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Brian Heagler: Welcome to 2004 CC. Forward looking statements disclaimer.

Rick Rutkowski: Thanks for joining us on the call. Move through the numbers. Revenue results overview. Revenue trend is accelerating into the 1Q05 and potentially into the 2Q05. Record contract backlog of $7.1M. Ongoing effort to stabilize contract business to a sustainable level. Additional booking since first of the year. Others coming up in the next several weeks. 1Q05 of $4.2M, 27% increase over 4Q04 and 55% over of 1Q04. A little upside to that number we think.

A touch of preliminary guidance for 2Q05. 15-20% increase quarter over quarter for 2Q05. Inventory write offs of $1.3M to get Nomad/Flic product into production. Replace Nomad scanner assembly. Payback for writeoffs is product is less expensive to produce and more reliable. Operating expenses did not increase 03 to 04, resources shifted from R&D to sales and marketing. Steady improvement through year end with a sequential increase of 22%. Record backlog, continuing to stay ahead of that with new bookings for next quarter and the end of this quarter. $4.2M for 1Q05 and some visibility into 2Q05.

Aggressively grow product revenue and sustain contract bookings. Encouraged, developing channels and channel presence for Nomad and Flic. Customer validation of value premise. Last couple of months identifying channel partners to leverage and repeat success and scale it. Also encouraged by outlook for increased sales of ND2500 for military/industrial use. Solicitation pending for up to 250 units.

Channel development. Bullish on Q2 and balance of 2005 is that we see channel partners and co-marketing agreements to enter into in the very near term. 1 key distribution and 2 key co-marketing agreements for automotive Nomad. Adding value to Nomad by integrating into other systems in auto service shops. Identify connectivity solution that relates to a large install base, catalyst for growth, beachhead application. Repeat sales at earliest installations. Technicians asking for Nomad instead of notebook. Channel partners and channel presence. Impact of partnerships beginning in 2Q for automotive vertical. Market for service maintenance tools about $8B. 22,000 auto dealers in the US. 50,000 service shops, Sears, Midas, etc. Target AutoNation, Hendricks. Honda, BMW, Volvo Trucks, Porsche training. Fleet maintenance, Frito-Lay moving to well defined process in most of these instances.

Second half of year. Additional help from new verticals. Manufacturing, plant maintenance. Reduce capex through Nomad use. 4 different large global entities for trial and evaluation. Process control, complex equipment of assembly reduces capital costs. Global manufacturer comparing using Nomad. Significant opportunity. Referenceability of auto market taking hold. Opportunities came to us. Proactive stance going forward to partnered distribution in auto domain. Focus on proactive marketing into new verticals.

Military maintenance close to auto maintenance. 2H05 follow on from initial order of 37 units. Air Force has fairly advanced E-tools program through e-mobility command. Laptops, notebooks, PDAs. These people recognize marginal advantage of using Nomad. Recognize limitations of handhelds. Buzz in community.

ND2500 for industrial/military. Stryker Brigade looking at as an advancement of system deployed in Iraq last year. Teamed with major defense contractor primed on multiple programs aimed at personal systems for soldiers. Upside for 2Q05. Very positive strategic news in the offing with ND2500. Contacted by Brigade in Iraq still requesting additional units. Additional brigade exploring potential to acquire additional units, $7k ASP for ND2500 w/multi-function switch added. Product qualification process gives catalog number to position product for key programs coming online in 2006. Visibility increased in the last month or so.

Flic had 4Q weakness, had changes in personnel, new guy John Bogger doing terrific job. Channel partner productivity increase. Expect 2Q to be flat, up slightly versus 1Q. More traction on second half of the year. Channel development by OEMs. Emphasis on Smead, channel Office Depot, Office Max. Web based ASP application model. Consumer direct through Intelli Innovations and Delicious Monster. Bar code scanning for file management and personal inventory management. Significant opportunities, blocking and tackling. Upgraded software development kit. Infinite Peripherals integrated with RIMMs BlackBerry product for sales and maintenance tracking applications. Focus on channel development.

OEM Solutions: Ethicon deal is significant. Largest deal ever done by a stretch. $6.2M gone up a bit since we booked it. Option to continue development of $5.5M triggered by delivery of product. Beyond that, contains supply agreement. Exclusive supplier of the product. Can't say this is the product, market opportunity. Data points to calibrate what might be going on. Ethicon $2B a year company. Not looking to add small franchises to business. Looking for increase in revenue in meaningful percentages. Investing $12M with Microvision, can't support an insignificant product franchise with those numbers. Product is tremendously exciting, highly disruptive, partnered with the best company for pursuing this significant opportunity.

