Neonode Inc (NEON) 2014 Q4 法說會逐字稿

Good morning, everyone, and welcome to the call. Neonode posted a full-year 2014 revenues of $4.7 million, which was in line with our expectations. Lars will go into financials in more details later on.

2014 was a transition year for us with new technology offering such as zForce EDGE and zForce CURVED. These new technologies made it possible for us to get into new market segments such as monitors, where it is important with modern industrial design and good image quality with no glare.

The focus on this call will be to talk about the customer activities and updates on our progress in new technology developments. My primary focus on the business is PC, automotive and print application. I feel very strongly that success in these market segments will mean success for Neonode and its stakeholders.

So, let's dive into the future space and what we are doing here. It's been a long process, but we have now signed with one of the largest PC OEMs. This is a start of a beautiful relationship with this leading OEM and others to follow. With this agreement in place, Neonode will supply touch and proximity modules for a different PC applications in close cooperation with our manufacturing partners.

Our partners build and test our modules designed by us and ship them directly to the OEM customers' manufacturing facilities. The first applications that was shipped this summer are All-In-One PCs and monitors. Signing this agreement with one of the leading PC OEMs has been a long but important process for us.

We now have successfully implemented our royalty-based business model even in an industry that normally is unfamiliar to pure licensing except perhaps paying Microsoft for the Windows license. Normally, the OEMs buy a complete customer PC from the ODMs, and they source the components and modules from their vendors, and assemble complete units.

I want to paint a picture of [mass reduction of costs] that has not taken place yet, and how we are taking on the challenge to change that. Today the touch penetration for PCs like notebooks is about [15%] to 20% of the total shipments. The PC OEMs would like touch and display to be standard offerings like the camera or the mousepad where they do not have to build different hardware to touch or no touch version.

Our customer tell us for mass adoption of touch in PCs to happen, the costs need to come down a lot and the touch technology need to support the consistent slim industrial design with no degradation of image quality and other problems in production like lower yields. Our competitors that supply capacitive touch solutions is today far too expensive for an increase in touch penetration. And that layers in front of the display creating glare and poor outdoor visibility, and lower battery time, due to the less brightness and power-hungry touch controllers.

Today, most of the OEMs in the PC industry have many different models and types of notebooks all-in-ones and monitors. Most PC products suffer from low margins and cannot compares to a company like Apple that enjoys high margins in just a few different devices. Our solutions now probably make it possible for OEMs to introduce a consistent design language with minimal vessels to reduce the number of models with the potential to reach higher margins and higher volumes.

Today we have four different technologies that we promote to the PC segment. That is zForce AIR, zForce EDGE, and zForce CURVED and zForce AIR. These technologies address anything from large monitors and TVs with flat or curved displays to notebooks, small-mall trackpads, keyboards with TrackPoint function. All of our technologies support very low cost hardware, nice industrial design look and low power consumption for a long battery life.

These are areas where we excel. I'd like to start with cost. The cost of our PLUS models for monitors and All-In-One, is more than [50%] lower than competing technologies like the low-cost capacity solutions. Our latest solution for notebooks, zForce AIR, are down to $0.25 per inch display. This means that our OEMs can add touch on a 14-inch notebook for as low as [$3.50] plus our royalty fee.

Most low-cost capacity touch solutions struggle to get below $1 per inch, and in-cell touch and on-cell touch are currently more than [$1.50] per inch. Our solutions enable a $20 cost saving on a notebook, which can be more or less the whole margin the OEMs have today.

But everyone knows industrial design is today very important. When using our technology, our customers can achieve a consistent look and feel across all their product lines, like notebook, All-In-Ones and monitors. This means that the OEMs can design only one device and it will look the same with or without touch whilst reducing the number of different devices.

Another important factor today is power consumption. We're adding layers on top of the display. Like most of our computing solutions do, you will have to massively reduce the brightness, add glare and annoying reflections and poor outdoor visibility.

On a notebook, the back flap is one of the largest power drains. When you add the capacitive touch to notebook, the battery drains faster. And as a result, the time you can operate on battery will be reduced. This is one of the reasons why non-touch notebooks can run on battery longer than a capacitive touch-enabled device.

Since we do not need a sensor layer in front of display, products with our technology enjoys longer battery operating time with crisp, clear display, with great indoor and outdoor visibility. With zForce low-power technology, you can also expect almost the same battery lifetime as a non-touch notebook.

And now let's move to talk about the success in our automotive space. I decided a few years ago that we should invest in this space. I know at the time that this would require long development cycle, but eventually would give us a large return on our investment. This investment is now starting to pay off, and we can see the first cars installed with our technology hitting the market. And they work really well and are receiving great reviews.

We have started to be recognized as a premier touch supplier to the automotive industry where they have moved from resistive to capacitive and now to optical touch for superior user experience and performance. The Volvo XC60 is a premium car that uses zForce touch along with an intuitive elegant and simple user interface, which supports other functions like Apple CarPlay.

