MicroVision Inc (MVIS) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2007 Microvision earnings conference call. My name is Latasha, and I will be your coordinator for today. (OPERATOR INSTRUCTIONS) I would now like to turn the call over to Ms. Tiffany Bradford, Investor Relations Specialist. Please proceed.

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

The information in today's conference call may include forward-looking statements, including statements regarding projections of future operations, product development and production applications and benefits, future benefits of contract arrangements, market opportunities, and growth and demand, as well as statements containing words like believe, estimate, expect, anticipate, target, plans, will, could, would, and other similar expressions.

These statements are not guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, under the heading "Risk factors relating to the Company's business" and our other reports filed with the Commission from time to time.

Except as expressly required by the Federal Securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changes in circumstances, or any other reason.

I now would like to turn the call over to Alexander Tokman. Alex?

Thank you, Tiffany, and thank you everyone who has joined us this afternoon. We have sun in Seattle in November, which is unbelievable. Hopefully, this call will be just as enlightening as the weather in Seattle.

I would like to structure this call slightly differently than what we've done in the past. Again, we will start with the summary of the third quarter operating results, then Jeff will follow me with recapping of the financials for the third quarter and year to date. And next, instead of jumping directly into Q&A, I would like to recap the opportunity that is in front of us. Give you an update on our rapidly evolving markets and technologies, and then we'll close with the Q&A.

So let's begin with the operating results. Overall, third quarter operating financial results are very solid, as we completed several important milestones that should allow us to move closer to the goal of commercializing high volume consumer and automotive products based on our proprietary engine called PicoP.

As you are all aware of, we are pursuing products based on this PicoP platform, and these products will fall into three primary categories -- Pico Projection displays, automotive displays, and eyewear displays.

I hope that by now everyone is aware that PicoP is an ultra-miniature projection module that is being designed to produce full-color, high-resolution images. However, at the same time, be small enough and low power enough to be embedded directly into mobile devices.

So if we focus for a second on the mobile projection applications, as you know, we have made major announcements at the onset of the third quarter about entering an agreement with Motorola to develop Pico Projection display solutions for mobile applications. You also are aware of the fact that we will initially work together to integrate the PicoP projector inside a functioning mobile device for demonstration purposes.

To date, we have been discussing our supply chain partners that will be responsible for producing the core engine. But what about the final product? To get with the accessory to market, you really need to have a system integrator that has the skill and the capacity to produce high volume products. It requires a different skill and cost structure to be able to support such production.

So it shouldn't be of no surprise to anyone that we've been seeking such strategic partners, and subsequent to the end of the third quarter, we have signed and announced an agreement with a large Asian consumer electronic manufacturer to integrate our Pico Projection display engine into a fully functional standalone projector prototype.

This agreement allows us to leverage extensive integration and manufacturing capabilities of one of the world's largest suppliers of cell phones, personal media players, and digital cameras. The prototypes that we produce together are expected to be marketed to leading consumer electronic companies for private labeling and distribution for mobile applications.

Let's switch now to the automotive sector. As you are aware, we had signed several contracts with global tier one automotive players in late 2006. One of these players is Visteon. Well, I'm pleased to say that subsequent to the end of the quarter, we have delivered first advanced PicoP Projection modules for the automotive head-up display to Visteon.

The company, Visteon, plans to use these advanced HUD prototype samples to demonstrate unique performance characteristics of our platform technology in order to secure contracts with their automotive OEM customers.

Let's switch focus now onto eyewear applications. And we've made progress in this segment as well. We have delivered a demonstrator unit of innovative eyewear optical systems to the US Air Force. This was done under contract that was awarded to us by a United States Air Force Laboratory in 2006.

The importance of this deliverable is that this initial eyewear optical system is expected to serve as the foundation for a whole new generation of see-through full-color eyewear display products from Microvision.

So now let's switch topic onto a product we have currently in place, and I'm talking about bar code scanners. What about our new bar code scanner called ROV, whose sales announcement came during the most recent summer? I'm pleased to tell you also that subsequent to the end of the third quarter, we've begun commercial shipments of the new ROV scanner.

