MicroVision Inc (MVIS) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2007 Microvision, Incorporated earnings conference call. My name is Eric, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a Q&A session towards the end of the conference. [Operator instructions] Now, I would like to turn our presentation over to Tiffany Lau, Investor Relations Specialist. Please proceed.

Thank you. I'd like to welcome everyone to Microvision's first quarter 2007 financial and operating results conference call. In addition to myself, participants on today's call include Alexander Tokman, President and CEO, and Jeff Wilson, CFO.

The information in today's conference call may include forward-looking statements, including statements regarding projections of future operation, product applications and benefits, development and production, future benefits of contract arrangements, marketing opportunities, and growth and demand, as well as statements containing words like "believe," "estimate," "expect," "anticipate," "target," "plan," "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 first quarter 2007 operating results. Next, we will hear from Jeff, who will report financial results, followed by Q&A. I would now like to turn the call over to Alexander Tokman. Alex?

Thank you, Tiffany. Thank you, ladies and gentlemen, for joining us this afternoon. Hopefully, it's going to be a productive session. I'll start with the operating results.

CES, the Consumer Electronics Show in January, was a nice springboard for us into 2007. We surprised many when we unveiled an ultra-thin, full-color projection display engine that is small enough to be embedded in portable handheld devices, including cell phones. As you know, this introduction resulted in significant interest from global handset manufacturers as well as extensive industry and media coverage, and we built on this momentum in the first quarter.

The first quarter efforts were specifically focused on continuing this rapid advancement of our core technology platform that is at the heart of the commercialization of PicoP-based products. We have made visible progress on three important fronts -- first, evolving the technical roadmap; second, architecting the global supply chain that is necessary to take this product to market; and finally, winning new contracts with the transportation and government partners. We also furthered negotiations with consumer partners, all of which are necessary components of accelerating the path to market for our exciting high volume consumer and automotive products.

Architecting supply chain is never an easy task, as you know. When your partners start to acknowledge their participation, it serves as a very strong validation point that you're going in the right direction. And as you know, both Corning and Novalux formally announced their strategic relationship with us and the belief in the value proposition that Pico Projector brings to consumers worldwide. Both companies have achieved very important milestones in accelerating the development of green laser, and we are very happy with their progress. As you know, green laser shares an integral component of our proprietary platform, and it's one of the enablers to get the product to market.

We also formally announced the collaboration with our first global tier one partner, Visteon, to produce a series of advanced head-up displays. Visteon is expected to use these units to demonstrate the unique performance characteristics and inherent robustness of our technology to their customers and to refine the final product specifications.

We have also signed a new deal with a second global tier one automotive integrator to develop a PicoP-based display application specifically focused on the instrument cluster display. We also announced most recently a commercial product development agreement with a world-leading transportation systems integrator to design a PicoP-enabled solution, focusing first on aerospace applications.

The overall development on the platform has been very positive. We progressed the development, focusing on further miniaturization and further reductions of our tiny display engine. And as you know, the customizable PicoP is designed to suit a variety of consumer OEM and transportation product requirements.

Most recently, subsequent to the end of the first quarter, we introduced our new barcode scanner called ROV. This new laser barcode scanner for the first time utilizes our core technology, which is MEMS, and it serves as a monumental forward progress for us, because through the introduction of this new product, we have learned a lot, and this knowledge is going to be leveraged heavily for all the future work we are doing on PicoP relating to the high volume consumer applications.

Most recently, actually yesterday, we announced that we received a new $3.2 million contract from the U.S. Air Force to provide a lightweight, see-through, full-color eyewear solution. Under this contract, we will develop a small and ergonomic display solution that will enable military personnel to get information and to provide a display that is light enough and ergonomic enough to be usable in various environments.

Throughout the first quarter, we continued to establish credibility with customers, and we were able to build a very strong backlog for 2007 and looking forward. Jeff will talk about this more in a moment, but currently our backlog represents $10 million-plus, which consists of the previous backlog and our most recent win with the U.S. Air Force.

At this point, I'm going to close and let Jeff give you a brief overview of financial results.