This car has received great reviews all over the world. And Volvo now leads the trend towards reducing the number of buttons to achieve an ease-of-use infotainment system. We have expectations that this touch platform, including our touch, will be used as a base for many other Volvos cars during the years to come.

Another exciting observation is that many our automotive OEM customers are now in full production and we expect up to 10 cars to be in production this year. During the Geneva Motor Show, Koenigsegg launched a new hybrid megacar called the Regera. It's one of the most prestigious fastest sport car in the world. The Regera is using zForce core technology on a nine-inch display in the sensor stack.

We are aware that this vehicle is a super low-volume car. However, we think it is important customer, because this car is an extremely high-end and sophisticated product that really showcases the performance level of our technology.

During the past years, we have been developing a new type of sensor that can be integrated into the ring of the steering wheel. We call it zForce DRIVE. This technology is what the mouse is for the PC. A relative position input system that seamlessly connects the driver with the car and send out information to the embedded computers in the car, and tell the driver what it is doing and the position of the driver's hand.

The primary application for this technology is increased safety. But it also enables the driver to control all of the switches and functions in the car, like changing the volume or answering a call. The driver can control the car without removing the hands on the steering wheel and keep the eyes on the road.

The sensor steering wheel also supports a simpler, elegant handover function between the driver controlling the car and self-driving mode. If you release your hands off the steering wheel, the car will drive on its own; and when you grip the steering wheel again, you are back in control.

After a long development cycle for zForce DRIVE, we are very excited to announce that we have signed the license and development agreement with Autoliv. Autoliv is a $10 billion public company, and one of the largest safety and security system suppliers in the automotive industry. This is a huge recognition of our technology. With this agreement in place, we have a partner that already has most of the global steering wheel automotive OEMs as customers.

Autoliv is also a great partner that cannot only promote and sell, but more importantly, manufactures a complete solution for mass production. The timing for this technology is perfect, as most of the OEMs are designing self-driving, assisted-driving vehicles for improved safety. For zForce DRIVE applications, we also believe that our license fees will be higher than average compared to our other technologies.

Let's move over to the printer segment. We are happy to see there is a lot of reports and reuse on the Internet on the HP printers with our touch, where users really like the new responsive touchscreen. We have seen a steady increase of models hitting the market, now with over 20 models in the stores. Our printer customers are progressing nicely and we are seeing an increase of our license fee.

We are currently engaged with the major printer OEMs who are currently integrating and evaluating our technology. Our printer customers combined represent the majority of the volumes in the printer global market. We expect revenues from our printer customer to keep growing in the next 12 to 24 months and beyond.

And now a short update on the eReader segment. We continue to do well in the eReader space. Our zForce CORE and zForce AIR technology is used by the major OEMs in this space. The fourth-quarter 2014 Amazon successfully launched a new Kindle incorporating our technology. We will not recognize any revenues from Amazon for 2014, but we are very pleased with their product launch.

And, finally, a little bit update on our new, exciting technology. One of our latest technologies that we have developed is a touch solution for small to large curved displays. This is an extension of zForce EDGE now supporting Windows 10 for curved displays.

This solution, as our other solutions, provide a glare-free display with excellent brightness and a very low module cost, typically less than $1 per inch display. Currently, capacitive and other touch solution need a glass in front of the LCD, which reduce image quality, create glare and annoying fingerprints, which are all unwanted optical effects, and mostly unacceptable to professionals and gamers. This technology is now ready for market with products like the latest curved monitors and the coming All-In-One PCs.

And now I would like to hand over to Lars, who will talk about the financials.

Okay. Thank you, Thomas. Earlier today, we filed our Form 10-K that (inaudible) our fourth-quarter and year ended December 31, 2014 financial results in the press release. Both of these are available for download from the Investor section of our website at neonode.com.

I will not walk you through all the details at this call, but instead focus on the highlights. But first of all, I would like to explain for all of you so we are on the same page that we, for most of our customers, record license fee revenues one quarter after our customer has shipped product to the market. In other words, deferred revenue recognition. It is important for you all to understand that when you analyze our reports.

So, let me start with the fourth quarter. Our revenues were approximately $1.7 million compared to $1 million for the fourth-quarter last year, which represented an increase of more than 70%. Our revenues for the quarter includes approximately $1.2 million of license fees and $500,000 of NRE fees, compared to $900,000 of license fees and $140,000 of NRE fees for the same period last year.

The increase in net revenues for the quarter as compared to the same period last year is mainly due to revenues to new product shipments of printers and successful completion of engineering design services, which fully offset a slight decrease in license fees earned from customer shipping eReader and tablet products. We have been experiencing declining licensee revenues from Sony and Barnes & Noble, and we continue to see a general weakness in the overall eReader market. However, in September, Amazon released its latest eReader using our touch, and we expect revenues from those -- this customer to come and offset this decline.

