Neonode Inc. (NEON) Q1 2021 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for standing by, and welcome to Neonode’s First Quarter 2021 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 with the company’s covering analysts. [Operator Instructions] 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 first quarter 2021 financial results and provide a corporate update. Our update will include details of customer activities, technology developments, and other items of interest. On today’s call is our CEO, Dr. Urban Forssell; CFO, Maria Ek; and also joining us today are our Regional Sales Vice Presidents, Anthony Uhrick, managing the Americas; Johan Swartz, managing Asia and Pacific; and Jonas Wærn, managing Europe, Middle East and Africa. Before turning the call over to Urban, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call are than historical facts are forward-looking statements. These 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 be subject to risks, uncertainties and other factors that may affect Neonode’s business, financial position, and other operating results, which include, but are not limited to, the risk factors and other qualifications contained in Neonode’s annual report on 10-K, quarterly reports on 10-Q, and other reports filed by Neonode with the SEC 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 obligations to update these forward-looking statements. At this time, it is my pleasure to turn the call over to Urban. Urban, please go ahead.

Thank you, David and welcome everyone. To begin with, I'd like to summarize the key messages in our presentation today. First, we continue to execute on our strategies and build our business pipeline. The demand for our contactless touch solutions continues to increase, giving us an enormous market opportunity to integrate Neonode technology into new and retrofitted equipment, for instance, in Elevators and Interactive Kiosks. We also see significant interest in our zForce and MultiSensing technologies from customers in the Military & Avionics and Automotive segments. To be able to capitalize on more of these opportunities, we'll continue to strengthen our sales marketing and engineering teams in Sweden and internationally. And building on the last point here, let me next introduce our new sales organization. To increase our customer focus and support further growth, we are migrating from our global business area structure that we introduced last year, over to a regional sales organization where Anthony Uhrick, who joined the company last month will lead our sales work in the Americas; Jonas Wærn who previously led the business area HMI Solutions, he will lead our sales work in EMEA; and Johan Swartz who previously led the business area HMI Products, he will lead our sales work in APAC. These three gentlemen will all report directly to me. So, we are then showing here the top level of our org chart for the sales work with the three gentlemen here that you will hear more from later in this call. And it's now my pleasure to introduce the full team on today's call. Besides myself and David that you already met, we have Maria Ek, our CFO. She will, right after this, take us through the first quarter financials. After this, we will hear more from Anthony Uhrick, Jonas Wærn, and Johan Swartz, who are our VP, Sales for different regions. We include here pictures of everyone on the call and we will in later calls update this and we will also include further information and bio. Today, I will refer you to our website for more information on the bio for the speakers. So, next, we will go to the financial update. I leave the word to Maria Ek, our CFO.

