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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000065770-08-000021.txt : 20081107
<SEC-HEADER>0000065770-08-000021.hdr.sgml : 20081107
<ACCEPTANCE-DATETIME>20081106174848
ACCESSION NUMBER:		0000065770-08-000021
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20080930
FILED AS OF DATE:		20081107
DATE AS OF CHANGE:		20081106

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MICROVISION INC
		CENTRAL INDEX KEY:			0000065770
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTRONIC COMPONENTS, NEC [3679]
		IRS NUMBER:				911600822
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-34170
		FILM NUMBER:		081168269

	BUSINESS ADDRESS:	
		STREET 1:		6222 185TH AVE NE
		CITY:			REDMOND
		STATE:			WA
		ZIP:			98052
		BUSINESS PHONE:		425-936-6847

	MAIL ADDRESS:	
		STREET 1:		6222 185TH AVE NE
		CITY:			REDMOND
		STATE:			WA
		ZIP:			98052
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>form10q.htm
<DESCRIPTION>10Q
<TEXT>
<HTML>
<HEAD>
<TITLE>Q3 2008 DOC</TITLE>
</HEAD>
<BODY LINK="#0000ff" VLINK="#800080">
<font FACE="Times New Roman" SIZE="2">

<DIV align=left>
<HR size="4" noshade color="#000000" style="margin-top: -5px">
<HR size="1" noshade color="#000000" style="margin-top: -10px">
</DIV>

<font size="3"><B><p align="center">UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION<BR>
Washington, D.C. 20549</P></font></B>

<BR>
<HR WIDTH="25%">
<BR>
<font size="5"><B><p align="center">FORM 10-Q</P></font></B>
<BR>
<HR WIDTH="25%">

<font size="3"><B><p align="center">
   [X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
</P></font></B>
<font size="4" color="FF0000"><B><p align="center">
             For the quarterly period ended September 30, 2008
</P></font></B>

<font size="3"><B><p align="center"> OR </P></font></B>

<font size="3"><B><p align="center">
[&nbsp;&nbsp;]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
</P></font></B>

<font size="3"><B><p align="center">
 For the transition period from ________to _________
</P></font></B>

<font size="3"><B><p align="center">
                       Commission file number&nbsp;&nbsp;&nbsp; <u>0-21221</u>
</P></font></B>
<P ALIGN="CENTER"><IMG SRC="logo.gif"></P>
<font size="6" color="#0000FF"><B><U><p align="center">
                                   Microvision, Inc.
</U></B></font><BR>
<font size="2">
               (Exact name of Registrant as Specified in its Charter)
</font></P>

<P>&nbsp;
<TABLE COLS=2 WIDTH="100%">
<TR>
<TD>
<font size="3"><B>
<CENTER><u>Delaware</u></CENTER>
</font></B>
</TD>
<TD>
<font size="3"><B>
<CENTER><u> 91-1600822 </u></CENTER>
</font></B>
</TD>
</TR>
<TR>
<TD>
<font size="2">
<CENTER>&nbsp; (State or Other Jurisdiction of Incorporation or Organization)&nbsp;</CENTER>
</font>
</TD>
<TD>
<font size="2">
<CENTER>(I.R.S. Employer Identification Number)</CENTER>
</font>
</TD>
</TR>
</TABLE>
<BR>



<font size="3"><B><p align="center">
                                6222 185th Avenue NE
<BR><U>
                              Redmond, Washington  &nbsp;&nbsp;  98052
</U></B></font><BR>

<font size="2">
        (Address of Principal Executive Offices including Zip Code)
</font></P>

<font size="3"><B><U><p align="center">
                                 (425) 936-6847
</U></B></font><BR>

<font size="2">
                 (Registrant's Telephone Number, Including Area Code)
</font></P>



<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days.  YES &nbsp;&nbsp; <FONT FACE="WINGDINGS">&#120; <FONT FACE="Times New Roman">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;   NO &nbsp;&nbsp; <FONT FACE="WINGDINGS">&#168; <FONT FACE="Times New Roman"> </P>

<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<P>
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act. (Check one): </P>

<CENTER><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=0 WIDTH=100%>
<TR><TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P>
Large accelerated filer  &nbsp;&nbsp; <FONT FACE="WINGDINGS">&#168; <FONT FACE="Times New Roman">
</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P>
Accelerated filer &nbsp;&nbsp; <FONT FACE="WINGDINGS">&#120; <FONT FACE="Times New Roman">
</FONT></TD>
<TD WIDTH="35%" VALIGN="TOP">
<FONT SIZE=2><P>
                                                                         Non-accelerated filer &nbsp;&nbsp; <FONT FACE="WINGDINGS">&#168; <FONT FACE="Times New Roman">
<BR>(Do not check if a smaller reporting company)
</FONT></TD>
<TD WIDTH="25%" VALIGN="TOP">
<FONT SIZE=2><P>
Smaller reporting company &nbsp;&nbsp; <FONT FACE="WINGDINGS">&#168; <FONT FACE="Times New Roman"></P>
</FONT></TD>
</TR>
</TABLE></CENTER>



<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934). YES &nbsp;&nbsp; <FONT FACE="WINGDINGS">&#168; <FONT FACE="Times New Roman">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;   NO &nbsp;&nbsp; <FONT FACE="WINGDINGS">&#120; <FONT FACE="Times New Roman"> </P>

<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of October 31, 2008, 68,080,000 shares of the Company's common stock, $0.001 par value, were outstanding.


<DIV align=left>
<HR size="1" noshade color="#000000" style="margin-top: -2px">
<HR size="4" noshade color="#000000" style="margin-top: -10px">
</DIV>
<P style="PAGE-BREAK-BEFORE: always" align=left>


<TABLE BORDER=0 CELLSPACING=1 CELLPADDING=7 WIDTH=85%>
<TR><TD WIDTH="94%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">Page</FONT></TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><B><P ALIGN="CENTER">Part I: Financial Information</B></FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">&nbsp;</TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><P>Item 1.  Financial Statements:</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">&nbsp;</TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="BOTTOM">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="BOTTOM">&nbsp;</TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><P>         Consolidated Balance Sheets as of  September 30, 2008 and
December 31, 2007 (unaudited)</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER"></FONT><A HREF="#bs"><FONT SIZE=2>3</FONT></A></TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="BOTTOM">
<FONT SIZE=2><P>         Consolidated Statements of Operations for the three and nine
months ended September 30, 2008 and 2007 (unaudited)
</FONT></TD>
<TD WIDTH="6%" VALIGN="BOTTOM">
<FONT SIZE=4><P ALIGN="CENTER"></FONT><A HREF="#ops"><FONT SIZE=2>4</FONT></A></TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="BOTTOM">
<FONT SIZE=2><P>         Consolidated Statements of Comprehensive Loss
for the three and nine months ended September 30, 2008 and 2007 (unaudited)
</FONT></TD>
<TD WIDTH="6%" VALIGN="BOTTOM">
<FONT SIZE=5><P ALIGN="CENTER"></FONT><A HREF="#comploss"><FONT SIZE=2>5</FONT></A></TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><P>         Consolidated Statements of Cash Flows for the nine
months ended September 30, 2008 and 2007 (unaudited)</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=6><P ALIGN="CENTER"></FONT><A HREF="#flows"><FONT SIZE=2>6</FONT></A></TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><P>         Notes to Consolidated Financial Statements
(unaudited)</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"></FONT><A HREF="#notes"><FONT SIZE=2>8</FONT></A></TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">&nbsp;</TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><P>Item 2.  Management's Discussion and Analysis of Financial
Condition and Results of Operations</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"></FONT><A HREF="#mda"><FONT SIZE=2>14</FONT></A></TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><P>Item 3.  Quantitative and Qualitative Disclosures About Market
Risk</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"></FONT><A HREF="#market"><FONT SIZE=2>20</FONT></A></TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><P>Item 4.  Controls and Procedures</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"></FONT><A HREF="#controls"><FONT SIZE=2>21</FONT></A></TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">&nbsp;</TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><B><P ALIGN="CENTER">Part II: Other Information</B></FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">&nbsp;</TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><P>Item 1A. Risk Factors</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"></FONT><A HREF="#item1a"><FONT SIZE=2>21</FONT></A></TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><P>Item 6.  Exhibits</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"></FONT><A HREF="#item6"><FONT SIZE=2>28</FONT></A></TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><P>Signatures</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"></FONT><A HREF="#sign"><FONT SIZE=2>29</FONT></A></TD>
</TR>
<TR><TD WIDTH="94%" VALIGN="TOP">
<FONT SIZE=2><P>Exhibit Index</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"></FONT><A HREF="#index"><FONT SIZE=2>30</FONT></A></TD>
</TR>
</TABLE>


<B><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">&nbsp;</P>
</B><FONT SIZE=2><P>&nbsp;</P>
<BR>
<BR>
<BR>
<HR WIDTH="85%">
<BR>
<BR>
<BR>
<P style="PAGE-BREAK-BEFORE: always" align=left>
<A NAME="bs"></A>
<B><p align="center">
                              Microvision, Inc.
<BR>
                    Consolidated Balance Sheet
<BR></B>
                  (In thousands, except per share data)
<BR>
                            (Unaudited)
<PRE>
<B>
                                                                                   September 30,   December 31,
                                                                                       2008           2007
                                                                                   -------------  -------------
Assets                                                                                                         </B>
Current assets
   Cash and cash equivalents                                                      $      30,991  $      13,399
   Investment securities, available-for-sale                                              6,222         22,411
   Accounts receivable, net of allowances of $73 and $123                                   169          1,885
   Costs and estimated earnings in excess of billings on uncompleted contracts                9            443
   Inventory                                                                              1,806            761
   Other current assets                                                                     996          1,180
                                                                                   -------------  -------------
   Total current assets                                                                  40,193         40,079

Property and equipment, net                                                               3,581          4,047
Restricted investments                                                                    1,475          1,125
Other assets                                                                                 48             47
                                                                                   -------------  -------------
   Total assets                                                                   $      45,297  $      45,298
                                                                                   =============  =============
                                                                                                               <B>
Liabilities and Shareholders' Equity                                                                           </B>
Current liabilities
   Accounts payable                                                               $       2,409  $       2,146
   Accrued liabilities                                                                    3,442          4,154
   Billings in excess of costs and estimated earnings on uncompleted contracts               71            970
   Liability associated with common stock warrants                                          524          2,657
   Current portion of capital lease obligations                                              41             44
   Current portion of long-term debt                                                         69             65
                                                                                   -------------  -------------
   Total current liabilities                                                              6,556         10,036
Capital lease obligations, net of current portion                                            54             88
Long-term debt, net of current portion                                                      340            393
Deferred rent, net of current portion                                                     1,487          1,720
                                                                                   -------------  -------------
   Total liabilities                                                                      8,437         12,237
                                                                                   -------------  -------------
Commitments and contingencies

Shareholders' equity
   Common stock, par value $.001; 125,000 shares authorized;
      68,044 and 56,730 shares issued and outstanding                                        68             57
   Additional paid-in capital                                                           318,983        292,374
   Accumulated other comprehensive income (loss)                                            (23)            51
   Accumulated deficit                                                                 (282,168)      (259,421)
                                                                                   -------------  -------------
   Total shareholders' equity                                                            36,860         33,061
                                                                                   -------------  -------------
   Total liabilities and shareholders' equity                                     $      45,297  $      45,298
                                                                                   =============  =============

</PRE>
<P ALIGN="CENTER">
The accompanying notes are an integral part of these financial statements.