Milestone for executing on strategy. First contract development program structured all the way through production deployment and supply. Move prototypes through to design wins. Highlight auto head up display domain. Do more in the next month or two to share visually where we are. Prototypes being delivered to Audi, BMW resembles finished product. Great pride in accomplishment. Laser HUD positioned as preferred HUD solution for OEMs. Tier 1 partner is one of the largest suppliers in the world. Highly structured sequence of events. Met performance requirements for inclusion into car, effort to convert with go-to-market partner Tier 1 supplier that provides the product to OEMs. Entering market at opportune time. Early in growth curve, aggressive growth going forward. AGR of 84% through 2010, to 4M units of HUDs in 2010. Believe growth curve can accelerate further. That's just 6% of autos. Entering at a point where OEMs are seeing and buying into growth curve as customers and drivers respond to functionality of HUD. OEMs are struggling with limitations of LCD based HUD systems. Goal to enter strategic relationship to go to market in production cars.

The other area of primary focus continues to be in the consumer electronics domain. Talk very shortly about some technology breakthroughs that are very germane to this space. To put some context around it, memory and storage are becoming much more important than wireless bandwidth in terms of portable media products, just ask Apple. The iPod is essentially a very high density hard drive. Storage curve goes to staggering kinds of numbers. Moving very quickly to a point where movies and games can be in very very compact form. This is really incompatible with the compact form [factor]. Steve, maybe you can comment on what we're seeing in the last six months or so from players in the consumer electronics domain and what they're really looking for in terms of display functionality.

Steve Willey: Well that probably harks back to PR in August of last year where we described a scalable architecture, and we continue to refine that and in parallel investigate markets that would benefit from the sort of wider field of view and higher resolution that we described would be available. Personal entertainment and gaming markets. That has been a recent focus and certainly with respect to electronic gaming, we now believe that this market could be very receptive to next generation of HMD based solutions. Whereby the wide field of view, the immersive effect would be put to good effect. Continue to evaluate opportunities for a wearable multimedia gateway to support emerging cellular handset services, television, etc which currently are bottlenecked by the very small display. We have been bifurcating our efforts, emerging market evaluation and scaling the architecture and as Rick described we'll have more to say about that soon.

RR: Emphasis on cinematic experience, a very wide field of view. Consumer electronics domain people are saying let's go from the ridiculous to the sublime, from a 2" display that is very limiting to a 60" or 80" display or larger. Got patent filings to complete. Fundamental landmark patent opportunity here. In summary, we're very pleased with where we are coming out of 2004, which was certainly in the first half a difficult year. Where we struggled with getting product into production, we now have that well behind us, we did have success ramping contract revenue in the second half of the year. With the Ethicon contract, in a strong position going forward. Emphasis on product revenue and channel development in particular. Looking out for distribution agreements, co-marketing agreements that we think can help us ramp the product. We do have a website decidated to Nomad and one dedicated to Flic. Nomad customer testimonials, most powerful evidence of all, the people who are using it are able to articulate its functional and economic benefits. Applications where Nomad is tying to a large installed base of existing systems. We think those are the catalysts for growth.

Q and A portion:

Alan Robinson: On results, accounts receivable ramped up in 4th quarter. Operating expenses, describe shift from R&D to Sales and Marketing.

Increase for receivables due to Ethicon. You're going to see kind of another aberration in Q1 cash flow, had to do with timing of Ethicon deal. Ethicon booked at end of year $3.5M paid soon after. Terms of contract indicated that $3.5M booked up front. Recognizing revenue over a couple of quarters. On operating expenses, looking at combined expenses being maintained at what they were in 04. In balance on rough numbers, increase in $3M sales and marketing, reduction of $3M R&D.

Q: Are we still looking at a cash flow breakeven revenue rate at around $14M?

We think we'll make good progress towards that, the objective remains first half on next year to achieve that revenue rate. Real high variability component is Nomad. Believe we can ramp it across those segments to account for a big chunk of that revenue. New disty agreements coming on line will be key to achieving that goal. Saw in 2004 the sensitivity of our model to contract revenue. Presumes a certain mix of $12-14M of contract revenue. Contract has leveraged contribution to cash flow.