Thanks, Alex. For the first quarter, we reported revenue of $2.2 million, compared to $2.5 million for the same period in 2006, and as Alex just talked about, we ended this quarter with a backlog of $6.9 million, compared to $1.4 million. When you add the $6.9 million that we had at March 31 plus the $3.2 million that we announced yesterday, we have a backlog of over $10 million.

For the quarter, we had an operating loss of $6 million, compared to $6.7 million for the same period last year. The significance in those is that our operating loss was lower in this quarter than it was at the same time last year on the revenue, and that's a result of the cost cutting that we went through last year.

The net loss available for common shareholders was $7 million for the quarter, compared to an income in the first quarter of last year of $331,000. If you'll recall, in the first quarter of last year, we recorded a gain of $7.3 million on the sale of shares of common stock, of Lumera common stock, that wasn't repeated this quarter. For the quarter, we had a net loss of $0.16 a share, compared to an income of $0.01 per share a year ago.

We ended the quarter with $7.3 million in cash and cash equivalents, and $8.8 million worth of investment securities. Those investment securities, of course, were the 1,750,000 shares of Lumera common stock. We made the last payment on our convertible notes in March, and those shares were released as collateral. Subsequent to the end of the quarter, we did sell 758,000 shares of Lumera stock for about $4.1 million. We continue to own 992,000 shares of stock, and they're worth about $4.4 million.

Alex?

At this moment, we will open for questions. Let's have a productive Q&A session.

[Operator instructions] Stand by for your questions. Your first question comes from the line of Joel Achramowicz with MDB Capital Group. Please proceed.

Thank you. Good afternoon, gentlemen.

Good afternoon, Joel.

Alex and Jeff, just a couple of housekeeping things. Including the new contract, that $10.2 million in backlog versus -- what did you say that was previously?

At the end of the first quarter last year, we had a backlog of $1.4 million.

How about at the end of 2006? Was that on the 10-K?

It was. It would have been around $7 million at the end of the year.

Okay, great. What was the stock-based compensation for the quarter?

The total stock-based compensation was about, I want to say, $400,000.

About $400,000?

Yeah.

Great.

It's about the same level as it was last year.

Okay. And can you give us -- I mean, would you expect to book or bill a good deal of that backlog sometime this year?

Generally, the contracts are one-year contracts. There's one that's a little bit longer that we talked about in the K, but essentially we would expect to book that within the next few months from now.

Okay. Thank you. Alex, with regard to your discussions with prospective strategic partners -- I know you were just at AEA, and I forgot to ask this question, but in your estimation, were you to strike a deal of some kind, what would be the character, in your mind, of that kind of a deal? I mean, that you'd be able to communicate to us. Would it include clarity with regard to the milestones in the contract and what needs to be accomplished in order to get to the market and when that might occur and whether or not the company or the prospective partner is investing overhead and non-recurring engineering into that process along with you in order to work together towards a market-driven product? Could you just give us some thoughts on that?

Absolutely, Joel. You're probably asking the same question that many people want to ask. It is my desire and our desire to create an announced deal that describes the details and milestones within the commercialization of high volume products, specifically related to automotive head-up display and Pico Projectors, whether they're embedded inside the cell phones or serves as an accessory to video output devices. Unfortunately, in many cases, larger companies have to go through a diligence process internally before they're ready to announce all the details of the deal. This is driven by three factors. Number one, they don't want to spook the competition. As you know, there is a headache competition. If you just focus on the cell phone space, you know that the top five cell phone manufacturers are always trying to innovate and improve their market position, while Nokia is trying to hold onto its own leading position. Any announcement from one of these would serve as a warning sign to the others, and they try to keep this under wraps as much as possible. Secondly, they don't have all the details worked out in terms of how they're going to go to market with this application and how they're going to reach their customers and shareholders, so it's premature for them to give the details of the deal if they're not ready to -- if they don't know all the details at this specific time. And all of these contribute to what you see coming from us, the announcements that don't have quite the details that all of you want to hear, but it's all based on the desire of the customer, so not really Microvision. If it was up to us, we would put all the details on paper and we would go ahead and discuss this with all of you. Everything we're focusing on right now is targeted for the commercialization of the product, and this is why we add additional secrecy, because this is the real deal. Once a large company is investing large amounts of resources -- not only in Microvision, but also internally, which is more significant -- they want to make sure that they check every detail before communicating globally. We're pursuing every deal with one goal in mind, to identify all the steps within -- not only to the development of this product, but also commercialization. And unfortunately, what you've seen so far from us are announcements that list the development phases, which are necessarily components leading to commercialization.

