Welcome to the Fourth Quarter and Full Year 2014 MicroVision, Inc. Conference Call. My name is Lauren, 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 Mr. Stephen Holt. Mr. Holt, you may begin.

Thank you. Good morning. I'd like to welcome everyone to MicroVision's fourth quarter and full year 2014 financial and operating results conference call. Participants on today’s call include Alexander Tokman, President and Chief Executive Officer; and me, 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 contain 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 results -- from the future results implied or expressed in the forward-looking statements. Additional information concerning factors that could cause actual results to materially -- 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 2014 operating results. I will then report the financial results. Alex will then discuss key business objectives for 2015. There will be a question-and-answer session, and then Alex will conclude the call with some final remarks. I now would like to turn the call over to Alex Tokman.

Thank you, Steve. Good morning. Thank you for joining us today for an update on MicroVision's 2014 business and financial results and 2015 outlook. 2014 was a year of significant accomplishments for MicroVision. We made progress on each of our stated goals for the year, which were first to complete development with Fortune Global 100 customer, support them with commercialization efforts and supply key components. Second was build pipeline of consumer and automotive OEM opportunities for MicroVision’s go-to-market partners that are providing display engines incorporating our PicoP display technology. And finally, ramp supply chain for volume production of MicroVision components in the second half of 2014. We strongly believe that the successful completion of these goals last year positions us well for significant growth in 2015. Let’s now recap the results related to the first goal, Fortune Global 100 Development Agreement and Support. As you've seen recently, we licensed our PicoP display technology to our Fortune Global 100 customer, Sony, in a milestone agreement for MicroVision and our ingredient brand licensing business model. The announcement came in 2015, but most of the hard work performed by both teams, waiting to this announcement was in fact done last year in 2014. In addition to an upfront license fee of $8 million, the agreement includes provisions for royalties that will be paid on future sales of display modules. We also will be selling key components for the display modules as well. The completion of the license agreement marks the culmination of two years of close collaboration between the two companies and this recent milestone would not have been possible without completing all the critical 2014 goals around this initiatives. We first completed the development effort with our customer for display module incorporating MicroVision's PicoP display technology in the third quarter of last…

Thank you, Alex. The financial information I am about to share is included on our press release and in the 8-K filed today, both are available from the investor page of our website. Our fourth quarter performance was a further indication of the transition that is occurring at MicroVision. We saw our development and contract revenue decline as projects were completed and our product revenue and our product backlog begin to increase as production and commercialization of our technology is beginning to take root. Now for the numbers. Fourth quarter revenue was $687,000, which was comprised of $348,000 of product revenue and $339,000 of contract revenue. Revenue in the fourth quarter of 2013 was $1.2 million, which was comprised of $1.1 million of development revenue and $0.1 million of contract revenue. 2014 total year revenue was $3.5 million compared to $5.9 million for 2013. Q4 operating expenses were $3.5 million which is 30% lower than the $5.1 million in operating expenses in Q4 of 2013. For 2014, operating expenses were $15.6 million, down 18% from $19.1 million in 2013. For the quarter, the operating loss was $3.4 million, down from $3.9 million in the fourth quarter of 2013. The 2014 total operating loss was $13.2 million, down 13% from our 2013 operating loss of $15.1 million. The fourth quarter net loss was $3.3 million or $0.08 per share. The Q4 2013 net loss was $2.4 million, also $0.08 per share. MicroVision's 2014 net loss was $18.1 million. The 2013 net loss was $13.2 million. For 2014, the net loss was $0.44 per share, which compares to a net loss of $0.47 per share in 2013. Cash used in operating activities in Q4, 2014 was $3.1 million. This compares to the $2.7 million used in Q4 of 2013. 2014 total cash used in operating activities was $13 million, versus $12.7 million used in 2013. Cash and cash equivalents on hand at December 31st were $8.3 million. The backlog at the end of the year was $5.1 million, $3.6 million in product orders and $1.5 million in contracts. That concludes the financial results. Alex will now discuss MicroVision's business objectives for 2015. Alex?

Thanks Steve. Let’s now look at 2015. We're excited about the progress we made with Sony in 2014. And we want to build on this momentum in 2015. Let me give you now a snapshot of what we see as our top priorities for this year. First, obviously, to support our Fortune Global 100 customer with display module commercialization. Second, to develop new OEM and channel opportunities for display engine manufacturing partners that are incorporating our technology. Third, to increase supply capacity for key MicroVision components. Fourth goal is the culmination of the first three. It’s to achieve a significant year-over-year growth through component sales and licensing of PicoP display technology. Finally, the fifth goal is to stay ahead of the competition, we must innovate. Hence, our final goal for the year is to evolve PicoP display technology platform to offer enhanced features and capabilities for a compelling roadmap for all future and present licensees of our technology. With this, we’re going to stop and open for questions.

