David Brunton - Head of Corporate Investor Relations Thomas Eriksson - Chief Executive Officer Lars Lindqvist - Chief Financial Officer Remo Behdasht - VP Business Development and Strategic Alliances.

Robert Stone - Cowen and Company, LLC Mike Malouf - Craig-Hallum Capital Group LLC. Jared Cohen - JM Cohen & Company Viktor Westman - Redeye Thomas Zeifang - Lucrum Capital LLC.

Hello, everyone. Thank you for standing by. And welcome to Neonode’s Fourth Quarter and Year Ended December 31, 2016 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 introduction, I would like to turn the call over to David Brunton, Neonode’s Head of Corporate Investor Relations. David, please go ahead and start the conference..

Welcome and thank you for joining us. On today’s call, we will review our fourth quarter and fiscal 2016 financial results and provide a corporate update. Our update will include details of customer activities, technology developments, and other items of interest.

Before turning the call over to Thomas, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call, other than historical facts, are forward-looking statements.

The words anticipate, believe, estimate, expect, tend, will, guides, confidence, targets and projects, and other similar expressions typically are used to identify forward-looking statements.

These forward-looking statements do not guarantee the future performance that may involve or be subject to risks, uncertainties or other factors that may affect Neonode’s business, financial position and other operating results, which include, but are not limited to the risk factors and other qualifications contained in Neonode’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other reports filed by Neonode with the SEC to which your attention is directed.

Therefore, actual outcomes and results may differ materially from what is expected or implied by these forward-looking statements. Neonode expressly disclaims any intent or obligation to update these forward-looking statements. At this time, it is my pleasure to turn the call over to Thomas Eriksson, Chief Executive Officer of Neonode.

Thomas, please go ahead..

Thank you, David, and good day, everyone. First, I would like to introduce the people we have on the call today. We have Lars Lindqvist, our CFO; and Remo Behdasht, our VP of AirBar business. They will provide an update on the respective responsibility areas during this call and I will provide an update on our business and final remarks.

We will start today’s call with some comments from our CFO. Lars, go ahead..

Thanks, Thomas. You can find our fourth quarter earnings release and 10-K available for download from the Investor section of our website at neonode.com. I am very glad to report that our licensing business have had strong growth in our printer and automotive markets and to reach our operating expense target of $3 million per quarter.

This brings our fourth quarter very close to profitability. Added to this we started shipping AirBar. Our business has three revenue streams based on a common technology platform; licensing, embedded sensor modules, and branded products. I am going to start by updating you on our fourth quarter and fiscal year 2016.

License fee revenues, our overall license revenues increased by 33% compared to the fourth quarter last year with a strong growth from our printer customers whose revenues increased by 99% compared to the fourth quarter last year.

On a quarter-over-quarter basis, printer revenues increased by 49% primarily due to an additional large printer OEM who initiated it’s first shipments and generated approximately 500,000 in license revenues in the fourth quarter. Total printer shipments for the full-year increased by 56% to 8.8 million units compared to 5.6 million units in 2015.

Total printer license revenues in fiscal 2016 grew by 64% to $4.3 million compared to $2.6 million for last year. Our automotive market continued strong growth with 45% increase in license revenues for the fourth quarter compared to last year. On a quarter-over-quarter basis, our automotive license revenues increased 47%.

The number of vehicles increased by 67% to 247,000 units in the fourth quarter of 2016 compared to 148,000 in the fourth quarter last year. Total of vehicles shift for the fiscal 2016 increased by 167% to 944,000 units compared to 353,000 units for fiscal 2015.

License revenues increased by 127% to $2.3 million for fiscal 2016 compared to $1 million for last year. Revenues are determined by the mix of license fees charged to individual customers. We expect volume in license revenues to continue to increase as a customer release new products.

AirBar, in the fourth quarter of 2016, we started shipping our first brand new consumer product that embeds one of our sensor modules to 15.6-inch AirBar for PC, notebooks to Ingram Micro. I think it's important that everyone has a good understanding of how we record the revenues related to AirBar sales.

The sales of AirBar to our global distributor Ingram Micro.

As part of the transaction Ingram has a right offer a ton related to any household inventory that we previously partially, we are therefore using the sell-through method of accounting for revenue recognition, which means that any product that is sold to Ingram and which they have in stock at the end of the quarter has to be recorded as deferred revenues in the balance sheet.

