Confidential Investment Memorandum
`January 2004
`
`
`
`@ neonode
`
`Google v. Neonode
`Google v. Neonode
`IPR2021-01041 (8,095,879)
`IPR2021-01041 (8,095,879)
`Neonode Ex. 2012 - Page 1
`Neonode Ex. 2012 - Page 1
`
`

`

`@ neonocde
`
`Isafjordsgatan 22B
`
`sleeaa
`
`Sweden
`
`Neonode AB Investment Memorandum
`
`This document describes the seed investment round proposed by Neonodeto a selected
`numberof individual investors. The documentis strictly confidential and intended for named
`recipients only. The documentincludes forward-looking statements and plans, and readers
`are advised that any such details may change asthe business evolves.
`
`Contact persons:
`
`CEO Magnus Goertz mobile +46 733 22 13 51 , fax +46 8 750 60 04
`Marketing Manager Alexandra Jansson +46 702 35 11 56
`Business Development Manager Jonas Léfgren +46 707 27 39 36
`
`Documentreceived and confidentiality acknowledged:
`
`Date:
`Signature
`Name in blockletters
`
`Neonode’s mission
`
`Neonode’s mission is to seek a profitable leadership on the mobile market by leading the
`development and marketing of state-of-the-art mobile handsets that fully harness the power
`and potential of seamless integration between the mobile handset, the PC and the Internet.
`
`Neonodeshall reach a market leadership position within five years by focusing on developing
`products that offer an unparalleled user experience, by acquiring an exceptional market
`understanding in a targeted market segment and byintegrating “best of breed” technology to
`meet customerexpectations.
`
`Neonodein short
`
`Neonodehassince the beginning of June 2003 accomplishedto:
`
` Oooo
`
`Successfully negotiate and reach agreement on business model with Tele2;
`Reach understanding regarding sales with three large operators;
`Initiated discussions of a sales/marketing campaign with Reebok worldwide;
`Release beta SDK.
`
`The interest from the market has been unexpectedly high. Since the brand release in
`December 2002 more than 100 companies that has expressed interest in the purchase of N1
`have contacted Neonode. The interest has not decreased. Neonode hassince the beginning
`of
`the commercial phase in
`June 2003 received offers
`from, e.g.,
`the following
`telecommunication operators about orders of units of N1:
`
` Oooo
`
`Telcel in Mexico about purchase of 15,000 units
`Proximus in Belgium about purchase of 3,000 units
`TIM in Italy about purchase of 20-30,000 units
`Operatorin Egypt about purchase of 500 units per month astestunits.
`
`Google v. Neonode
`Google v. Neonode
`IPR2021-01041 (8,095,879)
`IPR2021-01041 (8,095,879)
`Neonode Ex. 2012 - Page 2
`Neonode Ex. 2012 - Page 2
`
`

