Neonode Inc. (NEON) Q1 2016 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for standing by. And welcome to Neonode's First Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. At this time, for opening remarks and introductions, I would like to turn the call over to David Brunton, Neonode's Head of Corporate Investor Relations. David, please go ahead and start the conference.

Welcome and thank you for joining us. On today's call, we will review our first quarter 2016 financial results and provide a corporate update. Our update will include details of customer activities, technology developments, and other items of interest. The prepared remarks will be provided by Thomas Eriksson, our CEO, and Lars Lindqvist, our CFO. Before turning the call over to Thomas and Lars, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call, other than historical facts, are forward-looking statements. The words anticipate, believe, estimate, expect, tend, will, guides, confidence, targets, projects, and other similar expressions typically are used to identify forward-looking statements. These forward-looking statements do not guarantee the future performance that may involve or subject to risks, uncertainties and other factors that may affect Neonode’s business, financial position and other operating results, which include, but are not limited to, the risk factors and any other qualifications contained in Neonode’s Annual Report on 10-K, Quarterly Reports on 10-Q, or 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.

Hello, I will talk about the important milestones, which took place for the company over the last few months. I will cover the success in our automotive business, update you on our sensor model business and of course discuss the pinnacle milestone in starting AirBar production. The future of the car, it’s rapidly changing, so that a car is becoming a sensor aware interactive vehicle where multiple sensors are needed for interaction and control. We have developed technology to meet these new requirements for the automotive market and it's very exciting to be working with the largest and most respected automotive players to bring new technologies to the market. Firstly, I'm excited to report that our automotive business has grown by over 500 per cent compared to the same time last year. We expect our customers to produce more than 1.3 million cars during 2016 and during the first quarter we added four new cars with the Ssangyong XLV, the Buick Regal, the Buick Envision, and the Buick GM 858. These new additions give us a total of 30 cars launched with our technology. The commitment from our customers to our technology is solid proof that our automotive offerings are among the best and most competitive in the market place. We continue to build a solid foundation for growth. In addition to infotainment touch displays, we are expanding into new automotive applications including gesture based input, door handle sensors, tailgate sensors, and of course our DRIVE steering wheel sensor. In addition, we're working with partners to integrate eye tracking functionality to our sensor modules. I can say that there is tremendous interest and development activity with global OEMs where we see large market opportunities with our existing and new customers. We can see the day where millions of car owners will be able to say may zForce be with you. And now I'd like to move over to our sensor module business. We have taken our solutions and integrated them into compact high performance multi-chip modules. I'd like to remind you why our module strategy is important. First, we believe it will increase our revenue and profit. Second it's easier to integrate a module than doing a full custom design, which means reduced time to market for our customers. Third, it provides a platform to incorporate other technologies and sensors. But finally, our module business strengthens our competitive advantage and gives us control over a greater part of the value chain. We have, with our Automotive qualified manufacturing partner, build a state of the art fully automated production facility in Gothenburg, the automotive manufacturing hub in Sweden. This facility will be able to produce automotive qualified modules and also supply modules for our consumer electronic businesses like AirBar. With our module being fully Automotive qualified, we will be able to supply sensors directly to Automotive OEMs and tier one suppliers and thus gaining a strong hold into value chain. For our consumer business such as printers and e-readers, we are working with our customers to supply them with complete sensor modules and transcission them from pure licensing business. We expect our printer customers to begin using our modules in 2017. Now for some insight into our technology platform direction, we have taken steps to increase the range of our offering from just tough and gesture sensing to include eye tracking. We entered into a Joint Venture with the high-end Swedish based eye tracking company called Smart Eye. By combining our technologies we plan to bring multi-chip modules to the market for the consumer and automotive segments that provides new opportunities for interaction with cars and devices. Finally, I am going to update you on our highly anticipated AirBar product. AirBar is our first complete consumer electronics device and is designed to touch-enable non-touch notebooks. I am very happy to say that we have started initial production of AirBar and expect to start shipping to customers in the second quarter. The number of preorders received on the AirBar website (www.air.bar) is now more than 17,000 units, and we will start converting them to firm orders in May. AirBar is an aftermarket accessory for PCs that will be sold to consumers through global retail channels. We have signed distribution agreements for Europe and United States with the largest technology distributor Ingram Micro. Ingram is the strategic partner for Neonode globally with new agreements being finalized for Asia, India and China in the coming months. The rollout for AirBar for the U.S. and European customers then India followed by the rest of the world. Ingram will address all key retails including Amazon, Best Buy, Dell, HP, Lenovo, Office Depot, Walmart and many more. Online sales will be our first channel to market with all the key retailers. We are working with Ingram and our customers to build a backlog of orders during the second quarter with projected shipments into third quarter. And now I’ll like to move over to Lars for a financial update.

