Neonode Inc (NEON) 2014 Q1 法說會逐字稿

Hello, everyone. Thank you for standing by, and welcome to Neonode's first-quarter-end March 31, 2014 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, our Senior Vice President of Corporate Finance and Investor Relations. Daniel, please go ahead.

Thank you. Welcome, and thank you for joining us. On today's call, we will review our first quarter, which ended March 31, 2014. We will review the 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, tends, 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 they may involve, 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 intents or obligation to update these forward-looking statements.

At this time, it is now my pleasure to turn the call over to Thomas Eriksson, Chief Executive Officer of Neonode. Thomas, please go ahead.

Good morning, everyone, and welcome to the call. To start with, I'm very pleased to announce that Neonode just completed a $10 million unregistered financing loan with an institutional investor. We did this financing in order to fully capitalize upon our growing opportunities and to strengthen our balance sheet, so that we can optimally address the demands of the biggest companies in the world.

As you can imagine, our opportunities and prospects have expanded considerably since our zForce PLUS technology received Windows 8 certification in early March, and HP printers with Neonode Touch have been introduced on the market. I'm also very pleased to announce that Hewlett-Packard has finally released into retail its first printers incorporating our Touch technology. We are very excited about this particular milestone, which finally demonstrates the first fruits of our two years of co-development. Getting into these type of cost-sensitive application really shows the flexibility and maturity of our technology, which is now challenging resistive and capacity touch on costs as well as performance.

I have tested these large printers, and I am extremely pleased with how well they work and how Neonode's Touch is delivering a new level of user experience and responsiveness in printers. I recommend you all experience our technology in these fantastic products from HP.

On the PC front, our Windows 8 Touch certification in early March opened the doors for several new opportunities at Tier 1 PC OEMs. These OEMs are looking to integrate our Touch and Proximity Sensing Solutions into notebooks, monitors, all-in-one computers, and PC peripherals such as keyboards and mouse pads.

Our customers have told us that our technology gives them a much lower bill of material that competing technologies can offer, an improved user experience, and new opportunities for differentiation. Our latest technology, called zForce Air, builds upon our Single-Site sensor technology, can be used to build slim low-cost keyboards that integrate both physical and virtual mouse pads. We and our potential customers are particularly excited about the Proximity Sensing and keyboard opportunities, as our zForce Air solutions address a huge market that is hungry for innovation and improved user experience.

On the automotive front, we continue to work with the major automotive OEMs, while our sales team continues to add OEMs and Tier 1 supplies to our expanding list of auto customers. In close cooperation with our auto customers, we have enhanced and expanded our offering to now support new in-car features such as steering wheel sensing, door activation sensors, and air gestures control functions.

This quarter, a number of projects have been successfully concluded, aimed for production starting late 2014 or early 2015. The first factory-installed system we start shipping this later this year, and we will see at least three major launches during 2014. In the past 12 months, Neonode has invested great resources and focus on achieving not only Microsoft Windows 8 certification, but also improving our core technology for a diverse range of applications.

Over the next 12 to 18 months, we expect revenues to be mainly driven by PC and PC-related devices, printers, wearables, automotive, and other consumer electronic applications and devices. Neonode's focus is to become the preferred cost provider in PCs, printers, and autos, and to create new markets such as wearables and touch-enabled cases. Neonode is creating greater reasons to add touch to a wider range of devices, which will generate additional royalty revenues.

We continue to invest in our IP, and have intensified development of our Touch Proximity and user interface solutions to further expand the patent portfolio. To date, we have 37 patents issued and have 93 patents pending, up from 27 and 87 last quarter.

Finally, I'm announcing the upcoming retirement from our dear partner and friend, David Brunton, who has been our remarkable CFO for the last eight years. While we will be sad to see him leave his position at Neonode, we want to assure investors that this orderly transition will be further bolstered by his ongoing consultancy.

And now over to David, who will talk about the financials.

Thanks, Thomas. Earlier today, we filed our Form 10-Q with the SEC as well as released our first-quarter financial results in the press release. Both of these are available for download from the Investor section of our website at neonode.com.

For the first quarter ended March 31, 2014, revenues increased 100% to $1 million compared to $500,000 for the first quarter in 2013. Our revenues for the quarter included $900,000 of licensing fees and $100,000 of NRE fees compared to $539,000 of licensing fees and $9000 of NRE fees for the first quarter of 2013.