Very good. Have you been trying at all --? This might be a good juncture for the company to get maybe some more public visibility. I mean, is that something you think is helpful or detrimental to [inaudible], I mean, like maybe trying to establish some kind of coverage among some of the major periodicals and describing the PicoP and how important and revolutionary it could be?

You're asking a good question. It's an ages-old question. It doesn't matter who you know, it matters who knows you, and I believe we have been exposed enough for people to know who Microvision is, because most of the customers we're negotiating with today have pursued us as opposed to us going after them. This obviously gives you and us a hope that we have something that they want, and in addition to the disruptive technology that we always possessed at Microvision, now we have credibility, now we have a clean balance sheet, now we have a debt-free operation. All of this facilitates closure of these deals much more rapidly than we would be able to do in the past. So again, as I mentioned to you, I'm not going to avoid and dodge the question. I told all of you during the last earnings call the goal is still to sign a large consumer OEM before the end of the summer. It still stands as a goal to myself and everybody at Microvision.

And one final question. Is it possible that you could strike more than one?

Joel, of course it's possible, and believe me when I tell you that we're not just focused on one specific deal.

Very good. Good luck going forward.

Thank you.

Your next question comes from the line of Randy Huff with ProEquities. Please proceed.

Hey, guys, congratulations on all the work that you've done in the past 12 months. I'm really impressed. Just to get Alex to clear up -- or maybe Jeff, clear up one point with me. How many shares are outstanding at the end of the period, fully diluted?

Fully diluted? About $66 million.

Yes.

Okay, 66.

The actual outstanding is about $42 million, $43 million, and then you've got about $17 million in the warrant, of which $12 million is publicly traded, and about a little over $5 million in employee options.

Yes. And if you would, Jeff -- I'm glad you mentioned that. So $17 million plus $42 million is our $66 million --?

If you add all those together, you get $66 million, $67 million.

Yes, somewhere in there. Okay. Review for us real quick the exercise price on the warrants.

On the publicly tradable warrants?

Right.

They're exercisable at 265 and callable at 530. It'll be 530 for 20 days after -- I think it's June 6th.

And you can force conversion above 530?

Yes. We have to be above 530 for 20 consecutive days, and it has to be after -- I think it's June 6th, June 5th, and then we can force conversion.

Okay, good.

It's about $35 million in proceeds.

That's what I was driving for.

Yes.

I'm glad you gave it. I thought you'd leave it to us to calculate. Thank you for saving me the time.

It's pretty close to $35 million.

Well, get hot. Okay, on the technical side, Alex, could you give us any feel --? You talked in the past about the path to the touchdown or the end point, if you will, with respect to the footprint in power consumption metrics for the Pico Projector, and I don't recall the exact timeline, but it seemed to me like you had hoped to reach that objective by the fall. Can you give us some insight into how that path is progressing?

Absolutely, Randy. We've done one of the more difficult parts. We developed an opti-mechanical engine with our two strategic OEM partners, and that's what we demonstrated at CES earlier this year. The focus of this year is to further miniaturize the electronics and also reduce power, and these are the two pre-requisites to get inside the handsets. We've done tremendous progress internally on the design, and now we are developing new partnerships with electronic design houses who will be developing these 80 components for us that will go inside the PicoP engine. The goal is to do a lot of heavy lifting by the end of the year and have something interesting to show to you at CES.

Which is when, March of next year?

January of next year.

January. Yes, okay.

But you don't have to wait until CES to see incremental improvements for us, and as you know we're getting ready for Society for Information Display, which is going to happen within a few weeks. We anticipate to delight some of you with some of the progress we've made.

And where is that being held?

