MicroVision Inc (MVIS) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Microvision Inc., third quarter 2005 financial results conference call. My name is Rachael, and I will be your coordinator today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today's conference. If at any time during the call you do require assistance, please press star followed by zero and a coordinator will be happy to assist you. As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today's presentation, Mr. Brian Heagler, Director of Investor Relations.

Thank you. I would like to welcome everyone to Microvision's third quarter 2005 financial results conference call. Participants on today's call are Rick Rutkowski, Chief Executive Officer; Alec Tokman, President and Chief Operating Officer; Steve Willey, President Consumer Solutions; Richard Raisig, Chief Financial Officer; and Jeff Wilson, Vice President Accounting.

The information in today's call includes forward-looking statements regarding projections of future revenues, plans for product development and production, future contracts and commercial arrangements, growth in demand, future product benefits and future operations, potential future benefits of our equity interest in Lumera, plans to raise additional capital as well as statements containing words like "believes," "estimates," "expects," "anticipates," "target," "plans," "will," "could," "would," and other similar expressions. These statements are not guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are included in our most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission under the heading Risk Factors Relating to the Company's Business, and our other reports filed with the Commission from time to time. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changes in circumstances, or any other reason.

I would now like to turn the call over to Rick Rutkowski.

Thank you, Brian. Thank you, everyone, for joining us this afternoon. We have with us Alec Tokman, myself, as well as Richard Raisig, our Chief Financial Officer; and Jeff Wilson, our Vice-President of Finance. And you’ve heard from Brian Heagler.

Today we’re reporting the third quarter revenue of 3.3 million and revenue for the nine months of 12 million. That is an increase of 27% and 62% respectively over the 2004 results. While those are good, solid gains, it is short – the quarter is a little short of our target principally in the contract area. We are about $600,000 or $700,000 short of where we thought we would be on the low end. That relates principally to some delays in our completion of work that we are doing for Ethicon. That project is ongoing so we will recognize additional revenue, we believe, in the coming quarters. We did fall short in that regard. Having said that, the bright spot is that product revenue continues to track nicely for us. We expect to be able to report good results with respect to Flic, in particular, going forward in the very short term.

Product revenue increased to 1.2 million, more than double last year’s third quarter, up 10% from the second quarter. $782,000 of that were sales of the nomad system and 368,000 from sales of the Flic scanner. I think what we’ve said about Flic is that we expected first half sales to be roughly flat and some upturn starting in the second half. We did have some good bookings success in this quarter in terms of getting up the – increasing the sales funnel. Some of that this quarter was actually left as backlog. So we have a $200,000-and-some-odd-dollars backlog going into Q4, of which a sizable chunk is related to Flic. We feel very good right now about further growth in the fourth quarter for Flic and staying on track with our prognostications from late last year and earlier this year. We think that we can continue to grow that through 2006.

Nomad sales for the quarter had a heavy component from the balance of an order to General Dynamics and the US Army associated with the mounted warrior program and shipments to Stryker brigade in Iraq. We completed that shipment and so for going into fourth quarter we’re looking at sales of nomad being comprised principally of commercial revenue and principally in the transportation and automotive sector. Alec and I will talk about our strategy and tactics going forward in terms of being able to put that revenue line on a growth path as well.

For the nine months, product revenue was 2.8 million, up 52% from the 1.8 million recorded last year. 1.7 million of that was sales of nomad systems; 1.1 million from the Flic scanner. Contract revenue for the third quarter was flat. As we said, that was below our expectations – 2.2 million versus the same period last year. For the year, we did have good strong growth with year-to-date contract revenue of 9.2 million, a 64% increase from the same period a year ago.

Our backlog also up substantially at the end of the September quarter – 4.9 million versus 3.2 million a year ago, so a 53% increase. And 4.6 million of that is development and actually close to $300,000 – $276,000 for nomad and Flic scanner product. So again, we think we’re well positioned going into fourth quarter especially with respect to Flic.

