Neonode Inc. (NASDAQ:NEON), the optical interactive sensing technology company, today reported financial results for the three and nine months ended September 30, 2016.

Highlights:

“Our business model is based on generating revenue from three sources; royalty based license fees, B2B sensor modules and consumer products incorporating our sensor modules. We have built a scalable, fully automatic manufacturing process to build our sensor modules. We can expand and locate these manufacturing facilities anywhere in the world. Our first consumer product is AirBar. Our partner Salutica Allied Solutions, does the final assembly and packaging of AirBar and ship it to Ingram Micro for both the U.S. and European markets. We made our first shipments of AirBar to Ingram Micro U.S. and Europe for online distribution and they now available for purchase”, said Thomas Eriksson, Neonode CEO.

“Our automotive market presence is expanding with new product offerings. This quarter we signed our first B2B sensor module supply agreement with a U.S. based auto OEM taking a significant step towards expanding our automotive market. We are growing our business beyond infotainment systems by supplying sensors for door handles, car and truck tailgates and steering wheels”, continued Mr. Eriksson.

“To complete my remarks, we are finally starting to see some rewards from the work we have put into growing our licensing business in the printer markets. Canon and another U.S. based printer customers have begun their initial shipment of printers and we now have customer diversification beyond HP. We have been engaged with these customers for the past couple of years and expect this to have a positive impact on future revenues beginning in the fourth quarter of this year”, concluded Mr. Eriksson.

 Financial Results for the three and nine months ended September 30, 2016

Our net revenues decreased by 47% from $3.1 million to $1.6 million for the third quarter 2015 compared to the same quarter in 2016, respectively. The decrease is primarily due to lower NRE fees recognized in the third quarter 2016 compared to 2015. The decrease in NRE fees was expected and is due to the transition from custom design solutions where we collect up-front fees to standardized sensor modules which require limited to no custom design services. In addition, there was an overall 20% decrease in license fees from $2.0 million to $1.6 million in the third quarter of 2015 compared to 2016. This is comprised of a decrease of 64% of license fees from our E-reader and tablet customers, which was partially offset by an increase in license fees from our automotive and printer customers. The decrease in license fees from our E-reader and tablet customer is primarily related to a one time revenue recognition of $0.7 million of license fees from a customers who discontinued their products in the third quarter 2015. We experienced some challenges in our automotive market in the third quarter due to a 46% decrease in the sales volume of one of the most popular SUVs in China. We are therefore revising our previously stated goal of reaching 1.3 million cars with our technology in 2016 to be in the range of to 1.0 million to 1.1 million cars.

The 10% decrease from $8.2 million to $7.3 million of net revenues for the nine month period 2015 as compared to the same period in 2016 is primarily due to a decrease in license fees from E-reader and tablet customers and NRE services from all segments, partially offset by an increase in license fees from automotive and printer customers.

Gross margin as a percentage of net revenue was 71% and 76% for the three and nine months ended September 30, 2015, compared to 98% and 86% for the same periods in 2016, respectively. The increase in gross margin is due to a higher percentage of 100% gross margin license fees in our total net revenue in 2016 as compared to 2015. Operating expenses were $3.7 million and $11.1 million for the three and nine months ended September 30, 2016, respectively, compared to $3.6 million and $11.3 million for the same periods in 2015, respectively. Included in the research and development expense are $0.2 million and $0.6 million of pre-production manufacturing start-up costs for the three and nine months ended September 30, 2016, respectively. Also included in the three and nine months 2016 are non-recurring expenses of approximately $0.6 million related to final development of the new NN1003 ASIC plus non-recurring costs related to staff reductions and lease termination.

As a result of the factors discussed above, we recorded a net loss of $2.2 million or $(0.05) loss per share and $4.9 million, or $(0.11) loss per share for the three and nine months ended September 30, 2016, respectively, compared to a net loss of $1.4 million, or $(0.03) loss per share and $5.2 million, or $(0.13) loss per share in the comparable periods in 2015.

Cash and accounts receivable totaled $6.6 million at September 30, 2016 compared to $4.4 million at December 31, 2015.

Conference Call Information

The Company will host a conference call Wednesday November 9, 2016 at 10AM Eastern Standard Time (EST)/4PM Central European Time (CET) featuring remarks by, and Q&A with, Thomas Eriksson, CEO, Lars Lindqvist, CFO and David Brunton, Head of Investor Relations.

The dial-in number for the conference call is toll-free: (877) 539-0733 (U.S. domestic) or +1 (678) 607-2005 (international). To access the call all participants must use the following Conference ID: #4673205. Please make sure to call at least five minutes before the scheduled start time.

To register for the call, and listen online, please click:

http://event.on24.com/r.htm?e=1294348&s=1&k=FBFA195DE15A308A65F264B64704E0FB

For interested individuals unable to join the live event, a digital recording for replay will be available for 30 days after the call’s completion – 11/9/2016 (13:00PM EST) to 12/9/2016 (23:59PM EST). To access the recording, please use one of these Dial-In Numbers (800) 585-8367 or (404) 537-3406, and the Conference ID #4673205.

About Neonode

Neonode Inc. (NASDAQ:NEON) develops and licenses optical interactive sensing technologies. Neonode’s patented optical interactive sensing technology is developed for a wide range of devices like automotive systems, printers, PC devices, monitors, mobile phones, tablets and e-readers. NEONODE and the NEONODE Logo are trademarks of Neonode Inc. registered in the United States and other countries. AIRBAR is a trademark of Neonode Inc. All other trademarks are the property of their respective owners.

For more information please visit www.neonode.com