<BR>
<BR>
<BR>
<HR WIDTH="85%">
<BR>
<BR>
<BR>
<P style="PAGE-BREAK-BEFORE: always" align=left>
<A NAME="ops"></A>
<B><p align="center">
                              Microvision, Inc.
<BR>
                     Consolidated Statement of Operations
<BR></B>
                  (In thousands, except per share data)
<BR>
                            (Unaudited)
<BR></B>

<PRE>
<B>
                                                                               Three Months Ended       Nine Months Ended
                                                                                   September 30,           September 30,
                                                                             ----------------------  ----------------------
                                                                                2008        2007        2008        2007
                                                                             ----------  ----------  ----------  ----------</B>
Contract revenue                                                            $      480  $    2,301  $    3,767  $    6,422
Product revenue                                                                    414         298       1,319       1,074
                                                                             ----------  ----------  ----------  ----------
    Total revenue                                                                  894       2,599       5,086       7,496
                                                                             ----------  ----------  ----------  ----------
Cost of contract revenue                                                           253       1,349       1,389       3,576
Cost of product revenue                                                            356         404       1,224       1,134
                                                                             ----------  ----------  ----------  ----------
    Total cost of revenue                                                          609       1,753       2,613       4,710
                                                                             ----------  ----------  ----------  ----------
Gross margin                                                                       285         846       2,473       2,786
                                                                             ----------  ----------  ----------  ----------


Research and development expense                                                 5,804       3,694      16,111      10,247
Sales, marketing, general and administrative expense                             3,456       3,691      11,694      11,328
                                                                             ----------  ----------  ----------  ----------
    Total operating expenses                                                     9,260       7,385      27,805      21,575
                                                                             ----------  ----------  ----------  ----------
Loss from operations                                                            (8,975)     (6,539)    (25,332)    (18,789)
Interest income                                                                    271         526         962         860
Interest expense                                                                   (11)        (14)        (36)       (499)
Impairment of investment securities, available-for-sale                           (300)         --        (300)         --
Gain (loss) on derivative instruments, net                                         585         883       2,004      (1,709)
Other expense                                                                      (13)         (8)        (45)        (25)
                                                                             ----------  ----------  ----------  ----------
Net loss before Lumera transactions                                             (8,443)     (5,152)    (22,747)    (20,162)

Gain on sale of investment in Lumera                                                --         434          --       6,397
                                                                             ----------  ----------  ----------  ----------
Net loss                                                                    $   (8,443) $   (4,718) $  (22,747) $  (13,765)
                                                                             ==========  ==========  ==========  ==========

Net loss per share - basic and diluted                                      $    (0.13) $    (0.08) $    (0.38) $    (0.29)
                                                                             ==========  ==========  ==========  ==========

Weighted-average shares outstanding - basic and diluted                         64,879      56,236      59,483      47,683
                                                                             ==========  ==========  ==========  ==========

</PRE>
<P ALIGN="CENTER">
The accompanying notes are an integral part of these financial statements.

<HR WIDTH="85%">
<BR>
<BR>
<BR>
<P style="PAGE-BREAK-BEFORE: always" align=left>
<A NAME="comploss"></A>
<B><p align="center">
                              Microvision, Inc.
<BR>
                     Consolidated Statement of Comprehensive Income (Loss)
<BR></B>
                             (In thousands)
<BR>
                            (Unaudited)
<BR></B>

<PRE>
<B>
                                                                               Three Months Ended       Nine Months Ended
                                                                                   September 30,           September 30,
                                                                             ----------------------  ----------------------
                                                                                2008        2007        2008        2007
                                                                             ----------  ----------  ----------  ----------</B>
Net loss                                                                    $   (8,443) $   (4,718) $  (22,747) $  (13,765)
                                                                             ----------  ----------  ----------  ----------
Other comprehensive gain (loss)
Unrealized gain (loss) on investment securities, available-for-sale                (35)        (65)        (74)     (1,943)
Less: reclassification adjustment for gains realized in net income                  --        (434)         --      (6,397)
                                                                             ----------  ----------  ----------  ----------
Net unrealized loss                                                                (35)       (499)        (74)     (8,340)
                                                                             ----------  ----------  ----------  ----------
Comprehensive loss                                                          $   (8,478) $   (5,217) $  (22,821) $  (22,105)
                                                                             ==========  ==========  ==========  ==========

</PRE>
<P ALIGN="CENTER">
The accompanying notes are an integral part of these financial statements.
<BR>
<HR WIDTH="85%">
<BR>
<BR>
<BR>
<P style="PAGE-BREAK-BEFORE: always" align=left>
<A NAME="flows"></A>
<B><p align="center">
                              Microvision, Inc.
<BR>
                    Consolidated Statement of Cash Flows
<BR></B>
                           (In thousands)
<BR>
                            (Unaudited)
<PRE>
<B>
                                                                                            Nine Months Ended
                                                                                               September 30,
                                                                                        ----------------------
                                                                                           2008        2007
                                                                                        ----------  ----------
Cash flows from operating activities                                                                          </B>
    Net loss                                                                           $  (22,747) $  (13,765)
    Adjustments to reconcile net loss to net cash used in operations:
        Depreciation                                                                          746         653
        Non-cash stock-based compensation expense                                           2,150       1,327
        Non-cash interest expense                                                              --         371
        Loss(gain) on derivative instruments                                               (2,004)      1,710
        Impairment of long-term investment securities                                         300          --
        Allowance for receivables from related parties                                       (240)         23
        Gain on sale of investment in Lumera                                                   --      (6,397)
        Net accretion of discount on short-term investments                                   (99)         --
        Non-cash deferred rent                                                               (206)       (207)
        Change in:
            Accounts receivable, net                                                        1,716         324
            Costs and estimated earnings in excess of billings on uncompleted contracts       434        (696)
            Inventory                                                                      (1,045)         19
            Other current assets                                                               55         391
            Other assets                                                                       (1)         (8)
            Accounts payable                                                                  298         243
            Accrued liabilities                                                              (754)       (683)
            Billings in excess of costs and estimated earnings on uncompleted contracts      (899)        109
                                                                                        ----------  ----------
            Net cash used in operating activities                                         (22,296)    (16,586)
                                                                                        ----------  ----------<B>
Cash flows from investing activities                                                                          </B>
    Sales of investment securities                                                         16,900          --
    Purchases of investment securities                                                       (986)    (21,590)
    Sales of restricted investment securities                                                  --       1,000
    Purchases of restricted investment securities                                            (350)     (1,061)
    Collections of receivables from related parties                                           240         227
    Sale of long-term investment - Lumera                                                      --       8,348
    Purchases of property and equipment                                                      (320)       (849)
                                                                                        ----------  ----------
            Net cash provided by (used in) investing activities                            15,484     (13,925)
                                                                                        ----------  ----------<B>
Cash flows from financing activities                                                                          </B>
    Principal payments under capital leases                                                   (32)        (34)
    Principal payments under long-term debt                                                   (49)        (44)
    Payments on notes payable                                                                  --      (1,400)
    Net proceeds from issuance of common stock and warrants                                24,485      35,921
                                                                                        ----------  ----------
            Net cash provided by financing activities                                      24,404      34,443
                                                                                        ----------  ----------
Net increase in cash and cash equivalents                                                  17,592       3,932
Cash and cash equivalents at beginning of period                                           13,399      14,552
                                                                                        ----------  ----------
Cash and cash equivalents at end of period                                             $   30,991  $   18,484
                                                                                        ==========  ==========<B>
Supplemental disclosure of cash flow information                                                              </B>
    Cash paid for interest                                                             $       36  $       77
                                                                                        ==========  ==========<B>
Supplemental schedule of non-cash investing and financing activities                                          </B>
    Other non-cash additions to property and equipment                                 $       11  $       32
                                                                                        ==========  ==========

    Issuance of common stock for payment of principal and interest
      on senior secured exchangeable convertible notes                                 $       --  $    1,388
                                                                                        ==========  ==========

</PRE>

<P ALIGN="CENTER">
The accompanying notes are an integral part of these financial statements.

<BR>
<HR WIDTH="85%">
<BR>
<BR>
<BR>
<P style="PAGE-BREAK-BEFORE: always" align=left>

<B><P ALIGN="CENTER"><A NAME="notes">MICROVISION, INC.</A><BR>
                  Notes to Consolidated Financial Statements<BR>
                  September 30, 2008<BR>
                  (Unaudited)</P>
</B>

<B><P>1.  MANAGEMENT'S STATEMENT AND PRINCIPLES OF CONSOLIDATION</P>
</B><U><P>Management's Statement</P>

</U><P>The Consolidated Balance Sheet as of September 30, 2008, the Consolidated
Statements of Operations and Comprehensive Loss for the three and nine months
ended September 30, 2008 and 2007 and the Consolidated Statements of Cash Flows
for the nine months ended September 30, 2008 and 2007 have been prepared by
Microvision, Inc. (the &quot;Company&quot; or &quot;Microvision&quot;) and have
not been audited.  In the opinion of management, all adjustments necessary to
state fairly the financial position at September 30, 2008 and the results of
operations, comprehensive loss and cash flows for all periods presented have
been made and consist of normal recurring adjustments.  Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules of the SEC.  You should read these condensed
financial statements in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2007.  The results of operations for the nine months ended
September 30, 2008 are not necessarily indicative of the operating results that
may be attained for the entire fiscal year.</P>

<P>At September 30, 2008, Microvision had $37.2 million in cash, cash
equivalents, and investment securities, available-for-sale.  Based on its
current operating plan, the Company believes that it has sufficient cash to fund
operations until late 2009.  Microvision will require additional cash to fund
its operating plan past that time. There can be no assurance that additional
cash will be available or that, if available, it will be available on terms
acceptable to Microvision on a timely basis.  If adequate funds are not
available to satisfy either short-term or long-term capital requirements,
Microvision will be required to limit its operations substantially.  This
limitation of operations may include reductions in staff, operating costs and
capital expenditures.  </P>

<B>
<P>2.  NET LOSS PER SHARE</P>
</B>
<P>Basic net loss per share is calculated on the basis of the weighted-average
number of common shares outstanding during the reporting periods.  Diluted net
loss per share is calculated on the basis of the weighted-average number of
common shares outstanding and taking into account the dilutive effect of all
potential common stock equivalents outstanding.  Potentially dilutive common
stock equivalents primarily consist of warrants and employee stock options.
Diluted net loss per share for the three and nine months ended September 30,
2008 and 2007 is equal to basic net loss per share because the effect of all
potential common stock outstanding during the periods, including convertible
debt, convertible preferred stock, options and warrants is anti-dilutive.  The
components of basic and diluted net loss per share were as follows (in
thousands, except loss per share data): </P>

