MicroVision Inc (MVIS) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the fourth quarter 2006 Microvision Incorporated earnings conference call. My name is Shawn, and I will be your coordinator for today. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded for replay purposes. Thank you. I would now like to turn the presentation over to your host for today's call, Ms. Tiffany Low, Investor Relations Specialist. Please proceed.

Thank you, I would like to welcome everyone to Microvision's fourth quarter and fiscal year 2006 financial results conference call. In addition to myself, participants on today's call include, Alexander Tokman, President and Chief Executive Officer; Jeff Wilson, Chief Financial Officer and Ian Brown, Vice-President Sales and Marketing.

The information in today's conference call includes forward-looking statements including statements including statements regarding productions of future operations, product applications, development and production, future benefits of contract arrangements. Growth in demand, as well as statements containing words like, believes, estimate, 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.

The agenda for today's call will begin with Alex's discussion of the 2006 operating results. Next, we will hear from Jeff who will report the 2006 financial results. Alex will then discuss our outlook for 2007, followed by Q&A. I would like to turn the call over to Alexander Tokman. Alex?

Thank you, Tiffany. Ladies and gentlemen, thank you for joining us this afternoon. Hopefully we will give you comprehensive summary on 2006 and give you some outlook for 2007. I will start with the operating results for 2006.

In 2006, we set, communicated, and zealously pursued primary goals of redirecting the Company, focus and efforts on the mobility markets from niche markets [inaudible] prior to this. We also set to place Microvision on the accelerated path to high volume consumer and automotive products while at the same time minimizing the burn rate. I will start with fourth quarter milestone and the highlights of the fourth quarter include three activities, three results.

First related to two strategic development partners with high volume, manufacturing expertise for the rapid advancement of our Integrated Photonics Module and road map. On the third milestone relate to the successful consumer electronics show showing we did in January of this year, specifically this is what I would consider our most notable achievement for 2006 as we defined the product and accelerated design and commercial development of the Integrated Photonics Module which is our tiny display engine to the [prototype] variety of OEM products targeted for high volume consumer and automotive applications.

Our rapid progress starts this new goal was validated at CES where we received significant attention from global OEMs as well as extensive industry and media coverage. The events miniature projection prototype was developed in corroboration with our partners and with our Green Laser suppliers and it showed great fruit of the partnerships that we established in the second half of 2006.

Overall, throughout the year we obtained most of the significant objectives set forth early in the year. These include completing the definition and implementation of the new business strategy. The second one was restructuring and realigning the Company to improve focus, execution and reduce operating costs.

In the process, we build new management and new Board of Directors. All with while simplifying Company [CAP] structure, completing significant financing, and retiring debt. s

Other significant accomplishments for 2006 include external validation from our partners and customers. We entered into agreement with Visteon to develop and commercialize automotive heads up display. We were awarded almost $6 million of General Dynamics, C4 systems to develop and deliver full-color daylight readable see-through helmet-mounted display. All our work performed under this project will be applied to [inaudible] operation of consumer color eye activities.

We are announced strategic relationship with the Fraunhofer Institute of Photonic Microsystems. This is an ongoing effort to ensure that we maintain and increase our lead in area of MEMS scanning. We made significant progress in build and supply chain infrastructure to accelerate commercialization of the IPM. In the process we funded Green Laser Development Partner, to accelerate its solid stage Green Laser developmental, while aligning our development road map with two other Green Laser Development and Supply Chain Partners. We also as I mentioned entered into joint development agreements with both a large Asian consumer electronic manufacturer and a global optical manufacturing partner to develop high volume designs for manufacturing of Microvision proprietary integrated photonics module.

On the Flic scanner front, we improved the design and streamline supply chain through a series of win initiatives to improve performance, quality and capacity for this specific segment. We reduced field returns by 85%, increased capacity by 300%. Released new connectivity self-through to grow new mobility segment. And signed agreement with networks systems and technologies, an Indian based design development house to move an offshore some of the majority of the development and support for the bar codes counter to India.

At this point I will pause and let Jeff summarize the financial results and I will come back with the 2007 outlook.

Thank you, Alex. Our revenue for the three months ended December 31, 2006 was $1.8 million compared to $2.7 million for the same period in 2005. And for the full year was $7 million compared to $14.7 million last year. Our revenue was lower than our previous guidance of 8 to $9 million for the full year due primarily to our reallocation of people away from revenue generating projects and on to the project of completing the demonstrator for the CES show.

