MicroVision Inc (MVIS) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter Microvision Inc. earnings conference call. My name is Karen and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS0 This call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call Miss Tiffany Bradford, Investor Relations Specialist, Please proceed.

Thank you, I would like to welcome everyone to Microvision's fourth quarter and year-end 2007 financial results conference call. In addition to myself, participants are today's call include Alexander Tokman, President and Chief Executive Officer and Jeff Wilson, Chief Financial Officer.

We will begin the call with our 2007 operating and financial results. Next, we will discuss our 2008 business priorities by Q&A and conclude with brief closing remarks by Mr. Tokman. The information in today's conference call may include forward looking statements, including statements regarding projections of future operations, product development, introduction, sales, applications and benefits, business partnering expectations, market opportunities and growth in demand as well as statements containing words like believe, estimate, expects, anticipates, target, plans, will, could, would, and other similar expressions. These statements are not guarantees of future performance. Actual results could different materially from the future results implied or expressed in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements are included in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission under the heading Risk Factors relating to the company's business and our other reports filed with the commission from time to time. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, changes in circumstances or any other reason. I would now like to turn the call over to Alexander Tokman. Alex?

Thank you, Tiffany. Everyone, good afternoon and thanks for joining us today. We have an informative session for you and I believe everyone will be satisfied with what we have to say today.

I will start with fourth quarter results. Fourth quarter has been very productive for us. Our operating and financial results represent a combination of the tremendous effort put forth by the Microvision team in 2007. We have announced in fourth quarter, signed and announced three development deals. One with the consumer electronics OEM specifically targeted for the development of the PicoP consumer product. We also announced an agreement with a large European tier I player for the development of the PicoP based automotive display and finally, we announced a very important agreement with the high volume manufacturing partner who will lead the integration of the PicoP engine into the product of our customers. We also ended the year with almost $36 million in cash and cash equivalents and reduced -- at the same time we reduced our burden to inaudible) $5 million for the fourth quarter. Jeff will spend -- provide more detail on this matter.

One of the -- one of the most visible results of the success that we had in 2007, represented by our showing at the Consumer Electronics Show in Las Vegas in January. At the show, we introduced our first fully functional, self-contained PDA sized battery operated prototype code name named SHOW as in show me the money. We have received very, very strong feedback and positive feedback from our partners, prospective partners and members of the media. There are many comments we can't state publicly, but I'll site some of these that were available for distribution and could be obtained on the response.

Lance Ulanoff, for example, who is the Editor and Chief of PC magazine has stated that this is one of the coolest things I have seen at CF in a long time. I can't get my -- I can't wait to get my hands on it. Sean Captain, who is the Editor of Popular Science has said that your next telephone could have a 100-inch screen without getting an inch bigger. Microvision's tiny PicoP projector can turn a wall, table top or any other surface into a display. It is small enough to fit in a packet because it uses lasers which (inaudible) power are extremely bright and produce little heat. They also do away with (inaudible) The pinpoint beams and they are always in focus from any distance. This ability to shine a big screen image anywhere is awfully appealing. There was many, many more of these attributes that came after the consumer electronic show, one of the more important ones also came from (Chris Chinok] who is the Senior Analyst and Editor of Insight Media, he is a three year veteran of the display industry and long time skeptic of Microvision's capabilities.

Insight Media has awarded Microvision as the best Pico projector demo at CES and he stated, I quote, at CF, there were a lot of Pico protectors, but almost all featured LED illumination. Microvision has stuck with laser illumination for their two-axis scanning mirror approach, but image quality has always been under whelming. At CES, this has changed. He said, I want more but for the sake of time I will focus on other attributes. Some of the testimonies came from our partners. For example, at most recent shareholders meeting at Curhan, their Chief Operating Officer and Executive Vice-President Joseph Miller has stated that Microvision's SHOW project is an illustration of the outstanding image quality produced by laser based projector. The SHOW projector has five times the number pixels as the LED based protectors shown at the Consumer Electronic Show and therefore, is able to produce high resolution images from a very small (opening). He went further that by saying that laser based projector, especially (inaudible) protectors have advantages in quality of image, size and power consumption. These advantages become more significant as this market will move to the embedded protectors. protectors using LED as the light source do not produce the same level of color saturation and the therefore, the projected image appears to be less bright, even when achieving the same nominal output power. All of this are very critical statements and these are testimonials from people who have seen what we show at CES.