We'd previously reported that prior to October 16, 2013, we recognized license fee revenue in the period in which our customers distributed their products. Since that date, we recognize license fee revenue when we receive our customer sales report by the last day of the quarter. As a result of this change, $700,000 of license revenues related to the quarter ended December 31, 2013 was recognized in our first quarter of 2014. The majority of the license fees related to customer shipments in the first quarter of 2014 will be recognized in our second quarter when we receive the customer reports.

Our gross margin was $848,000 compared to an increase of 59% compared to $532,000 for the first quarter of 2013. Keep in mind that license fee revenue is 100% gross margin; so, as our license fees become a larger portion of our overall revenues, the gross margin will increase. Our Product Research and Development expense increased slightly to $1.8 million compared to $1.6 million and for the first quarter of 2013. This increase is due primarily to an increase in staffing and an increase in our new Technology, Research and Development activities. Our R&D department has 36 employees compared to 29 for the same period in 2013.

Our Sales and Marketing expense increased 25% to $1 million compared to $800,000 in the first quarter of 2013. This increase has been driven almost exclusively by an increase in travel expense. And our General and Administrative expense increased 18% to $2 million from $1.7 million in the first quarter of 2013. This increase is due primarily to an increase in stock option expense. Our net loss was $4 million or $0.11 per share compared to a net loss of $3.6 million or $0.11 per share in the same quarter last year. And as of March 31, 2014, we had cash of approximately $6.2 million plus $700,000 of accounts receivable, and working capital of $3.1 million. And our shareholder equity is $3.5 million. And as of March 31, 2014, we have 37.9 million shares of common stock outstanding.

On Friday last week, we signed a definitive financing agreement for $10 million. We will issue 2.5 million shares of common stock, plus an 18-month warrant for an additional approximately 2 million shares of stock. That will raise an additional $10 million if exercised.

Now, I would like to turn the call back over to Thomas for some closing comments.

Thanks, David. To recap, Neonode continues to gain momentum and visibility in our markets that will allow the Company to further accelerate growth in 2014 and beyond. Our prospects in both PC and printers continue to expand, particularly with our recent milestones, our Windows 8 certification and initial HP printer shipments. In addition, our Proximity Sensing technologies are being integrated into our customer peripherals display units and other automotive applications, and are gaining interest from major OEMs.

This concludes our prepared remarks, and we will open the call for questions. Thank you very much.

(Operator Instructions) Mike Malouf, Craig-Hallum.

Thanks for taking my questions. I wonder if we can circle back to the PC side, and if you could just give us a little bit of color and an update on how those discussions are going? I know that last quarter, you talked about being very far with regards to discussions, and I'm wondering if we can get an update on that? And with that answer, could you give us a little bit of a sense of the timing and how long it would take from a signed design win to actually seeing products on the shelves? Thanks.

Well, I would say that there is very -- very little we can say. As you can imagine, the discussions are very sensitive. I will say that we are very far down the road with the number of OEMs, and we're talking to them about a wide range of products -- all-in-ones, monitors, laptops, even peripherals that include keyboards, and virtual mice, et cetera. And we're in significant -- we're in a bunch of significant evaluation studies, so this is not just getting to know you; we are down the road significantly. But we will make sure that everyone is well aware of what happens, when it happens.

So, there is very little I can say at this moment. I will say we are very much down the road, and we will be in touch with everyone when it happens.

Has this gone slower than you expected from the Windows 8 certification? Or is it -- is this taking a little bit longer? Or is it on plan?

No, this is definitely on plan. As you can imagine, the companies we're dealing with are very large -- very large -- companies with multiple groups and multiple people that have to be made happy. You have ODMs that are sitting in the middle of this equation -- multiple ODMs. You have industrial design people that are involved; you have engineering that's involved. You have all different considerations. And things actually progressing at a pace that we expect; they're actually slightly better in certain respects.

Okay, great. And then I'm wondering -- maybe this is a good question for David. When you take a look at how you're accounting for the revenue now, you must have a lot of visibility on the second quarter, just given that everything kind of moves into this quarter. Can you give us any kind of sense or visibility into that second quarter?

Not at this point. We're not really going to give projections or anything. And I would say probably one of the biggest items is, as Thomas mentioned, the HP printers and all of that, and we haven't received the reports yet from them. And so that's still a big unknown, although we've had some indicators. But at this point, we're not really talking about future projections. Sorry.

As you can imagine, just to expound upon that, this will be -- this quarter will be the first quarter that we'd be getting revenue from -- recognizing revenue from HP. The first royalty report will be coming in any moment. It should not be a trivial amount of money. However, as you can imagine, the first go-around is getting the processes in place and getting the right person to report the number. That is always a learning curve. And so we expect that this will be a little more fluid going forward, but we are in the first quarter of royalty reporting.