This new product is designed to be simple to use, point and scan device that offers a broad range of bar code symbol decodes. It has large memory to hold more than 4,000 scans, and most importantly, it runs on inexpensive AAA batteries. It's made compatible with connectivity software for all major mobile computing platforms, including Windows, Palm, Symbian, Blackberry, and Windows Mobile.

All of this is required to be competitive in mobility markets that we're going to target with this product.

On the financing side, we have completed the call, as you know, of the company's publicly traded warrants, raising $34 million to fund operations without an increase in fully diluted common shares. This gives us -- Jeff is going to give you a more detailed recap, but we have $40 million plus on hand in cash and cash equivalents.

We also have received external awards, industry awards. Frost & Sullivan gave us an award for technology innovation, specifically for business and design advancement of a bi-directional MEMS scanning mirror that is a key component of our PicoP display engine.

In addition to the above-mentioned results, we continue to mature the PicoP technology, the results of which you'll be able to see in the not too distant future. We are focused also on strengthening the existing supply chain partnerships, all while lowering the cash burn from operating activities by 17% year over year.

We also -- and this is very important -- have added a number of key business development and strategic sourcing resources to increase the capacity and depth in both functions, and the new employees that have joined Microvision over the past six months have honed their respective expertise in companies such as General Electric, Hewlett Packard, Microsoft, Polaroid, and Selectron.

At this point, I'm going to pause and let Jeff give you the update on the financials, and we'll come back to the value proposition.

Thank you, Alex. For the nine months ended September 30th, 2007, reported revenue of $7.5 million, compared to $5.2 million for the same period last year, and $2.6 million for the third quarter 2007, compared to $823,000 for the third quarter last year.

At the end of the quarter, we had a backlog of $5.7 million compared to $6.9 million at the same time in 2006.

We also reported an operating loss for the first nine months of $18.8 million, compared to $21.1 million for the same period last year, and $6.5 million for the third quarter, compared to $6.7 million for the third quarter of 2006.

The improvement in the operating income was primarily due to improved gross margins on both contract and product revenue, and we also had lower year to date SG&A costs.

We also reported a net loss available to common shareholders of $13.8 million for the first nine months of 2007, compared to $18.6 million last year, and $4.7 million for the third quarter of 2007, compared to $7.7 million for the third quarter of 2006. That translates to a net loss per share of $0.29 for the first nine months of 2007 and $0.60 per share for the same period last year, and $0.08 per share for the third quarter compared to $0.20 per share for the same period in 2006.

The improvement in the net loss available to common shareholders reflects the improvement in operating income, as well as a reduction in interest expense from last year. And also, we didn't repeat the cost of converting preferred stock that we had in 2006.

As Alex mentioned, the cash burn -- cash used in operating activities for the first -- for the third quarter was $5.1 million compared to $6.1 million in 2006. And we've previously discussed a goal of reducing the cash burn to approximately $5 million per quarter. And we ended the quarter with $40.4 million in cash, cash equivalents, and investment securities. Alex?

Thanks, Jeff. So let's come back to the value proposition of the endeavor we are pursuing together. We at Microvision are elated about the enormous opportunity that is in front of us, because we believe it has all the necessary ingredients for creating something very special in Redmond.

What do you need to have to create something special? You need to have four attributes. First, enormous size of the potential market. Second, strong market pull and clearly defined and articulated unmet needs. Three, you need to have strong technology differentiation. And four, you have to have singular focus and sense of purpose.

So let me go over each one of these items briefly. Market size. There are approximately 1.2 billion handsets will be sold this year, with large percentage of which are multimedia phones. There is a large install base of the mp3 iPod users, 100 million total, of which at least a quarter represent video capable devices. As you know, with the new introduction of Apple new portfolio of product, this number is expected to increase.

There is about 50 million personal gaming devices being sold, 60 to 100 million digital cameras. All of these devices are considered to be mobile devices. All of these devices have small screens that limit user experience.

It is very conceivable to think that Pico Projectors could follow a very similar path in growth trajectory of LCD -- color LCD displays and digital cameras embedded inside cell phones. By the late of this -- before start of the new millennium, there were virtually no cell phones that had color LCD or camera capability, and look at us now. Six, seven years later, almost 80% of all these cell phones are color LCD displays, and they have built in digital cameras.