Thanks Thomas. Earlier today we filed a Form 10-Q with SEC and released our first quarter ended March 31, 2016 financial results and press release. Both of these are available for download from the investor sections of our Web site at www.neonode.com. In the first quarter of 2016, we did achieve our target of positive cash provided by operations on U.S. GAAP basis and we are getting closer to cash flow breakeven. We had higher than expected cost, related to our initial sensor module production setup, and the third development milestone from Autoliv was pushed out. We saw net growth from our automotive and printer business, and expect them to continue to grow. In addition in 2016, we expect to see revenue from our AirBar and sensor module business. We have started production of consumer sensor module AirBar and it is yet too early to project AirBar revenues at this time. To finance our growing and manufacturing and distribution module business we are looking into various financing opportunities like non-convertible term debt, operating lines of credit and equipment leasing facilities. Let me now talk about our first quarter 2015. Our first quarter 2016 revenues increased with 38 per cent compared to the first quarter last year. Revenues were $3.1 million compared to 2.3 million for last year. Our revenues for the quarter includes 2.5 million of license fees and 600,000 NRE fees compared to 1.8 million of license fees and 500,000 of NRE fees for the same quarter in 2015. The increase in revenues for the first quarter as compared to 2015 is primarily due to royalty revenues related to an increase in license fees from printer and automotive customers, offset by a decrease in license fees from e-reader customer plus slight increase in NRE revenues primarily from our automotive customers. This quarter includes a license fee adjustment of approximately $300,000 related to prior quarters printer sales. We are working with a customer to get the process in place to reconcile license fees on the regular basis. The third milestone payment from the first development project with Autoliv was originally scheduled in the first quarter of 2016. It has been extended and the result of first quarter net did not include expected $500,000 NRE revenue. The license fee revenue distribution per market for the first quarter of 2016 was 51 per cent for printers, 26 per cent for e-Readers tablets and 23 per cent for automotive, compared to 34 per cent printers, 61 per cent for e-Readers and 5 per cent for automotive for the same period last year. Gross margin was $2.5 million and $1.9 million for the three months ended March 31, 2016 and 2015, respectively. The increase is a consequence of the increase of our license fee revenues with 100 per cent margin impact. Operating expenses decreased 4.2 per cent to $3.8 million for the first quarter 2016 compared to $4 million for the same quarter last year. The 4.2 per cent decrease is due to several factors including lower non-cash stock option expense plus lower travel and professional fees expenses. The decrease in these specific operating expenses is partially offset by a lower allocation of engineering development expenses related to customer progress included on the balance sheet. Our target is to reduce our total cash operating expenses to approximately $3 million per quarter. This is a consequence of transitioning from pure custom design solutions to standardized sensor modules. As a result we are able to reduce our overall operating expense, because we can provide a solution to our customers more efficiently. Our net loss for the quarter was $1.4 or $0.03 per share as compared to a net loss of $2.1 million or $0.05 per share for the same quarter last year. Cash and accounts receivable totaled $3.6 million at March 31, 2016 compared to $4.4 million at December 31, 2015. Common shares on a fully diluted basis totaled approximately 45.9 million shares on March 31, 2016 compared to approximately 46.5 million shares at December 31, 2015. Now I would like to turn the call back over to Thomas for some closing comments.

I’d like to end this call which some thought about the future of Neonode. I think our runway has been quite long, but sometimes it takes times to perfect your technology and find your spot in the marketplace. Acting as a supplier you also have to be persistent for your customers to fully understand and get market response and to finally really appreciate your technology, which can take years. Our customer base is growing and we should see them coming back with new projects for new devices in different market segments. Our strategy to supply IT, plus some electronics optics in the very small and compact module seems like a natural direction for the company to go where a lot of our technology in the future is part of the production process itself. Going forward you will see us working more intensively with some selective companies that are also in the optical space, to add more functionality into our multi-chip modules utilizing our production technology First out will be technology to track eye and head movements, which are really interesting if you combine it with touch and gesture control, something we showcased at the Mobile World Congress earlier this year. I want to thank you for listening in and this concludes our prepared remarks and we’ll open the call for questions. Thank you very much.