So, it could happen any day now. We're not going to be updating people yet on the -- on where we think the number is going to be or what the number actually is, but we hope going forward -- there's a decent chance we would be able to provide guidance for this.

Okay, and you fully expect that to happen this quarter, correct?

Absolutely.

Okay. Great. Thanks for taking my questions.

Cody Acree, Ascendiant Capital.

Thanks, guys, for taking my question. If we could go back to Friday's financing and just -- maybe you could spend a minute talking about the deal and why you chose to raise funds through that vehicle versus maybe a more open market secondary?

Well, there are a number of considerations we had to deal with. We had, obviously, market pressures that were unrelenting, that's number one. We had to be mindful of that.

We had -- number two, we had a situation where we have a lot of activity coming at us from a number of segments. Again, the PC segment is very active, very intense situation for us right now. The printer market is also stepping up the heat, as you can imagine.

When you have -- our flagship customer starts releasing product or showing it off and we take out a press release, that automatically gets everyone else to perk up. And we've had a serious amount of attention in that segment. In addition, we have some significant attention coming from the other segments like -- or some of the emerging segments like Proximity Sensing, our case and peripheral solutions.

So there's a lot of opportunities that are presenting themselves, particularly in PC. We want to be able to adequately address those numerous opportunities. They require a fair amount of hands-on and labor-intensive development and travel, et cetera. Even prototyping is a very big expense that we are working -- or it's a key function that we have to accelerate internally.

So, we took the opportunity to take or to accept this financing in light of the situation, in light of the cleanliness of the deal. The terms were really clean; shareholder-friendly, in our opinion. And rather than waiting too long, we decided to take this now.

And maybe, David, for you, I guess with the new funding then, how does that change your staffing plans? Daniel talked about project needs. And just what are your expectations for OpEx with that increased level of activity?

I don't think it actually changes our staffing plans. I think we have plans in place already to take care of all of these things. None of this stuff that Thomas or Daniel has been talking about is unexpected or off of the moment. So what it really does is it helps us strengthen our balance sheet to a point when these guys start looking at us, and I start talking to their CFOs and their people who are doing their vendor qualifications, it basically takes it off the table, that -- you know, the cash side of things.

And so, from my perspective, that's a tremendous advantage for us. And the staffing -- I mean, we were already planning to do that. And so that doesn't change. It just makes us a little more comfortable and --.

I mean, you have to remember, we're talking to some of the largest companies in the world who we're negotiating rates and royalties with. And they are also taking a very deep look and deep dive into our Company. And I think that it also strengthens our bargaining position at that point. So there -- a lot of these companies are doing the due diligence. They want to make sure that we are in good shape financially. And also, we want to have the ability to not get pushed around in a negotiation for royalties.

And David, with your plans, do you -- can you give us any color on your thoughts on OpEx for the rest the year?

Not right now. I mean, let's see where this shakes out in the future over the next -- probably next conference call.

Okay, good. And then lastly, just on the PC side, you have, obviously, a number of these engagements. Any help on the kinds of form factors that you might expect to be in the market first?

As far as form factors, I mean, we're looking at -- we're talking about literally everything, ranging from all-in-ones, in terms of very large size, up to 27-inch. Monitors is also being discussed and very much interested -- there's a significant amount of interest in that space. And going all the way down to high-volume laptops in the 12, 13, 14, all the way up to 15.6 range. So, we're talking the spectrum for this, we're talking to the wide range of customers, and we're talking to multiple groups.

And I'm sorry, I did have one last thing. Daniel, thank you for that. I guess, to the best of your knowledge, do you get a sense for any of the other competitive ITL alternatives that your vendors may also be working with? Or do you think this is more your game to win or lose here?

I think that depends on the application, depends on the vendor involved. I think that there is some appetite with the Taiwanese OEMs to deal with capacitive as it stands -- the ITL capacitive. I think there are some customers -- I'm talking about really for laptop sizes.

And then there is some appetite, I believe, for some metal mesh. But ironically, it sounds like the metal mesh suppliers might be those that are in Asia. And then for larger sizes, I think we're up against solutions that are camera-based. And I think that's where we have a very distinct advantage. We have a distinct advantage in terms of cost and price at all form factors, but I think our biggest advantage is going to be where we have a significantly lower bill of materials is in the larger sizes.

Great. Thank you, guys. Good luck.

Rob Stone, Cowen and Company.