Given the global move to broadband wireless, we think that our projector could be an enabler of a very valuable and compelling mobile display experience. If you just look at the pure numbers, and it's shown that 3% to 5% of this addressable market of 800 to 900 million users could -- or place PicoP inside their mobile device, that translates into 30 to 50 million units a year.

Let's talk about now market pull. So far, we've been very, very encouraged by what we've seen in the market. First, consumers, there is an overwhelming belief that consumers want larger display experience from their small mobile devices. Several industry studies have confirmed this.

Second, you see a trend in mobile devices that are drastically impacting the performance of mobile displays, and requiring higher resolution, lower power, and smaller size. It's clear that future mobile devices center around instant broadband access for all types of multimedia devices, because the content today is rich, it contains multimedia applications, television, web browsing, gaming, movies, et cetera.

As a confirmation of this, you see many players attempting to enter in this lucrative market space with their technologies. Bottom line, there's a lot to conquer, and to have a shot in this space, you need to have a technology that differentiates you from others.

So what are the differentiators required to be successful in this -- (inaudible -- technical difficulty). Let's talk about differentiation. We have been very bullish on collecting inputs from our customers, which include cell phone manufacturers, consumer electronic OEMs, and others. And all of them told us loud and clear, it's all about size, power, and image quality, specifically the resolution.

Let's talk about size for a second. To be considered an embedded product, the display engine has to first sit inside the mobile device without major impact of the form factor of that device. Through the extensive consultations with our -- with cell phone companies, we've been told that 7 millimeters is the maximum acceptable thickness, with the total overall volume is 5 cubic centimeters.

You know that the prototypes, our early prototypes that we already have shown, are very close to meet these requirements. The main reason why we can achieve such a small package is because our display engine is based on one tiny mirror that is used to create an image. By contrast, most of our competitors require panel or array of pixels to create the same image.

Another significant advantage is the requirement of projection lens. Because of the uniqueness of our technology and the light sources that we're using, we don't require a large projection lens. The other technologies for the most part do require a projections lens, which affects the size of the package.

Let's switch the topic now to power. So once you get inside the handset, next the second goal is you need to make sure that whatever you put inside will work with typical batteries that are used today in cell phones. Our Pico Projector engine efficiently manages power by controlling the light sources and turning them on and off on a need only basis.

The added benefit of managing light sources in such a way is that minimally -- we generate very little heat. That's significantly reducing the thermal issues on other components inside mobile devices. By contrast, most competing technologies and systems require their light sources to be on all the time, and it creates some issues.

If you look at the arguments, what is better, lasers or LEDs, in our opinion, laser light is the only viable technology that enables incredibly small, thin, and low power projector, one that can be actually embedded inside the cell phones. Lasers, as you know, are much more efficient devices than LEDs, and as a result, LED-powered devices require more optics to collect and focus the light, leading typically to a larger engine.

If you look at image quality, while size and power put you inside or outside a mobile device, it is the display characteristics that consumers care about. And for this, we look at several critical attributes. One is depth of focus, second is resolution, and finally, a depth and gamut of colors that you can see.

If you look at depth of focus, the use model for Pico Projectors that are embedded inside mobile devices is the one where you want to use them anywhere at any time to get instant gratification. So the infinite focus is almost a requirement for such applications, because PicoP display engine allows the image to be created in a highly lit room, in a dark room, and dependent on the amount of light in one specific space, you can increase the image size from a laptop screen size all the way down to the 50 inch equivalent plasma television without refocusing.

If you look at resolution, the important characteristics about resolution is that most of our competitors today are focused on developing projectors that will offer about quarter VGA resolution. Quarter VGA stands for 320 by 240 pixels, which roughly corresponds to about one-quarter of traditional television screen.

So while QVGA technology is available on today's cell phones, and may be acceptable to view some of the larger photographs and low quality video, we don't believe that it will be sufficient to produce high quality photos and video, as well as web surfing, viewing documents, and presentations.

As you know, on our Pico Projection display engine, we're currently at WVGA resolution, which stands for 848 by 480 pixels, which is close to DVD quality picture. And we can support numerous devices, including all known mp3 players and some of the high end cell phones, which allow it to take TV video out.

