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Brian Heagler: Welcome. Introductions: Alexander Tokman, Steve Willey, Ian Brown, Jeff Wilson. Forward looking statements disclaimer.

[There are some audio difficulties with the first section of the call. I believe this portion of the call mostly goes over the financial information in today’s press release. I’ll begin the transcription with the portion of the call where these audio problems are resolved at about 9 minutes in.]

Tokman: At the end of last year we have developed and successfully demonstrated in early January, the first working demonstration prototype of the personal projection display, we call it Picoprojector. It drew a lot of interest from the large Asian electronics manufacturers and we are in dialogue with several mfrs on the next steps in this very exciting opportunity for us and for consumers.

Finally, at the end of last year we defined a new business roadmap and technology strategy, and developed organizational blueprint to begin company turnaround in 2006.

In summary, we’re pleased with the company’s performance on the revenue side specifically as we reversed a two-year sliding trend. However, the types of contracts and sales activities that we pursued in 2005 were not fully sustainable for long-term growth, and consequently, we have defined a fine-tuned business and organizational strategy late last year to build a foundation for longer term sustained growth. These initiatives have been communicated and consist of 5 elements:

Growing product revenues in 2006, focus on vital few OEM activities, deliver on some of the strategic agreements, reduce burn rate by 30%, focus on improving product quality and customer satisfaction, and finally improving overall organizational effectiveness at every level.

Next, I will give you some recent highlights on some of these activities to keep you updated on our progress. I’ll start with product growth. The emphasis that was placed in the 2nd half of last year has yielded a very strong pipeline of Flic bar code scanner product sales. We had a record 4th quarter, we expect record 1st quarter to be announced very shortly. We competed 1st phase of product quality improvements, targeting improving reliability of the product and reducing cost of quality.

With Nomad, as mentioned earlier, we conducted an in-depth evaluation of the true market viability of the product in its current configuration. We’re focusing on 4 specific applications: Inspections, Troubleshooting, Diagnostics and Situational Awareness. These applications span various markets including Transportation, specifically automotive and trucking; Industrial, which is the manufacturing space; and Healthcare.

One of the major shifts in our focus for this year is developing our own blueprint for Microvision-inside, which we call “Integrated Photonics Module.” You can think of it as an engine that consists of several modular elements: MEMS scanner, MEMS electronics, light sources, light source drivers, video electronics, system controllers. The combination of all the necessary elements to develop an engine that can be plugged in or embedded into various products ranging form consumer space to military space to industrial space. We are in the process of defining this modular embedded architecture. Our vision is very simple but very bold: We want to be part of every high-definition display and imaging product sold in the future. We are mobilizing all the resources and focusing it to develop this modular architecture to make us more agile and responsive in terms of which applications are going to hit the market first. Today we don’t have this flexibility and IPM will give us an ability to respond to strategic partners faster and allow us to bring product to market sooner.

Two of the first products that will take benefit from the IPM are the AutoHUD display and Picoprojector. Currently we’re advancing discussions with potential Tier 1 integrators on the AutoHUD side and large electronics manufacturers on the PicoP side. Defining product specifications, proliferating discussions, establishing timelines, what do we need to do first, second, third to get product to market. To bring product from conception to full production takes time. We’re trying to be very smart at the onset of product definition to make sure we understand all the requirements so that when we develop the engine, it will be scalable across multiple products.

We have concluded realignment and restructuring of the company. Reduced workforce by 10%. Expect reduced SG&A by 25% vs. 2005. We have reduced the number of executives by 30% through reduction and consolidation. We have new organizational leadership: Hired Ian Brown from GE, he’ll strengthen our customer focus, drive synergy across Sales and Marketing, will position us for growth into new market segments. We created a very important new Strategic Marketing organization which is headed by Todd McIntyre. The primary focus of this organization is Global Platform Strategy, to ensure we have synergy and commonality across all of the efforts across the business and ensure we’re not repeating efforts as we’re targeting different products and customer segments. Place a lot more focus on Asia, and Steve Willey is responsible for growing our business in Asia.

