757)	(629)
Net cash used in operating activities	(2,275)	(4,691)
Cash flows from investing activities:
Purchase of property and equipment	(184)	(643)
Net cash used in investing activities	(184)	(643)
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants, net of offering costs		9,082
Proceeds from note payable		1,713
Payments on note payable		(1,713)
Principal payments on capital lease obligations	(413)	(301)
Net cash (used in) provided by financing activities	(413)	8,781
Effect of exchange rate changes on cash	(235)	(51)
Net increase (decrease) in cash	(3,107)	3,396
Cash at beginning of period	5,796	3,476
Cash at end of period	2,689	6,872
Supplemental disclosure of cash flow information:
Cash paid for income taxes	13	15
Cash paid for interest	39	59
Supplemental disclosure of non-cash investing and financing activities
Purchase of equipment with capital lease obligations	$ 169	$ 1,287

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Interim Period Reporting

9 Months Ended

Sep. 30, 2018

Interim Period Reporting [Abstract]

Interim Period Reporting

1. Interim Period Reporting

The accompanying unaudited interim condensed consolidated financial statements, include all adjustments, consisting of normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash flows for the interim periods presented. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of results for a full fiscal year or any other period.

The accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2018 and 2017 have been prepared by us, pursuant to the rules and regulations of the United States (“U.S.”) 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 U.S. (“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, 2017.

We adopted the new accounting standard for revenue recognition effective January 1, 2018. We elected to use the modified retrospective (“cumulative-effect”) approach for adoption of the new standard. Use of the cumulative-effect approach required us to make an opening adjustment to equity rather than recast prior year financial data, therefore comparability of financial statements was impacted. Beginning with the first quarter of 2018, our financial results reflect adoption of the standard. See Note 2 for further discussion.

Operations

Neonode Inc. (collectively with its subsidiaries, is referred to in this Form 10-Q Report as “Neonode”, “we”, “us”, “our”, “registrant”, or “Company”) develops optical touch and gesture solutions for human interaction with devices. In 2010 we began licensing our technology to Original Equipment Manufacturers (“OEMs”) and Tier 1 suppliers who in-turn embed our technology into products they develop, manufacture and sell. Since 2010, our customers have sold over 64 million devices under our licensing agreements that use our technology. In 2016, we augmented our licensing business and started to manufacture and sell standardized embedded sensors that incorporate our technology to OEMs, Tier 1 Suppliers, distributors and our branded products sold directly to consumers.

Liquidity

We have incurred significant operating losses and negative cash flows from operations since our inception. The Company incurred net losses of approximately $0.8 million and $2.5 million and $1.1 million and $3.0 million for the three and nine months ended September 30, 2018 and 2017, respectively, and had an accumulated deficit of approximately $184.6 million and $183.7 million as of September 30, 2018 and December 31, 2017, respectively. In addition, operating activities used cash of approximately $2.3 million and $4.7 million for the nine months ended September 30, 2018 and 2017, respectively.

We expect our revenues from license fees, non-recurring engineering fees and embedded sensor module sales will enable us to reduce our operating losses going forward. In addition, we have improved the overall cost efficiency of our operations, as a result of the transition from providing our customers a full custom design solution to providing standardized sensor modules which require limited custom design work. We intend to continue to implement various measures to improve our operational efficiencies. No assurances can be given that management will be successful in meeting its revenue targets and reducing its operating loss.

The condensed consolidated financial statements included herein have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and the repayment of liabilities in the ordinary course of business. Management evaluated the significance of the Company’s operating loss and determined that the Company’s current operating plan and sources of capital would be sufficient to alleviate concerns about the Company’s ability to continue as a going concern.

As described immediately below, we have obtained capital through private placements in recent years and currently have the ability to raise capital pursuant to an effective shelf registration statement.

In the future, we may require sources of capital in addition to cash on hand to continue operations and to implement our strategy. If our operations do not become cash flow positive, we may be forced to seek equity investments or debt arrangements. No assurances can be given that we will be successful in obtaining such additional financing on reasonable terms, or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, results of operations and financial condition. In addition, if funds are available, the issuance of equity securities or securities convertible into equity could dilute the value of shares of our common stock and cause the market price to fall, and the issuance of debt securities could impose restrictive covenants that could impair our ability to engage in certain business transactions.

Reverse Stock Split

As previously disclosed, at the annual meeting of stockholders on June 7, 2018, Neonode stockholders approved an amendment to the restated certification of incorporation to effect a reverse stock split of the Company’s common stock, in the range of 1-for-5 to 1-for-15 at the discretion of the board of directors. The board approved a 1-for-10 reverse stock split of the Company’s issued and outstanding shares of common stock, and on September 27, 2018, the Company filed the certificate of first amendment to its restated certificate of incorporate with the state of Delaware to effect the reverse stock split, effective October 1, 2018.

As a result of the reverse stock split, every ten shares of issued and outstanding common stock were converted into one share of common stock, without any change in the par value per share. No fractional shares were issued, therefore shareholders entitled to receive a fractional share in connection with the reverse stock split received a cash payment instead. There was no financial impact to the Company’s condensed consolidated financial statements. All shares and per share information in this Form 10-Q has been retroactively adjusted for all periods presented to reflect the reverse stock split, including reclassifying any amount equal to the reduction in par value of common stock to additional paid-in capital.

Trading of the Company’s common stock continued on the NASDAQ Capital Market on a reverse stock split-adjusted basis beginning on October 1, 2018.

At the annual meeting of stockholders on June 7, 2018, stockholders of the Company also approved the reduction in the number of authorized shares of common stock in corresponding proportion to the reverse stock split. As a result, the Company filed a certificate of second amendment to its restated certificate of incorporation with the state of Delaware to reduce the number of authorized shares of common stock from 100,000,000 to 10,000,000 shares. The filing did not affect the number of authorized preferred stock of 1,000,000 shares.

NASDAQ

As previously disclosed, the NASDAQ Stock Market informed us in a deficiency notice dated December 27, 2017 that we failed to meet the minimum closing bid price requirement of $1.00 for the previous thirty consecutive trading days; we were initially granted 180 days to regain compliance. Because we met all other listing requirements with the exception of the minimum closing bid price requirement, we received second 180-day compliance period to regain compliance on June 27, 2018. On October 15, 2018, we received a letter from The NASDAQ Stock Market stating that we had regained compliance with The NASDAQ Capital Markets minimum bid price requirements for continued listing, because the closing bid price on our stock had exceeded the $1.00 minimum requirement for at least ten consecutive trading days prior to the date of the letter.

August 2017 Private Placement

In August 2017, we entered into a Securities Purchase Agreement with accredited investors as part of a private placement pursuant to which we issued a total of 975,000 shares of common stock at $10.00 per share, and warrants, for of an aggregate purchase price of $9.75 million in gross proceeds. We received approximately $9.1 million in net proceeds. Under the terms of the 2017 Securities Purchase Agreement, we also issued warrants (the “2017 Warrants”) to investors in the private placement to purchase up to a total of 325,000 shares of common stock at an exercise price of $20.00 per share. The 2017 Warrants became exercisable on August 8, 2018, and will expire on August 9, 2020. If the 2017 Warrants are fully exercised, we will receive approximately $6.5 million in proceeds. There are no registration rights associated with the securities to be issued and sold pursuant to the 2017 Securities Purchase Agreement.

Shelf Registration Statement

In March 2017, we filed a $20 million shelf registration statement with the SEC that became effective on March 24, 2017. We may from time to time issue shares of our common stock under our shelf registration in amounts, at prices, and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in a prospectus supplement and any other offering materials, at the time of the offering. Our shelf registration statement will expire on March 24, 2020.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Principles of Consolidation

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, as well as Pronode Technologies AB, a 51% majority owned subsidiary of Neonode Technologies AB. The remaining 49% of Pronode Technologies AB is owned by Propoint AB, located in Gothenburg, Sweden. Pronode Technologies AB was organized to sell engineering services within the automotive markets. All inter-company accounts and transactions have been eliminated in consolidation.

Neonode consolidates entities in which we have a controlling financial interest. We consolidate subsidiaries in which we hold, directly or indirectly, more than 50% of the voting rights, and variable interest entities (VIEs) in which Neonode is the primary beneficiary.

In June 2016, we entered into a Joint Venture (“JV”) with a Swedish based eye-tracking company SMART EYE AB. By combining our technologies, we plan to bring multi-chip modules to the market for the consumer and automotive markets that provide new opportunities for interaction with cars and devices. The name of the JV is Neoeye AB (“Neoeye”). 

We use the equity method of accounting to record our investments in the common stock of each entity in which Neonode has the ability to exercise significant influence, but does not own a majority equity interest. Under the equity method, our investment is originally included in equity interests at cost, and is adjusted to recognize our share of net earnings or losses of the investee, in our condensed consolidated balance sheets; our share of net income (loss) is reported in our condensed consolidated statements of operations according to our equity ownership in each entity.

The condensed consolidated balance sheets at September 30, 2018 and December 31, 2017 and the condensed consolidated statements of operations, comprehensive loss and cash flows for the three and nine months ended September 30, 2018 and 2017 include our accounts and those of our wholly owned subsidiaries, Neonode Technologies AB (Sweden), Neonode Americas Inc. (U.S.), Neonode Japan Inc. (Japan), NEON Technology Inc. (U.S.), Neno User Interface Solutions AB (Sweden), Neonode Korea Ltd. (South Korea) and Neonode Taiwan Ltd. (Taiwan), as well as Pronode Technologies AB (Sweden), a 51% majority owned subsidiary of Neonode Technologies AB.

Estimates

The preparation of financial statements in conformity with U.S. GAAP requires making estimates and assumptions that affect, at the date of the financial statements, the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Actual results could differ from these estimates. Significant estimates include, but are not limited to: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price of performance obligations, variable consideration, and other obligations such as product returns and refunds, and product warranties; provisions for uncollectible receivables; net realizable value of inventory; recoverability of capitalized project costs and long-lived assets; the valuation allowance related to our deferred tax assets; and the fair value of options and warrants issued for stock-based compensation.

Cash

We have not had any liquid investments other than normal cash deposits with bank institutions to date. The Company considers all highly liquid investments with original maturities of three months of less to be cash equivalents.

Concentration of Cash Balance Risks

Cash balances are maintained at various banks in the U.S., Japan, Korea, Taiwan and Sweden. For deposits held with financial institutions in the U.S. the U.S. Federal Deposit Insurance Corporation, provides basic deposit coverage with limits up to $250,000 per owner. The Swedish government provides insurance coverage up to 100,000 Euro per customer and covers deposits in all types of accounts. The Japanese government provides insurance coverage up to 10,000,000 Yen per customer. The Korea Deposit Insurance Corporation provides insurance coverage up to 50,000,000 Won per customer. The Central Deposit Insurance Corporation in Taiwan provides insurance coverage up to 3,000,000 Taiwan Dollar per customer. At times, deposits held with financial institutions may exceed the amount of insurance provided.

Accounts Receivable and Allowance for Doubtful Accounts  

Accounts receivable is stated at net realizable value. Our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments. Credit limits are established through a process of reviewing the financial history and stability of each customer. Where appropriate, we obtain credit rating reports and financial statements of the customer when determining or modifying its credit limits. We regularly evaluate the collectability of our trade receivable balances based on a combination of factors. When a customer’s account balance becomes past due, we initiate dialogue with the customer to determine the cause. If it is determined that the customer will be unable to meet its financial obligation, such as in the case of a bankruptcy filing, deterioration in the customer’s operating results or financial position or other material events impacting its business, we record a specific allowance to reduce the related receivable to the amount we expect to recover. Should all efforts fail to recover the related receivable, we will write off the account. We also record an allowance for all customers based on certain other factors including the length of time the receivables are past due and historical collection experience with customers. Our allowance for doubtful accounts was approximately $149,000 as of September 30, 2018 and December 31, 2017.

Projects in Process

Projects in process consist of costs incurred toward the completion of various projects for certain customers. These costs are primarily comprised of direct engineering labor costs and project-specific equipment costs. These costs are capitalized on our condensed consolidated balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition policy. There were no costs capitalized in projects in process as of September 30, 2018. Costs capitalized in projects in process were $1,000 as of December 31, 2017.

Inventory

Inventory is stated at the lower of cost, computed using the first-in, first-out method (“FIFO”) and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. As of September 30, 2018, and December 31, 2017, the Company’s inventory consists primarily of components that will be used in the manufacturing of our sensor modules. We segregate inventory for reporting purposes by raw materials, work-in-process, and finished goods.

Raw materials, work-in-process, and finished goods are as follows (in thousands):

	September 30,		December 31,
	2018		2017
Raw materials	$	147	$	164
Work-in-Process		210		231
Finished goods		901		759
Ending inventory	$	1,258	$	1,154

Investment in JV

We have invested $3,000 for a 50% interest in Neoeye AB (see above). We account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and will be recognized in the consolidated statements of operations and will also be adjusted by contributions to and distributions from Neoeye. The Company is not required to guarantee any obligations of the JV. There have been no operations of Neoeye through September 30, 2018.

Neoeye, as an unconsolidated equity investee, will recognize revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of revenue is assured, which is generally upon the receipt of the license proceeds. Neoeye may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones have been met.

