Welcome to the Q2 2012 MicroVision, Incorporated Conference Call. My name is Paulette, 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 Jeff Wilson, Chief Financial Officer. Please go ahead.

Thank you. I’d like to welcome everyone to MicroVision’s Second Quarter 2012 Financial and Operating Results Conference Call. In addition to myself, participants on today’s call include Alexander Tokman, President and Chief Executive Officer. The information in today’s call may include forward-looking statements, including statements regarding projections of future operations and financial results, product development, applications and benefits, availability and supply of product and key components, business partnering expectations, market opportunities and growth in demand, as well as statements containing words like believes, estimate, expects, anticipates, target, plan, will, could and 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 the forward-looking statements, are included in our most recent Annual Report on Form 10-K filed with the Securities Exchange Commission, under the heading Risk Factors relating to 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 any reason. The agenda for today’s call will be as follows: Alex will first give a business update, then I will report on the financial results. There will be question-and-answer session, and then Alex will conclude with some final remarks. I would now like to turn the call over to Alexander Tokman. Alex?

Thank you, Jeff. Thanks, everyone, for joining us this morning. In Q2, we accomplished several strategic milestones that we believe should significantly strengthen our fundamentals and provide platform for future growth. These include receiving a purchase order totaling $5.8 million from Pioneer for the launch of Pioneer’s new HUD system. It’s called Cyber Navi. We strengthened the balanced sheet by raising just under $15 million from two equity offerings. And finally, we completed a business realignment and restructuring around Image by PicoP license and business model that is expected to yield approximately 50% reduction in operating cash requirements starting second half of this year. The business update portion that I’m about to cover focuses on Pioneer, new business opportunities and touches on operations. And obviously, Jeff will provide more information as well as financials. I would like to begin Pioneer portion of this call with two wonderful news. First of all, Pioneer has begun shipments of its Cyber Navi HUD system in July as was originally planned. And second, we just received in July a follow-on order of $1.4 million for the key components of the PicoP Gen2 display technology, in support of this launch. This brings the total current order from Pioneer to approximately $5.8 million because recall that earlier, in the second quarter, we received and announced a purchase order of $4.4 million for the key components of the PicoP Gen2 display engine. A couple of notable points surrounding this activity with Pioneer. First, let’s talk about Pioneer’s (inaudible) related activities. Pioneer has conducted a free-market study to assess the interest in this revolutionary product, and majority of the people polled and looked indicated that they liked the features and functions and were very impressed. So, this is good news for us, at least as far as pre-market…

Thank you, Alex. I’d like to start with an update on our recent actions to align our operating and personnel cost to our ingredient brand strategy. As you will recall, we previously announced that we were taking steps to lower cash requirements going forward as we planned for our OEM partners to assume a greater portion of the PicoP display engine technology integration. In addition, we took steps to further reduce our product development, sales, marketing and administrative expenses. And finally, we have reduced our personnel costs to align to our strategy. During the second quarter, we paid out approximately $350,000 in restructuring and other costs associated with personnel reductions. We have completed the planned actions and continue to expect the reduction in working capital, operating expenses and personnel costs should result in approximately 50% reduction in our cash used in operations in the second half of 2012 compared to the first half of 2012. With that background, I would like to cover three additional areas: revenue; our operating results; and finally, our cash position as of the end of the quarter. Our revenue for the second quarter increased slightly to $1.3 million compared to $1.2 million for the second quarter last year. And for the first six months of 2012, our revenue increased 33% to $3 million compared to $2.3 million during the same period last year. Our revenue for the second quarter was comprised of sales of our SHOWWX product, test stations used for producing the PicoP Gen2 display engine, and initial component sales for the PicoP Gen2 display engine. We plan to continue to sell our existing inventory of SHOWWX products through the next quarter as we increase deliveries of the PicoP Gen2 engine components. Our backlog at the end of the quarter was $5.4 million. This…

Thank you. We will now begin question-and-answer session. (Operator Instructions) And our first question comes from Ryan MacDonald from Northland Securities. Please go ahead. Ryan MacDonald – Northland Securities: Hi, guys. This is Ryan MacDonald on for Michael Latimore. Just a couple of questions. So, in terms – outside of Pioneer, are there any other OEMs that you might expect in the second half of this year or the start of 2013?