In addition, the sales cycle for Flic sales into the mobility market was longer than we had expected. As we previously discussed, some of the contributing factors to our lower revenue for the year was the completion of the Ethicon contract. In 2005, we earned $4.9 million from work performed on this contract compared to $800,000 in 2006. In addition in 2005, we had a one time sale of Nomad System's to the United States Government of $1.2 million, so it was not repeated in 2006.

On a strong point, we did end the year with a backlog of $7.2 million compared to $3.4 million at the end of 2005. We reported an operating loss for the fourth quarter of $7.9 million compared to $9 million for the same period in 2005, and a loss of $9 million for the full year 2006 compared to $27.3 million in 2005. It's significant to note that even on our lower revenue after adjusting for the impact of FAS 123R and severance expenses our operating loss for 2006 was lower than 2005. This is a result of the significant cost reduction efforts that we undertook throughout the year.

We reported a loss available for common shareholders for the fourth quarter of 2006 of $8.7 million or $0.21 per share compared to $5.6 million or $0.23 per share for the same period of 2005. And $27.3 million or $0.81 per share for the full year 2006 compared to $30.3 million or $1.35 per share for 2005. We ended the year with $14.6 million in cash and cash equivalents. And we own 1.750 million shares of Lumera common stock with a market value of approximately $7.5 million. The shares are posed as collateral for the Company's notes which are scheduled to be retired later this month.

With that I will turn the call back over to Alex to talk about the 2007 outlook.

Thank you, Jeff. Let's focus for a second on 2007. Provide you some main focus areas and provide color behind each of the goals we set for ourselves in 2007.

In 2007, we continue to focus on our primary goal of accelerating the path to market for high volume consumer and automotive products. These include the following. First, we focused on developing new business growth opportunities with Global Consumer OEM, Tier 1 Partners as well as U.S. Government. Specifically our goal is to enter into agreement with at least one consumer OEM leading to the development and commercialization of the PicoP projector and ultra-mini projection display that is capable of being imbedded into a hand set or accessory to a hand set or other video output device.

In doing so, we engage in a very important players in this value chain, specifically Mobile carriers and content providers to facilitate our go-to-market strategy with PicoP and with hand set manufacturers. The second goal is to enter into an agreement with the second Tier 1 automotive supplier that will lead to development and commercialization of the IPM based products for the automotive display applications. Finally, we focused on securing a new government contract to continue the development and [miniaturization] of the color eyewear platform.

The second big activity is continuing rapid advancement of the integrated photonics platform and road map and their specific focus areas under this goal. The first one is complete further [miniaturization] of the IPM form factor and reducing its power. The second objective is to complete the initial development phases with the two existing high volume manufacturing partner and define and execute the follow on phases slated for commercialization of the IPM based products.

The third objective under the rapid advancement of the IPM is to build new aligns and partnerships with ski electronic and laser suppliers. Our third goal is delivering on the customer commitments. Recall that we won several contracts in 2006, and now we need to execute on those contracts, specifically the Visteon, a delivery of automotive head-up's display, as well as delivering our commitment for General Dynamics on color eyewear.

The final goal is completing the transformation of the bar codes counter segment. In doing so, we need to -- we are completing the transition of the bar code scanner assembly to a new contract-manufacturing partner. To improve yields, reduce costs.

We also completing the transition of the engineering design development and support to India to our NeST partner. In conjunction with these efforts, as you know we released connectivity features to various Mobile platforms and our marketing team is developed a new [finals] in the growing mobility sector. We strongly believe that 2006 turn around results have significantly improved the Company's credibility with existing customers, prospective partners and investment community, and we were primed for growth in 2007. And ready to take the next step towards our ultimate goal of becoming the indispensable source [inaudible] information, which is our vision and that's what we were pursuing very zealously all year. At this point, I would like to break and we open up for questions.

Thank you. Ladies and gentlemen... [OPERATOR INSTRUCTIONS] Please stand by for your first question. Your first question is coming from the line of Joel Achramowicz with MDM Capital.

Hi, Alex, hi, Jeff, how are you guys doing?

Hi, Joel.

I am, obviously the excitement at the CES show was definitely palpable and you are right, there was a significant amount of interest in the new form factor IPM. Obviously, we are thinking about in addition to the automotive applications with HUD, certainly the application in the mobile space and you kind of alluded to that being a major goal of the Company. Could you give us any color on the tenor of your talks with the potential OEMs currently or if there are obstacles or how you might see this thing playing out? Do you feel confident that you can come to some agreement within a number of months, Alex?