Our total operating expenses for the fourth quarter just ended was $4.3 million compared to $3.6 million for same quarter last year. The 17% increase in total operating expenses is due to several factors, including legal expenses related to patent filing, a nonrecurring event, an increase in headcount primarily in our sales and engineering department due to increased activities in the automotive, printer and PC segment. Our net loss for the quarter was $3.1 million or $0.08 per share as compared to net loss of $3 million and $0.08 per share in the same quarter last year.

So, let me talk about the full year 2014. Our revenues were approximately $4.7 million compared to $3.7 million for 2013. This represents an increase of 20%. The increase is related to shipments of printer products, which fully offset the 25% decrease in license fees earned from eReader and tablet product. Our full-year ended revenues includes approximately [$3.1 million] of license fees and $1.6 million of NRE fees compared to $2.9 million of license fees and $800,000 of NRE fees in 2013.

So, total operating expenses were $17.4 million for the 12 months just ended compared to [$15 million] for the same period 2013. The increase in total operating expenses is basically due to the same factors that we previously discussed for the quarter. Our net loss for the full year was [$14.2 million] or $0.36 per share as compared to a net loss of [$20.1 million] or $0.37 per share for last year.

Our operations used approximately $11.9 million of cash during the 12 months ended December 31, 2014, compared to $8.8 million for the same period 2013. As of December 31, 2014, we have cash of approximately $6.1 million, $1.1 million of Accounts Receivable and $3.1 million of working capital. Our shareholder equity is $3.3 million and we have [40.5] million shares of common stock outstanding.

So, also this time, I want to take a few minutes to talk about our liquidity going forward. We still expect our cash operating expenses to be approximately [$16 million] for 2015, which is in line with our 2014 level and also in line with what we indicated at the third quarter earnings call. We have the staff onboard to manage our new growth business segments, particularly in the PC, printer and also automotive markets.

So, let me show one more step. This will average [out] to approximately $4 million per quarter, which is our cash flow breakeven projected for this year. And how do we do, how do we get there? Well, we have our cash on-hand and the accounts receivables plus projected revenues from our existing and new eReader and tablet customers, plus growing revenues for printer, automotive and new PC customers.

We expect our licensing revenues for the first quarter 2015 to increase compared to the fourth quarter 2014, mainly driven by growing revenues from printers with HP and eReaders with Amazon to release products with a touch in Q4 2014, which we will take orders for revenues in Q1 2015. In addition, we expect to continue to receive substantial in repayments and upfront prepaid license fees from PC, printers and automotive customers.

On top of this, we can also bundle our license with a TS-shaped purchase, which will accelerate the license fee payments. Putting all this together, we are confident that we will get to cash flow breakeven during 2015.

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

Thank you, Lars. To recap, we had a lot of progress especially in the automotive, printer and PC space. We signed agreements with a leading PC OEMs and a major Tier 1 automotive supplier. In addition, we see a flood of amazing products with our technology being released to the market.

We also have a roadmap in place that addresses the urgent needs from our customers, such as the new development of the steering wheel, but also low-cost touch solutions for notebooks and monitors. As stated before, we expect to reach cash flow breakeven in 2015, due to the expansion of our PC, printer and automotive customers, of course, combined with our additional revenues from other parts of our business, such as the e-readers.

This concludes our prepared remarks and we open the call to questions. Thank you very much and sorry for the introduction.

(Operator Instructions). Mike Malouf, Craig-Hallum Capital.

Thanks, guys, for taking my question. I want to just clear up a couple of things. With regards to the announcement on the PC OEM, is that something that you are reiterating that happened, because you announced something a month or so ago? Or is this a new license fee transaction? Can you just add a little bit of color on what you are actually announcing this morning? Thanks.

Yes, hello, Mike. Yes, this is the first announcement we did was that we have received the business award. We have been working on this agreement for quite some time and it has taken a little bit longer than expected. But as I said in my script, this means in fact we have an agreement in place with this customer. And with our partners, we're going to deliver modules, hardware modules to their manufacturing sites. So, this is what we have been waiting for in terms of agreements.

So this is a new signing -- this is a license deal with a PC OEM? Is that what it is?

Yes, exactly.

Exactly, okay. And that was -- and that's just announced today?

Yes, exactly.

Okay, great, thanks. And then can you give us a sense of what that covers or what you expect to be on the shelves later this year? I know you talked about monitors as well as All-In-Ones, so it includes -- you have an expectation of both All-In-Ones and monitors later this year?

Yes, I mean -- yes, we're working with all of the OEMs right now with different products. But this customer in particular, we are looking at All-In-One and monitors to come out in the middle of the year. We don't know the exact dates for that, but that's what we are planning for and what we are building for.

We don't expect notebooks to come out with these customers during this year. So it will be monitors and All-In-Ones initially.

Right. And on the monitor side, what you think the plan is for the PC -- for the PC OEM? Is it to introduce it in just one small line of monitors to see how the uptake is? Or can you give us a little bit of color on their plans?

