Hello, everyone. Thank you for standing by. And welcome to Neonode’s Second Quarter Ended June 30, 2015 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 David Brunton, Neonode’s Head of Corporate Investor Relations. David, please go ahead and start the conference.

Welcome and thank you for joining us. On today’s call, we will review our three and six months period ended June 30, 2015 financial results and provide a corporate update. Our update will include details of customer activities, technology developments, and other items of interest. The prepared remarks will be provided by Thomas Eriksson, our CEO; and Lars Lindqvist, our CFO. Before turning the call over to Thomas and Lars, 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-looking statements do not guarantee the future performance that may involve or 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 is my pleasure to turn the call over to Thomas Eriksson, Chief Executive Officer of Neonode. Thomas, please go ahead.

Thank you, David. Good morning, everyone. Second quarter 2015 was another period where we further solidified our position as the technology of choice with some of the world’s leading consumer technology and automotive companies. Our technology is being used or developed in devices ranging from HP printers, Dell PCs, Amazon E-Readers, to Garmin Aviation consoles; Volvo and 17 other cars, including two self-driving concept models. During the quarter, we passed all Microsoft Windows 10 tests with our ZFORCE PLUS touch technology. We continue to work with Microsoft to improve the user experience of Windows 10, and now can take advantage of some of the unique features from our technology. Our customer presence is growing in all of our main market segments. Our printer customers shipped approximately 1 million printers in 2014, and are expected to ship around 8 million in 2015, an 800% increase from 2014. In 2016, we believe our printer customers will ship approximately 20 million printers, and this will represent the market share of 20% of the total printer market, 100 million plus units per year. Our automotive customers started shipping cars with infotainment systems in 2015, and are on track to ship over 200,000 cars this year. This number is expected to grow to approximately 1.3 million in 2016, resulting in a year-on-year increase of 650%. Our PC customers are on track to begin production on certain PC devices this year. We know that our PC customers’ activities have taken longer than expected, but exciting part of this market segment is that, we now can see the result on our initial product development accomplishments. Computex in June 2015 was a major milestone for Neonode, as we officially launched and demonstrated our zForce AIR module technology for 10-inch to 16-inch notebooks. Our Touch-in-Everything focus is gaining momentum…

Thanks, Thomas. You can find our Form 10-Q and our second quarter earnings release available for download from the investor section of our website at Neonode.com. Our second quarter revenues were approximately $2.8 million compared to approximately $900,000 for the second quarter last year. Our revenues for the quarter include $1.5 million of license fees and $1.3 million of NRE fees, compared to $400,000 of license fees and $500,000 of NRE fees for the same quarter last year, the increase of 221% in net revenues for the second quarter 2015, as compared to the same period year in 2014. It’s primarily due to an increase in license fees of 75% from E-Reader customers including Amazon and 795% increase from printer sales; and sale to $200,000 for our automotive tier 1 customers supplying systems to OEMs including GM, Suzuki and Volvo; plus NRE revenues from customers. Last quarter, I talked about an agreement that we entered into with Autoliv to further develop our steering wheel sensor zForce DRIVE. During the second quarter 2015, we received initial payment of $1.5 million and completed the first development milestone and as a result recorded $875,000 of revenues. The license fee revenue distribution per market for the second quarter 2015 is 51% for printers, 11% for automotive and 38% for E-Readers and tablets; compared to 80% E-Readers and tablets and 20% printers in the second quarter 2014. Our total operating expenses for the quarter was $3.8 million compared to $4.3 million for the same period last year. The 12% decrease is due to several factors including lower legal expense related to patents filing, lower non-cash stock option expenses and some one-time expenses in 2014. Our net loss for the second quarter was $1.8 million or $0.04 per share, a 54% decrease as compared to a…

Thanks, Lars. This concludes the prepared remarks. And we’ll open the call for questions. Thank you very much.

[Operator Instructions] Our first question comes from the line of Cody Acree with Ascendiant Capital.

Thanks guys for taking my questions. Thomas, could you possibly give us a little more detail on your expectations for the PC market. You mentioned that was a bit behind expectations through this year, but you’re now looking for something in 2016. Could you maybe talk about your expectations for timing, and then any help with volumes?