Okay, Joel. Just a quick recap of CES. We exceed the expectation for the activities in advance we planned with CES as we introduced PiccoP in January. We held about 31 private meetings with major consumer OEMs representing all sectors from the value chain, not just the cell phone manufacturers but also Mobile carriers, content providers as well as tier one integrators. All companies without exception were impressed by the size, thinness image quality and low temperature of the demonstrator at CES. Many of them said that their expectations were exceeded. No one anticipated us to be ready at this point in time with such a compact model.

As a result, there is many companies who had interest in what Microvision had offer move to strong interest and a subset of them which had strong interest in what we have to offer have now moved towards more of a commitment and we are in the process of detailed negotiations with several of these prospective partners to hopefully ink a couple of agreements this year. We are excited about the progress made since CES. Recall that I can speak for Joe and probably everybody on the phone who thinks why does it take so long to find a long-term development commercialization contract? The reason is simple, ladies and gentlemen. To make -- to enter successful partnerships you need to have three basic elements. Technology, credibility, and results. We always have technology. We never have credibility, we never show any results.

So what we have done with the credibility, we build it during 2006 and now we were in the process where we are able to negotiate these deals with the position of strength. We have clear road maps. We have laser focus. We have strong financing.

We develop very exciting partnership on the supply chain and we executed and now we have intermediate results which was the introduction of the smallest world's smallest projector at CES and finally people believe that Microvision is actually doing what they said they are going to do.

Excellent. Are you -- I have to believe you're planning on participating in CTIA in Orlando, Florida, upcoming here in a couple of weeks. Certainly that should provide additional venue for you to continue your talks it would seem to me with large players.

Yes, Joe. Our goal is to have a twist, one development agreement in the first half of this year. And I'm optimistic of this happening. Notice, I said twist once. This is something that I'm pretty confident we can achieve in terms of one agreement.

That's certainly encouraging. Couple of other brief questions. One, regarding the automotive HUD market, have you been -- you have been working with this. Have you completed any kind of future design reviews incorporating of head-up display or dashboard technologies that would incorporate the IPM into future models?

We -- we are delivering to Visteon is-- are the advanced models that they would then use to [inaudible]-- their discussions with automotive OEM partners. We have an exciting opportunity in the automotive sector outside of head-up's displays. There is a lot interest in using PicoP protectors for instruments across their display applications, market is huge. If you think about how many displays available today, just a single number is much greater number of pods that could be installed. We feel excited about this opportunity.

Of course, I remember Visteon had a mockup there of a display, if I remember correctly.

They did. Visteon, actually introduced our display at the consumer electronics show in their tent and received attention from a lot of OEM customers.

Excellent. One final quick question. I have been kind of hearing rumbling about perhaps possible application of the IPM in aspects of printing, maybe in laser printing and, in fact, some of your patent applications you mentioned that electro photographic applications as possibly another sector for application of the IPM. Any color on that or any thoughts? Is that something you are looking at?

We have developed technology and intellectual property around MEMS for laser printers. However, at this time since we decided to reduce the focus on the initial high volume applications, we are not heavily pursuing this specific opportunity. But it's always in the background and if the right partner comes around we will look at very carefully.

Good luck going forward. And I will get back in queue.

Thanks, Joe.

Your next question comes from the line of Jeff Miller with JMG Capital. Please proceed.

Thanks, guys. Some questions on some of the financials for the fourth quarter and also going into '07. What was your cash burn for Q4?

Cash burn from operations was about $5.9 million in Q4.

Great. The SG&A increase of quarter-over-quarter, I'm assuming that's for ramping up and getting the big push for CES in January?

SG&A increase, I think the only real SG&A increase items we had, we had some additions to the management loan reserve. And we had some severance costs. Were the only significant---- -- associated costs.

Just to give you a summary on SG&A. When I I've arrived to Microvision at [deanna wall five], we had about 170 people and 56 engineers. Today we have 130 people and 75 engineers. You can see the change in SG&A ratio to development resources. We heavily, heavily focus on enabling engineering team to deliver on the technical road map. This is where all of our money and focus have been placed on.

Year-over-year our SG&A cost is down considerably.