Most of the OEMs today, they have a quite low touch penetration in monitors, because the use case for using touch is quite low. But all of them basically want to have touch in their monitors. And adoption rate I think today is a few percent. We're working on to reverse that to get touch in all of these type of devices.

And important thing here is of course the cost, as I said. But more important also is the optical effects you get, and you want to have a consistent industrial design. So, the reasons you don't see touch in all monitors today is because of these three things. And I think if you look at our technology, we address all of these three things with zForce EDGE and also now the zForce CURVED that make it possible to do curve type of displays.

Right, and as this PC OEM looks out into 2016, do they tell you that they think penetration will be 50%, 100% or 10%? Do they give you any sense of how fast this ramp is going to go for them?

No, they haven't told is that. But, again, the terms, the reason you don't see touch monitors is because capacitive touch that you put in front of the display not only is very expensive, but it reduces the image quality. And if you look at gamers and professionals using monitors, they want to have a certain approvals and low glare type of monitors. And that's not something you can do today.

So, we believe that this technology we have will open a lot of new opportunities for these OEMs to integrate touch. And not only looking at the cost, of course, but that's an extremely important factor.

Okay, great. And then for Lars, could we go back to that liquidity comment that you made? I understand that license fees will be up sequentially, so that's good. I got a good sense of the cost situation. On the NRE side, or any kind of prepayment, can you give us a little bit more color on that? Was there any cash that came in from the Autoliv announcement? Or is there any cash that will or has come in from the PC announcement? Just to give a little bit of help on that? Thanks.

Well, I cannot go into -- Mike, I cannot go into, as you know, the details about the individual contract and so forth. But as you well know, we have been very successful historically in financing our business through substantial and relevant NRE payments and the revenues naturally connected to that.

So, considering that we since the beginning of the year have two new printer customers aboard, we have a substantial (inaudible) aboard and also entering into the PC market, you can, A, assume that, well, 2015, there will be significant NRE fees to consider for Neonode.

Okay, so with the two new printers, the auto with Autoliv and some of the other, I guess, 10 new cars coming out, and of course this important PC announcement, can you give us a sense of what you mean by significant? I mean, just some sort of idea of what that number is in your mind?

Let me answer that if I can, Mike. This is Dave. I think what we are looking at right now contractually is somewhere between $3 million and $5 million on a combined basis from all of these products and customers.

Great, so that's $3 million to $5 million in all of that bucket that will be achieved in 2015 on a calendar year? Is that correct?

Yes, yes. And as Lars said, and I think everybody on the call probably realizes, we can't say specifically who it is coming from. So it is a significant, and in fact more than we have ever gotten in the past, a significant verification of our technology that some of these companies are willing to pay significant amounts of upfront money to get this technology to market.

Great. And do you think we will see any of that in the first quarter? Or do you think it's more later in the back half?

No, I think it's going to be spread throughout the year. There is going to be -- I don't know if the cash is going to come in in the first quarter. The agreements have been signed as Thomas said, so the cash will come in -- it sometimes takes 30 days or whatever for the billings, but then others will come in throughout the year according to the contract.

Great, thanks a lot for the help. I appreciate it.

You're welcome.

Cody Acree, Ascendiant Capital.

And maybe I'm just a little slow on the uptake this morning, but can we just go back to that initial question Mike asked? So, is this a new PC OEM, not the one that was announced via press release earlier? So we are talking about two separate PC OEMs? Or is this simply an extrapolation of the earlier announcement?

Cody, this is Dave. It's the same company. However, it's a completely different agreement. The first agreement that you are referring to was released in December. And that was an initial letter agreement to get the process started while the contract was still being tossed around. So, this is an official signed agreement with this customer related to products, defined products moving forward, and the whole process, pricing, et cetera, et cetera.

Perfect. So pricing is all set. Everything is done here then with this (multiple speakers) --.

Yes, yes.

Okay, perfect. And, Dave, thanks for the clarification on the combination of the cash flows there. Any look at how much of that $3 million to $5 million is prepaids versus NREs?

At this point, we are not willing to talk about that. It's just -- the important part is that it's $3 million to $5 million and it's under contract.

And I guess if maybe you can just help us kind of walk with $6 million in cash today, about a $4 million burn per quarter, not sure if some of those monies are going to come in in Q1, maybe Q2. Does that mean that we get down -- now you have got Accounts Receivable as well -- but does that mean we get down into kind of a sub-$4 million cash position in Q1? Or am I not thinking about that correctly?

No, I don't think that's the case at all then. But that's really a Lars question. I know he has done a very thorough analysis of the cash burn rate, especially with our auditors and with the Board, so he has a lot of -- do you want to take that one, Lars?

Yes. I'd have to add the -- no, we feel we have this very much under control. And very much related to that [revenue], we now have signed up close to Autoliv, PC OEM and to your printer customers. I would say that we have this under full control and that the basic financing and the control over expenses while we have all staff aboard and so forth, it's very good.

