Ladies and gentlemen, thank you for standing by and welcome to Neonode's second quarter 2012 earnings conference call. All lines have been placed on mute to prevent any background noise. (Operation instructions). I would now like to turn the conference over to Mr. Garth Russell, the KCSK Strategic Communication. Sir, you may begin your conference.

Thank you. Before turning the call over to management, I'd like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words 'anticipate,' 'believe,' 'estimate', 'expect,' 'sense', 'will,' 'guides', 'confidence,' 'targets,' 'projects,' and other similar expressions are typically used to identify forward-looking statements. These forward-looking statements do not guarantee the future performance that may involve or are subject to risks, uncertainties, and other factors that may affect Neonode's business, financial position, and other operating results which include but are not limited to the risk factors and other qualifications contained in Neonode's annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports filed by Neonode with the SEC to which your attention is directed. Therefore, actual outcomes and results may differ materially from what is expected or implied by these forward-looking statements. Neonode expressly disclaims to any intent or obligation to update these forward-looking statements. During this call, we may also present certain non-GAAP financial measures such as EBITDA, adjusted EBITDA, non-GAAP net income and certain ratios that use these measures. In our press release with the financial tables issued earlier today which is located on our website at www.neonode.com, you'll find our definition of these non-GAAP financial measures or a reconciliation of these measures that are disclosed as non-GAAP financial measures and a discussion about why these non-GAAP measures are relevant. These financial measures are included for the benefit of investors and shall now be considered an addition and/or instead of GAAP measures. At this time, it is my pleasure to turn the floor over to Thomas Eriksson, Chief Executive Officer of Neonode. Tom, the floor is yours.

Thank you, Garth. Good morning, everyone, and welcome to our second quarter conference call. With me today is David Brunton, our CFO. Today I will give you an overview of our performance for the quarter ending June 30, 2012. Then David will walk you through our financial results for the same period. Also after prepared remarks, David and I will be available for questions. To start with, let me express my excitement regarding our unique position with the OEM. Thanks to the high performance in which (inaudible) offered, Neonode is regarded by many in the industry as the go-to provider of what we anticipate will be one of the preferred (inaudible) any type of device in the years to come. I'm please to note that in the past 18 months, our customers shipped approximately 10 million units in (inaudible). We see all of the (inaudible) established the notion (inaudible) components and not in what we can do with our recently launched MultiSensing controller chip which I'm (inaudible) is a true game-changer for entire market. The amount of interest (inaudible) from delivered technology mainly (inaudible) into other markets such as mobile phones, tablet, office equipment and (inaudible). The MultiSensing controller chip has made (inaudible) possible. Last quarter, I talked about our controller chip that was going into mass production and now I want to report it's now in full mass production and shipping to our customers. Our next important mission is is (inaudible) qualification. We now have an (inaudible) qualified technology which makes it possible for us to deliver state-of-the-art solutions to the automotive industry. Our success in this space show that our technology has clear advantages over existing touch technologies and as we deliver a compelling solution together with our hardware partners. We also started development of the next generation…

Thanks, Thomas. I will begin by going through our results for the quarter ended June 30, 2012 and then move to the six months. Our net revenue for the second quarter of 2012 increased 598% to $2 million compared to $283,000 for the same period in 2011. Our net revenues for the quarter just ended include $1.6 million of license fee revenue related to ereader product shipments by five customers; Amazon, Barnes and Noble, Sony, Cobo, and Onyx. This compares to $56,000 of license fee revenues related to ereader product shipments by Sony in the quarter ended June 30, 2011. In addition to license fees, we also recognized $377,000 of customer development projects related engineering fees in the quarter just ended compared to $227,000 in the same quarter of 2011. Our cost of revenue for the second quarter of 2012 increased 108% to $494,000 compared to $238,000 for the second quarter of 2011. This increase is due to an increase in our engineering development activities related to the new customer projects that are expected to come to the market in future quarters. I think it's important to note that we did not incur any costs of revenues related to our license fees. Our license fees revenues basically have a 100% gross margin and as our future license fee increases as a percentage of our total revenue, we anticipate that our total growth margin will increase. Our product R&D for the second quarter of 2012 increased 287% to $1.5 million compared to $382,000 in the second quarter of 2011. As Thomas previously stated, we have seen an increase in design wins and development activities in the first half of 2012. This increase in R&D reflects an increase in staffing in our offices in Sweden and in the US to service these…