The momentum has continued after the Consumer Electronics Show. At the 2008 Mobile World Congress, which is also called GSMA in Barcelona, which is the largest mobile communication conference in the world, we demonstrated PicoP protectors in the booth of several of our customers. So they actually showcased our protectors to their customers. Based on all the feedback that we have received to date, we believe that these successful demonstrations to global OEMs, mobile carriers and development partners have advanced their interest in bringing the PicoP technology to market. At this point, I would like to pause and just give you a highlight on the 2007. Overall, we feel very good about the results from 2007. It was a very rewarding year for Microvision internal and external stakeholders because we made outstanding progress in all of our articulated focus areas all while managing our operating expenses. But we also retired the (inaudible) and raised over $34 million through the (inaudible) publicly traded (inaudible) without additional dilution to our shareholders. We continue to position ourselves for future growth, particularly with high volume consumer and automotive product, based on the PicoP display engine, which as you know, is the high resolution small and low power device that can be embedded in a variety of mobile products. Let me just go by segment and outline some of the key accomplishments by this team in 2007. I will start with the Pico projection displays.

First, we, as I mentioned earlier, we successfully unveiled at 2008 CES the SHOW prototype. We also signed agreement, as you know, with Motorola to develop Pico projector display solutions for mobile applications using our engine. And most recently, signed a second development agreement with the World (inaudible) Consumer Electronic OEM for the development of the Pico projection application for the variety of the devices that range from cell phones, to laptops, to personal media players. We delivered on a vehicle on the automotive side. The delivered our first of them PicoP based projection module for the automotive headup displays. We delivered it to our existing partner, Visteon, and they will be using this to solicit -- to solicit feedback and get commitments from their customers which are the automotive OEMs around the world.

We signed additional contracts with global tier one integrator, one in Europe and one in Asia to develop a variety of PicoP based display applications for the automotive industry. Which in addition to the automotive headup display includes improved instrument cluster display and entertainment displays. There is a strong belief on our part this has greatly enhanced our go to market strategy for the automotive segments because we are spreading the risk and we are improving our global coverage. Next, I would like to highlight some of the accomplishments in a (inaudible), specifically I am referring to the eyewear. We delivered it for contract, a demonstrator unit of the innovative eyewear optical system to the Air Force and this project essentially has set a foundation for our future commercial solution in the segment. We were also awarded a $3.2 million contract from the Air Force to provide a lightweight, see-through full color eyewear display for the applications of this branch. There is an important component that needs to be mentioned as a win in 2007. Specifically pertaining to all maturation of the platform technology and supply chain.

As of 2006, we became a market driven company, and perfect example of this is the wide angle projector. It was developed on a customer feedback ,and that's much the reasons we developed new wide angle platform scanner that better suits mobile applications and mobile usage models. We improved image quality of the PicoP engine and validated these improvements through customer feedback and direct user studies. The testimonies were many, and you have heard some of them. We accelerated progress with William (Asig) Development Partners to reduce the size and power consumption as well as cost of the final solution. And we also -- this is very important statement. We also successfully integrated several green lasers into our PicoP platform. Bar code scanners, as you know, we released our new laser based Bar code scanner called ROV, and it is the first product in the history of the company that is based on core (inaudible) technology. The ROV was developed for use specifically in mobile applications to provide simple and affordable point of scan capabilities. I want to discuss more about what our plans for the segment and to 2008.

We also received as a bonus several industry awards and were recognized by IEEE and were named as one the top 20 electronic companies worldwide in patent pipeline -- pipeline, sorry, for 2006. This is an important accomplishment by Microvision team because the companies that are listed in the top 20 list have issued thousands of patents while Microvision had issued only 19 in 2006, compared to the larger companies, but we still made the top 20 pipeline because of the value and importance of these patents. We also received a 2007 North American Frost and Sullivan award for technology innovation, specifically because of our MEMS (inaudible) which is the key component of the PicoP display engine. At this point, I would like stop and pass the baton to Jeff who will cover the financial results and then will come back and I will discuss the 2008 (inaudible).

Thank you, Alex. For 2008, we reported revenue of $10.5 million compared to $7 million last year, and $3 million for the fourth quarter of 2007 compared to $1.8 million in the same period last year. We ended of the year with the backlog of $4.1million compared to $7.1 million last year. We reported an operating loss for 2007 of $26.7 million compared to $29 million last year. And we have a loss of $7.9 million for both the fourth quarter of 2006 and 2007. Overall for the year, the improvement in the operating income is primarily due to improved gross margins on both contract and product revenue as well as lower SG&A cost. These improvements were partially offset by increases in our R&D spending as we made progress on our PicoP technology. We also reported a net loss available to common shareholders of $19.8 million for 2007 compared to $27.3 million last year and $6 million for the fourth quarter, compared to $8.7 million for the fourth quarter in 2006. That translates into a net loss per share of $0.40 for 2007 compared to $0.81 last year. And $0.11 for the fourth quarter compared to $0.21 for the fourth quarter of 2006.