The comment about providing an update on the PC business -- obviously, intense investor interest in this process. At what stage do you think you'll be able to give some kind of definitive update? Is this at the time of signing a design win? Or do we have to wait until products are actually in stores before you're going to be able to give us concrete information?

Well, I think that's going to be -- I think your initial hunch is probably correct -- or we hope it's correct -- is that they will be in stages. There will be -- they're companies -- there's customers that will be giving us statements of work, which is defined as a design win. There will be customers that will be giving us -- as well will be signing contracts, terms, and conditions.

So I think that there is different stages. And, of course, product rollouts will be hopefully announced as well. And I think that even if we have a customer that would be inclined to give us significant or substantial NREs or even prepayments, we would hopefully be able to indicate as such. But at this point, we can't give you any more color as to who and to what the timing is because of the sensitivity of the conversations that we are in right now.

Sure, that's reasonable. Thomas, you mentioned a number of things going on in Automotive segment, and at least one thing likely to be shipping this year, and a range of different solutions, including the steering wheel, doors, air gestures, et cetera. Can you give us a sense of which application and version of your technology is likely to be first out in shipping products?

Yes, it's conventional entertainment touch solutions for 7 to 9-inch displays. These are the first that's coming out. And we talk about air gestures and new things -- steering wheel application is something we have in development with customers, so it's something we're working on. So first out to the market will be -- you can say conventional touch systems.

Okay. And one segment that you didn't specifically mention in the prepared remarks, but where I thought the single-sided sensor might have a good application, was in consumer white goods. Any update in that sector?

Yes, we're actually working with customers using the single-side sensor. We actually call it zForce Air for now. But basically, that is the sensor that sits on just one side of the display, compared to our traditional solution, where you have four sensors on all sides of the display. So you can make it much, much more cost-effective.

So yes, it's -- we are looking in that to go into a more modular solution, so our customer can buy a more ready module with our partners. So white good is one application, but also you have several things like wearables, like watches, iPhone cases or cases for mobile phones, keyboard applications where you put -- you can put the mouse pad on top of keyboards and things like that. And that's what Daniel talked about, the PC accessories. So, we can sort of touch-enable any surface with that technology. So it's a little different.

Great. A couple of housekeeping questions for David. One is -- there was one large customer mentioned in the press release, I think 37% of the licensing. Can you say what that was for?

Yes, that was LeapFrog.

, Okay. And can you provide any more color on the other asset item, projects in progress?

Yes. That's where we capitalize expenses related to NRE projects. So all of those development projects, the future revenue is sitting down in our deferred revenue account. So I think we have about $1.3 million worth of NRE deferred, which is related to those -- the work in progress. So when we recognize the revenue from the NRE when the project is completed, we actually move the expense out of the project in progress and move it over to cost of goods.

Can you give us any sense of the volume of NRE projects that are in those two categories at the moment in terms of number of projects?

Yes. I want to say it's around 21 projects at this point.

Great. Thanks very much.

Orin Hirschman, AIGH Investment.

In terms of broadening out within printers itself, what can you tell us at this point in time with your big customer as well as any other potential customers, and it is a high-volume business?

Well, again, I think we've mentioned in the past that we've had -- we have a number of design wins with our printer customers. We've announced those over the years. And as we mentioned in the past, the design cycles for printers is a relatively -- it can be an extended period. And so we have plenty that's on its way. And at the same time, our ambition is to capture the rest of the printer market. Now we're getting a fair amount of interest from other customers and I think that the odds look very good in our favor.

Should we be surprised if we see you with additional printers from your existing customer and/or additional printers in this calendar year?

I hope so. I hope this is not the first three -- not the only three, that's my point.

Okay. I mean, do you have reason to believe that there are further designs in progress?

I don't understand what your question is.

Meaning you keep mentioning additional designs. Do you have good reason to believe that those designs are actually in-design progress, in terms of getting to the end product on those additional designs?

I would -- yes, I would say that there's pretty good chances on those.

Okay. And could -- last question, on the printer market -- could the printer market by itself be enough to turn the Company profitable?

In theory, sure. The printer market is a 110 million unit market. It's -- I believe that HP was about 144 million this past year. I think Canon and Epson are in the 20s, and you have Lexmark in the lower -- in, I think, the higher single digits. So certainly in aggregate, the printer market is -- should be more than enough if we capture the majority of it, which is what our ambition is. And I see no reason why we can't; that should take us profitable in and of itself.

Okay. Okay, thanks.

Again, I just can't give you the time frame. That's something we can't guide you to.