Yes. Very true. Can you go into some more detail about '07 in terms what your cash burn is going to be that the cash on the books is I guess around $14 million I think you stated. And the Lumera stock is worth about $7.5 million if you sold it. You are obviously going to be taking down the last of the debt on your books. Can you provide us some sort of guidance? Can you give us some --

I think the biggest guidance we can tell you is that we believe that the cash that we have and the investment we have with Lumera is sufficient to carry us through 2007.

Okay.

There are a couple of elements. All the cost-reducing activities we have done throughout the 2006 will take in full effect in 2007 so we expect reduced burn rate from what you see in Q4 of 2006. In addition to this, we spend close to $11 million beyond to retain our debt and convert some of the notes last year. This $11 million cash payment in 2006 has been reduced to a $1.4 million which we will pay very shortly to become debt-free.

Great. That's fantastic. I think that's all have I for right now. Thank you.

Your next question comes from the line of Michael Maze, Private Investor.

I was just curious like so many other investors about the status of some previously announced development contracts vis-a-vis Bosch, Ball Punk and related potential customers such as Volkswagen Audi. If you could maybe give us a status update on those development contracts.

I'm going to try to answer this question. I want to say that during my administration, nobody had announced anything about Bosch, Audi or any other agreement. I will speak for the past but I can't speak for the present.

There was some development in the past with Bosch and several German OEM customers. These activities led to delivery of some of the prototype, HUD prototypes for further evaluation. We have not -- I don't believe we have not announced or talk about any detail, agreements with Bosch or any other German automotive OEM partner in 2006 or to date. So we have -- we do have -- we do have several extensive negotiations with Tier 1 integrators in addition to Visteon, and we expect positive results coming in 2007.

Thank you very much.

Your next question comes from the line of Pat Galven. Private Investor.

Yes, sir. I was wondering with our holdings with Lumera, our investment in Lumera, are we planning or do we have any strategic joint operations with them utilizing their capabilities.

I think you have a two part question. First one, yes, we have 1.75 million shares of Lumera stock which we consider valuable asset. And as you know also as of March 15, we will be able if we need to use these shares because they were served as a collateral for our debt to the note holders. In terms. The -- of the synergy between Lumera and Microvision, there are certain optical technologist and IPs that we have developed, yes, could be used by Lumera specifically for the photonics business and we have discussed the potential opportunities in 2006.

Would this be with their light modulator their conversion from analog to light data processing or with their bionic or biologic --

It's related to the proteomic processor basically to capture the information, capture the data, to scan the data and then to surpass it on to the analysis software, yes. You're correct.

Okay. And have we sold any of our projectors?

We have not sold because we have only develop advance prototype and the goal for CES was to show for the first time that we can develop a very tiny display that can produce a large color rich image. Our goal for the 2007 further [miniaturization] of this display, further power reduction and at the same time we ramp in the supply chain in aligning all the partners, green laser manufacturers, the integrators and others to ensure that we are ready for 2008.

As I mentioned earlier and most of you probably want to ask me this question, where are we targeting initial commercial introduction. Our target is for the second half of '08.

Okay. Thank you kindly.

Again, ladies and gentlemen, that's star-one to ask a question. Your next question comes from the line of William [Despair] with CF Barney. Please proceed.

Hi, gentlemen. Could you reiterate or give us more color on the progress of the Green Laser light source. Then the second question would be, if in fact you make another HUD agreement, how would that fit into Visteon and again I don't know if I heard the last question but are you targeting the integration of cell phones and cars, et cetera, for the second half of 2008 launch.

William, I think you have three questions.

Yes, I do.

You have first, progress in the Green Laser. Let me summarize and second one, how does this apply to Visteon and third, are we working at applications inside the car other than HUD --

I was asking if you make another HUD agreement, how would that fit in with Visteon?

Fair enough. I got it. Let's start with the first one. The progress since we took a more active control and ownership of the supply chain activities around IPM and PicoP specifically related to green laser manufacturers, we are happy with what we see in the progress made by all three green laser manufacturers. As you know, two are already actively communicated to their investors that they are working on accelerating path green laser specifically for the PicoP projector applications developed by Microvision.

Third partner is rapidly a ramp in their resources and shortening their development time-lines to depart of this important value chain. So the progress is very, very good. And as you know at CES, both Corning and Novalux have announced this partnership with us. We expect good things from the third green laser manufacturer which is [Ausuram] a powerful -- they have powerful capabilities and were very excited all three are focused on this specific market. So this is question one, question two is Visteon, how does activities with other Tier 1's affect Visteon.