We periodically review our investment in Neoeye to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near-term prospects of Neoeye. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method based upon estimated useful lives of the assets as follows:

Estimated useful lives

Computer equipment	3 years
Furniture and fixtures	5 years
Equipment	7 years

Equipment purchased under a capital lease is recognized over the term of the lease, if that lease term is shorter than the estimated useful life.

Upon retirement or sale of property and equipment, cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the condensed consolidated statement of operations. Maintenance and repairs are charged to expense as incurred. 

Long-lived Assets

We assess any impairment by estimating the future cash flow from the associated asset in accordance with relevant accounting guidance. If the estimated undiscounted future cash flow related to these assets decreases or the useful life is shorter than originally estimated, we may incur charges for impairment of these assets. As of September 30, 2018, we believe there was no impairment of our long-lived assets. There can be no assurance, however, that market conditions will not change or sufficient demand for our products and services will continue, which could result in impairment of long-lived assets in the future.

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, the South Korean Won and the Taiwan Dollar. The translation from Swedish Krona, Japanese Yen, South Korean Won and Taiwan Dollar to U.S. Dollars is performed for balance sheet accounts using current exchange rates in effect at the 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 income (loss). Foreign currency translation gains (losses) were $13,000 and $(417,000) during the three and nine months ended September 30, 2018, respectively, compared to translation gains of $83,000 and $205,000 during the three and nine months ended September 30, 2017, respectively. Losses resulting from foreign currency transactions are included in general and administrative expenses in the accompanying condensed consolidated statements of operations and were $13,000 and $34,000 during the three and nine months ended September 30, 2018, respectively, compared to $45,000 and $24,000 during the same periods in 2017, respectively.

Concentration of Credit and Business Risks

Our customers are located in U.S., Europe and Asia.

As of September 30, 2018, four customers represented approximately 73% of the Company’s accounts receivable. 

As of December 31, 2017, two customers represented approximately 69% of the Company’s accounts receivable. 

Customers who accounted for 10% or more of our net revenues during the three months ended September 30, 2018 are as follows:

● Hewlett Packard Company – 33%

● Faraday & Future Inc.– 15%

● Seiko Epson – 16%

● Canon – 10%

● Bosch – 10%

Customers who accounted for 10% or more of our net revenues during the nine months ended September 30, 2018 are as follows:

● Hewlett Packard Company – 34%

● Seiko Epson – 14%

● Canon – 13%

Customers who accounted for 10% or more of our net revenues during the three months ended September 30, 2017 are as follows:

● Hewlett Packard Company – 30%

● Canon – 17%

● Seiko Epson – 12%

● Bosch – 11%

Customers who accounted for 10% or more of our net revenues during the nine months ended September 30, 2017 are as follows:

● Hewlett Packard Company – 31%

● Canon – 15%

● Bosch – 11%

Revenue Recognition

We recognize revenue when control of products is transferred to our customers, and when services are completed and accepted by our customers; the amount of revenue we recognize reflects the consideration we expect to receive for those products or services. Our contracts with customers may include combinations of products and services, for example, a contract that includes products and related engineering services. We structure our contracts such that distinct performance obligations, such as product sales or license fees, and related engineering services, are clearly defined in each contract.

Sales of license fees and AirBar and sensor modules are on a per-unit basis; therefore, we generally satisfy performance obligations as units are shipped to our customers. Non-recurring engineering service performance obligations are satisfied as work is performed and accepted by our customers.

We recognize revenue net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. We treat all product shipping and handling charges (regardless of when they occur) as activities to fulfill the promise to transfer goods, therefore we treat all shipping and handling charges as expenses.

Licensing Revenues:

We earn revenue from licensing our internally developed intellectual property (“IP”). We enter into IP licensing agreements that generally provide licensees the right to incorporate our IP components in their products, with terms and conditions that vary by licensee. Fees under these agreements may include license fees relating to our IP, and royalties payable to us following the distribution by our licensees of products incorporating the licensed technology. The license for our IP has standalone value and can be used by the licensee without maintenance and support.

For technology license arrangements that do not require significant modification or customization of the underlying technology, we recognize technology license revenue when the license is made available to the customer and the customer has a right to use that license. At the end of each reporting period, we record unbilled license fees, using prior royalty revenue data by customer to make accurate estimates of those royalties.

Explicit return rights are not offered to customers. There have been no returns through September 30, 2018.

Engineering Services:

For technology license or sensor module contracts that require modification or customization of the underlying technology to adapt that technology to customer use, we determine whether the technology license or sensor module, and engineering consulting services represent separate performance obligations. We perform our analysis on a contract-by-contract basis. If there are separate performance obligations, we determine the standalone selling price (“SSP”) of each separate performance obligation to properly recognize revenue as each performance obligation is satisfied. We provide engineering consulting services to our customers under a signed Statement of Work (“SOW”). Deliverables and payment terms are specified in each SOW. We generally charge an hourly rate for engineering services, and we recognize revenue as engineering services specified in contracts are completed and accepted by our customers. Any upfront payments we receive for future non-recurring engineering services are recorded as unearned revenue until that revenue is earned.

We believe that recognizing non-recurring engineering services revenues as progress towards completion of engineering services and customer acceptance of those services occurs best reflects the economics of those transactions, because engineering services as tracked in our systems correspond directly with the value to our customers of our performance completed to date. Hours performed for each engineering project are tracked and reflect progress made on each project, and are charged at a consistent hourly rate.

Revenues from engineering services contracts that are short-term in nature are recorded when those services are complete and accepted by customers.

Revenues from engineering services contracts with substantive defined deliverables for which payment terms in the SOW are commensurate with the efforts required to produce such deliverables are recognized as they are completed and accepted by customers.

Estimated losses on all SOW projects are recognized in full as soon as they become evident. In the quarters ended September 30, 2018 and 2017, no losses related to SOW projects were recorded.

Optical Sensor Modules Revenues:

We earn revenue from sales of sensor modules hardware products to our OEM and Tier 1 supplier customers, who embed our hardware into their products, and from sales of branded consumer products that incorporate our sensor modules sold through distributors or directly to end users. These distributors are generally given business terms that allow them to return unsold inventory, receive credits for changes in selling prices, and participate in various cooperative marketing programs. Our sales agreements generally provide customers with limited rights of return and warranty provisions.

The timing of revenue recognition related to AirBar modules depends upon how each sale is transacted - either point-of-sale or through distributors. We recognize revenue for AirBar modules sold point-of-sale (online sales and other direct sales to customers) when we provide the promised product to the customer.

Because we generally use distributors to provide AirBar and sensor modules to our customers, however, we analyze the terms of distributor agreements to determine when control passes from us to our distributors. For sales of AirBar and sensor modules sold through distributors, revenues are recognized when our distributors obtain control over our products. Control passes to our distributors when we have a present right to payment for products sold to distributors, the distributors have legal title to and physical possession of products purchased from us, and the distributors have significant risks and rewards of ownership of products purchased.

Distributors participate in various cooperative marketing and other incentive programs, and we maintain estimated accruals and allowances for these programs. If actual credits received by distributors under these programs were to deviate significantly from our estimates, which are based on historical experience, our revenue could be adversely affected.

Under U.S. GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns. Our AirBar returns and warranty experience to date has enabled us to make reasonable returns estimates, which are supported by the fact that our product sales involve homogenous transactions. The reserve for future sales returns is recorded as a reduction of our accounts receivable and revenue and was insignificant as of September 30, 2018 and December 31, 2017. If the actual future returns were to deviate from the historical data on which the reserve had been established, our revenue could be adversely affected.

The following table presents disaggregated revenues by market for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):

	Three months ended September 30, 2018					Three months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
Net license revenues from automotive	$	248		13	%	$	457		20	%
Net license revenues from consumer electronics		1,349		70	%		1,615		70	%
Net revenues from sensor modules		39		2	%		211		9	%
Net revenues from non-recurring engineering		287		15	%		22		1	%
	$	1,923		100	%	$	2,305		100	%

	Nine months ended September 30, 2018					Nine months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
Net license revenues from automotive	$	1,151		19	%	$	1,714		25	%
Net license revenues from consumer electronics		4,530		73	%		4,444		64	%
Net revenues from sensor modules		176		3	%		634		9	%
Net revenues from non-recurring engineering		317		5	%		174		2	%
	$	6,174		100	%	$	6,966		100	%

Significant Judgments

Our contracts with customers may include promises to transfer multiple products and services to a customer, particularly when one of our customers contracts with us for a product and related engineering services fees for customizing that product for our customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately may require significant judgment. Judgment may also be required to determine the SSP for each distinct performance obligation identified, although we generally structure our contracts such that performance obligations and pricing for each performance obligation are specifically addressed. We currently have no outstanding contracts with multiple performance obligations; however, we recently negotiated a contract that may include multiple performance obligations in the future.

Judgment is also required to determine when control of products passes from us to our distributors, as well as the amounts of product that may be returned to us. Our products are sold with a right of return, and we may provide other credits or incentives to our customers, which could result in variability when determining the amount of revenue to recognize. At the end of each reporting period, we use product returns history and additional information that becomes available to estimate returns and credits. We do not recognize revenue if it is probable that a significant reversal of any incremental revenue would occur.

Finally, judgment is required to determine the amount of unbilled license fees at the end of each reporting period.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when we have an unconditional right to receive future payments from customers, and we record unearned revenue when we receive prepayments or upfront payments for goods or services from our customers.

	September 30, 2018		December 31, 2017
Accounts receivable and unbilled revenue	$	1,459	$	1,010
Deferred revenues		224		1,248

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled revenues (contract assets), and customer advances and deposits or deferred revenue (contract liabilities) on the consolidated balance sheet. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets; contract assets are generally classified as current. The Company sometimes receives advances or deposits from its customers before revenue is recognized, which are reported as contract liabilities and are generally classified as current. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.

The opening balance of current accounts receivable, net of allowance for doubtful accounts, was $2.2 million as of January 1, 2018. As of September 30, 2018, and December 31, 2017, accounts receivable, net of allowance for doubtful accounts, were $1.5 million and $1.0 million, respectively, and are included in current assets on our condensed consolidated balance sheets. There are no long-term accounts receivable related to contracts.

The opening balance of deferred revenues was $0.9 million as of January 1, 2018. As of September 30, 2018, and December 31, 2017, deferred revenues was $0.2 million and $1.2 million, respectively, and is included in current liabilities on our consolidated balance sheets. There are no long-term liabilities related to contracts.

We do not anticipate impairment of our contract asset related to license fee revenues, given the creditworthiness of our customers whose invoices comprise the balance in that asset account. We will continue to monitor the timeliness of receipts from those customers, however, to assess whether the contract asset has been impaired.

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. The balance in the allowance for doubtful accounts was $149,000 as of September 30, 2018 and December 31, 2017.

Payment terms and conditions vary by the type of contract; however, payments generally occur 30-60 days after invoicing for license fees and sensor modules to our resellers and distributors. Where revenue recognition timing differs from invoice timing, we have determined that our contracts do not include a significant financing component. Our intent is to provide our customers with consistent invoicing terms for the convenience of our customers, not to receive financing from our customers.

Costs to Obtain Contracts

We record the incremental costs of obtaining a contract with a customer as an asset, if we expect the benefit of those costs to cover a period greater than one year. We currently have no incremental costs that must be capitalized.

We expense as incurred costs of obtaining a contract when the amortization period of those costs would have been less than or equal to one year.

Product Warranty

The following table summarizes the activity related to the product warranty liability (in thousands):

	September 30, 2018		December 31, 2017
Balance at beginning of period	$	35	$	11
Provisions for warranty issued		-		24
Balance at end of period	$	35	$	35

We accrue for warranty costs as part of cost of sales of sensor modules based on estimated costs. Our products are generally covered by a warranty for a period of 12 to 36 months from customer receipt of the product.

Deferred Revenues

Deferred revenues consist primarily of prepayments for license fees, and other products or services for which we have been paid in advance, and earn the revenue when we transfer control of the product or service. Deferred revenues may also include upfront payments for consulting services to be performed in the future, such as non-recurring engineering services.

We defer license fees until we have met all accounting requirements for revenue recognition as per unit royalty products are distributed and available to our customers. Engineering development fee revenues are deferred until the engineering work has been completed and accepted by our customers.

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

	September 30, 2018		December 31, 2017
Deferred license fees	$	138	$	1,089
Deferred AirBar revenues		70		137
Deferred sensor modules revenues		16		22
	$	224	$	1,248

The opening balance of deferred revenues after adjustment pursuant to ASC 606 was $0.9 million as of January 1, 2018.

Changes in deferred revenues were as follows (in thousands):

	September 30, 2018
	Balances excluding revenue standard		Impact of Revenue Standard			As Reported
Deferred revenues	$	366	$	(142	)	$	224

Contracted revenue not yet recognized was $0.2 million as of September 30, 2018; we expect to recognize approximately 100% of that revenue over the next twelve months.

Advertising

Advertising costs are expensed as incurred. Advertising costs for the three and nine months ended September 30, 2018 amounted to approximately $14,000 and $84,000 respectively. Advertising costs for the three and nine months ended September 30, 2017 amounted to approximately $216,000 and $529,000, respectively.

Research and Development

Research and development (“R&D”) costs are expensed as incurred. R&D costs consist primarily of personnel related costs in addition to some external consultancy costs such as testing, certifying and measurements.