Thank you, Urban. You can find our first quarter earnings release and 10-Q available for download from the Investor section our new website at neonode.com. So, to give you an update of the quarter. Our total revenues were up by 29% compared to the fourth quarter previous year and reached $1.7 million. Our gross margin was down by 14% from previous year's first quarter to 83%, and I'll come back to that later. As we are continuing to invest in sales, marketing, and product development, our operating expenses were by 29% from the third quarter 2020 to $3.0 million. Revenues. Revenues from our HMI Solutions business area were $1.3 million, which is an increase by 10% compared to the first quarter 2020. A major part of the revenues from this business area is licensed revenue from our existing printer and automotive customers. We believe this business is still rebounding from a pandemic-related slowdown in the first half of 2020. Revenues from our HMI Product business area were $0.4 million, which is an increase by 227% compared to the third quarter 2020. The increase as a result of growing deployments of contactless touch solutions, mainly in Asia and mostly driven by our partner network. A major part of the revenue from our HMI Product business area is not surprisingly product space. But we have also had some non-recurring engineering projects, NRE projects. Our total gross margin for the first quarter of 2021 was 83% compared to 97% for the same quarter 2020. The decrease is related to high product sales with lower margins. The gross margin for our HMI solutions business area was 100% for the first quarter 2021 as well as 2020 as there were little or no NRE revenues in both of the quarters. The gross margin for our HMI Product business area was 24% for the first quarter 2021 compared to 62% for the first quarter previous year, where we made some changes to our inventory reserves. The margin for this first quarter was depressed by lower margin AirBar sales. The margin percent -- the module sales alone was 27% for the quarter. Operating expenses for the first quarter 2021 was $3.0 million, which is an increase by 29% from the same quarter last year, but decreased by 9% from the previous quarter. Operating loss for the first quarter 2021 was $1.6 million, which is an increase by 50% on the same quarter 2020, but in line with the previous quarter. The net loss was $1.6 million or $0.14 per share for the first quarter 2021 compared to a net loss of $1.0 million or $0.11 per share for the same quarter previous year. Net cash used in operating activities during the first quarter 2021 was $2.0 million compared to $1.0 million first quarter in 2020. The increase from the previous year was primarily the result of a high net loss and increased inventory to secure our future deliveries. On May 10th, we filed a shelf registration and entered into a $25 million ATM agreement. This allows us to strengthen our balance sheet at a low cost and with minimum dilution, if and when, we find it necessary. And now, I hand it over to Urban.

Thank you, Maria. At this point, we would like to give you an update on our strategy and business. I will start with some general remarks before handing over to Anthony Jonas, and Johan. Neonode is a value-driven company. Everything we do and every decision we take is based on our core values; One Team with purpose, customer focus, and make tomorrow better. Fully in line with this, we have and we are taking measures to streamline and improve on our internal organization on growth focus. Last year we established this business area organization with three separate business areas, separated by the business model they use; i.e. technology licensing for HMI Solutions, product sales for HMI Products, and software licensing for Remote Sensing Solutions, and the markets they address Military & Avionics, Industrial, Elevators, Interactive Kiosks, and Automotive. This business area organization gave us a good positive boost last year, but we are not satisfied and think we can improve and do more with the IP know-how and resources we have. Hence, we are migrating to a different organization where we have a much clearer focus on our core business and on our customers in key market segments that we are addressing, especially Elevators and Interactive Kiosks. As before, we are using and building on our existing IP portfolio know-how and we are exploring every day new and better ways to leverage this to bring value to our customers. For instance, in the form of contactless touch solutions, which are zForce technology and our touch sensor modules are perfect fits. Going forward we will maintain our focus on Elevators and Interactive Kiosks, but we are also addressing customers in Military & Avionics, Industrial, and Automotive. We are rebuilding our business inside out, starting with contactless touch solutions for elevators and kiosks and then adding further types of applications and market segments. So, what I wanted to show with that picture, I need to go back, excuse me, there's an animation here showing the main focus contactless touch, elevator and kiosks, this is where we have a clear and dominating focus on the resource spend in Neonode since -- actually since last year. We are making this even more clear now. This is not saying that other areas have no focus or no resources, but the changes we are making is really to increase the push here with our contactless touch business for elevators and kiosks. And in terms of organization, we have already presented our new regional sales organization here shown in the green boxes. We are doing similar adjustments to our internal engineering organization here represented by the blue boxes. And we are constantly reviewing and updating our business and technology partnerships for efficiency and simple efficacy. Zooming out, and this will be my final slide at this point. We feel that we are on the right track and we have a really positive momentum in a lot of things we do, business development, new product development, innovation, and also NRE projects with customers. The demand for our contactless touch solutions is increasing and our product size is ramping up. This is what we mean by saying we are building our business pipeline. Some of these processes take time. There are certain lead-times in the sales and then in the testing and evaluation phases. And in many cases, we are having customers that want to do pilot runs and smaller installations first. We are all motivated by the success we are having here and we see that we are really on the right track. Even long-term, we are also optimistic about the licensing business and we think that this will be a nice complement to the products business to have further and new licensing customers that give us recurring revenues. As the legacy customers we have in automotive and printers and e-readers, for instance, they continue to bring good revenues with a high margin to the company. And we have an excellent team. And we continue to add talent and experience to that team. And speaking of talent, it's now my pleasure to introduce Anthony Uhrick and have him introduce himself and also our business in the Americas. Tony, please go ahead.