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

Yeah. Great. Thanks a lot and congratulations on your license agreement.

Thanks, Mike.

So I guess, as you look out over the next year or so. How do you think about sort of license revenue versus component revenue? What kind of mix are you thinking about there?

License for us is just component. It’s a case specific, Mike. For example, Fortune Global 100 agreement may entail component sales and licensing. Another agreement could entail sale of the components where licensors will be potentially built in into component pricing. So it’s really -- you can predict at this point in time. We know what it is with the Fortune Global 100 but details of this agreement right now are confidential, obviously. But I think again to your question, there is no unique template. It would be agreement specific. And we do have -- as you know, we do have all the terms agreed upon with the Fortune Global 100 customer. We just can’t elaborate at this point in time on more details.

Okay. In terms of your commercial shipments this year, are there key timelines that your customers are trying to hit, say the holidays or summer months or anything. Are there any key timelines that would -- that’s what they need to turn the volumes to hit basically?

Because most of the customers we’re dealing with right now are selling it globally. Each region has its own preferential time. In North America, it's Christmas time. In Asia, it's could be Chinese New Year or summertime where they launch the product. So there is not really a specific time and it depends on the region.

Got it. And then of the -- you're going to get those $8 million upfront payment. Do you know how much of that, obviously all goes into cash I believe, but how much of that will be recognized in the revenue this term?

I will let Steve answer this question.

Yes. We are still looking at the accounting guidance on the revenue recognition. It seems unlikely that it would be recognized in Q1 but we haven’t completed our analysis.

Got it. Okay. And then you are supplying components obviously, are you the sole component supplier to your Fortune 100 customer?

Since we license them the technology and part of the technology comes with specific components. We are sole supplier for key component.

Okay. Got it. And then you’ve obviously ramped up your production capacity last year. I guess can you give us some flavor for maybe how many units that would support and then also how much more production capacity you intend to bring on the line?

We called that about six months ago, I think we talked about that we have put in place a baseline capacity of several hundred thousand units per year, with the ability to ramp to higher volumes as necessary. The actual production levels and rates rely on a variety of factors and although we are not disclosing specific volume forecast at this time, we do have goals in 2015 to increase the supply capacity.

Okay. Got it. And then I guess just last question would be on the types of end-user products that you are seeing. Did you expect maybe the majority of units that go to the accessory segment this year, as opposed to embedded on phones or can you provide any general color on that?

Sure. There are several types of products actually. We can’t specify it because this would shed light on something that people ask us not to discuss publicly into their outlook but the companion products are part of the portfolio. They are obviously working with smartphone manufacturer. We obviously are working with several companies who want to introduce simpler version aftermarket head-up displays. Also, there are applications that related to home and that are not your traditional projection applications.

All right. Very good. Thanks a lot. Good luck this year.

Thank you very much.

Thank you. And our next question comes from Randy Hough from ProEquities. Please go ahead.

Good morning, fellas. Again, I will add my congratulations to a successful 2014. I’m really excited about the year ahead. One of the frustrating things, I think for management and certainly for shareholders has been the length of time involved in developing once we have in hand the natural green laser, developing a product and actually having a deal come to fruition like you announced the other day and defined what many analysts referred to as a sponsor for our technology. What we seem to now have found then and reduced our relationship -- excuse me, expanded our relationship to one, which much money is actually changing hands and reality of products is near. I'd like to hear your comments, Alex, on having accomplished that now i.e., about the relationship built on our technology with a world-class sponsor. What kind of implications that has for others coming on board of similar magnitude? In other words, will the flow now in your mind accelerate simply because we have a sponsor who by virtue of being a sponsor has validated our technology?

It’s a great question, Randy. Obviously, doing it with somebody like what Sony makes it a lot more exciting for us. We always believe that the success of this market for us is not going to be work and trying to work with hundreds of people at the same time, but rather take the vital few market makers who can go and use their expanded marketing and sales arm and promote this technology the way it should be promoted to be successful with consumers. And obviously, Sony is one of the companies that can do this. And this is why we're very excited about it. So the valuation point is simply that if they didn’t believe in this market opportunity, we would have not gone this far. They invest a significant amount of money into this proposition. What they’ve given us is a fraction of what they are investing because they truly believe that there's something special about this emerging market and once the success is shown, we believe that there will be many copycats who would join -- like pigs of the trough. This is what we believe.