Thanks, David. To recap, Neonode has continued to gain momentum of its ability in the market that will allow the company to (inaudible) growth in 2012 and beyond. We're not only securing new design wins but we are also aggressively investing in our business to meet customer designs and remain on the leading edge of touch solution. We would like to take the opportunity to thank our customers, partners, investors, and our talented team here in Sweden and United States, all our employees for their trust and support. This conclude the prepared remark and will now open the call for questions Thank you very much.

(Operator Instructions) Your first question comes from the line of (James Mezedith) – Cowen & Company. (James Mezedeith): We were wondering why – what is behind the big increase in share-based compensation and warrant-related expense.

Yes, the company issued approximately 1.5 million stock options to certain employees last quarter, actually on April 26th was the date, so that's the reason. (James Mezedeith): And then also it looks as though G&A, when you back out that amount of share-based compensation that went into G&A, it looks like G&A ticked down in the quarter.

Yes, that's true. That compared to last year, last year we had – we were ramping up our patent expenses for attorneys and we had some opening costs for some offices and things like that. So you're right. (James Mezedeith): So we should think about this level as a run rate more for the – that would be more appropriate for the next few quarters?

I think yes, right around here, yes. (James Mezedeith): And the same vein, it looks as though, again, backing out the share-based compensation that R&D ticked up quick substantially. And I understand lots of design wins and lots of work for customers on the – in support of those efforts. But is this a run rate that we should be thinking about?

Yes. (James Mezedeith): Any news on the printer product that you've discussed?

We have several ongoing projects with some large OEMs and anticipate the first one to come out this year in the markets. Several – we are involved with several other projects including a lot of projects also from the same customer coming out, the products, next year. So it's growing and we are (inaudible) now with customers being Japan and just feel that's part of the reason we opened an office to support these customers locally. (James Mezedeith): But just to be clear, is there any revenue from that in the third quarter?

I would say there's going to be – the first release is probably towards the end of the third quarter. So if it is, I would say it's going to be fairly minor. It's probably more of a fourth quarter event, this first release.

Yes.

Your next question comes from the line of Jay Sirvatsa – Chardan Capital.

In terms of the (inaudible) as you look …

We can barely – I'm sorry, we can barely hear you.

All right, the question was on the e-reader market. As you look beyond the second half, what are some of the catalysts you expect you would need to see in order to feel comfortable that the market will be back up to the levels that you expected earlier this year?

It's coming from tablets, which is sort of all in all tablets in the way of using (inaudible) based products. We announced a few of them coming to market, Oregon Scientific is, for example, one of them. And then you have sort of the new generation of e-readers coming to market which is sort of a tablet style which we don't know how well they're going to do. And then you have the printer, office equipment product from earlier this year and hopefully also some automated product. It's a mix of different products. We hope to see some mobile phones coming out this year but it's highly dependent on our customers and their final launch plans for them.

All right, let me follow up to that because you were asking specifically about the e-reader market. And I think in my opinion what's going to make a difference to come back for it to sort of get to the levels – I’m not – first of all, I'm not sure it will. I think maybe everybody's sort of overstated it a bit. But I think the – if it does come close, it's going to be because of expansion outside of the US and I think most of our customers have moved fairly aggressively in Europe and there's a lot of economic uncertainty in Europe right now and I think that that's affecting it. So I think the success is going to be primarily how well they do outside of the US, in Japan, in the rest of Asia and Europe. So that's how I see it unfolding.