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

Hi guys, I wanted to ask first about the outlook for NRE, you mentioned the last Autoliv milestone was pushed a bit how are you thinking in general about perspective NRE activities and revenue for the rest of the year?

Well. When it comes to the Autoliv where the push out is just because it’s a very big and complex project as such. So that is just, something we don’t see any issues with as such and we will extend the cooporation with Autoliv, this is just the first development project we’ve done. Going forward we will see when it comes to NRE revenues most of those will come from the automotive segment because there we still have high complexity and long lead time projects that we will run, so that is what we expect.

So you still expected to some level of NRE for a while, in other words, I was thinking that as the business moves towards more and more modules there would be less need for custom designing, but NRE at least for auto goes for a while Lars?

Absolutely I promise you it goes on for a while. And more likely it will expand, but we will not talk about that today, we will talk about it later on.

Okay and then a question with respect to the operating expenses, you mentioned targeting and getting down towards 3 million and this quarter you had higher than expected setup cost for the new production facility, does that continue in the second quarter or what kind of progress should we expect towards that 3 million run rate target?

I think you can -- we do expect half, we will reach the 3 million expense run rate during the third quarter, expect it in the second half of this year. But we expect already to see a metrics for that in the second quarter. So there are actions taken already basically in the last year and the first quarter, but it takes a little while before they hit the books.

Okay and then finally I just want to make sure I understood what you said about the, I guess there was a true-up from a printer customer, so that was a catch up on royalties that should have been recognized in a prior quarter?

Yes that is correct, we’ve been working with one of our customers, printer customer, for quite a while, if we look at into to details and getting also their reconciling process in place, because it’s ahigh complexity managed contract manufactures and lots of models. So it has been found variance of approximate $300,000 and we feel we’re getting closer to getting revenue to reflect real run rate per quarter, which you can calculate backwards of course by yourself.

So given the trends in more and more models launching with additional customers going forward, excluding the timing impact of that catch up payment, should we still expect the contribution from printers to be growing quarter-by-quarter?

Yes, the answer is yes on that for sure.

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

Great guys thanks for taking my questions. You mentioned that you’re looking at some capital, some ways to raise a little bit of capital, and that just kind of brought up a question about, how do you see AirBar as far as capital needs go with regards to inventory and build up and can you just take us through the need, that you are going to have with regards to AirBar as it ramps over the next several month.

Yes Mike, what you are really asking is for the works our financing strategy is going forward and it will be a combination of equipment, equipment leasing facilities, which we already bought and have in place for the manufacturing range, working capital line of credit and non-dilutive term debt. So I mean, we’re in the process to ramp production of AirBar and this will require working capital to breach the timing from component purchases, manufacturing and collection of receivables. So we view this as a quite normal financing strategy for manufacturing companies and as a [indescernible], we’re looking for that as a complement and non-dilutive term debt.

Okay alright great, and then with regards to just expend a lot of bit on Rob’s question, when you look at printers as they stand now, you have obviously, it’s kind of little bit of claw back for some and should we look at the number that you put up in the first quarter, minus the 300,000 as kind of the run rate to grow off of or do you expect that the makeup has identified even further opportunities for you more make ups, or should at higher levels. Can you just give us an update on where you are within that audit that you went through?

First of all, we have spent a lot of time together with the customers to really get this sorted out because it’s been frustrating for us. To not have feeling that’s full, every conciliation are mapped, so naturally you generally if you calculate after what the printer sales represents, we talked the license fees 1.3 less the 300k which works from previous quarters. So we are better, but we feel we’re getting closer to figures that per quarter represents that what will make sense from my prospective. And going forward, I will not speculate exactly, it will increase as more printers models launch, but I think also the with our new printer customers launching, we foresee, nice growth.

Okay great and then one more question as it relates to the modules that you talked about, you had mentioned that you thought that the printers would start buying -- the printer market would start buying the modules in 2017, it seems like experience would tell us that it takes a few years, at least two to three years to get from the point of concept to the actual point of buying these modules. So does that means that you’ve already done a lot of a work with regards to the design, in on this modules and if you could just talk a little bit about the timing with regards to some of your other end markets, particularly on the autos, that would be helpful.