Stock-Based Compensation Expense

We measure the cost of employee services received in exchange for an award of equity instruments, including share options, based on the estimated fair value of the award on the grant date, and recognize the value as compensation expense over the period the employee is required to provide services in exchange for the award, usually the vesting period.

We account for equity instruments issued to non-employees at their estimated fair value. The measurement date for the estimated fair value for the equity instruments issued is determined at the earlier of (1) the date at which a commitment for performance by the consultant or vendor is reached, or (2) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instruments is primarily recognized over the term of the consulting agreement. The estimated fair value of the stock-based compensation is periodically re-measured and income or expense is recognized during the vesting term.

When determining stock-based compensation expense involving options and warrants, we determine the estimated fair value of options and warrants using the Black-Scholes option pricing model.

Noncontrolling Interests

The Company recognizes noncontrolling interests as equity in the condensed consolidated financial statements separate from the parent company’s equity. Noncontrolling interests’ partners have less than 50% share of voting rights at any one of the subsidiary level companies. The amount of net income (loss) attributable to non-controlling interests is included in consolidated net income (loss) on the face of the condensed consolidated statements of operations. Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income (loss) when a subsidiary is deconsolidated. Such gain or loss is measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Additionally, operating losses are allocated to noncontrolling interests even when such allocation creates a deficit balance for the noncontrolling interest partner.

The Company provides either in the condensed consolidated statement of stockholders’ equity, if presented, or in the notes to condensed consolidated financial statements, a reconciliation at the beginning and the end of the period of the carrying amount of total equity (net assets), equity (net assets) attributable to the parent, and equity (net assets) attributable to the noncontrolling interest that separately discloses:

(1)	Net income or loss.
(2)	Transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners.
(3)	Each component of other comprehensive income or loss.

Income Taxes

We recognize deferred tax liabilities and assets for the expected future tax consequences of items that have been included in the 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 September 30, 2018 and December 31, 2017. 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 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 September 30, 2018, and December 31, 2017, we had no unrecognized tax benefits.

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the “Tax Act”) was signed into law and the new legislation contains several key tax provisions that affected us, including the one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018, among other changes. We are required to recognize the effect of the tax law changes in the period of enactment. Since we have negative accumulated foreign earnings, we are not subject to the one-time repatriation tax. We have re-measured our U.S. deferred tax assets and liabilities, which resulted in a reduction of our net deferred tax assets with a corresponding adjustment to valuation allowance. As a result, no tax expense is recorded related to the enactment of the Tax Act. We have considered the accounting of deferred tax re-measurement and one-time transition tax calculation to be complete.

Net Loss per Share

Net loss per share amounts has been computed based on the weighted average number of shares of common stock outstanding during the three and nine months ended September 30, 2018 and 2017. Net loss per share, assuming dilution amounts from common stock equivalents, is computed based on the weighted-average number of shares of common stock and potential common stock equivalents outstanding during the period. The weighted-average number of shares of common stock and potential common stock equivalents used in computing the net loss per share for the three and nine months ended September 30, 2018 and 2017 exclude the potential common stock equivalents, as the effect would be anti-dilutive (See Note 7).

Other Comprehensive Income (Loss)

Our other comprehensive income (loss) includes foreign currency translation gains and losses. The cumulative amount of translation gains and losses are reflected as a separate component of stockholders’ equity in the condensed consolidated balance sheets as accumulated other comprehensive loss.

Cash Flow Information

Cash flows in foreign currencies have been converted to U.S. Dollars at an approximate weighted-average exchange rate for the respective reporting periods. The weighted-average exchange rate for the condensed consolidated statements of operations was as follows:

	Nine months ended September 30,
	2018		2017
Swedish Krona		8.57		8.62
Japanese Yen		109.63		111.91
South Korean Won		1,090.03		1,136.27
Taiwan Dollar		29.90		30.51

Exchange rate for the consolidated balance sheets was as follows:

	As of
	September 30,		December 31,
	2018		2017
Swedish Krona		8.87		8.21
Japanese Yen		113.69		112.65
South Korean Won		1,109.21		1,066.31
Taiwan Dollar		30.45		29.66

Fair Value of Financial Instruments

We disclose the estimated fair values for all financial instruments for which it is practicable to estimate fair value. Financial instruments including cash, accounts receivable, accounts payable and accrued expenses and are deemed to approximate fair value due to their short maturities.

New Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update 2014-09 to address the new revenue recognition accounting standard, ASC 606 - Revenues from Contracts with Customers. The new standard was effective January 1, 2018 for public entities. Under the new standard, revenue is recognized upon transfer of control of goods or services to customers, and the amount of revenue recognized should reflect the consideration expected to be received for the transfer of those goods or services to customers. Disclosures are required to describe the nature, amount, timing, and uncertainty of revenue and cash flows that may arise from contracts with customers.

We adopted the new standard on January 1, 2018. For cost and time efficiency purposes, we used the modified retrospective (“cumulative-effect”) approach to implement the new revenue recognition standard. We elected to apply that approach only to contracts not substantially complete at January 1, 2018.

We may from time to time negotiate contract modifications to contracts with our customers. While using the cumulative-effect approach for our revenue recognition implementation, we found that there was one contract that was modified before the beginning of the earliest reporting period presented. We elected to not apply the practical expedient related to contract modification because that contract was the only contract modified during the past several years, and we determined that the modified contract in substance represented a new contract for a new product. Therefore, the original contract and contract modification were treated as separate contracts for purposes of contract analysis.

Use of the cumulative-effect approach required us to make an opening adjustment to equity rather than recast prior year financial data; therefore, comparability of financial statements was impacted.

The most significant impact of the standard going forward relates to our accounting for license fee revenues. In prior years, we recognized license fee revenues after receipt of royalty reports from our customers; those royalty reports were often subject to reporting lags of five days to three months. We have requested that our customers provide more timely license fee royalty reports (with a maximum one-month lag), and we estimate any license fee revenue still subject to lag reporting. We use our royalty history with each customer to most accurately estimate the remaining royalties not yet reported to us at the end of each reporting period.

There was no adjustment related to AirBar and sensor modules; however, there will be a change in the timing of revenue recognition in the future. The timing of revenue recognition related to our AirBar and sensor modules depends upon how each sale is transacted - either point-of-sale or through distributors. Revenue recognition timing for AirBar modules sold point-of-sale (online sales and other direct sales to consumers) remains unchanged; revenue is recognized when we provide the promised product to the customer. In prior years, we did not recognize revenues related to our AirBar and sensor modules sold through distributors until those products were sold through to end customers. For sales of AirBar and sensor modules through distributors, revenues are now recognized when our distributors obtain control over our products; control passes to our distributors depending upon a number of factors.

Although we are entitled to an optional exemption from disclosure of variable consideration related to AirBar and sensor modules under the new standard, we plan to continue to disclose variable consideration related to sales of AirBar and sensor modules.

There was no cumulative adjustment related to non-recurring engineering fees, because all outstanding engineering projects were completed as of December 31, 2017.

The following table summarizes the impact of the new revenue standard on the Company’s condensed consolidated statement of operations for the three and nine months ended September 30, 2018 and condensed consolidated balance sheet as of September 30, 2018:

	Three months ended September 30, 2018
	Balances excluding revenue standard		Impact of Revenue Standard			As Reported
Revenue
License fees	$	1,919	$	(322	)	$	1,597
Sensor modules		39		-			39
Non-recurring engineering		287		-			287
Total Revenues	$	2,245	$	(322	)	$	1,923

	Nine months ended September 30, 2018
	Balances excluding revenue standard		Impact of Revenue Standard			As Reported
Revenue
License fees	$	5,939	$	(258	)	$	5,681
Sensor modules		176		-			176
Non-recurring engineering		317		-			317
Total Revenues	$	6,432	$	(258	)	$	6,174

	September 30, 2018
	Balances excluding revenue standard			Impact of Revenue Standard			As Reported
Assets
Accounts receivable and unbilled revenue, net	$	276		$	1,183		$	1,459
Liabilities
Deferred revenues	$	366		$	(142	)	$	224
Equity
Accumulated deficit	$	(185,954	)	$	1,325		$	(184,629	)

Adoption of the new standard resulted in an increase in accounts receivable and unbilled revenue, due to an adjustment to equity to record license fees that had not yet been reported, as well as a reduction of deferred revenues, due to an adjustment to equity to apply license fee prepayments to revenues.

Adoption of the new revenue recognition standard had no impact on cash provided by or used in operating, financing, or investing activities on our condensed consolidated statements of cash flows.

We implemented internal controls effective January 1, 2018 to ensure that we properly evaluate our contracts and review assumptions we make for revenue estimates, and we assessed the impact of the new accounting standard related to revenue recognition on our consolidated financial statements to facilitate our adoption of the new standard on January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, lessees will be required recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

The effective date of the new lease standard (ASC 842) is January 1, 2019, and we plan to adopt the new standard on that date. We have drafted our lease standard implementation plan, and that plan is currently under final review by executive management. We will use the required modified retrospective approach, which allows us to make any necessary transition adjustments at January 1, 2019. We will elect the optional transition method, which will allow us to continue to use disclosures required by the prior standard during 2019, the year of adoption. There are also several practical expedients available to make the transition more efficient and cost-effective for companies. We plan to elect the package of three practical expedients available to us; doing so will allow us to not reassess existing leases, therefore we will not be required to search existing contracts for embedded leases.

We currently have a limited number of leased capital assets, all of which will be classified as finance leases under the new lease standard. We maintain a lease inventory for those assets; they are currently reported on our condensed consolidated balance sheets and will continue to be reported on our condensed consolidated balance sheets under the new standard. We also have a small number of leases which are currently classified as operating leases; we have compiled a list of those leases and will analyze them as we transition to the new standard. We expect that the transition may result in the inclusion of a few operating leases on our condensed consolidated balance sheets, as well as more robust disclosures.

Because of the small number of assets we lease, we do not need to make systems changes to comply with the new standard. We plan to continue to track those leased assets outside of our accounting systems. We will assess the accounting and possible tax impacts during the coming months; however, we do not expect material changes in financial ratios, leasing practices, or tax reporting.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). The new standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 will become effective for us for fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact ASU 2016-13 will have on our consolidated financial statements.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Stockholders' Equity

3. Stockholders’ Equity

Common Stock

During the nine months ended September 30, 2018, there were no activities that affected common stock. The Company effected a reverse stock split, effective October 1, 2018 (see Note 1).

August 2017 Private Placement

On August 2, 2017, we entered into a Securities Purchase Agreement with accredited investors as part of a private placement pursuant to which we issued a total of 975,000 shares of common stock at $10.00 per share, and warrants, for an aggregate purchase price of $9.75 million in gross proceeds (see Note 1 for additional details). 

Preferred Stock

We have one class of preferred stock outstanding. There were no activities that affected preferred stock during the nine months ended September 30, 2018.

Conversion of Preferred Stock Issued to Common Stock

The following table summarizes the amounts as of September 30, 2018. 

	Shares of Preferred Stock Not Exchanged as of September 30, 2018		Conversion Ratio		Shares of Common Stock after Conversion of all Outstanding Shares of Preferred Stock Not yet Exchanged at September 30, 2018
Series B Preferred stock		83		132.07		10,962

Warrants

As of both September 30, 2018 and December 31, 2017, there were 1,116,368 warrants to purchase common stock outstanding, respectively. During 2017, we agreed to issue the 2017 Warrants to investors in the August 2017 private placement to purchase up to a total of approximately 325,000 shares of common stock at an exercise price of $20.00 per share. The 2017 Warrants will become exercisable 12 months from the date of issuance and will expire three years from the date of issuance. If the 2017 Warrants are fully exercised, we will receive approximately $6.5 million in cash.

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

4. Stock-Based Compensation

There was no stock-based compensation expense for the three months ended September 30, 2018, nor is there any remaining unrecognized stock-based compensation expense at September 30, 2018. The stock-based compensation expense for the nine months ended September 30, 2018 and 2017 reflects the estimated fair value of the vested portion of options granted to employees, directors and eligible consultants. On April 11, 2018, the Company issued to the CEO, Håkan Persson, a total of 30,000 immediately vested options to purchase shares of the Company’s common stock at an exercise price of $15.00 per share that expire on April 11, 2021. The purchase price of the stock options was determined to be $0.40 per option for a total amount of $12,000. Under Sweden law, the CEO is required to purchase the stock options from the Company, therefore the $12,000 was recorded as stock-based compensation expense. At the discretion of the board of directors, the Company absorbed the cost and recorded the amount as a bonus to this employee on date of grant. Stock-based compensation expense in the accompanying condensed consolidated statements of operations is as follows (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Sales and marketing		-		11		6		39
General and administrative		-		6		23		17
Total stock-based compensation expense	$	-	$	17	$	29	$	56

	Remaining unrecognized expense at September 30, 2018
Stock-based compensation	$	-

The estimated fair value of stock-based awards is calculated using the Black-Scholes option pricing model, even though this model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from our stock options. The Black-Scholes model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term and forfeiture rate of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior, as well as expected behavior on outstanding options. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. The expected volatility is based on the historical volatility of our stock price. These factors could change in the future, which would affect fair values of stock options granted in such future periods, and could cause volatility in the total amount of the stock-based compensation expense reported in future periods.