Yeah. So, I know you confirm the basic theory of how this market is going to develop. In terms of -- well, let me bring you back to couple of years ago. As best I remember in the first quarter of 2012, Alex, when NGLs became available, test kits were sent out over the first six months of the year to some 50 potential OEM partners and because of the significant response you were forced to categorize these in groups of five, if I remember correctly according to the desirability of that particular OEM to working with the goals and objectives of MicroVision. I assume that Sony was somewhere in the top few. But now that we've advanced to this point over a two-year period, are you working with any of the others in groups and let’s say the first two groups or the first 10, which would've been ranked as the best partners for this introduction of this technology? Can you talk about that a little bit?

Sure. Sure. So we have to prioritize. Just to give you example so everybody understands and make sure it’s clear. We put 90% plus of our resources in past two years to make Sony a successful, 90% plus. If we did not do this, we would have not been successful. So, we have to manage cash and we’d have to focus on vital few. Now that we transition and we've done a lot of heavy lift to support our Fortune Global 100 customer, we have resources become available for other opportunities. But in addition to what you said, yes, our list has been -- we prioritize kind of top five and top five list changed over the past two years because some companies slowed down, some companies accelerated from the second top five and we moved them into the first top five. So what we announced with the Fortune Global 500 companies, for example, they were not on their original top five list but they moved in top five list once we realized they have very exciting application and we are serious about moving forward. So it’s a dynamic list but again, we cannot work with multiple people at once because we’ll make everyone unsuccessful including ourselves, so our choice has been to focus on vital few. And again, we're excited about where we are right now and we are also excited about the fact that we can now apply resources to expand our reach.

So then it seems to be that bakes the question. What set of circumstances does MicroVision have to find itself in, before it can be working with multiple top 10 potential OEMs? Is it that you have sufficient cash for operations and the engineering expenses involved in supporting multiple partners at one time? And if that's the case, at what point will you have sufficient cash to begin hiring this additional engineering personnel to support these customers in your mind?

Let me try to break this question because there is I think couple of questions in it. So first of all, we are working with multiple people. It’s just how much resources you can put on anyone specifically at any given time is what differs. So at this point in time, Fortune Global 100 had highest priorities with majority of resources on it and whatever is left was applied to other projects. Now that we have a lot of people coming off that project, we have more flexibility how to apply more resources on other critical areas. As we start selling components and receive licensing revenue from our customer selling their display modules to everybody, we obviously are going to have more revenue and more margin and we’ll be able to invest more into the technical development resources and to expand our base so we can focus on more opportunities, yes.

Thinking forward, as you began to receive, not licensing revenue but royalty revenue from your customers obviously?

Yes. Yes. That’s right, Randy. That’s what I meant.

My last question then comes to financing. It appears in broad scope, we will have shortly something on the order of $12 million to $16 million depending on what you’ve spent through the first part of 2015 for operating capital. Do you anticipate that the momentum of the business will be such that it will be unlikely you'll have to do another source and other around of financing, because your additional licensing fees and potential royalty income will suffice to, for the working capital needs of the company in 2015?

Until we breakeven and then start becoming positive on operating process, we always going to have to look at valid options, external options available to us. And for us, this is not an event. It’s a process and we continue. It’s just like any other program, whether it's with Fortune Global 100, it's a program. We continue to be valid in the options and we usually pulled the trigger on the best options available. We obviously don’t give guidances on financing on when we do and why we do it. However, until you breakeven and make any significant profit, you always have to look at opportunities in front of you because of what you ask. If we have opportunities to require more investment then we can support with our resources of our bandwidth. The ROI could be high enough to invest additional money and for this you have to raise something.

Good answer. Okay. Thank you very much, Alex and we’ll be -- I wish you best of luck here in 2015.

Thanks.

Thank you. And our next question comes from [Tom Szulist] [ph], Private Investor. Please go ahead.

Hey, Alex. Congratulations on a wonderful accomplishment with Sony. My first question is -- are you seeing any issues with scalability of your process for delivering components?

It’s also excellent question, Tom. We began shipments as we communicated to Sony in the fourth quarter. We continue the shipments against purchase orders given to us in the second half of last year and we expect to continue. As I mentioned to you, we are looking to expand the capacity this year and it’s a good goal to have for us.

Now when you look at the competitive landscape and you look at Lycos and you also look to DLP, there are significant advantages as a lumen output increases? Could you talk a little bit to that and show where we stand in that competitive edge?

Sure. One of the fundamental advantages we have for any application to require miniaturization and low power consumption is due to the fact we use lasers and MEMS versus let say panels and the LEDs. So our ability to increase brightness without any significant increase in power is what separates us. For example, when the projector is very large, we don’t have real advantage on power, but when the requirements for the projection system to be very small, we actually have significant advantage. At low brightness, we slightly differentiated and as brightness increases from 10 lumens to 100 lumens, our differentiation on power increases exponentially.

