Hello everyone, thank you for standing by, and welcome to Neonode’s Fourth Quarter 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. At this time for opening remarks and introductions, I would like to turn the call over to Daniel Gelbtuch, Director of Investor Relations. Daniel, please go ahead and start the conference.

Thank you and Welcome and thank you for joining us. On today’s call we will review our fourth quarter and year-end 2012 financial results, and provide a corporate update. Our update will include details of our design wins, technology developments, and new customer agreements that we recently announced. The prepared remarks will be provided by Thomas Eriksson, our CEO and David Brunton, our CFO. Before turning the call over to Thomas and David, I would 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, tend, will, guides, confidence, targets, projects, and other similar expressions typically are used to identify forward-looking statements. These forward 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 10-K, quarterly reports on 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 any intent or obligation to update these forward-looking statements. At this time it’s now pleasure to turn the call over to Thomas Eriksson, Chief Executive Officer of Neonode. Thomas, please go ahead.

Thank you, Daniel. Good morning everyone, and welcome to our fourth quarter year-end 2012 conference call. With me today is David Brunton, our CFO. We will give you an overview of our performance for the quarter and year ending December 31, 2012. I will talk about our business highlights, and David will walk you through the financial results. After the prepared remarks, David and I will be available for questions. To start with, I’m pleased to report that our fourth quarter revenues were $2.3 million were up 38% sequentially, and exceeded our double-digit growth at succession. For the full year, our revenues of $7.1 million were up 18% year-over-year as in 2012, with our Kobo component successfully expand into new areas of markets outside of North America. Moreover our standard technology value proposition continues to result in new design wins with large OEMs. During 2012, we were awarded 72 design wins, and signed 12 new customers within high-volume segments, such as printers, tablets, e-readers, toys, and automotive infotainment. This metrics are a clear indicator for wide spread market acceptance of our MultiSensing technology. Moreover over the last few months new opportunities in the PC, laptop, and the appliance markets have drastically emerge. along these lines, we’re working with global PC OEMs, and mobile semiconductor companies to jointly develop reference designs for Windows 8 in Android based laptops and other mobile devices. While it is difficult to size, and time the ramps for our new markets, we are increasing the confident that most of our 2012 design wins will yield revenues over the next three to 18 months, with automotive beginning to ramp in 2014. At this point, I want to talk about the some of our near-term challenges. In this global period in markets were soft in 2012, we were…

Thanks, Thomas. This is Dave Brunton, the CFO. And I’m very happy to be with you today. As you know, earlier today, we released our fourth quarter and year-ended December 31, 2012 results of operations. Our revenue for the fourth quarter of 2012 was $2.3 million or a 38% sequential increase over the prior quarter. For the fourth quarter, 93% or $2.2 million of our revenue was generated by license fees, primarily from customers selling e-readers. We did see our first non-e-reader customer start shipping. Oregon Scientific, again shipping their MEEP! tablet for children in the fourth quarter. Our license fee revenue is currently generated by consumer related products that typically have their largest sales volume in the fourth quarter. In the future, we expect this quarterly seasonality to level out as our customers’ end markets that are not typically considered seasonal customer related products such as automotive and office equipment begin to ship new products. On a full-year basis, revenue was $7.1 million, an 18% increase from $6.1 million for the prior year. For 2012 87% or $6.2 million of our revenue was generated by license fees, compared to 95% or $5.8 million in 2011, our naming revenue for both periods was related to engineering fees. Operating expenses for the fourth quarter were $4 million or a 16% sequential increase over the prior quarter. This increase was due primarily to an increase in short term consulting related design and research costs for our R&D department. On a full year basis, operating expenses were $14.8 million or a 106% increase over 2011. These operating expenses include non-cash stock compensation expenses totaling $3.5 million for 2012, compared to $550,000 in 2011. The increase in operating expenses was due to several factors, we increased our headcount across the Company by 44% in…

Thanks, David. To recap, Neonode continues to gain momentum and visibility in the market that will allow the Company to further accelerate growth in 2013 and beyond. We are not only securing new design wins, but we are aggressively investing in our business to meet customer demands and remain on the leading edge of touch solutions. I would like to take the opportunity to thank all our customers, our partners, investors, and our very talented and dedicated employees for their trust and support. This concludes our prepared remarks and we will open the call for questions. Thank you very much.