Yes, hello. Yes, we were a bit disappointed that we didn’t see PC products on Computex with our technology. But on the other hand with a great show with Computex is a huge interest for our technology from the OEMs and the PC partners. And I’m also very excited about the fact that, we’re now working with Dell as a customer and expect to have a very fruitful relationship with them going forward. However, we’re not in-charge of Dell’s production schedule. We believe these projects are scheduled to be in production this year, this is kind of all-in-one devices. And in general, Computex was the most successful show for us we’ve ever been, and I think you should have been there. We met all the OEMs and ODMs and they showed a lot of interest and resulted in actually several new products that we already started, primarily notebooks type of devices. We also showcased our curved and flat solution for all-in-ones and monitors with great success. This is really exactly what the monitor guys want, to start adoption of touch on all monitors. And we also demonstrated our new cost - low-cost solution for notebooks called zForce AIR, which is the solution for notebooks that also can support proximity and other type of functions, as I said on the call. I think everyone also understand, it’s important to touch enable all the Windows 10 devices, but the user really can enjoy the functions you have in Windows 8 and Windows 10, so we’re working on that with Microsoft. And this module also makes it possible now for ODMs and OEMs to put touch in of their devices. I think you can see a lot of Windows 8 and Windows 10 devices without touch, and that’s not really following the strategy for Microsoft to utilize that operating system. The primary interest for this technology is that we have cut the cost down to about $0.25 to $0.50 per inch display compared to, let’s say, capacitive touch that sell for $1.5 to $2 per inch. So we have a very, very competitive offering now for 2016 for - primarily for notebooks. But we’re also working on products now with monitors and all-in-ones, but they’re a bit delayed unfortunately.

Thomas, so it sounds like Dell will have some possible revenue contribution this year. Is that the way to read this, maybe with the delay and revenue recognition that pushes into next year. But are we to expect notebooks, monitors, some of these other partners that you’ve been working with in the first-half of 2016, or can you just help us with the timing?

Yes. First of all, we expect Dell’s product to be in production this year. The exact date of that and when this product is going to be in the market, we can’t talk about. We are working on several other products with them, as a customer, also with HP and the other PC companies, that include notebook devices, all-in-ones, and monitors. And exact when these products are going to be in the market, we can’t really say. But we’re actively engaged with these companies developing devices right now.

And I guess, with the delay versus maybe some original expectations several quarters ago, could you just characterize how what are you - how would you, I guess think about those delays, what were the causes and what is it now that’s helping to accelerate those?

. :

With the launch of now PC business, the ramp up of autos, as we look into maybe through 2016 and into 2017, what is your revenue mix expected to look like?

Well, it is basically a tougher guidance question. But naturally, three segments - we have the printer segment that is moving on nicely and we also then expect the other customers we signed up within print segment to come with product 2015. I would say that we will see a nice growth in that piece and we see a flat growth in the e-Reader, automotive continue ramping and PC with a cost full in 2016, except the distribution wait and see.

Lars, what would you expect there would be your largest contributor at the end of 2016?

Well, I would say that - I would expect that two biggest launch 2016 will be printers and PC.

Perfect. And then lastly Lars, just I’m sorry, please go ahead.

No, that’s all.

On the - your liquidity position, could you just talk about your possible inflows just-cash [ph] you’re getting closer to break-even. [You’re out there, you should bring cash.] [ph] You’ve also talked about possibly going after some possible license infringements that would obviously consume some cash, so you just talk about liquidity trends.

Well, I think we have had a nice development that we also presented for this quarter that we can see that the cash flow is decreasing. And we believe we’re strong on cash projections. We will be sufficient to operate the company going forward and very much built on the confidence we have about the projections we see in the printer, e-Reader market, as well as the automotive that’s growing for every quarter, taking bigger share. We have significant NRE payments that will continue to finance development projects that PC customers on the market ordered late this year. And on top of that, I would like to add that if you also have a new technology zForce AIR that seems to generate a significant NRE number going forward.

That’s all. Thank you, guys.

Thank you.

Our next question comes from the line of Rob Stone with Cowen & Company.

Hi, guys, lots of great detail so far, thanks for that. I wonder, Lars, since you’re breaking out now the contribution of the various segment through the royalty revenue for Q2 this year and last year, if you could give us the same percentages for Q1?

Sure, I can do. For Q1 2015, we have the printers 34%, e-Readers 61%, and automotive 5%. The - and if you sum up for six months, you will have printers of 42%, e-Readers 51%, and automotive 7%. So you can easily see that the printer and automotive is gaining share in a more flat, say, E-Reader market.

Okay. And a question for Thomas about the automotive activity, so you mentioned there were 17 models at the Shanghai Show. Is the timing for the ones that are not in production typically going to be in the fall timeframe, September or something like that? When generally do you expect these parts to start shipping?

Yeah, we expect them to start shipping some of them this year and the rest beginning of next year. We only have some of the worldwide cars like the Suzuki, for example, all of the shipping. We have the Volvo XC90 shipping, for example. And both of these cars are available globally. There is a couple of cars also that we talked about specifically for Asian market and so on. So they will come one-by-one here. They’re already - some of them are already on the market.

Okay. A question for Lars again on operating expenses which were down sequentially as well as year-over-year. How do you see the run rate for operating expenses in the second-half and those are your - all right, the comments in the prepared remarks about pursuing user interface licenses imply that legal expense for this is going to go up.

