Welcome to the second quarter 2008 Microvision, Inc. earnings conference call. (Operator Instructions) I would now like to turn the presentation over to you host for today's conference, Tiffany Bradford, Investor Relations Specialist.

. 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 operation, product development, introduction, applications, and benefits, business partnering expectations, market opportunities, and growth and demand, as well as statements containing words like "believes", "estimate", "expects", "anticipate", "target", "plans", "will", "could", "would", and other similar expressions. These statements are not guarantees of future performance. Actually results could differ materially from the future results implied or expressed in the forward-looking statement. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are in included in our most recent annual report on form 10K 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.

The outline of today's session is as follows. I will provide operating result and Jeff will comment and provide detail on the financial results for the quarter and for the first half. I will comeback and give you strategic outlook and we will wrap it up with the questions. So, let me begin with the operating results. Although second quarter was quiet by external IR standards, we have made very important progress in all four key areas. Specifically, these are customers, technology, supply chain and liquidity. Let me begin with the customers’ update. We believe that market's interest in PicoP remains strong. During the second quarter, we received several letters of intent from customers for the PicoP accessory product for 2009 release. We expect to commence the extended field trials with our OEM partners very soon to solicit broader feedback for the final accessory product requirement. It is our belief that successful completion of this extended trials that will extend through the remainder of this year and early portion of 2009 and will include both collections of consumer feedback as well as the internal testing on the part of our customers will lead to formal purchase commitment. During this time, we will be working with our OEM partners to determine as their ultimate timing for the accessory product launch. However, we expect to be in a position to launch the accessory product in the first half of 2009 and support volume production in the second half of 2009. Let us move on to technology and supply chain. During the second quarter, we have made several important advancements on our core technology. As you all know, the new wide-angle MEMS scanner is an integral part of our PicoP display engine that we targeted to serve several different market segments. The requirements…

As Alex mentioned in July we completed the financing of $26 million. In connection with that, we issued 11.2 million shares of common stock and warrants to purchase 6.7 million shares. A little bit about the warrant, the warrants have a stock price of $3.60 per share. They can be called by the Company one year after they were issued if the average market price of stock exceeds $7.20 per share for 20 trading days. If the warrants are called by the Company, the Company would receive an additional $24 million in cash. In addition, we expect to list the warrants on NASDAQ. Just going through the financials for the Company for the six months, during the first six months, the Company had revenue of $4.2 million compared to $4.9 million for the same period in 2007 and a $1.6 million in the second quarter compared to $2.7 million in the second quarter of last year. As of the end of the quarter, we had a backlog of $679,000 compared to $7.7 million last year. The decrease in the backlog is primarily attributable to the completion of government and commercial development contracts in 2007 and early 2008. The decline in contract revenue and backlog is also part of the Company's conversion from the technology development company to a products company. We are entering the final stages of productization and there are fewer opportunities now to enter into development contracts since our customers are more focused on product introduction. As we have stated in the past, our goal is to bring high-volume products to market while minimizing our cash burn and working toward this goal may require us to forego certain short-term revenue opportunities that are not consistent with our overall product roadmap. Now, we reported an operating loss for the…

Now, before we move to the question session, I would like to give everyone an outlook for the next couple of years or what to expect from us and commercialization strategy that we defined in 2006. But since 2006 after we declined and implemented and announced PicoP commercialization strategy, we identified specific milestones on the annual basis that would lead us to the ultimate goal. During the same time, we have been very predictable in the successful execution of the external communication operational milestone which included defining and implementing a new business and technology roadmap that will support this new strategy. We are focusing the business on the vital few market opportunities where the customer pool was the strongest, reorganizing the company around the new business model, continuing maturing our product development skills that are absolutely necessary to be a viable products company and simplifying capitalization structure and eliminating debt. As we progress through development and commercialization milestone and get closer to product introduction, the specific timing of product launch will be determined not only by our ability to be ready but also by final commercialization of key component by our strategic supply chain partners as well as by established commercial product launch windows of our customers. With respect to the key component, most of our strategic suppliers continue to meet original product development timelines project but somehow experience longer development and commercialization cycles than we originally anticipated. This is not unusual for bringing new technologies to market. The good news is that in the instances where the progress have been delayed, these companies have invested millions of dollars and continued to communicate their commitment to bring their critical component to market because of the large market opportunity. In addition, as you all know, we have been pursuing dual supply…

(Operator's instruction) Your first question comes from Darice Liu - Maxim Group.

In the press release, you mentioned some LOIs from several companies for the PicoP accessory products for 2009 release. Can you give us some color on who these are from? Are they from current customers, new customers and what type of quantity are we talking about?

At this point we would not provide anymore color. The only thing that I can tell you very clearly is that our goal is to move beyond LOIs and to get firmer purchase and commitments from the same customers and then additional customers through the planning that I had just described earlier to commence the external field trials started in September and continue throughout the year with the culmination and the final product testing within the customer shop to confirm that reliability as well as the core performance of the product will be consistent with their expectation. Anything else?

Well, I guess so it is safe to assume, though, that most of the LOIs that you received are actually from current customers.

We, to date, we only announced there is only one customer that was on consumer side was announced even though we have a list of customers, core group of customers we have been working consistently with the past year for the accessory as well as for the embedded PicoP application. Only one has been acknowledged and the letters of intent that we received today include some new customers and old customers.

Let us move on to your timeline. So, the accessory product timeline is now about six months behind schedule and the embedded product is about a year behind early expectation. What gives you confidence in this current timeline and in the prior conference call, you said part of the issue regarding the timeline was green laser supply. Can you give us an update on what is going on with the availability for that product?