And, Lars, what do you -- if you had to look at a minimal cash balance for operations to run the Company on a comfortable basis, what is that -- what's that minimum threshold?

Well, I would say like this that we would never let our cash go below a level of between around $4 million to $5 million. And that's just the way we work when we also have the possibility or the time to negotiate prepaid license fees on top of everything and so forth. But that's our planning, so to say, level.

And, guys, I guess as you look at the second half of this year, not knowing how broadly the monitors are going to be, it sounds like you don't yet have a full visibility. Maybe I'm making an assumption here I shouldn't be making -- but you don't have full visibility as to how broadly your OEM is planning on taking this to their portfolio. I guess I'm trying to get a basically some kind of a view on what this ramp really looks like as these finally start hitting the market. Does it expand?

You expect it to expand quickly throughout the portfolio? Or is the growth more to other OEMs, and throughout their product lines?

We expect to grow, of course. If you look at HP, for example, printer we started with one model and now we have 20 models on the market. Of course, it takes time, but all of these PC firms we are working with don't normally put the highest running in terms of volume model with new technology.

So, you have to work yourself in. And we are now starting with these All-In-Ones and monitors, which is if you look at the monitor, it is a very, very fast market type of project, I would say almost less than six months.

All-In-Ones it is a little bit longer design cycles; it is more like nine months. But if you look at the market and the outlook for All-In-Ones, it seems to be replaced by monitors that has sort of PC functionality. For example, HP has a box you connect your monitor and it becomes an All-In-One basically. And the same with Intel, have a stick that you put into the HD Mi connector in your monitor and it becomes a PC.

So, the transition from All-In-One to monitor seems to happen. And then, of course, all the monitors would need to have touch functionality to support this type of function. So, yes, we see that this is very critical source projects for us to go into all of their products eventually. But of course also the other OEMs we are working actively with the same type of products.

And I guess one of the questions that I get a lot is really what is the consumer appetite for touch? And given the price point and the power consumption, and as you said, some of the quality impact that we've seen from historic technologies, it's hard to see what -- it's hard to know what the consumer impact will be if those impediments are removed.

Do you get the sense that your PC partner and/or partners down the road are kind of wanting to see what's the uptake curve is, if you are not really changing the retail price point or giving them equal features, but giving them the touch as well, that they are wanting to see what consumers really do and take off the shelves before they roll this out more broadly?

Yes, if you start with, let's say, notebooks, people are using that occasionally. And of course, the use case of touch is much lower than, for example, a mobile phone. But still people want it. They don't want to pay anything for it. So, it's quite difficult to charge $100, $200, $300 just to get touch functionality.

And the other thing you see today in notebooks is that, as I said in my script, the power consumption with a touch version of a notebook, the battery life is much shorter. Battery life is very important for notebooks. And with our technology, we barely affect the battery life and we don't create all this glare and other problems. So people get the same sort of look and feel as they are used to without touch.

For -- if you look at the monitor application, use case might be lower -- even lower, but people are not willing to pay extra for putting a big capacity glass in front of their super crisp displays. And they also don't want to pay something for actually reducing the image quality of the display. These other two things is important for us to reach the high touch penetration of -- in monitors.

Not affect the image quality and barely affect the bill of material of when they build the products. If you look at All-In-Ones, that type application, of course, it's the same thing. People use that as a PC, normal PC, and occasionally touch the screen. And if they can select, of course, they want touching it, but they don't -- still don't want to pay so much extra for it.

The other thing I said in the script, which is also important, is that a lot of these OEMs today, they have so many different products and development costs of making four or five different All-In-Ones. And the product lineup is very expensive. So they want to take down the number of different monitors and different All-In-Ones to have also a consistent industrial design look of that. And that's something we actually can do with our technology.

So, it is -- if you look at the touch penetration, it is important to look at all of these factors, not only the cost. And I think with our technology, we address all of these things. And that's why we think it's going to go quite fast.

Thank you very much for that. That's all I have. Good luck, guys. Thank you.

Rob Stone, Cowen and Company.

Thomas, I just wanted to offer one more factor vis-a-vis touch penetration. I find myself switching back and forth between a tablet and a PC notebook frequently these days. And recently, I was attending an industry event and taking notes on my notebook, and I kept trying to reflectively scroll the screen with my finger, and a colleague sitting next to me was laughing, because that's the way I would do it on a tablet.

So, I think there is a use case, particularly with a notebook, it's not very easy to quickly position something on the screen. You can do it very fast with your finger. And to that end, you mentioned that this first customer likely won't roll out notebooks this year. Could you comment on what you are doing vis-a-vis the supply chain that may help support other OEMs launching a notebook solution? Thanks.

Yes, we have really looked at our offerings, what technology we can supply to this market. And we have developed something we call zForce AIR. And this is basically a sensor that fits on one side of the display. And from that center, it creates a touch field. And that can be applied to any flat surface, including a notebook display.