As a part of this change, we’re also making changes at the Board level. Better aligning the skills and experience of the Directors to the business and operating objectives of the company. The first step is bringing in Marc Onetto from Solectron. Marc has extensive leadership and experience in Operations, Supply Chain Management and Quality. This is the guidance we need as we develop these high volume products and take them to market.

Let’s focus on finance and liquidity. As of 12/31/2005, we had $6.9M in cash and cash equivalents. We raised additional $10.3M from sale of portion of LMRA stock holdings in early February. Qualified opinion from independent auditor because company requires additional cash to fund operations through 12/31/2006. Needless to say, we’d have preferred not to have qualified opinion on 2005 financial results, but fundamentally there is no change to the viability of our business. We expect to raise additional funds over the next few months, and our projections indicate today that we need about $8M to sustain through the end of the year. We made the decision at this point to pursue a strategy that is more fundamental in nature, predicated on fundamental investors, simpler structure, and less frequent raises. We have recently engaged an investment banker to assist us with this strategy.

In summary, there’s a lot of change happening at Microvision. We’re changing our business strategy, how we execute, putting operating mechanisms in place, re-organizing internally and externally. We’re giving Microvision a new identity. All of us are very excited about the pace of change and the path we’re on to grow this company and ensure we’re on the path for long term sustained growth and profitability. At this time, let’s open it up for questions.

James McIlrey, Unterberg Towbin: Need for $8M by end of the year?

Jeff Wilson: Debt service cost is about $8M.

James McIlrey: What kind of revenue levels do you need to hit operating levels you’re looking for?

Tokman: We need flat or single digit growth to hit 30% burn rate reduction. This assumes a level of improvement of contribution margin of product. There’s compensation and benefit cost, materials cost and product margin improvements, all of these components will combine for 30% burn rate estimate.

James McIlrey: How much unrestricted LMRA stock do you own?

Jeff Wilson: Somewhere around 300,000 shares.

James McIlrey: Any other liabilities in 2006, severance payments?

Jeff Wilson: Interest on notes, dividends on preferred, note payments. Nothing unusually large in the severance payments.

Art, Merrill Lynch: During the initial comments, there were some audio problems. Could you update the developments that you expect for HUD as well as for PicoP and Endoscope.

Tokman: Start with Endoscope. Due to facility move, and technical challenges since resolved, we’ve delayed completion and revenue recognition for this effort until 2Q06. At this point, Ethicon will take deliverables and perform several month evaluation of our work.

McIntryre: We’re in close communication with the customer and have very good interaction with them regarding delivery schedule and plans for evaluation of devices that we’re supplied to them following delivery.

Tokman: In regards to AutoHUD, we made visible progress last year in developing several working prototypes that were evaluated by Tier 1 and automotive OEMs. As a result of evaluation and development of light sources by several reputable companies, the race is on. We’re right now in active dialogue with at least 4 Tier 1 system integrators, we’re defining product specifications to move us forward. Each Tier 1 has different timelines, and we want to understand their internal timelines, in the process of determining who are the strategic partners that we’re going to take AutoHUD to market with. Goal we communicated in February was to have at least one agreement with Tier 1 automotive manufacturer to put together an effort to develop first a prototype, second a detailed design and thirdly a product that we can take to market within the next three years or so.

With regards to PicoP, this is a relatively new effort. We built a first of its kind demonstration prototype showcased at CES in Las Vegas this year. The response was very, very promising. We have large Asian electronics manufacturers who all are interested in our technology and we’re in dialogue with several players.

Art: Would HUD or Endoscope be nearest commercial opportunity?

Tokman: I would say PicoP and AutoHUD have highest probability of being first to market.

Art: On HUD, does your platform technology licensable to a number of different Tier 1 suppliers that represent a number of different auto manufacturers?

McIntryre: Our strategy is to work with a number of Tier 1 suppliers worldwide to address the need of the market worldwide.

Art: What would you anticipate that market to be?

Tokman: Determined by adoption. Our projection is early adopters would be high end European and Asian manufacturers who will put this on their upscale models. Within a few years we expect this to be a mandatory feature on every vehicle.