Our operating loss for third quarter was 6.9 million; 18.3 million for the first nine months. Both of those compared favorably with year-ago numbers – for the quarter an improvement of 1.6 million; for the nine months and an improvement of 5.1 million. We did have some items in our consolidated net loss that are probably important to understand probably most importantly a total of 5.1 million in non-cash charges associated with restructuring of debt and conversion of preferred – convertible preferred. Obviously the benefit side of the conversion on the convertible preferred is that we have substantially the debt load on the balance sheet. Subsequent to the quarter an additional 1.8 million of debt was converted leaving us today with 13.2 million in convertible debt and convertible preferred versus $20 million going into the quarter. We do think that that is favorable. These are non-cash charges, some of it associated with the restructuring of a $10 million senior secured note. That was restructured to remove the exchangeability feature into Lumera shares. So in effect, we have also removed a call that was written against those shares as well. If there are questions about those adjustments and one-time items, we’re happy to speak to those as well.

We also include our share of Lumera’s net loss, also a non-cash charge in the period, third quarter and nine months – 610,000 or $0.03 per share for the quarter and 2.5 million or $0.11 per share for the nine months. Beginning in July we have bid again – I think we’ve reminded you of this before, but Lumera’s results are now accounted for under the equity method of accounting. Prior to July we were consolidating those with the Company’s results. If there are questions about that accounting method, we can be sure to answer those in the Q&A.

Consolidated net loss, including those items was 12.6 million or $0.56 per share for third quarter 2005 compared to 10.1 million or $0.47 per share in the same period in 2004. In the 2004 period we did not have those extraordinary items. For the nine months we reported a consolidated net loss of 24.7 million or $1.13 per share compared to 25.3 million or $1.18 per share for the same period last year. In last year’s numbers we did not have those restructuring and conversion charges.

I’ve already mentioned that as a result of this restructuring and the preferred stock conversion and the subsequent conversion we have, we think improved our balance sheet by reducing convertible debt and convertible preferred from 20 million down to just over 13 million. We ended the quarter with 1.4 million in cash and equivalents.

I’d like to, having reported on the numbers, elaborate a little bit on our near-term goal of continuing to focus on ramping product sales. We think we see very real opportunity with both products to substantially increase sales from our current base. We think we will start to see a significant increase in the fourth quarter in Flic activity. I think Alec may comment on the funnel activity as well.

I am going to ask Alec to lead the discussion with respect to nomad and Flic and some of the things we’re doing to drive process. In the release, I think we do talk a little bit about refining our focus in terms of segmentation applications and selling process, training process all of the things we think can help us gain more traction in the field with both products.

Thanks Rick. As Rick has mentioned, our near and mid term focus on improving trends in growth on the existing products, which includes heads-up display, nomad, and hand-held scanner called Flic. We have done a detailed baseline of the existing customer base to understand why we have promoters within our install base and why we have detractors. We conducted detailed interviews to understand what people liked about our products, what people didn’t like about our products and where they were positively satisfied. This analysis yielded several areas of focus. Several of them are based on our commercial effectiveness and some are related to product and transactional quality.

On the commercial effectiveness, we are placing a lot more rigor on the segmentation of addressable markets, specifically how we are pre-qualifying our customers. Do we have the right application in place? Is there a net need that needs to be solved? We are going beyond and above to quantify the return on investment or economic value to the business user before we actually proceed with the sale process. We are also spending a little time to understand what infrastructure is in place within particular segments and whether we have the right content to be presented on the heads-up display. This allows us to filter a lot of potentially low-probability sales and focus on strategic accounts.

We also are focusing on extended training and acceptance of this product. What we realized from surveying the customer base is that people really liked the product after they used it for a period of several weeks. We found out also that if people use it for the first couple days and dislike its functionality, they stop using it. As a result, as a part of our extended focus, we are spending a lot more time at the site babysitting the end user until they are satisfied with the performance of the product. We also created a service organization to support all the customer needs post sale. This is any issue that may arise within the user base will be addressed immediately. We created the escalation procedure and resolution process that we will be implementing – we are actually implementing as we speak – to improve our readiness to support the end user, whatever they need.

On the Flic side, we found out that there are several improvement areas that we need to address that today inhibit our growth. Or we are not growing as fast as we would like to. Specifically it relates to product quality. Right now we feel we have a very healthy backlog for the fourth quarter on Flics. We are addressing all the low-hanging fruit associated with this product’s performance and transactional quality, essentially our ability to deliver.