The sensor we have developed for some time now has reached a certain maturity. And we have developed a way to integrate this in a much better way to reduce costs, and make it extremely much more power0efficient and the resolution required and so on.

So, basically for notebook, you could take a notebook that doesn't have touch and apply touch, and it will look exactly the same with our technology. So, people wouldn't even see if there is a touch in it or not, because it be exactly the same experience. And that's another thing that is very important for notebooks.

And the last thing, of course, is the cost we are looking at here. I think, as I said, most capacitive solution of sort of trying to reach $1 per inch display, which implies like $14 to $20 for a 14-inch notebook, we're looking at just a few dollars, I think $3, $4 for also the sensor. And then, of course, we charge a royalty.

And that means we can integrate touch in notebooks and not charge anything extra for it, and then it will look the same, and keep the low weight and the good image quality and so on. And these are very, very important things for getting actually touch in these devices.

So, are there active notebook projects that you're working on now?

Yes, there is.

Great. My second question relates to printers. Could you say, Lars, just roughly how much printers contributed to the total Q4 revenue?

Rob, did you ask about the full year or the -- quarter?

Quarter.

Yes, I will say that for the full year, and actually the value of HP printers have been ramping, for the full year represented roughly some say 25%, but we talk about the fourth quarter, it will be more coming to us, up to 45-ish percent.

Great.

Yes, okay.

That's very helpful. And you've got two more OEMs that you are working with. The same sort of question, Thomas. It took a long time to get the first printer things going. Would you say that the development cycle is likely to be the same with these new customers? Or have you learned some things that might accelerate that?

Just to start with, we actually have three -- working with three major printer companies right now in development for product launches in early 2016. So, we have been in development for quite some time with these companies. And it takes time to get into these products, especially on the low-end type very, very high volume runners. Because it's important when they get to the market that everything works, and there is no return and warranty problems.

We are -- have also learned a lot and we have developed new technologies. One problem historically is, of course, is that when you have four -- like with HP, we have a few platforms, and that platforms to make 20 different printers. The same thing with all of the other companies we work with. And it requires a lot of engineering work for us to customize for each printer.

So, that's why, in this case, we are also using zForce AIR, which is a small module. It looks like a small black box with a connector. And we can take that module and replicate design into several different printers, even without us involved.

So, the scale up and getting these printers quickly on the market will help a lot with these type of technologies. And the same thing we are doing with HP. I think we talked about that earlier that, how do you get into these printers that don't even have touchscreen today? This is really the solution for that. And that's what we have developing now. And then our module partner is going to build that and supply it directly to our customers.

In the same way actually today, we supply our customized ASICs and optical components. So, in this case, we would be more like a highly integrated module, in fact, you can say; just sort of getting printers quicker to market, and lower costs and improved performance.

Finally, turning to automotive, you mentioned that probably going to 10 cars, I think, this year. Are these applications principally a center stack? Or are there other things coming into the car -- some center stack displays?

No, they are all center stack applications. We have other things going on, but we don't expect to see that coming out this year. So with this -- like, for example, on the Volvo, there is a nine-inch display in the center stack. This application is the same with a bit different shapes of displays and different sizes.

Okay. And with respect to Autoliv and the contract you developed the wheel -- as I recall, one of the next milestones was going to be more specific testing of that product. So what might we look forward to in terms of milestones as that project continues? I guess it's still several years away from being in production cars, but what might we see in terms of developments in the meantime?

We are looking at getting this into cars now in different testing environments, impact testing and safety testing and things like that. The next step is to do customized versions for the OEM customers we're working with. And that is the process we do together with Autoliv, and, of course, using all of their experience in this field as being one of the leading steering wheel manufacturers in the world.

And the reason also we work with them is that they have access to and the possibility to make sure that this technology actually gets into cars as quickly as possible. So, we are looking at this year evaluation and testing, and next year actually starting integrating into real cars.

Great. Finally, kind of a two-part cash flow-related question for Lars. So, it seems like your cash consumption is actually significantly lower than $4 million in a quarter. You have got some gross profit there. By my calculation, it is more like $2.7 million. Is that right?

Can you take it again, Rob? Exactly to understand and don't answer the wrong question.

The actual cash consumption is less than your quarterly expense run rate because of the contribution from gross profit.

Oh, yes, yes.

So someone asked earlier, with $4 million of cash burn a quarter, and it is more like $2.7 million. Is that right?

You are right. And actually we also can say that very limited guidance I gave about the first quarter. That we foresee that revenues will increase when it comes to the revenue recognition part of it. So, you are correct. We feel that it is going down.

Okay. So to the second part of the question, Lars, to the extent that the NRE activity is going to be at a record level this year, I know that probably has some costs that are other than headcount. But is it possible that we could see some of what -- some of the costs that has, up to now, been categorized under R&D, showing up within the cost of NRE? Is the same people but the cost being booked above the gross profit line?