Pursuant to our revenue recognition policy, we recorded $149,000 of sales, revenue and approximately $254,000 of deferred revenue related to our AirBar shipments in the fourth quarter. Thomas and Remo will discuss AirBar in more details.

NRE, we do not expect NRE to be a significant portion of our total revenue going forward because we will work on a fewer full custom design projects as we move from pure licensing to selling more standardized modules.

The decrease in NRE revenues was expected and our fourth quarter NRE revenue is almost entirely related to automotive sensor modules design. Gross margin, our gross margin increased significantly in 2016 compared to 2015, primarily due to 100% gross margin license fee becoming a larger portion of our total revenue.

In the fourth quarter 2016, our gross margin was 89% compared to 39% in the same quarter of 2015. Gross margin for fiscal 2016 was 87% compared to 66% for fiscal 2015.

Operating expenses at the beginning of 2016, our quarterly operating expenses including those capitalized into customer development projects, but averaging approximately $4.4 million and we targeted $3 million in quarterly operating expense by the end of 2016.

We reached our target and our total operating expense about $3 million for the fourth quarter of 2016. Operating expenses for fiscal 2016, total US$14 million including investments of $1.1 million of pre-production manufacturing start up costs and approximately $800,000 on non-recurring expenses related to final development of the new NN1003 ASIC.

Net loss, our net loss for the fourth quarter 2016 was $431,000 or $0.01 per share, compared to a net loss of $2.6 million or $0.06 per share for the fourth quarter in 2015. Our net loss for fiscal 2016 was $5.3 million or $0.12 per share and 32% decrease as compared to a net loss of $7.8 million or $0.19 per share in fiscal 2015.

As of December 31, 2016, we had cash of $3.7 million and $1.5 million of accounts receivables. Now I'd like to turn the call over to Remo..

Thanks, Lars. Good morning, everyone. I am going to give you an update on our AirBar business. To-date our activities with AirBar have been all about seeding the market and establishing our sales and distribution channels in preparation for our global rollout.

This has been a controlled process to test consumer acceptance, get press coverage and optimize our production processes. Like all new consumer products, we knew that one of the primary keys to achieving our goal with AirBar would be to build wide and varied sales and distribution channels in our target markets.

This process takes time and perseverance and I am extremely happy to announce that our plans and hard work is paying dividends. In 2016, we signed agreements with Ingram Micro, the world's largest technology distributor. Ingram provides seamless inventory and fulfillment services for the largest global technology retailer.

Our agreements cover distribution of AirBar products in the U.S., Europe, Asia and India. We started our limited AirBar rollout in late 2016 with Ingram U.S. For our market entry, we selected the U.S. due to excellent relationship with Ingram, overall market knowledge, market size and ease of entry.

In December 2016 with support from Ingram, we had the leading online retailers go live selling AirBar. This included Amazon, Best Buy and Walmart. I am happy to announce that in the second quarter, we will begin shipping to the leading retailers in China and India.

And we will start seeing bundles with Dell, Media Markt in Germany, Walmart and other retailers. When retailers bundle the AirBar with a laptop at the point of initial purchase, we benefit not only by the actual sales, but also we gain credibility and branding exposure by association.

I am very excited to say that within days we will go live on Dell.com in the U.S. and will lead to an incremental expansion to other Dell global websites in Europe, Asia and India. This is a major milestone for us.

In addition to expanding into new markets by mid April, consumers will be able to purchase the AirBar specifically designed to touch enable Apple MacBook Air 13.3-inch. Nobody in the world is touch enabling Apple Notebooks like Neonode, nobody. In April, we will begin shipping the 13.3 and 14 inch sizes for AirBar for Windows 10 laptops also.

During the Apple Authorized Reseller conference last week, we demonstrated the one and only AirBar for MacBook Air and the feedback we got from the event was that AirBar is a hit! Even an Apple executive told us that AirBar was one of the coolest products he has ever seen.

This in combination with the great media coverage we received from Engadget is very gratifying after all the hard work we've put into developing this unique product.

Now that we have a substantial portion of our global distribution and retailer presence in place, we are ready to begin the next step of our sales and marketing plan, which has just begun. And this will be to begin the ramp up of our marketing activities primarily using social media and retail promotion.

We will keep the market updated on our progress throughout the year. I will now hand you over to Thomas. Thank you..