Good question, Ryan. As we mentioned that we were transitioning to the Image by PicoP ingredient brand license and model supply and samples to right now more than a dozen of OEMs and some of whom already completed evaluations and we’re engaged in business discussions on the business models moving forward. How long each negotiation is going to be obviously dependent on type of business model selected and there is no finite time other than think of it as a normal or Gaussian distribution with three sigma values between six to 18 months. Ryan MacDonald – Northland Securities: Months. Okay. And then what’s your view on gross margin for the second half of this year level, or in terms of level?

Right now, as you can see, most of the volume is coming from Pioneer. Good news is that gross margin is positive, and it’s double digit. But at this point, we’re not free to disclose information because it’s confidential to the agreement between Pioneer and MicroVision. As we start generating more customers and average the margin, we’ll be able to disclose this so you can see. Ryan MacDonald – Northland Securities: Okay. And then are there any opportunities to monetize your non-core patents?

There’s always an opportunity to monetize non-core IP. And we’ll be looking and exploring all opportunities on the table. Yes. Ryan MacDonald – Northland Securities: Okay, got you. And then just last one, in terms of – do you see any up-front payments for the second half of the year at all?

This is part of the license and royalty agreements that we are pursuing. We hope to basically strike up deals that have that element. But obviously, it’s going to be deal-to-deal dependent and – but it’s a goal, yes, to get up-front licensing fees for some of these deals moving forward. Ryan MacDonald – Northland Securities: All right. Thank you very much.

And our next question comes from Randy Hough from ProEquities. Please go ahead. Randy Hough – ProEquities: Hi, good morning, guys. Thanks for taking my question. Alex, to follow-on the question of the previous speaker, what are the gating issues that remain in signing a deal with these – one or more of these additional OEMs that you speak of? For example, we’ve talked before about convincing production levels for, say, Pioneer that would show another potential partner that in fact the green laser suppliers can provide volumes. I wouldn’t think conversely that any of these new potential relationships are going to sign on unless they see volumes of reliable yields and reliable operation of these green lasers over time. Could you talk about that a little bit?

Absolutely, Randy. The good news is that the green laser doesn’t appear to be as a show stopper as it was before because, think about this, under the Image by PicoP license and business model, we’re not doing negotiations with green laser suppliers; OEMs do it on their own. So, if they don’t feel comfortable they will not go forward. Pioneer felt comfortable enough with one of the green laser suppliers that they announced commercial launch and they’re pursuing it. And Japanese companies tend to be more conservative than optimistic. So, if they feel comfortable, that means we should all feel good about this. So, some of the issues that established timing, remember, Mike just asked a question, well, how long the deals will take, it’s so dependent on deal by deal cases and it’s primarily driven by several factors. One is what type of business models that perspective customers want to take, what type of transactions, what royalties, what licenses, what component sales, what else is included, and that’s one area. The second one is the motivation and/or pressure by a specific customer. If they’re pressured to introduce a product sooner, they would be more willing to negotiate faster. If they have some flexibility on time, they’re going to take their time to negotiate best terms. So, again, think of it as a normal or Gaussian distribution. From the time we ship evaluation samples and somebody happy enough – when they evaluated and they accepted the performance, they like what they see, they say, “All right. Let’s talk about business now.” That time is – think of it as a normal distribution with three sigma values between six to 18 months, with mean somewhere around 12 months. Randy Hough – ProEquities: Okay. And the time that the clock stopped – started on that, excuse me, I guess, would be maybe the April timeframe is when you started putting these kits out to folks to evaluate?

Remember, we started shipping the original ones at the end of February. And remember, at that time, when we had a call three months ago, we said, typically evaluation phases for them, take anywhere between one to six months. So, if you look at end of February, now we have March, April, May, June, July. We’ve gone through four or five months now, right? Randy Hough – ProEquities: Right.

Some of these people, believe it or not, still evaluating that. So, they have not came back to us with the – let’s go to the next step. Some of them did complete the evaluation. They like what they see. And with those, we already started negotiations. And those started – some of them a few months back, some of them just recently, some, but in the past two, three months, we started getting some of these people coming back to us, saying, “Look, we’ve seen enough from technical side. Let’s just talk business now.” Randy Hough – ProEquities: Okay. So, it’s mixed?