The improvement in the net loss available to the common shareholders reflects both the improvement -- the improvement in operating income as well as reductions in our interest expense, and not having to repeat the cost of the preferred stock conversion we did in 2006. As Alex mentioned earlier, the cash used in operating activities was $4.7 million for the fourth quarter compared to $5.8 million in the fourth quarter of 2006 and we ended the year with $35.8 million in cash, cash equivalents and investment securities. Alex?

Thanks Jeff. Let's -- let's for a moment focus now on 2008. I will describe briefly what our key priorities are, and anything that I will not cover we will be able to cover through the Q&A session.

So 2008. It's going to be an important year for us. We expect to continue the single-minded focus on our primary goal of accelerating the path to market for high volume consumer and automotive products. As a manifestation of this goal, we are targeting the initial commercial introduction of our first PicoP based accessory product for the end of the year. This goal is aggressive and in order to fulfill -- to fulfill it, we must do the following. There is really three critical pieces that have come to place.

First, we need to further exempt PicoP product miniturization for our reduction, and I will come back and explain some of the steps that need to be taken to address this. Second, we need to securer initial customers to brand market and distribute our PicoP accessory product and finally, we need to complete assembly of robust supply chains that will support this global commercialization. Let me start with the first item. What does it entail? So, some of the technical work that's left to us to do in 2008 is to finalize the design, to further miniaturize the product into power reduced power. The device that we showed at CES it is a first hand-held prototype that we developed for the purpose of doing initial customer trials. We expect the final product to be 20% smaller than what we showed at CES and have 40% less power consumption. We also working with several experienced partners for the (Asig)development to complete several remaining (Asig) chips. And the integration of these final (Asig) chips will allow us to reduce the size and power and therefore, increase the battery life of the final device.

Our goal is to have a device that could work on a standard battery for more than two and a half hours. What we showed at CES as a prototype was pretty good, could last about one and a half hours. But again, based on the customer feedback we solicited, it needs to be at least two and a half hours and that's why further power reduction is necessary. We feel comfortable about reaching these goals, and we're going to update you as we progress. The second item is securing initial customers to pull this product to market. As I mentioned, we will use the existing prototypes to get additional feedback from the OEMs and potential customers. We will use this feedback to make further refinements, if they are necessary, and then we'll complete the final reference design and start ramping the manufacturing the supply chain. The final item is the robust supply chain infrastructure necessary to have the global commercial rollout. We have been actually engaged in building the supply chain to support volume manufacturing for quite a while.

We started this in 2006 because at that time, as I mentioned to you, through previous costs we realized we don't have this expertise so we need to engage and solicit strategic partners to help us to go to market. We've started this at the end of 2006. There has been progress in this in 2007, and we have to finish this in 2008. We have been syncing our developments out first with the key suppliers to meet the targeted timeline and implement a joint programs in place to monitor the progress and help our partners when it was necessary. Green lasers have received the special attention from many of you, and we also know it is a long wait item, because is it's the only -- it's one of the few components that have been available commercially prior to this introduction.

What we have done effectively in 2006 and continued in 2007, we got involved with all key green laser manufacturers and created a (inaudible) operation and partnership to help to mature this and help them when they really need our help. And also basically syncronize our efforts to insure that what they are developing is consistent with our expectations. As you know, Corning has recently discussed its green laser development program during the shareholders meeting. I have gave you a quote from Joseph Miller, and Corning is very excited about this opportunity. He stated that green laser for -- green lasers for microprojection is an opportunity in a consumer electronic market space. And we expect microprojectors to become a reality in 2009. First as an accessory, and then as an embedded. We have engaged with customers, and it is one of our top priorities from the new product and new programs that we have at the company. Also stated that we are planning to introduce the first green lasers later this year and focusing in on the long wait production items to have sufficient volume for full blown production in 2009.

All of these factors are very encouraging, and our point of goal for 2008 is to complete the manufacturing agreements with product integrators, IBM suppliers and light source manufacturers to complete the final pieces the puzzle. But this is not all. What I have described is just one of the focused areas for 2009 specifically attributed to our first high volume product introduction. We also are focusing in on other items, just as important. Specifically, we'll be looking on securing new OEM commitments for PicoP enabled display solutions for the embedded devices, as well as the vehicle and automotive displays. We plan on working with our customers to further develop innovative eyewear technology that we have started in 2007 to enable this lightweight, small form factor, full color eyewear, which becomes a great complimenter for our Pico projector. Just think about, if you are on the move. If you have a Pico projector and an eyewear, you have everything you need to use, share information. It doesn't matter where you are. Whether you are in transit, outside, inside. You have total solution. And that's what we are focusing on.