`

`@ neonocde
`
`Isafjordsgatan 22B
`
`sleeaa
`
`Sweden
`
`In the beginning of July Neonode also was contacted by an English distributor that expressed
`the wish to purchase more than 100,000 units of N1. Mobile operators are howeverpreferred
`customerssince they are willing to make advance payments for adjustments of the mobiles.
`
`When Neonode reaches commercial sales of larger amounts of mobiles the revenues will
`increase rapidly. A net gross margin of 27 % on eachsold unit and a calculated price of 420
`EUROperunit create substantial profits for the manufacturer and value for the investors.
`
`The sales model of Neonodeis based on selling mobiles through partnerships with operators
`and content providers, through direct sales on the web and user communities. During the
`brand release in December 2002, the N1 created such a buzz in the industry that Neonode
`quickly received over 20,000 pre-orders by individual customers and was contacted by
`hundreds of operators and companies seeking to partner with Neonode. In parallel with the
`final development of N1 Neonode has continued to develop the relationship with operators
`and content providers.
`
`Neonode’s business model based on assembly on order and distribution to end customer
`has been widely accepted by operators. They can see the immediate advantage in
`customization of the device with different settings and brands to different customer groups.
`The late work with promoting the platform to software companies has resulted in, among
`others, a 3D gaming engine same as Nokia n-Gage and Fast Mobiles push-2-talk client.
`
`Microsoft has recently altered their business model for mobile handsets in a waythat will
`favor Neonode. Microsoft has started a special department that shall promote and serve
`independent mobile manufacturers and support new userinterfaces.
`
`Target Market
`
`Neonodewill primarily focus on serving the needs of one specific user segment — teenagers
`and young adults between the age of 13 and 25, also known as the Generation Y.
`
`The term Generation Y is used to describe a generation of teenagers and young adults, born
`between 1979 and 1994. The numberof children born during these 15 years has been
`estimated to 60 million in the U.S alone, which is three times the size of the Generation X
`and the biggest new generation of consumerssince the baby boomers.
`
`Neonodehas chosento serve this market segmentfor the following reasons;
`
`D
`
`They are willing and able to spend up to 13,6% of their disposable income on mobile
`products and services‘
`4 They consider their mobile phone to be a fashion item and frequently upgrade or
`replace their mobile phones to gain access to the latest and most advanced
`technology and features
`a They have aninterestin learning new technologies
`They are using computers and access the World Wide Web ona close to-daily basis;
`65% of consumers aged 16 to 24 are used to buy CDs, books, hardware, software
`and tickets over the web?
`a They drive market demand for new mobile products and services
`
`O
`
`' Mobile Youth 2003 W2 Forum
`2 MTV SurveyPlanet Youth 2000
`
`Google v. Neonode
`Google v. Neonode
`IPR2021-01041 (8,095,879)
`IPR2021-01041 (8,095,879)
`Neonode Ex. 2012 - Page 3
`Neonode Ex. 2012 - Page 3
`
`

`

`@ neonocde
`
`Organization
`
`Isafjordsgatan 22B
`
`sleeaa
`
`Sweden
`
`Neonode currently employs 10 full time employees in four key areas - System Development,
`Product Management, Customerservice, IT & Logistics, Marketing and Sales and Business
`Development. In addition Neonode has two contract business developers in Sweden, onein
`France and onein UK.
`
`Management
`
`Neonode’s current management team comprises of talented and dedicated professionals
`with extensive experiencein their respective fields and the complementary skills needed to
`manage and build a highly successful company. Neonodeis also in the process ofhiring
`additional key personal such as CFO and a professional board.
`
`MagnusGoertz, 34
`CEO, co-founder
`
`Magnushas extensive technical and entrepreneurial experience and is the founder of two
`other Swedish high-tech companies, Rector AB and Brace AB. Rector AB was a consultancy
`firm specialized in the design and development of Man-MachineInterface systems. Brace AB
`was a successful manufacturer of Thin-Client Network Computers. Following the sale of
`Brace AB in 2000 to Swedish telecommunication company RadioDesign AB, Magnus worked
`as a Strategic Advisor at Radio Design’s Business Innovation Department, prior to founding
`Neonode AB with Thomas Eriksson in October 2000.
`
`Thomas Eriksson, 33
`Chief Technical Designer, co-founder
`
`Institute of
`Thomas holds a Master’s Degree in Electrical Engineering from the Royal
`Technology (KTH)
`in Stockholm, Sweden. Thomas has over 15 years of experience in
`Product Design and Engineering. Prior to founding Neonode AB with Magnus, Thomas
`worked at Wireless Toys AB as a Founder/CTO, developing innovative products sold
`worldwide.
`At Neonode, Thomas currently supervises a team of engineers in the
`developmentof the N1.
`
`Jonas Léfgren, 29
`Business & Partner Development Manager
`
`Jonas holds a Master of Science Degree and is currently completing his Executive MBA at
`the University of Gavle in Gavle, Sweden. Jonas has done extensive researchin the area of
`Health Sciences prior to starting his own independent consultant company, specialized in
`Software Development and User Interface Design for the Health Sciences industry. At
`Neonode, Jonas supervises a team in the developmentof partnerships worldwide.
`
`Alexandra Jansson, 28
`Marketing & Sales Manager
`
`Alexandra holds a Bachelor Degreein Business Administration from the University Federal of
`Uberlandia, Brazil and has completed additional courses in Marketing at the UCLA in
`Berkeley, USA. Alexandra has several years of experience as a Strategic Marketing
`consultant and has gained wireless industry knowledge while working for Ericsson as a
`
`Google v. Neonode
`Google v. Neonode
`IPR2021-01041 (8,095,879)
`IPR2021-01041 (8,095,879)
`Neonode Ex. 2012 - Page 4
`Neonode Ex. 2012 - Page 4
`
`