<PRE>
<B>
                                                                              Three Months Ended           Nine Months Ended
                                                                                  September 30,              September 30,
                                                                          --------------------------  --------------------------
                                                                              2008          2007          2008          2007
                                                                          ------------  ------------  ------------  ------------</B>
Numerator:
Net loss available for common shareholders - basic and diluted           $     (8,443) $     (4,718) $    (22,747) $    (13,765)
                                                                          ============  ============  ============  ============

Denominator:
Weighted-average common shares outstanding - basic and diluted                 64,879        56,236        59,483        47,683
                                                                          ============  ============  ============  ============

Net loss per share - basic and diluted                                   $      (0.13) $      (0.08) $      (0.38) $      (0.29)
                                                                          ============  ============  ============  ============

</PRE>


<P>On September 30, 2008 and 2007, the Company excluded the following
convertible securities from diluted net loss per share as the effect of
including them would have been anti-dilutive: options and private warrants
convertible into a total of 16,464,000 and 9,442,000 shares of common stock and
125,000 and 0 shares of nonvested equity shares, respectively. </P>



<B>
<P>3.  INVESTMENT SECURITIES, AVAILABLE-FOR-SALE AND FAIR VALUE MEASUREMENTS
</P>

</B><P>The Company accounts for investment securities in accordance with the
provisions of Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities (&quot;FAS 115&quot;) and
Statement of Financial Accounting Standards No. 157, Fair Value Measurements
(&quot;FAS 157&quot;).  FAS 115 addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for investments in debt securities.  FAS 157 establishes a valuation framework
which defines fair value, provides guidance regarding the methods used for
measuring fair value, and expands disclosures about fair value measurements.</P>

<P>The Company's investment securities are comprised of commercial paper, U.S.
government and Agency securities, corporate bonds and auction-rate securities
(&quot;ARS&quot;).  The Company has classified its entire investment portfolio
as available-for-sale.  Available-for-sale securities are classified as current
assets or non-current assets on the Consolidated Balance Sheet and are stated at
fair value with unrealized gains and losses included in the Consolidated
Statement of Comprehensive Loss.  Dividend and interest income are recognized
when earned; realized gains and losses and other-than-temporary impairments are
recognized in the period incurred and are included separately in the
Consolidated Statement of Operations.  The cost of securities sold is based on
the specific identification method.</P>

<P>In September 2006, the FASB issued FAS 157.  FAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods of those fiscal years.  The Company adopted FAS 157
effective January 1, 2008.  The adoption of FAS 157 for financial assets and
liabilities did not have a material impact on the Company's consolidated
financial position, consolidated results of operations or consolidated cash
flows. </P>

<P>FAS 157 defines fair value as the exchange price (an exit price) that would
be received for an asset or paid to transfer a liability in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date.  FAS 157 also establishes a
three level fair value inputs hierarchy and requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when
measuring fair value.  The entity must also utilize market data and assumptions
it believes market participants would use in measuring the fair value of the
asset or liability, including assumptions about risks, the risks inherent in the
inputs and the valuation techniques.  The hierarchy is shown below:</P>

<P>Level 1 - Observable inputs such as quoted prices in active markets for
identical assets or liabilities,</P>

<P>Level 2 - Observable inputs, other than Level 1 prices, such as quoted prices
for similar assets or liabilities, quoted prices in markets that are not
sufficiently active to qualify as level 1, other observable inputs, or inputs
that can be corroborated by observable market data for substantially the full
term of the assets or liabilities.  </P>

<P>Level 3 - Unobservable inputs in which there is little or no market data,
which requires the company to develop its own assumptions which are significant
to the measurement of the fair values of the assets or liabilities.</P>

<P>The Company utilizes valuations reported by outside valuation services for
its debt securities when available.  The valuations are reviewed for
reasonableness before being accepted for financial reporting.  The Company has
reviewed the inputs and methodologies used by the services as a basis for its
accounting and disclosures in accordance with FAS 157.</P>

<P>The principal markets for the debt securities are dealer markets which have a
high level of price transparency.  The market participants for debt securities
are typically large money center banks and regional banks, brokers, dealers,
pension funds, and companies with debt investment portfolios.</P>

<P>Prior to June 30, 2008, the Company used the market approach to measure fair
values of its investments in all debt and equity securities and the income
approach for derivatives.  Under the market approach, prices and other relevant
information generated by market transactions involving identical or comparable
assets or liabilities are used to estimate values.  Under the income approach,
valuation techniques to convert future amounts to a single present amount are
used.  Due to continuing low liquidity and high variability of valuations and
inputs in the market for student loan ARS (&quot;SLARS&quot;) during the quarter
ended June 30, 2008, the Company determined the market did not have sufficient
market participant activity to continue supporting the market approach to value
its SLARS and changed from the market approach to using the income approach.</P>

<P>At September 30, 2008, the Company's marketable securities portfolio included
$3.0 million par value AAA rated SLARS.  The SLARS are long-term variable rate
bonds tied to short-term interest rates issued to fund government guaranteed
student loans.  Purchases, sales and interest rate resets for the Company's
SLARS are completed via a Dutch Auction process conducted every twenty-eight
days.  If insufficient clearing bids are submitted during the auction, the
auction has failed and the interest rates are reset to the &quot;maximum
rates&quot; , instead of &quot;auction rates&quot;, according to the specific
provisions of each of the SLARS.  In addition, the Company would continue
holding the SLARS until a subsequent successful auction or until sales are
completed on a secondary market.</P>

<P>As of December 31, 2007, the Company held $8.8 million aggregate par value of
ARS, $5.8 million in municipal ARS and $3.0 million in SLARS.  The $5.8 million
in municipal ARS was sold at par value during the period from February through
May 2008.</P>

<P>Since February, 2008, the auctions of the Company's SLARS have failed,
resulting in the SLARS being illiquid through the normal auction process during
this period. At the time of the Company's initial investment and through the
filing date of this report, the SLARS held by the Company have maintained the
following credit factors:</P>

<UL>
<LI>AAA rated, </LI>
<LI>guaranteed by the Federal Family Education Loan Program (&quot;FFELP&quot;)
and other federal and state student loan guarantee programs, </LI>
<LI>collateralized by the student loans funded with the SLARS proceeds and
collections thereon, </LI>
<LI>no declines in the credit ratings of the issuers; and, </LI>
<LI>no material changes in loan collection rates.  </LI></UL>


<P>Half of the Company's SLARS are insured by AMBAC, which has been AAA rated
from the time the SLARS were purchased, through the filing date of this report.
</P>

<P>Based on the length of the historical duration of failed SLARS auctions and
significant uncertainty of the prospective duration of lack of liquidity in the
SLARS market, the Company determined that the estimated fair value of the SLARS
no longer approximated par value and the impairments were other-than-temporary.
The Company used a discounted cash flow model, with rates adjusted for
liquidity, to determine the estimated fair values of the SLARS as of September
30, 2008.  The Company recorded an &quot;impairment of investment securities,
available-for-sale&quot; of $300,000 for the period ended September 30, 2008 on
the Consolidated Statement of Operations.  Based on utilizing a discounted cash
flow model with sufficiently significant unobservable input estimates, the
Company reclassified the SLARS from Level 2 to Level 3 of the FAS 157 fair value
hierarchy during the period ended September 30, 2008. The following table
summarizes the activity for those financial assets where fair value measurements
are estimated utilizing Level 3 inputs:</P>

<PRE><B>
                                                                                          SLARS
                                                                                      ------------                                          </B>
          Balance, December 31, 2007 and June 30, 2008                               $         --
          Transfer from Level 2 to Level 3, period ended September 30, 2008             3,000,000
          Realized loss included in earnings, period ended September 30, 2008            (300,000)
                                                                                      ------------
          Balance, September 30, 2008                                                   2,700,000
                                                                                      ============
</PRE>

<P>Assets and liabilities measured at fair value on a recurring basis in
accordance with FAS 157 are summarized below:</P>

<PRE><B>
                                                 Level 1       Level 2       Level 3        Total
                                               ------------  ------------  ------------  ------------</B>
Assets
    Equity securities                         $     16,000  $         --  $         --  $     16,000
    U.S. government and agency securities        3,506,000            --            --     3,506,000
    Auction-rate securities                             --            --     2,700,000     2,700,000
                                               ------------  ------------  ------------  ------------
                                              $  3,522,000  $         --  $  2,700,000  $  6,222,000
                                               ============  ============  ============  ============
Liabilities
    Liability associated with
        common stock warrants                               $    524,000                $    524,000
                                                             ============                ============

</PRE>
<P>The Company's investments in U.S. government and agency securities and equity
securities are classified within Level 1 of the fair value hierarchy because
they are valued using quoted market prices in active markets with sufficient
observability by market participants.  The liability associated with common
stock warrants is classified within Level 2 of the fair value hierarchy because
it is valued using the Black-Scholes option valuation method with inputs with
sufficient levels of observability to market participants.  Financial assets and
liabilities are classified in their entirety based on the lowest level of input
that is significant to the fair value measurement.  The Company's investments in
SLARS are classified within Level 3 of the fair value hierarchy because a
discounted cash flow model with sufficiently significant unobservable input
estimates is used to estimate fair values. </P>

<P>The Company's investments, warrants and liability associated with common
stock warrants are summarized below as of September 30, 2008 and December 31,
2007:</P>

<PRE><B>
                                              Cost/       Gross       Gross
                                            Amortized   Unrealized  Unrealized   Estimated
                                              Cost        Gains       Losses    Fair Value
                                           -----------  ----------  ----------  ----------- </B>
As of September 30, 2008:
  Assets
    Equity securities                          43,000          --     (27,000)      16,000
    U.S. government and agency securities   3,502,000       4,000          --    3,506,000
    Auction-rate securities                 2,700,000          --          --    2,700,000
    Warrants                                       --          --          --           --
                                           -----------  ----------  ----------  -----------
                                          $ 6,245,000  $    4,000  $  (27,000) $ 6,222,000
                                           ===========  ==========  ==========  ===========
  Liabilities
    Liability associated with
       common stock warrants                                                   $   524,000
                                                                                ===========

<B>
                                              Cost/       Gross       Gross
                                            Amortized   Unrealized  Unrealized   Estimated
                                              Cost        Gains       Losses    Fair Value
                                           -----------  ----------  ----------  ----------- </B>
As of December 31, 2007:
  Assets
    Corporate bonds and equity securities   9,074,000      54,000      (5,000)   9,123,000
    U.S. government and agency securities   4,486,000       3,000      (1,000)   4,488,000
    Auction-rate securities                 8,800,000          --          --    8,800,000
    Warrants                                       --          --          --      130,000
                                           -----------  ----------  ----------  -----------
                                          $22,360,000  $   57,000  $   (6,000) $22,541,000
                                           ===========  ==========  ==========  ===========
  Liabilities
    Liability associated with
        common stock warrants                                                  $ 2,657,000
                                                                                ===========