To start with yes, we are in the finale stages for various customers on the module and basically it’s -- for most customers this will be plug & play solutions. So the user will not see any difference in performance or anything. It’s just, I makes it much easier for these customers to scale and put it into new products where we haven’t have to spend so much time on development and customization. Can you repeat the second question?

Second question just relates to auto, where -- that’s even a longer design cycle and I’m just trying to get a sense on when on the auto side that might start impacting -- the modules might start impacting that line of business.

Yes. So what we are preparing for on the automotive side is to -- our productions line we’re building the next step would be to build according to automotive specifications. So, the first line we have built is mainly to produce consumer electronic devices and we will follow up with automotive qualified products.

This is Dave. There are really several different sockets in a car that can accept sensor modules and as Thomas said as the cars get more complex and they are doing more things there is a much greater demand for additional touch sockets, sensors, etcetera, around the car and so there are certain areas in cars -- your question sort of led us to believe or it sounds like that you’re talking about replacing the infotainment system touch with a new sensor, which someday will happen. But the sensors that we’re working on the auto space right now are actually for some of those new areas like the entry system, et cetera, et cetera. So that I think that’s where you’re going to see the first sensor module being placed in a car if that makes sense.

Yeah, that’s helpful. That’s all I have. Thanks.

[Operator Instructions] Our next question comes from Tom Zeifang of Lucrum.

I have a bunch of questions so I’ll start with the printer business. It sounds like you’re telling us there is a large gap between what you think you should be recognizing in revenues and what the OEMs are telling. Can you give us a mosaic of the amount of units you shipped, you thought you shipped in 2015 versus the amount of revenue you thought you should recognize in 2015 and what we should expect in 2016. That’s my first question.

Tom, this is David Brunton. We’re not actually shipping anything.

Dave, I understand you’re not shipping, but there is clearly a dislocation between what you’re recognizing and the units that are shipped to the point of sale.

Yes, there is and that gives -- it’s because of the same things that you see out there and what the revenue is versus the new number of models, et cetera, et cetera. You would expect the revenue to grow up at a certain ramp and Lars has been working with the customer to go through that and they’ve recognized that they missed some of the new product coming out. The question for us is there are certain products that come out that are still in production, they are still starting production, they are only selling a few or whatever they’re not in full ramp. And so from our side of the fence it’s really hard to pinpoint exactly what it could be other than a general sense that something is amiss. So they have, the customer has actually recognized that something is amiss. We made some $300,000 worth of product in this quarter was from prior quarters, Lars is still working with them to reconcile their records, they use multiple ODMs around the world to produce these things in multiple countries and so they are going through piece-by-piece, model-by-model around country trying to reconcile to what it should be and it is taken a little more time than we thought for sure.

Okay. So Neonode has a number out there that they think they should be due from the printers, comp manufacturers. What is that number in a general sense?

We don’t really – we have a sense, but it’s hard to say because there are so much many elements. They have safety spots when they buy let’s say chips from TI or they have certain models in production, they have certain models in transit. So for us to sit back and say we have a certain number, really we don’t have a certain number. We want them to basically provide us with the information where we can both have a meeting on the minds and say that okay now that makes sense. They are getting closer to that, Lars is still working with them, but there has never been a number in our minds where we said, it should be 500,000 more per quarter or anything like that. It’s basically we’re waiting on them to reconcile it and provide the information. It’s a mutual thing, I mean I don’t know any other way to put it.

So when should we expect closure to that.

It's Lars here. I think we account -- we are already really. So I think that the report we received the last quarter with a little more details on this task that basically it's showing that the co-operation between us and our customers is in good faith and order. I think we've come quite close to the final fine tuning of it because as you know, we have ASICs from TI being delivered and then we [indescernible] and see what will the make sense, we have a dialogue with customers, not only one customers, maybe two customers, but them being all. So that's also a process. The good thing with modules is that without, we’ve added much more visibility of orders and what is basically going to be sold.

So it sounds like the catchup in revenues on the printer business is largely behind us.

That's what I believe.

On the Autoliv, given some of the [indescernible] you guys keep giving us quarter what gives you confidence that this push out will be actually recognized?

Well, that would be because we don't see any problems with this. We have met all the previous milestones and it’s a big complexity in all these products, it's also been expanding over the time that this being a figure, first I will say that we don't see any problem with that at all. We are working very, very good together with Autoliv and have a very strong proposition also towards the OEMs out in the market, which we also cooperate in a dialogue with.