Okay. Just to follow on that, are you aware of any competing new technology at HP at this point?

No. I think that is a company we've done very well with, a partner we've done extremely well with. And I think that the level of interest that we're getting from everyone else, and also the price points and the advantages that we offer, I think that there's -- it's really a resistive replacement situation. I don't think that we have much to worry about.

Okay, great. Thanks.

Graham Tanaka, Tanaka Capital.

Just to try get a little bit better feel for -- I think those were great answers you gave us on the printer market, but what level of breakeven do you see for the Company in the next few quarters? And when might the Company be able to reach breakeven profitably and breakeven cash flow? Thanks.

I think on a cash flow basis, we are running -- excuse me -- cash basis, our OpEx is running at about $1.2 million to $1.3 million a month. I have no reason to believe that is going to dramatically change -- unless, again, we get some significant projects that force us to change it. But right now, again, the range of revenue that is required to breakeven on a cash basis will be somewhere between $3.6 million to $3.9 million a quarter.

And what would you have to do each then -- if you're looking at both -- all the different markets that the Company is in? Is it expected to be maybe the fourth quarter, third quarter?

Well, we can't tell you which quarter it's going to be. And we're -- again, we're following our plan. The businesses -- the various businesses that we would need to get us to breakeven would be a combination of printers ramping up as expected; eReaders -- we have some business that are hopefully going to be incremental business that we're going to be recapturing -- or incremental market share we're going to be recapturing in the second half, hopefully. So, eReader business should be -- hopefully give us a boost.

And in terms of the children's tablet market, that's also something that's helping. And if we can get some auto revenues, that will also help as well in getting to that breakeven mark. So I think that's -- those are the four major markets I would think that would be contributors to breaking even. And then, of course, you have variables or markets like peripherals, cases, et cetera, which have a relatively quick turnaround.

And, of course, anything in PC as well that would have a quick turnaround, would be an incremental booster for profitability. But right now, to get to profitability, our plan is to do so, hopefully, with relying on printer, children's tablet, eReader, and auto.

Great. Now there's a PC -- you just mentioned there could be some areas that are quick turnaround. Why would that be quick? Quicker than printer?

Well, printer, we've been -- as we have indicated in the past, printer, we were winning already back in 2012. And printer actually has a much longer design cycle on a relative basis, relative to PC. Each PC segment has its own design period or design -- relative design period.

So, for example, a monitor, which has very little intelligence in it, is an independent and relatively dumb device, that would have theoretically the quickest turnaround. That could be a much shorter turnaround on a relative basis. In addition, retrofit designs for PCs -- for laptops, I think is also something that could have a relatively quick turnaround. If we were able to retrofit into an existing laptop and squeeze our solution in, that would also theoretically have a quicker turnaround.

And then, finally, all-in-one desktops, which, again, is a combination of being retrofitted and a monitor type of size. And having a little more real estate to work with, that could also theoretically have a quicker turnaround.

In general, design up for laptops is going to be the longest within PC. As you well know, PC OEMs refresh their products 12 -- I mean, once every year on average. And they have midcycle upgrades, which are really more modular in nature. But soon, once a year, laptops get refreshed. If you pay attention to the printer market, printers get refreshed roughly every two years, give or take. Autos is roughly three to five years. In the case of children's tablets, that's probably once every two years. Each market has their relative design period and testing period, and that usually correlates to the lifetime of the product itself.

Now on the auto side, is that -- what kind of volumes are we talking about? Are we talking about individual car models with small unit volumes at first before you get to the larger markets? Or is this something that could be lumpy and larger? Thanks.

Well, it could be -- it's all shapes and sizes. The nature of the auto business, which makes it very challenging and also a great opportunity, is that it's a very fragmented business in terms of Tier 1 suppliers. So, you have in the top 20 Tier 1 suppliers -- and they're all brand names -- you have a very tight market share for all of them.

So, getting into the Tier 1 suppliers is something that you have to conquer one by one. And then they go ahead and they try to pick off business at the auto OEMs, which is, again, a very fragmented model-by-model, region-by-region business. So, again, the key is to get a few major OEMs and that, hopefully, builds upon it. Again, the -- our plan again is to get -- is to capture a big portion of the automotive market, but I believe it starts off in bits and pieces, and that's what's happening so far.

Back on the PC side, you gave us some great answers on design cycle times and the differences. I appreciate that. Wondering if you could comment on the cost benefit analysis for each of the major five or six markets? My understanding is that PCs have, of course, bigger size, more valuable screens, and then so higher ASPs. But is the cost-savings potentially larger for the OEMs to go with this touch --?