Thank you, Urban. So, a little bit about me. I'm new to the company, but I'm not new to the industry. This is a market I'm very familiar with and in fact, I've been in the touchscreen industry for over 20 years. I've worked for Fortune 100 companies such as 3M Touch and industry leaders like Planar and Smart Technologies. I've also worked for several startups, including the company based in New Zealand called Next Window, which had a very similar optical touchscreen technology. When I started, I was responsible for developing business in the Americas, that later became a global role. And we grew sales from just a few million dollars to almost $100 million in six years, that company was later sold to Smart Technologies and then they went public. So, let's talk about what our strategy is. Our plan is to refocus the resources in the Americas and to deploy a more direct sales approach into target vertical markets. Our target accounts are known and I've worked with many of these companies in the past. What we have that's unique and different is the ability to add In-Air Touch, and gesture controls almost any surface. This means that we can offer touch-free, germ-free intuitive alternative to interacting with kiosks, elevators, and other public surfaces. So, if you think about how many kiosks and elevators are in the market, potential is huge. So, if we look at the market in a different way, we can divided up into what we call retrofits, these are existing installations or new installs, which would mean a new project installation, or R&D, which is working with a company to provide a new product feature. But if we look at the sales cycle, or the time-to-market, retrofits represent a huge market opportunity and the quickest path to increase revenue. Therefore, near-term, our target customer is end users who've already deployed these devices such as hotels and airlines and fast food restaurants, retail, grocery stores, medical offices and the like. But in addition to the end users, we also intend to target the companies responsible for developing the aftermarket solutions or maintaining and installing these devices, such as solution providers and integrators and value-added resellers. So, let's take a look at the -- as an example. So, a company that we're working with is MAD Elevator, they're based in Canada. They're a global company and they produce fixtures and interiors for the elevator industry. They've developed a solution they call Phantom, which is designed to convert standard elevator control panels into a touch-free interface. They have a global sales channel comprised of local and regional installers and this provides us the direct access to these building owners and managers, designers, and other key decision makers. Our plan is to leverage their industry expertise, their product knowledge, and most important, their contacts to address the early adopters with a low risk market specific solution to prove out the product to confirm the market. Now, it's going to take a little bit of time to institute this strategy, but we know the market and we know where we're going. Back to you Urban.