The important part about resolution is about -- it's about the new trends in high bandwidth networks. Let's look at the growth path. One key advantage of our technology is that it offers a path to the increased resolution over time without a large impact on the engine size. We see this as a distinct advantage over any fixed panel display technologies, which include LCD, DLP, [Alcove], where greater resolution for this display means larger panel with more pixel elements [at it]. We believe that demand for increased resolution will continue to grow as 3.5 and 4G broadband mobile networks become a reality.

On the color side, by using lasers instead of LEDs or light bulbs, we are allowed to generate colors that are not possible by other devices. And these colors extend well beyond the established NTSC color format.

If I look now at the fourth attribute that is important for the success of this endeavor, and I'm going to come back to focus and sense of purpose. I don't think it has been a secret that since 2006, we have mobilized all of our resources to achieve not 30 but a single goal, to accelerate the path to market for high volume consumer and automotive products based on the PicoP Projection engine. I think our results to date suggest that we have been bullish at executing and completing these critical business milestones, all while tackling a very difficult problem of bringing new technology to market.

If you look, we almost doubled our engineering resources in one year to help to mature PicoP technology from a block diagram on a piece of paper to the advanced prototype stage where we are right currently at, all of which while still reducing the burn rate by 17% year over year.

Customers and supply chain partners have been affirmative and supportive of the strategy we put together, and we've seen results by -- through new agreements we announced over the past year, and the new agreements will come moving forward.

I want to close at this point and say that you will have to expect this intensity to continue going forward from every one of us at Microvision. And at this point, I will open it for questions, for your questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Joel Achramowicz with MDB Capital Group. Please proceed.

Thank you. That's Achramowicz. Good afternoon, Alex and Joe.

Good afternoon.

Can I ask a question? It sounds -- you've gone over a number of the critical elements of the PicoP and your competitive position, Alex. Does that mean that at least currently you don't -- I was going to ask you, do you see any new developments on the competitive front? You still feel very strongly that you're in a very unique and aggressive position in the small projector area?

Joel, we have seen competition entrances from several players, as you know, including Texas Instruments, Light Blue Optics has been talking about the Explay. And most of -- most of the efforts that have been focused by our competition appears to be focused on the accessory product.

So we expect some competition in this segment. We, however, consider the embedded engine to be the holy grail for future long-term growth. And we put in a lot of efforts to ensure that we stay a few steps ahead of what we think or perceive the competition can do.

However, on the other hand, having the competition to me is always a good thing, because it brings the best out of all the parties involved, and I think it benefits consumers and shareholders in the end.

Absolutely. Can I -- how about the power reduction? Do you still see a road map to where you need to get? And do you see the milestones where you continue to reduce power draw in order to really appeal to the eventual integrated monolithic --

Absolutely, Joel. One of the difficulties in disclosure is that there's a lot of progress that's going on inside that we can't communicate publicly at this time for various reasons. But I can tell you that the engineering team is extremely bullish. They have very strong power reduction road map, and we've seen a lot of progress over the past, I would say, three to four months in reducing power to the levels where they need to be for both accessory and embedded product.

Recall that we said we want to target [access] rate for 2.5 hour continuous operation without recharging, and we targeted the embedded module for the first generation to be 1.5 watts, which is what cell phone manufacturers have expressed to us for all of us to be successful.

Very good. Can I ask you about next year? Do you fully expect to have an accessory device as well as at least some preliminary distribution, perhaps a retail distribution platform, in place before next year's Christmas season?

Well, our goal -- our goal has been to introduce the accessory product at the end of 2008, and the goal it still -- still stands. We're still pursuing it, this objective. And you will see -- it's not going to be a big bang theory.

You're going to see some intermediate steps leading to this event. And intermediate steps including populating the market with small number of the advance prototype samples given to our customers, who can then use these samples to get feedback from their customers, the consumers, so that we have all the necessary information to [free] the final design and ramp the manufacturing production of the product that the consumer will want.

But you do expect to see some revenue from the accessory device next year? Am I correct in assuming that?

Our goal -- again, Joel, our goal is still to introduce the accessory at the end of 2008, and obviously, as part of this goal, we expect to see something on the revenue side. How much, it's unknown at this time.

I understand. Last question, just the housecleaning, Jeff, what's the stock-based compensation for the -- compensation for the quarter?

For the quarter, it was about $550,000.