So, the -- it depends on the market. So, as it relates to monitor, monitor or large screen sizes, where the real competition is not going to be ITO, and it's really not going to be anything but optical camera-based -- camera-based optical. Camera-based optical usually, from what we understand, is something that retails for more than $2.00 a diagonal inch, and something that we hope to be considerably much, much lower than.

In the case of laptops, that's a moving target that we're up against ITO traditional -- excuse me -- ITO capacitive and metal mesh capacitive of the various flavors. We believe -- or we understand that the metal mesh and the ITO is still in the $1.50 per diagonal inch range. It's still somewhat more expensive then where we can be.

In addition, what gives us an interesting edge or interesting value proposition is that since we are not selling anything specifically, we are licensing. We are only looking to protect our licensing rates or royalty rate. And we are, at the same time, very much motivated to keep the price coming down.

So we have a very good price or cost curve that we help our OEMs and our customers take advantage of, while keeping the royalty protected. So there is a roadmap to getting lower cost over time, as opposed to the people that we're competing with, are ultimately selling an end product, which, in order for them to lower the ASP, they have to take a hit on profits.

I'm just wondering if there's a way for us to understand how the cost-benefit is? You're saying significant or much greater cost savings in the camera-based optical, et cetera. Are we talking about half the cost? Two-thirds the cost? What kind of percentage cost savings could there be?

Well, I -- again, I can't give specifics, and also -- but I would say that you should be thinking about half the cost. We could be better over time, I hope, definitely; that's something that we're going to improve over time. But I would be thinking probably half the cost is the way you should think about large -- in large applications.

And in addition, just there are other benefits that we have that we bring. So a good example would be for laptops, or for anything -- for all-in-ones, we don't require any front glass. We can work with front glass applications, but glass, we've been told, can add as much as $10 a unit in terms of excess costs. Certainly it adds weight in a laptop, which is something that's not desirable.

So, we do not require anything on the front of our screen or on the front of our touch solution. We don't have to be under a piece of glass. And that also adds a significant benefit in terms of weight and in terms of lack of glare.

Thank you.

Mike Davis, Millennium Hedge Fund.

Can you address the short seller that can -- the company right now that mentioned IR outdated technology that you guys are in?

Oh, there's a -- someone -- one of the shorts has complained that our technology is outdated? I think that's absolutely ludicrous. We have -- as you can see in the numbers of patents that we have been filing and getting accepted, that, by definition, should be telling everyone that -- and again, there's been some significant growth in the patent numbers, and patents are getting riled and addressed very -- in the -- excuse me -- that are getting -- we are moving on the fast track with a lot of these patent applications. And again, we have over 37 patents that are issued as of last quarter.

So, patents -- old technologies don't get patented. That's number one. Number two, in addition, old and outdated and worthless technologies do not get introduced into high end or midrange printers from a Tier 1 and world-class leading printer company. In addition, there is no other optical solution or optical infrared solution using our type of low-cost technology that's being -- that's getting a Windows 8 certification.

So I think there's so many proofs of the fact that our technology is extremely relevant, is extremely durable. We have 20 million units that of -- excuse me -- our customers have sold over 20 million units using our technology without return. So, again, it's not an outdated; it's not a flimsy; it's not a weak technology. And we are getting design into everything from in-flights GPS systems for aircrafts, which is a super-high quality requirements. We have patent protection on all our technologies, which keeps increasing. That means it's also new and relevant; otherwise, we would not be getting all these patents issued. And we have world-class products coming from world-class OEMs. They obviously believe that the technology is very relevant and very new.

Great. Can I also address a couple of other things? You mentioned Amazon? Are they back yet? Or you can't discuss that yet?

We can't comment on Amazon, per se. We've indicated in the past that they are a licensee. They were a big customer at one point. And all I can say is, is that we have -- and we've said this in the past -- that we have new wins and new -- in the eReader space that we hope to be rolling out sometime in the very near future. And that should hopefully get back our market share that we lost two years ago.

When do you think you'll see announcements with that?

We could not say, but these are hopefully -- hopefully, again, the second half of this year.

All right. Any other (multiple speakers) --

If I were you, I would look back and see historically when products get announced in this space, and that might be a good indicator for you.

Okay, any -- that's great -- any other opportunities that you discussed about LG and Samsung that -- or your Korean partners? Is there anything there? We haven't heard anything in a while.