We also planning on delivering on the existing customer commitments on the current projects and contract that we signed in 2007 in all of the three segments. Consumer projection segment, automotive and the eyewear. Our final goal for the year is to increase sales of our ROV Bar code counter by at least 100% of our 2007 figures. And we are going to do this by partnering with the key application providers and the large mobility solutions integrators. And as well looking at some of the traditional channels. I think at this point I will stop, and we will open for questions.

(OPERATOR INSTRUCTIONS) The first question comes from the line of Joel Achramowicz, MDB Capital Group. Good afternoon, gentlemen.

Good afternoon, Joel.

I was wondering, since obviously, the SHOW was exciting to see at CES, but we haven't heard a great deal about your work with Motorola, is there a -- when might we see some kind of a mock up or preliminary form factor of an integrated handset device? Is that something we might see shortly?

Good question, Joel. I will work with Motorola, it's progressing very, very nicely. We have completed the development of first handset prototypes with the embedded PicoP protectors. This is truly a historic event since it represents for the first time in the history, that Pico projector has been installed inside a fully functional handset. I don't think anybody can claim this. Both Motorola and Microvision recently demonstrated Pico projection cell phone at the Mobile World Congress at GSMA in Barcelona. This was done in private settings. And we are very proud about this accomplishment and our continuing relationship with Motorola. And we expect both parties, Motorola and Microvision, expect to show the hand held prototypes privately. Specifically focused at major events. And with the primary goal of gauge and consumer interest, assess the full market potential and refine the requirements for the final product.

Might that be at like CTIA, or (CID) '08 in L.A.?

Good question. Listen, when I said at most of the major events, I believe CTIA falls into this category, but if you really want more precision on that, specific dates and shows, it would be wise to call Motorola PR and get this information from them. Because we are under the restriction of what we can say.

I understand. I was interested in your comment on Corning in the semi green laser as opposed to the frequency doubling manifestation. Alex, is it possible, I mean, obviously it would seem probably more proficient to have the solid state green laser to work with but, could you have a production viable product and still use your frequency doubling green laser manifestation?

Absolutely, Joel. The leading green laser manufacturers right now are first focus on introducing the frequency doubling green lasers and this includes everyone that you know. And however, people understand that the solid state lasers have -- bring inherent advantages. The problem is, it takes at least five years or so to develop this technology. And my guess, without speaking for the green laser manufacturers is that they are developing frequency double technology to introduce in the near term, but they are also looking at the longer term solution which I believe would include solid state lasers.

Very good. And final question, Alex. Any -- any -- I mean, obviously the continuing engineering work and, when are we going to see major player besides the -- obviously OEMs you are working with obviously have a vested interest, but it would be nice to see some interest somewhere down the line from a major operator that says, this is really hot stuff and we're really -- we can't wait to see it. It's a -- get out the factory door so that we can begin to market it to customers. When might we see some kind of endorsement like that. Do we have to wait until 2009?

It's -- it's a very good question. And I am just as impatient about this as you are, probably more so. We, the SHOW, where we seen (inaudible) at -- in Barcelona at Mobile World Congress. It is a very good feeling that the mobile operators really want the solution. Because ultimately, they will be dealing with the cell phone manufacturers to get this to market. I personally believe and this will be a in a few years, because I personally believe, and I think this will be affirmed within a few years, the biggest beneficiary of this feature are, in fact, mobile carriers and content providers, because they will make the most amount of money on the subscription services and content downloaded, that today, is not. And when this occurs, I cannot tell you, but I do -- what I can tell you is that some of these companies already have plans to do this, but they will not communicate their intentions until they are very close to product introductions. So, I will anticipate you would hear this in the early 2009, maybe late 2008. But it would be difficult to see if there would be early announcements unless there is a surprise.

Hopefully you can hold on the SHOW schedule in that latter part of '08, and hopefully we will see some more information on the integrated product. Good luck going forward.

Thank you.

The next question comes from the line of Darice Liu of Maxim Group. Pleas proceed with your question.

Good afternoon, guys. Alex, you presented some priorities for 2008. And, they are quite a list. Can you put some dates -- some target dates around them.