Yes, for sure, we can say like this when we move into concrete customer project development project, so for that the cost related to that project is naturally being put into the balance sheet. And then we take it to revenue as the milestones that we have agreed with customers with clear deliverables and so forth. So, that's the way it has been done. Therefore, we naturally have to separate what is pure operating expenses and what is cash expenses as such.

So, might that reduce the run rate of R&D that appears on the P&L this year versus last year?

Yes, I can say that it is quite logical if we say that the NRE's is going [up], driven very much by this projects we have been talking about, that that means naturally that we get more funding for our development work. Because it's not to cover administration and so forth. And that means that more of our own R&D, as well as if we use external consultants or whatever, is getting up to cost of sales connected to those customer development projects.

Great. Thanks very much.

Paul Williams, Millennium Partners.

You guys received a patent -- I have a few questions. You received a white goods patent yesterday. Can you discuss that? And we haven't heard anything about those white good customers that you mentioned a while ago. So, obviously this must have something to do with that.

No, we have been working, and working with different companies in this area. The complexity here with these type of products is that the volumes for each product -- let's say washing machine. Most companies might have 20 different washing machines. And each of them have a quite low volume. And the solution for us for that unit of scale [is up], I guess on sort of a significant volume on it is to use our zForce AIR module.

So, basically instead of us customizing our technology for each of these machines, they can actually use this module as a starting point of their design instead of us continuously trying to change our technology. And then a washing machine can be manufactured as anything from 10,000 to 100,000 to -- it's in that range. But in combined, there are millions of them, of course. And that goes for all other white goods type applications like refrigerators or copy machines, or other type applications.

So, we really have to find the solutions we can scale these up. And this is really the solution we have ready now for it.

Okay, great. And what about the HP ramp exactly with the printers? What -- do you expect to be in the entire product line this year?

No, we are not in their entire product line. We still seal their devices using capacitive touch. We expect and working on getting into some of their key printers, that basically it doesn't have a display and have just a keyboard. And that's why we have developed also such a new technology where we are targeting extremely low bill of material costs. And this is really the cost you're looking at to replace the keypads. And the keypads, as you can imagine, is quite low cost.

So, this is -- important, the interesting thing with this is that the volume is really high. You are looking at tens of millions every year. And this is the next step for us. We're not really interested in supplying really, really high printers that sell 10,000 per year, because it doesn't match our business model and the effort in getting in there. So, we are in the midrange, the high-volume printers that are ramping now, and looking at getting into their other type of applications, which is the low-end side.

Okay, great. And what can you -- a few more questions. Amazon, what can you discuss with them? Obviously, the Q1 revenues are coming. Is it -- is there an estimate? Is it much higher than you have expected with the Kindle sales? And what is your outlook with Amazon moving forward after that?

Hi, this is Dave. We really -- Amazon is extremely quiet about volumes of particular devices. We knew this would be a high runner. And it's -- they have had a nice fourth-quarter on all their Kindle devices. And, of course, that's part of us, so it's been a nice one. And really that's about all we can say about Amazon. They are very secretive about volumes in particular.

Okay, great. And what about Harman International? Is there -- it was in the 10-Q, and is there anything there that we haven't heard? We haven't seen any press releases since it was disclosed as --.

Yes, I mean, that's one of the Tier 1's we are working with in the automotive industry. And we can't really talk about when exactly they're going to launch products because of confidentiality. But all of these Tier 1's we're working with, we actively are engaged with different products which have different schedules.

What we can say is that -- and what we do know is that approximately 10 different cars, with technology from all of these different Tier 1's we're working with, is going to be on the market this year. And you all -- on Geneva auto show, for example, there were cars shown with our technology that hasn't been starting in production yet. So you can see that is quite nicely growing for us with all of these different Tier 1's.

Okay, great. And, also, I guess the white elephant in the room, what can you say about the short seller that's -- whoever they are, manipulating shares for 15, 20 months? There has to be some concern on management's end to end that. Is there anything that you care to share about this? I mean, your cash position, I think you have answered that question. You do not need to raise money, so what else can you share with everybody about this?

Well, I mean what can we say about it, Paul? I mean, their shortselling is part of the market strategy out there, and there are some people who take advantage of it and manipulate it. Free speech is a right in the US. And what we can do about it is succeed through performance on our business model, which we are doing.

And that generally will get the short sellers quiet and let them move on to more fertile ground. That's how it works. And that's where we are right now. That's what this is all about.

Okay, so there is no any type of legal action, let's just say, that you considered?

It's very difficult. I mean, we have talked to our attorneys. We are fully aware of the situation. It's just extremely difficult, extremely expensive, and the best course of business is to succeed on what we are doing.

As Thomas said, we have a strategy -- PCs, printers, auto -- that we think is the right strategy to make the shareholders and stakeholders, the internal stakeholders, succeed in this business. And that's what we're doing.