In Long Beach, California.

Okay. All right. With respect to a possible OEM provider of cell phones, is it safe to --? I know you can't be too specific on this, so give me a little latitude in the question, but I would imagine that it's difficult to sign one of them up unless there are certain road marks that are met along this path to miniaturization and reduction of power and what have you. Can you give us any feel for where you have to get before there's realistically a good shot at getting one of those signed? Is it still the summer idea, or is it not -- are you already far enough along that that would not be a gating issue?

This is a very good question, Randy. We actually passed the technology test with most of our customers. We actually convinced almost everyone that what we have will meet their ultimate requirements, and that is the precursor for them even to sit down with us around the negotiating table to talk about commercialization strategies. So we -- for the most part, I feel comfortable with what our technology team did in miniaturization of the PicoP and in convincing the technical teams from our prospective customers that we're in good shape in this department. The discussions right now are related to commercialization strategy. How are you going to take it out? How do you divide IP? How do you divide licensees? All of these necessary details that you need to conclude before you sign a long-term deal. Did I answer your question?

Yes, yes. And so, if I could put that into a one-liner, it's not a gating issue at this point in terms of a technological gate that has to get through that's holding up any progress.

That's correct. At this point, this has not been a gating item for us not to be able to sign the deal.

Okay. All right, good. Thank you very much. I'll get back in the queue.

Thank you, Randy.

Your next question comes from the line of Matt Phillips with Lehman Brothers. Please proceed.

Hey, guys. When do you expect the ROV to hit the market, and what is your anticipated unit cost?

A loaded question, Matt. How about I'll give you the easy answer first? We're targeting to release ROV to market in Q3 of this year.

Okay.

We're targeting specifically mobility customers. We called it last year and early this year -- I told you that we view the mobility sector as the highest growth opportunity for Microvision, and ROV has been designed with the mobility market in mind. In terms of the cost structure, we expect it to be a profitable product, and again, as you know, guys, I came from General Electric, and where I come from, anything less than 40% contribution margin is not considered to be a good product.

Okay. Thanks a lot.

Your next question comes from the line of Jed Dorsheimer with Canaccord Adams. Please proceed.

Hi, thanks. I guess a similar question on the PicoP, Alex. I was wondering if you could give us an idea of what the target price point or ASP of the product will be in volume and what needs to happen in the supply chain to actually get there? Thanks.

Hey, Jed. Obviously, you probably are asking about the cell phone application, so I'll focus on it because it puts probably the most stringent requirements on cost and price of the Pico Projector. Again, we were told by most of the interested parties from the cell phone space that at introduction, we have to be no more than $100 transfer price, so given this top down target, we have been developing an architecting supply chain and developing our cost models to be consistent with this top down requirement. At this point in time, although we don't have all the information, we feel pretty good about how the components will be cost reduced. Obviously, the two biggest cost factors are the green and blue lasers, and we are heavily engaged with three green laser manufacturers, and with the blue laser manufacturers on negotiating prices up front, and including them in the development and go-to-market strategies with us in anticipation of this exciting application.

Great. And is Blue-ray helping the cost curve of the blue lasers?

Not yet, Jeff. Not yet, but we hope soon it will.

All right, thanks. I'll pass it on.

[Operator instructions] Your next question comes from the line of David Mahaday with [Technical difficulty]. Please proceed.

I have a question. Have you been able to land a contract -- I'm probably reiterating what someone said, but a contract with either one of the cell phone companies, Sprint, or regarding the laser digital technology with any of the automotive companies? And you probably have given this information, but I missed it, and is there any solid tie-ins? And my second thought is regarding the gentleman who recommended the chicken or the egg theory, but I think if you disseminated to the general public via magazines, et cetera the technology, the public demand may sway some of your purveyors to get onboard, so to speak, by the inquisitiveness of the general public. So those are my questions, where you stand with those. And one more application on thinking in terms of the cell phone projector. Maybe in minivans it may be considered a safer implementation. When kids watch from the backseat, that it could be projected in some way, and certainly on trips, where there's no electricity or something like that, to utilize the cell phone implementation that way rather than a television, which maybe is not as reliable, et cetera. Thoughts on all these things.