Great. And then one final question, and I'll get into the queue again. What about the -- Alex, how are your -- your particular prospects. In the Q, you'd talked about having 25 potential strategic partners, either handset players or accessory players, electronic players. How do they react now, or how have they reacted, in the wake of the announcement of the Asian partner? I mean, do you think that helps you? I mean is it -- are you seeing some --

It's a good question, Joel. It obviously helps. Any time you see a large, well-known entity whose name can't be disclosed under NDA to our prospective customers, enters into this game and becomes our strategic partner, it adds further credibility that this is real. So, yes, it does help.

And we expect -- we expect to see good things in early 2008 as a result of this -- of this relationship.

Very good. And we'll see you at CES in January. Good luck going forward.

Thanks, Joel.

And your next question comes from the line of Darice Liu with Maxim Group. Please proceed.

Good afternoon, guys. Alex, just to follow up on Joel's question on the competitive landscape, you've mentioned that most of the players out there are targeting the accessory market. But TI, who just a few weeks ago revealed its second gen Pico projector at [SID] mobile. They are plotting to target both the accessory and the embedded.

Can you share your thoughts on what type of implications this might mean for you, especially since they're planning to launch the product one to two quarters ahead of you?

It's an interesting question, Darice. Again, I think it's great that TI entered the space, because it -- it confirms that this emerging market has a huge, huge opportunity. And it also gives us a formidable competitor for some of the applications. And again, I think competition is going to be good for us, not bad.

In terms of -- in terms of what TI has disclosed, I can't comment specifically on what they're going to introduce. We assume that they're going to introduce an accessory product next year.

In terms of the -- going to the embedded solution, based on all the information we have at hand, it shows that it's going to be very difficult to achieve this, not because it's TI, but because any array -- fixed array matrix technology, the size and resolution would be a big tradeoff, and you really need to decide is the quarter VGA image acceptable to be embedded inside or a cell phone, or do you really need a WVGA or even HD, once these devices become introduced, given the fact that the growth of the global 3.5 and 4G mobile networks.

So although we're taking everything that comes out of TI very, very serious, and actually, it gives us additional motivational factor to look for second and third generation of the display engines that would keep us likely ahead of competition.

Fair enough. But I guess the -- with TI, though, their product is coming out one to two quarters ahead of you. You mentioned the technology aspect of it for the embedded side. What about the fact that they are coming out ahead of you in terms of timing wise?

Timing, whenever you introduce something or create a new market, timing is one of the important attributes. But it's not -- it's not more important than having the right product introduced.

So I -- while I -- again, I can't comment on TI's introduction and configuration that they will be introducing, we're sticking to our guns. We have a very aggressive road map in place to introduce the accessory product. We believe we have some competitive advantages in several critical areas, and we're going to continue following this path, and not get distracted by what may and may not happen with competition.

I guess maybe I'll ask my question in a different way. As you talk to potential partners, are you seeing TI there as well?

This is a -- Darice, this is a great question, and I do have -- I do have an answer, but I can't share this answer externally because part of our disclosures and -- we had with our strategic supply chain partners, who we're not -- we are not allow us to discuss these type of matters. But, yes, it's not out of the question that we may share the same strategic supply chain partners.

Okay. And Jeff, some housekeeping questions. For backlog of the $5.7 million, is any of it for the ROV product? And then for OpEx, SG&A was sequentially lower this quarter. Is this level sustainable? And with cash burn now being $5.1 million, is that level sustainable?

Okay. Backlog on ROV, there was some. It wasn't very much. Very little backlog on ROV.

Less than $1 million?

Yes, less than -- yes.

And then from a SG&A and cash burn standpoint?

SG&A, as Alex mentioned, we've added some people in the bus dev, business development area, and strategic sourcing. So I would expect that this level of SG&A would come up a little bit over the next few quarters.

Will it return to what it was last quarter?

No. I don't think it will go back that far up. Just looking real quickly, but, no, I would not expect it to go back up to that level.

Okay. And then so cash burn then will increase.

The cash burn, yes, I think it'll fluctuate. So obviously, our target is to be around that $5 million target. We always tend to have a little bit higher cash burn in the first part of the year. So [a lot of people think we may be able to stand] for Q4. As you go into the first part of next year, I think it'll be a little bit higher then.

Okay. Thanks, guys.

Your next question comes from the line of Dave Duley with Merriman. Please proceed.