Okay, great. And what about any relationship with Apple? Is there anything there -- obviously, you can't discuss it, but one of your engineers left for Apple. Is there anything -- was there a reason for that or --?

No, I mean, come on. It is Silicon Valley. The engineers move around from company to company. I don't know if you are from that area, but those guys are -- headhunters are calling every day, right? And the fact is we have hired more than we have lost, and it's just a fact of life in the high-tech industry.

What about your total headcount right now? You said you have hired some other people. You were at [60 at] the last conference call. Where do you sit right now?

It's about 60. We haven't really hired any in the last quarter, maybe one or two. And we have had a couple people, as you say, move on to take other opportunities. And so, this is the sort of the comfort level for us right now, given the projects that we see happening in all of the spaces. And I think we are -- as Lars said in his prepared remarks, we are staffed properly to get the job done at this point.

All right. So, do you also think that moving forward anyway with 2015, what are the potential deals that we might see in the very near-term that you haven't, let's just say, announced yet?

Well, we haven't announced them on purpose. When they happen, we will announce them.

Okay, well, the only reason why I asked you that --

We're working in the PC, printer, auto, eReader, some other spaces, as Thomas said, white goods and some of those. So as those come to fruition and they are announceable, we will announce them.

Right. You also -- on the website, you have another product that you haven't really talked about yet. It's another technology with, I guess, a battery perhaps? Is there anything that -- you haven't discussed that at all yet.

You are probably looking at the phone case. Is that what it is?

Yes, apparently so. Yes. Yes.

That is what we call zForce AIR, which is the sensor that sits on one side. Or it is a sensor that is -- normally you put it on one side of the display, but you can also put it in -- in this case, it's a case for a mobile phone. And you can touch-enable the surfaces outside of your device for playing games and things like that.

So, this technology is not unique; it's just one application to what you can do with it, that we put on the website. You can put it in a washing machine. You can put it in a notebook. You can put it on any flat surface and touch-enable that. And that's really what we do. And we work very closely with our customer to get new ideas what they can do in new technology.

Okay, great. So, 2015, this is going to be, as far as the revenue ramp, we expect this to continue for the remainder of the year. It sounds like everything is in place for that?

Yes.

Okay, thank you very much.

Okay. Thanks, Paul.

[Delgallo Dint], DFS.

Thanks for taking my question. I have a few questions for you. One, what percent volume increase per quarter are you expecting for 2015 for auto and for printer?

And then auto and printer, which product do you make more revenue per item that you sell?

And then the third question I would have would be just to clarify on the last caller. Will prepayments from companies be enough to avoid a capital raise? Or do you anticipate a capital raise in 2015? Thank you.

Okay, so you threw three of them at us there. And let's see if I remember them. What percentage would we get from each market segment, I guess, is what you're saying, over the course of the year? And that's really forward guidance that we are not prepared to offer.

Lars presented the only information in his prepared remarks that he said, I believe, that the first-quarter revenue will exceed the fourth-quarter of last year. And that's as far, at this point, as we are willing to discuss. And the reason is really simple, and we talked about this on prior calls. We do not issue purchase orders. The OEM is responsible for product release, the timing, et cetera.

They tell us what their plans are, but whether they stick to those or miss it by a month or come early a month, we have no control over that. So, it's just -- it's a fool's errand to try and guess and announce on that.

So, let's see, what was the second question again, Lin?

Just auto or printer, which product you make more revenue per item?

The -- certainly the license fee on auto is significantly higher than printer. And the reason is because the complexity of the product offering is significantly higher for auto than it is for printer for various reasons -- safety concerns, redundancy concerns, size, all of those things make it a more expensive project. So, it's auto for sure.

Okay.

And the last question again, if you could repeat that?

Yes, the last question -- there was some talk about burn rate and some other items in (multiple speakers) --

Oh, okay, are we going to do a capital raise.

Yes, capital raise is the big thing.

Yes, I know. And I think Lars over the last two conference calls has answered that pretty definitively, saying we have sufficient cash -- we believe we have sufficient cash right now, from all of those sources that he laid out, to be cash flow positive, which means, no, we're not going to do a capital raise at this point. We have no intention. And within our viewfinder right now, we don't see a need to.

Okay. I mean, have you had any -- I am sure it is probably tough for you to answer -- but any companies come and approach you at all in terms of maybe breaking apart the Company a little bit? I mean (multiple speakers) --

No. I mean, if we did, we wouldn't say it anyway. But, no, the answer is no.

Okay. All right. Well, thanks for taking my call.

You're very much welcome.

And there are no other audio questions at this time.

Okay.

Do you have any closing comments?

Yes, of course. Sorry for the introduction and this bad audio, but we want to thank you for joining us on this call. And we believe it is a very exciting time for us going forward. And we will keep you posted on our progress as it happens. So, have a good day and thank you very much.

Thank you. That does conclude today's conference call. You may now disconnect.