`

`@ neonocde
`
`Isafjordsgatan 22B
`
`sleeaa
`
`Sweden
`
`Marketing Communications Manager. At Neonode, Alexandra supervises a team in the
`developmentof the areas of marketing and sales.
`
`Neonode’s Subcontractors
`
`Neonodedoes notintend to build large production facilities. Elektromekan, Flextronics and
`Alps will produce the N1. Financial, IT and legal services are provided by external partners.
`Handset service and telephone support are also handled with external suppliers.
`
`Neonode’s Advisors
`
`- Neonode has engaged the TICE Partner, Arne Engvall of Ohrlings
`PricewaterhouseCoopers as Auditor of the company. Arne Engvall
`is a
`charted accountant with a recognized reputation for his work with emerging
`companies.
`- Klara Papper AB keeps the business books.
`- Neonode has engaged Peter Helle as lawyer of the company. Peter Helle has
`a long experience in Swedish and international business law and has been
`mentioned as one of the leading IT and Technologylawyers in Sweden.
`- Wawecom France acts as agent and advisor regarding sales to mobile
`operators.
`
`Competitors
`
`Today's leading manufacturers of mobile handsets
`consist of a small group of large players. They have
`all developed their own proprietary software. None
`of these players focus on one exclusive market
`segment — they have developed product lines that
`cover a wide range,
`from low-end to high-end,
`targeting both younger and older customers.
`Among the newcomers we can find Danger from
`USA focusing on the youth market. Alpha cell
`
`working with from_operators.custom orders
`
`
`Microcell ODM_=supplying to operators and
`
`
`Nokia
`OLG-electronics
`consumer brands. A trend in Asia is that traditional
`OMotorola
`GO Siemens
`PC manufacturers have moved on to mobile
`phones. Common with Asian manufacturers is the
`low rate of innovations, branding and openness.
`Microsoft has also madethefirst attempts to reach the mobile arena. This is donein alliance
`with HTC in Taiwan going directly to operators.
`
`O Others
`
`OSamsung
`
`Neonode’s Strategic Positioning
`
`Neonodewill position itself as a company that is capable of developing feature-rich, state-of-
`the-art mobiles at price/functionality-ratio previously unmatched by existing competitors. This
`is accomplished by adopting new models of development combined with existing mail order
`models used by companieslike Dell computers. Neonode has also created a unique position
`enameling sales to operators byletting the menus and graphics stay open for adjustments
`and by not being a supplier of infrastructure and applications. This creates an exclusive and
`sought for way for the operators to creating their own communities.
`
`Google v. Neonode
`Google v. Neonode
`IPR2021-01041 (8,095,879)
`IPR2021-01041 (8,095,879)
`Neonode Ex. 2012 - Page 5
`Neonode Ex. 2012 - Page 5
`
`