It is true that along these starts, I think there are three questions. It is true that until recently we publicly had stated the stretch goal for accessory was end of the year, December of 2008. Again it was explicitly stated with a stretch goal because we are depending on component availability. As we have gone through the year, we warned that the quantity and availability of some of these critical components will be limited which will push our launch into 2009 for accessory. In terms of the embedded, most customers that we are in discussions with want accessory immediately followed by the embedded product. They typically decide to launch accessory with smaller numbers, test the market and immediately we follow up with the larger quantity in embedded solution. So the embedded timeline is actually tied in certain ways to the accessory and this is why when accessory product was moved into the first half, the embedded trailed accordingly. Finally, confidence about green laser supply. The good news is that our partners who we are continuously in discussion with and monitoring on the progress and issues resolution are very confident and excited about this market opportunity. There is an enormous amount of investment being placed in success of the green laser program at several of the institution and they all are driven by the large market opportunity that is in front of us. Other than that, I can tell you that the will and desire is there and it is all up to resolving some of the issues that are typically found when you transfer technology from in-house to your CM partners. And everything we have seen today shows that there is a strong commitment on everybody's part to solve the issues and enable the green laser quantities for 2009.

Okay, so let me just clarify two points. One, the green laser, that component constraints is what is holding back your timeline, is that what you are saying?

Typically, when you develop and commercialize a product, you have a series of issues when you have some or one more critical than others and the green laser is the integral part of the integrated photonics module which is an integral part of the Pico Projector which is the integral part of the accessories. So, you need to have all the components in order to complete critical tests and determine what the final configuration of your product is.

So, the answer is yes. I guess the second point is I am a little bit confused when you say that most customers want the accessory product first then the embedded product second. So guys like Motorola who really do not have an accessory product, would not they want the embedded product first and does during new timeline mean that there will not be a Motorola product until 2010?

I do not want to single out anyone in particular but what I can tell you in 9 out of 10 cases, whether it is cell phone manufacturer or whether it is a consumer we are trying to co-OEM which has that larger portfolio of products which may include cell phones as well as other devices, everyone first is interested in accessory and immediately followed by the embedded. And again I think this desire is driven by the risk profile that they expect to incur whether going directly to embedded without proving something with the accessories. But again it is not unanimous. There are incidences were the specific customer is interested in embedded solution first.

Your next question comes from Joe Dubroth - Morgan Stanley.

Can you give us any color on the latest round of financing that you did? Based on the filing, it appears that you have Highland Capital Partners, but there is also Highland Credit fund and then James Dondero listed individually for, it looks like maybe 3% of the shares or…can you tell us how these shares are held? Is it held by Highland Capital themselves or individually by Dondero or by the Highland's Credit Strategies Fund?

I think the short answer is we were not privy to exactly where Highland is holding their shares. As you said, Highland is a very large investment fund. They have lots of different funds so we do not know exactly which fund is holding those shares but as you can tell from the filings, Highland was, by mathematics, the largest investor in the financing.

Right and as far as your timeline is concerned going forward and letting us, I mean obviously guys, you do not make it a practice of maybe you could not but announcing LOIs which is fine by me but at what point of your timeline going forward stays in place? When will you be able to let us know some additional information about LOIs turning into hard contracts? How far ahead of the game where your customers let you announce that?

Notice we have not issued any separate press releases regarding letters of intent because we do not intend to do this. This update simply to summarize that there is a strong interest from the existing customers and it has been supported by the letters of intent which they do not have to sign if they have no interest at all. In terms of the conversion of LOIs into firmer purchasing commitment, again I come back to what I said earlier, it starts with the further validation of the device externally and internally by our pull in customers. In terms of the planning, we expect to commence the extended field trials with OEM companies in September. At this point, we are going to provide them with units to attain a broader feedback from their customers for the final accessory product confirm. That is the first step. The second step, units also will be provided in the second half of the year to our OEM customers to complete their own reliability testing. It is a normal part of the product acceptance by OEMs from their supplier. This process is going to continue from September until potentially as late as early 2009, first couple of months of 2009 and during throughout this process, it is our intention that we start converting some of the LOIs into firmer purchasing commitments. When exactly this will happen? It is difficult to pinpoint because the validation cycles for each customer is different. Some take fewer time to get all the answers. Some take longer time and it is very difficult for us to predict and speak on their behalf when they can make the decision. But logically, it is going to happen between one when we make the initial units available and increase the quantity so they can not only can solicit the consumer feedback but also do some destructive testing internally to convince themselves that we have reliable product.

If you are planning on providing them, somewhat quantity in September for their field trials, does that mean you have a little more confidence from this point going forward that you actually have quantity available of the green laser?

We have confidence we are going to have quantities available to do the necessary validation but the launch, the pre-production and production quantities will be available in 2009.

Your next question comes from Analyst for Richard Woodall - Financial Security Management.

It sounds like you asked a question about who owns the shares and obviously we cannot make any comments about what is in the public filings. So the people who own large shares, they are filed with the SEC. That is the only comment we would make about who owns the shares.

That concludes our Q&A.

What can I say? We remain confident about our commercialization for PicoP despite the delays in some of the supply chain component. We are still very excited about the opportunity to fundamentally change the way people view and share information with their friends, family, colleagues and customers. We continue to pursue 2008 priorities in the second half of the year which includes continued maturation and validation of the PicoP technology from the example you have seen today, completion and announcement of the executed supply chain agreement with the product assemblers and integrators that will enable this go-to market strategy and finally, securing OEM commitments for the accessory and embedded product. You understand hopefully the timeline. We believe we have a very credible plan and now, everybody have to execute. We understand that opportunities is amazing and this is why we believe that our supply chain partners will address whatever issues remain and we would launch the first product in 2009. I am looking forward to talking to you three months from now and have great rest of the day. Thank you for joining us.