Stock Options

We have adopted equity incentive plans for which stock options and restricted stock awards are available to grant to employees, consultants and directors. Except for the 30,000 options issued to the CEO (see above), all employee, consultant and director stock options granted under our stock option plans have an exercise price equal to the market value of the underlying common stock on the grant date. There are no vesting provisions tied to performance conditions for any options, as vesting for all outstanding option grants was based only on continued service as an employee, consultant or director. All of our outstanding stock options and restricted stock awards are classified as equity instruments.

As of September 30, 2018, we had two equity incentive plans:

● The 2006 Equity Incentive Plan; and

● The 2015 Stock Incentive Plan

A summary of the combined activity under all of the stock option plans is set forth below:

	Number of Options Outstanding			Weighted Average Exercise Price
Outstanding at January 1, 2018		175,600		$	42.00
Granted		30,000			15.00
Cancelled		(78,300	)		41.30
Expired		(26,000	)		41.50
Outstanding at September 30, 2018		101,300		$	34.65

The aggregate intrinsic value of the 101,300 stock options that are outstanding, vested and expected to vest as of September 30, 2018 was $0.

For the three and nine months ended September 30, 2018 and 2017, we recorded $0 and $29,000 and $17,000 and $56,000, respectively, of compensation expense related to the vesting of stock options. The fair value of the stock-based compensation was calculated using the Black-Scholes option pricing model as of the date of grant of the stock option.

During the nine months ended September 30, 2018, we granted 30,000 options to purchase shares of our common stock to the CEO with a grant fair value of $6,000 computed using the Black-Scholes option pricing model. The weighted average grant date fair value of the options during the nine months ended September 30, 2018 was $0.20. We did not grant any options to purchase shares to any of the members of our board of directors.

See below for assumptions used in the valuation of stock options: 

	For the nine months ended
	September 30, 2018
Annual dividend yield		-
Expected life (years)		1.50
Risk-free interest rate		2.2	%
Expected volatility		71	%

Stock options granted under the 2006 and 2015 Plans are exercisable over a maximum term of ten years from the date of grant, vest in various installments over a one to four-year period and have exercise prices reflecting the market value of the shares of common stock on the date of grant.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

5. 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 September 30, 2018 and December 31, 2017.

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 September 30, 2018 and December 31, 2017.

Non-Recurring Engineering Development Costs

On April 25, 2013, we entered into an Analog Device Development Agreement with an effective date of December 6, 2012 (the “NN1002 Agreement”) with Texas Instruments pursuant to which Texas Instruments agreed to integrate Neonode’s intellectual property into an application specific integrated circuit (“ASIC”). The NN1002 ASIC can only be sold by Texas Instruments exclusively to licensees of Neonode. Under the terms of the NN1002 Agreement, we agreed to 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 also agreed to 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 shipping to customers in 2015. As of September 30, 2018, we had made no payments under the NN1002 Agreement.

On December 4, 2014, we entered into an Analog Device Development Agreement (the “NN1003 Agreement”) with ST Microelectronics International N.V. pursuant to which ST Microelectronics agreed to integrate Neonode’s intellectual property into an ASIC (“NN1003 ASIC”). The NN1003 ASIC can only be sold by ST Microelectronics exclusively to licensees of Neonode. Under the terms of the NN1003 Agreement, we agreed to reimburse ST Microelectronics up to $835,000 of non-recurring engineering costs as follows:

● $235,000 at the feasibility review and contract signature (paid in full);

● $300,000 on completion of tape-out (paid in full); and

● $300,000 on completion on product validation (paid in full).

Under the terms of the NN1003 Agreement, we also will reimburse ST Microelectronics a non-recurring engineering fee of $5.00 per each of the first 10,000 units sold. As of September 30, 2018, we had made no additional payments under the NN1003 Agreement.

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Segment Information

9 Months Ended

Sep. 30, 2018

Segment Reporting [Abstract]

Segment Information

6. Segment Information

We have one reportable segment, which is comprised of the touch technology licensing and sensor module business. All of our sales for the three and nine months ended September 30, 2018 and 2017 were to customers located in the U.S., Europe and Asia. The Company reports revenues from external customers based on the country where the customer is located. Of our total assets, 35% and 28% were held in the U.S. as of September 30, 2018 and December 31, 2017, respectively, and 64% and 71% were held in Sweden as of September 30, 2018 and December 31, 2017, respectively.

The following table presents net revenues by geographic area for the three and nine months ended September 30, 2018 and 2017 (in thousands):

	Three months ended September 30, 2018						Three months ended September 30, 2017
	Amount			Percentage			Amount		Percentage
United States	$	1,101			57	%	$	977		42	%
Japan		623			32	%		771		33	%
Germany		195			10	%		341		15	%
China		(67	)		(3	)%		92		4	%
Taiwan		49			3	%		43		2	%
Other		22			1	%		81		4	%
	$	1,923			100	%	$	2,305		100	%

	Nine months ended September 30, 2018					Nine months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
United States	$	3,033		49	%	$	3,203		46	%
Japan		2,119		34	%		1,666		24	%
Germany		604		10	%		911		13	%
China		130		2	%		631		9	%
Taiwan		159		3	%		137		2	%
Sweden		10		-	%		106		2	%
Singapore		-		-	%		141		2	%
Other		119		2	%		171		2	%
	$	6,174		100	%	$	6,966		100	%

The following table presents long-lived assets by geographic region (in thousands):

	September 30, 2018		December 31, 2017
Long-lived assets in North America	$	2	$	3
Long lived assets in Asia		3		6
Long-lived assets in Europe		2,655		3,318
	$	2,660	$	3,327

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Net Loss Per Share

9 Months Ended

Sep. 30, 2018

Loss per common share:

Net Loss per Share

7. Net Loss per Share

Basic net loss per common share for the three and nine months ended September 30, 2018 and 2017 was computed by dividing the net loss attributable to Neonode Inc. for the relevant period by the weighted average number of shares of common stock outstanding. Diluted loss per common share is computed by dividing net loss attributable to Neonode Inc. by the weighted average number of shares of common stock and common stock equivalents outstanding.

Potential common stock equivalents of approximately 0 and 0 outstanding stock options and 350,000 and 440,000 outstanding stock warrants under the treasury stock method, and 11,000 and 11,000 shares issuable upon conversion of preferred stock are excluded from the diluted earnings per share calculation for the nine months ended September 30, 2018 and 2017, respectively, due to their anti-dilutive effect.

(in thousands, except per share amounts)	Three months ended September 30,
	2018			2017
BASIC AND DILUTED
Weighted average number of common shares outstanding		5,859			5,517
Net loss attributable to Neonode Inc.	$	(809	)	$	(1,115	)
Net loss per share - basic and diluted	$	(0.14	)	$	(0.20	)

(in thousands, except per share amounts)	Nine months ended September 30,
	2018			2017
BASIC AND DILUTED
Weighted average number of common shares outstanding		5,859			5,096
Net loss attributable to Neonode Inc.	$	(2,466	)	$	(2,986	)
Net loss per share - basic and diluted	$	(0.42	)	$	(0.59	)

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Subsequent Events

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

8. Subsequent Events 

We have evaluated subsequent events through the filing date of this Form 10-Q, and determined that the following subsequent events have occurred that would require disclosure in the notes thereto other than as discussed in the accompanying notes.

As previously disclosed, at the annual meeting of stockholders on June 7, 2018, Neonode stockholders approved an amendment to the restated certification of incorporation to effect a reverse stock split of the Company’s common stock, in the range of 1-for-5 to 1-for-15 at the discretion of the board of directors. The board approved a 1-for-10 reverse stock split of the Company’s issued and outstanding shares of common stock, and on September 27, 2018, the Company filed the certificate of first amendment to its restated certificate of incorporate with the state of Delaware to effect the reverse stock split, effective October 1, 2018.

As a result of the reverse stock split, every ten shares of issued and outstanding common stock were converted into one share of common stock, without any change in the par value per share. No fractional shares were issued, therefore shareholders entitled to receive a fractional share in connection with the reverse stock split received a cash payment instead. There was no financial impact to the Company’s condensed consolidated financial statements. All shares and per share information in this Form 10-Q has been retroactively adjusted for all periods presented to reflect the reverse stock split, including reclassifying any amount equal to the reduction in par value of common stock to additional paid-in capital.

Trading of the Company’s common stock continued on the NASDAQ Capital Market on a reverse stock split-adjusted basis beginning on October 1, 2018.

At the annual meeting of stockholders on June 7, 2018, stockholders of the Company also approved the reduction in the number of authorized shares of common stock in corresponding proportion to the reverse stock split. As a result, the Company filed a certificate of second amendment to its restated certificate of incorporation with the state of Delaware to reduce the number of authorized shares of common stock from 100,000,000 to 10,000,000 shares.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation

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, as well as Pronode Technologies AB, a 51% majority owned subsidiary of Neonode Technologies AB. The remaining 49% of Pronode Technologies AB is owned by Propoint AB, located in Gothenburg, Sweden. Pronode Technologies AB was organized to sell engineering services within the automotive markets. All inter-company accounts and transactions have been eliminated in consolidation.

Neonode consolidates entities in which we have a controlling financial interest. We consolidate subsidiaries in which we hold, directly or indirectly, more than 50% of the voting rights, and variable interest entities (VIEs) in which Neonode is the primary beneficiary.

In June 2016, we entered into a Joint Venture (“JV”) with a Swedish based eye-tracking company SMART EYE AB. By combining our technologies, we plan to bring multi-chip modules to the market for the consumer and automotive markets that provide new opportunities for interaction with cars and devices. The name of the JV is Neoeye AB (“Neoeye”). 

We use the equity method of accounting to record our investments in the common stock of each entity in which Neonode has the ability to exercise significant influence, but does not own a majority equity interest. Under the equity method, our investment is originally included in equity interests at cost, and is adjusted to recognize our share of net earnings or losses of the investee, in our condensed consolidated balance sheets; our share of net income (loss) is reported in our condensed consolidated statements of operations according to our equity ownership in each entity.

The condensed consolidated balance sheets at September 30, 2018 and December 31, 2017 and the condensed consolidated statements of operations, comprehensive loss and cash flows for the three and nine months ended September 30, 2018 and 2017 include our accounts and those of our wholly owned subsidiaries, Neonode Technologies AB (Sweden), Neonode Americas Inc. (U.S.), Neonode Japan Inc. (Japan), NEON Technology Inc. (U.S.), Neno User Interface Solutions AB (Sweden), Neonode Korea Ltd. (South Korea) and Neonode Taiwan Ltd. (Taiwan), as well as Pronode Technologies AB (Sweden), a 51% majority owned subsidiary of Neonode Technologies AB.

Estimates

Estimates

The preparation of financial statements in conformity with U.S. GAAP requires making estimates and assumptions that affect, at the date of the financial statements, the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Actual results could differ from these estimates. Significant estimates include, but are not limited to: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price of performance obligations, variable consideration, and other obligations such as product returns and refunds, and product warranties; provisions for uncollectible receivables; net realizable value of inventory; recoverability of capitalized project costs and long-lived assets; the valuation allowance related to our deferred tax assets; and the fair value of options and warrants issued for stock-based compensation.

Cash

Cash

We have not had any liquid investments other than normal cash deposits with bank institutions to date. The Company considers all highly liquid investments with original maturities of three months of less to be cash equivalents.

Concentration of Cash Balance Risks

Concentration of Cash Balance Risks

Cash balances are maintained at various banks in the U.S., Japan, Korea, Taiwan and Sweden. For deposits held with financial institutions in the U.S. the U.S. Federal Deposit Insurance Corporation, provides basic deposit coverage with limits up to $250,000 per owner. The Swedish government provides insurance coverage up to 100,000 Euro per customer and covers deposits in all types of accounts. The Japanese government provides insurance coverage up to 10,000,000 Yen per customer. The Korea Deposit Insurance Corporation provides insurance coverage up to 50,000,000 Won per customer. The Central Deposit Insurance Corporation in Taiwan provides insurance coverage up to 3,000,000 Taiwan Dollar per customer. At times, deposits held with financial institutions may exceed the amount of insurance provided.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts  

Accounts receivable is stated at net realizable value. Our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments. Credit limits are established through a process of reviewing the financial history and stability of each customer. Where appropriate, we obtain credit rating reports and financial statements of the customer when determining or modifying its credit limits. We regularly evaluate the collectability of our trade receivable balances based on a combination of factors. When a customer’s account balance becomes past due, we initiate dialogue with the customer to determine the cause. If it is determined that the customer will be unable to meet its financial obligation, such as in the case of a bankruptcy filing, deterioration in the customer’s operating results or financial position or other material events impacting its business, we record a specific allowance to reduce the related receivable to the amount we expect to recover. Should all efforts fail to recover the related receivable, we will write off the account. We also record an allowance for all customers based on certain other factors including the length of time the receivables are past due and historical collection experience with customers. Our allowance for doubtful accounts was approximately $149,000 as of September 30, 2018 and December 31, 2017.

Projects in process

Projects in Process

Projects in process consist of costs incurred toward the completion of various projects for certain customers. These costs are primarily comprised of direct engineering labor costs and project-specific equipment costs. These costs are capitalized on our condensed consolidated balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition policy. There were no costs capitalized in projects in process as of September 30, 2018. Costs capitalized in projects in process were $1,000 as of December 31, 2017.