(Operator Instructions) Your first question comes from the line of Mike Malouf with Craig-Hallum. Mike F. Malouf – Craig-Hallum Capital Group LLC: A couple of questions for you, it’s exciting to see that you have this breakthrough on the 10-finger touch, and I am just wondering, if you could just give a little bit of color on what’s going on with the PC space in general, and how the 10-finger tough breakthrough that you have, how you can address that, and then also maybe as we’re talking about technology breakthroughs, can you talk a little bit about the implication of the flush design as well? Thanks.

Hello, this is Thomas Eriksson. So to start with the 10-finger touch, we have been working for that for a long time. It has been in our roadmap and we primarily saying that’s going to be used for larger products like 10 to 14 inch tablets. It can be used for smaller displays as well, but many requirements for using 10-fingers is for larger displays. Regarding the flush display, we have been working with that for a long time as well. We are working quite close with different customers to evaluate that technology, so we hope to get that into products by the end of this year. Mike F. Malouf – Craig-Hallum Capital Group LLC: And on the PSD side, does the large format factor include Windows 8 devices or not, or was it just tablets.

No, that’s all kind of devices, Windows 8 is part of the requirements, the Windows 8, just to have 5-finger touch, so it has really nothing to do with Windows 8. It’s part of our roadmap to support more fingers than two, so historically our technology has been limited to or three fingers, and we’re trying to meet the demand now to support basically to address the whole market not only reflect the displays like e-readers, but also all sort of designs, and industrial design opportunities as well. Mike F. Malouf – Craig-Hallum Capital Group LLC: Got it, got it. and then if I could just ask the question on the patent evaluation process, how is that going kind of in annual and they have given you any kind of preliminary reports or any kind of progress, any color on that would be appreciated? Thanks.

Thank you. Yes, we’ve been evaluating and looking at that. we’re currently working with that, with our current patents, but also the patents we have pending. and we believe I think we have mentioned before, we have started the business around this, and we think that’s going to be a new interesting area for us, for licensing going forward. so it goes very well. Mike F. Malouf – Craig-Hallum Capital Group LLC: Okay, great. I’ll get back in the queue. thanks.

Your next question comes from the line of James Medvedeff with Cowen & Co. James Medvedeff – Cowen & Co. LLC: Thanks. let’s see, in terms of your expenses this quarter, in the fourth quarter, how much did you spend I guess for the full-year, how much did you spend on the legal expense with patent application process?

Around $600,000 for the full-year, compared to almost nothing in 2011 and before, I mean it was probably down 25,000 or 30,000 in those years. James Medvedeff – Cowen & Co. LLC: Okay. And how many engineering design projects are you involved in right now?

We’re working about 65 active projects. We had 72 design wins during the year, some of them have been complete, some of them are not becoming a product. James Medvedeff – Cowen & Co. LLC: Okay. And how should we think about time to market on laptop markets, in other words from design win to shipping product?

I mean in the end, in our business, we talked to our customer to put the products on the markets. We’re actively working with some of these customers to design it in. We hope that something might end up before the end of the year, but at the moment, we don’t know. James Medvedeff – Cowen & Co. LLC: Okay. I mean specifically, now that you have the multi-finger chronology. How long might it be until we would see those or maybe the flesh vessel products or the technologies in actually shipping products?

The same thing with that, it depends on our customer. we’re working with customer to integrate the technology, it’s the very early stage and a lot of customer evaluating and testing this right now. So we hope again, to have something this year, but at the moment, I can’t exactly say. James Medvedeff – Cowen & Co. LLC: Let me just ask in other way. Are you yet certified for the Windows 8 or how is that process unfolding? How long might that take to achieve the certification?

We’re working on that, we’re not yet there. We have been working, as I said, we’re working with some large customers on this to get it ready and probably working. so it’s still in the development stage, and the rates somewhere being focused on few customers to take this technology market of course, to get the volume, but also we’re close with our customer to finalize it. And in the end, it will be our customers that are Windows 8 certified, not our technology itself or Alpine sites. James Medvedeff – Cowen & Co. LLC: Okay. And just finally, can you give sort of a headcount growth target. I understand it’s going to grow this year. but on top of the growth in 2012, how should we think about sort of a number of headcount exiting this year?