Thank you, Tony. And I will immediately hand over to Jonas Wærn who will talk about the business in EMEA. Jonas? Jonas Wærn: Thank you, Urban. So, let me walk you through the goals I have with the region. We drive successful business in the whole region, not forgetting Middle East and Africa, but make no mistake; the main focus is on European continent. I feel very comfortable there; I lived and studied in many different countries there. I want to align the region with the corporate, the overarching Neonode mission vision, to be smart, to be intuitive, and also to work multimodal. This you can see being internal goals as well as external goals. To review how we segment, how we position ourselves, and how we go to market and I'll share some of those thoughts here with you. One of my main concerns is how can we make Neonode easier to buy from, quicker to analyses, what our existing and good opportunities and leads, and what we should hold on to, how can we broaden our menu of different types of purchase options, et cetera. So, really to continuously evaluate and develop our ecosystem much like Tony mentioned with the Americas, who should our partners be? Who are our partners currently, the ecosystem that we're building around us with value-added resellers and distributors. Also, I remain closely analyzing the Military and Industrial businesses that I've worked with before. The main focus, however, is going to be on Elevators and Interactive kiosks segments, and the number one priority is and will be now, topline growth. Also, development, of course, more strategic, comprehensive now, and next execution plans for my region focusing on growth. This might sound a bit silly, but sell, sell, sell is going to be key, and the people responsible and working in the EMEA region can't wait to get out there once legislation has been lifted. So, on that note, I want to share with you a few cases. Some of you mentioned before of partnerships and deep relationships and businesses that we have in the EMEA region. This is [Indiscernible], a U.K.-based leading supplier of components to the global elevator market. They recently launched a contactless elevator control panel for existing or also new elevator installations. This solution that we worked with together with them is sold as HALO in Europe, and was introduced in the beginning of the year. Another example of a good partner, not only as a customer, but also introducing us to a great network is Mr. Nicolas Appert, the CEO of Marine Group; they're a manufacturer of kiosks solutions. And what I like with these, these solutions are out there right now not only selling, but being used by customers. In this specific case, if you want to buy a Burger King burger in Paris, the Marine Group's your answer. They also work with other QSRs in France, have piloted this contactless self-ordering system is a very adaptable solution, also ideal which is big for us in retrofitting on existing kiosks. We start to see more and more of our solutions in the field and being used and experienced by the general public. And hey, what can be more accessible than ordering your burger. This solution is marketed and sold under the name AIR-CLICK, and it's also started a few months ago. They have great contacts and networks in France, but also in North America. So, we made sure to have a good win-win solution with our partner. So, in short premiere, we have delivered -- we delivered and Neonode will continue to deliver the best technology out there for combining direct sales with a selected few partners in making sure to refine and maximize the best long-term opportunities with EMEA for Neonode. Thank you.

Thank you, Jonas. And then immediately over to Johan Swartz and APAC business.

Thank you, Urban. So, it's really nice being able to focus on my so-called home turf, the Asia-Pacific region again. Having lived in Japan for 15 years and work in or with East and Southeast Asia for almost 30 years, I'm really thrilled to see this region leading the migration towards contactless touch. We have in the past six months fully executed on the strategy that we define and presented last fall, building a solid network of distributors and value-added resellers, as well as system integrators initially targeting, as Tony mentioned, retrofit use cases for elevators and interactive kiosk. As you may have seen from our recent press releases, this has resulted in initial deployments of several projects across the region and with public announcement by several high profile end customers, meaning that we will hopefully see a substantial contribution to our revenue growth in the second half of 2021. On the right hand side of this slide, you can see some segments per country where we have particularly good traction, that is self-service kiosk and point of sale terminals in Japan, as well as elevated core operational panels in South Korea, China, and Southeast Asia. So, therefore, one of the most important segments for us is self-service kiosks at airport, retail stores, train stations, shopping malls, et cetera. As I mentioned already at the last earnings call, one of our closest partners is focusing on self-service kiosk application and as the name implies, particularly on airports and airlines. Some time ago, Japan Aerospace secured a strategic business win with a major Asian airline to retrofit existing kiosks with contactless touch technology that was known for, for check yourself check-in and for self-baggage kiosk. This solution has now been deployed in multiple airports and discussions about the wider deployment at additional airports as well as with additional airlines have already started. Having discussions on a weekly basis with Japan Aerospace, I'm confident that they will be able to utilize a good relationship within the Aviation industry to further develop and create business in this segment. However, being part of the Itochu Group, one of Japan's largest trading companies so-called [Indiscernible], Japan Aerospace has also excellent sales channels into other industries and is engaged with several other customers in the transportation, retail, and hospitality sectors and were recently together with one of the top three job [ph] manufacturers in Japan selected by a major Japanese retail chain to retrofit on the chain self-checkout kiosks. The initial deployment rollout of this solution, which by the way is also called AIR-CLICK, seems to be a popular name, started in mid-April in 32 stores throughout Japan and will continue to be rolled out at additional locations during the second half of 2021. Another case I would like to emphasize is with our partner FineTek in South Korea that has developed contactless touch elevator control panels that they have market elevator companies in South Korea since middle of last year. Also in this case, we have an extremely close cooperation, visiting customers together more or less on a daily basis or at least my local team does in some current due to the pandemic stuck here Stockholm, having to rely on digital communication. Recently, we had a breakthrough with one of the major elevator companies in South Korea selected our solution and we are now that is Neonode and FineTek preparing for a wide scale rollout, which we highlighted in the press release some time ago. So far three pilots have been announced at the hospital and office buildings, but more will certainly follow. FineTek is also engaged with several other elevator companies as well as with top kiosk manufacturers in South Korea. So, we are truly optimistic that our business with FineTek can grow and will grow significantly also in other segments, such as retail or ordering payment systems for quick-service restaurants. Finally, let's have a look at another contactless touch use case also for elevator control panels for retrofit purpose. This illusion is mostly sold and deployed by Hong Kong Productivity Council under the name of No-Touch mainly in Hong Kong and Mainland China. However, Hong Kong Productivity Council has also recently developed the business model and have in their turn started to sublicense their solution to other companies, such as, for example, Jordan Schindler that promote this solution with the aim of having a wider adoption in overseas markets, particularly in Southeast Asia, where they have a really, really strong presence. So, referring back to what Tony initially said here, all of those close engagements that we have had have helped us tremendously in refining and improving our solution to really make it ideal for contactless touch implementations. And with that, I would like to hand over the word back to Urban.