In terms of competitive landscapes, can you give us an update on what changed, if anything, and how do you see yourself competing going forward with some of the incoming players out there?

We (inaudible) successful (inaudible) started the different segments. So if you looked at automotive segments, we have a very competitive solution. We are at a very interesting cost. We give them the performance. They can use our technology with gloves and pens on any object and we have a very good transparent solution that you need in our automotive environment. And on top of that, we have automotive, qualified parts that you need to have to sell to this market. And recently we have gained a lot of momentum in that (inaudible), actually signed with some larger players, the Tier 1 companies and OEMs in that field. In office equipment, like printers, we are replacing with (this tier) technology because our technology gives a very good user experience. It's very rapid and even in products like that you won't have a very good feeling. And also we give them a lower cost even on a (inaudible) solution with functions like you can have buttons on the screen and things like that. So in terms of mobile phones, I think you're seeing that a lot of companies are actually selling most of their mobile phones in the feature phone or low-end segment including companies like Samsung and Nokia. And that's the (street) we are working into. We think that our solution is the best solution right now for these customers. They can see extremely low builder material and they're replacing receptive solution with our technology. And of course, the end user can experience extremely large ceiling and using this (inaudible) technology. And you can see our technology sort of shifts from resistive capacity. You can see the transition to optic in almost the same level of difference in using it. This is some of that – to keep it short, these are some of the things we are seeing growing a lot and we really – our technology makes a huge difference compared to what we are competing in.

Your next question comes from the line of (Peter Cardillo – Peter Company). (Peter Cardillo: Just curious, wondering if the company would be open to perhaps a future strategic alliance or perhaps a direct buyout. Has anyone ever approached you?

No, not to this point. I mean, you never say never. I mean, we don't have anybody knocking on our door at this point and if it's – if anybody ever does and it's an extremely attractive offer to us and the shareholders, the board would definitely, probably look at it. (Peter Cardillo: And one last question, I noticed that cash was being burnt somewhat a little bit fast there and, of course, you do have a little over $9 million in working capital. Is that going to be sufficient to get you through until you get earnings ramping up?

Yes.

Your next question comes from Orin Hirschman – AIGH Investment.

I just wanted to go back to what you mentioned about office equipment that – is it one customer that starts in Q3 and the second customer in Q4 or is it – I wasn't clear on that.

Repeat the question again. When we say that – are you talking about the design wins?

No, actual design wins going into production.

No, there's actually several of them going into production this year. The point we were trying to make – and I think Thomas said it and I repeated it – is that we wanted to make sure the expectation of everybody out there in the market and the listeners on the call is that the design win, as you know and we've talked about before, to get into production take anywhere from six to 18 months and automotive might even take 24 to 36 months depending on the model. And so the design wins that we got earlier in the year on some of the products will go into production, are scheduled to go into production this year. But the vast majority, the expectation should be that it's going to be 2013.

Do you think in Q4 that you would still be skewed towards e-readers whether it's enough of the design to production that you see revenues …

Oh, I think you should anticipate that this year the majority of revenues is going to come from e-readers. Certainly starting next month we have an expectation of additional products coming into market. We have no control over that, as you know. And so to the extent that they do very well, our dependence on e-reader will be lessened But it was still – this year is still a majority, for sure.

One follow-up just in terms of the automotive market, where you have very specific advantages on the qualifications on prolonged (costs), when does that actually begin to ramp for you (inaudible)?

It's starting to ramp for us beginning of next year with after-market product, meaning the products that you can install in the car as an accessory and the end of next year in products are meaning in cars and growing a lot for the coming years. So typical cycle for a car is five to six years, so it's a very long-term and very nice business for us.

But do you feel confident that you actually will have OEM non-asset market meaning built into the cars during the next year?

As David said, that's up to our customers and exactly when they intend to launch their product and that might change. But it looks very positive, yes.

It would be very – towards the very end of the year at best and it would be limited models for next year.