Inventory

Inventory

Inventory is stated at the lower of cost, computed using the first-in, first-out method (“FIFO”) and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. As of September 30, 2018, and December 31, 2017, the Company’s inventory consists primarily of components that will be used in the manufacturing of our sensor modules. We segregate inventory for reporting purposes by raw materials, work-in-process, and finished goods.

Raw materials, work-in-process, and finished goods are as follows (in thousands):

	September 30,		December 31,
	2018		2017
Raw materials	$	147	$	164
Work-in-Process		210		231
Finished goods		901		759
Ending inventory	$	1,258	$	1,154

Investment in JV

Investment in JV

We have invested $3,000 for a 50% interest in Neoeye AB (see above). We account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and will be recognized in the consolidated statements of operations and will also be adjusted by contributions to and distributions from Neoeye. The Company is not required to guarantee any obligations of the JV. There have been no operations of Neoeye through September 30, 2018.

Neoeye, as an unconsolidated equity investee, will recognize revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of revenue is assured, which is generally upon the receipt of the license proceeds. Neoeye may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones have been met.

We periodically review our investment in Neoeye to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near-term prospects of Neoeye. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method based upon estimated useful lives of the assets as follows:

Estimated useful lives

Computer equipment	3 years
Furniture and fixtures	5 years
Equipment	7 years

Equipment purchased under a capital lease is recognized over the term of the lease, if that lease term is shorter than the estimated useful life.

Upon retirement or sale of property and equipment, cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the condensed consolidated statement of operations. Maintenance and repairs are charged to expense as incurred. 

Long-lived Assets

Long-lived Assets

We assess any impairment by estimating the future cash flow from the associated asset in accordance with relevant accounting guidance. If the estimated undiscounted future cash flow related to these assets decreases or the useful life is shorter than originally estimated, we may incur charges for impairment of these assets. As of September 30, 2018, we believe there was no impairment of our long-lived assets. There can be no assurance, however, that market conditions will not change or sufficient demand for our products and services will continue, which could result in impairment of long-lived assets in the future.

Foreign Currency Translation and Transaction Gains and Losses

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, the South Korean Won and the Taiwan Dollar. The translation from Swedish Krona, Japanese Yen, South Korean Won and Taiwan Dollar to U.S. Dollars is performed for balance sheet accounts using current exchange rates in effect at the 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 income (loss). Foreign currency translation gains (losses) were $13,000 and $(417,000) during the three and nine months ended September 30, 2018, respectively, compared to translation gains of $83,000 and $205,000 during the three and nine months ended September 30, 2017, respectively. Losses resulting from foreign currency transactions are included in general and administrative expenses in the accompanying condensed consolidated statements of operations and were $13,000 and $34,000 during the three and nine months ended September 30, 2018, respectively, compared to $45,000 and $24,000 during the same periods in 2017, respectively.

Concentration of Credit and Business Risks

Concentration of Credit and Business Risks

Our customers are located in U.S., Europe and Asia.

As of September 30, 2018, four customers represented approximately 73% of the Company’s accounts receivable. 

As of December 31, 2017, two customers represented approximately 69% of the Company’s accounts receivable. 

Customers who accounted for 10% or more of our net revenues during the three months ended September 30, 2018 are as follows:

● Hewlett Packard Company – 33%

● Faraday & Future Inc.– 15%

● Seiko Epson – 16%

● Canon – 10%

● Bosch – 10%

Customers who accounted for 10% or more of our net revenues during the nine months ended September 30, 2018 are as follows:

● Hewlett Packard Company – 34%

● Seiko Epson – 14%

● Canon – 13%

Customers who accounted for 10% or more of our net revenues during the three months ended September 30, 2017 are as follows:

● Hewlett Packard Company – 30%

● Canon – 17%

● Seiko Epson – 12%

● Bosch – 11%

Customers who accounted for 10% or more of our net revenues during the nine months ended September 30, 2017 are as follows:

● Hewlett Packard Company – 31%

● Canon – 15%

● Bosch – 11%

Revenue Recognition

Revenue Recognition

We recognize revenue when control of products is transferred to our customers, and when services are completed and accepted by our customers; the amount of revenue we recognize reflects the consideration we expect to receive for those products or services. Our contracts with customers may include combinations of products and services, for example, a contract that includes products and related engineering services. We structure our contracts such that distinct performance obligations, such as product sales or license fees, and related engineering services, are clearly defined in each contract.

Sales of license fees and AirBar and sensor modules are on a per-unit basis; therefore, we generally satisfy performance obligations as units are shipped to our customers. Non-recurring engineering service performance obligations are satisfied as work is performed and accepted by our customers.

We recognize revenue net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. We treat all product shipping and handling charges (regardless of when they occur) as activities to fulfill the promise to transfer goods, therefore we treat all shipping and handling charges as expenses.

Licensing Revenues:

We earn revenue from licensing our internally developed intellectual property (“IP”). We enter into IP licensing agreements that generally provide licensees the right to incorporate our IP components in their products, with terms and conditions that vary by licensee. Fees under these agreements may include license fees relating to our IP, and royalties payable to us following the distribution by our licensees of products incorporating the licensed technology. The license for our IP has standalone value and can be used by the licensee without maintenance and support.

For technology license arrangements that do not require significant modification or customization of the underlying technology, we recognize technology license revenue when the license is made available to the customer and the customer has a right to use that license. At the end of each reporting period, we record unbilled license fees, using prior royalty revenue data by customer to make accurate estimates of those royalties.

Explicit return rights are not offered to customers. There have been no returns through September 30, 2018.

Engineering Services:

For technology license or sensor module contracts that require modification or customization of the underlying technology to adapt that technology to customer use, we determine whether the technology license or sensor module, and engineering consulting services represent separate performance obligations. We perform our analysis on a contract-by-contract basis. If there are separate performance obligations, we determine the standalone selling price (“SSP”) of each separate performance obligation to properly recognize revenue as each performance obligation is satisfied. We provide engineering consulting services to our customers under a signed Statement of Work (“SOW”). Deliverables and payment terms are specified in each SOW. We generally charge an hourly rate for engineering services, and we recognize revenue as engineering services specified in contracts are completed and accepted by our customers. Any upfront payments we receive for future non-recurring engineering services are recorded as unearned revenue until that revenue is earned.

We believe that recognizing non-recurring engineering services revenues as progress towards completion of engineering services and customer acceptance of those services occurs best reflects the economics of those transactions, because engineering services as tracked in our systems correspond directly with the value to our customers of our performance completed to date. Hours performed for each engineering project are tracked and reflect progress made on each project, and are charged at a consistent hourly rate.

Revenues from engineering services contracts that are short-term in nature are recorded when those services are complete and accepted by customers.

Revenues from engineering services contracts with substantive defined deliverables for which payment terms in the SOW are commensurate with the efforts required to produce such deliverables are recognized as they are completed and accepted by customers.

Estimated losses on all SOW projects are recognized in full as soon as they become evident. In the quarters ended September 30, 2018 and 2017, no losses related to SOW projects were recorded.

Optical Sensor Modules Revenues:

We earn revenue from sales of sensor modules hardware products to our OEM and Tier 1 supplier customers, who embed our hardware into their products, and from sales of branded consumer products that incorporate our sensor modules sold through distributors or directly to end users. These distributors are generally given business terms that allow them to return unsold inventory, receive credits for changes in selling prices, and participate in various cooperative marketing programs. Our sales agreements generally provide customers with limited rights of return and warranty provisions.

The timing of revenue recognition related to AirBar modules depends upon how each sale is transacted - either point-of-sale or through distributors. We recognize revenue for AirBar modules sold point-of-sale (online sales and other direct sales to customers) when we provide the promised product to the customer.

Because we generally use distributors to provide AirBar and sensor modules to our customers, however, we analyze the terms of distributor agreements to determine when control passes from us to our distributors. For sales of AirBar and sensor modules sold through distributors, revenues are recognized when our distributors obtain control over our products. Control passes to our distributors when we have a present right to payment for products sold to distributors, the distributors have legal title to and physical possession of products purchased from us, and the distributors have significant risks and rewards of ownership of products purchased.

Distributors participate in various cooperative marketing and other incentive programs, and we maintain estimated accruals and allowances for these programs. If actual credits received by distributors under these programs were to deviate significantly from our estimates, which are based on historical experience, our revenue could be adversely affected.

Under U.S. GAAP, companies may make reasonable aggregations and approximations of returns data to accurately estimate returns. Our AirBar returns and warranty experience to date has enabled us to make reasonable returns estimates, which are supported by the fact that our product sales involve homogenous transactions. The reserve for future sales returns is recorded as a reduction of our accounts receivable and revenue and was insignificant as of September 30, 2018 and December 31, 2017. If the actual future returns were to deviate from the historical data on which the reserve had been established, our revenue could be adversely affected.

The following table presents disaggregated revenues by market for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):

	Three months ended September 30, 2018					Three months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
Net license revenues from automotive	$	248		13	%	$	457		20	%
Net license revenues from consumer electronics		1,349		70	%		1,615		70	%
Net revenues from sensor modules		39		2	%		211		9	%
Net revenues from non-recurring engineering		287		15	%		22		1	%
	$	1,923		100	%	$	2,305		100	%

	Nine months ended September 30, 2018					Nine months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
Net license revenues from automotive	$	1,151		19	%	$	1,714		25	%
Net license revenues from consumer electronics		4,530		73	%		4,444		64	%
Net revenues from sensor modules		176		3	%		634		9	%
Net revenues from non-recurring engineering		317		5	%		174		2	%
	$	6,174		100	%	$	6,966		100	%

Significant Judgments

Significant Judgments

Our contracts with customers may include promises to transfer multiple products and services to a customer, particularly when one of our customers contracts with us for a product and related engineering services fees for customizing that product for our customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately may require significant judgment. Judgment may also be required to determine the SSP for each distinct performance obligation identified, although we generally structure our contracts such that performance obligations and pricing for each performance obligation are specifically addressed. We currently have no outstanding contracts with multiple performance obligations; however, we recently negotiated a contract that may include multiple performance obligations in the future.

Judgment is also required to determine when control of products passes from us to our distributors, as well as the amounts of product that may be returned to us. Our products are sold with a right of return, and we may provide other credits or incentives to our customers, which could result in variability when determining the amount of revenue to recognize. At the end of each reporting period, we use product returns history and additional information that becomes available to estimate returns and credits. We do not recognize revenue if it is probable that a significant reversal of any incremental revenue would occur.

Finally, judgment is required to determine the amount of unbilled license fees at the end of each reporting period.

Contract Balances

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when we have an unconditional right to receive future payments from customers, and we record unearned revenue when we receive prepayments or upfront payments for goods or services from our customers.

	September 30, 2018		December 31, 2017
Accounts receivable and unbilled revenue	$	1,459	$	1,010
Deferred revenues		224		1,248

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled revenues (contract assets), and customer advances and deposits or deferred revenue (contract liabilities) on the consolidated balance sheet. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets; contract assets are generally classified as current. The Company sometimes receives advances or deposits from its customers before revenue is recognized, which are reported as contract liabilities and are generally classified as current. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.

The opening balance of current accounts receivable, net of allowance for doubtful accounts, was $2.2 million as of January 1, 2018. As of September 30, 2018, and December 31, 2017, accounts receivable, net of allowance for doubtful accounts, were $1.5 million and $1.0 million, respectively, and are included in current assets on our condensed consolidated balance sheets. There are no long-term accounts receivable related to contracts.

The opening balance of deferred revenues was $0.9 million as of January 1, 2018. As of September 30, 2018, and December 31, 2017, deferred revenues was $0.2 million and $1.2 million, respectively, and is included in current liabilities on our consolidated balance sheets. There are no long-term liabilities related to contracts.

We do not anticipate impairment of our contract asset related to license fee revenues, given the creditworthiness of our customers whose invoices comprise the balance in that asset account. We will continue to monitor the timeliness of receipts from those customers, however, to assess whether the contract asset has been impaired.

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. The balance in the allowance for doubtful accounts was $149,000 as of September 30, 2018 and December 31, 2017.

Payment terms and conditions vary by the type of contract; however, payments generally occur 30-60 days after invoicing for license fees and sensor modules to our resellers and distributors. Where revenue recognition timing differs from invoice timing, we have determined that our contracts do not include a significant financing component. Our intent is to provide our customers with consistent invoicing terms for the convenience of our customers, not to receive financing from our customers.

Costs to Obtain Contracts

Costs to Obtain Contracts

We record the incremental costs of obtaining a contract with a customer as an asset, if we expect the benefit of those costs to cover a period greater than one year. We currently have no incremental costs that must be capitalized.

We expense as incurred costs of obtaining a contract when the amortization period of those costs would have been less than or equal to one year.

Product Warranty

Product Warranty

The following table summarizes the activity related to the product warranty liability (in thousands):

	September 30, 2018		December 31, 2017
Balance at beginning of period	$	35	$	11
Provisions for warranty issued		-		24
Balance at end of period	$	35	$	35

We accrue for warranty costs as part of cost of sales of sensor modules based on estimated costs. Our products are generally covered by a warranty for a period of 12 to 36 months from customer receipt of the product.

Deferred Revenues

Deferred Revenues

Deferred revenues consist primarily of prepayments for license fees, and other products or services for which we have been paid in advance, and earn the revenue when we transfer control of the product or service. Deferred revenues may also include upfront payments for consulting services to be performed in the future, such as non-recurring engineering services.