Thank you. And we are we are close to the end of our presentation. I just wanted to summarize the key points regarding our strategy in our business. The first that I said upfront in the call is that we feel we are on the right track, we see high an increasing demand for contactless touch solutions and our touch sensor modules, i.e. what we call our Products business. We have a strong belief in this that will help us grow our topline and by this, we will also include improve our bottom-line. Our focus continues to be Elevators and Interactive Kiosks. The markets in Asia, Europe, and North America are a little different, they look a little different, but there are many here common denominators and both these markets are very large markets with huge install basis of equipment and also good healthy growth. And in our case, we also see that they have a tremendous opportunity with retrofits that we can do rather quickly in existing equipment and we can develop -- based on the retrofit solution, we can also then transfer into the new equipment part of the market. So, this is where we see the biggest potential in this year next year and probably the year after. We are very optimistic still and we haven't forgotten about where we come from. The last 10 years, Neonode has been focusing on technology licensing. We continue to work on this and we continue to try to bring attention to our zForce technology that supports touch, gesture sensing, and the contactless touch applications. And we are mainly targeting demand in customers in the Military & Avionics space, in Industrial, and then by this, we mean rugged industrial applications in plants and workshops and similar where there's harsh environment and operators and users typically could have gloves or it's difficult with a traditional touch interface or if they want to do some gesture sensing, we can provide for that. Also in Automotive, as we have presented before, we continue to work on our driver and in-cabin monitoring. You have a very advanced software solution there that we have still high hopes for. We are engaged currently with several companies and it's interesting to see how this market is developing. Those of you that have follow Neonode in the previous years, you know that we have worked a lot with top solutions for IDI systems, we still have new requests. The solution we have in the market with three Tier 1s, several OEMs, it's very, very high performance and well received, excellent quality records. Building on that, we tried to leverage this to do new programs where we can license our technology. And furthermore, there's a big interest in gesture sensing and we have been approached in the last month by several companies asking for proposals regarding gesture sensing, both in the cabin of the car and outside. So, Automotive remains an important area for us. And we feel that we are well-positioned with our owners, our Board of Directors, our team here in the company and if you have heard Tony and Jonas, and Johan talk about, we also have an excellent ecosystem of partners from our distributors, Digi-Key as one fulfillment distributors we are working. We have several value-added resellers. We have technology partners. Some of them we have mentioned and they are featured in the presentation today. But all this together makes us feel that we are well-positioned to accelerate growth in the coming months and quarters and also capitalize on the current and future opportunities. We are currently recruiting more engineers, for instance, there will be high pressure on our engineering team. But we think we can overcome this and this will be absolutely necessary for us to continue to grow. But we also have the -- certain expansion capacity, obviously with our partners and that's another reason why we work with these partners that some of them the value added resellers and the technology partners, they have engineering resources that could contribute in the products we are involved in. They are also as you know, helping us market our solutions and selling them. And so we see multiple use of this ecosystem. And that's why we also set up heterogeneous ecosystem with different types of partners and we will continue to work with them in different ways, probably in different markets as well. But we are all excited and we look forward to the rest of this year, and into next year. So, with that, I would like to thank you all for your attention and we will move to Q&A. Dave?

