Welcome to the First Quarter 2015 MicroVision Inc. Financial and Operating Results Conference Call. My name is Lorraine, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note, that this conference is being recorded. I will now turn the call over to Ms. Dawn Goetter. Ms. Goetter, you may begin.

Thanks Lorraine. I'd like to welcome everyone to MicroVision's first quarter 2015 financial and operating results conference call. In addition to myself, participants on today's call include Alexander Tokman, President and Chief Executive Officer; and Stephen Holt, Chief Financial Officer. The information in today's conference call may include forward-looking statements, including statements regarding; benefits under existing contracts and the negotiation of future agreements; our competitive advantages; progress with prospective customers; projections of future operations and financial results; product development, applications and benefits; availability and supply of product and key components; market opportunities and growth in demand; plans to manage cash used in operations, as well as statements containing words like believe, goal, path, expects, plan, will, could, would and other similar expressions. These statements are not guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in 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. The agenda for today's call will be as follows, Alex will report on the operating results. Steve will then report the financial results. There will be a question-and-answer session, and then Alex will conclude the call with some final remarks. And now I would like to turn the call over to Alex Tokman.

Thank you, Dawn. Good morning. Thank you for joining us today for an update on MicroVision's first quarter 2015 operating and financial results. The first quarter was marked by several significant business events, providing strong momentum in what is expected to be a promising year for the company. Now let's recap these events, and see how they reflect on our set goals for the year. We recently articulated that our top priorities for this year are; first, to support Sony with display module commercialization. Second, to develop, new OEM and channel opportunities for display engine manufacturing partners. Third, to increase supply capacity for key MicroVision components. Fourth, to achieve significant year-over-year growth through component sales and licensing of PicoP display technology. Final goal for the year, is to evolve PicoP technology platform to offer enhanced features and capabilities for a compelling roadmap for future and present licensees of our technology. Now let's recap the result -- commercialization. In March, we announced that we signed a multiyear licensing agreement with Sony, for our PicoP technology. This agreement included an $8 million payment, which was received in March. Under this eight year licensing agreement, MicroVision will also be entitled to royalties on display modules sold by Sony to internal and external customers. The completion of the license agreement marks the culmination of two years of close collaboration between the two companies, and allows us to enter into exciting new opportunities together. Also in March, we announced that we received a $14.5 million order for new components to deliver to Sony, to be fulfilled starting in the second half of this year, continuing in 2016. The components are expected to be incorporated into display modules developed and sold by Sony. Both of these first quarter milestones are fundamental to our expected growth this…

Thank you, Alex. The numbers I am about to share are included in our press release and in the 8K filed today, both of which are available on the investor page of our web site. During the quarter, we continued our transition from a development focus to one of commercialization, as we go through the financials, I will point out areas that reflect this change. Our revenue for the first quarter was $901,000. The revenue was almost entirely from product and royalty revenue. In the first quarter of 2014, our revenue was $1.2 million and was primarily a result of our development agreement with Sony. And while we are on revenue, I want to update you on how we will recognize revenue from the Sony license agreement. We will recognize the $8 million upfront payment as revenue, at the rate pf approximately $250,000 per quarter over the expected eight year life of the agreement. Q1 royalty revenue includes $96,000, which is the pro-rated amount for the first quarter. Also, as Sony reports their sales to us each quarter, we will srecognize additional royalty revenue. Our cost of goods sold was $1 million for the first quarter, in the first quarter of 2014, the cost of goods sold was essentially zero. The increase in cost of goods sold reflects that we are now shipping product and ramping production. Additionally, as our production is still in the early stages, we incurred startup and production inefficiencies one would expect in a new production environment, and these costs also contributed to the increase in cost of sales. The Q1 operating expenses were $3.8 million compared to $4.3 million in operating expenses in Q1 of 2014 and part of this reduction in operating expenses is due to the fact that some costs related to our…

[Operator Instructions]. And our first question comes from Mike Latimore from Northland Capital. Please go ahead.

Thanks a lot. Congratulations on a strong start to the year here.

Thank you, Mike.

So on the -- I guess, Steve, you just mentioned, did you say that the agreement with your Fortune 100 customer is an eight year agreement, is that what you said? Eight year life?

Yes, that's right.