Yeah, it’s everything we start here with 46 employees total… James Medvedeff – Cowen & Co. LLC: Yeah.

And I think we will end the year somewhere between 60 and 80 employees and that will be dependent on how quickly companies come on with revenue and things like that. So we have the ability to modulate our expenses as we move forward, obviously we need to have a certain level of expense to service existing customers and build IP et cetera. So somewhere between 60 and 80 depending how we see things going on a quarter-to-quarter basis. James Medvedeff – Cowen & Co. LLC: Okay. And when you mentioned 80….

80 will be about double, right, somewhere in that neighborhood… James Medvedeff – Cowen & Co. LLC: Right.

So it’s going to be – that’s where we are. James Medvedeff – Cowen & Co. LLC: So when you mentioned Asia, should we anticipate additional sales offices in Asia outside of Taiwan and Japan from last year?

Yes. Actually we have the sales office in Korea, but we’re in the process of expanding that. we’re actually getting quite a bit attraction with some large Korean customers right now. so we’re going to expand that office, and we’re currently investigating, not so much a sales office, but an engineering support office in China, mainly in China, we augment that current activity. James Medvedeff – Cowen & Co. LLC: Okay. Thank you.

You’re welcome.

Your next question comes from line of Orin Hirschman with AIGH Investment. Aaron Martin – AIGH Investment Partners LLC: Thanks. Good morning, it’s Aaron Martin for Orin. Can you provide some color on the office equipment wins…

We have hard time here in the West… Aaron Martin – AIGH Investment Partners LLC: Sorry, can you provide some color on the office equipment wins, is that a Tier-One customer. How much of their product line and probably these wins are present and any thoughts on when we can start paying revenue from them.

Yeah. One of the customers were actually in what we’re talking about here our printers at this point and one customer… Aaron Martin – AIGH Investment Partners LLC: That’s all for all of 14 new design wins as printers.

So all printers and I think Thomas said two Tier-One companies out there and one of them is across all of their inkjet line and moving across all of their laser jet line. and the other one only has a laser jet line and we’re cross that line. so it’s basically going to encompass all of their printer products for both of these companies. Aaron Martin – AIGH Investment Partners LLC: Is that much what you’re going after or what you have design wins for over…

No. We actually have those lockdown, design wins with statement of work, and we’ve been working very intelligently with their contract manufacturers in China we have a bunch of the designs, the actual designs completed on our end, but obviously it takes a long time, not a long time, but longer than we like for the ultimate printer to come out, because we have to test all of the inkjet portion of paper feeds and all of the stuffs as you can imagine. The screen sizes are from I think 2.8 inch up to 8 inch for the touchscreen modules. Aaron Martin – AIGH Investment Partners LLC: Okay. And also can you update us on any kind of what we’re doing with the controller guys; obviously we have a relationship with the Texas Instruments. anything else in terms of what you’re doing with any other controller guys or update us on the relationship with Texas Instruments?

Yes. we’ve been working quite closely now. we released our first silicon with TI sometime ago, and it’s gone nine much production for various devices. We will have our next generation silicon now sampling this summer. Also with Texas Instruments and of course, we’re always looking for opportunities working with other companies for second source for somewhere larger customers that we have a very, very tight relationship, a very good relationship with type TI that we continue to explore. Aaron Martin – AIGH Investment Partners LLC: So when you think that it’s mass production we’re talking about revenue from the TI, so was that?

Yes, exactly. Aaron Martin – AIGH Investment Partners LLC: Okay. what are the end-users for that designs that came from TI?

Again, what type of devices you’re making. That’s been e-readers, that’s been tablets so far. Aaron Martin – AIGH Investment Partners LLC: Okay.

I mean Aaron, if I could put some color on it. virtually, every design win that we’re working on uses the TI chip at this point. The old solution that was in the first generation, e-readers is nobody uses that. Aaron Martin – AIGH Investment Partners LLC: Okay. So when you seem to have tablets and phones you’re talking about, that will be going to mass product for a mobile?