Thanks Remo. Let's start with an update on our business units. During the last couple of years, we established great relationship with some of the largest OEMs and Tier 1 suppliers in the world.

To expand our relationships, we are adding another revenue stream to our current licensing business, by selling embedded modules for integration into our customer’s products. I will go into some details about our progress. Our automotive license business continues to generate growing revenues with several new car launches ongoing and announced.

The latest edition is the new Volvo XC60 which is the SUV with the highest volume in Volvo’s lineup. Suzuki has reported quantity growth which has good impact on our sales especially with the Vitara and the new Swift model. Other OEMs will also be releasing new models into production in 2017.

Meanwhile, the customer’s feedback we received on the new zForce AIR sensor modules for automotive is that they are easier to integrate, have both less technical risk and offers more freedom of design. Meaning faster time to market and lower costs for our customers.

Our sensor module sales focus with our automotive customers is solution for steering wheel, entry systems, interior doorframe sensing and infotainment system applications. We are currently involved in several large automotive products ranging from steering wheel sensor to door handles and infotainment system touch.

In the fourth quarter, we announced the supply contract for entry system sensor module with a U.S. based auto OEM that could be worth up to US$11 million. A typical agreement for sensor module will include annual volume estimates, delivery dates, unit pricing and other details.

That will provide us with the forecast to manufacture and ship sensors to our customers. We expect per unit price for our sensor module to be significantly higher than our current license fees.

By selling a module we are capturing the revenue and profit from the whole value chain of the product including design components, manufacturing know-how and supplies chain management. The good news is that we can fill important gaps in the industry technology roadmap and our technology has started to gain good foothold.

We expect to close similar sensor agreements with automotive markets in the coming quarters. Our zForce DRIVE sensor technology marketed by Autoliv continues to attract attention from leading OEMs as they quickly moving to development of assisted self-driving cars.

Right now there is a real sense of urgency in the whole automotive industry about self-driving cars. Our steering wheel sensor are an important component that will make self-driving cars a reality.

The number of sensors in the car has increased dramatically and have become critical components to bridge the communication and interaction between the real world and the internal, external systems of the car.

To meet the supply requirements of the automotive industry, we are in the process to build an automotive qualified manufacturing facility and are exploring opportunities to scale our module production both internally and also with our manufacturing partners. And now I’ll begin update on our printer business.

The number of printer customers who license our technology increased in 2016. We now have three customers shipping printers with our technology. We expect two other major printer OEMs to start shipping printers in 2017. We believe license fees from our printer customers will continue to increase during 2017.

These new printers go into production and are shipped to markets around the world. We have been developing multiple standard sensor modules for various customer products to provide our customers with a migration path from a custom design system to purchasing a simple hardware module that will enable full function touch in guest Operating Systems.

We have been showing our modules to key OEMs and have started to receive some initial limited purchase orders from some of these OEMs. For sensor modules they allowed them to begin evaluation and design activity is targeted to embed our modules into selected products.

We do not expect these development activities to generate significant revenues in 2017 and expect revenue from our embedded sensor modules to start to ramp in 2018 timeframe. And now a little bit on development on our manufacturing activities.

We focus our investments in 2016 on developing the building blocks for our embedded sensor modules for the future and we have developed our manufacturing processes and have been expanding the capacity of our manufacturing facility. We see our factory as a product in itself, where we build our sensors in high volume with very high quality.

The first product that uses our embedded module is AirBar. We started with a 15.6-inch AirBar. We are now in the process of rolling out new sizes of AirBar that use the same sensor module and manufacturing process as the 15.6-inch version.

To scale across many applications, while adding new functions and features, we have developed a technology platform along associated manufacturing processes that can be used to create new sensors for multiple markets and applications. This is to assess of our new hardware revenue streams.

And also very excited about the future of Optical Technology and an interesting development is to be together with a Company from Sweden called SmartEye.

Through a joint venture we are in the process of developing advanced highly integrated modules that combine touch sensing, gestures and Eye tracking at the same time and that will address both the consumer and automotive markets. With these products we’re targeting 2018 product launches.

This concludes the prepared remarks and we open the call for questions. Thank you..

[Operator Instructions] Our first question comes from line of Rob Stone of Cowen and Company..

Hi, guys, a lot of good stuff going on. I had a couple of questions about AirBar production first Thomas. One is, it seems like maybe you got started finally with production fairly late in Q4.