As I mentioned you, in 2006 we targeted nonexclusive agreements with Tier 1, as well as the consumer OEM partners. With the goal to improve while increase our market and as a result we -- as a result of targeting nonexclusive development commercialization agreements, the Visteon development does not come from my because we are not going to reuse the know-how develop Visteon team for other projects we expect to maintain exclusivity in terms of not reusing work from one partner into another. And in the process complete all deliverables that we established in each individual agreement, so there is no issue at this time of signing multiple Tier 1 to develop various applications.

And so could you reiterate again, you are looking for the products launches potentially in 2008 as you said one time winning the division and then 2009 winning the Super Bowl?

Yes, that's what I said. So we are entering playoff year. We are rebuilding in 2006 and enter -- we are shooting for playoffs in 2007. To us playoffs are accelerating the road map, signing additional partners and getting supply chain infrastructure in place 2008, specifically the end of 2008 is target for early commercialization. This is our championship game and the full-blown release of several products that are targeted for '09. In terms of the sequencing of the introduction we are targeting in PicoP accessory as the first product followed by the embedded and head-up display and soon after color eyewear.

The other thing I picked up here today was the other market for the car market besides HUD. Could you give a little more color on that that you said it might be bigger than HUD that market.

Absolutely. There is interest from most of the global Tier 1s in improvement. The workflow with all the displays, it's available in the dashboard, center console, et cetera. As the number of devices increase, as the information that is bombarding the driver increases, most of the OEMs will give way to optimize how this information flows, more gadgets you put around the driver, the less space you have for other things. So the car manufacturers are looking at re-programmable instrument cluster displays. And the perfect technology for it will be a small display, such as PicoP embedded some how inside the dash to provide this capability, provide this program -- I can't even pronounce it. Re-programmability. And because we have these features, we are not slaves to a conventional rectangular form factor, such as other LCD, DLP and Alco displays. We have a very simple, a unique pixel element in form of MEMS, which we modulate temperably and spaciously obtain a colorful image essentially allows us to be placed in very small form factors spaces to produce these colorful displays. So this market is exciting because we've heard from several Tier 1 integrators. They look at this as a major growth opportunity in the near future.

Thank you very much. And one more question. It relates to Flic. Can you give more color on the -- you have a new Flic or any -- it's a new manufacturing process and maybe Ian can give us some color on ramping up this year in that market.

When start, I will let Ian finish. What we have done with Flic, what we have done with Flic in 2006, was we wanted to address the internal capability. Recall that we were targeting [Suriana] market segment specifically, AADC households and in 2007 we focusing primarily on mobility market. To be successful in any of these you need to have a quality product. What we have done first, we fixed the quality of Flic. That resulted in 85% less field returns than we had before and it was in the second half of '06.

We also addressed the infrastructure issues associated with the supply chain and predictability of our partners and we move into a different partner and as a result expect to improve the capacity. Ian's team is focused on growing the mobility market and he will tell you -- Ian, why don't you say where you are and what you have been doing.

Sure, as Alex said, our strategy last year was to move away or rather focus on segments which were higher ASP's and brought more value to the company as is our responsibility. And so one of the segments identified was that of mobility. Now, to do that we spent a lot of time working last year to build a robust tunnel. We spent a lot of time in forming relationships with value added resellers and also some of the handset manufacturers in the mobility space. And we were seeing that traction happening this year. In fact I'm pleased to say we have signed up around five value-added resellers, three in North America, one in Asia and one in Europe. This is a real indication I believe of their belief in our product and value proposition that it brings in the mobility space. We also have some very strong partnerships with ISVs, that's Independent Software Vendors, for identifying applications that will again will add value to our customers which we can bundle with which will improve our selling price and ultimately the margins that we are making on this product. I'm pleased to say that I really think we will have a good orders quarter. And we are really expecting the bar code scanner segment to fulfill itself this year.

Thank you very much, gentlemen.

Again, ladies and gentlemen, if you wish to ask a question, please press star-one. Your next question comes from the line of Mark Lindbergh, Private Investor. Please proceed.

Hello. So was the Consumer Electronics Show was a great platform for product awareness. I'm wondering what other creative things you are doing for marketing exposure. The other question I had is, are you working with any camera manufacturers either for plug-in external, plug-in adapters, or incorporated into the body of cameras?