I now open the call for Q&A from our covering analysts.

[Operator Instructions] We have question from the line of Jesper Henrikson with Redeye.

Yes, thank you very much for taking my question. My first question is to Maria. Could you explain the shelf registration and the ATM file that you have recently made with the SEC?

Yes. Shelf registration is filed with the SEC and allow to share with you [Indiscernible] the sale kind of pre-registered securities during a three-year period using so called takedowns. We're seeing over several types of transactions, the one being at the market offering so called ATM. This is an offering into the existing trademark if made as a company's description. The company effectively sells its own shares to the banker and into the market. This is the regular practicing U.S. stock market today and it’s a flexible way to raise capital without -- minimal market impact and a low cost and without discounts. Is that--?

Okay. Thanks. Yes, that's good. And so the shelf registration is at $100 million and the ATM is at $25 million? How should investors interpret these numbers?

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Okay, great. I understand that. Thank you very much. And then also one question for Urban. Are you experiencing any global component shortage? And if so, how is this affecting your business?

We don't see any problems today with components for our products manufacturing. But we are also feeling that the risk is there. So basically, we have covered our component needs for this year and into next year. But who knows how long this consultation will stay. So right now we are exploring alternative, second and third sources from our some of the key components to be really prepared if this situation continues or gets worse next year. This year it’s already covered. And we have guaranteed supply of components.

Okay. Great. And then one last question about the FineTek elevator partnership. Can you say anything more about like, how big is this? And how fast can it grow? And also how much resources are FineTek fitting in?

So I will hand that question over to Johan who works directly with FineTek -- on more or less daily basis. So maybe you can address that.

Yes, certainly. I mean, let me just state like this, so both Neonode and FineTek are super serious about this, and we have both companies have invested considerable time and effort in order to pass a multiple of number of reliability test and fully qualified this solutions not only with one elevator OEM, but with multiple actually the two largest elevator OEMs in South Korea. So we’re super committed and we both put in a lot of resources into this. Then as I mentioned, we have the pilot installations in hospital and office buildings. And then being announced by one of the elevator OEMs, and although those pilots reportedly had been received very well but the both the users and by the building owners, et cetera and other associated stakeholders. It turns out, it's really difficult to predict a retrofit ratio or speed of a rollout. But I mean, what we can see is that, with an install base for more than 800,000, elevators only in South Korea by 2020 according to a research or reports and statistics. Even a moderate retrofit ratio will result in substantial volumes. I think that's really what I can say.

Okay, great. Thank you very much. That's all for me.

The next question will comes from the line of Christian Schwab with Craig-Hallum Capital.

Hey, thanks for taking my questions. Urban, if we have a 100% sell-through of the components that you've secured for next year, roughly what would be the company's revenue?

Yes. We are ramping up our production first of all, and also our sales. So we are targeting to actually to grow by multiple and not percentages. So we are targeting very aggressive growth and also continuing in the same fashion in the next year. So I won't give you any guidance to any specific numbers. But I will say that we are growing several 100% this year and also similar type of numbers next year.

Great. And then given kind of substantial pipeline of opportunities that we kind of highlighted in the prepared comments, how big of a revenue opportunity without necessarily putting a time frame on it, whether it's three years or five years, or potentially longer? How long does it take for the elevator, interactive kiosks business to become a $40 million to $50 million business if it could become that big?