Yes. It’s totally mixed. There’s no specific timeline for everybody. Everybody – everyone is different. Some regions are more efficient than this, some regions less. But again, it’s also driven by the internal business goals within each organization. So, some people who are behind and trying to catch up are more aggressive. Some people who already (inaudible) space. They may be not as aggressive and take their time. Randy Hough – ProEquities: Okay. We’ve seen in the last several months, Alex, since the green – natural green lasers became more in the realm of possibility, as far as volumes, some pretty significant and interesting applications of the technology. The Web provides us with YouTube videos of applications that are truly remarkable. So, with that kind of background – and remarkable and varied beyond what I would have expected initially. So, with that background, is there anything shaping up in the field in the industry for consumer electronic applications that has surprised you to the positive side, or could you comment on whether the breadth of applications seems to be increasing beyond what you might have imagined a couple of years ago?

Absolutely, Randy. What we have observed, and this is not just recently but this is over the past several years, is that people want something broader than just displaying information. And this is one of the main reasons we start investing a couple of years ago into new body of applications such as interactive display, 3D and zoom morph, some of the features that will be added on top of our PicoP projection engine to enhance end-user experience. And what we’re recognizing right now as a validation point, and is that some of these OEMs are really excited even more about our features and applications, more so than just the base technology. So, this is all good for us. And we believe that interacting – using your fingers to interact with information projected on the wall should be just as common as it is with using your fingers on your cell phone, as most people do today. Randy Hough – ProEquities: Wow. And how about the, just last question to follow on with that. How about the eyeglass application, where the visuals are broad and represented on the lens of glasses?

Remember, eyewear was always a part of the top three focus areas for us: Pico projection, head-up display, eyewear. Keep in mind that with the business model that we have been pursuing for the past six years, which is imaged by PicoP, we would never provide the end solution as an eyewear, but we would provide all the salient components to create this solution. And what that is you need a display, tiny display engine, to enable eyewear solution. And we believe we have the best eye – the best display engine for that solution. We also have invested to develop optical methods and solutions in combination with our engines. So, this is what we are offering to others. And I agree with you, the eyewear, based on what Google, Microsoft, gaming companies are investing right now, they believe eyewear is going to be big. Everybody always believed that eyewear will be the coolest product ever. The fundamental issue in the past has been that it’s a very complex solution to put together because it requires not only something that looks and feels natural and cool, not something that looks like weighs 500 pounds and you have to carry it on your forehead. But also, content has to be adjusted to this type of application. So, with Google being involved, with Microsoft being involved, the content is being adjusted, and it facilitates adoption of this specific use model.

And our next question comes from Joel Achramowicz from Merriman Capital. Please go ahead. Joel Achramowicz – Merriman Capital: Very much. Good morning, guys. I got on a little bit late. Could you – did you talk about the state of the supply chain for direct green laser in terms of improvements and multiple sourcing and this kind of thing?

Yes, Joel. Catch up, I’ll repeat again. So, right now, it was one direct green laser manufacturer is offering commercial grade direct green laser. And this is evidenced by Pioneer’s product launch. Also, more are expected to come to market soon. And recently, we have a new entry. Sony has announced that they have partnered with Sumitomo to introduce their own direct green lasers. So, we just – we just had Sony entering into this game and having someone like Sony, with the capability and the pull within the Sony internal product groups, it’s a very good indicator for everyone involved. We’re ecstatic about the fact that Sony is entering this game. Joel Achramowicz – Merriman Capital: Which leaves me to question about Pioneer, we’ve talked about that before. Are they – I mean, they obviously have this focus and heads-up display for the automotive sector. Are they working other product areas that they’re considering looking at other consumer products such as perhaps hand sensor with someone or working with other players in that regard?

We – it’s hard for us to disclose their roadmaps and their business plans because as you know we are under nondisclosure agreement. Joel Achramowicz – Merriman Capital: Yeah.