`

`@ neonocde
`
`Revenue Model
`
`Isafjordsgatan 22B
`
`sleeaa
`
`Sweden
`
`Neonode’s principal revenues come from sales of mobile handsets directly to the end-user
`through cooperation with mobile operators and web shops.
`
`Neonodewill have tree additional types of revenue streams:
`
`1. SERVICES: Tailored functions and menus. Adjustments for networks and language
`(consultant fee)
`2. RIGHTS: Fees and licences from partners andresellers for using the Neonode trademark
`and for Neonode certification
`3. SPONSORS: Sponsorship fees for content on mobiles and web
`
`Neonodeplans to extend the product range diverting the price but still based on that same
`platform. Unit prices are not going to change dramatically during the lifecycle in order to
`strengthen the Neonodebrand.
`
`There are three main sales channels:
`
`1. Sales via partners (for faster expansion and for more complete offering), operators,
`distributors
`2. Web-based sales on Neonode site
`3. Web-based sales on partnersites, operators.
`
`Risks
`
`Since the marketinterest is so large Neonode may havearisk of not being able to
`produce enough units of N1
`Difficulties in recruiting key personnel
`Delaysin closing key partnership agreements
`Finance
`Delays in product development, which results in, deferred Market Entry
`
` Oooo
`
`Financial Summary
`
`in 1Q 2004. There are ongoing
`The company plans to launchits first product, the N1,
`discussions also with operators in South America and North Africa.
`
`N1 sales forecast
`
`[Region2008
`
`|Sweden|40 000 po Europe
`
`Total:
`
`80 000
`120 000
`
`The forecast is done based on a controlled volume increase. This is intentionally made to
`hold down costs while building fully functional support system in the organisation.
`
`Pricing
`
`Price per N1: 420€ creating a net gross margin: 112 € or 27%
`
`Variable cost per N1 unit
`
`Google v. Neonode
`Google v. Neonode
`IPR2021-01041 (US 8,095,879)
`IPR2021-01041 (US 8,095,879)
`Neonode Ex. 2012 - Page 6
`Neonode Ex. 2012 - Page 6
`
`

`

`@ neonocde
`Warran
`
`
`Production costs
`50 €
`
`Costof material
`Licenses
`
`Isafjordsgatan 22B
`
`sleeaa
`
`Sweden
`
`
`
`Adjustments of the Neonode software are categorizedin three levels
`Q Basic Operator Tuning: Graphics, settings
`Q Campaigns: Limited volumes, branding, graphics, settings, and project management.
`OQ Custom: Complete changes of software with custom applications, services and
`menus
`An hourly fee is charged for the Custom level, on Basic Operator Tuning and Campaigns an
`initial fixed fee is charged between SEK 200 thousand and 2 million.
`
`Monthly Expenses
`
`
` Expenses 1000
`
`SEK
`Sala
`300
`50
`150
`500
`
`Other,
`
`
`
`(travel, suppliers, licences, econom
`
`
`
`Investments in material, production equipment and assembly for the first 1000 units are
`already made and are notgoing to affect our future costs.
`
`Stage of Development and Background
`
`When Neonodestarted 2000 three specific key factors were identified for the future mobile
`market.
`-The need for personalizing and customizing mobiles for the user and the operator.
`-The 24h usage of the mobile.
`-The traditional Software and Datacom industries focus on entering the mobile arena
`
`This resulted in the creation of a credit card sized mobile platform, N1P, open for any
`application and open for redesign of menus loaded with a standard Microsoft OS, a device
`that
`is full with features that are known from the Datacom industry. By adopting this
`technologyin an early stage Neonode has been able to create a base of patents surrounding
`this platform. By putting a lot of effort on the user interface Neonode has created a unique
`superior and future proof technology for user interaction, text editing and browsing. This
`platform was also designed for a small organization of customer service and designed for
`easy maintenance and returns resulting from the mail order model.
`
`To keep a small organization and leverage from the massive amountof programmers around
`the world (6 million Microsoft developers) Neonode created a 3% party Software
`Development Kit. Beginning of 2003 Neonode decided to move one-step further and adopt
`the latest technology from Microsoft, Windows CE.NET. This decision was taken to ensure
`the external developers to work in a stable and future proof environment.
`In this context
`Neonodealso adopted a new software developmentprocessfrom Microsoft.
`
`Google v. Neonode
`Google v. Neonode
`IPR2021-01041 (US 8,095,879)
`IPR2021-01041 (US 8,095,879)
`Neonode Ex. 2012 - Page 7
`Neonode Ex. 2012 - Page 7
`
`