You want me to give all the competitive information to the (inaudible) No, listen, I will be as transparent as we can without compromising what we do. Out of three activities, so we need to finalize the final reference design to get commitment, from our commitments from the (inaudible) customers and to solidify the supply chains. Some if which has started already. So we went to (inaudible) to kick off some limited trials with customers, they are limited because we have limited number of units to date, and the goal of these trials is for our customers to better spend what the consumer and user thinks about the performance, functionality, price, basically to create their own go to market strategy before they can give firmer commitments, specifically, whether the volume and whether the average selling price they expect to get out of these devices. So, this initiative it is going to start -- it's already started, and we anticipate it to continue throughout the first half of the -- in terms of the technology maturation. We -- the time we are pursuing does not happen simultaneously. What this means, is that we see these different components at different times. So we anticipate to complete the detailed design by, I would say, our goal is somewhere by the end of the first half or early third quarter because that's what we need to be enable the year round introduction. In terms of supply chain structure and -- supply chain agreements, work is in progress. And I believe as we progress through the year, you are going to see -- you're going to see the periodic announcements from us as we bring in new players and acknowledging them. Today, we already have actually signed joint development agreements with our supply chain partners, but we are not privy as to who they are and what they are working on. And all of this is that we honoring their request of keeping this information secret. So, expect -- we expect first half to be very important in positioning for the year-end launch and the information that we expect to get in the first half, early third quarter will be probably naming some of the customer's naming new supply chain partners, and also giving you update on how we miniaturize them and reduce power on the final product, because it's important for its success. And I believe you are going to see -- you're going to see some of the symptoms of this. Definitely (inaudible) information display, and possibly earlier.

Okay, fair enough. And then in terms of the demos that you are giving out. I know that a number of the guys who met with you at CES wanted some sort prototype. Are most of the prototypes that you're sending out,, are they more for embedded solutions or accessory solutions?

You are good, Darice. (laughter) Listen, we -- it is both, it is both.

Is it more like 50/50?

That's all I can, unfortunately.

Okay, and you are confirming you will have an accessory product out by 4Q '08?

Our target is to have that, that's correct.

And you guys are on track for it?

Well, there's a lot to do, but, we feel it is aggressive target, end of the year but we feel comfortable that we have the tools in place to reach the target.

Fair enough. And the last question is for you, Jeff. OpEx increased quite a bit, quarter-over-quarter. What level should we be modeling going forward in 2008?

We had talked about having expenses increase in 2008 over where we were in 2007. It was very close to product introduction. And I think for the first half of the year, you won't see much increase over where you were in Q4. And that would be possible to update that as we get, again, closer to the product introduction in the second half of the year. But I think you're going to see some more increase in the second half of the year.

On both R&G and SG&A? Or is it more weighted towards R&D?

It's really more weighted towards R&D, and if you look at the increase in the fourth quarter, it is much more weighted towards R&D. And very specific areas are the (inaudible). And we are tremendously improving the sourcing -- strategic sourcing capability and service as well as the procurement parts for the initial data used.

Okay. Thank you, guys.

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

Hi guys, this is actually Josh Baribeau for Jed who is on the road. Just a couple of questions for you. You mentioned that -- and this is obviously consistent for what you have been saying for a while. You mentioned that you are hoping to have the accessory feature by the end of the year. Do you anticipate material revenues, or are you hoping for material revenues in the actual Christmas shopping season or do you just plan on introducing the product and not having much of an impact for the Christmas season?

We want to introduce it. But we're not counting for our revenues 2008.

Okay, and just, I guess a housekeeping type of question. You have got some -- you're talking about OpEx coming up a bit in the year. Could you talk us, talk us a little bit through your burn rate and what you expect to see that look like for next four quarters or so?

Sure, if you look at Q4 it was a -- we had talked earlier about having a goal of the $5 million per quarter. We achieved that in the back half of '07. I would expect to see that increases pretty much along the lines of the OpEx increases, so maybe a little bit of an increase in the first half of the year, and then move of an increase as you get to the back half of the year. And a little bit more guidance for that as we go through the year, and we kind of reply in the product launch plan.

Okay.

Not talking huge increases there.

Okay. One of the key aspects to the question is that ultimately, the number is going to be determined by the volumes that are going to be given by the customers.

Also, what we are trying to do to mitigate the (inaudible), we're trying to pass some of these costs off to future partners by giving them personal (inaudible).

Okay. That's actually it for me. Thanks for the time.

Your next question comes from the line Chris [Smithheel] with Merriman. Please proceed with your question.

Thanks for taking my call guys. I was just wondering if you could update me on how long would it take for lead times in each of your products with an embedded opportunity. Accessory opportunity in the automotive. And how much lead time do we need once you get a design in there before you actually see the products.

Are you referring to each of the segments mentioned, or are you interested in one of them?

Each of them. I mean, how long does it take if we get a design for the accessory product.

How much lead time to we need before manufacturing rolls them out? Well, for us to initiate the introduction of the accessory product, we need to have serious commitments in hand by third quarter of this year, I would say in the latest. The desired state would be at the end of the second quarter.