We defer license fees until we have met all accounting requirements for revenue recognition as per unit royalty products are distributed and available to our customers. Engineering development fee revenues are deferred until the engineering work has been completed and accepted by our customers.

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

	September 30, 2018		December 31, 2017
Deferred license fees	$	138	$	1,089
Deferred AirBar revenues		70		137
Deferred sensor modules revenues		16		22
	$	224	$	1,248

The opening balance of deferred revenues after adjustment pursuant to ASC 606 was $0.9 million as of January 1, 2018.

Changes in deferred revenues were as follows (in thousands):

	September 30, 2018
	Balances excluding revenue standard		Impact of Revenue Standard			As Reported
Deferred revenues	$	366	$	(142	)	$	224

Contracted revenue not yet recognized was $0.2 million as of September 30, 2018; we expect to recognize approximately 100% of that revenue over the next twelve months.

Advertising

Advertising

Advertising costs are expensed as incurred. Advertising costs for the three and nine months ended September 30, 2018 amounted to approximately $14,000 and $84,000 respectively. Advertising costs for the three and nine months ended September 30, 2017 amounted to approximately $216,000 and $529,000, respectively.

Research and Development

Research and Development

Research and development (“R&D”) costs are expensed as incurred. R&D costs consist primarily of personnel related costs in addition to some external consultancy costs such as testing, certifying and measurements.

Stock-Based Compensation Expense

Stock-Based Compensation Expense

We measure the cost of employee services received in exchange for an award of equity instruments, including share options, based on the estimated fair value of the award on the grant date, and recognize the value as compensation expense over the period the employee is required to provide services in exchange for the award, usually the vesting period.

We account for equity instruments issued to non-employees at their estimated fair value. The measurement date for the estimated fair value for the equity instruments issued is determined at the earlier of (1) the date at which a commitment for performance by the consultant or vendor is reached, or (2) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instruments is primarily recognized over the term of the consulting agreement. The estimated fair value of the stock-based compensation is periodically re-measured and income or expense is recognized during the vesting term.

When determining stock-based compensation expense involving options and warrants, we determine the estimated fair value of options and warrants using the Black-Scholes option pricing model.

Noncontrolling Interests

Noncontrolling Interests

The Company recognizes noncontrolling interests as equity in the condensed consolidated financial statements separate from the parent company’s equity. Noncontrolling interests’ partners have less than 50% share of voting rights at any one of the subsidiary level companies. The amount of net income (loss) attributable to non-controlling interests is included in consolidated net income (loss) on the face of the condensed consolidated statements of operations. Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income (loss) when a subsidiary is deconsolidated. Such gain or loss is measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Additionally, operating losses are allocated to noncontrolling interests even when such allocation creates a deficit balance for the noncontrolling interest partner.

The Company provides either in the condensed consolidated statement of stockholders’ equity, if presented, or in the notes to condensed consolidated financial statements, a reconciliation at the beginning and the end of the period of the carrying amount of total equity (net assets), equity (net assets) attributable to the parent, and equity (net assets) attributable to the noncontrolling interest that separately discloses:

(1)	Net income or loss.
(2)	Transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners.
(3)	Each component of other comprehensive income or loss.

Income Taxes

Income Taxes

We recognize deferred tax liabilities and assets for the expected future tax consequences of items that have been included in the 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 September 30, 2018 and December 31, 2017. 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 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 September 30, 2018, and December 31, 2017, we had no unrecognized tax benefits.

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the “Tax Act”) was signed into law and the new legislation contains several key tax provisions that affected us, including the one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018, among other changes. We are required to recognize the effect of the tax law changes in the period of enactment. Since we have negative accumulated foreign earnings, we are not subject to the one-time repatriation tax. We have re-measured our U.S. deferred tax assets and liabilities, which resulted in a reduction of our net deferred tax assets with a corresponding adjustment to valuation allowance. As a result, no tax expense is recorded related to the enactment of the Tax Act. We have considered the accounting of deferred tax re-measurement and one-time transition tax calculation to be complete.

Net Loss per Share

Net Loss per Share

Net loss per share amounts has been computed based on the weighted average number of shares of common stock outstanding during the three and nine months ended September 30, 2018 and 2017. Net loss per share, assuming dilution amounts from common stock equivalents, is computed based on the weighted-average number of shares of common stock and potential common stock equivalents outstanding during the period. The weighted-average number of shares of common stock and potential common stock equivalents used in computing the net loss per share for the three and nine months ended September 30, 2018 and 2017 exclude the potential common stock equivalents, as the effect would be anti-dilutive (See Note 7).

Other Comprehensive Income (Loss)

Other Comprehensive Income (Loss)

Our other comprehensive income (loss) includes foreign currency translation gains and losses. The cumulative amount of translation gains and losses are reflected as a separate component of stockholders’ equity in the condensed consolidated balance sheets as accumulated other comprehensive loss.

Cash Flow Information

Cash Flow Information

Cash flows in foreign currencies have been converted to U.S. Dollars at an approximate weighted-average exchange rate for the respective reporting periods. The weighted-average exchange rate for the condensed consolidated statements of operations was as follows:

	Nine months ended September 30,
	2018		2017
Swedish Krona		8.57		8.62
Japanese Yen		109.63		111.91
South Korean Won		1,090.03		1,136.27
Taiwan Dollar		29.90		30.51

Exchange rate for the consolidated balance sheets was as follows:

	As of
	September 30,		December 31,
	2018		2017
Swedish Krona		8.87		8.21
Japanese Yen		113.69		112.65
South Korean Won		1,109.21		1,066.31
Taiwan Dollar		30.45		29.66

Fair Value of Financial Instruments

Fair Value of Financial Instruments

We disclose the estimated fair values for all financial instruments for which it is practicable to estimate fair value. Financial instruments including cash, accounts receivable, accounts payable and accrued expenses and are deemed to approximate fair value due to their short maturities.

New Accounting Pronouncements

New Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update 2014-09 to address the new revenue recognition accounting standard, ASC 606 - Revenues from Contracts with Customers. The new standard was effective January 1, 2018 for public entities. Under the new standard, revenue is recognized upon transfer of control of goods or services to customers, and the amount of revenue recognized should reflect the consideration expected to be received for the transfer of those goods or services to customers. Disclosures are required to describe the nature, amount, timing, and uncertainty of revenue and cash flows that may arise from contracts with customers.

We adopted the new standard on January 1, 2018. For cost and time efficiency purposes, we used the modified retrospective (“cumulative-effect”) approach to implement the new revenue recognition standard. We elected to apply that approach only to contracts not substantially complete at January 1, 2018.

We may from time to time negotiate contract modifications to contracts with our customers. While using the cumulative-effect approach for our revenue recognition implementation, we found that there was one contract that was modified before the beginning of the earliest reporting period presented. We elected to not apply the practical expedient related to contract modification because that contract was the only contract modified during the past several years, and we determined that the modified contract in substance represented a new contract for a new product. Therefore, the original contract and contract modification were treated as separate contracts for purposes of contract analysis.

Use of the cumulative-effect approach required us to make an opening adjustment to equity rather than recast prior year financial data; therefore, comparability of financial statements was impacted.

The most significant impact of the standard going forward relates to our accounting for license fee revenues. In prior years, we recognized license fee revenues after receipt of royalty reports from our customers; those royalty reports were often subject to reporting lags of five days to three months. We have requested that our customers provide more timely license fee royalty reports (with a maximum one-month lag), and we estimate any license fee revenue still subject to lag reporting. We use our royalty history with each customer to most accurately estimate the remaining royalties not yet reported to us at the end of each reporting period.

There was no adjustment related to AirBar and sensor modules; however, there will be a change in the timing of revenue recognition in the future. The timing of revenue recognition related to our AirBar and sensor modules depends upon how each sale is transacted - either point-of-sale or through distributors. Revenue recognition timing for AirBar modules sold point-of-sale (online sales and other direct sales to consumers) remains unchanged; revenue is recognized when we provide the promised product to the customer. In prior years, we did not recognize revenues related to our AirBar and sensor modules sold through distributors until those products were sold through to end customers. For sales of AirBar and sensor modules through distributors, revenues are now recognized when our distributors obtain control over our products; control passes to our distributors depending upon a number of factors.

Although we are entitled to an optional exemption from disclosure of variable consideration related to AirBar and sensor modules under the new standard, we plan to continue to disclose variable consideration related to sales of AirBar and sensor modules.

There was no cumulative adjustment related to non-recurring engineering fees, because all outstanding engineering projects were completed as of December 31, 2017.

The following table summarizes the impact of the new revenue standard on the Company’s condensed consolidated statement of operations for the three and nine months ended September 30, 2018 and condensed consolidated balance sheet as of September 30, 2018:

	Three months ended September 30, 2018
	Balances excluding revenue standard		Impact of Revenue Standard			As Reported
Revenue
License fees	$	1,919	$	(322	)	$	1,597
Sensor modules		39		-			39
Non-recurring engineering		287		-			287
Total Revenues	$	2,245	$	(322	)	$	1,923

	Nine months ended September 30, 2018
	Balances excluding revenue standard		Impact of Revenue Standard			As Reported
Revenue
License fees	$	5,939	$	(258	)	$	5,681
Sensor modules		176		-			176
Non-recurring engineering		317		-			317
Total Revenues	$	6,432	$	(258	)	$	6,174

	September 30, 2018
	Balances excluding revenue standard			Impact of Revenue Standard			As Reported
Assets
Accounts receivable and unbilled revenue, net	$	276		$	1,183		$	1,459
Liabilities
Deferred revenues	$	366		$	(142	)	$	224
Equity
Accumulated deficit	$	(185,954	)	$	1,325		$	(184,629	)

Adoption of the new standard resulted in an increase in accounts receivable and unbilled revenue, due to an adjustment to equity to record license fees that had not yet been reported, as well as a reduction of deferred revenues, due to an adjustment to equity to apply license fee prepayments to revenues.

Adoption of the new revenue recognition standard had no impact on cash provided by or used in operating, financing, or investing activities on our condensed consolidated statements of cash flows.

We implemented internal controls effective January 1, 2018 to ensure that we properly evaluate our contracts and review assumptions we make for revenue estimates, and we assessed the impact of the new accounting standard related to revenue recognition on our consolidated financial statements to facilitate our adoption of the new standard on January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, lessees will be required recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

The effective date of the new lease standard (ASC 842) is January 1, 2019, and we plan to adopt the new standard on that date. We have drafted our lease standard implementation plan, and that plan is currently under final review by executive management. We will use the required modified retrospective approach, which allows us to make any necessary transition adjustments at January 1, 2019. We will elect the optional transition method, which will allow us to continue to use disclosures required by the prior standard during 2019, the year of adoption. There are also several practical expedients available to make the transition more efficient and cost-effective for companies. We plan to elect the package of three practical expedients available to us; doing so will allow us to not reassess existing leases, therefore we will not be required to search existing contracts for embedded leases.

We currently have a limited number of leased capital assets, all of which will be classified as finance leases under the new lease standard. We maintain a lease inventory for those assets; they are currently reported on our condensed consolidated balance sheets and will continue to be reported on our condensed consolidated balance sheets under the new standard. We also have a small number of leases which are currently classified as operating leases; we have compiled a list of those leases and will analyze them as we transition to the new standard. We expect that the transition may result in the inclusion of a few operating leases on our condensed consolidated balance sheets, as well as more robust disclosures.