McIntryre: We have some research that estimates the market to be several million units by 2012. These are large markets.

Art: Congratulations on new Board recruit. This is certainly an endorsement of the new management team. There are three additional Board seats. Will the new talent round out the experience necessary for the company?

Tokman: Yes, absolutely. We took an objective look, what is the necessary skill mix we need to add to the Board to help us and we identified specifically four critical skills: supply chain and operating knowledge in consumer, health care, industrial – this is where Marc comes in. We want someone on the Board with broad and deep knowledge of technology, experience and knowledge of how to convert technologies into product. #3, we want someone with strong business marketing background in the area of growing technology companies. Finally we want someone with strong financial knowledge, investment banking to provide us additional guidance in future financings following the one we’re going to do this year.

Ben Averch: Hi Alec, I wanted to ask you about the 12 month contract we signed last May with General Dynamics, about the full color wearable Nomad for military, and how that’s coming along, and whether that full color version of Nomad could be leverageable across the commercial sector as well.

Tokman: We have been on track in executing and actually delivering the full color version of Nomad to the government. I believe we’re going to complete delivery within the next 3-4 months. And the images are simply amazing. Anybody who looks at them will completely agree. As a continuation, one of the new projects that spun off this development is, the government as well as industrial customers, is they want a smaller form factor. So what we’re hoping is to get some funding from the government this year to focus on reducing the form factor by shrinking the electronics and specifically developing a video ASIC which allows us to compress greatly the form factor of the electronics to make it easier to use.

In terms of leveraging the technology into consumer products, absolutely. Everything we’re developing for the government is leverageable into consumer, commercial and healthcare applications. The question at this moment becomes cost. As you can imagine, the gov’t cost structure is different from consumer mind frames. This is part of the reorganization, is to become a product development house where cost and quality are just as important in product definition as is performance, and that’s what we’re focusing on this year.

William Despard, Smith Barney: Could you repeat some of your information on Flic and how you see momentum building going forward the rest of the year?

Tokman: At the end of last year, our sales and marketing group have done an outstanding job developing new sales channels and a solid pipeline into 2006. Focusing on 4 primary markets: The traditional AIDC market, small business/household, mobility segment – people on the move who need instant access to information and transmit the information to someone else, and Healthcare. Over the last few months we’ve identified a detailed strategy to attack each of those markets. Some of the critical attributes are related to reliability, specifically in Healthcare and AIDC. Some of the attributes that will allow us to grow are the software tools – connectivity to Windows, PDA, Blackberry. As a result, we reported 70% growth of Flic in 4th quarter, in the 1st quarter, we expect to report a record quarter for number of Flic solds from January to March. Also taken a serious look at how to improve quality and cost position of the product. We’re a much smaller player than Symbol, our market is the value market. Our differentiation results from attractive pricing, simplicity and ease of use. We’re focusing on quality and customer support. The combination of all these developments, we expect to double the output of Flic sales in 2006. Longer term growth determined by additional applications. Defining longer term strategy for this segment. When we discuss a need for sustained long term growth, one of the elements is that we need to establish predictable cash flow. We need a product with growing markets, room for us to gain market share. We believe that Flic or an equivalent bar code scanner offer us this capability. The goal is to proliferate growth by adding more resources to this important effort this year.

Bill: On financing, is the ultimate goal to raise enough funds to last a year or a year and a half instead of going to market multiple times a year?

Tokman: The strategy is to balance the needs of the company with the cost of capital and the impact it has on the shareholders. We’re going to focus on simple structures, larger raises and do it less frequently to make it more consistent with what we’re trying to do over the next several years.

I understand there were some technical difficulties in the earlier part of the call and we invite you to call us for any information you may have missed. In conclusion I’d like to thank the team that’s sitting around the table. We’ve been through a lot in the last couple of months. There’s a lot of change, positive change going on. The magnitude and rate of change that we’re changing things. We’re still keeping our eye on the ball and are committed to what to deliver what we say we’re going to deliver in 2006. On this remark I’d like to close this call. Thank you.


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