Very good question. We do have interests form this area. But one of the success factors for us to enable late [inaudible] introduction is focus. Today we have about 20 to 25 global consumer OEMs who are interested in a variety of products based on PicoP and IPM platform. We obviously cannot address all of the different people requirements and do this effectively with the force that we have today at Microvision.

As a result, we have to put focus and prioritize on the highest probability, highest ROI activity. These activities involve, cell phone manufacturers, and consumer-- electronic consumer OEMs with the product that have volume and the need for this feature more than a nice to have. Let me give you an example. To have to put a view finder in a camera based on this technology, it's a nice-to-have feature because it gives experts an additional information that they would not get from a typical camera that is sold today.

To take a cell phone screen-- two inch screen and expand it into 30-inch or two-seat or five-seat screen is a must-have feature because today it represents a bottleneck for all mobile users who ever tried to use text messaging, mobile TV, watching video on a cell phone. So we understand all of the other applications. We consider them seriously but we were focusing on the big impact ones first because we have finite number of resources that we want to get to market fast.

Okay. And my other question was about what other creative things you are doing for marketing exposure?

Our marking strategy is simple. It's about a CES-- OEM awareness and understanding of the consumer and automotive application. We feel we have a good hold right now and a very strong attention from the old major global players for the, specifically, for the high volume consumer applications involved in PicoP Projector embedded inside a hand set and/or PicoP Projector package as an accessory to any video output device.

And do you feel the strategy of working with the OEMs is what drives the business or is at interest from the consumer which peeks the interest of the OEMs?

Typically the way it works, as you know is consumers want to test the market with new application and what we try to do right now is the reason for the acceleration of the PicoP and IPM road map is to complete something by the end of the year. So we can do some limited trials early next year to get the consumer feedback and to provide final input from the end consumer on what the end product should look like.

Okay. Thank you very much.

And your next question comes from the line of Arthur Doglione with US Fiduciary. Please proceed.

First I probably ought to make some corrections. It's Arthur Doglione and it's US Fiduciary. First off, I want to and -- I want to say I have been watching this Company turnaround occurring, Alex, since you got there and I'm pleased to see that you identify a key set of objectives that you are going to set out to attain and a bit involved in turnarounds like this in the past and generally they take a whole lot longer and don't ever work out as planned. So far from what I can tell you have absolutely built credibility with me. And I believe that in some things I expect to see over the next year will demonstrate you have in the marketplace. Can you speak to the competitive landscape as it relates to alternative technologies to the IPM in mobile devices?

Absolutely, Arthur. That's a very good question. We have different competition and on the application. So we are focusing right now on four primary applications. First one is the projector embedded inside a handset. Second one is projector package as an accessory with its own power supply and other controls to function as an independent device. Third one is the color eyewear and the fourth one is the head-up display. If you look at each one individually, in the miniature projection space as pertaining to the embedded devices we have very little competition today and it's not our conclusion, it's the conclusion of the prospective OEM partners who had told us after searching for several years for the organic and other inorganic solutions to do so, the reason it is so and the reason we feel very comfortable about the cell phone market, because 2D-MEMS cannon technology and anything based on that has a smallest form factor.

It's the only technology that could be made thin enough to fit inside a very thin mobile hand set that are produced today because of the laser power it gives you high resolution, great contrast and because of the nature of our IPM and the way we designing it it will be very low power, low power is a major differentiator from other technologies.

As you know there is DOP transmissive and hologram L-cost technology. LCD and [twonera] technology from [Symbol] now Motorola. None of these are small enough or low power enough to fit inside the handset to date. And again this is not our conclusion. This is what has been -- we were told by our prospective partners who again spent several years of their own research and development to enable such application. When you start to move into the larger devices such as an accessory, the competition is increased; however, if you compare the latest generation of the--- what's called portable projection displays from larger guys, such as Toshiba, Samsung, LNG, these are not actually displays you put inside your pocket. If you do you will probable burn your shirt.

What we are trying to develop is something equivalent to the iPod form factor that could be connected to various devices. Something really, really small that truly fits inside your pocket. Third application is the head-up display. Here we have major advantages over others because of the brightness and contrast. Most of the advanced displays that are used today in other automotive industry are based on LCD technology and as you know light source is always on. It's very hot and because it's very hot it needs huge hit sink so the form factor increases accordingly. But the biggest drawback about these technologies for automotive sector is the fact that you have to manually install this to match the variability to windshield of each individual automobile.