Because of the small number of assets we lease, we do not need to make systems changes to comply with the new standard. We plan to continue to track those leased assets outside of our accounting systems. We will assess the accounting and possible tax impacts during the coming months; however, we do not expect material changes in financial ratios, leasing practices, or tax reporting.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). The new standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 will become effective for us for fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact ASU 2016-13 will have on our consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Schedule of inventory

	September 30,		December 31,
	2018		2017
Raw materials	$	147	$	164
Work-in-Process		210		231
Finished goods		901		759
Ending inventory	$	1,258	$	1,154

Schedule of estimated useful lives of property and equipment

Computer equipment	3 years
Furniture and fixtures	5 years
Equipment	7 years

Schedule of disaggregated revenues

	Three months ended September 30, 2018					Three months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
Net license revenues from automotive	$	248		13	%	$	457		20	%
Net license revenues from consumer electronics		1,349		70	%		1,615		70	%
Net revenues from sensor modules		39		2	%		211		9	%
Net revenues from non-recurring engineering		287		15	%		22		1	%
	$	1,923		100	%	$	2,305		100	%

	Nine months ended September 30, 2018					Nine months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
Net license revenues from automotive	$	1,151		19	%	$	1,714		25	%
Net license revenues from consumer electronics		4,530		73	%		4,444		64	%
Net revenues from sensor modules		176		3	%		634		9	%
Net revenues from non-recurring engineering		317		5	%		174		2	%
	$	6,174		100	%	$	6,966		100	%

Schedule of prepayments or upfront payments for goods or services from our customers

	September 30, 2018		December 31, 2017
Accounts receivable and unbilled revenue	$	1,459	$	1,010
Deferred revenues		224		1,248

Schedule of activity related to the product warranty liability

	September 30, 2018		December 31, 2017
Balance at beginning of period	$	35	$	11
Provisions for warranty issued		-		24
Balance at end of period	$	35	$	35

Schedule of deferred revenues

	September 30, 2018		December 31, 2017
Deferred license fees	$	138	$	1,089
Deferred AirBar revenues		70		137
Deferred sensor modules revenues		16		22
	$	224	$	1,248

Schedule of changes deferred revenue

	September 30, 2018
	Balances excluding revenue standard		Impact of Revenue Standard			As Reported
Deferred revenues	$	366	$	(142	)	$	224

Schedule of weighted average exchange rate for the condensed consolidated statements of operations

	Nine months ended September 30,
	2018		2017
Swedish Krona		8.57		8.62
Japanese Yen		109.63		111.91
South Korean Won		1,090.03		1,136.27
Taiwan Dollar		29.90		30.51

Schedule of exchange rate for the consolidated balance sheets

	As of
	September 30,		December 31,
	2018		2017
Swedish Krona		8.87		8.21
Japanese Yen		113.69		112.65
South Korean Won		1,109.21		1,066.31
Taiwan Dollar		30.45		29.66

Schedule of consolidated statement of operations

	Three months ended September 30, 2018
	Balances excluding revenue standard		Impact of Revenue Standard			As Reported
Revenue
License fees	$	1,919	$	(322	)	$	1,597
Sensor modules		39		-			39
Non-recurring engineering		287		-			287
Total Revenues	$	2,245	$	(322	)	$	1,923

	Nine months ended September 30, 2018
	Balances excluding revenue standard		Impact of Revenue Standard			As Reported
Revenue
License fees	$	5,939	$	(258	)	$	5,681
Sensor modules		176		-			176
Non-recurring engineering		317		-			317
Total Revenues	$	6,432	$	(258	)	$	6,174

Schedule of consolidated balance sheet

	September 30, 2018
	Balances excluding revenue standard			Impact of Revenue Standard			As Reported
Assets
Accounts receivable and unbilled revenue, net	$	276		$	1,183		$	1,459
Liabilities
Deferred revenues	$	366		$	(142	)	$	224
Equity
Accumulated deficit	$	(185,954	)	$	1,325		$	(184,629	)

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Schedule of conversion of preferred stock issued to common stock

	Shares of Preferred Stock Not Exchanged as of September 30, 2018		Conversion Ratio		Shares of Common Stock after Conversion of all Outstanding Shares of Preferred Stock Not yet Exchanged at September 30, 2018
Series B Preferred stock		83		132.07		10,962

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of stock-based compensation expense

	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Sales and marketing		-		11		6		39
General and administrative		-		6		23		17
Total stock-based compensation expense	$	-	$	17	$	29	$	56

	Remaining unrecognized expense at September 30, 2018
Stock-based compensation	$	-

Schedule of the combined activity under all of the stock option plans

	Number of Options Outstanding			Weighted Average Exercise Price
Outstanding at January 1, 2018		175,600		$	42.00
Granted		30,000			15.00
Cancelled		(78,300	)		41.30
Expired		(26,000	)		41.50
Outstanding at September 30, 2018		101,300		$	34.65

Schedule of valuation of stock options

	For the nine months ended
	September 30, 2018
Annual dividend yield		-
Expected life (years)		1.50
Risk-free interest rate		2.2	%
Expected volatility		71	%

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2018

Segment Reporting [Abstract]

Schedule of net revenues by geographic region

	Three months ended September 30, 2018						Three months ended September 30, 2017
	Amount			Percentage			Amount		Percentage
United States	$	1,101			57	%	$	977		42	%
Japan		623			32	%		771		33	%
Germany		195			10	%		341		15	%
China		(67	)		(3	)%		92		4	%
Taiwan		49			3	%		43		2	%
Other		22			1	%		81		4	%
	$	1,923			100	%	$	2,305		100	%

	Nine months ended September 30, 2018					Nine months ended September 30, 2017
	Amount		Percentage			Amount		Percentage
United States	$	3,033		49	%	$	3,203		46	%
Japan		2,119		34	%		1,666		24	%
Germany		604		10	%		911		13	%
China		130		2	%		631		9	%
Taiwan		159		3	%		137		2	%
Sweden		10		-	%		106		2	%
Singapore		-		-	%		141		2	%
Other		119		2	%		171		2	%
	$	6,174		100	%	$	6,966		100	%

Schedule of long-lived assets by geographic region

	September 30, 2018		December 31, 2017
Long-lived assets in North America	$	2	$	3
Long lived assets in Asia		3		6
Long-lived assets in Europe		2,655		3,318
	$	2,660	$	3,327

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Net Loss Per Share (Tables)

9 Months Ended

Sep. 30, 2018

Loss per common share:

Schedule of basic and diluted for net loss per share

(in thousands, except per share amounts)	Three months ended September 30,
	2018			2017
BASIC AND DILUTED
Weighted average number of common shares outstanding		5,859			5,517
Net loss attributable to Neonode Inc.	$	(809	)	$	(1,115	)
Net loss per share - basic and diluted	$	(0.14	)	$	(0.20	)

(in thousands, except per share amounts)	Nine months ended September 30,
	2018			2017
BASIC AND DILUTED
Weighted average number of common shares outstanding		5,859			5,096
Net loss attributable to Neonode Inc.	$	(2,466	)	$	(2,986	)
Net loss per share - basic and diluted	$	(0.42	)	$	(0.59	)

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Interim Period Reporting (Details) $ / shares in Units, $ in Thousands	1 Months Ended			3 Months Ended		9 Months Ended		12 Months Ended
	Jun. 07, 2018 shares	Aug. 31, 2017 USD ($) $ / shares shares	Mar. 31, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2010 Devices	Oct. 15, 2018 $ / shares	Dec. 31, 2017 USD ($)	Dec. 27, 2017 $ / shares
Interim Period Reporting (Textual)
Number of equipment sold | Devices								64,000,000
Net loss				$ (809)	$ (1,115)	$ (2,466)	$ (2,986)
Accumulated deficit				$ (184,629)		(184,629)				$ (183,745)
Net cash used in operating activities						(2,275)	(4,691)
Net proceeds from issuance of common stock							$ 9,082
Share price | $ / shares											$ 1.00
Shelf registration common stock offering price			$ 20,000
Shelf registration statement expiration date			Mar. 24, 2020
Description for reverse stock split	Neonode stockholders approved an amendment to the restated certification of incorporation to effect a reverse stock split of the Company’s common stock, in the range of 1-for-5 to 1-for-15 at the discretion of the board of directors. The board approved a 1-for-10 reverse stock split of the Company’s issued and outstanding shares of common stock, and on September 27, 2018, the Company filed the certificate of first amendment to its restated certificate of incorporate with the state of Delaware to effect the reverse stock split, effective October 1, 2018.
Description for conversion of common stock						As a result of the reverse stock split, every ten shares of issued and outstanding common stock were converted into one share of common stock, without any change in the par value per share.
Subsequent Event [Member]
Interim Period Reporting (Textual)
Share price | $ / shares									$ 1.00
Common Stock [Member] | Maximum [Member]
Interim Period Reporting (Textual)
Number of authorized shares of common stock and preferred stock | shares	100,000,000
Common Stock [Member] | Minimum [Member]
Interim Period Reporting (Textual)
Number of authorized shares of common stock and preferred stock | shares	10,000,000
Securities Purchase Agreement [Member] | August 2017 Private Placement [Member]
Interim Period Reporting (Textual)
Issuance of common stock | shares		975,000
Net proceeds from issuance of common stock		$ 9,100
Share price | $ / shares		$ 10.00
Warrant expiration date		Aug. 09, 2020
Warrants to purchase shares of common stock | shares		325,000
Warrants purchase exercise price | $ / shares		$ 20.00
Aggregate purchase price of warrants		$ 9,750
Warrant exercisable, description		The 2017 Warrants will become exercisable on August 8, 2018, and will expire on August 9, 2020.
Warrants exercised value		$ 6,500

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Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Accounting Policies [Abstract]
Raw materials	$ 147	$ 164
Work-in-Process	210	231
Finished goods	901	759
Ending inventory	$ 1,258	$ 1,154

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Summary of Significant Accounting Policies (Details 1)	9 Months Ended
	Sep. 30, 2018
Computer equipment [Member]
Estimated useful lives of property and equipment
Estimated useful lives	3 years
Furniture and fixtures [Member]
Estimated useful lives of property and equipment
Estimated useful lives	5 years
Equipment [Member]
Estimated useful lives of property and equipment
Estimated useful lives	7 years

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Summary of Significant Accounting Policies (Details 2) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Property, Plant and Equipment [Line Items]
Net license revenues	$ 1,597	$ 2,072	$ 5,681	$ 6,158
Net revenues	$ 1,923	$ 2,305	$ 6,174	$ 6,966
Percentage of Net revenues	100.00%	100.00%	100.00%	100.00%
Automotive [Member]
Property, Plant and Equipment [Line Items]
Net license revenues	$ 248	$ 457	$ 1,151	$ 1,714
Percentage of Net license revenues	13.00%	20.00%	19.00%	25.00%
Consumer electronics [Member]
Property, Plant and Equipment [Line Items]
Net license revenues	$ 1,349	$ 1,615	$ 4,530	$ 4,444
Percentage of Net license revenues	70.00%	70.00%	73.00%	64.00%
Sensor modules [Member]
Property, Plant and Equipment [Line Items]
Net revenues	$ 39	$ 211	$ 176	$ 634
Percentage of Net revenues	2.00%	9.00%	3.00%	9.00%
Non-recurring engineering [Member]
Property, Plant and Equipment [Line Items]
Net revenues	$ 287	$ 22	$ 317	$ 174
Percentage of Net revenues	15.00%	1.00%	5.00%	2.00%

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Summary of Significant Accounting Policies (Details 3) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Accounting Policies [Abstract]
Accounts receivable and unbilled revenue	$ 1,459	$ 1,010
Deferred revenues	$ 224	$ 1,248

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Summary of Significant Accounting Policies (Details 4) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Accounting Policies [Abstract]
Balance at beginning of period	$ 35	$ 11
Provisions for warranty issued		24
Balance at end of period	$ 35	$ 35

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Summary of Significant Accounting Policies (Details 5) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Summary of Significant Accounting Policies [Line Items]
Deferred revenues	$ 224	$ 1,248
Deferred license fees [Member]
Summary of Significant Accounting Policies [Line Items]
Deferred revenues	138	1,089
Deferred AirBar revenues [Member]
Summary of Significant Accounting Policies [Line Items]
Deferred revenues	70	137
Deferred sensor modules revenues [Member]
Summary of Significant Accounting Policies [Line Items]
Deferred revenues	$ 16	$ 22

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Summary of Significant Accounting Policies (Details 6) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Deferred revenues	$ 224	$ 1,248
Balances excluding revenue standard [Member]
Deferred revenues	366
Impact of Revenue Standard [Member]
Deferred revenues	$ (142)

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Summary of Significant Accounting Policies (Details 7)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Swedish Krona [Member]
Weighted-average exchange rate for the condensed consolidated statements of operations
Weighted-average exchange rate for statements of operations	8.57	8.62
Japanese Yen [Member]
Weighted-average exchange rate for the condensed consolidated statements of operations
Weighted-average exchange rate for statements of operations	109.63	111.91
South Korean Won [Member]
Weighted-average exchange rate for the condensed consolidated statements of operations
Weighted-average exchange rate for statements of operations	1,090.03	1,136.27
Taiwan Dollar [Member]
Weighted-average exchange rate for the condensed consolidated statements of operations
Weighted-average exchange rate for statements of operations	29.90	30.51

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Summary of Significant Accounting Policies (Details 8)	Sep. 30, 2018	Dec. 31, 2017
Swedish Krona [Member]
Exchange rate for the consolidated balance sheets
Exchange rate	8.87	8.21
Japanese Yen [Member]
Exchange rate for the consolidated balance sheets
Exchange rate	113.69	112.65
South Korean Won [Member]
Exchange rate for the consolidated balance sheets
Exchange rate	1,109.21	1,066.31
Taiwan Dollar [Member]
Exchange rate for the consolidated balance sheets
Exchange rate	30.45	29.66

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Summary of Significant Accounting Policies (Details 9) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue
License fees	$ 1,597	$ 2,072	$ 5,681	$ 6,158
Sensor modules	39	211	176	634
Non-recurring engineering	287	22	317	174
Total Revenues	1,923	$ 2,305	6,174	$ 6,966
Balances excluding revenue standard [Member]
Revenue
License fees	1,919		5,939
Sensor modules	39		176
Non-recurring engineering	287		317
Total Revenues	2,245		6,432
Impact of Revenue Standard [Member]
Revenue
License fees	(322)		(258)
Sensor modules
Non-recurring engineering
Total Revenues	$ (322)		$ (258)

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Summary of Significant Accounting Policies (Details 10) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Assets
Accounts receivable and unbilled revenue, net	$ 1,459	$ 1,010
Liabilities
Deferred revenues	224	1,248
Equity
Accumulated deficit	(184,629)	$ (183,745)
Balances excluding revenue standard [Member]
Assets
Accounts receivable and unbilled revenue, net	276
Liabilities
Deferred revenues	366
Equity
Accumulated deficit	(185,954)
Impact of Revenue Standard [Member]
Assets
Accounts receivable and unbilled revenue, net	1,183
Liabilities
Deferred revenues	(142)
Equity
Accumulated deficit	$ 1,325