Yes. So, again, and what we've said in the past is that we license to two -- the two Tier 1 OEMs in -- excuse me -- in South Korea. Products do not automatically flow. Generally speaking, design cycles could be anywhere from a year to three years depending on the product. We cannot talk specifically about those customers, per se, but we do have projects going on in that region. And we'd hope to keep you updated as they roll out.

All right. And anything that you can discuss about the Apple car play connection?

That we cannot talk about. I think you have to see it for yourself and make your own judgments, based on what we put on our website. But we can't talk specifically about that.

Okay. Any other comments regarding the unusually high short position that's in the Company right now?

Again, there's very little I can say about that. I think that a lot of the short position was predicated on the fact that we -- there was a perception we might've had a cash issue, which, hopefully, we've taken off the table. We'd like just -- we'd like the discussion surrounding Neonode to be on products, technology, not on cash position or what we're going to have to invest in to get into new markets, et cetera. And so, hopefully, we've taken that issue off the table.

Our CEO has taken off some of the issue about insider selling, because he's been buying recently. We've taken off the issue about getting into the PC space or having high-quality product by getting Windows 8 certification. We've taken the issue of having a no-name printer customer that we announced or that we started intimating that we had two years ago, because that printer customer is in production, and you could find the products in retail right now.

So, we are trying to take as many of the short issues off the table, and I welcome your input. What else is short -- what other short issues need to be discussed? Let me know.

Okay, thank you very much.

Drew Bookman, FNY.

Question is, when you all had a conference call -- I believe it was with Aegis, although I'm not sure -- it seemed as if you were closer to getting to your goal line. Has anything changed from the month or so ago or a few weeks ago when you had that conference call until now?

Nothing has changed. Things are progressing as expected, or as I mentioned, slightly better-than-expected. But what you can't -- the part that everyone has to appreciate -- which, again, is very difficult -- is that we are dealing with major customers in the PC space. These are very large companies who do not move willy-nilly overnight. There are processes that have to take place, negotiations that take place. It just doesn't happen at the pace that everyone wants it to happen, but that doesn't mean that the intensity has dissipated. And on the contrary, it's only gotten more intense.

So, the progress has been phenomenal. We are very excited. We are very bullish about it. But at the same time, we just don't have the ability to, A, guide for something that hasn't happened yet. And therefore, we have to plan accordingly.

Is there a drop-dead date in your mind for recognizing revenue in the third or fourth quarter of this year versus Neon being a great story for next year?

For which markets are you talking about?

PC -- I mean, I understand you have printers and LeapFrog and whatnot, but what I'm interested in is laptops and PCs.

So, again, we can't comment specifically on PC products, because again, A, we don't have anything to talk about, it's all confidential; and B, we haven't announced anything. So, what I can tell you is that (multiple speakers) --

Well, let's assume, like from the tone of the conference call, I'm assuming that everything is very close and you are on the cusp of getting some either, A, fantastic design wins with NREs and with potential money upfront. So, that's what you guys are waiting on. Is there a drop-dead date -- meaning that if you get them this month, next month, or if it comes sometime in the summer, you wouldn't be able to recognize any revenues for the fourth quarter? That's what I'm specifically asking.

Yes, I understand your question. What I can tell you is that the current negotiations are very sensitive, and we're working on, are dealing exactly with that. And it would be very hard for us to comment exactly on timing.

What I would say is there are certain parts of these businesses which have quicker turnarounds, that, theoretically, could happen sooner than people might think. And at the same time, for the large part, what we are really going for is for future wins for 2015 and beyond. So, again, anything is possible, especially in markets with quick turnarounds like monitors and all-in-one might have the quicker turnaround; retrofits also theoretically have quick turnarounds. But right now, at this second, we cannot comment on specifics.

Okay, that's fair enough. But is it (multiple speakers) --

Nothing has changed. All that has changed is that the intensity has stepped up. (multiple speakers)

Now is it true that with the Microsoft certification, they actually changed the terms -- changed the criteria for certification, and that wasn't from Neonode asking for the change, it was actually from potential customers?

Well, there have been some changes. I really -- I don't think I can go into the details of the changes or the relaxation of some of the standards (multiple speakers) --

Probably be -- that would be a positive for you, right?

That would definitely be a positive. If you recall, the biggest challenge that we've had -- old challenge was that we were initially a two-finger solution. The big development we made of last year was going to a five or 10-finger multitouch solution. So, our ability to address the wider market, especially with -- if standards were to change, that would help us.

Okay. I appreciate, Daniel. Thanks.

[Lynn Delgello, TPS].