And on the -- how are you thinking about gross margin? I know there is startup costs here. I guess, in the backlog, how do you think about the gross margins that maybe reflected in the backlog?

Right. You know, in the early stages of production, its normal to experience less efficient production and startup expenses, and as we increase production, we expect to see improvements in margin. We don't have a whole lot more guidance at that point other than that.

And in terms of the increase in manufacturing capacity, can you give a little bit of sense of, where you were in the fourth quarter, where you think that goes in terms of ability to handle unit volumes on a quarterly basis, where that might be at the end of the second quarter?

Absolutely. We essentially implemented baseline capacity in the second half of last year, and we are now delivering, based on that baseline capacity. Since we received the larger purchase order in March, we implemented plans to increase this capacity to fulfill much higher volume, and we are in process -- in the middle of this cycle when we are increasing the capacity and increasing the output. And what we expect is, we are going to see every quarter, increasing output and increasing result as a result of these activities.

I think you had mentioned that the kind of $14.5 million order might start shipping in the second half of the year? Does that include the third quarter, you think, you start shipping in the third quarter as well?

Well our target, we have been pretty clear on this. Our target is to start fulfilling in -- yes in the third quarter, the larger purchase order, into 2016.

And then just last question, you spend a lot of your resources over the last couple of years, working with the Fortune 100 customer. I guess, now that that module developed and getting into market, how much of that resources can you, say redirect other prospects?

Considerable amount of those resources, Mike, will be reallocated to new projects, and this will put existing activities to solidify the operations and delivery of components, as well as looking at new opportunities that we are not able to do, because we are so dedicated to making Sony successful.

Right. Thanks a lot. Good luck.

Thanks.

Thank you. And our next question comes from Henry James from State of Michigan. Please go ahead.

Yes, my first question had to do with -- also with your product gross margin, and so, was there anything unusual other than just, I guess startup costs there impacting the margin?

No. I'd say it was the normal experience, when you're bringing up production, some less efficient production, some startup expenses. But along the lines, what we would expect.

Okay. And with respect to your royalty revenue, is there a lag at all in how that's reported, or where the royalties related to, say modules that were sold in the first quarter by Sony. Is that what is reflected in the royalty revenue?

There is going to be about a quarter lag from their reporting to what we -- the last time we get the information, and you can report it as revenue.

Okay. So then, those royalties in the quarter are sort of primarily what was -- based from the fourth quarter of last year?

The 144, 93 was from the Q1 proration of the $8 million, and then the balance is royalties. From that number, I will go with primarily from Q4.

Okay.

Is that clear for you?

Now, with respect to the Fortune 500 company, my understanding is, that they are developing their own module, and so my question is, would they require a licensing commercial agreement related to that?

Henry, it’s a great question. Its too early for us to comment, because we are still in development. Once we complete the commercial agreement, it will be determined, what specifically we supply, and how the transaction will take place. Sometimes, we have situations where we have royalty, as in the case of Sony sometimes. We provide more components. We actually build in royalty into the component's price, so it will be determined based on a commercial transaction, and once we get close to this, we would be bale, potentially to provide more information.

Okay. I mean, as far as you know, is their timing still for second half of 2015?

First of all, we are very excited about working with this customer, and our goal is to be ready to support them in the second half with what we would provide to them.

Okay. All right. That's all I had. Thank you.

Thank you.

Thank you. and our next question comes from Tom Willis and he is a private investor. Please go ahead.

Hey Alex, congratulations on a nice execution for the quarter, and especially for the positive reviews on the Pico Projector. Its nice to finally see other people starting to recognize. So, great job. My first question was the ASICs chips, if these companies are starting to come out with products, most of them would have their own ASICs chip, is that correct?

Not necessarily Tom. Its going to be depending on a type of agreement. Some companies produce their own, some companies rely on others, including us. Its strictly case specific.

And the timeframe that the company has made a decision, and they have got to burn an ASICs, that they want particular issues or things included, what is the timeframe that they can get that done, because I know that has always been a bottleneck?

Typically, to take us out of this equation, but typical industry lead-time on here in ASICs, Tom, anywhere between nine to 15 months, depending on complexity and how many durations they have to go through, to get it right?

Okay. So that still is a bottleneck in people being able to get the latest and greatest features, built into a chip?