I think this is, in a nutshell, a summary of what we are doing on the near term product growth. We also are in the process – in the middle of developing business operating plans for 2006. It is one of the processes that have been transplanted, learned at General Electric, and we are implementing it a Microvision. As a part of this process, we are focusing on the strategic roadmap and developed our vision for the next five years. Based on this vision, we are rationalizing the existing portfolio and projects and prioritize according to the decisions we are going to make over the next months.

One of the things that we have talked about as a theme is the development of the appropriate kind of channel to bring nomad to market. I think some of what Alec has touched points to that – the need for training and support and after-installation support, the need for network integration, the need for not only qualification and understanding of the content, but in some cases, modification of the content. We’ve also developed some software tools that help us to optimize the visual display, the content for display on a nomad. We think all of these are important applied learning of things that we have learned in the field through, more recently, a more rigorous analysis.

I do want to point out that we have talked about a couple of particular partnerships that are in the pipeline. Those deals have not transpired yet, but neither have they gone away. I think what we wanted to do was ensure that we understood all the process elements so that when we brought our partners on board, we could quickly train them and, even though it causes a little delay in the sort term, I think it will allow us to move much more quickly and more effectively with those partners when we’re able to provide them with the tools that we’ve developed from our learning, including as Alec said, transactional tools, the training, the timelines, as well as some of the ROI metrics. We have talked about our work with Hunter. That continues to be very promising. We have interest from Hunter’s distributors overseas as well as in the US. I think that we will see during the fourth quarter and through 2006, some activity there.

More importantly, though, I think that is a good example of another theme that we’ve articulated, which is the idea that in order to gain traction in the market, it won’t be just about scaling our market footprint by partnering with systems integrators, it will also be about identifying applications, which have a clear and compelling benefit. In this case, having the appropriate type of content, is important to that. We have done some very interesting work with a couple of Fortune 100 companies in the US and in Europe. There is a lot of time spent on the front-end of these. But we think that becomes very important in terms of a more rapid rate of adoption as we go. We are taking great care in designing the application. We are starting to see interest in OEM potentials with nomad. I think in terms of the strategic view of the product, the way we see this developing is initially a heavy focus on strategic accounts. In many cases we will want to work with systems integrators on those strategic accounts. We have some opportunities in the funnel with very significant names, both on the account side and on the integrator partner side. To the extent that we can succeed in just one or two of those, I think we could see something quite scalable. The focus beyond that then would be to grow the channel partners with systems integrators to repeat that success and longer-term OEM partners.

I may have mentioned – I am not sure if I did, actually – on our last call, that we have started to see interest already from some very large potential OEM partners. That is not something that I would project very soon, certainly not in the first half of next year – maybe not even during 2006. I don’t think we’ll bake much of that into an operating plan. It is significant that we are seeing some major office products brands and enterprise solutions kinds of brands talk to us about potentially branding the nomad product. I think we are seeing a growing perception of the product as offering a unique kind of solution for certain kinds of applications.

In terms of – I think you had some conversation earlier with Andrew about some of the things that we’re – another piece of segmentation. Hunter is a part of it. Military maintenance is another area that we are heavily focused on. The model is we have to go in. We have to perform. We’ve got to document the success in terms of the ROI and then sell that higher up in the organization. We’re also focused on trucking as another high-value segment.

Exactly. We are working with one of the largest, Peterbilt distributors in the US on quantifying the value proposition. The customer expressed an interest to help us in getting this information. As Rick has mentioned, lack of having quantifiable ROI has been one of the barriers for further growth of nomad as a productivity tool. This is where we are placing a lot of focus right now. We believe this should enable us to grow within the strategic account space and then use them as reference accounts for everybody else.

I think these improvements in cycle-time, rigor, discipline, the various elements of all these processes are going to translate into, we think, a more powerful connection with the ball. We think even modest gains in each of those areas can result in significant gains in the batting average to belabor the metaphor a little bit.