In terms of embedded solution, I've communicated in the past, our goal is still to introduce an embedded product some time late second quarter, early third quarter of 2009, and as far as the automotive products are concerned, the goal for the year is to help our partners, our tier I integrated partners to find a foreign customer. Because to date, they are essentially using what we gave them and delivered it to them to get commitment from the automotive manufacturers for the specific model of the future. When that year is, whether it's 2010 or 2011, we don't know yet. We are enabling them and do it as early as possible, but also, they have to carry a bit load to, and use their influence with their customers to get that commitment. But we're helping with everything we can, and so far, we have been very predicable in what we deliver to them, it's always on time and at the performance level that we specify. So again, I can't give you a precise year. But it is 2010 and 2011.

But for us, to enable that launch, we need to complete our development as early as this year -- at the end of this year, as late as probably middle of of 2009. Alright, that clears it up on the automotive and the accessory.

But I'm just a little unclear still on the embedded opportunities. If you introduce in late 2Q, when does the design have to be finalized?

When the design has to be completed? The design has to be completed pretty much by the end of this year.

Great. And, on the supply chain side. Besides the light sources integration. What are the other hurdles remaining?

The big hurdles, I would say, the lights sources, which everybody knows about. And just to put the general display chain to broker and to sign a supply -- umbrella supply chain agreement between different partners, because we don't want to be involved in every step of managing the traffic. We just are going to be involved in the critical steps where we add value. So today, what we are doing with, as we negotiate an agreement with our direct supply chain partners, we also help them to broker supply chain agreements with other supply chain factors involved in this go to market strategy. All of this -- all of the activities will happen, and it should conclude within the next six months, I would say.

Great, and then, on the prototype that you had private sections in Barcelona. Did you say that was a Motorola model?

I said that my (inaudible) Motorola -- Motorola showed a cell phone with Microvision (inaudible).

That helps very much, thanks.

Your next question comes from the line of Joseph [Dubroth] with Morgan Stanley. Please proceed.

Hi guys. How are you today?

Good Joseph.

Hey listen, in Barcelona, that was a fully functioning, I could pick it up, make a phone call, and then flash my pictures on the wall cell phone?

That was it Joe, this was why it was a historical event and I think all of us, and all of you should be proud that we achieved this before anybody else.

Was that shown to carriers in Barcelona?

It was shown privately to Motorola's customers. So, obviously, it wasn't to their competitors (inaudible) carriers and mobile providers and other end users that Motorola used as their customers.

Can you give us some sense on, I know you probably don't want to give away cost of the product. yet, but there's a certain cost to it. What is the response from the carriers? Can they see the value there? If they're going to subsidize this, say $50.00 a unit, are they recognizing they can up sell video content greater than that in the life of the product? Any comments on their initial response to it?

You're asking very good question and the response from the carrier is very, very positive. Can't disclose the details determined on what they said about how much substance they are going to do and what the ultimate price that they would charge. But what I can tell you, there is a strong from the carriers and mobile -- and content providers. And the reason is very simple. If digital camera can penetrate cell phones from (inaudible) the 75% penetration within five years, and digital camera is not benefiting carriers and content providers, then (inaudible) as well. Specifically because now, you and I, we can download anything we want, and we can play it anywhere we are.

Okay. There has been a lot of -- obviously, Motorola's been in the news, there's been a lot of turmoil of late. Does it cause any disruption of your time line with them, or are he champions of your technology still in place at Motorola?

The simple answer is yes. The champions are still there, they have been actually promoted. And it is good for us. And Motorola's turmoil, one of the reasons for Motorola's turmoil is the lack of innovation over the past, and this is the perfect example why they should be interested in getting this to market because it represents something unique that no one else will have.

The other day I was listening to Gregg Brown he did a, I guess what they call a fireside chat. And he said that they were going to be moving away from the traditional slim and colorful to more feature rich smart phone PDA devices. Have you guys been given any indication that you are part of that focus and due to their need, have they accelerated the process at all?

That's a very good question Joe. (inaudible) Even if I have the the answer I can't tell, I can't tell you, because we are not privy to discuss all that information. So I want to apologize, but that's the best answer I can give you. All I can tell you, something that is really cool is that the cell phones that Motorola had shown, if you'd seen it and held it in your hands, you would never guess that there's a projector built in. And the reason is because we are able to produce an ultra thin, embedded engine than no one else has.

Let me ask you one more question, then I'll get back in queue. How long are your hands going to be tied? Obviously, to shareholders it does get frustrating, the lack of news.