Hi. This is Chris on behalf of Dave. Good afternoon, gentlemen. Jeff, quick question for you. What do you think the share count's going to be next quarter?

Our next count next quarter?

Yes.

I don't see any reason why it would change substantially from what it was this quarter.

Okay.

We're at 56.7 now. I don't see it changing.

Okay. I was just wondering if there was anything -- so when it comes to your product in the embedded application, can you talk a little bit about the value proposition to the wireless service providers? Because I understand the demand coming from the end user, and how the handset manufacturers would want to be involved there. But can you talk about the benefit to the wireless service providers?

Sure, Chris. It's actually quite simple. The -- based on the -- based on the analysts' market report, it's expected that video gaming and music download total market is going to be [6x] from $7 billion in 2005 to $43 billion in 2010, primarily driven by increasing video and gaming downloads, which are the two applications that are facilitated by having embedded projector inside the cell phone.

So the emphasis for the mobile carriers and content providers is that (inaudible) is that to them, they would love that every cell phone would have embedded projector, because if you do have one inside your cell phone, more likely than not, you would subscribe to mobile TV or other services. More likely than not, you would be downloading films and other video to -- because you now will be able to watch it on a large screen anytime and anywhere, so you're not limited or constrained to your living room, like you were in the past.

Okay. Great. And then just on the supply chain side, you seem to have lined most of your ducks up in a row here. Is the primary last hurdle we need to get over is the high volume production green laser, and then you're off to the races from there? Or are there other supply issues we need to keep an eye on?

Any time you assemble [architect] supply chain, you have to look at every component and consider it to be important. Obviously, the green laser carries more importance because it's a device that is not available in commercial production today, and this is why we're putting special emphasis on that. But we're monitoring every strategic partnership at the light source level, at the PicoP level, and now at the product integration level.

So all of these pieces have to come together in order to have a product. It's not just sufficient to have the components being ready, but system integrators are not. So we -- we're monitoring the progress. We have actually programs in place to monitor these progresses, and so far, we've been, for the most part, satisfied with the progress we've seen from our suppliers.

Okay. And I actually just realized, is it -- what would be the diluted shares outstanding in the quarter?

Fully diluted is 66.6 million.

Excellent. That's it for me. Thanks very much.

All right, Chris.

Your next question comes from the line of Josh Baribeau with Canaccord Adams. Please proceed.

Hi, Alex and Jeff. This is Josh for Jed Dorsheimer, who's traveling. Sort of a follow-up to the previous question, do you happen to have more specific timing for when a solid state green laser that doesn't require frequency doubling will be available?

Josh, this is a Nobel Prize question, but listen, all I can tell you is that there are several companies around the globe who are working, who have development programs to actually produce solid state green laser. For people who are not familiar with subtleties between solid state and the frequency doubling green laser we're using today, solid state have more salient characteristics that are amenable to the embedded projectors. It has better power efficiency. It could be made smaller, and it's simpler.

To date, no one has indication that they would be producing this any time soon, at least within the next couple of years. However, there are several companies who have initiated programs to develop this capability, probably within the next five years, I would say.

Great. And just again, another follow-up to that, I noticed recently OSRAM and Toyoda Gosei signed a licensing agreement. Any idea if that pertains to a green laser?

We -- to be honest with you, we -- we are not in the middle of -- of this specific agreement. OSRAM has produced -- has been known to produce other than green laser components. They produce a lot of LEDs and other optical devices. So it could be a combination or subset of all of the above.

Great. That's it. I'll pass it on.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of [Chuck Bennett] with (inaudible). Please proceed.

Hello? Hello?

Yes.

How are you?

Hi. Is this Chuck?

Yes. What are you guys doing? Nice quarter. I had a question. I saw in a recent research report from Maxim that you had a slip in margins from 2013 to 2015. Any reason for that?

I'm sorry. Where did you see that again?

It was a research report from Maxim. A young lady was on there. She had a (inaudible) price target. I don't know. It seemed like she had a time machine. I don't where she got these projections from. She projected all the way up to 2016. Are you aware of this?

I -- yes. I think that would be a great question to direct back to Darice.