Flic, as we mentioned, we are encouraged with short-term. I would say it was a very strong validation of the fundamental premise of the product in the marketplace. We have seen continued and growing interest in the fundamental attributes of Flic – simplicity and affordability. One of the things that we’ve made a lot of progress on, and was one of our key objectives in 2005, was getting the infrastructure below the waterline in place to support the product. What we mean by that is there is a lot of connectivity options in terms of – can I integrate a Flic with a blackberry? Can I integrate a Flic with a tablet PC? Is their Bluetooth stack compatible with this smart phone or that? We’ve seen our applications matrix grow dramatically. Some of that has been with the support of traditional independent software vendors. Microsoft has played a role in helping to facilitate that support. We’ve gotten some clarity on which of those connectivity options to emphasize and which applications to emphasize through working with existing customers, as well as some prospective customers, in the mobility space. We are seeing a lot of interest in coupling low-cost barcode solutions with smart phones, PDAs, and blackberries, for example, for everything from field force automation to asset tracking of various types. So, as I said, we are going to, we think, start to see the first meaningful evidence of this in the current quarter. But we do expect that, with some process improvements in both transactional quality as well as some – we have introduced some improvements to the product; there are more to come – that we can continue to see that grow through 2006.

We have also, in addition to our primary focus in the short-term being on executing in the market with the two existing products. I think it’s important to understand that part of the contribution that Alec is making here is allowing us to take a whole-enterprise approach to that. In other words, it is not just about pushing the sales and marketing processes. It is about the entire process from engineering support through manufacturing and integrating those functions effectively to support customers more effectively and produce a better quality overall customer experience. I think we’ve made tremendous progress in a very short time in that regard. Some of it in identifying key areas of focus. In others more tangibly in progressing down that line. So that continues to be, we think, a very strong focus.

The other thing that we’re quite enthusiastic about, though, is the potential for substantial additional progress in the OEM side of the business. By that we mean offering the Microvision technology as an enabling solution display or image-capture solution. Our work with Ethicon is a good example of that type of program. We did announce during the quarter we think an important potential partnership with Bosch that we think continues to develop in a very positive direction. Our go-to-market strategy with an automotive head-up display would be to work with one or more of these large tier-one suppliers to provide the final end product to the automotive manufacturers. BMW and Audi are some of our lead customers. We have seen a tremendous increase in interest and customer activity in the last several months. Very, very important in this effort is technology milestones, in particular those relating to the availability of lasers. The news on that front has been extremely good in terms of the kind of progress that we’ve seen. We’ve been able to work with multiple vendors. We have developed a proprietary modulation scheme, which enhances the suitability of those products from multiple vendors and opens the supply chain and we think potentially retires substantial risk associated with productization.

Bosch, we think, is exactly characteristic of the kind of partner that we would go to market with. You will likely see a European focus with Bosch. To the extent that we have interest, as we do in Asia, you would see a similar kind of relationship emerge there. With respect to the production timelines, the pacing issue is the availability of a green laser. It is important when Bosch and Microvision go together to OEMs that we can have a certain delivery date without hesitation or qualification. That means we have to work hard to gain that certainty. We have been extremely encouraged by the developments on the laser side in particular with the product.

Overall the prototypes that have been produced continue to meet and exceed customer expectations. I had an opportunity first-hand to experience one of these in an Audi in Munich. It really is a very worthwhile experience. This is one of, we think, our business cases that is emerging as a very case strong case because of the timing. We are seeing customer demand for head-up displays in automobiles. It is early in the growth cycle for this kind of feature in an automobile. OEMs are recognizing the limitations of the existing LCD-based solutions with respect to performance, in particular contrast levels. Our contrast is about ten times that of the competition. Our package size is about half of the competition’s. We believe we can be substantially lower in cost. It is these features that we think Bosch is responding to and others are responding to in the market.