Yeah. I mean no customers at the moment are using our own discrete solution. So this telecom is used for anything from the touch, but also a lot of different proximity solutions that we are integrated now on different products. So the chip is capable of doing touch, but it can also do something different proximity at the same time, which we have demonstrated for example. yes, on Mobile Congress. Aaron Martin – AIGH Investment Partners LLC: Okay. Thank you very much.

Your next question comes from the line of Richard Abbe with Iroquois. Richard K. Abbe – Iroquois Capital LP: How are you doing? Thomas.

Yep. Richard K. Abbe – Iroquois Capital LP: Can you hear me?

Yeah. I hear you well. Richard K. Abbe – Iroquois Capital LP: Can you give a little bit more color on what’s going on the handset and when we can expect to see the handsets actually out in the market and what kind of and how big of a production would that be?

Yeah. I mean our focus for quite sometime since we launched our Silicon was to get back to the mobile phone space, and we have been targeting low-cost handsets and millions of high-end devices. And we have been having some success from the low-end side and actually engage with some companies developing devices. I don’t know why we have talked about for sometime with Shenzhen Wave which is a low cost featured phone who is joining Android. So that particular product is in development and are scheduled for this year, targeting the Chinese, European and U.S. markets. So in fact that’s the only product I can talk about, but of course the next Wave of products we are looking at is go and helping the value chains of looking at medium, premium type of products as well even high-end devices for this year. Richard K. Abbe – Iroquois Capital LP: For this year, so we should see mobile phones out this year in 2013?

That’s up to our nice customers. So we hope so again. That’s the targeted list for and what they are telling us. So that’s the work in assumption, yes. Richard K. Abbe – Iroquois Capital LP: Okay. And one more question. You talked a little bit about the patent, and there was some questions on the patents, quite an annualized spec now whatever a seven to eight months evaluating this, what’s come back on the preliminary evaluation regarding the touch technology?

The result is that – we can see that we have a quite strong patent portfolio introduced into the cellular space and the touch screen that we are providing. A lot of large OEMs at the moment are licensing our touch screen technology and we see that our IP and user interface is increasingly, we see an interest from our customers on that. And we have created our own business surrounding that and that looks like you cannot be just… Richard K. Abbe – Iroquois Capital LP: Well, quite it will be – well, Thomas is that a wholly-owned subsidiary?

Yes, yes exactly. So that’s the income finances, has created to be able to bid around it. We think that’s a good starting point to maximize the value of that IP. Richard K. Abbe – Iroquois Capital LP: Okay, all right. Well, thank you very much and congratulations again and good luck to you guys.

Thank you.

Your next question comes from the line of Graham Tanaka with Tanaka Capital. Graham Y. Tanaka – Tanaka Capital Management: Thank you. Just a toast from us, just wondering if you could talk little bit more about the IP and what kind of revenues, how would you – I mean what will be the revenue model for licensing the touchscreen IP?

That’s quite difficult to predict. We know it’s value of this IP and we now have some platforms grounded and quite a lot standing inside. It is collectively a very interesting business for us, licensing a single IP, it’s quite challenging but licensing and patent portfolio that we are building I believe, it’s going to be a very interesting opportunity for us. So at the moment we don’t know. Graham Y. Tanaka – Tanaka Capital Management: How many OEMs is signed some kind of a licensing agreement for this IP, so far and how many more do you think you can possibly sign, say this year?

Yeah, at the moment there is no customer on this. We recently started this business and the IT business is quite tricky and we have done very, very careful work to working with our legal council and to make sure we have everything in place. So at the moment, we don’t have any customers I guess.

Let me add something to that, this is Dave. Remember, we have two classes of patents out there. One of them stand behind our MultiSensing or touch functionality and the other one is behind our user interface functionality. So when Thomas said, we don’t have any. That would be on the user interface, the new business that we’ve started. Of course, on the touch patents, the ones that are standing behind our MultiSensing that’s used in devices that are out there today, we signed 12 customers contracts this year. We have a total of 24 signed license agreements. We signed several more after this year-end. And so if we look at the last three years, we signed four contracts in 2010, eight in 2011, 12 in 2012. So we see that side of the business accelerating. Graham Y. Tanaka – Tanaka Capital Management: All right. And that is, the customers who have signed these license agreements are the current revenue paying customers for the TI modules?