All I can tell you is that their first priority is to launch aftermarket head-up display product and make it successful in Japan. Later, they want to extend it globally. And they have larger appetites for other products. But at this point in time, not privy to disclose that. Joel Achramowicz – Merriman Capital: I understand. I’m kind of excited. I wanted to hear your thoughts. There’s – I guess there is a handset, a smartphone or some kind of a phone that Samsung has released. I don’t know which engine – or I don’t think they’re using your engine. But I think it’s called the Samsung Beam, but it’s one of the first handsets I’ve seen – I think it just went on the market this week, actually. But how do you feel – I mean, that’s certainly good for the market, right? I mean...

It’s great for the market. So, you’re absolutely right. Samsung released limited quantities of the Beam form that has the, I believe, TI’s – let’s say, TI, 10-illumina something engine that offers one-fourth of 720 – one-fourth of our resolution, basically. And we are glad that Samsung is doing it because it gives credibility to the market. They just introduced it, I believe, in England and some other countries. So, I think all of this is great. We’re actually happy about this. I have a personal experience with this cell phone recently at the Society of Information Display Conference in Boston. When I finished my speech, one of the Samsung guys came and showed it to me before they even launched it. And he put it out and started projecting the image, adjusting focus. So, the image looked pretty good, but it was small because it’s not bright enough. It was small. At the same time, I had – we developed one of the prototypes using Samsung Note with our projection technology. So, I took it out of my pocket and projected the image side-by-side with him, and my image – our image was about five times bigger and brighter than – and no focus adjustments than what Samsung Beam was. And I remember there were several people around us, looking around and they look at Samsung guy and they say, “Listen. How come you do not put their technology inside?” Well, the point is that we have something – we believe we have something special. And obviously, it was not ready because the Samsung form that they introduced today was designed and to probably a-year-and-a-half ago which at that time we did not have direct green laser. Now, the situation is changing and we believe this is going to improve our ability to get (inaudible). Joel Achramowicz – Merriman Capital: Certainly that is evidenced now that they’re obviously – Samsung knows about you.

Yes, they do know. Of course they do know. Joel Achramowicz – Merriman Capital: Okay, that’s good to know. One final question I have is how – we’ve got another half to go. Obviously this is a critical period for you. How should we measure your operating model for the next – what would you like to accomplish that – in the next six months?

We – one of our first – our main priority right now is support Pioneer’s product launch because this is the first product that we designed under Image by PicoP model. It requires a lot of support on our side to make sure Pioneer is successful and we’ve been doing this. At the same time, we’re working on the new business development and with the restructuring that we’ve done, we expect to reduce cash requirements by approximately 50%. So, it gives us longer run time – runway. And during this time, we expect to generate some additional partnerships and hopefully solidify our position so people can see that now that we addressed one of the major bottlenecks which was the green laser, we can start generating positive wins, and we have very strong fundamentals right now. If you look at the balance sheet, if you look at the burn reduction that we’ve done, I would say revenue from Pioneer would be the increase in revenue for right now. And looking – working on a new deal that potentially could include upfront licensing fees, that’s our goal for the next six to nine months. Joel Achramowicz – Merriman Capital: And you mentioned I think 8 or 12 – you’re working with at least those some amount of players. Some of these are big household names, right? Can we assume that?

Yeah. As we migrate – as we transition the Image by PicoP model, most of the people we are targeting right now are major vertically integrated Tier 1 OEMs or ODMs. Joel Achramowicz – Merriman Capital: Great, that’s – well, good luck. We’ll be charting progress next months, the months ahead.

Thanks, Joel. And listen, just for the operator, it’s Joe Achramowicz, not Joe Achramowic. Joel Achramowicz – Merriman Capital: Thanks, Alex.

Okay.

And our next question comes from Jeff Harvil from Janney Montgomery Scott. Please go ahead. Jeff Harvil – Janney Montgomerry Scott: Morning. A couple of things. Are you not going to sell the SHOWWX anymore?

We’re – yeah, this is Jeff Wilson. We’ll continue to sell the SHOWWX, our existing inventories of SHOWWX products, which at the current run rates we think will be through the end of Q3 maybe the first part of Q4. But, we’re not producing anymore. That product was built on the synthetic green laser platform so we won’t be manufacturing more units of that. Jeff Harvil – Janney Montgomerry Scott: No. I think the thing that – I guess I had expected by now at least an announcement of another partnership. And I’m just wondering, can you talk about – can you give us some indication of how many potential new customers are evaluating your PicoP in the second quarter versus the first quarter?