Another aspect of this that I think is worth highlighting – and I am sure I have mentioned this before – is the head-up display is enabled by the investment that we’ve made in nomad directly. We’re going to gain even further leverage off of that. One of the things, the reasons that we’ve seen these developments in laser technology is because people are now looking at laser illumination for desktop projection systems in order to make those more compact. What they are targeting would be the size of two hard-cover books, for example – maybe a little bit smaller than that. What we believe can be enabled by a scanning laser solution could be closer to the size of a pack of cigarettes or a deck of cards that could literally be slipped into a breast pocket. Before I ask Steve to comment on what we call pocket projector or pico (ph) projector, I would do two things. One, point out that what we’re emphasizing is the continued leverage that we’re getting from this platform – nomad enabling the automotive HUD and in turn enabling the pico projector. We don’t anticipate that there would be product revenue associated with either the automotive HUD or the pico projector, certainly not in 2006, probably not in 2007. What we do have a very strong focus on and heavy emphasis on, is putting together the kinds of partnerships that will lead to commercialization of those kinds of products with world-class partners.

Steve, I think at that point, I’ll ask you to talk a little bit about the kinds of activity that we’ve been seeing in that regard.

Regarding the pico projector specifically, that is the response to the two-inch screen, the small screen syndrome that we’re increasingly becoming aware of. The availability of quality and quantity of digital content now being made available to cell phones or media players is clearly accelerating. There is a full recognition that that venue, the small screen, is disappointing the consumer. Therefore, the pico projector, the personal projector, pocket projector is a direct response to that. It is something that is that small and that convenient and Bluetooth to one of the hardware devices that would take the consumer from this limitation that they currently have of a small screen.

There is also a second piece of that. That is, if one can develop such a solution, perhaps that is a next-generation TV set for many of these emerging countries. They are looking for a $200, $300, $400 television that is flexible from a standpoint of use in mobility applications or in the home. All-in-all, there seems to be a tremendous buzz and interest in the market for such a product.

I think we’re seeing a lot of interest from several Asian consumer electronics players – major consumer electronics players. I think the belief is that the only way you get to a package that small is by using this scanning method. (multiple speakers) you could comment on why that is.

It’s exactly right. In fact, as we take time with these large primarily Asian OEMs that are now seeing digital broadcast TV to the cell phones, for example, and have an application and are now looking for a solution, they say first and foremost, the projector must be small. Second, it must be low-power. And third, it must be low-cost. It all relates to the conditioning of the consumer in the cell phone market. So they are looking for solutions about he size of a cell phone, about the cost of a cell phone, and the power consumption of a cell phone. And the alternative today – there are a couple of different approaches. Both use flat-panel technologies. One is a myrad (ph) technology. The other an LCD-based technology. Both of them create a physically large package because of the heat that is created or just the geometry of the optics. The size of that package ultimately relates to the cost of that package. Because of the inefficiency of the system, you have a power consumption issue.

So there is the general belief that, whereas there is an architecture out there today that is being fielded or will be fielded as a micro projector, it’s not the right solution. It is not really what the consumer is looking for. And a scan-based solution – again the belief in the industry, fortunately, is that a scan-based solution can get them there. That is the reason for the recent interest from those parties.

I think we would expect to see more of that. You mentioned cell phones a couple of times. I picked up a headline earlier today that mentioned that in under 20 days Apple had seen downloads of a million videos. The thrust of the article was that this was a real validation of the fact that there would be this market for downloaded videos. In the case of the iPOD, it is not a cell phone. So we expect to see this trend of portable media devices being quite predictable. And then, of course in most of the articles that we read about the video iPOD – and some of you may have experienced this personally – of course, that key limitation becomes the display.

I think what we’re discussing here is really an alternative solution to one that you are perhaps more familiar with, which is the idea that we would connect a wearable display to these kinds of portable media devices. We still see that as a very viable approach. Steve, I’ll ask you again to comment on the three paths. We have touched on how out of the automotive HUD development can come this pico or pocket projector. There are really then two additional paths on the wearable side. One is more synergistic with our existing nomad architecture and a lot of the work we have done on electronic viewfinders. I think there are some potential partnerships brewing there. Our principal enabler there has to be the availability of edge-emitting LEDs. The second is on a new architecture, which involves a very different implementation of a scan-beam system using a scanning array that is particularly suitable to enabling very wide field of view immersive kinds of entertainment experiences – the kinds of experiences that one might want in a gaming system. So, Steve, maybe you could add a little bit of color on those.