    </PRE>

<P>Changes in the fair values of the warrants and the liability associated with
common stock warrants are realized in the period of remeasurement and recorded
in Gain (loss) on derivative instruments, net in the Consolidated Statement of
Operations.</P>

<P>As of September 30, 2008, the unrealized gains on the Company's investments
in U.S. government and agency securities were due primarily to decreases in
prevailing interest rates and credit market conditions.</P>

<P>The realized gains and losses associated with the liability associated with
common stock warrants were primarily due to changes in the Microvision stock
price and decreasing terms to expiration.</P>

<B>

<P>4.  INVENTORY</P>

</B><P>Inventory at September 30, 2008 and December 31, 2007 consisted of the
following:</P>

<PRE>
<B>
                                                                          September 30,  December 31,
                                                                              2008          2007
                                                                          ------------  ------------                            </B>
Raw materials                                                            $    483,000  $    122,000
Work-in-process                                                                    --        10,000
Finished goods                                                              1,323,000       629,000
                                                                          ------------  ------------
                                                                         $  1,806,000  $    761,000
                                                                          ============  ============
</PRE>



<P>The inventory at September 30, 2008 and December 31, 2007 consisted of raw
materials, work-in-process, and finished goods for ROV, the Company's hand-held
bar code scanner.  Inventory is stated at the lower of cost or market, with cost
determined on a weighted-average basis.  Management periodically assesses the
need to provide for obsolescence of inventory and adjusts the carrying value of
inventory to its net realizable value when required.  In addition, Microvision
reduces the value of its inventory to its estimated scrap value when management
determines that it is not probable that the inventory will be consumed through
normal production during the next twelve months.  </P>
<B>

<P>5.  SHARE-BASED COMPENSATION </P>
</B>
<P>The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Statement of Financial Accounting Standards
No. 123, as revised December 2004 ("FAS 123(R)"). The Company accounts for
equity instruments issued to non-employees in accordance with the provisions of
Emerging Issues Task Force Issue No. 96-18 and FAS No. 123. The following table
shows the amount of stock-based employee compensation expense included in the
Consolidated Statement of Operations:</P>

<PRE><B>
                                                                             Three Months Ended            Nine Months Ended
                                                                                 September 30,               September 30,
                                                                          --------------------------  --------------------------
                                                                              2008          2007          2008          2007
                                                                          ------------  ------------  ------------  ------------</B>
Cost of contract revenue                                                 $      7,000  $     38,000  $     71,000  $    100,000
Cost of product revenue                                                         4,000        10,000        16,000        18,000
Research and development expense                                              167,000        96,000       614,000       244,000
Sales, marketing, general and administrative expense                          355,000       407,000     1,435,000       885,000
                                                                          ------------  ------------  ------------  ------------
Share-based employee compensation cost charged against income            $    533,000  $    551,000  $  2,136,000  $  1,247,000
                                                                          ============  ============  ============  ============

</PRE>

<U><P>Options Activity and Positions</P>
</U>
<P>The following table summarizes shares, weighted average exercise price,
weighted average remaining contractual term and aggregate intrinsic value of
options outstanding and options exercisable as of September 30, 2008: </P>

<PRE>
<B>
                                                                  Weighted
                                                                  Average
                                                      Weighted   Remaining
                                                       Average  Contractual   Aggregate
                                                      Exercise      Term      Intrinsic
Options                                  Shares         Price     (years)       Value
- ---------------------------------------- -----------  --------- ------------  ----------</B>
Outstanding as of September 30, 2008      6,954,000  $    4.01          7.6  $   72,000

Exercisable as of September 30, 2008      3,132,000  $    5.14          6.4  $   47,000

</PRE>

<P>As of September 30, 2008, the Company's unamortized share-based compensation
was $5,190,000.  The Company plans to amortize this share-based compensation
cost over the next 2.6 years. </P>

<P>As of September 30, 2008, the Company's unamortized nonvested equity share-
based compensation was $197,000.  The Company plans to amortize this nonvested
equity share-based compensation cost over the next 2.5 years.</P>


<B><P>6.  LONG-TERM NOTES</P>
</B>
<U><P>Tenant Improvement Loan Agreement</P>
</U>
<P>In February 2006, the Company entered into a loan agreement with the lessor
of the Company's corporate headquarters to finance $536,000 in tenant
improvements.  The loan carries a fixed interest rate of 9% per annum, is
repayable over the initial term of the lease, which expires in 2013, and is
secured by a letter of credit.  The balance of the loan, including interest
added to principal, was $409,000 at September 30, 2008.</P>


<B><P>7.  COMMON STOCK</P>
</B>
<P>In July 2008, the Company raised approximately $26.0 million, before issuance
costs of approximately $1.9 million, from the sale of 11,172,000 shares of
common stock and warrants to purchase 6,703,000 shares of its common stock. The
warrants have an exercise price of $3.60 per share, a five year term, and are
not exercisable for one year from the date of issuance. The Company can call the
warrants after one year from the date of issuance if the average closing bid
price of its stock is over $7.20 (200% of exercise price) for any 20 consecutive
trading days.</P>

<B>
<P>8.  RECEIVABLES FROM RELATED PARTIES</P>

</B><P>In 2000, 2001 and 2002, the Board of Directors authorized the Company to
provide unsecured lines of credit to each of the Company's three officers.  The
lines of credit carry interest rates of 5.4% to 6.2% and were due within one
year of the officer's termination.</P>

<P>In January 2006, two officers with outstanding loans left the Company and
their loans became due in January 2007.  In May 2007, the Company foreclosed on
50,000 shares of Lumera common stock pledged as collateral for one of the
officer's loans and sold the shares for net proceeds of $227,000.  A third
officer with outstanding loans left the Company in August 2007 and his loans
became due in August 2008.  </P>

<P>Under the terms of a settlement agreement with one of the former officers who
left in January 2006, the Company received payments of $240,000 in September
2008 and $1,000 subsequent to September 30, 2008.  The Company is pursuing
collection of the remaining outstanding balances from the other former officers.
As of September 30, 2008 and December 31, 2007, the total amount outstanding
under the lines of credit was $1,852,000 and $2,496,000, respectfully, and the
balances were fully reserved.   </P>


<B><P>9.  COMMITMENTS AND CONTINGENCIES</P>

<P>Litigation</P>

</B><P>The Company has sued its former CEO and President Richard Rutkowski and
his spouse to collect $1,733,000 in outstanding loans from the Company that were
due in January 2007 and remain unpaid. Counterclaims were filed by Mr. Rutkowski
and his spouse, seeking to recover damages in an amount in excess of
$15,000,000. The Company believes these claims are without merit and intends to
defend them vigorously. However, an adverse outcome could have a material
adverse affect on its financial condition.</P>

<P>The Company is subject to other various claims and pending or threatened
lawsuits in the normal course of business. The Company is not currently party to
any such other legal proceedings that management believes would have a material
adverse effect on the Company's financial position, results of operations or
cash flows.</P>
<B>

<P>10.  NEW ACCOUNTING PRONOUNCEMENTS</P>

</B><P>In October 2008, the FASB released a FASB Staff Position, FSP FAS 157-3&mdash;Determining
the Fair Value of a Financial Asset When The Market for That Asset
Is Not Active, to clarify the application of the provisions of FAS 157 in an
inactive market and how an entity would determine fair value in an inactive
market.  FSP FAS 157-3 was effective upon issuance, including prior periods for
which financial statements had not been issued. The implementation of this
standard did not have a material impact on the Company's consolidated financial
position and results of operations.</P>

<P>In February 2008, the FASB released a FASB Staff Position, FSP FAS 157-2-
Effective Date of FASB Statement No. 157, which delays the effective date of FAS
157 for all nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually) to fiscal years beginning after November 15, 2008.
The Company is currently assessing the financial impact of FSP FAS 157-2 on its
financial statements.</P>

<P>In June 2007, the Emerging Issues Task Force (EITF) reached a final consensus
on EITF Issue No. 07-1, Accounting for Collaborative Arrangements (EITF 07-1).
EITF 07-1 discusses how to determine whether an arrangement constitutes a
collaborative arrangement, how costs incurred and revenue generated on sales to
third parties should be reported by the participants, how an entity should
characterize payments made between participants and what participants should
disclose in the notes to the financial statements about a collaborative
arrangement. EITF 07-1 is effective for financial statements issued for fiscal
years beginning after December 15, 2008 and interim periods within those fiscal
years. The Company is currently assessing the financial impact of EITF 07-1 on
its financial statements.</P>



<B><P><A NAME="mda">ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS</P></A>
</B>
<U><P>Forward-Looking Statements</P>
</U>
<P>The information set forth in this report in Item 2, &quot;Management's
Discussion and Analysis of Financial Condition and Results of Operations,&quot;
and Item 3, &quot;Quantitative and Qualitative Disclosure about Market
Risk,&quot; includes &quot;forward-looking statements&quot; within the meaning
of Section 27A of the Securities Act of 1933, as amended (the &quot;Securities
Act&quot;), and Section 21E of the Securities Exchange Act of 1934, as amended
(the &quot;Exchange Act&quot;), and is subject to the safe harbor created by
that section.  Such statements may include, but are not limited to, projections
of revenues, income or loss, capital expenditures, plans for product development
and cooperative arrangements, future operations, financing needs or plans of
Microvision, as well as assumptions relating to the foregoing.  The words
&quot;anticipate,&quot; &quot;believe,&quot; &quot;estimate,&quot;
&quot;expect,&quot; &quot;goal,&quot; &quot;may,&quot; &quot;plan,&quot;
&quot;project,&quot; &quot;will,&quot; and similar expressions identify forward-
looking statements, which speak only as of the date the statement was made.
Factors that could cause actual results to differ materially from those
projected in our forward-looking statements include the following: our ability
to obtain financing; market acceptance of our technologies and products; our
financial and technical resources relative to those of our competitors; our
ability to keep up with rapid technological change; government regulation of our
technologies; our ability to enforce our intellectual property rights and
protect our proprietary technologies; the ability to obtain additional contract
awards and to develop partnership opportunities; the timing of commercial
product launches; the ability to achieve key technical milestones in key
products; and other risk factors identified in this report under the caption
&quot;Item 1A - Risk Factors.&quot;  </P>


<B><P ALIGN="CENTER">Overview</P>
</B>
<P>We are developing compact, low power, high-resolution displays and imaging
systems based on silicon micro-mirror technology. Our technology has potential
applications for a broad range of consumer, automotive, medical, industrial, and
military products.  Our proprietary technology platform combines bi-axial Micro-
Electrical Mechanical system (&quot;MEMS&quot;) light scanning technologies,
lasers, optics, electronics, with our system controls expertise to produce
compact display or imaging solutions that we anticipate will lead to
introduction of new applications and products in the consumer and automotive
markets.  Historically, we have entered into development agreements with
commercial and U.S. government customers to develop advanced prototype and
demonstration units based on our light scanning technologies.   </P>