Yeah, exactly right. Not for the TI module, but for the MultiSensing which is driven by the TI module, right. Graham Y. Tanaka – Tanaka Capital Management: Right.

So I mean we think that some of those customers will be interested also in the user interface side of the business, especially if they incorporate things like the proximity sensing and some of those other things, because you need the user interface to make that step work. So we don’t think they’re mutually exclusive, the two types of activities but that’s yet to be seen. Graham Y. Tanaka – Tanaka Capital Management: In the user interface IP, it seems to me it would be licensing agreement that would be not would attribute high units of silicon or be that some period fee or volume fee or some sort.

That’s all I would see and it would be similar to the royalty agreement we have with our MultiSensing now only it would be based on the user interface like the gesture patterns and how you interact with the device, and what it drives inside revenue just the actual touching of it. Graham Y. Tanaka – Tanaka Capital Management: So (inaudible) or it has to be tied to piece of silicon?

I don’t know Thomas could answer that.

No, no. It has nothing to do with silicon. That user interface IP we have is not only for our own technology, but using other type of hardware solutions as well. What we think is that when you develop new hardware, we build together with TI that you can develop a interesting user interface types that needs new hardware to work. That’s why we think that combining and using underlying hardware and our IP in the user interface you can combine that and create very interesting products to our customers. Graham Y. Tanaka – Tanaka Capital Management: Great terrific Just wondering about the revenue cycle, is that – how long of the revenue cycle, how long is the sort of design win to revenue cycle for the different products, as a example longer for printers, longer for (inaudible) sort of there kind of a way to estimate kind of a revenue, I mean a month, number of months of revenue cycle we target IP on nine month, 12 month, six months or another – thank you.

Yeah. I mean we have fastest type of product we put in a market starting to develop and put in the market was three months which was an e-reader. Typically our accessories that we described a little bit in the call, proximity sensor business can be left times on that, and that’s the reason we have to put some focus on that to get that type of products out as well. And if you look at mobile phones and tablets, it’s six to nine months development time for that, printers, it’s one year or more and automotive could be one year to two to three year depending on, what if it’s an after-market design or if it’s inside of the vehicle. Graham Y. Tanaka – Tanaka Capital Management: And so my understanding in other words to get, maybe you can ask. I’m trying to understand what kind of volume you could have later in the year. You were saying you hope to get to positive cash flow and positive earnings this year, what kind of a volume, revenue volumes you need to get to that level?

Well, again, that’s going to be dependent on how many people we hire over the course of the year, and what the opportunities are, if it were today, they would be $1 million a month, right. That’s what we’re running at in the cash expense. I expect over the course of the year, the cash operating expenses will run the growth to maybe $15 million to $18 million somewhere in that range, I would say over the course of the year, and so fourth quarter will certainly be higher. So fourth quarter probably maybe $6 million of revenue, something like that. I mean actually sort of again an estimate. Graham Y. Tanaka – Tanaka Capital Management: Okay, terrific. That really helped a lot. Thank you, guys.

Okay.

(Operator Instructions) Your next question comes from the line of Mike Malouf with Craig-Hallum. Mike F. Malouf – Craig-Hallum Capital Group LLC: Yeah, thanks. This is a follow-up question. I see that there is almost $3 million in deferred revenues, and I’m just wondering what end markets is that related to, I mean is there any kind of customer detail you can give with those? Thanks.

Yeah. One of them is about $2.1 million of it is in license fee revenue, a little over $1 million is in the automotive markets, and the rest of that is in e-readers. And I think we have about $0.6 million of deferred NRE fees. And so that’s across a lot of different products from printers to automotive, to tablets, to mobile phones, and all of those things we’ve been talking about, we typically charge our customers somewhere between $35,000 to $50,000 to start a project. Mike F. Malouf – Craig-Hallum Capital Group LLC: Okay, great. That’s helpful, thank you.