Yes. I don't know. Okay. I was wondering, it's been pretty quiet over there. The only news I saw come out lately was inside of selling up until I guess about a week ago. What are you -- what are you looking for going into the year end? I know you have your CES Technology Fair, like last year. I was kind of curious about maybe some kind of buyback for insiders or something like that. I'd [know if something sold], nobody buys, kind of makes shareholders nervous, that they've been sitting here for a long time. Kind of quiet.

You asked several questions. I'm not sure of the latter portion, but let me try to give you -- highlight the first question. I think you said we've been quiet. I hope that people don't equate press releases to no activity inside. As I mentioned to you that I know that many of you are thirsty for new, juicy information on a weekly basis, and I truly wish I could say more about many exciting things that are taking place.

But we do have contractual commitments [that guarantees] disclosures. Nevertheless, we intend to provide as much transparency as possible in the meantime, and I think we've been doing that.

No, I understand that. It just seemed a few months back, before we got the [Warren's] call, there was an announcement every two weeks. I was kind of curious -- I know salaries being what they are, I was kind of curious why -- maybe for example, you, Mr. Tokman, haven't really bought any more stock since $1.50. I know someone sold. Was that Jeff that sold? I don't know.

That was me, and again, we have limited windows of opportunity where we can buy and trade on the stock, and that's an individual decision for each one of the -- each one of our officers to make on their own. And we don't comment on what the individual officers do.

Yes. I was a bit curious about -- I mean --

Let's move on to the next call here. Thanks.

Thank you.

Your next question comes from the line of [John Schneider] with [Icarus] Group. Please proceed.

Hi, Alex and Jeff, and congratulations on a quarter that looks like you're progressing fairly well. I had a question on the ROV product. This is really the reemergence of Flic. Is that correct. Flic rebranded, only with significant improvements?

No, John. This is -- actually, this is -- you could consider this as a new product. We improved -- last year, we focused on improving Flic quality through minimal redesigns so that we don't have 50% return upon shipment, because of various issues. We achieved that objective with Flic.

So we actually reduced the quality-related issues and returns to sub-3% from average I think we had somewhere between 15% and 20% prior to that. However, 3% is still not enough to be considered, where I come from, a high quality product, plus it lacks some of the basic features to be effective in the mobility markets that we are trying to target.

So part of the ROV objective was to create a product that would give us ability to penetrate mobility markets. Second important goal of that program was that it's the first ever product that Microvision developed through the new processes that we implemented. So it actually is sold as a product, not as a beta that is continuously being reworked in-house.

Third, we learned a lot by developing high volume MEMS capability, which we never were able to do in the past, because we haven't sold more than hundreds of products containing MEMS device. Now we have ability to learn on the job how to produce high volume MEMS process that is essential in able for us to support a multi-million dollar -- multi-million unit opportunity associated with the PicoP display engine.

Is that an important thing for your customers to see as well? I mean, not just for you to learn on the job, but so that your customers that want to embed the engine in multiple devices, that they now understand you have that capability?

The customer benefit comes from the fact that this product is going to be -- the three attributes that it provides that Flic could not. And first, it's going to be -- we expect it to be more reliable. Second, it's going to have more features and connectivity accessories to work with the operating systems that are currently installed on mobile devices. And three, it just has nice, better look and feel when it's held in one's hand than the previous product, and we get consistent feedback from our customers that this indeed is what ROV achieves.

Okay. One last question, and I'll sign off. But what is the addressable market for ROV, and do you have any of that built into your forward cash burn projections? Any growth into that addressable market?

Addressable, this is a very good question, and I think -- I think this question asked six months from now, we can give you a better answer. At this point in time, we just released the product to shipment. So we're building right now the funnel, and we will know a lot more within the six months what is the true opportunity of this device.

It's a good question, John. At this point, speculation is probably not our best tool to answer to you. So within six months, ask us the same question, I will give you a more educated answer.

And John, to your point about the cash forecast, we've been very conservative on our estimates from ROV in our cash projections.

Okay. Thank you.

Your next question comes from the line of [Tom Lartner]. Please proceed.

Hi, Alex and Jeff. This is Tom in Dallas. I have three questions. Alex, over the last several conference calls, you've referred to your football analogy, and that was a very general idea of what targets you were hoping to achieve and comparative idea to the -- to the Super Bowl, or whatever. But you didn't mention it this time. I'm not sure if that's because of the Sea Hawks' record or --

(Laughter)

No. Same analogy, Tom. Same analogy still stands. But I'll let you finish your questions first.