<P>&#9;Our strategy is to design, develop and supply a proprietary display
engine called PicoP&trade;, relying primarily on original equipment
manufacturers (OEMs) to commercialize products based on our PicoP engine.  The
PicoP display engine is an ultra-miniature video projector capable of producing
large, color rich, high resolution images, but it is also small and low power
enough to be embedded directly into mobile devices, such as cell phones.  We are
also marketing PicoP-based miniature projection engines to OEMs to be embedded
into a variety of consumer products.  The primary goal for consumer display
applications is to provide mobile device users with a large screen, high
resolution viewing experience from their mobile devices. </P>

<P>&#9;We are currently developing a small accessory projector that would be the
first commercial product based on our PicoP display engine. The accessory
projector is expected to display images from a variety of video sources
including cell phones, portable media players (PMPs), PDAs, gaming consoles,
laptop computers, digital cameras, and other consumer electronics products.  It
would allow users to watch movies, play videos, and display photos and other
data onto a variety of flat or curved surfaces.   We expect that the accessory
product will be commercially available during the first half of 2009. </P>

<P>&#9;The PicoP display engine, with some modification, could be embedded into
a vehicle to create a heads up display (HUD) that could project point-by-point
navigation, critical operational, safety and other information important to the
vehicle operator.  In working with Tier 1 suppliers, we have produced prototypes
that demonstrate the PicoP's ability to project onto the windscreen of an
automobile a high-resolution image readable during day or night.</P>

<P>&#9;We believe that the PicoP display engine could also be modified to be
embedded into a pair of glasses to provide a mobile user with a see-through or
occluded personal display to view movies, play games or access other content.
We are working with the US Air Force to further develop the optical design and
integration of the PicoP display engine for military applications such as helmet
mounted displays and full color see-through eyewear.</P>

<B>
<U><P>Results of Operations </P>
</B></U>
<I><P>Contract revenue. </I> </P>

<PRE><B>
                                                  % of                  % of
                                                contract              contract
                                       2008      revenue     2007      revenue   $ change  % change
(in thousands)                       ---------  ---------  ---------  ---------  --------- ---------
Three months ended September 30                                                                     </B>
Government revenue                  $     376       78.3  $   1,773       77.1  $  (1,397)    (78.8)
Commercial revenue                        104       21.7        528       22.9       (424)    (80.3)
                                     ---------             ---------             ---------
Total contract revenue              $     480             $   2,301             $  (1,821)    (79.1)
                                     =========             =========             =========

Nine months ended September 30
Government revenue                  $   1,945       51.6  $   4,752       74.0  $  (2,807)    (59.1)
Commercial revenue                      1,822       48.4      1,670       26.0        152       9.1
                                     ---------             ---------             ---------
Total contract revenue              $   3,767             $   6,422             $  (2,655)    (41.3)
                                     =========             =========             =========

</PRE>


<P>We earn contract revenue from performance on development contracts with the
United States government and commercial customers. </P>

<P> We recognize contract revenue as work progresses on long-term, cost plus
fixed fee and fixed price contracts using the percentage-of-completion method,
which relies on estimates of total expected contract revenue and costs.  Our
revenue contracts generally include a statement of the work we are to complete
and the total fee we will earn from the contract.  When we begin work on the
contract and at the end of each accounting period, we work with the members of
our technical team to estimate the labor and material and other cost required to
complete the statement of work compared to cost incurred to date.  We use
information provided by project mangers, vendors, outside consultants and others
as we deem necessary to develop our cost estimates.  Since our contracts
generally require some level of technology development to complete, the actual
cost required to complete a statement of work can vary from our estimated cost
to complete.   We have developed processes that allow us to make reasonable
estimates of the cost to complete a contract.  Historically, we have made only
immaterial revisions in the estimates to complete the contract at each reporting
period. Recognized revenues are subject to revisions as the contract progresses
to completion and actual revenue and cost become certain.  Revisions in revenue
estimates are reflected in the period in which the facts that give rise to the
revision become known.  In the future, revisions in these estimates could
significantly impact recognized revenue in any one reporting period.  If the
U.S. Government cancels a contract, we would receive payment for work performed
and costs committed to prior to the cancellation.</P>

<P>Our contract revenue in a particular period is dependent upon when we enter
into a contract, the value of the contracts we have entered into, and the
availability of technical resources to perform work on the contracts.  Contract
revenue was lower during the three and nine months ended September 30, 2008 than
the same periods in 2007, due to the lower beginning contract backlog. </P>

<P>As long as most of our revenue is earned from performance on development
contracts, we believe there may be a high degree of variability in revenue from
quarter to quarter.</P>

<P>Our backlog of development contracts at September 30, 2008 was $336,000
compared to $5.3 million at September 30, 2007, all of which is scheduled for
completion during the next twelve months.  The decrease in backlog from 2007 is
primarily attributed to completion of government and commercial development
contracts in 2007 and early 2008.  We expect that we will have fewer
opportunities to enter into new development contracts as we move closer to the
commercialization of products based on our PicoP display engine.  </P>

<I>
<P>Product revenue</I>. </P>

<PRE><B>
                                                  % of                  % of
                                                 product               product
                                       2008      revenue     2007      revenue   $ change  % change
(in thousands)                       ---------  ---------  ---------  ---------  --------- ---------
Three months ended September 30                                                                     </B>
Bar code revenue                    $     414      100.0  $     272       91.3  $     142      52.2
Nomad revenue                              --         --         26        8.7        (26)   (100.0)
                                     ---------             ---------             ---------
Total product revenue               $     414             $     298             $     116      38.9
                                     =========             =========             =========

Nine months ended September 30
Bar code revenue                    $   1,319      100.0  $     998       92.9  $     321      32.2
Nomad revenue                              --         --         76        7.1        (76)   (100.0)
                                     ---------             ---------             ---------
Total product revenue               $   1,319             $   1,074             $     245      22.8
                                     =========             =========             =========
</PRE>

<P>Our quarterly product revenue may vary substantially due to the timing of
product orders from customers, production constraints and raw material
availability.  The increase in bar code revenue for the three and nine months
ended September 30, 2008 compared to the same periods in 2007 was due to the
increased sales activity surrounding the ROV product line.</P>

<P>The backlog of product orders at September 30, 2008 was approximately
$311,000, compared to $391,000 at June 30, 2007, all of which is scheduled for
delivery during the next twelve months. </P>


<I><P>Cost of contract revenue</I>. </P>

<PRE><B>
                                                  % of                  % of
                                                contract              contract
                                       2008      revenue     2007      revenue   $ change  % change
(in thousands)                       ---------  ---------  ---------  ---------  --------- ---------</B>
Three months ended September 30     $     253       52.7  $   1,349       58.6  $  (1,096)    (81.2)
Nine months ended September 30          1,389       36.9      3,576       55.7     (2,187)    (61.2)
</PRE>


<P>Cost of contract revenue includes both the direct and allocated indirect
costs of performing on development contracts.  Direct costs include labor,
materials and other costs incurred directly in performing on a contract.
Indirect costs include labor and other costs associated with operating our
research and development department and building our technical capabilities and
capacity.  Cost of contract revenue is determined both by the level of direct
costs incurred on development contracts and by the level of indirect costs
incurred in operating and building our technical capabilities and capacity.
Both the direct and indirect costs can fluctuate substantially from period to
period.</P>

<P>The cost of contract revenue as a percentage of revenue was lower during the
three and nine months ended September 30, 2008 than September 30, 2007 as a
result of negotiating better terms on contracts entered into in late 2007.  We
target a gross margin for each contract of at least 40%; however, the gross
margin can vary based on the technical challenges encountered in completing the
contract.</P>

<P>The cost of revenue as a percentage of revenue can fluctuate significantly
from period to period, depending on the contract cost mix and the levels of
direct and indirect costs incurred.  However, over longer periods of time we
expect modest fluctuations in the cost of contract revenue, as a percentage of
contract revenue.</P>

<I>
<P>Cost of product revenue</I>.  </P>

<PRE><B>
                                                  % of                  % of
                                                 product               product
                                       2008      revenue     2007      revenue   $ change  % change
(in thousands)                       ---------  ---------  ---------  ---------  --------- ---------</B>
Three months ended September 30     $     356       86.0  $     404      135.6  $     (48)    (11.9)
Nine months ended September 30          1,224       92.8      1,134      105.6         90       7.9
</PRE>

<P>Cost of product revenue includes both the direct and allocated indirect costs
of manufacturing products sold to customers.  Direct costs include labor,
materials and other costs incurred directly in the manufacture of these
products.  Indirect costs include labor and other costs associated with
operating our manufacturing capabilities and capacity. </P>

<P>Our overhead, which includes the costs of procuring, inspecting and storing
material, facility and depreciation costs, is allocated to inventory, cost of
product revenue, cost of contract revenue, and research and development expense
based on the proportion of direct material purchased for the respective
activity.  During the three months ending September 30, 2008 and 2007, we
expensed approximately $40,000 and $71,000, respectively, of manufacturing
overhead associated with production capacity in excess of production
requirements.</P>

<P>We expect that cost of product revenue on an absolute dollar basis will
increase in the future.  This increase will likely result from expected sales of
commercial products.  The cost of product revenue as a percentage of product
revenue can fluctuate significantly from period to period, depending on the
product mix, the level of overhead expense and the volume of direct materials
purchased.  </P>

<I><P>Research and development expense.</I>  </P>

<PRE><B>

                                       2008       2007     $ change   % change
(in thousands)                       ---------  ---------  ---------  ---------                     </B>
Three months ended September 30     $   5,804  $   3,694  $   2,110       57.1
Nine months ended September 30         16,111     10,247      5,864       57.2
</PRE>

<DIR>

<P>Research and development expense consists of:</P>

</DIR>


<UL>


<LI>Compensation related costs of employees and contractors engaged in internal
research and product development activities,</LI>
<LI>Laboratory operations, outsourced development and processing work, and</LI>
<LI>Other operating expenses. </LI>
</UL>



<P>We have increased spending in research and development as part of our
strategy to accelerate the time to market for products based on the PicoP.   The
increase in cost is primarily attributable to increases in payroll costs and
contracted services.</P>

<P>In addition, we allocate our research and development resources based on the
business opportunity of the available projects, the skill mix of the resources
available and the contractual commitments we have made to customers.  In order
to accelerate our time to market and because contract revenue was lower for the
three and nine months ended September 30, 2008 compared to the same periods in
2007, we directed more of our research and development work to internally funded
projects compared to the same period last year. </P>

<P>We believe that a substantial level of continuing research and development
expense will be required to develop additional commercial products using the
scanned beam display technology.  Accordingly, we anticipate our level of
research and development spending will continue to be substantial.  </P>

<I>
<P>Sales, marketing, general and administrative expense.</I>  </P>

<PRE><B>

                                       2008       2007     $ change   % change
(in thousands)                       ---------  ---------  ---------  ---------                     </B>
Three months ended September 30     $   3,456  $   3,691  $    (235)      (6.4)
Nine months ended September 30         11,694     11,328        366        3.2
</PRE>



<P>Sales, marketing, general and administrative expense includes compensation
and support costs for marketing, sales, management and administrative staff, and
for other general and administrative costs, including legal and accounting
services, consultants and other operating expenses.</P>