Thank you taking my call. I have a couple questions for you. One, I'm still struggling with the printer projections. You must have some type of idea of the orders coming in and the turnaround time for the printers. So, I'm struggling with that. And the other thing is the -- is there any update on the options for the patent portfolio? Especially in light of the recent trials with Apple and Samsung?

So, we obviously do have projections internally, and we have a fair amount of visibility that keeps getting better and better from our big printer customer. However, we can't necessarily share that with everyone. That's somewhat confidential. That's number one.

At the same time, we are hoping to eventually provide guidance, especially since we are working on a schedule -- or royalty recognition schedule that sort of helps us, in the future, announce guidance. However, since HP has not gotten us their first royalty report, there's nothing really to guide to today. We can't speculate on something that we haven't received it. So, we think that that will improve the speed, and the efficiency of those reports will definitely improve going forward. And hopefully, we'll be able to guide for that. But at this moment, we can't.

We do, however, have some idea what we are expecting over the course of this year, but we're not going to guide yet until we are comfortable -- more comfortable with what we see. Again, this is the first maiden report. So, I think it will be a little presumptuous or a little silly if we were to go ahead and start guiding before we got it.

And then regarding IP, IP is something that we are very serious about. We are working on, very diligently, to find the right option in terms of monetization or doing something with or not doing something at all. However, as you can imagine, this is something that's extremely sensitive, and we have to make sure the public is informed on an absolute need-to-know basis. Because that could seriously compromise our IP if we were to start giving ideas before we do something.

So there's no time-frame in terms of letting us know what's going to happen with that period?

Well, again, what I can tell you is, is that it's something that we're -- it's on top-of-mind, it's on the top of the list to take care of, but we cannot say anything until it happens. Again, we are not dallying on this. This is something that is -- that we're working on diligently, but -- the Board is working on diligently; we are not ignoring. But we would be self-defeating ourselves by announcing something ahead of the actual event.

All right. Thank you.

(Operator Instructions) Mike Davis, Millennium Hedge Fund.

Follow-up. What can you discuss about the cell phones and your technologies? Is there any out there that are currently being used or is that in development?

Yes, it's still in development. We have projects active in that field. It's mainly low cost to medium type applications. It's also taking more time than expected and we don't -- really can't say anything about that right now. It's -- eventually, it's up to our customer launch plans for that type of products. (multiple speakers)

Great. Is Sony using your waterproof technology in their cell phones yet?

No. They don't. They should, however, because our technology actually works underwater. And, of course, if you make a waterproof device, it would be nice to use the touchscreen underwater. So, we have solutions for that for mobile phones, in fact, that the customers are looking into, including wirewalls as well, where it's also important.

And any idea about the case manufacturers and how far you are away from signing a deal with any of them?

There's a lot of interest from a lot of different companies, including mobile phone manufacturers that want to do accessories with it. But normal case manufacturers, it's not used to integrate a lot of electronics in their cases. So we have developed a reference design that we showed at the Mobile World Congress a few months ago. So that platform is ready. And a lot of different customers are looking into that and see how to integrate that into their cases. (multiple speakers)

And then (multiple speakers) --

This reference design support iPhone application but also Android using Bluetooth. So supporting both of these type of platforms.

Okay, great. And anything else you could discuss about the wearable technology that you guys have with the watch? Anything you can discuss about that?

Not more than -- we are working on and working with our customers -- the customer we already have that make this type of product. So it's in development. And again, what people are looking for, of course, is to be able to use this with water and that type of application, but also submerged underwater type application. And we have also a solution for round display. So -- and also that system actually works underwater.

So our value proposition for this type of application is not only square type of wearable but also around and other proximity functions. So, for example, you can use our zForce air sensors to have touch on top of your hand, for example; or you do air gestures and not actually touching the display. So we also have encountered solutions for that and a lot of different customers are looking into that right now. (multiple speakers)

You do have designs with certain customers with your watch, and that's ongoing?

Yes, it's ongoing. And as soon as we have more design wins on that, we will announce it, of course, and talk as much as we can about it. But right now, we have nothing really we can go into exactly what we are doing. Still confidential.

Okay. Is there any relationship with Apple? Or nothing like that yet?

It's the same thing. We can't comment on any -- that sort of relationship. But, of course, Apple will be a great customer.

Very good. Thank you.

At this time, there are no further questions. Gentlemen, do you have any closing remarks?

Yes. We want to thank you all for joining us for the call. We will keep you posted on our progress in this year and the future. So, thank you and have a good day.

Thank you for participating in today's conference call. You may now disconnect your lines at this time.