Well, first of all, we expect, as I also mentioned early, of course, to be - that would be at the $4 million level at the quarter when it comes to expenses. That is the range we stick with still. And we have it very tight under control, monitor it on a basically daily basis. So, I’ll be not going into discuss anything about them, about them…

Bob, this is Dave Brunton. Hey, on the user interface stuff, I mean, the way we’re structuring it right now, we don’t expect to see significant legal expenses on it. I mean, that’s not in the…

Okay.

…so just an FYI.

Okay. That’s helpful. And finally, lots of questions about PC stuff, but I have one more. PC was one of the segments that contributed to NRE’s revenue in this quarter. Any color you can provide there would be helpful. And then you mentioned that you see significant opportunity for NRE with respect to zForce AIR. Help us understand if that’s a modular technology that can go into lots of different models. How do you see the NRE’s opportunity there?

zForce, yes, it’s a module and that greatly simplifies us to be more scalable as a company. And it can be designed for different sizes and can be integrated in all kind of products, not only notebooks, but we’re looking at this going forward, also going into automotive and white goods and internet of things kind of applications. And these types of module you can say is in the cost level where we are really, really much lower than competition. So, as I said, we’re looking at about $0.25 to $0.50 compared to capacity solution about $1.5 to $2. So it’s, yes, it’s completely new technology for us.

So in what sense then the PC OEMs likely to pay NRE for projects using zForce AIR? Is that in some ways you get priority access to your design resources? Or what is it that would generate the NRE fees there elevated to zForce AIR?

Because it’s in there, it’s sort of a disruptive kind of product, and of course, everyone wants to have touch in their devices. I mean, Windows 8, Windows 10 is designed for touch. So, of course, this is something that everyone is looking for, but at the moment touch functionalities is priced too high and they have to have two different kind of devices and they will look completely different. This type of technology open up that opportunity, but also similar to let’s say our steering wheel, there’s a lot of companies obviously that want to have this into their products quickly and as opportunity for us to charge quite high NRE. We have done that before and we continue to do that. But, of course, you have to have a technology that is something special, it can’t just be a 10% drop in price. It has to be significant. And I think, zForce AIR is a significant - something that’s - significant lower in price than everything else.

Okay. And finally, Lars, if you could just remind us, what’s your fee in terms of NRE payments coming in the second-half from the Autoliv arrangement?

Well, from the Autoliv, I think even disclosed that earlier that in total $3 million, of which $1.5 million was initial payment and that is something we - that is paid already. But it is recognized as revenue over capital milestones with final milestone being Q1 2016. So basic what you have today in the Q2 report is $875,000 of NRE revenues, of which $375,000 is related to the initial payment, the rest is related to the development projects that has been performed in a very good way, so far so we met the milestone, first one.

Okay. So with roughly $400,000 of NRE in Q2 not coming from Autoliv, roughly how much should PC contribute to that?

I would say that roughly half of it. It is a combination of PC and printers, maybe half-half.

Great. Thank you very much.

Thank you.

[Operator Instructions] Our next question comes from the line of Mike Malouf with Craig-Hallum.

Great. Thanks for taking my questions. If I could, Lars, just get a little bit clarity on the cash as we go forward. So we ended the quarter close to $4 million in cash, if you include the receivables. I know that - I think you had a target of not going below $4 million. So I’m just kind of wondering as you look into the third quarter, should we expect that quarter to be cash flow neutral or are we going to dip down a little bit further than you thought, and perhaps the December quarter will be that positive quarter? I just would like some clarity on that. Thanks.

What we have found is that we expect to breakeven due in this year, exactly when that will happen, I can’t really go into any details. But the nice piece of it is based what I said earlier, that is that we have a very good confidence in the projections we have now with the automotive, with printer, with E-Reader and so forth, and naturally, with also the NRE projects. All that together really, yes, give us - yes, good feeling, good understanding of the projections to run the company.

And when you look at the NREs for the second-half, I mean in total, I mean, or maybe even on a range that would be helpful, what kind of total NREs in the back-half are you expecting?

Well, what I - I think I tell last call in the range of $3 million to $5 million for the year. And you can maybe say that we are in good way to move up that range.

So maybe on the high-end of that range, is that what you’re saying?

It could be reasonable to - that could be a realistic assumption.

Okay, great. And then, just a question on the autos, are you still looking at around $3 to $4 on average for license fees on a per unit basis?

Depends on the volume but, yes, we’re also looking at potential higher numbers on, for example, steering wheel application. On different sensors, it might be a bit lower, for example, door entry sensor is a bit lower, so, yes, in average, yes.

Okay, great. That’s what I had. Thank you.

Thank you.

Thank you.

And we have no further questions at this time. I’d like to turn the floor back over to management for any additional or closing remarks.

Thanks for everybody for being on the call. And we’ll talk to you next time. Thank you.

Thank you very much.

Have a good day. Thank you.

Thank you. This concludes today’s conference call. You may now disconnect.