Not really, think about this, because the ASICs will be produced by people who manufacture engines, not products. So the product guys, the OEMs, received the most complex product, that already has been completed. And therefore, it reduces the product development timeline on the part of OEMs to actually put these into the side products.

All right. Good. Pertaining to scalability, you got an $80 million backlog right now and you are scaling to be able to -- reproduction for that. If your production were to go up to 100 million, is it five times where you're at, is it scalable, what type of timeframe would it take, for you to be able to that, and is there capacity that you could handle?

So you're asking -- sorry, let me just rephrase. So you're asking if the backlog was five times higher, would we be able to support it? So the simple answer is yes, not immediately, but we would put together the measures in place to increase the capacity of our specific components and the -- over the course, we would be able to support. But not immediately -- its not a step function, it’s a ramp function.

Right. And that ramp function, does it become more efficient, or does your fixed overhead tend to stay? In other words, do you have to have five times the employees to be able to handle that?

No, that part becomes -- it actually becomes simpler, because you start replicating the existing, well functioning processes and replicating something is much easier than creating it from scratch.

Okay. Also, one of the things that -- we hear a lot about 3D and holograms, in your realm of your technology limits, do you have applications in there? In other words can you -- are you able to participate in the future, does your technology lend itself to 3D projection and holograms?

From the time we first defined PicoP platform which was eight years ago, we made it such that we defined and developed as such that it would be scalable to other applications beyond projection, and you know from the areas we discussed in the past, and its still applicable. So now as we have resources coming off -- very resource intense program, we will be able to focus on some of these activities and determine how to go forward.

Okay. Just one last question again for the --?

Go ahead.

Tom, are you still there?

And we will go on to our next question from Randy Hough from ProEquities. Please go ahead.

Hey good morning fellas, Randy Hough. Congratulations on getting off to a good start to second the comments already made. Alex, can you give us some feel with respect to the flow-through at Celluon on their Pico Projector? Yes, I have seen the same reviews, haven't seen a single negative review, but the end of the game here is, of course how the consumer reacts to the product in terms of flow-through and reorders and that sort of thing. How would -- could you characterize that, or is it too early to tell at this point?

There is a couple of questions, so let me try to address this. So first of all, the reception that Celluon's products receive are beyond our expectations that you could see. Its really not unprecedented that every review that come out, has been very-very positive. The beautiful part about most of those reviews, is that they highlight the advantage of using the PicoP technology focused operation. Immersive experience, long battery life, no fan, etcetera, etcetera, etcetera. So we are actually very pumped about this. And obviously, we want to have -- for Celluon to have great success and the initial indication says, that they are doing well. But ultimately, you're absolutely right. The adoption will be determined, obviously not by Celluon, but how major retailers and mobile operators, people who touch consumer, how they promote and sell this product. We believe there is enough evidence provided to these entities, that they understand what would they need to do, but they need to execute on this, and we have to wait to see how the adoption curve takes place? Is it going to be a 45 degree slope or is it going to be 15 or 95, that part we don't yet know, but initial indicators are excited. And obviously, Celluon is the first OEM in the market, we expect that all these development that we executed with Sony and standalone will produce additional results, and you will see additional products in the market.

Just a follow-on to that idea before I shift to a second one, is there some macro view floating around out there, that gives an estimate of the total or aggregate demand for those kinds of external projectors?

Its such a new market. The predictions are all over the place, its almost like -- the predictions are worth -- the variance is huge. I think, what we are going to find out in the next 18 months is, what is the true adoption opportunity for this market, and that we will establish [indiscernible], will allow us to understand what is the demand, so we can adjust our capacity and output, based on what we see, flows through our partners and our partners' partners. But we expect growth, the question is how big or how small, we will find out.

Okay, great. Let me move on to my second question with regards to Sony. From the original announcement, we have been led to believe that Sony is working on multiple products using our technology, and how would you guide us, Alex, or how will we come to know what products are being brought out? Will it be announced by you on our conference call or some sort of news release, or are we just going to pick it up by -- in virtue of new product announcements from Sony over time?

Its still out there, Randy, its still out there. And as soon as something comes out, we will be able to chime in a comment. Until then, we just can't comment on other people's products, its -- there are some legal implication, there is a business ethic implications and we have great relationship and we want to maintain this for many years to come.