Well, in the first quarter, there was none because, I remember, we just began shipping at the end of February. So, if you look, March is the only month that some of the people, earlier people, used to receive the samples. So, most of the people have done evaluation in the second quarter. And as we mentioned, we shipped to at least a dozen prospective customers between March and end of June. And some of these already completed the evaluation phases, and we engaged in the business discussions.

And our next question comes from Mike Scott from Stephens. Please go ahead. Mike Scott – Stephens: I’m going to follow on Joe’s question just a little bit to the extent that – and that’s encouraging to hear about Samsung. I had – I was wondering whether they’d put a projector in their phone. And you mentioned, I guess, that it had a core resolution of our projector. And we were early, I guess, to be involved in that. And I guess what I’m asking is that the Pioneer deal is well-known. I guess it’s going to be a while taking off as far as aftermarket, maybe, maybe not, as far as a serious revenue driver. And now that we’ve decided to get more in the licensing situation, it appears to me that there’s quite a bit of time lag between that OEM taking that to look at it and actually adopting it and putting it into product and selling it. The question, I guess, is, where the company sits now in the cash position, say, 12 months out, other than continue to dilute the stock, what would be the end game as far as seeing a deal that we could actually realize enough revenue on the licensing model to be able to cash for the company? And is that a possibility?

So, as I mentioned, Mike, again, reiterate, evaluation phases take between – typically between one and six months. And we started in late February. Subset of the customers, prospective customers who received the evaluation phases have completed analysis, have provided us with feedback, and said that they are comfortable with what they’ve seen. So, now, with subset of these dozen customers, we’re in negotiation on business models. Now, each negotiation differs dependent on what type of business model or customer – prospective customer on what to pursue. As I mentioned to you, industry standards and our experience shows that to get a definitive deal done takes anywhere between – it’s a normal distribution with three sigma values as quickly as six months, as long as 18 months. Now, what is going to happen for each individual deals, we cannot predict. All we can tell you that it would fall into the distribution. And our goal, as I mentioned, is not only to figure out how to provide components but also to see if we can negotiate up-front licensing fees which would serve as a revenue in the intermediate term until the product’s in the market and we can gain royalty and sale of the components. Mike Scott – Stephens: Do you feel like – and I – of course, I don’t need specifics, but do you feel like that, at this point, with the supply of green lasers apparently not being a problem, that this product is ready to go in a high-end consumer product device, and do you feel like we have a chance of achieving that goal over the next, say, 12 months?

Our goal is definitely to get agreement or agreements done with some of the – or major OEMs and ODMs to put the technology inside their products. Absolutely, that’s our goal for the next 12 months.

I will now turn the call back over to Alexander Tokman for closing remarks.

All right. A quick recap of what we just covered. Pioneer product commercialization is on track. And consequently, the commercialization of our Gen2 – PicoP Gen2 display technology built around direct green laser is on track as well. I think the $5.8 million in purchase orders serve as the strong validation of this progress. We are seeing new samples into the market in order to create new business opportunities. The feedback so far has been positive and we already entered into business discussions with several prospective customers to assess the business models going forward. We are progressing our PicoP features roadmap to enhance the appeal of our solution. Understand that when people sign up for licensing and royalty models, they don’t just look at what we have today. They want to know what we’re going to have tomorrow. So, it’s important that we continue to mature the roadmap because they’re signing up for longer term, not just for one instantiation of our technology. We implemented measures to reduce the operating cash requirements by approximately 50% starting second half of this year and raised almost $15 million to provide operating capital for at least 12 months runway from today. All of the summary points I just described are essential elements of the Image by PicoP licensing business models that – model that was articulated earlier this year. Bottom line, we are hitting on all critical milestones articulated earlier in the year and by continuing to move the business forward, we believe that it makes us an attractive investment opportunity for longer-term-minded investors around the world. At this point, I would like to thank you, on behalf of Jeff and myself for joining us and we’ll talk to you soon.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.