We have really high hopes for this. We think we are onto something really good with these two segments, Elevators and Interactive Kiosks. Both have, I would say, a huge installed bases. We are close to like 20 million installed elevators in the world. And that number is growing by 1.3 million, 1 5 million elevators a year. Another refurbishment rate on the elevator cars and general systems of like every 10 years or something. So there's a significant aftermarket for elevators. And what we have done with our own planning is to try to secure a certain market share and grow that market share off of that installed base and with the new equipment. We also have the retrofit play, which we can use actually several times for elevators lifetime. So in the next two, three, four, five years, we are really -- we are trying to grow this business, as you said up into the several tens of millions of dollars for elevators and similar numbers for kiosks. Actually, the kiosk market globally is much bigger than the elevator market. But on the other hand, it's a little bit more fragmented. We have every type of kiosk. We have ATMs. We have vending machines. We have the type of self-service kiosk we saw at airports and fast food restaurants. So, for us, I think that realistic total addressable marketing kiosk is sort of similar in size as elevators. But combined, hey, we see the huge market opportunity, we want to grow this. We are working to grow this onto the several tens of million U.S. in the next three, four years.

Great. And then my last question has to do with the recent patent portfolio protection. Is there any type of updates you can share with us there?

Yes. Great question. And as you know, we have an agreement with a company called Aequitas Technologies LLC. That agreement with them is publics filed as an 8-K and it was done in 2018. They are trying to monetize Neonode’s old patents actually two families that we have transferred assigned to them and that they are trying to monetize. And of course, if they're successful, the agreement grants us 50% of the net proceeds less expenses. They are advancing this, and I will repeat Neonode Inc. is not part of any litigations or any part of these processes. Aequitas Technologies LLC is running this independently from us. They have set up a company that they call Neonode Smartphone LLC. That's 100% owned by Aequitas Technologies LLC and has nothing to do with us. This company has, for instance, sued Apple and Samsung in the Western District, Texas. I believe some of the proceedings of those litigations are available online, or at least searchable. And we follow them as well as you do. And I find it super interesting to see how these goes and its potential upside for us at the end of that process obviously. If they do a settlement or if there's -- in the end the court decides in our favor, which we hope can brings some nice dollars into our balance sheet as well.

Great. No other questions. Thank you.

1Thank you.

The next question will come from the line of Viktor Westman with Redeye.

Thank you so much for taking my question. I have a question for Mr. Johan Swartz. I noticed that the Japan Airlines, they are promoting this contactless solution a lot. I don't see it so much from other players. Can you tell me why not others have jumped on this bandwagon or not know about these solutions or have they chosen another path?

Well, I mean, if we’re talking about globally, obviously, Japan Airline is not the only a company focusing on a contactless touch kiosks. We also have announcement by Changi Airport and by Hamad airport in Qatar. So there are certainly other players. And I think this, when we talk about self-check in kiosk at airports, it's a bit of a complex set up with a combination of sometimes airlines, sometimes companies like AIR-INK or Sita [ph] and sometimes the airport's actually owning and controlling the various flavors of kiosk. So it's a little bit of a complicated set up. And therefore, I think it also make things more complicated when you should progress this. But I think I have good hopes that those initial announcements and installations will influence other airports and airlines to actually do this. And we have a lot of indications that this will happen. But it takes a little bit of time.

Very Good. Another question about in the report you mentioned, you're exploring further partnerships and can you tell me, are you not satisfied with your current partnerships or why are you exploring more partnerships? And in what areas? What kind of partnerships?