Okay. That seems reasonable. And if this is an eight year contract, could you speak or give us any guidance at this time, as to any change in the attitude of Sony, now that we have been working with them for two years, as to the number of potential applications? Perhaps if they thought there were three at the beginning and they have now worked with it, could it be, that they have increased that anticipation or do we know, with some degree of accuracy, that there are three products involved, four products involved, two products involved?

The only thing I can tell is, that they are very bullish on this opportunity. Just look at the numbers, they invested in us, including purchase orders, $32 million, $33 million over the past three years. If somebody does this, and it’s a fraction of what they spend internally to support this proposition and get it to market, you would think that they are motivated to make it successful. And so we really-really like this relationship, and both sides are going to work as true partners, helping each other in difficult times, and we hope that Sony will become very successful from this proposition, and hopefully we will become successful, because they become successful. If you look at Sony's recent financial quarterly results, they invest in the areas that focus on organic growth of Sony business unit, and that's one of the initiatives that they fund, while they divest from low-end cell phones, television sets, etcetera. So Sony as a corporation is actually investing into the areas where we are attached.

So good. So they share your vision that these are high potential growth areas, I would assume from that?

Yes.

Okay. And then last question, to pick up on a question asked earlier, just to avoid some confusion, a gentleman was inquiring about your ability to ramp with respect to the components being provided by MicroVision. It is the case isn't it, that we are subcontracting out -- that MicroVision is subcontracting out to existing fabricators or whatever you might want to call them, the actual production, its not that we are going to be making them in-house at some facility with MicroVision?

That's correct Randy. Its our design that we give to our close contract manufacturing partners, and they are doing volume production. We are obviously supervising certain activities, but we are not producing it.

Right. That was my understanding, But it could've been interpreted by the question and answer to the question that at least in the mind of that caller, I may be wrong, that we were making these things in-house. I just want to make sure, that that was not misunderstood?

No. Thank you.

Thank you very much.

Thank you. And our next question comes from Mike Latimore from Northland Capital. Please go ahead.

Yeah, great. Just a few other things here. Alex, you said that obviously at CES, there was a number of private demonstrations of products. I mean, are all those products generally engine projectors or are there other types of products that will be demonstrated?

Mike, I can't give you specifics, because we are just simply not allowed to discuss this. But I can tell you, there are different permutations and different application types of devices that included devices that are beyond companion projectors.

And would we -- do you expect to see a few of these at least, this calendar year hit the market?

Great question. But I cannot publicly address. Again, we are in a tough situation. We are working with these people. These are not our products. What we know, we can't unfortunately communicate. But again, if they some showcase something at CES, you would assume that they would not show their products, if they didn't want to introduce, in a certain period of time. So again, I can't directly comment, but you can draw conclusion.

Sure. And then just with regard to royalties, it sounds like you received royalties, when your customer ships modules, right, to their customers, but also sounds like you received royalties when they ship modules to other divisions, within their own company, is that right?

That's correct. Its independent, whether internal or external customer, it’s the same result.

And just last, do you have the stock comp in the quarter, stock comp amount?

190,000.

190,000, okay. All right guys. Thank s a lot.

Thank you. And our next question comes from Mike Scott from Stephens Inc. Please go ahead.

Hey, guys. Long-time shareholder representative. A couple of questions, actually. One, is the thought process as far as stand-alone -- I guess this is what Celluon is selling at this point, do we have other people that you know, that are looking to introduce to where, at some point, obviously, our process is the gold standard for standalones, or whatever the size of that market is?

Mike, it’s a good question. Its similar to what Mike was just asking before. So basically remember, at CES, there was several OEMs, who introduced their products under entity to their customers. So they are developing it. And since then, we just mentioned that we added several new names to the list of customers who started developing products, based on our technology. I could tell you that, there are a variety of different products, variety of products. As far as standalone is concerned, if you look at the standalone ecosystem, we believe it becomes a very attractive offering; because think about what happened over the past couple of years. First of all, there is the HDMI and miniature, so basically, video out function was added to all of the cellphones and tablets, that's number one. And about a year and a half ago, the new wireless capability was added to the same products, which means now, you can have two standalone devices, cellphone and a projector or tablet and a projector, and a projector is the -- the size of the projector is less than the size of the phone. So it offers pretty compelling value proposition as an application. It was not the case even three-four years ago, because you need to connect it with cables, and now you don't have to have cables, they have two devices talking to each other, and project it anywhere you are. And in many cases, you didn't even need Wi-Fi connection to get it done. So its really the companion projection application, has its own merit, and we believe that a lot of people would love this experience, as was evidenced by Celluon's reviews.