:

Thank you. I apologize before, because I might have missed, I came late. If you did talk about the fact that Amazon contract, there’s still anything going on between you and Amazon or that’s all over, or there is still connection, do you still have?

We still have a license agreement with Amazon, and we continue to work with them to get into the next products. They have quite a lot of products going on and of course, our goal is get factor in again. We’ll see it is a temporary loss, and we think that with our new technology, it’s new opportunities open up, not only for e-readers, but also for their other types of products.

Mainly tablets.

Every products, they are developing. Yes.

Okay. Thank you very much.

The next question comes from the line of (inaudible), Private Investor.

Question, would you characterize the gap in performance between capacitive technology and your infrared technology, closing with time, and specifically focus on the low power consumption for our mobile tablet market and glare and the ability on the sunlight in the automotive market?

Yes. Once again depends on the market segments. So let’s say automative, what most customer likes, and perhaps we have seen CES, Volvo shared our technology in the car. You can see there is absolutely no glare, there is no smart glass, so we have the perfect image quality on the display, and so on and so and you get a very smooth experience using gloves and finger or any object impact. On the mobile phone side, the difference from our solution with capacitive is fairly low on the other hand, that what you’re gaining using our technology that you can have client support and other functions as well, but you can also see that the volumes in this segment is huge, so usually multiply in $1 or $2 with the volumes you have there is a lot of money spend to save. If you look at the tablet or bigger screens that the difference from our technology capacitive is quite big or substantial so for Windows 8 applications, it’s quite huge, so that we see the biggest interest right now is coming from PC manufacturers that have problem scaling up Windows 8 laptops and tablets because of the cost of capacitive solution.

Follow-up to that, my question was about lower power consumption, but not capacitive, I don’t think…

For power consumption, our technology reconsider to be one of the lowest in the industry. We have our own brand name, which we call the Always On, which basically means that our touch can be active even if the device is in sleep or power down mode because of the low power consumption. We can also top till up and down the speed of the touch screen depending on the application, so for example we can when it’s using a pen or some small object, we can increase the scanning speed depending on the application, so we can tune the power consumption relative to that. Compared to capacitive solution we are much lower in power consumption in any size of display, but on the other hand, we also are extremely much faster, so we can scan the screen at much higher frame rates and being more accurate and more precise

Okay, thank you and in regards in stability and durability, do you feel any advantages of capacitive versus infrared?

Sorry can you repeat.

In terms of stability and durability of the two technology solutions capacitive versus infrared, do you feel any advantage of capacitive versus infrared or vice versa?

If you look at some situation where you need really robust solutions, for example in automotive and industrial application, you can see that the capacitive is very sensitive to the disturbance from electrical noise, from electrical motors, for example, and high power switches. So our technology is very suited for that because all we’re not sensitive to noise in that sense, that compared to capacitive, so in an automotive environment, our technology is perfect because we can also build the extended temperature range that you need in a car, the vibration testing, and dust and other type of requirements, so that’s varies for example we also showed during Mobile World Congress, a solution actually can work under water so we our solution is extremely robust to all sort of contamination, and other things that most other technology doesn’t work on the…

Your final question comes from the line of (inaudible) with Private Investor.

Yes, I’m a relatively new investor and I wanted to ask you, if your cell phone area, are you doing any component business with Sony or excuse now with Apple or Samsung, thank you.

Yeah. First of all, you have to remember right, you said you’re new to the story, we don’t actually build any components, we don’t own any components, our solutions are actually off-the-shelf components that the, there are customers purchased from a multitude of vendors usually through their contract manufacturer, so what we do is we license our technology to them no components, we don’t carry inventory of any kind, and we show them how to install it. We design, we get in 3D designs for their various things, we show him how to tool up in all of that stuff, and then they go into production.

Are they currently licensing with you?

No we don’t have any license agreements with Apple or with I think you said Samsung.

Yeah. Okay thank you.

Okay. Thanks.

That was our final question. I’d like to turn the call back over to Mr. Eriksson for any closing comments.

Thank you. We want to thank you all for joining us for this call. We’ll keep you posted on our progress in 2013 and in the future. So have a good day. Thank you.