All right, David, let me try to summarize. I think you're bringing three questions. First, a little background or summary on our agreement with the global tier ones and consumer electronic OEMs. I think the second question was that we should use media to educate the public, and the third question was something about proposing new applications for the automotive. Let me start with the first one. Yes, we have -- in the transportation sector, we now have -- we've signed three contracts. One is with Visteon to develop commercialized automotive head-up display, a second one with a global tier one partner to develop an application for the instrument cluster display based on Pico Projection, which will extend to other applications, including entertainment, and third was a deal we struck with the system integrator for the transportation industry, focusing on the aerospace application. We have several dialogues in progress with consumer OEMs, including cell phone manufacturers, mobile carriers and content providers, and we will update you on the progress in these areas as soon as they become available. In regards to your second question, using PR, we've been using PR pretty effectively, and if you look at the most recent press coverage, we have been covered by CNN, BusinessWeek, Wall Street Journal, New York Times, various publications, so we have been extensively utilizing and spreading the message, and I believe it is resonating well with consumers, at least based on the feedback we've received. In regards to your third question and the application of Pico Projector inside the car for kids, again, that is one of the areas of growth for us. There are a lot of LCD displays right now packaged inside cars and planes and other transportation devices that could be potentially replaced by much smaller, more power efficient devices that we're developing, so this is definitely an area of interest, and we're pursuing it.

Okay. Do you feel that either one or a coupling of these contracts is going to put you in the black in the coming year? Would that be safe to assume?

We always, historically told everyone, and we're still sticking by the same message. We expect to be profitable once the first high volume consumer products hit the market. Right now, our revenues consist primarily of contract revenue, with some contribution from the barcode scanner, but the break-even path and the rapid growth will happen as soon as the first high volume consumer product is introduced.

One more question. Are some of your clients or eventual purveyors, either in the cell phone or the automotive -- are they willing to pick up some of your development costs in association with the projects?

Absolutely, David. One of the antes that people have to pay for earlier entry into this is the cost of some of what we do, so the contracts that we announced already come with the monetary value to us to help to call funds in development road map, and it's going to continue going forward.

Okay. Well, thank you very much.

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

Hi, Alex. Congrats on what appears to be continuing improvement. It looks as though -- correct me if I'm wrong, Jeff, but you had 24% sequential revenue growth, and that's sort of up from --.

From the fourth quarter, Jeff?

The fourth quarter, yes.

From the fourth quarter, correct, and it's up from virtually nothing in the third quarter. Is that driven both by contract development and barcode scanner revenue?

It's driven by both, but it's primarily on the contract side -- the growth piece of it.

This is basically the backlog that we've built in the second half of last year with the General Dynamics contract.

Okay. The question I have is, as I understand it, the sales cycle for barcode scanners lengthens somewhat, and I think it's because the evaluation process was longer because there was greater interest from potentially bigger players. I'm just wondering if that's a business that in the back half of this year might ramp up a little more rapidly starting in the second quarter and then maybe in the third and fourth quarter in particular.

We're definitely counting on that, John. We ship right now twice as many units as we recognized in the first quarter, and we hope we'll catch up and start recognizing the amount that we actually planned in our operating plan to count as the revenue for this year.

Since he brought that up, I wanted to elaborate just a little bit. The reason we shipped so many more than we've recognized is a lot of these deals in the mobility market will be sales-through type sales, so we're supplying units to our distributors, who will then be selling to end customers. So we're seeing an up-tick in that activity.

Okay, so it's not because you're still getting [Technical difficulty] return rate?

Exactly, [inaudible].

Thanks for clarifying that important clarification. The last question is, the accessory product that you would expect to go to market with as potentially a validation of the technology before you sign an embedded deal or while you're working on signing an embedded deal, would you consider that to be a potentially high volume product? And I'm asking that question in the context of your answer to when do you get profitable.