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Summary of Significant Accounting Policies (Details Textual) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) Customers	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($) Customers	Jan. 02, 2018 USD ($)
Summary of Significant Accounting Policies (Textual)
Basic deposit coverage limits per owner and customer	$ 250		$ 250
Allowance for doubtful accounts	149		149		$ 149
Net of allowance for doubtful accounts	1,800		1,800		1,000	$ 2,200
Costs capitalized in projects in process			0		1
Foreign currency translation adjustments	13	$ 83	(417)	$ 205
Foreign currency transactions, general and administrative expenses	13	$ 45	34	$ 24
Investment in joint venture	$ 3		$ 3		3
Equity ownership percentage	50.00%		50.00%
Concentration risk, percentage	100.00%	100.00%	100.00%	100.00%
Advertising costs	$ 14	$ 216	$ 84	$ 529
Noncontrolling interest owned by Pronode Technologies AB	51.00%		51.00%
Noncontrolling interest owned by Propoint AB	49.00%		49.00%
Noncontrolling interest, description			Noncontrolling interests' partners have less than 50% share of voting rights at any one of the subsidiary level companies.
Deferred revenues	$ 200		$ 200		$ 1,200	$ 900
Revenue not yet recognized			$ 500
Deferred revenue expected percentage			100.00%
Neoeye AB [Member]
Summary of Significant Accounting Policies (Textual)
Equity ownership percentage	50.00%		50.00%
Net revenues [Member]
Summary of Significant Accounting Policies (Textual)
Concentration risk, percentage	10.00%	10.00%	10.00%	10.00%
Accounts Receivable [Member]
Summary of Significant Accounting Policies (Textual)
Number of customer | Customers			4		2
Concentration risk, percentage			73.00%		69.00%
Hewlett Packard [Member] | Net revenues [Member]
Summary of Significant Accounting Policies (Textual)
Concentration risk, percentage	33.00%	30.00%	34.00%	31.00%
Seiko Epson [Member] | Net revenues [Member]
Summary of Significant Accounting Policies (Textual)
Concentration risk, percentage	16.00%	12.00%	14.00%
Canon [Member] | Net revenues [Member]
Summary of Significant Accounting Policies (Textual)
Concentration risk, percentage	10.00%	17.00%	13.00%	15.00%
Faraday & Future Inc [Member] | Net revenues [Member]
Summary of Significant Accounting Policies (Textual)
Concentration risk, percentage	15.00%
Bosch [Member] | Net revenues [Member]
Summary of Significant Accounting Policies (Textual)
Concentration risk, percentage	10.00%	11.00%		11.00%
Sweden [Member]
Summary of Significant Accounting Policies (Textual)
Basic deposit coverage limits per owner and customer	$ 100		$ 100
Concentration risk, percentage			64.00%		71.00%
Noncontrolling interest owned by Pronode Technologies AB	51.00%		51.00%
Japan [Member]
Summary of Significant Accounting Policies (Textual)
Basic deposit coverage limits per owner and customer	$ 10,000		$ 10,000
Korea [Member]
Summary of Significant Accounting Policies (Textual)
Basic deposit coverage limits per owner and customer	50,000		50,000
Taiwan [Member]
Summary of Significant Accounting Policies (Textual)
Basic deposit coverage limits per owner and customer	$ 3,000		$ 3,000
Maximum [Member]
Summary of Significant Accounting Policies (Textual)
Equity ownership percentage	50.00%		50.00%
Warrant term			36 months
Corporate income tax rate						35.00%
Minimum [Member]
Summary of Significant Accounting Policies (Textual)
Equity ownership percentage	20.00%		20.00%
Warrant term			12 months
Corporate income tax rate						21.00%

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Stockholders' Equity (Details) - Series B Preferred Stock [Member]	9 Months Ended
	Sep. 30, 2018 shares
Schedule of conversion of preferred stock issued to common stock
Shares of Preferred Stock Not Exchanged	83
Conversion Ratio	132.07
Shares of Common Stock after Conversion of all Outstanding Shares of Preferred Stock Not yet Exchanged	10,962

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Stockholders' Equity (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	9 Months Ended	12 Months Ended
	Aug. 31, 2017	Sep. 30, 2018	Dec. 31, 2017	Dec. 27, 2017
Stockholders' Equity (Textual)
Warrants to purchase common stock outstanding		1,116,368	1,116,368
Common stock per share				$ 1.00
August 2017 Private Placement [Member] | Warrant [Member]
Stockholders' Equity (Textual)
Issuance of common stock			325,000
Common stock per share			$ 20.00
Cash proceeds from warrants			$ 6,500
Warrant, description			The 2017 Warrants will become exercisable 12 months from the date of issuance and will expire three years from the date of issuance.
Securities Purchase Agreement [Member] | August 2017 Private Placement [Member]
Stockholders' Equity (Textual)
Issuance of common stock	975,000
Common stock per share	$ 10.00
Gross proceeds warrants for an aggregate purchase price	$ 9,750

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Stock-Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Summary of stock-based compensation expense
Total stock-based compensation expense		$ 17	$ 29	$ 56
Remaining unrecognized expense, Stock-based compensation
Sales and marketing [Member]
Summary of stock-based compensation expense
Total stock-based compensation expense		11	6	39
General and administrative [Member]
Summary of stock-based compensation expense
Total stock-based compensation expense		$ 6	$ 23	$ 17

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Stock-Based Compensation (Details 1) - Stock option [Member]	9 Months Ended
	Sep. 30, 2018 $ / shares shares
Summary of all stock option plans
Number of Options Outstanding, Beginning Balance | shares	175,600
Number of Options outstanding, Granted | shares	30,000
Number of Options Outstanding, Cancelled | shares	(78,300)
Number of Options Outstanding, Expired | shares	(26,000)
Number of Options Outstanding, Ending Balance | shares	101,300
Weighted Average Exercise Price, Outstanding, Beginning Balance | $ / shares	$ 42
Weighted Average Exercise Price, Expired, Granted | $ / shares	15
Weighted Average Exercise Price, Cancelled | $ / shares	41.3
Weighted Average Exercise Price, Expired | $ / shares	41.5
Weighted Average Exercise Price, Outstanding, Ending Balance | $ / shares	$ 34.65

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Stock-Based Compensation (Details 2)	9 Months Ended
	Sep. 30, 2018
Stock-based Compensation
Annual dividend yield
Expected life (years)	1 year 6 months
Risk-free interest rate	2.20%
Expected volatility	71.00%

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Stock-Based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		9 Months Ended
	Apr. 11, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Stock options [Member]
Stock-Based Compensation (Textual)
Number of options outstanding		101,300		101,300		175,600
Options outstanding, vested and expected to vest, aggregate intrinsic value		$ 0		$ 0
Share-based compensation expense		$ 0	$ 29	$ 17	$ 56
Term of stock options description				Stock options granted under the 2006 and 2015 Plans are exercisable over a maximum term of ten years from the date of grant, vest in various installments over a one to four-year period and have exercise prices reflecting the market value of the shares of common stock on the date of grant.
Options granted to purchase of common stock to employee				30,000
Weighted average grant date fair value		$ 0.20		$ 0.20
Options granted fair value				$ 6
Swedish employee [Member]
Stock-Based Compensation (Textual)
Share-based compensation expense	$ 12
Options granted to purchase of common stock to employee	30,000
Weighted average grant date fair value	$ 15.00
Options granted fair value	$ 12
Options expire date	Apr. 11, 2021
Determined purchase price of stock options	$ 0.40

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Commitments and Contingencies (Details) - USD ($) $ in Thousands		1 Months Ended	9 Months Ended
	Dec. 04, 2014	Apr. 25, 2013	Sep. 30, 2018
Commitments and Contingencies (Textual)
Non-recurring engineering development costs contributed to TI	$ 835	$ 500
Non-recurring engineering costs description	<table cellspacing="0" cellpadding="0" style="font: 10pt " letter-spacing: normal; orphans: 2; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; width: 1567px; border-collapse: collapse"> <tr style="vertical-align: top"> <td style="width: 48px; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif; color: #000000"> </font></td> <td style="width: 24px; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif; color: #000000">●</font></td> <td style="text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif; color: #000000">$235,000 at the feasibility review and contract signature (paid in full);</font></td></tr> <tr style="vertical-align: top"> <td style="text-align: justify"></td></tr> <tr style="vertical-align: top"> <td style="text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif; color: #000000"> </font></td> <td style="text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif; color: #000000">●</font></td> <td style="text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif; color: #000000">$300,000 on completion of tape-out (paid in full); and</font></td></tr> <tr style="vertical-align: top"> <td style="text-align: justify"></td></tr> <tr style="vertical-align: top"> <td style="text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif; color: #000000"> </font></td> <td style="text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif; color: #000000">●</font></td> <td style="text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif; color: #000000">$300,000 on completion on product validation (paid in full).</font></td></tr> </table>	Under the terms of the NN1002 Agreement, we also agreed to reimburse Texas Instruments a non-recurring engineering fee of $0.25 per unit for each of the first two million units sold.	Under the terms of the NN1003 Agreement, we also will reimburse ST Microelectronics a non-recurring engineering fee of $5.00 per each of the first 10,000 units sold. As of September 30, 2018, we had made no additional payments under the NN1003 Agreement.

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Segment Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Summary of net revenues by geographic region
Total revenues	$ 1,923	$ 2,305	$ 6,174	$ 6,966
Revenues percentage	100.00%	100.00%	100.00%	100.00%
United States [Member]
Summary of net revenues by geographic region
Total revenues	$ 1,101	$ 977	$ 3,033	$ 3,203
Revenues percentage	57.00%	42.00%	49.00%	46.00%
Japan [Member]
Summary of net revenues by geographic region
Total revenues	$ 623	$ 771	$ 2,119	$ 1,666
Revenues percentage	32.00%	33.00%	34.00%	24.00%
Germany [Member]
Summary of net revenues by geographic region
Total revenues	$ 195	$ 341	$ 604	$ 911
Revenues percentage	10.00%	15.00%	10.00%	13.00%
China [Member]
Summary of net revenues by geographic region
Total revenues	$ (67)	$ 92	$ 130	$ 631
Revenues percentage	(3.00%)	4.00%	2.00%	9.00%
Taiwan [Member]
Summary of net revenues by geographic region
Total revenues	$ 49	$ 43	$ 159	$ 137
Revenues percentage	3.00%	2.00%	3.00%	2.00%
Sweden [Member]
Summary of net revenues by geographic region
Total revenues			$ 10	$ 106
Revenues percentage				2.00%
Singapore [Member]
Summary of net revenues by geographic region
Total revenues				$ 141
Revenues percentage				2.00%
Other [Member]
Summary of net revenues by geographic region
Total revenues	$ 22	$ 81	$ 119	$ 171
Revenues percentage	1.00%	4.00%	2.00%	2.00%

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Segment Information (Details 1) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	$ 2,660	$ 3,327
North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	2	3
Asia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	3	6
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	$ 2,655	$ 3,318

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Segment Information (Details Textual)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Segment Information (Textual)
Number of reportable segments			1
Percentage of total assets	100.00%	100.00%	100.00%	100.00%
Sweden [Member]
Segment Information (Textual)
Percentage of total assets			64.00%		71.00%
United States [Member]
Segment Information (Textual)
Percentage of total assets			35.00%		28.00%

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Net Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
BASIC AND DILUTED
Weighted average number of common shares outstanding	5,859	5,517	5,859	5,096
Net loss attributable to Neonode Inc.	$ (809)	$ (1,115)	$ (2,466)	$ (2,986)
Net loss per share - basic and diluted	$ (0.14)	$ (0.20)	$ (0.42)	$ (0.59)

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Net Loss Per Share (Details Textual) - shares	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Convertible Preferred Stock [Member]
Net Loss Per Share (Textual)
Antidilutive securities excluded from computation of earnings per share	11,000	11,000
Warrant [Member]
Net Loss Per Share (Textual)
Antidilutive securities excluded from computation of earnings per share	350,000	440,000
Stock Option [Member]
Net Loss Per Share (Textual)
Antidilutive securities excluded from computation of earnings per share	0	0

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Subsequent Events (Details) - $ / shares	1 Months Ended	9 Months Ended
	Jun. 07, 2018	Sep. 30, 2018	Oct. 15, 2018	Dec. 27, 2017
Subsequent Events (Textual)
Description of reverse stock split	Neonode stockholders approved an amendment to the restated certification of incorporation to effect a reverse stock split of the Company’s common stock, in the range of 1-for-5 to 1-for-15 at the discretion of the board of directors. The board approved a 1-for-10 reverse stock split of the Company’s issued and outstanding shares of common stock, and on September 27, 2018, the Company filed the certificate of first amendment to its restated certificate of incorporate with the state of Delaware to effect the reverse stock split, effective October 1, 2018.
Description of conversion of common stock		As a result of the reverse stock split, every ten shares of issued and outstanding common stock were converted into one share of common stock, without any change in the par value per share.
Share price				$ 1.00
Subsequent Event [Member]
Subsequent Events (Textual)
Share price			$ 1.00
Common Stock [Member] | Maximum [Member]
Subsequent Events (Textual)
Number of authorized shares of common stock and preferred stock	100,000,000
Common Stock [Member] | Minimum [Member]
Subsequent Events (Textual)
Number of authorized shares of common stock and preferred stock	10,000,000