And when do you think the first chance the public will get a chance to see the prototypes or phones? The Motorola solutions obviously will be determined when Motorola decides to share it in a more public forum than what they've been doing. In terms of what we have, specifically pertains to SHOW and its derivative (inaudible) product. You're going to see the (inaudible) as we're moving through the year, and believe we're going to have some major shows on the way, TK is one, (inaudible) information displays to, which will happen within the next three to five months. And you are going to see some new -- new toys from Microvision and you're going to see how we progress towards the ultimate goal. I don't know, you obviously, everybody can make their own opinion, but so far we've been predictable in what we said we're going to do despite the agressive goals we set, and I believe this is going to continue.

Thanks, I will get back in queue.

Your next question comes from the line of Bob Checkland with PI Equity Group. Please proceed.

Good afternoon, it's Parallax Institutional Equity Group. How are you guys?

Hey Bob.

Listen, congratulations on another year filled with just terrific milestone achievements. My question is that CES, it seemed to us that there was a tremendous amount of what I would call positive media coverage and also lot of excitement about the new company's coming product offerings. But there was also what we would call misperception, I believe. About the potential competition from the likes of TI and 3M as to perhaps those customers beating Microvision to market. Can you give us your take on our observation.

It's a broad question, so let me try to break it into several sub portions. I think you're asking, what about the competition? there were at least 13 competitors at CES who demonstrated various flavors of protectors ranging from small to something a little more bulkier. And so the question is, could they introduce something earlier than we this year. And what does it mean to us. Am I capturing this?

You are absolutely on the money.

Alright, so let me start with the first one. Any time you have a large market opportunity, you will draw competition, it's a fact of life. The number will (inaudible) small protectors which are at various stages of development. TI and 3M happen to be two of them, and they happen to be a large company. We believe personally -- I believe, and we believe that this is a good thing because it confirms that this emerging market has huge, huge, huge opportunity. (inaudible) consumer electronic OEMs, our customers, our prospective customers have indicated lately great promise in Microvision solution primarily because our display engine, unlike others, can be made smaller, thinner. It consumes less power and produces much brighter and higher resolution images that any other technology. In terms of the, moving to the next step, which is the Holy Grail for this market and embedded solution. Even though there are people who will claim they will introduce, and they probably will introduce accessory products this year, I don think any one have claimed that they can make it an embedded solution. And our strategy has always been, start with accessories, quick follow with the embedded and basically create a totally different usage model for mobile consumers. That would be the, I believe, strategic advantage and the tactical advantage over everybody involved. Could someone introduce something earlier? It is possible, it's possible. However, being first does not guarantee success. Just ask Toshiba with HD TV (inaudible). So, we want to introduce the right product, and our targets are aggressive, and we have to stick to them. And we have to do what ever it takes to make it happen. But if someone introduced something earlier, they have to battle certain attributes that they have to explain to their users because (inaudible) specifically, and all cost technologies have some basic issues in performance, starting with brightness. The protectors are not very bright, the colors are washed out. The center is brighter than the sides. It's not because TI and 3M and others cannot do a good product, they can. It's just the inherent (inaudible) of the technologies that they use. Also, the protectors are lower resolution that ours and as you know, there's a major push to broadband network. And one of the final attributes that I think is going to be very, very critical for the mobile application, we are the only technology today that can say we are focus free. Even though some of the players claim they are focus free, they deceive the public by hiding the buttons to adjust the focus.

Is it your opinion that size and power are the two key gating items and Microvision has both and the others don't?

I would add two additional items. The size, the power, the brightness, and finally, its resolution.

Terrific, thank you very much for that. And all the best of luck to you this year and next.

One more question.

And your final question comes from the line of Randy Hoff with Roe Equities. Please proceed with your question.

Thank you, fellows. And I'll second the last question about your year, fabulous year. I want to go back to the auxiliary product. Alex, if I could, for a minute. Just to give us an idea while you commented that you would just introduce the product under your time line. With no intention in 2008 Christmas season to mass produce the device. Nevertheless, you need to be thinking, I'm sure, or have been thinking about what theoretical market sizes are in terms of units over time. I don't know that you have ever shared that with us. Could you give us some feel for what, what we might look forward to in terms of ramping in '09 and 2010 with respect to the -- assuming everything is successful in the roll out in late '08.

It is a very good question, not because I think I know the answer. But it's a very good question because, it's a very important question. One of the things is -- let me start with a basic premise. My personal belief is that the demand is going to be far greater than the supply. I don't think there would be enough capacity from us or even someone else to introduce something for the accessory to meet the demand. If it is the right product, obviously. And we believe we are doing everything possible to make sure that this the right product. Now, let's talk about the accessories first and after I'll move to the embedded market opportunities.

Yes.