John, it's a good question. It's all going to be a function of what is the sale price, average selling price that accessory OEMs would be able to get for this specific product. I've spent time with several businesses from various global consumer OEMs, and each one has a slightly different price volume curve, and if we can get a product that they can sell under $299 or $199, volume is counted in millions. If you stay around $599, then volume is in hundreds of thousands. So we're working very diligently with everybody in our existing supply chain to ensure that the cost integrity is maintained and we can introduce a viable product that could be sold in high volumes. So for the accessory, again, if you leverage across two or three customers, you may get the necessary volume to get your desired price.

Just one last question. Do you expect that you can be in the market -- not necessarily volume, but in the market with that product, say, sometime at the end of the first quarter, maybe in the second quarter?

No. We're targeting the commercial introduction of the accessories in the second half of '08.

Okay, so that's going to be second half as well. And the embedded Pico, the goal is to be at least in the market with small numbers for Christmas of '08?

John, that is the ultimate target. I would call it a stretch target, only because we are at the mercy of somebody else's development and commercialization, so when we pass and deliver on our commitments, our OEM customers still have to deliver on their commitments, and that represents a small risk, so the stretch goal is Christmas. Most likely, I would say, embedded solution will come in the first half of 2009.

Okay. Great. Thank you.

Your next question comes from the line of [William Spark] with Smith Barney. Please proceed.

Congratulations on great progress on these contracts. I was just wondering -- which I actually call the hors d'oeuvre contracts before the big meal. But what I was asking, could you -- in the aero, for instance, what size of markets are you addressing in the aero market? And in the head-up display and the dashboard display, could you kind of reiterate the dashboard display, adding to the market size on the automotive side? And will the automotive products come to market before the Pico commercial embedded products, et cetera? Could you just kind of give me a little review on that?

Let me try. You asked several questions, and I'll try to separate them. Let me just reiterate what you asked. First, you want to know more about, I believe, the aerospace market.

Well, I was just wondering what the size of that market really is once you have a successful prototype, and how many units -- kind of give us an idea what the size of that market really is.

Okay. All right. The aerospace -- the size of the market that we are targeting is smaller than automotive; however, the price and the margins on each of the display products, based on Pico Projector, will be much higher, so the overall product -- lower volume times far greater margin and average selling price would give us a pretty solid business case. And that's one of the reasons we entered into this agreement, because we feel like it will be a nice, complementary business. In terms of automotive to market versus the PicoP embedded, the second deal that we signed with the global tier one to develop PicoP-based applications for the instrument cluster display is predicated on safety. Today's drivers are inundated with a lot of information, and most of it is sitting in front of the center console, so anytime you take your eyes off the road, you can get into an accident. At least 50% of the time, that's what happens. The automotive OEMs are interested in reducing this. They also are interested in putting a lot cooler features inside the dashboard. So there's a conflict of interest. How do you solve this? You want to have a reprogrammable, flexible display that could be small enough that's placed inside the dashboard to provide color-rich images, and this is why they're interested in Pico Projectors. The market opportunity is actually even more exciting to me than the head-up display, because you only need one head-up display per automobile, and you may need several Pico Projectors for the same auto. There is a great growth opportunity there, and this is why we're excited about this second deal that we recently signed.

So you really created a bigger market now. You have two products, and you're looking at these -- do you think automotive will be in 2008?

No, most likely, William, because the automotive commercialization cycle is far longer than the consumer commercial speed. Typically, the people who we're dealing with right now are targeting late 2009, 2010 models; however, we need to complete everything that we need to deliver by the latest, the middle of 2008, so we actually are much more constrained on time on the automotive deliverables than we are on consumer because the lead cycle is far longer.

Are you getting any feel on how Visteon is -- what kind of response are they getting from their customers and if there's anything going on there, we would hear about that?

Absolutely. They are talking with three global automotive OEMs, and they have made solid tractions with two out of three, and right now they're working on establishing which one they're going to market with first and which specific model we're going to put this head-up display on. As soon as this information becomes available, we'll immediately communicate this to you so you're updated.

So their clients are really getting interested in signing to take on this product?

Absolutely. One of the signs of recognition and acknowledgment is the fact that -- remember, this initially came in as a no-name announcement, just like everything else, and Visteon self -- they progressed far enough and got enough traction with their customers to formally announce the relationship with Microvision at the Consumer Electronics Show. We expect this trend to continue with others.