You certainly hit the high points, Rick. There are two fundamental wearable display architectures. One is what we’d call a point-source architecture. It is developed directly from the work we’ve done with nomad. The interesting part for me is, as you develop that – whether those point-sources or edge-emitting LEDs, or visible laser diodes, or other next generation sources – we can leverage the base modules of electronics and fundamental beam-combining etc. It is a tremendous leverage of everything we’ve done and anticipating new developments in the life-source space, some of which you’ve touch on. It is a tremendous opportunity for us given these growth of mobility applications. That is mobility eyewear point source architecture.

The second you’ve touched on is based on an LED array. The beauty of that is that the LED is commonly available. Our task become building multiple emitters off these common devices. Certainly the wide field of view for gaming applications or IMAX-like media viewing application, that second architecture appears to fit the bill.

I think it’s important to calibrate expectations. These are not products that we expect to see generating product revenue in the near term. However, given the level of interest and the market trends moving towards these – the rate at which the market is moving towards these mobile media player kinds of devices and new kinds of visual experiences – we intend to continue to place a very heavy emphasis on putting the right partnerships together toward commercialization. I think there is potential for some of those to develop in the near future and be important relationships for Microvision.

We continue to feel very strongly that the overall image quality of these displays, especially as they relate to consumer electronics – color quality, color gamut, saturation, dynamic range, I mentioned contrast ratio – continues to be unmatched relative to other head-worn display solutions based on either LCD or original light-emitting diode devices in particular. So we continue to validate that and see that kind of strong interest.

Before closing I would mention that in the DOD arena subsequent to our delivery to General Dynamics last quarter and this quarter, we did receive an additional development contract to continue development on the mounted warrior program. We do have some items in the Defense Appropriations Bill that are significant. The Bill has not been through joint conference. What we have so far are submissions from The Senate and The House, but our going-in position is the strongest that it’s ever been. It’s an aggregate of $15.7 million. We would expect that number to come down. Even if it comes down substantially, it will be in line, we think, with some of our best-ever results, if not exceed them. So we believe there is reason to be optimistic with respect to 2006 from that perspective as well.

Increasingly our activities with our partners in that space and the program office are, I think, going to take more of a systems level approach. I think what we have done in the first couple of instance is show that we can put a display out in the field that is unique with respect to daylight readability, especially in a see-through configuration. I think in order to take what we’ve recognized and in order to take full advantage of this, we’re going to start working on now, focusing on how the content is delivered to that display to really enable real-time situational awareness that we think can be unique and quite powerful with respect to the application.

So I think if we look at our activities with the mounted warrior program office and other program offices, we’ve seen over the last two years a good consolidation of effort in being able to leverage our virtual cockpit activities with our mounted warrior work around heavily overlapped platform architecture. Virtual cockpit has resulted in dramatic reduction in the size and cost of delivering full color systems. But we also think that we have demonstrated some substantial progress toward productization with the ND 2500 product in its current configuration. That can be further enhanced through the integration of tracking systems as well as through some further development of the content. I would again point to that as an area that we want to pay attention to going forward.

Alec, I don’t know if you have any other comments in closing.

Basically I hope you have seen that there are several exciting activities that are going on in Microvision. Just in summary, we will be focusing on four areas. One on the demand creation. This is specifically pertinent to the products that are based on technology push such as nomad. This is where we are focusing on improving our marketing and sales effectiveness.

We are also focusing on execution, specifically pertaining to our product delivery, our ability to deliver when we say we are going to deliver, and product quality as well as multi-generational product lines.

We also – focus is going to be very important. As you can imagine, there are so many ways we can take – we are in the process of very rigorous development of detailed business plans, business cases that are risk-adjusted based on technologies risks, execution risks, environmental risks. We are going to take a holistic look at the overall portfolio and place biggest bets on our most promising opportunities.

And finally, we are going to set realistic, but stretched goals. We are going to hold ourselves and everybody else accountable at Microvision to achieve these goals. That is what we are going to do as a team.

Thank you again for participating. I think if we turn over to questions now, that will give us some time and we can end on schedule.

Thank you, sir. (Operator Instructions) Alan Robinson with Delafield Hambrecht.