Addressable market for accessories is anything that contains multimedia applications, and what is inclusive of this? It is any cell phone that has the right media output. And it is the 100 -- or 100million installed base and Ipod users and MP3 players, it's everyone who is carrying a laptop around and wants to have a quick projector connected to a laptop to share the information with the business colleagues. So, it could be -- market opportunity is very large. How many people will actually purchase it is going to be determined by the ultimate performance price ratio of each device. So, again opportunity is pretty large and the price is going to be, I believe one of the factors that's going to determine the ultimate volume.

So, we believe there would be modest -- modest growth in 2009, let's say, a couple of million units for the total market. And I think it will be determined primarily because, not because users do not want it. Because people will not be able to produce it in the quantities that people want and the prices eventually that people want initially. If you look at the embedded proposition, this is really what we are building the company around. Accessory is a step for us to get to the embedded. And if you look at the embedded market, and just ignore laptops right now, ignore MP3 players, ignore digital cameras and just focus on cell phones, there'll be probably 1.5 billion cell phones sold by 2008, 2009, of which 60% would be multimedia phones. So this could be phones where you can browse the web, play videos, download videos, run business applications, et cetera, so that 60% of 1.5 billion is 90 -- 900 million, right? Am I doing my --

Yes.

So 900 million represents an addressable market. We just making a very modest production, if we take1% to 3% of that market. we will be very, very happy, and keep in mind, that today, we believe there is no one that can get inside the cell phone.

You haven't ,yes, I had heard that analysis before, with respect to the embedded ,and I sure appreciate it. That is certainly the goal of the company to get there. You haven't reflected at all, initial roll out, prices per unit, have you? Prices to Microvision.

And there is a simple version for it. Our first desire is to private label this roll out to our customers. So it would be the consumer electronic manufacturers, the cell phone manufacturers who would put their name on this. And that's one of the reasons they would need to do extensive user trials in the first half of the year and potentially the third quarter to solicit this back, to understand what are the price ranges the consumer will tolerate, and what are the necessary features that need to be added to potentially for the solution to make it more attractive so they can gain more margins. Based on what we know to date, we've done some street studies with direct users, we also read several reports done in this area. People anticipate when accessories hit full production, it would be in the range of $300 to $400 --

That's the retail price.

That's a retail price. And within three, four years. It is expected to go down to $200. That's what I've been reading from the other study and it is very similar, very close to what we have been getting from the direct user study we conducted -- our marketing team had conducted last year.

Okay. And just want to go ahead and make a closing question with respect to something you had said in the past. I'm no quite sure about the timing, but I believe it was mid to late year in 2006. And you were quite excited about the prospects for the future, in fact, you used the word pumped to describe yourself. And you mentioned something about being in the Super Bowl in 2006 and winning the Super Bowl in 2007. Are you going to modify that or are you sticking with that this year? Do you feel like we are in the Super Bowl?

You're almost like -- let me just correct something. First of all, I am still pumped. And what I said in 2006, remember, when I started. I said 2006 would be our rebuilding year. We were basically a 1 and 15 team and we needed 2006 to completely rebuild. It was cleaning house year, it was basically changing many, many variables at the same time. 2007 was our positioning for the playoff year, and how you validate when you are in playoff? It's the CES for us, the Consumer Electronics Show. If we show what people -- and when we surprise people, to us that means we made the post season and ready to go on further. 2000 -- this is the -- is what I would call the championship year, the conference championship year. If we do what we said we're going to do, and we're going to meet most of the milestones that I described here, as of the end of next year, I believe we can say that we made the conference championship year, and then 2009, when you have full production (inaudible) two products, I would call it a super bowl game.

Okay, great. Well it's certainly -- I have been around for eight or nine years here now, and it is certainly a different company since you came on board. So, congratulations. Thank you so much for answering my questions.

Thank you, Randy.

I would like to turn the call over to Mr. Tokman for closing remarks.

Well, I don't know what to say. 2008 is going to be an important year for us. We need to, we have been maturing (inaudible) since 2006 and this is going to be another major maturation year for this company. Because we are going to do something we have never done in the history of Microvision. Our goal is still to complete the necessary technology, business development and supply chain milestones that are required to bring the PicoP enabled consumer product to market, while still delivering on in progression on the embedded and automotive solutions as well as the eyewear product. We feel very good about our competitive position. And believe that PicoP display engine of (inaudible) should meet size, power, and image qualities requirements of our customers and ultimately consumers, and they would demand it. And I am very proud of what we accomplished last year, over the past two years and again, continue to remain very, very excited about the future of this company and absolutely no regrets of leaving a cushy job at GE two years ago. This is the best move I ever made. And at this point I would like to say thank you and talk to all of you very shortly.

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