Now as you start to look at higher lumen output, are there limitation to the start or are you seeing that the current, I think, 32 lumens is what Celluon is coming out with. Let say if you looked at the 50 to 60 lumen area, is that doable without any major obstacles that need to be overcome?

Yes.

Okay. And component wise? Go ahead.

And in fact -- yes, it’s doable and in fact, at CES under NDA we showcased to customers in Vegas some of the roadmap activities that we have about increasing brightness to the levels that people would never expect us to get.

And, I guess, relating to the prior question about your priorities, in essence because Sony is going to be supplying to other OEMs and other Fortune 100, 500 companies. In essence, Sony is going to be doing marketing and additional market penetration for you, is that correct?

That’s what we expect. Absolutely. That’s what we expect. And this is why it is exciting, because you’re replacing three or four MicroVision business development, marketing and sales people with several thousands that Fortune Global 100 has. That’s exactly right.

Okay. And when it relates to cost of digital green lasers, at one time there were 5x of the reds and blues. How close are we coming in line with the cost of the other colors right now?

Very close, Tom, very, very close.

Okay.

It was 20x actually when we started in 2010 and now it’s almost even.

Excellent. Good. Congratulations on great milestones this year. Looking forward to seeing additional products, I have got the Celluon projector and I am amazed that the quality and the ability of it to be able to -- always being focused and beautiful colors. So thanks for the work.

I am glad you like it. We are going to tell our Celluon friends that you enjoy the product.

Great.

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

Good morning, Alex, and again congratulations on the accomplishment of the licensing agreement. I do want to ask a little bit about sort of what's covered in the agreement and what’s not to whatever extent that you can share with us? I know that you talk about the products that are manufactured and sold by the Fortune 100? What about internal products that the Fortune 100 might have? Are those covered under that agreement?

Yes. The way the agreement is structured without going into specific details is that Fortune Global 100 customer would sell these modules internally and externally.

Okay. And I would imagine then the agreement just covers certain patents that are related to certain technologies?

Henry, this is -- it's related to scanned beam display technology that we license to them. It's not related to a number of patents, but it’s related to instantiation of the technology at that time.

Okay.

Because we’re still moving forward, we’re still developing new innovation, we’re still filing applications and we’re still creating new IP.

And so future technology that I guess is related in the same area then would also be covered?

Well, we developed in certain applications and certain used cases that are not -- were not included in this basic package.

Okay, okay. And so those certain applications in used cases are areas that potentially you could get…

Additional.

…additional royalties on? All right. And anything, you could tell us about sort of the initial demand for the Celluon products -- do you have any sense of what that’s been?

We were not involved close enough because it’s really not our product. But what we know today is that based on some of the feedback we hear from some of the consumers and investors, it appears to be that that Celluon oversubscribed. They -- the demand for their product is larger than what they are producing right now. They are increasing their output. But other than you probably -- the best way to do is to contact the head office in United States, just talk to one of their representatives they can give you more color.

Okay, okay. And then as far as the royalty rates, I guess that, is there any possibility that you could give us a range of what the royalty rates might be?

It’s tough because it’s confidential for -- neither Fortune Global 100 nor we want anybody to know for competitive reasons because it basically, when you disclose your structure, our competitors should not know this information -- should not have this information.

All right. Thanks again and congratulations.

No problem.

Thank you. And our next question comes from Randy Hough from ProEquities. Please go ahead.

You answered my question, Alex, in the second part you answered to the last questioner. Thank you.

Thank you. We have no further question at this time, I will now turn the call over to Alex Tokman for closing remarks.

Steve and I are excited about what’s going on right now at MicroVision. I think our employee base is energized. Everybody is looking forward to something special this year. 2015 is expected to be a transformational year for MicroVision because it was built on concrete critical path to successes in 2014. We expect to achieve significant year-over-year growth by focusing attention on making our customers successful, whether providing them with high quality components or assisting them with their goal to market efforts. As I mentioned earlier, the three leading indicators of our progress in this area will be, first, supporting our Global Fortune 100 customer with display module commercialization. Second, developing new OEM and channel opportunities for display engine manufacturing partners that incorporate our technology. And finally, increasing supply capacity for key MicroVision components. We believe the rapidly expanding consumer behavior of watching video on mobile devices creates a perfect opportunity for pico projection for this market. According to Ooyala, for example, a leader in reporting digital video trends, year-over-year smartphone and tablets use more than doubled showing 114% increase. We believe that solutions that with MicroVision's PicoP display technology are poised to enable truly differentiated end-user experience that are not attainable from other technologies. And there’s a lot to be excited about. We thank you for your support, thank you, for your patients. And on behalf of Steve, I would like to thank you for joining this morning and we'll talk to you soon during the first quarter earnings call.