Any thought of this product being Apple friendly at some point, or is that a back way [ph] of asking you a question that you can't answer.

Can't answer at this point in time, but our goal is to help our engine manufacturing partners to put into as many products as possible, and include the major names, that's our goal. And obviously their goal is the same.

As far as the Sony relationship, and how privy are you guys to what their plans are as far as the use of the product? Is it, to them, you're just a component? Or do they kind of share with you their vision and you help them integrate that into what they want to accomplish with their products?

Can't say much on this, because what we know, we can't share publicly because of the confidentiality between Sony and us.

Okay. One other thing, I guess really. It appears that if, as it were, that we're in a fairly strong cash position. I can't see -- and you can answer this whether we'd have any need for cash at all at this point, any time going forward, additional capital, necessarily?

You know, we are happy about the cash position. Steve just said, we get $16.7 million, we had a good runway. But we always evaluate opportunities, and what we have done in the past, we never achieved cash raising as an advantage, it’s a process to us, just like any other program, just like Sony program. So we cultivate this over time, we evaluate all the opportunities, and when we do something, we make sure that we evaluate all the option, we take the best option.

And I guess the last question I would ask, and I don't want you to answer this either, which is fine. But at some point in time, when we become an important enough customer for a company, if it's going to be integrated into their full line of products, they're a world-class company, would we be open for an additional equity investor, or it is the Company's intention to stand totally independent [indiscernible]?

You can never predict anything. Its obviously possible, but you can't count on this or predict. We have to rely on ourselves and something where this happens, it will be a good bonus.

All right. Thank you, Alex.

Thank you. I will now turn the call over to Alex Tokman for closing remarks.

All right. First quarter was very important for us, as we completed two strategic milestones, which produced several leading indicators of what to expect this year. We are excited about the prospects in front of us, and we expect to achieve significant year-over-year growth this year, by focusing attention on making our customers' successful, whether providing them with high quality components or assisting them with their go-to-market efforts. Every quarter, there is more and more data in the market demonstrating that watching video on mobile devices is accelerating, and that content providers are catering to this audience. Adobe for example, reported in its inaugural U.S. digital video report that market share of online video consumption continues to be driven by mobile devices, such as smartphones and tablets with year-over-year growth of 63%. The report also predicted, that in 2015, TV everywhere should cross the chasm from the early adopter stage to the early majority stage. We firmly believe that solutions with MicroVision's PicoP technology are poised to enable truly differentiated end user experience; experiences that are not attainable with other Pico Projection devices. As the Celluon products are reviewed in the press and by consumers, features and benefits being noted by reviewers. In fact, the features are enabled by our technology. For example, in one of the most recent reviews, PC Mag named PicoPro, one of Celluon's products Editor's Choice, Pico Projector. Let me read some of the quotes that review included; the actual quotes; one of advantages of using the light source, is that you don't have to focus. Just point a projector at whatever you're using for a screen. You also get remarkably uniform brightness image. Another plus for this projector, is it stays cool enough, it doesn't need a fan, that makes it a noise-free, as you can get and saves power, which extends the battery life. This editor also notices, that PicoPro offers sleek design, it doesn't look like any other projector you've seen. So again, this is a sample, but this is a repeated trend of every review that we see and that highlight features of the product that are based on what we and Sony produce. As you can see clearly, that advantages of our PicoP display technology of immersive imaging, high definition, low power and a tiny form factor are truly manifested in this review, and there is at least dozen of independent media reviews and many more customer reviews that highlight these features. We developed PicoP technology as a true platform technology, that can enable projection and image capture solutions and scale to wide variety of applications. We continue to focus on growth and further commercial opportunities in the projection space, but we are also excited by the future potential of our technology, for applications that go beyond projection. At this point, let me now on behalf of Steve and Dawn, thank you for joining us this morning, and we will now conclude this call.