We don't have this problem because our image is fine tuned electronically so we were less sensitive to the variability of the windshield and therefore we expect the installation costs which is a critical component in decision for the OEMs to install or not install something to approach this solution. As an example, a rumor has it that BMW have removed Seimen's video as the primary supplier of automotive head-up displays, which based on LCD technology not only because it wasn't bright enough, but primarily because the installation costs were too high. Finally, in color eyewear we have a lot of competition, as you know there's a lot of small niche companies that tried to create a product.

We believe that our IPM, which is the size of a thin mint candy is small enough that could be packaged inside cool shades that you or I won't be embarrassed to put on anywhere you walk. And one of the primary advantages of our technology is it's see through. You can actually look at something while you walking which is not the same for any other technology that we know today.

Terrific. Would you also go to speaking of the market size for these four different areas that you have discussed and then what you think the attainable margins are given the way you have restructured the Company and I believe signed deals with manufacturing?

Okay, why don't we start with [Spur] the largest and easily, most easily quantifiable one which is the handset market. If you look at number of handsets, this now combination of cell phones, MP3 players, DVD players any video operative devices that sold in 2006, I believe the number was a billion-three or so, a billion of which were the cell phones. If you look at the cell phone market and dissect it further you will find out 75 to 80% of the market represent future rich phones or smart phones which is addressable market for the Picop Projector.

If you look at this $800 million opportunity space and take a conservative stab or assumption of 3 to 5% penetration, you have anywhere between 24 million to 40 million hand sets with very little conservative assumption on the adoption rate that could potentially contain PicoP. It's a business in itself. And I'm pretty sure that most people are excited just because of this specific segment.

The factors the driving this include all the developments you have seen right now happen in Mobile Wars, text messages, mobile TV, mobile gaming, user generated mobile content, location base services, mobile advertising. I mean this this will be expected a huge revenue growth factor for Google and many others and guess, what it's a lot easier to advertise something when you project it in a large format rather than looking at your small two inch cell phone window. This is one area of high potential growth.

Second one I would say would be the accessory products. Now you have people who may not want to sacrifice or reduce the useful life of their cell phone. They may want an accessory that looks like an iPod or smaller that connects to their cell phone so they can project this information only when they need.

The third market I would see would be something in the automotive industry. A combination of the head-up displays which considered to be a major safety feature. I don't know if you know this, but 50% of the accidents that occur today happen when driver takes his or her eyes away from the road. Tuning the radio, dialing a cell phone or looking at point-to-point GPS navigation. So automotive OEMs want to take this information and put it in front of the driver so the safety is improved.

In terms of the cluster -- instrument cluster display, this is something that -- this is we believe will be from more profitable market for the Tier 1s, and OEMs, than the automotive head-up displays. Because, again, re-programmable instrument cluster display is going to be a hot feature coming down. In terms of quantifying this. You have 60 million automobiles sold. If you look at a really steep adoption rate for HUD and assume anywhere between one to 5% adoption, you can do the math, I assume. We are counting on this to be a mandatory feature. We feel that HUD is going to become what ABS brakes were. Initially it was introduced as high-end feature for the high-end automobile and eventually it became a mandatory safety feature that is available on most automobiles.

Color eyewear is a different story. Color eyewear, you don't see explosions in this market today because no one can effectively trade off the form factor and the workflow that comes with these glasses with the image quality. So some companies, for example, able to produce glasses with VGA-type images which are nice to look at but believe me, you would not want to put it on your head. The other companies tried to solve this problem and what they have done, they shrunk the form factor; however, they reduced the image to the quality of the cell phone screen so my question to these people, why would you even want to put this on your head if it gives you the same presentation as your cell phone, and again, we were trying to solve this with the IPM solution and we believe we have a good path.

Terrific. Margins on these products, are they high relative to industry hardware?

We,---- margin -- the ultimate margins will be determined by the consumer OEMs and automotive OEMs because we are providing a heart -- sub system that would fuel the final application. We expect that the pricing for these products will be different and dependent on the ultimate application. However, our internal budgetary estimates show that we can be -- successful and profitable knowing our costs and anticipate a transfer of prices will be demanded by our prospective partners.

Thank you very much. I appreciate the clarification.

Okay.

Your next question comes from the line of John Schneller with Knott Partners. Please proceed.

John?

I got on the call a little bit late. My question was on cash flow and burn rate. I noticed that in your press release you said that some resources were redeployed to accelerate the development of the IPM so you made sure you had a product to display at CES. Will that now -- will those resources be able to shift back for the full year of '07 or partial year '07? What does that shift do to the burn rate and can you still expect to be cash flow neutral exiting '07?