<P>The increase in sales, marketing, general and administrative expense for the
nine months ended September 30, 2008 compared to the same period in 2007 was the
result of increased payroll costs and marketing costs associated with our
commercial products.</P>

<I><P>Interest income.  </P>
</I>
<PRE><B>

                                       2008       2007     $ change   % change
(in thousands)                       ---------  ---------  ---------  ---------                     </B>
Three months ended September 30     $     271  $     526  $    (255)     (48.5)
Nine months ended September 30            962        860        102       11.9
</PRE>

<P>The decrease in interest income for the three months ended September 30, 2008
resulted primarily from lower interest rates on our investment securities
compared to the same period in 2007.  The increase in interest income for the
nine months ended September 30, 2008 compared to the same period in 2007
resulted primarily from higher average cash and investment securities
balances.</P>


<I><P>Interest expense.  </P>
</I>
<PRE><B>

                                       2008       2007     $ change   % change
(in thousands)                       ---------  ---------  ---------  ---------                     </B>
Three months ended September 30     $      11  $      14  $      (3)     (21.4)
Nine months ended September 30             36        499       (463)     (92.8)
</PRE>



<P>In March and December 2005, we issued convertible notes (the &quot;2005
Notes&quot;) with an aggregate principal amount of $20 million.  The last
payment on the 2005 Notes was made in March 2007, resulting in a decrease in
interest expense for the nine months ended September 30, 2008 compared to the
same period in 2007.</P>

<I><P>Impairment of investment, available-for-sale.  </P>
</I>

<PRE><B>

                                       2008       2007     $ change   % change
(in thousands)                       ---------  ---------  ---------  ---------                     </B>
Three months ended September 30     $    (300) $      --  $    (300)        n/a
Nine months ended September 30           (300)        --       (300)        n/a
</PRE>

<P>At September 30, 2008, our marketable securities portfolio included $3.0
million par value AAA rated student loan auction-rate securities
(&quot;SLARS&quot;).  Based on the length of the historical duration of failed
SLARS auctions and significant uncertainty of the prospective duration of
inactivity and lack of liquidity in the SLARS market, we determined that the
estimated fair values of the SLARS were less than par value and the impairments
were other-than-temporary.  We used a discounted cash flow model, with rates
adjusted for liquidity, to determine the estimated fair values of the SLARS as
of September 30, 2008.  We recorded an &quot;impairment of investment
securities, available-for-sale&quot; of $300,000 for the period ended September
30, 2008.  </P>

<I><P>Gain (loss) on derivative instruments, net. </P></I>

<PRE><B>

                                       2008       2007     $ change   % change
(in thousands)                       ---------  ---------  ---------  ---------                     </B>
Three months ended September 30     $     585  $     883  $    (298)     (33.7)
Nine months ended September 30          2,004     (1,709)     3,713     (217.3)
</PRE>



<P>We issued warrants to purchase 2,302,000 shares of common stock in
connection with the issuance of the 2005 Notes.  The warrants met the definition
of derivative instruments that must be accounted for as liabilities under the
provisions of Emerging Issues Task Force Issue No. 00-19, <I>Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock, </I>because we cannot engage in certain corporate
transactions affecting the common stock unless we make a cash payment to the
holders of the warrants.  In July, 2008, warrants to purchase 750,000 shares of
common stock expired unexercised.  We record changes in the fair values of the
warrants in the statement of operations each period.  <A NAME="OLE_LINK1"><A
NAME="OLE_LINK2">We valued the remaining warrants to purchase 1,552,000 shares
of common stock at September 30, 2008 using the Black-Scholes option-pricing
model with the following assumptions:  expected volatility of 69%; expected
dividend yields of 0%; risk free interest rates ranging from 1.9% to 2.1%; and
contractual lives ranging from 1.5 years to 2.2 years.  The changes in value of
the warrants of $599,000 for the three months and $2,134,000 for the nine months
ended September 30, 2008 were recorded as non-operating gains and are included
in "Gain (loss) on derivative instruments, net" in the consolidated statement of
operations.  </A></A>We valued the warrants at September 30, 2007 using the
Black-Scholes option-pricing model with the following assumptions:  expected
volatilities of 68%; expected dividend yields of 0%; risk free interest rates
ranging 3.9% to 4.1%; and contractual lives ranging from 0.8 years to 3.2 years.
The change in value of the warrants of $927,000 for the three months ended
September 30, 2007 was recorded as a non-operating gain and is included in "Gain
(loss) on derivative instruments, net" in the consolidated statement of
operations.  The change in value of the warrants of $1,493,000 for the nine
months ended September 30, 2007 was recorded as a non-operating loss and is
included in "Gain (loss) on derivative instruments, net" in the consolidated
statement of operations.</P>

<P>In January 2006, we acquired warrants to purchase 170,500 shares of Lumera
common stock.  The warrants were valued using the Black-Scholes option-pricing
model with the following assumptions:  expected volatility of 83%; expected
dividend yield of 0%; risk free interest rate of 4.55%; and contractual life of
5.1 years.  Changes in the fair value of the warrants are recorded in the
statement of operations each period.  As of September 30, 2008, the warrants
were valued using the Black-Scholes option-pricing model with the following
assumptions:  expected volatilities of 127%; expected dividend yields of 0%;
risk free interest rates of 2.13%; and contractual lives of 2.5 years.  As of
September 30, 2008, the fair value of the warrants decreased to $0 from $130,000
at December 31, 2007 and the changes in value of $14,000 and $130,000 for the
three and nine months ended September 30, 2008, respectively, were recorded as
non-operating losses and are included in &quot;Gain (loss) on derivative
instruments, net&quot; in the consolidated statement of operations.  As of
September 30, 2007, the warrants were valued using the Black-Scholes option-
pricing model with the following assumptions:  expected volatility of 83%;
expected dividend yields of 0%; risk free interest rates of 4.1%; and
contractual lives of 3.5 years.  The changes in value of $44,000 and $284,000
for the three and nine months ended September 30, 2007, respectively, were
recorded as non-operating losses and are included in &quot;Gain (loss) on
derivative instruments, net&quot; in the consolidated statement of
operations.</P>


<U><P>Liquidity and Capital Resources</P>
</U>
<P>We have funded our operations to date primarily through the sale of equity
and debt securities and, to a lesser extent, from development contract revenues
and product sales.  At September 30, 2008, we had $37.2 million in cash, cash
equivalents and investment securities, available-for-sale.  In July 2008, we
raised approximately $26.0 million, before issuance costs of approximately $1.9
million, from the sale of 11.2 million shares of common stock and warrants to
purchase 6.7 million shares of our common stock.  The warrants have an exercise
price of $3.60 per share, a five year term, and are not exercisable for one year
from the date of issuance. We can call the warrants after one year from the date
of issuance if the average closing bid price of our stock is over $7.20 (200% of
exercise price) for any 20 consecutive trading days.  Based on our</FONT><FONT
SIZE=2 COLOR="#000080"> </FONT><FONT SIZE=2>current operating plan, we believe
we have sufficient cash to fund operations until late 2009.  We will require
additional cash to fund our operating plan past that time.  There can be no
assurance that additional financing will be available to us or that, if
available, it will be available on terms acceptable to us on a timely basis.  If
adequate funds are not available to satisfy either short-term or long-term
capital requirements, we will be required to limit our operations substantially.
This limitation of operations may include reductions in staff, operating costs
and capital expenditures.  </P>

<P>Cash used in operating activities totaled $22.3 million during the nine
months ended September 30, 2008, compared to $16.6 million during the same
period in 2007.  In both periods, cash used in operating activities for both
periods resulted primarily from the loss from operations.</P>

<P>We had the following material gains and charges, and changes in assets during
the nine months ended September 30, 2008:</P>

<UL>
<I><LI>&quot;Impairment of investment securities, available-for-sale&quot;
</I>We recorded a $300,000 other-than-temporary charge to record an impairment
of our student loan auction-rate securities.</LI>
<I><LI>&quot;Non-cash stock-based compensation expense&quot;  </I>We granted
fully vested options to purchase 339,000 shares of common stock under the 2006
Incentive Plan, which resulted in $431,000 of non-cash compensation expense
during nine months ended September 30, 2008.  </LI>
<I><LI>&quot;Loss (gain) on derivative instruments&quot;  </I>In connection with
the issuance of the 2005 Notes, we issued warrants to purchase 2,302,000 shares
of common stock. Due to changes in the stock price and remaining life of the
warrants, we recognized a $2.2 million non-operating gain during the nine months
ended September 30, 2008.</LI>
<I><LI>&quot;Inventory&quot;   </I>Inventory increased by $1.0 million to $1.8
million from $761,000 as a result of purchasing finished goods and raw materials
to support the Rov product line.</LI>
<I><LI>&quot;Accounts receivable&quot;</I>  During the nine months ended
September 30, 2008, we received payments totaling $1.0 million from two
commercial customers for work that was performed in 2007.</LI>
<I><LI>&quot;Accruals&quot; </I> During the nine months ended September 30,
2008, we made payments totaling $1.0 million for employee bonuses earned in
2007.</LI></UL>


<P>Cash provided by investing activities totaled $15.5 million during the nine
months ended September 30, 2008, compared to cash used in investing activities
of $13.9 million during the same period of 2007.  During the nine months ended
September 30, 2008, we had net sales of investment securities totaling $15.9
million compared to net purchases of investment securities of $21.6 million
during the nine months ended September 30, 2007.  During the nine months ended
September 30, 2007, we sold 1.6 million shares of Lumera common stock for $8.4
million.  In addition, we used cash of $320,000 for capital expenditures during
the nine months ended September 30, 2008, compared to $849,000 during the same
period in 2007.</P>

<P>Cash provided by financing activities totaled $24.4 million during the nine
months ended September 30, 2008, compared to $34.4 million during the same
period in 2007.  The last scheduled payment on our 2005 Notes of $1.4 million
was made in March of 2007. </P>


<B><P><A NAME="market">ITEM 3.  QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK</P></A>
</B>
<P>Of our total cash equivalents and investment securities available-for-sale
balance, 90% have variable interest rates and, as such, the fair values of the
principal of these instruments are not affected by changes in market interest
rates.  The remaining 10% of our cash equivalents and investment securities
available-for-sale balance are at fixed interest rates and, as such, the fair
values of these instruments are affected by changes in market interest rates.
Due to the generally short-term maturities of these investment securities, we
believe that the market risk arising from our holdings of these financial
instruments is not material.  </P>

<P>Our investment policy restricts investments to ensure principal preservation
and liquidity.  The investment securities portfolio is comprised of short-term
highly rated commercial paper, U.S. government agency notes and auction-rate
securities.</P>