Have you recognized that 500,000 yet?

Well we talking about the first quarter now so I will not -- [Multiple Speakers].

Lars we're on a conference call that is considered [indescernible]-compliant I believe, so if you recognized that 500,000 now might be the time to tell us.

We have not.

Okay, but should we expect it in the second quarter? A –David Brunton: It will be recognized when the milestone has been completed and this is a complex project, it's I don’t think it's that far away, but it's whether it’s the second quarter or third quarter whatever is going to be dependent on when it’s being completed.

90 days ago you guys would have said it was recognized in the first quarter, that's all I'm getting at, so how do -- what gives you confidence it's going to happen if just 90 days ago you thought it was going to happen?

Well the quarter is not ended yet and when we work with this product -- it's the middle in the quarter, a lot of work to do and it could be this quarter and the second quarter. So I don’t give -- we don't give any type of such [indiscernible], saying that it's not going to be recorded. This project is running very well and the corporation is doing its time productively, so that's what we can say at this point of time.

Okay last question then I'll get back in the queue. On the AirBar last quarter on the conference call you said you're still discussing with your auditors revenue recognition due to the sell-in sell-through. Can you give us a sense of how you're going to account for revenues in the Ingram Micro distribution model?

Well, that's naturally to follow the accounting rules that we are following. We are calibrating that with our auditors, but basically the agreement we have with Ingram is that the invoice done, the pay would be in either 45 days or 60 days depending on the market and that naturally if their volume is not being fixed for Q -- we pushed up too much, whatever, that could be returned. So that is something the whole complexity about that needs to be considered when you make the revenue recognition.

So you'll invoice them upon shipment to their distribution centers?

That's correct.

Okay, thank you, I'll get back in the queue.

[Operator Instructions] our next question comes from Rob Stone of Cowen & Company.

A follow up question for Thomas. As you're ramping up the new module strategy, I wonder if you're getting any indication with known potential uptick in the near term from some of these other markets that you've been working on for quite a while but for which we've not yet seen much in the way of visible product launches, for example in White goods or in other PC and tablet applications besides the AirBar thing.

We see so many opportunities for these kind of products and I guess back in go for anything as a factor widespread products for gaming devices or virtual reality or anything. The good thing is this is a module that a lot of companies can use for their application, you don't need specific software or anything, it’s just a plug and play device and with that said we are also looking into the business where we sell it without enclosure for integration. So the sensor which is inside AirBar can also be put into other products pre-installed, like we do today. So there is both aftermarket opportunity and also the opportunity for integrating this into products. And that goes for the PC business that we’re working on, which makes it much more easier for these customers to even for the relatively small volume products that they are working on, to use the AirBar sensor pre-installed.

Okay great thanks.

Our next question is a follow up from Tom Zeifang of Lucrum.

Can you help me understand what's going on with the printer business ASP? It appears like it might be following given the amount of units, but maybe I am missing the calculation.

Tom, this is David Brunton. In Q1 there were a lot of initial deployment by our major printer customer and some very low end printers out there which brought the quarterly average license fee down. However, as we move forward the printer that are going to be released by the new customers have a much higher license fee and I think you’ll see that even out overtime. Is that what you are asking?

Yes, so the first quarter, what will be the trough in the printer ASP?

Yes exactly, I mean it was a -- there was -- in addition to some catch-up for the prior quarters there was also an adjustment into the third quarter that -- landed in the third quarter. So as Lars went through the reconciliation process with the customer, they also identified a whole bunch of different printers that they had shipped in the first quarter that they didn’t realize they owed license fees on it. So that was a nice catch up there too. But those are in the proper place.

Okay, then on the module business, have you recognize any revenue on modules in the first quarter?

No not yet. We didn’t start – the modules just went into production here in the second quarter.

Okay, I am just trying to get it some numbers because you guys are not telling us anything. That’s why your stock are $2, the more you guys don’t tell us or give us any indication what's going on with your business, we don’t know how to model the company. So I am trying to get at, when should we expect module revenues, 2017 or some in a second half of '16?