Good afternoon, gentlemen. Could you give us a little bit more information on the potential additional order that relates to mounted warrior. You referred to a 15.7 million potential budget. How much of that is possibly coming your way? What does it cover? What kind of time period? It is obviously a lot larger than we had anticipated.

Right, two things. One, a clarification. Not all of that is associated with mounted warrior. Some of that number – about 4.5 million of that 15.7 is purely development dollars. That is designed to continue in this process of what we call spiral development – product improvements, the ability to integrate various kinds of features as we progress through the product development. That has worked quite well. A candidate feature from that would be the integration of multi-color or full-color kind of system. With respect to what the timelines and schedules and statement of work relative to procurement would be, that is a very rigorous process that we go through the program office, typically early in the first quarter of starting now towards the end of this year and through the early part of the first quarter. One of the elements of the Appropriations Bill is contained in the Supplemental Bill, which could – I am going to say something that is unhelpful – it could either accelerate or delay the timing of it. It will likely be a little bit out of synch in either case with the development programs. I think some of that really depends on our ability to converge on the appropriate plan.

It relates to the point I was making earlier that we think it’s very important now in terms of driving demand for this product, that we focus not just on the delivery of the hardware, but on the integration of a complete solution. It is hard to describe this. I think if we were to show it to you, you could very quickly see how powerful this is. I apologize if it sounds like lingo to some folks. It has a lot to do with going from what we call a god’s eye view, which is what you see when you look at a conventional map as if you are looking down at the earth from above. And a ground-eye view, which is what you would see if you tilted that view on its side as if you were looking out at the horizon line. So in other words, actually overlaying the content on the battlefield scene. What is encouraging is we believe that we can adapt the existing system, because all of the content is available to construct those kinds of views. We think that is going to create – our strategy would be for that to create a much more compelling offering that would be embraced by the military. A lot really depends on – how this relates to your question is there will be some discussion of what kinds of budget will be allocated to that system level development. It will include some integration of the tracking system with our helmet and so on.

And has a decision been made yet as to whether the helmet-mounted display will need to be see-through or whether a multi-color opaque display will be okay?

We don’t believe that we are going to pursue a multi-color opaque display. There was a phase in the spiral – I apologize again because this is complex. What is happening here is integration of technologies from various programmatic elements. One of the things that is happening is the Government is trying, as they should, to integrate technologies from other program areas. We’ve had some technology from land warrior presented as a candidate for mounted warrior. In a spiral phase that will occur early next year, they will use an occluded full color display for that spiral phase. That is not a determination about the future direction of the program. There are still questions as to what exactly is the right display solution. Given the existing content, that is probably a good solution for that spiral phase. We think if we can be successful in this demonstration – as I said, I think if I could show this to you visually, you’d find it very powerful instantly and intuitively obvious. We think one of the reasons for the emphasis on this is that we believe very strongly that a see-through display is – I think Alec put it well. See-through is essential. Color is nice-to-have. If we view it from the perspective of the mission being to map – for a soldier to be able to correlate information to the outside scene as quickly as possible and intuitively as possible.

Okay, thanks. I’ll let someone else take a turn.

Thank you, sir. At this time I’d like to turn the presentation back to Mr. Rutkowski for any closing remarks.

Thank you. We appreciate everyone joining us today. I should apologize that the scheduling of our call in conflict with Lumera’s call was accidental. The reason I mention it is, I know there are many parties who have an interest in both companies. We typically are good about coordinating so that that does not happen. It was a bit of scheduling oversight on our part, not Lumera’s part. We need to make sure that we take responsibility for that. In the future, I think, we will be more careful about not scheduling our call against theirs.

While we are short of our expectations for the quarter overall, heavy and important focus on product revenue. From that perspective this quarter was a strong achievement. We want to do as well in the fourth quarter, if not better. We do think that there is room for substantial growth in Flic based on the funnel that we’re seeing in the current quarter. We think we can extend that momentum through 2006. Also, heavy focus among our business development team in terms of securing the sponsorship that we think is available. We think the technology merits and deserves for some very large volume potential markets including the automotive HUD as well as some other vertical market applications of HUDs including aviation, etc., during the next year. So those continue to be the things that we focus on to drive the business.

Thanks again.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude your presentation. You may now disconnect. Have a wonderful day.