All right. Thank you very much.

Your next question comes from the line of [Art Gaglione] with U.S. Fiduciary. Please proceed.

Good afternoon, gentlemen. Two items that I'd like to ask about. The first one is, in surveying the competitive landscape, I know in technology competitive situations change rapidly. Is there anything that has changed, either for the better or for the worse, in terms of the competitive landscape, vis-a-vis new or improving existing technologies? And then I'll have a follow-up question after that.

Sure, sure. We continue to receive further and further validation that areas we're targeting are of interest to many players globally. A most recent announcement by several players showing the new small projectors that they claim they could be imbedded inside portable devices is a further validation. I'm not going to dance around it. TI most recently announced that they have something very small and compact that they think could be a solution. If you, however, followed the TI announcement, you know that their technology is based on the DLP chip, and there are some fundamental constraints between size, power and performance that TI needs to overcome to get inside the handset. Even though we never take competition lightly, we feel pretty good about our ability to get inside the cell phones well before everybody else does.

And does the DLP have the ability to produce an image as visible in outside light conditions as a laser?

I believe what was shown by TI was a projector with the higher brightness; however, it was far lower resolution.

I see.

So what cell phone manufacturers have mandated is that if you want to get inside a portable device, you need to have an engine that is less than 10 millimeters thick, and 10 millimeters for you who are not familiar with the metric system is, what --? I'm not sure what is the conversion rate, but it's one-third of an inch, and if you look at TI's description, their device is about one inch, so it's about three times thicker than it needs to be to get inside the cell phone. It also draws about five watts of power, while we are targeting an engine that will draw one and a half watts of power going down to one watt. So we feel we are on the threshold of getting inside the cell phone, and although other people are claiming that they are capable of doing this, we feel good about our position for this specific application.

In terms of the significance of the power consumption, one and a half versus five, what does that mean in terms of, let's say, your average battery life?

Art, that's pretty much a unit tens of minutes versus a unit of an hour, hour and a half or more.

Oh, okay. Great.

And the reason we are able to achieve this -- it's a very simple reason. Everybody else, including DLP, including TI, they drive their light sources -- in this case, laser -- all the time. We only turn on the lasers when we need them to be turned on. So for example, if you're looking at an image whereby half of it is covered with green grass, for half of these pixels, our technology would only turn on the green laser while keeping the red and blue off. TI has to keep all three lasers on constantly despite the fact that they only need green, so what happens, then, with the other two that are staying on, that energy gets converted into heat, and therefore it's very power inefficient.

Okay, very interesting. And as my follow-up question, you gave me a couple of clues to the answer on this one, but in terms of the value proposition, potential value proposition improvements with Microvision's platform versus others, some of the additional product areas that, let's say, might be applicable to our platform technology that might be coming about, and then you also mentioned that the value -- as I see it, the value proposition increases by being able to have an increase in the unit sales by getting your supply chain costs down, and then potentially, it sounds like I just heard, multiple PicoP components per vehicle on the head-up display type. Is there anything else that is improving in terms of the value proposition?

Every day, as we mature our technology business roadmap, we become more and more attractive to customers and to investors, and I think you can attest this by what's been happening with the most recent announcements and the fact that the stock has been pretty strong. So I think every time you're going to see a progress update from us, it's going to be consistent with what we set in January of 2006, and we just basically are completing one at a time. The goal, as you know, is to do what we said we're going to do, and I think we've been consistent with this proposition.

All right, Alex. Thank you very much.

Thanks.

Your next question comes from the line of [Brian Bigelow]. Please proceed.

Hi, Alex. I just have two questions for you and maybe for Jeff, the first being about financing. I was wondering if it was possible if there was any provision to make an offer to existing warrant holders to maybe exercise those early, at a lower warrant conversion or something so that you could limit dilution and satisfy immediate cash funds?

The short answer is, no, there's no provision for putting an offer in place.