(Operator Instructions) Your next question comes from the line of Daniel Gelbtuch – HTR.

I was wondering if you could update me on the Windows RT ramp and how you're infrared optical solutions accommodate and/or exceed its requirements.

You said Windows 8? Was that corret?

Yes, Windows 8, particularly Windows 8 (inaudible) and how your solutions accommodate the requirements and/or exceed it. I believe you had a whole slough of feature sets that eclipse that of typical new (inaudible) solutions.

Yes, so we're working on the qualification process with that company and on top of that we are doing very interesting things with keyboards, for example. So our technology can be used in controlling a keyboard instead of mechanical switches. And that's – with that solution you can build extremely thin, even transparent keyboards using our technology. That interesting thing is that we can actually replace a mouse pad that traditionally has been using capacitive technology. But we can also (inaudible) the mouse pad on top of a keyboard or even inside a keyboard, so you can sort of take away this reserved space you have for a mouse pad. And proximity sampling is something else our controllers support, so we can have ways of waking up a device in a very interesting way as getting closer to your notebook or tablet that our technology is sort of alone to support. Another interesting thing that we give these sort of OEMs that want to build this product is that our technologies also support pressure sensitivity. So it can detect, for example, how hard you hit the key or how hard you're pressing on your touch surface. That interesting thing is that, I think I've mentioned before, is that our technologies also support passive handwriting at high resolution, so if you have used, for example, a Sony eReader, you can see that it actually can use any object to write on it. And this is something these OEMs can use and get virtually included in our controller at the moment.

And as it relates to the handset market, I was wondering if you could update us on your ongoing development of the optical technology particularly as it relates to the raised frame height. I know that you have a very thin bezzle or requirement to begin with but I wonder how that's developing going forward.

Yes, we have been working for such a solution and also including IT on it to sort of support flush surface. We also, on top of that, have something in pipeline that can actually be used under water, so you can use it for divers and other products or water proof products which capacity (inaudible) doesn't support today. These are some of the things we are doing there. So I think does that answer your question?

Yes, it does. And I guess just talking about the current height requirement is how much, just 0.4 millimeters or …

Yes, if you look at the (song) projects we're doing, it's about 0.5 millimeters. But if this not traditional based on (inaudible) with a glass or covered glass or a plastic overlay if you need that and it looks extremely nice and we have some other interesting industrial designs for these companies. The most important thing for the companies working in this sector, like feature phones and local smartphones (inaudible), the cost of the system. The other important thing is the power consumption where we have – we believe the most lowest power consumption in the industry and we can even have (stuff we call) always on, which is that you can have it touch active even if the phone is in standby mode, thus removing an (inaudible) on your product. And that's where we see that industrial design is a lot of things you can do with that not imitating other companies. So it's a lot of things happening there on top of what you have seen on market today.

And finally last question, getting – moving back to I guess the Ultra Book market and the RT market, in terms of costs for capacitive, do you have any clue where the capacitive touch screen solutions are for 10 inch and above or, I guess, 12 inch and above for laptops and for larger tablets?

I think you can look at the capacity market. There is sort of very low cost capacitive products using plastic, not glass. And there is sort of high end solutions like you find in Apple iPads for example. So the price range can be very big, actually. But a 10 inch tablet would cost $25 to $30 for a very low-cost solution where we can see our solution to be a solid term dollar solution now with our using the chip controller. So and of course, the other thing that we can give our customer is an extremely high-speed scanning, so for example, our chips support up to 1000 frames per second. So you can have a very extreme responsive user interface that you do not see in products today where the capacity sensor is scanning maybe 80 to 100 frames per second on a 10 inch display.

At this time, there are no further questions. I would not like to turn the floor back over to Mr. Thomas Eriksson for any closing remarks.

Okay, thank you everyone for joining us for this call. We'll keep you posted on our progress in 2012 and have a very good day.

Thank you. This concludes your conference. You may now disconnect.