Can you give us a sense by now what your sort of run rate capacity and yields look like?.

Yes, capacity since last year is at full capacity. So we’re building according to demand and going through the sales of AirBar. So we run our factory in either one or two or three shifts depending on the volume we produce..

Okay.

Can you say that’s you're assuming demand keeps increasing, what is the capacity of your current sort of – I recognize that varies by the size of the module of course, but just roughly?.

Yes, with the maximum size we can produce at this point, which is 15.6-inch we can produce approximate to 3,000 units per day or 24 hours..

Okay. And then I'm curious, I believe you started in direct sales via Ingram, but didn't you also have some direct sales, queued up from consumers.

I'm just curious about the maybe this is a Lars’ question about the mix of direct versus indirect revenue in the fourth quarter for modules?.

Hi Rob. It's Remo.

How are you?.

Fine.

How are you?.

Good, thanks. So I'll answer that. The actual online preorder sales that we had going to get a test for the market actually represented a very tiny percentage of what we shipped to Ingram.

Essentially that was more an experiment than anything else if a product such as this has any place in the market and there's a demand for it and we verify that they was, most of those orders actually came from India, most of them. The Indian market has really - AirBar has resonated with the Indian market.

So we're looking forward to actually addressing a lot of – and shipping a lot of those preorders in India in the next month or so. Once we start shipping directly to Ingram in India. But those preorder numbers are very small compared to what we shipped to Ingram in the U.S..

Okay, great and finally maybe one more question that is for Lars. You hit your $3 million quarterly operating expense target. The business is set to continue growing nicely this year it looks like with your licensing business growing in AirBar and other modules just being started.

How do you feel about the run rate of expenses for this year and what would eventually cause your expenses just start to rise again?.

Yes. Hi, Rob. Lars here. Well I think that the plan to reach the $3 million as we adopt that has been concluded and we expect that it will most likely be a slight increase related to the sales and marketing activities that we now are moving into for AirBar sales. So that's it.

Otherwise I would say the fine-tuning with us moving from licensing in this time to modules and with their cost efficiency program and other things that has really given good results..

So how should we think about the plan increase for sales and marketing?.

Yes, basically I’d say in my modeling as I do that we're looking for basically say in that we need most likely to get this real deploy. We made all the preparation now have the stage set and we assume that an investment of 10% of AirBar sales revenue is what this needed to make this happen.

So that is basically according to have structured to start up and we introduced sales and marketing of press like Engadget being backed up to volumes which we target..

Okay. Thanks. I’ll jump back in the queue..

Our next question comes from the line of Mike Malouf of Craig-Hallum Capital..

Great. Thanks for taking my questions.

With regards to the Dell.com, are this going to be like a just as in the accessory area for Dell.com or is this going to be more integrated when you buy a non-touch laptop, for example is it going to be a dropdown, add-on at the point of sale or just can you talk to us a little bit about that opportunity? Thanks..

Hi, Mike. Yes. Actually there will be a number of ways that we're going to be working with Dell. The first initial appearance you'll see is when a consumer, a customer goes to Dell and purchases given non-touch laptop within a certain price range. Part of the process that will be taken is going to be – that we presented with AirBar.

So that’s actually one of the reasons why it's taking so long because every specific product is now going to be picked, someone at Dell is actually picking every specific product that for which AirBar will appear or not. So it's no use if it appears if someone is actually buying a touchscreen laptop. So that's going to be the first one.

The next one is going to be targeting specific categories, so Dell has just announced an Inspiron range specifically for gaming. Now gaming laptops are high in price and this is a bit of a cash cow for the retailers at the moment, for the OEM's as well as the retailers.

The lower ones that you can now buy a laptop for like $200 to $250, no one's making any money on that.

However, the range of the laptops of the gaming ones, which is a bit of a hero for a lot of the PC OEM’s, they're the ones that they actually – that don't have touch because the gamers don't want a glass in front of the 4K resolution display and also the scanning speed they require, Capacitive touch technologies does not offer. Whereas we do.

We are invisible, so this is something that we can offer and gamer would be very glad to spend it on something like that, so they will be doing tougher bundles for specific devices.

So the other one will be instead of reducing a price on a specific laptop and taking a cut in the margin, they essentially keep it at that price and they could bundle it with a free AirBar.