All right, there are several questions. Let me start with the first one. The question -- the answer to the first one is yes, the contract revenue reduction in Q4 '06, was not last but simply deferred to the first quarter of '07. So we re-allocated the critical resources we pooled in the fourth quarter to get ready for CES back on the revenue generating programs and we expect to recognize this revenue in Q1 of '07. That, I believe was your question number one. Question number two, cash flow. We feel pretty good about 2007. For several reasons. First of all, if you look at our cash burn for 2006, you will find that we have reduced the cash burn in the second half relative to the first half primarily because we paid the severance. We improved our backlog contract backlog at the end of the year.

And we also instituted several measures to further reduce the operating cost in line with where we were looking for the revenue for the year. In addition to this, in addition to this, as I mentioned to you, we paid almost $11 million in other cash payments which included note payments and the conversion payments. That we will not have to do in 2007. We only have one less payment of $1.4 million where a debt-free and that is going to greatly alleviate our cash burn for 2007. Jeff, you want to --

I think that's fair. As far as cash flow break even by the end of the year that will certainly be heavily dependent on the revenue ramp. We expect the cash flow to continue to decline through 2007. And you got on a little late. We talked about not giving revenue guidance for 2007.

Okay.

John, but without giving you revenue guidance, there is no -- we don't want to fool anybody. Nothing has changed since Jeff and I came last year. We anticipate to be a break-even for the business once the first commercial high volume product is introduced.

Great. Thank you.

Your final question comes from the line of Jeff Miller with JMG capital. Please proceed.

Hi, guys you just answered my last question. Thank you.

There are no other questions at this time. I will turn it back over to management for closing remarks.

Ladies and gentlemen, in summary, I would like to tell you I'm absolutely pumped about 2007. And not because I just learned how to pronounce programmability. In 2006 we built a foundation, true foundation for growth. We hit all the major milestones that affected mid to longer-term growth for the Company. And even though the revenue was less than expected through rigorous cost control we maintain and reduced our burn rate year-over-year. Consistent with our goals and strategy, we completed a successful what we believe is a successful turnaround of the Company as we reinvented Microvision around the primary goal of accelerating the profitable market for high volume consumer and automotive products.

If you think about what I told you about mobility markets, Mobile TV, Mobile Game and User Generated Mobile Content, Mobile Advertising, all of this is where we directed our Microvision shift and no deviation from this fact. We are addressing a huge unmet need and our projection display solutions are expected to eliminate this existing bottleneck. Benefit in customers, consumers, I'm sorry. Mobile Operators, Content Providers and Consumer Electronic OEMs. If you think about this, all four elements benefiting from it. OEMs are expected to create a new generation of mobile devices with powerful projection display capabilities.

The content providers will benefit by expanding their portfolio of visually rich content and application services. Mobile operators will benefit from an enhanced user experience through the adoption of Mobile data services such as Mobile TV, for example, which is already present in Asia and soon will be moving to Europe and the U.S. And consumers will obtain a radically new viewing experience by having an ability to project video movies for less anywhere.

We also proud about rapid acceleration of the IPM road map which culminated through the successful CES and we as I told you we surprised many, many partners at CES. We said the PicoP was far closer to the product than they expected six months prior to this. We are getting strong external validation from the Valley Chain partners and prospective OEM partners. You have seen announcements from Corning, Novalux, Two Global CDMs, we expect this list to grow in 2007.

All of this is the result of clear road map, laser focus, strong finance and the execution. There is no magic here. We developed strong active funnel for PicoP and hot opportunities. Several of which will come to fruition in 2007. We are debt-free in the process we simplified our debt-free as of March 15. We simplified our CAP structure and we have cash we believe to take us through the year. And this is not only the cost reduction measures we did in 2006 that will go into full affect in 'o7, but also additional payments we made in '06 and the $11 million that we don't have to do in 2007.

We built and entered a year with a very strong backlog of 7.2 million which is almost more than two times greater than what we done entering in 2006. And we continue to strong operational momentum that we established in the second half of '06 once we completed the definition of the new executive team and the board of directors. So in summary we positioned well for '07, and I know I am and the team is very excited about the opportunities in front of us. There's obviously will be challenges but I think we have the necessary elements to be successful in '07. And I believe next time we talk, you will hear good progress from us. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.