<P>At September 30, 2008, our marketable securities portfolio included $3.0
million par value AAA rated student loan auction-rate debt securities
(&quot;SLARS&quot;).  SLARS are long-term variable rate bonds tied to short-term
interest rates issued to fund government guaranteed student loans.  Purchases,
sales and interest rate resets for our SLARS are completed via a Dutch Auction
process conducted every twenty-eight days.   If insufficient clearing bids are
submitted during the auction, the auction has failed and the interest rates are
reset to the &quot;maximum rates&quot;, instead of &quot;auction rates&quot;,
according to the specific provisions of each of the SLARS.  In addition, we
would continue holding the SLARS until a subsequent successful auction or until
sales are completed on a secondary market.</P>

<P>At the time of our initial investment and through the filing date of this
report, the SLARS that we hold remain AAA rated, collateralized by the Federal
Family Education Loan Program (&quot;FFELP&quot;) and other federal and state
student loan guarantee programs, and there have been no declines in the credit
ratings of the issuers or material changes in loan collection rates.  Our $3.0
million of auction-rate securities have been subject to failed auctions in 2008
as a result of the current negative liquidity conditions in the global credit
markets.  The failed auctions have rendered these securities temporarily
illiquid through the normal auction process.    AMBAC is the insurer on 50% of
the auction-rate securities that we hold.   As of September 30, 2008, AMBAC
continued to be rated AAA.  In addition, all of the auction-rate securities that
we have sold through September 30, 2008, totaling $5.8 million, have been sold
at par value.  </P>

<P>Based on the length of the historical duration of failed SLARS auctions and
significant uncertainty of the prospective duration of inactivity and lack of
liquidity in the SLARS market, we determined that the estimated fair values of
the SLARS were less than par value and the impairments were other-than-temporary.
We used a discounted cash flow model, with rates adjusted for
liquidity, to determine the estimated fair values of the SLARS as of September
30, 2008.  We recorded an &quot;impairment of investment securities, available-for-sale&quot;
of $300,000 for the period ended September 30, 2008 on the
Consolidated Statement of Operations. </P>

<P>Any continuation or worsening of the current global ecomomic and financial
conditions could materially adversely affect our ability to raise, or the cost of,
needed capital and could materially adversely affect our ability to
commercialize products. </P>

<P>The values of cash equivalents and investment securities, available-for-sale,
by maturity date as of September 30, 2008, are as follows (in thousands): </P>

<PRE>
<B>
                                      Amount      Percent
                                     ---------  ---------</B>
Cash and cash equivalents           $  31,011      83.33%
Less than one year                         --         --
One to two years                        3,502       9.41%
Greater than five years                 2,700       7.26%
                                     ---------  ---------
                                    $  37,213     100.00%
                                     =========  =========

</PRE>

<P>All of the Company's development contract payments are made in U.S. dollars.
However, in the future the Company may enter into additional development
contracts in foreign currencies that may subject the Company to foreign exchange
rate risk.  The Company intends to enter into foreign currency hedges to offset
the exposure to currency fluctuations when it can determine the timing and
amounts of the foreign currency exposure.</P>

<B>
<P>ITEM 4. <A NAME="controls">CONTROLS AND PROCEDURES</A></P>
</B>
<P>Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we have
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by
this report and, based on this evaluation, our principal executive officer and
principal financial officer have concluded that these disclosure controls and
procedures are effective.  There were no changes in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) that occurred
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.</P>


<B><P>PART II</P>
</B>
<B><P ALIGN="CENTER">OTHER INFORMATION</P>
</B>
<B><P><A NAME="item1a">ITEM 1A </B>- <B>RISK FACTORS</A></P>
</B>

<B><P>Risk Factors Relating to the Microvision Business</P>
</B>
<B><P>We have a history of operating losses and expect to incur significant
losses in the future. </P>
</B>
<P>We have had substantial losses since our inception.  We cannot assure you
that we will ever become or remain profitable. </P>


<UL>


<LI>As of September 30, 2008, we had an accumulated deficit of $282.2 million.
</LI>
<LI>We incurred consolidated net losses of $215.7 million from inception through
2005, $24.0 million in 2006, $19.8 million in 2007, and consolidated net loss of
$22.7 million in the nine months ended September 30, 2008.</LI>
</UL>


<P>The likelihood of our success must be considered in light of the expenses,
difficulties and delays frequently encountered by companies formed to develop
and market new technologies.  In particular, our operations to date have focused
primarily on research and development of the scanned beam technology and
development of demonstration units.  We are unable to accurately estimate future
revenues and operating expenses based upon historical performance. </P>

<P>We cannot be certain that we will succeed in obtaining additional development
contracts or that we will be able to obtain substantial customer orders for our
products.  In light of these factors, we expect to continue to incur substantial
losses and negative cash flow at least through 2009 and likely thereafter.  We
cannot be certain that we will achieve positive cash flow at any time in the
future. </P>


<B><P>We will require additional capital to fund our operations and to implement
our business plan.  If we do not obtain additional capital, we may be required
to curtail our operations substantially.  Raising additional capital may dilute
the value of current shareholders' shares. </P>
</B>
<P>Based on our current operating plan, we believe we have sufficient cash to
fund operations until late 2009.  We will require additional cash to fund our
operating plan past that time. We plan to obtain additional cash through the
issuance of equity or debt securities. We will require additional capital in the
future to fund our operations, including to: </P>


<UL>


<LI>Further develop the technology platform and PicoP display engine, </LI>
<LI>Develop and protect our intellectual property rights, and </LI>
<LI>Fund long-term marketing and business development opportunities.</LI>
</UL>



<P>Our capital requirements will depend on many factors, including, but not
limited to, the rate at which we can, directly or through arrangements with
original equipment manufacturers, introduce products incorporating the PicoP
display engine and image capture technologies and the market acceptance and
competitive position of such products.  If revenues are less than we anticipate,
if the level and mix of revenues vary from anticipated amounts and allocations
or if expenses exceed the amounts budgeted, we may require additional capital
earlier than expected to further the development of our technologies, for
expenses associated with product development, and to respond to competitive
pressures or to meet unanticipated development difficulties.  In addition, our
operating plan provides for the development of strategic relationships with
systems and equipment manufacturers that may require additional investments by
us. </P>

<P>Additional capital may not be available to us, or if available, on terms
acceptable to us or on a timely basis.  Raising additional capital may involve
issuing securities with rights and preferences that are senior to our common
stock and may dilute the value of current shareholders' shares.  If adequate
funds are not available to satisfy long-term capital requirements, we may be
required to limit our operations substantially.  This limitation of operations
may include reductions in staff and operating costs as well as reductions in
capital expenditures and investment in research and development.  </P>

<B><P>We cannot be certain that our technology platform or products
incorporating our PicoP display engine will achieve market acceptance.  If
products incorporating the PicoP display engine do not achieve market
acceptance, our revenues may not grow.</P>
</B>
<P>Our success will depend in part on customer acceptance of the PicoP display
engine.  The PicoP display engine may not be accepted by manufacturers who use
display technologies in their products, by systems integrators who incorporate
our products into their products or by end users of these products.  To be
accepted, the PicoP display engine must meet the expectations of our potential
customers in the defense, industrial, medical and consumer markets.  If our
technology fails to achieve market acceptance, we may not be able to continue to
develop our technology platform.</P>

<B><P>It may become more difficult to sell our stock in the public market.</P>
</B>
<P>Our common stock is listed for quotation on The NASDAQ Global Market.  To
keep our listing on this market, we must meet NASDAQ's listing maintenance
standards.  If we are unable to continue to meet NASDAQ's listing maintenance
standards, our common stock could be delisted from The NASDAQ Global Market.  If
our common stock were delisted, we likely would seek to list the common stock on
the NASDAQ Capital Market, the American Stock Exchange or on a regional stock
exchange.  Listing on such other market or exchange could reduce the liquidity
for our common stock.  If our common stock were not listed on the Capital Market
or an exchange, trading of our common stock would be conducted in the over-the-
counter market on an electronic bulletin board established for unlisted
securities or directly through market makers in our common stock.  If our common
stock were to trade in the over-the-counter market, an investor would find it
more difficult to dispose of, or to obtain accurate quotations for the price of,
the common stock.  A delisting from The NASDAQ Global Market and failure to
obtain listing on such other market or exchange would subject our securities to
so-called penny stock rules that impose additional sales practice and market-
making requirements on broker-dealers who sell or make a market in such
securities.  Consequently, removal from The NASDAQ Global Market and failure to
obtain listing on another market or exchange could affect the ability or
willingness of broker-dealers to sell or make a market in our common stock and
the ability of purchasers of our common stock to sell their securities in the
secondary market.  In addition, when the market price of our common stock is
less than $5.00 per share, we become subject to penny stock rules even if our
common stock is still listed on The NASDAQ Global Market.  While the penny stock
rules should not affect the quotation of our common stock on The NASDAQ Global
Market, these rules may further limit the market liquidity of our common stock
and the ability of investors to sell our common stock in the secondary market.
At some point during all four quarters of 2006 and 2007 and the first three
quarters of 2008, the market price of our stock traded below $5.00 per share.
On October 31, 2008, the closing price of our stock was $1.73.</P>

<B><P>Our lack of the financial and technical resources relative to our
competitors may limit our revenues, potential profits, overall market share or
value.</P>
</B>
<P>Our current products and potential future products will compete with
established manufacturers of existing products and companies developing new
technologies.  Many of our competitors have substantially greater financial,
technical and other resources than we have.  Because of their greater resources,
our competitors may develop products or technologies that are superior to our
own.  The introduction of superior competing products or technologies could
result in reduced revenues, lower margins or loss of market share, any of which
could reduce the value of our business.</P>

<B><P>We may not be able to keep up with rapid technological change and our
financial results may suffer.</P>
</B>
<P>The information display industry has been characterized by rapidly changing
technology, accelerated product obsolescence and continuously evolving industry
standards.  Our success will depend upon our ability to further develop our
technology platform and to cost effectively introduce new products and features
in a timely manner to meet evolving customer requirements and compete with
competitors' product advances.</P>

<P>We may not succeed in these efforts because of:</P>

<UL>

<LI>delays in product development,</LI>
<LI>lack of market acceptance for our products, or</LI>
<LI>lack of funds to invest in product development and marketing.</LI>
</UL>


<P>The occurrence of any of the above factors could result in decreased
revenues, market share and value.</P>

<B><P>We could face lawsuits related to our use of the PicoP display engine or
other technologies.  Defending these suits would be costly and time consuming.
An adverse outcome in any such matter could limit our ability to commercialize
our technology and products, reduce our revenues and increase our operating
expenses.</P>
</B>
<P>We are aware of several patents held by third parties that relate to certain
aspects of light scanning displays and image capture products.  These patents
could be used as a basis to challenge the validity, limit the scope or limit our
ability to obtain additional or broader patent rights of our patents or patents
we have licensed.  A successful challenge to the validity of our patents or
patents we have licensed could limit our ability to commercialize our technology
and the PicoP display engine and, consequently, materially reduce our revenues.
Moreover, we cannot be certain that patent holders or other third parties will
not claim infringement by us with respect to current and future technology.
Because U.S. patent applications are held and examined in secrecy, it is also
possible that presently pending U.S. applications will eventually be issued with
claims that will be infringed by our products or our technology.  The defense
and prosecution of a patent suit would be costly and time consuming, even if the
outcome were ultimately favorable to us.  An adverse outcome in the defense of a
patent suit could subject us to significant cost, to require others and us to
cease selling products that incorporate the PicoP display engine, to cease
licensing our technology or to require disputed rights to be licensed from third
parties.  Such licenses, if available, would increase our operating expenses.
Moreover, if claims of infringement are asserted against our future co-
development partners or customers, those partners or customers may seek
indemnification from us for damages or expenses they incur.</P>