So data type of different activities we'll be doing not only with Dell, but also with Walmart, so Walmart will be our first big retailer that's going to present AirBar as an optional accessory to a number of their high volume laptops at a certain price range. So this for us is pretty exciting because they're really going to go hard on this one.

So, yes there will be a number of different opportunities for people to see this product on Dell.com..

Okay. Great. So bundling with Dell and then I guess bundling as well with Walmart for the first time. That's great.

And when you take a look at other bundling opportunities with other OEMs, for large retailers are there some others in the pipeline with regards to that?.

Absolutely. So they're the first and then we're going to duplicate that same type of model throughout Europe and for example India as well. And the good thing about AirBar is that each one of these big retailers have an existing customer base of people who have already purchased the specific laptops.

They know who has purchased the 15.6-inch non-touch or 13.4-inch or 14-inch. And they know who's purchased MacBook AIR 13.3-inch, so we're going to work with them to target these specific existing users as well and really focus on getting these people to buy an accessory. Dell is very, very big on something like that.

They're not just presenting this product for people who are buying a new laptop, but they want people to come back to the Dell.com website, people who have just bought a 13.3-inch, for example last week or 15.6-inch the week before. They want them to return back to the website and have a repeat customer..

Got it. Okay, thank you. And then just a question – just a follow-up question on production. Thomas you said that right now we're at 3,000 and that's full production and I'm assuming those are at high yields as well.

Can you comment a little bit on the yields that you’d been experiencing and for how long have you been at 3,000 as a whole unclear about that answer? So I guess at 3,000 per day the real constraint to sales of AirBar is more sell-through then production at this point? Thanks..

Yes. As Remo talked about, it takes time to build this business and as we ramp we do also mentioned that our factories, the product that we develop and continues to develop to make more efficient and better and eventually also scale it or good partners to duplicate this production process.

But, going back to the yields, we are at 95% yield approximately today and yes, last year I would say we hit our full capacity. At that point, we have to run one shift, but if we are running now three shifts we can scale up to 3,000 a day or approximately 100,000 per month.

So we believe we can – with this production I’d be able to produce enough units for our targets for at least AirBar for 2017..

And can you remind us what those targets are again?.

Our target is roughly 500,000 units for this year. We believe however it would be backend loaded, still ramping and also we just begin those sorts of marketing, our big marketing push for AirBar and of course actually going to start spending some money on that as well..

Okay, great. And then just one follow-up one for Lars, a little unclear about the sales and marketing answer.

So if I understand it right, we've done a really good job of keeping G&A down, so you think that will remain steady from the fourth quarter and that R&D will remain steady throughout 2017, but that sales and marketing will rise to what level again?.

Yes. Mike, we expect that when it comes to the R&D, when it comes to G&A and all those things that we are geared into a level we feel we can operate and manage the new – not new business model, but the added business units to the licensing so to say.

And on top of that and what we are reviewing with Remo and really making reality is the sales and marketing. We know it will be needed and we elaborate it will figure around say 10%, but that will also be not one-time sort to say, it will be an evolution of every activities that will be implemented, so we will do it in a smart way..

10% of the overall revenue?.

10% of the overall AirBar revenue not overall for licensing, all AirBar revenue and I guess you also noticed that we increased the price for the AirBar and part of that it's actually skewed that there are some availability co-founding for activities together with our partners like Ingram..

Okay, so I'm just going to ask one more follow-up on that. So I make sure I understand.

So if you were doing around $700,000 in the December quarter, how would you think that trends over the next four quarters on an absolute basis?.

I anticipate that it's not to be – you need to make the investment on beforehand. So I would say in my modeling are basically say that it would be one quarter before it simplified terms.

But they had to combination of different that AirBar that we need to see, it's not just one thing, so many different things that Remo is more confident guide to describe..

Okay. All right, thanks..

Our next question comes from the line of Jared Cohen of JM Cohen & Company..

All my questions were answered. Thank you..

Our next question comes from line of Viktor Westman of Redeye..

Hi, guys. Thanks for taking my questions.

Can you hear me?.

Yes, we hear you..

Yes, okay. Thank you. And so and I asking on the AirBar.

I think that revenue per unit if I'm calculating right is $16, $17 approximately and who picks up the balance if you compare to the price – is that Ingram all of it?.