So I will step in and answer this Viktor. This is Urban speaking. So what we refer to is related to our reorganization into regional sales structure. We have been very successful and found some very nice and active partners that have helped us a lot in Asia. But just to mention, we see that this model is good for Neonode on a global scale and we can talk Mainland, China. We can talk EMEA and we can talk the Americas. We are looking into some good value added resellers and other types of partners in these regions. So this is one thing we do. We also are exploring other types of technology partnerships where the even competitors that have been approaching us during the winter and spring. And some of these proposals are quite interesting because if we can join forces with other companies, we can broaden our offering. We can also share some of the area's sales channels and the marketing resources. So actually, we are pursuing a lot of these ideas in parallel and our new sales organization with Tony on board and the Jonas running EMEA and Johan to continue to run APAC gives us them the bandwidth from the management team to really go after this in a more focused way. Because we believe in a heterogeneous approach where we do both direct sales and we do indirect sales through partners.

Okay. Got you. One last question from me about the HMI Solutions part. Can you share some other exciting areas in the military market besides touch displays for aircraft and vehicles? What other kind of ideas do you have here?

Well, what we have identified so far is that there is a very interesting market for us in our technology with aircraft applications. And then I mean, it's very classic, it's a -- they have different types of displays and several of them or if not all of them will be touch-enabled. And our technology fits as a globe into that. Of course, there are other rugged displays used by military army and also naval forces. And they will be then typically other types of displays or similar types of displays that you have in aircraft. But Jonas informed me of another project that there were more like personal device for soldiers where this company or I don't know this Department of Defense wanted to have a touch interface sort of carried by the soldier on his gear. And this is something that not many other technologies could solve. And the Neonode with our zForce technology is also a good fit there. So we believe that we have a play in the military and avionics market, and it's not only aircraft, it could be also ground vehicles and it could be infantry soldiers and other things.

Yes, great. That was my feeling also. So thank you so much, Urban for clarifying that. And thank you, the other people on the call as well.

The next question will come from the line at Philip Schwarz [ph] with Mark Capital.

Yes, hello. Thank you for taking my questions. I have a question for maybe, it's Maria or Urban. But I feel like the shareholders need more information on this shelf registration, and also the $25 million sales agreement will B. Riley is it? Should the shareholder understand that the B. Riley now allowed to sell $25 million worth of stock at the market -- at the end market?

Yes or no. First of all, shelf registration is a pre-registration of securities typically shares that we can use during three years. We have the shelf that expired last year, during the spring. And now we are setting up a new one or have set up a new one. This allows us to industry period do take downs and have direct offerings. You can do pipe deals or we can do ATMs using this shelf. So that's what Maria mentioned, the board considers like Good Housekeeping to set this up. We have no immediate plans to use the shelf like this or do a direct offering or similar, but…

And let say B. Riley -- what is the purpose? What will they do? Is it private placement? Or is it yet selling in the market?

So the shelf is something Neonode setup by our own and we have this now in place. And as soon as it's improved, we can use it. The second one is an agreement with B. Riley for an ATM. We can then at our own discretion decide if we're going to sell shares through B. Riley's trading desk. Those shares will be sold at market price and we will control that sales of shares from Neonode. It's done at market price, no discounts and also very low fee. So we think it's very favorable for investors that we have this. Maria also explained that also in this case….

Sorry. [Indiscernible]

Sorry. Yes, please let me finish. So the board hasn't decided to use the total available amount. But if the shelf and ATM is approved by the SEC, we have this option. And as Maria explained when market conditions are favorable, probably we're going to start selling some shares through B. Riley in this ATM agreement.

All right. So the selling will B. Riley's at your discretion?

Yes.

Absolutely. Yes.

If you want to buy shares, give us a call we can give you at a good price.

Okay. Definitely.

Thank you guys.

Perfect. Thank you so much.

With that, we are showing no further audio questions at this time. Do you have any closing remarks?

Yes. Let me say a couple more words. Just to round off, I would like to direct your attention to our new website. I introduced it before and we want to have more traffic to our new nice looking website neonode.com. We are continuously adding content and updating, so please stay with us through this media and also other social media like LinkedIn and Twitter. Thanks very much. And thank you for joining today's call.

Thank you all for joining us for our call. Have a good day.