`

`@ neonocde
`
`Isafjordsgatan
`
`cstosemuee
`
`Sweden
`
`22B
`
`The fact that the Neonode platform is base on Microsoft's Windows CE.NET and makes
`games and application easily portable from Pocket PC. This has got great response from
`software providers resulting in cooperation’s with among others the company supplying the
`3D gaming engine to Nokia n-Gage, a “push 2 talk” Instant Messaging client, and DICE’s
`(Digital Illusion) game developers.
`
`Neonode has now entered the commercial phase and hassince the beginning of June 2003
`accomplished to:
`
` ODoco
`
`Successfully negotiate and reach agreement on business model with Tele2;
`Reach understanding regarding sales with three large operators;
`Initiated discussions of a sales/marketing campaign with Reebok worldwide;
`Release beta SDK.
`
`Theinterest from the market and the telecom operators is massive.
`
`Neonode Roadmap andExit Opportunities for the Investor
`
`Neonodeintention is to create a fast and profitable wayfor its investors to either exit within a
`short time from the investment or participate in the growth of Neonode. Contacts has been
`taken that can result in a backdoor entry on the Swedish stock exchange during 2004.
`
` OoOooocoo
`
`Signing offirst LOI with operator (July 2003)
`Shipmentof test units for operators (August 2003)
`Implement WEB and database systems (August 2003)
`Final adjustments on the N1 mobile functions (February 2004)
`Salesof first 500 units to the pre orderlist (Mars 2004)
`Mergewith a stock market company and new issuanceof shares.
`
`Terms & Conditions of Seed Investment Round
`
`Theinitial plan of the owners was to take Neonode to the commercialisation phase without
`external funding. The change of plans to make this phone a complete and openplatform for
`software developers has howevercreated the needfor a final bridge investment. Neonodeis
`therefore makingthis initial investment offer in order to secure the final adjustments of the N14
`mobile. The investmentwill bridge the gap between final adjustments and commercial sales
`of larger quantities and to solidify the business and the management team.
`
`This is a round with a pre-moneyvaluation of the company to SEK 40,000,000. Neonodewill
`make noprediction of the future value of the company, but we expect that the market interest
`in Sweden will be high for a company that markets and develops mobiles based on the
`Microsoft .NET standard.
`
`Participating investors will therefore receive:
`
`Q Substantial ownership in the new Swedish mobile company with patented technology
`
`Q Ownership in a company that has received an exceptional market
`interest and
`recognition internationally
`
`Google v. Neonode
`Google v. Neonode
`IPR2021-01041 (US 8,095,879)
`IPR2021-01041 (US 8,095,879)
`Neonode Ex. 2012 - Page 8
`Neonode Ex. 2012 - Page 8
`
`

`

`@ neonocde
` DoOcoo
`
`Isafjordsgatan 22B
`
`sleeaa
`
`Sweden
`
`Shareswith large potential for growth
`Ownership in a companythat works within a field of interest to all Swedes
`A clear andstraight forward exit strategy given the stock notation
`Participation in a sought after consumerproject that is likely to be insensitive to (or
`even positively dependant on) downturnsin the market
`
`Neonodeintends to engage maximum 5-10 investors.
`
`The investment will be done by investors participation in the initial share subscription for a
`newly formed Swedish AB. Investors shall subscribe for shares and undertake to make an
`unconditional shareholders contribution for amounts exceeding the par value of
`the
`subscribed shares. The investors will receive commonstock in proportion to the investment.
`
`The other owners along with the investors of Neonodewill be the founders and thestaff
`(approximately 10 persons) and additional stakeholders (12).
`
`The newly formed company will purchase the company that now holds the right to the
`Neonodeproject. The purchaseprice will be 1 SEK. The project holding company hasa loan
`to ALMI Féretagspartner amounting to SEK 1,000,000 and other outstanding liabilities
`amounting to approximately SEK 500,000.
`
`Other Information
`
`www.neonode.com
`www.google.com/search?g=neonode
`neonode.r8.org
`
`Google v. Neonode
`Google v. Neonode
`IPR2021-01041 (US 8,095,879)
`IPR2021-01041 (US 8,095,879)
`Neonode Ex. 2012 - Page 9
`Neonode Ex. 2012 - Page 9
`
`