Viktor, it is Lars here. I think you’ve got the calculation to model little bit wrong because it's not, when we're talking an 9,000 units, we shipped 9,000 units and if I talked about in my prepared remarks that we do not record revenues for all of that. $149,000 basically it was revenues and $250,000 was deferred revenues.

So all-in-all you get another calculation if you add those numbers together..

Okay, understand. Thanks. And regarding the module business there, will you always you’re bypassing your customers.

Are you competing with your customers there? How do you see that problem? How do you have the solution for that could have for instance, are you going to continue selling licenses with your closest customer and then compete with others?.

Yes, first of all we don't compete with our customers. So we have our base of licensing as a foundation of revenues. That's going to continue to grow that we talked about. And that is basically that we license our technology and our customers build our model themselves.

So what we have changed and implemented is that we now make it much easier for customers to just take a finished sensor that we produce, and directly integrate into their product, which means that they can put the products much faster than the market. Eventually that means for us a much higher dollar margins, it means don't typically licensing.

So if you take automotive, it could be $3 and the module could be $30, so just like 10 times increase the revenue. And it also means on top of that the higher revenue for us in the end of the Company.

So licensing which also has a typical 100% gross margin, I think be around 87% for last year will go slightly down with modules to an expect about 50% to 60% margin on these models. So we're not competing with our customer actually helping our customers to get their products faster out of the market and simplify integration..

It is fair to say that infotainment sensor modules are many years away in time and modules you’re going to sell now that's addition that I think the door handles and tailgate and that stuffs?.

I would say first on our licensing business that’s ground and then for automotive and on top of that we are working on steering wheel applications and that’s being going on for quite sometime, that’s one module. Then we have infotainment system, yes we have our licensing customer in a market, what we do is we try to migrate them to use our modules.

In addition to that we have our entry system, which is a module that we are working on or being working on for quite sometime with some large customers. We also announced our first quite a large business deal with large U.S.

OEM for entry system and tailgate sensor couple of months ago and that’s something we will see shipments of the very late this year or late 2018. So it’s not something that’s going to take several years and actually just starting to happen as we speak..

Okay. Thanks. One last question and forgive me if this is a stupid question, I’m wondering why don’t you sell to more global launch that automotive OEMs there.

Is that just a question of time and there has not been enough tenders for you to win or something else?.

We basically adjust our market and of course when we started this business a few years ago, it takes time to grow the customer base and of course there is competition out there for sure.

I think the interesting part is that a lot of automotive OEM is now start to see our products coming out on the market and that’s of course helps our sales for incremental growth as we can use them as a reference to get the next customer.

And that's something you can see a result in our printer business, so we started with getting into HP in one printer and then started in 50 printers then we scale that to number of OEMs now and that's been growing quite nicely. And that's another business we target to get them to migrate into modules.

So the deal looks basically like we shipped around 8 million to 10 million printers per year and that goes from a sub $1 business per unit to maybe $3, $4, $5 business per unit business, for modules.

And I would say our customers are primarily in the automotive business, our Tier 1 that supply to the automotive OEMs, but also OEM type of applications and a few large OEMs in the end. So we are working with basically everyone there and I think you would see some quite a lot of interesting stuff happening as we go forward..

Thank you for those inputs..

Thank you..

Our next question comes from line of Tom Zeifang of Lucrum..

Hey guys. Can you help me understand capacity versus production? How much are you guys currently producing on a daily and weekly run rate as we speak today.

We only have two weeks left in the quarter?.

We produce according to demand and currently this is early stages, we are starting to do marketing.

We shipped around 9,000 last year and that’s something we will expand and go forward, but as Remo was talking about regarding AirBar, which is really the first customer for our modules is going to be very backend heavy for this year in terms of volumes..

So you’re not going to tell us how many units producing on a weekly basis currently?.

No, we don’t have that update. We will have an update for next quarter and we are not going to pre announce the quarter at this point..

So how easy is it to switch form factors from the current one to the Apple to launch in April?.

In terms of the hardware it’s very simple and part of the process we developed for our factories, so we currently actually produce modules a small as – 10 times smaller than the largest one. And that goes now into distribution for our modules that we are working on with some large distributors.

So that production round is in the pipeline, so we can shift dynamically between different sizes and then different types.

Regards to the MacBook AIR version is more a cosmetic changes and software changes that’s done inside of the module, so basically using the same components, basic building blocks and in terms of optics laser components and our own components to build the modules..