Q: Financing question. Seems to have come a little later than expected. Changes in landscape this year. Require to tap market before cash flow:

Timing doesn't reflect any difficulties. Ethicon gave $3.5M infusion of cash. Other piece had to do with seniority of instrument being put in place prior to a certain date.

Q: Fund raising more difficult in the future?

Not at all, LMRA asset demonstrated can be partially monetized. MVIS equity offered a premium. Doesn't impact anything we may do in the future. Plenty of room for other kinds of financings. Note secured by 1.7M shares of LMRA stock, 3.7M of LMRA completely unencumbered. Gives flexibility with respect to that asset and other forms of financing. Pleased with financing structure, quite favorable.

Christine Bay: Inventory charge, how much fell in Q4?

$750,000 in Q4. Back end loaded, Nomad didn't get into production until middle of summer and wasn't ramped and change made to new scanner system until August/September.

2H revenue projections?

Can't do it yet, disty agreements will extend horizon of forecasting revenues.

Regarding OpEx progression, how is that panning out?

2004 vs 03, R&D comes down by $3M, Sales and marketing goes up by $3M. Probably be some reallocation of sales and marketing resources, migrating personnel to disty partner several quarters into the arrangement. Net zero change as focus is placed on other verticals. Nothing major needs to be adjusted beyond trade between R&D and Sales and marketing.

How much of sales cost is fixed and how much is incremental margin?

Ought to maintain relatively high ASP. Value added arrangement. Service support and software solutions. Tiered pricing a little bit further out. Part of issue here is low volumes of Nomad and Flic. Question relating to hurdle rate implied by absorption(? ) Good news on cost front independent of volume. Increase volumes impact product cost favorably.

Can give product v contract rev split for 1Q05?

3.6 in contract and balance in product ($600K).

Arthur, Merrill Lynch.
Talk about Nomad disty agreements. Characterize how it might affect margins on sales. Talk about integration of software?

Margins on sales, good news. Computer hardware is commonplace. Resellers are software solutions providers, mark up hardware 10-15%. Translates to maintaining reasonably high ASP, $3500 plus or minus. Incentive structure to beat numbers. Nature of value added in systems sales. Nomad is wireless terminal pulling content from DMS system, fixed operations, parts and service as well as sales and F&I modules. Other is elec parts catalog which contains parts data and diagrams and contains service bulletins. Also contains OEM service content. Go to a car, grab the VIN number by connecting the Nomad directly into the car, working with Honda, pulls up DMS to check inventory and provide electronic repair order interface. Go in and integrate into existing systems, large install base. Co-marketing arrangement with respect to other things that are done. Wheel alignment systems are PC based. Connecting to these things is where you see a lot of value.

Nomad can be leveraged into a lot of different avenues. Mentioned Nomad evaluation phase with leading mfring companies. How long is this eval phase and can you characterize the size of the opportunity?

Enormous opportunity, machine operators and machine maintainers. Relative efficiency of each step of any process in a factory. Can see ROI through Nomad integration of process A, Q and X. Household name companies. Two ways to see ROI. Semi equipment company ROI says if I have 50 machines and can increase uptime by 2%, don't need a 51st machine. Decision that company is faced with to upgrade to new generation of capital equipment or to increase machine operator with more info in process control loop. ROI is to defer upgrade of Capex and extend life of existing equipment. Gives a flavor for market potential since ROI is profound when leveraging capital infrastructure.

Trial process, one that is best defined will conclude at end of May, involves a dozen units or so. Next increment would be a couple of hundred units to do a plant location, and if that works will scale out to the rest of the organization. Up to 200 Nomads per plant. Some of this is market development. Interesting call from workstation providers going to issue of downtown, if I'm a computer provider responsible of operating telecom equipment. Cost per minute of downtown is $7M per minute. People are coming to us, next phase of business development for Nomad, reference auto into other maintenance areas. Distribution partnering with solution providers to address manufacturing verticals. Happening faster than anticipated. Fairly unstructured approach to market. Compelling opportunity.

Closing thoughts. Emphasize mix to become more favorable towards products in second quarter. Contract revenue to remain $3, $3.5M. Sequential growth to come from product sales. Excited about where we are looking forward. Prospects for 2005, look forward to reporting to you on a few things. Interest in products come from a lot of different places. Co-marketing, disty agreements, manufacturing trials, military opportunities.

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