In '16, they are going to production, the initial units are going out for the marketing and sales process. Ingram Micro is out there waiting, they are going to take it out to their customers and as they start building a book of orders then we will start manufacturing process probably in the third quarter of this year. They will start selling it and then the revenues will come through. There may be a portion of the revenues or portion of the sales that we have reserve for because of warranties and that sort of thing under GAAP accounting. But the cash should flow through and the revenues should flow through. There might be some in the second quarter as we start sending amount to the pre-ordered customers as they start converting their pre-orders to firm orders and paying for them. Obviously, they will be shipped in the second quarter. But the real business -- that’s not the primary business, the real business is going out and to the website sales for Dell, Amazon, et cetera, around the world through Ingram Micro and we expect that to start in the third quarter.

Have they given you any indication, Ingram Micro, of how much inventory they will need worldwide?

Not yet, because they are going to start building the books. They need production level AirBars which they are just going to be getting starting this next week. And so that’s going to be the start for them to go out. They have made contact just as we have met with all these companies too at the CES and Mobile World Congress and individually in all of this. But until you go into production it’s not real. I think everybody recognizes that. Now when that has happened, they will get -- they will start getting some product to show and at that point they build the book, they come back and then we will start getting an indication of at least the initial demand.

Okay. So, have there been any production delay?

Not really I mean it's a new product, it's a new facility and so it has - it's a very high tech product. So there has been -- we expected to see some calibration issues and things like that and that has all been solved at this point and so it's now we’re -- we are not going to go out and build tens of thousands of AirBars on speculation, we are really -- it’s a modulated process. We have a process, I think I have talked to many of you guys that are on the call here before and told you what that is. Small orders builds to begin with to make sure everything is running smoothly. Get it out into the sales and marketing hands to start building the book, start converting the pre-orders to orders. And then third quarter, just when we expect to see -- actually probably late in the second quarter, start seeing what the book is from Ingram. We start putting together the production plans and timing to get those out around the world, that's the process.

So Dave just to understand the yields you are getting in on these are at an acceptable or even above the better than acceptable rate for you guys.

Thomas is shaking his head, yes.

Okay, thank you guys.

Our next question is a follow up question from Mike Malouf of Craig-Hallum Capital.

Just sort of building off of that series of questions can you talk to us right now about where capacity is on this initial ramp? If you had to turn it on, where do you feel comfortable you could actually produce these AirBars now that you've gone into production? And where do you think that will ramp over the next six months, if you had the demand. For example how fast can you build production and what will that need, what you need to do that?

I mean the normal lead times for the components in this design, it's mainly controlled by us, which is the single-chip ASIC that sits inside and then there is a micro controller that we work with ST Microelectronics, then as ST supplies both of these components. And then there is some other components that we work very close with this partner. So we have fairly fast way of ramping up and we can buy this components on wafers which is basically how they supply it to us. The first line we have built has and a capacity above 100,000 to 150,000, 15.6 inch AirBars per month that is the initial capacity and if we need more capacity, we will just duplicate the lines we have and on top of that we are also as I said earlier looking into getting this automotive qualified for these customers. We don’t expect automotive customers in this year, but potentially early next year, to go into different parts seen in aftermarket.

You've talked with Ingram Micro for several months now about this opportunity. I mean where do they tell you they think the demand will shakeout in 2017?

I think it's a same as we've seen from our preorder customers. Basically we’re selling products now and it’s ordering that and I think it's amazing because they haven’t even seen it and ordering a lot to units. We see the demand coming basically from all over the world so it's from United States, Europe and also from India and Asia. So, I guess it could be a mix of all the different countries. The roll out from Ingram is primarily to United States, North America and Europe first and then we’re looking into signing agreement with them for the Chinese market and Indian market. So, yes does that answer your question?

Yes. But I'm just trying to get a sense of if Ingram Micro has signed all of these agreements with you they obviously think it's more than 50,000 units yearly because that wouldn’t move the dial for them. I mean did they give you a sense of how big they think this product could be for them in 2017?

Yes, they’re really excited about the product’s opportunity and I think that has be seen of course but there is a lot of activity going on to these company we talked about like Dell and HP to sell it on their website. So, I would say our initial capacity, we hope will be enough to satisfy the initial demand which will be as I said roughly 100,000 to 150,000 units per month capacity. If that capacity is not enough we have a way to fairly quickly and scale that up, by just duplicating what we are doing this automatic production line we have built for more capacity. And also the components that fits into the design as I said is mainly controlled by us, it’s our components, they ramp up we are talking about a few months making the capacity a lot more.

Okay, thank you.

At this time there appears to be no further questions. I'd like to turn the floor back over to Mr. David Brunton for any additional or closing remarks.

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