So you can do that – I think the word you use is it dynamically? You can do that with intra shift within a shift you can easily change from one form factors than the other?.

Yes. We typically build batches according to orders and that can be small to large quantities which is the good part of having control over your own factory. You don't have a minimum order quantity which typically were busy case if you are working with a large external company like Foxconn or someone like that.

So we can dynamically switch in and basically all of these modules are using the same components, it's just a substrate change to make it happen..

Okay.

Have you started a second line yet?.

We are working on the next production line which would be an automotive qualified production line. So we believe this line will be sufficient to support up to 1 million AirBars for this year. We are in the process of becoming a qualified automotive supplier, we already historically been shipping to Volvo modules directly actually.

And this is the process ongoing. We expect it to be in place, but end of this year and our first customer that we are going to ship to we already announced. So this will be completed as separate type of line which basically using the same method, but in terms of qualification is a bit different..

And have you explored going to contract manufacturing route?.

Yes. We are already working with actually some of our partners to scale and primarily we're looking at the more low cost type of sensors because as I said earlier, we are working on to get our printer customer, [elevated] customers into using modules and they typically use more low cost version of that.

And that's something we're working on with some Asian companies. And again it's the same principle of building, but a little bit different strategy in terms of resolution, but the sounds they can be more suitable for these application is also the price range they’re looking for..

And so should we expect some contract manufacturing this year?.

I don't know what you mean by contract manufacturing, but we’re working with companies in the manufacturing space, which our contract manufacturers today, today take our product, which is the factory we have done and the process we have developed to take that and duplicated to produce and scale in terms of volumes because if you look at it, if you're going to produce 10 million units per year approximately 1 million per month and the current line capacity is 100,000 to 150,000 or 200,000 for small per line, which means that we need to expand the business..

Okay. And then one last question I’ll get into queue.

Lars, should we expect to be cash flow positive every – give me some sense of cash flow positive, cash flow negative throughout the year?.

Lars here, I always say what is very nice that we could report that cash used by operations is very close to breakeven and we have down significant capital investment in manufacturing and development already. So I would say yes, we are in a good path..

So is that cash flow positive for the year and through every quarter or can you help me out?.

Yes, I will not give any guidance now, I think we've shown today that we are in a good path to reach them, and it all that is based on that – we expect base license fee revenues to continue to grow.

We do not expect a material revenues from embedded modules sales in 2017, we sales of AirBar, which we think backend loaded as the [indiscernible] we are started to marketing activities, so we’re keep in it tight..

Okay, thank you..

[Operator Instructions] Our next question is the follow-up from Rob Stone of Cowen and Company..

Hi, Thomas I had a couple of follow-ups related to the auto segment.

Could you just remind us how many vehicle models are shipping with technology by now and do you have sense of how many new models are expected this year?.

Yes. That’s something that continuously growing and we don’t really exactly know when that new car is coming out, but we are in over 30 different car models plus 10 different OEM. I think about 36 correct numbers at this time. So we will see cars coming out continuously over the year and the number of cars in production growing for 2017 and 2018..

Okay. And my follow-up question is Lars you mentioned in your prepared remarks that NRE is unexpected to be a material contributor or significant contributor to overall revenues going forward, but it sounds like you still have some automotive projects and NRE related specifically to automotive modules.

Can you give us any sense of I guess NRE won’t be zero this year, so can you provide a flavor and is that going to be something that continues for a while or it was done in the next couple of quarters or something like that?.

Hi, Rob. So yes, let me draw on that, I would say that I mean we talked about and discuss is that I mean leaving the license or the full capital is moving into modules, when it comes to the automotive they are being a high degree of complexity and long lead time and so forth. So we know that we have the entry system project. We know we have this U.S.

OEM customer to take us [indiscernible]. So I expect that never still be NRE is going forward, but at the lower portion than historically when we did it all for the printers and so forth. I think that will be NRE, it will now be in huge amount, but it will be, but we calculate our model down basically with zero margin.

So for us they are more customer financing of long lead time complex projects..

Okay. That's helpful. Thank you very much. End of Q&A.

Thank you. I’d now like to turn the floor back over for management for any additional or closing remarks..

Thank you, everyone for listening in. Very exciting time for Neonode. I want to thank you everyone for joining us on this call and I’d like to thank you and have a very good day. Bye..

We want to thank you all for joining us for our call. Have a good day..