And then this -- if you could just reaffirm that -- what those targets are in the analogy for me. And then secondly, the HUD, is Microvision expecting or hopeful, whatever qualifier you'd like to put to the issue, that the '10 model year, with whatever the manufacturer is, is your hopeful target to be at the retail, the customer level?

Okay. What's the third question, Tom?

The other gentleman answered it with -- or you answered it, the ROV.

Okay.

So I'm a little bit -- I'm hearing that ROV is being delivered and in six months you'll know better the market acceptance, and fair enough. That's --

And the reason is -- let me just finish ROV. The reason is because the -- we're targeting large customers, and it takes typically a few months for them to test drive the product and for us to understand what the uptake will be. So this is why it's too premature to comment.

All we know is we have completed the beta evaluation, and we received -- initial feedback had some problems. That's one of the reasons that we didn't introduce the product in Q3. We introduced in October, because we wanted to make sure that the quality issues are addressed, and that's part of the beta evaluation cycle.

So within the next six months, we should have a good feeling on how strong this funnel can be, and then we'll communicate to everyone what we see as the future for this segment.

Very good. I know you have those two front questions, and I'll add one more.

Wait. Well, let me go --

Is it clear that $5 million a quarter is your -- more or less $5 million to $6 million a quarter is your expected burn?

At this point in time, as Jeff had mentioned, we -- we're going to keep this burn rate similar to what you've seen for the third quarter for the fourth quarter. There's some anticipated increases in the beginning of next year, and -- but we're going to try to maintain it around no more than $6 million for right now.

And therefore, with $40 million cash, does -- will that arithmetic take you into '09?

Yes. That's correct.

Well, let's come back to your two questions.

Yes.

Let me start with HUD, and of course with football analogy. The question was are you expecting it still to be part of 2010 models. It's a very good question, and it's a question we constantly are working on with our customers, which are global tier one automotive providers.

As you know, we have two agreements in place right now. One is with Visteon, the other one with an unnamed tier one global supplier. We have deliverables that are part of these contracts. We just -- I just communicated that we made a first important delivery to Visteon, and the goal is now for Visteon to take this advanced automotive sample and solicit and get final commitment from their customers.

It's very difficult for me to say what customers of our customers will do. The only thing we can do right now is to focus on our contribution and make sure we are on time, and then help our customers to get their customers on board as soon as possible.

Finally, let's come back to football analogy. I think what I said is that we were a 1 and 15 team in 2005. We went through a major rebuilding process in 2006. In 2007, we are contend for playoffs. In 2008, we are going to contend for the championship game. And in 2009, we're going to contend for Super Bowl. The same strategy is still intact. We're still pursuing the same.

That's great, Alex. And congratulations on the quarter. One follow-up on the HUD, are you able to give us a little feel for what lead time an end manufacturer needs, therefore your customer would need a commitment by a date in order -- would it be June of '08 before -- at the latest that --?

To get -- every customer is different, Tom. Just in general, if I would use a general guideline, to get on 2010 model, I think our customer, the global tier one, has to have committed models by I would say middle of '08.

So the -- in effect, the ROV and the HUD would come around the same time?

No. What I'm saying is that --

I mean --

-- the customers -- our customers, global tier one, have to identify fully committed customers with automotive specified to be able to put them on 2010 model.

Okay. Thanks very much, Alex.

No problem, Tom.

This concludes the Q&A session. I would now like to turn the call over to Mr. Tokman for closing remarks.

Let's see. What hasn't been said today? Hey, look. Again, I'm going to repeat this again, and I know it's on your mind. I know that many of you are thirsty for juicy information, and again, I want to stress this; I truly wish I could say more about many exciting things that are taking place internally.

We -- the team is operating at extreme, extreme, high rates. We have a lot of challenges to solve, but we are all united, and there is a sense of purpose. We're trying to create something that never existed before.

The entire Microvision team remains focused on achieving the milestones we have communicated to you, to our customers, and to our supply chain partners. I'm looking forward to seeing many of you in Las Vegas in a few months, and hopefully, you can see some of the fruits of what I've been talking about. Thank you.

This concludes the presentation, and you may all now disconnect. Good day.