Okay. And then my other question is, earlier, Alex, you discussed sort of when you were in negotiations with partners the separation of IP, and I was just wondering if you could elaborate a little bit on what that looks like in the deals and how IP gets separated between the deals.

Brian, it's different from deal to deal. It involves components such as who is doing what, who is delivering what, and how you're going to divide supply chain, so we can't give you a standard answer, because it's different from deal to deal, and this is probably not a good time for me to cover the deals.

Okay, I respect that. Those are my only two questions, so thank you.

Okay.

Your next question comes from the line of [Bob Fickland] with [Giardino] Security Group. Please proceed.

Good afternoon, gentlemen.

Good afternoon, Bob.

How are you? Given the apparent ever-increasing number of market applications for the PicoP, can you sort of paint us a picture of the [TAM] by application in order of priority within your go-to-market strategy?

Sure. Let's start with probably our most compelling or just elevated, cell phones. So you have 1 billion handsets sold in 2006. This is expected to increase in 2007. Out of the 1 billion cell phones, there are about 750 to 800 million that represents our addressable market, because they include those phones that are capable of playing video clips, surfing the Web, et cetera. They are called feature-rich phones. So if we take a very, very conservative business case, again, and take 3% of that addressable market of 800 million, that represents 24 million handsets, and if that is a conservative estimate of what could be done in the area where there is today and in the near future we anticipate very little competition, you have to agree this is a compelling business case. On the accessories side, there are numerous applications. Today, there are 100 million iPod users installed base. There is -- a large percentage of those are video iPods. Now, everyone who has used iPods will attest that it's not very easy to watch a movie or a video on that small screen, so each one of these users become a target for buying an accessory that will plug in, for example, into the iPod and could expand that small image into a high-definition screen that could be viewed from a short distance or from a long distance, resulting from a desktop size screen to a plasma size display. The technology is totally amendable to be integrated in digital cameras, and actually, the digital camera business is a facilitating technology to us, because I believe 70% of the cell phones are expected to have digital cameras. Most of them are in extent of three megapixels, so now you have the ability to capture imagery, whether it's still or moving, and you can display it immediately, so this is -- in our society, where immediate gratification really counts, this is a perfect application. In terms of head-up display, there are 60 million vehicles, out of which our addressable market we're taking a small subset, and we say we will target the automobiles that are priced $30,000 or above. So this represents about one-quarter of the total automobile market, and if you take a subset of this, HUD business is measured somewhere initially at hundreds of thousand units a year going down to several million units a year. And who knows? Head-up display could perform as well as ABS brakes. Recall that when ABS brakes were introduced, they were introduced on high-end models, specifically as a high-end feature. Today, it's a basic safety feature, and we believe HUD is going to become just that. Finally, color eyewear. This is really a dark horse. A lot of people want to use it; no one to date has been able to come up with the acceptable solution that gives you night picture quality while making it easy to use and is cool enough to wear. The coolness factor is what's killing right now the eyewear market, because nothing is really cool enough to put it on so you can walk around with it. We are trying to address this by utilizing our small PicoP platform that will be embedded with special optics inside fashionable eyeglasses. Again, I can't give you the exact dimensions on this market, but it could be very high. Did I answer your question?

Yes, you did, very well. Thank you very much.

That concludes our Q&A session. I would like to turn the call over to Alexander Tokman for closing remarks.

I believe, and hopefully you can concur, that our go-to-market strategy progress and results have resonated well with market-leading customers, suppliers and the investment community. The facts don't lie. We secured several new product development agreements with key strategic commercial and government partners, we increased the acknowledgment and public support from the strategic supply chain partners, and stock has been strong. What can I say more? Myself and the team are energized and looking forward to 2007. We're making solid progress on all fronts towards commercialization of the innovative high volume products, we are debt free, we have simplified our capital structure, we have a very strong backlog, and we're going to have the goals to continue the strong momentum in the second quarter and beyond. We are diligently getting ready for the Society for Information Display at the end of May, and I'm looking forward to updating you on the new and positive milestones that bridge us closer and closer to our ultimate goal. Thank you.

Thank you for your participation in today's conference. This concludes our presentation. You may now disconnect. Have a good day.