<B><P>Our planned future products are dependent on advances in technology by
other companies.</P>
</B>
<P>We rely on and will continue to rely on technologies, such as light sources,
MEMS and optical components that are developed and produced by other companies.
The commercial success of certain of our planned future products will depend in
part on advances in these and other technologies by other companies.  We may,
from time to time, contract with and support companies developing key
technologies in order to accelerate the development of them for our specific
uses.  There are no guarantees that such activities will result in useful
technologies or components for us.</P>

<B><P>Our products may be subject to future health and safety regulations that
could increase our development and production costs.</P>
</B>
<P>Products incorporating the PicoP display engine could become subject to new
health and safety regulations that would reduce our ability to commercialize the
PicoP display engine.  Compliance with any such new regulations would likely
increase our cost to develop and produce products using the PicoP display engine
and adversely affect our financial results.</P>

<B><P>Our dependence on sales to distributors increases the risks of managing
our supply chain and may result in excess inventory or inventory shortages.</P>
</B>
<P>Currently, the majority of our distributor relationships for the ROV Scanner
and its accessories involve the distributor taking inventory positions and
reselling to multiple customers.  With these distributor relationships, we do
not recognize revenue until the distributors sell the product through to their
end user customers.  Our distributor relationships do reduce our ability to
forecast sales and increases risks to our business. Since our distributors act
as intermediaries between us and the end user customers, we must rely on our
distributors to accurately report inventory levels and production forecasts.
This requires us to manage a more complex supply chain and monitor the financial
condition and credit worthiness of our distributors and the end user customers.
Our failure to manage one or more of these risks could result in excess
inventory or shortages that could adversely impact our operating results and
financial condition.</P>

<B><P>We do not have long-term commitments from our ROV customers, and plan
purchases based upon our estimates of customer demand, which may require us to
contract for the manufacture of our products based on inaccurate estimates.</P>
</B>
<P>Our ROV sales are made on the basis of purchase orders rather than long-term
commitments.  Our customers may cancel or defer purchases at any time.  This
requires us to forecast demand based upon assumptions that may not be correct.
If our customers or we overestimate demand, we may create inventory that we may
not be able to sell or use, resulting in excess inventory, which could become
obsolete or negatively affect our operating results.  Conversely, if our
customers or we underestimate demand, or if sufficient manufacturing capacity is
not available, we may lose revenue opportunities, damage customer relationships,
and we may not achieve expected revenues.</P>
<B>
<P>Our future growth will suffer if we do not achieve sufficient market
acceptance of our products to compete effectively.</P>
</B>
<P>Our success depends, in part, on our ability to gain acceptance of our
current and future products by a large number of customers.  Achieving market
based acceptance for our products will require marketing efforts and the
expenditure of financial and other resources to create product awareness and
demand by potential customers.  We may be unable to offer products consistently
or at all that compete effectively with products of others on the basis of price
or performance.  Failure to achieve broad acceptance of our products by
potential customers and to effectively compete would have a material adverse
effect on our operating results.</P>

<B><P>Because we plan to continue using foreign contract manufacturers, our
operating results could be harmed by economic, political, regulatory and other
factors in foreign countries.</P>
</B>
<P>We currently use a contract manufacturer in Asia to manufacture our ROV
product, and we plan to use foreign manufacturers to manufacture future
products, where appropriate.  These international operations are subject to
inherent risks, which may adversely affect us, including:</P>

<UL>

<LI>political and economic instability;</LI>
<LI>high levels of inflation, historically the case in a number of countries in
Asia;</LI>
<LI>burdens and costs of compliance with a variety of foreign laws;</LI>
<LI>foreign taxes;</LI>
<LI>changes in tariff rates or other trade and monetary policies; and</LI>
<LI>changes or volatility in currency exchange rates.</LI>
</UL>


<B><P>If we have to qualify a new contract manufacturer or foundry for our
products, we may experience delays that result in lost revenues and damaged
customer relationships.</P>
</B>
<P>We rely on single suppliers to manufacture our ROV Scanner product and our
MEMS chips in wafer form.  The lead time required to establish a relationship
with a new contract manufacturer or foundry is long, and it takes time to adapt
a product's design to a particular manufacturer's processes.  Accordingly, there
is no readily available alternative source of supply for these products and
components in high volumes.  This could cause significant delays in shipping
products if we have to change our source of supply and manufacture quickly,
which may result in lost revenues and damaged customer relationships.</P>
<B>
<P>If we experience delays or failures in developing commercially viable
products, we may have lower revenues.</P>
</B>
<P>We have developed demonstration units incorporating the PicoP display engine.
However, we must undertake additional research, development and testing before
we are able to develop additional products for commercial sale.  Product
development delays by us or our potential product development partners, or the
inability to enter into relationships with these partners, may delay or prevent
us from introducing products for commercial sale.  We intend to rely on third
party developments or to contract with other companies to continue development
of green laser devices we will need for our products.  </P>

<B><P>Our success will depend, in part, on our ability to secure significant
third party manufacturing resources.</P>
</B>
<P>We are developing our capability to manufacture products in commercial
quantities.  Our success depends, in part, on our ability to provide our
components and future products in commercial quantities at competitive prices.
Accordingly, we will be required to obtain access, through business partners or
contract manufacturers, to manufacturing capacity and processes for the
commercial production of our expected future products.  We cannot be certain
that we will successfully obtain access to sufficient manufacturing resources.
Future manufacturing limitations of our suppliers could result in a limitation
on the number of products incorporating our technology that we are able to
produce.</P>

<B><P>If our licensors and we are unable to obtain effective intellectual
property protection for our products and technology, we may be unable to compete
with other companies.</P>
</B>
<P>Intellectual property protection for our products is important and uncertain.
If we do not obtain effective intellectual property protection for our products,
processes and technology, we may be subject to increased competition.  Our
commercial success will depend in part on our ability and the ability of the
University of Washington and our other licensors to maintain the proprietary
nature of the PicoP display and other key technologies by securing valid and
enforceable patents and effectively maintaining unpatented technology as trade
secrets.  We try to protect our proprietary technology by seeking to obtain
United States and foreign patents in our name, or licenses to third-party
patents, related to proprietary technology, inventions, and improvements that
may be important to the development of our business.  However, our patent
position and the patent position of the University of Washington and other
licensors involve complex legal and factual questions.  The standards that the
United States Patent and Trademark Office and its foreign counterparts use to
grant patents are not always applied predictably or uniformly and can change.
Additionally, the scope of patents are subject to interpretation by courts and
their validity can be subject to challenges and defenses, including challenges
and defenses based on the existence of prior art.  Consequently, we cannot be
certain as to the extent to which we will be able to obtain patents for our new
products and technology or the extent to which the patents that we already own
or license from others protect our products and technology.  Reduction in scope
of protection or invalidation of our licensed or owned patents, or our inability
to obtain new patents, may enable other companies to develop products that
compete with ours on the basis of the same or similar technology.</P>

<P>We also rely on the law of trade secrets to protect unpatented know-how and
technology to maintain our competitive position.  We try to protect this know-
how and technology by limiting access to the trade secrets to those of our
employees, contractors and partners with a need to know such information and by
entering into confidentiality agreements with parties that have access to it,
such as our employees, consultants and business partners.  Any of these parties
could breach the agreements and disclose our trade secrets or confidential
information, or our competitors might learn of the information in some other
way.  If any trade secret not protected by a patent were to be disclosed to or
independently developed by a competitor, our competitive position could be
materially harmed.</P>

<B><P>We could be exposed to significant product liability claims that could be
time-consuming and costly, divert management attention and adversely affect our
ability to obtain and maintain insurance coverage.</P>
</B>
<P>We may be subject to product liability claims if any of our product
applications are alleged to be defective or cause harmful effects.  For example,
because some of our PicoP displays are designed to scan a low power beam of
colored light into the user's eye, the testing, manufacture, marketing and sale
of these products involve an inherent risk that product liability claims will be
asserted against us.  Product liability claims or other claims related to our
products, regardless of their outcome, could require us to spend significant
time and money in litigation, divert management time and attention, require us
to pay significant damages, harm our reputation or hinder acceptance of our
products.  Any successful product liability claim may prevent us from obtaining
adequate product liability insurance in the future on commercially desirable or
reasonable terms.  An inability to obtain sufficient insurance coverage at an
acceptable cost or otherwise to protect against potential product liability
claims could prevent or inhibit the commercialization of our products.</P>

<B><P>We rely heavily on a limited number of development contracts with the U.S.
government, which are subject to immediate termination by the government for
convenience at any time, and the termination of one or more of these contracts
could have a material adverse impact on our operations.</P>
</B>
<P>During the first nine months of 2008 and the full year of 2007, 38% and 61%,
respectively, of our revenue was derived from performance on a limited number of
development contracts with the U.S. government.  Therefore, any significant
disruption or deterioration of our relationship with the U.S. government would
significantly reduce our revenues.  Our government programs must compete with
programs managed by other contractors for limited amounts and uncertain levels
of funding.  The total amount and levels of funding are susceptible to
significant fluctuations on a year-to-year basis.  Our competitors continuously
engage in efforts to expand their business relationships with the government and
are likely to continue these efforts in the future.  Our contracts with the
government are subject to immediate termination by the government for
convenience at any time.  The government may choose to use contractors with
competing display technologies or it may decide to discontinue any of our
programs altogether.  In addition, those development contracts that we do obtain
require ongoing compliance with applicable government regulations.  Termination
of our development contracts, a shift in government spending to other programs
in which we are not involved, a reduction in government spending generally, or
our failure to meet applicable government regulations could have severe
consequences for our results of operations.</P>

<B><P>Our development agreements have long sales cycles, which make it difficult
to plan our expenses and forecast our revenues.</P>
</B>
<P>Our development agreements have lengthy sales cycles that involve numerous
steps including determination of a product application, exploring the technical
feasibility of a proposed product, evaluating the costs of manufacturing a
product and manufacturing or contracting out the manufacturing of the product.
Our long sales cycle, which can last several years, makes it difficult to
predict the quarter in which contract signing and revenue recognition will
occur.  Delays in entering into development agreements could cause significant
variability in our revenues and operating results for any particular quarterly
period.</P>

<B><P>Our development contracts may not lead to products that will be
profitable.</P>
</B>
<P>Our development contracts, including without limitation those discussed in
this document are exploratory in nature and are intended to develop new types of
products for new applications.  These efforts may prove unsuccessful and these
relationships may not result in the development of products that will be
profitable.</P>

<B><P>Our revenues are highly sensitive to developments in the defense
industry.</P>
</B>
<P>Our revenues to date have been derived principally from product development
research relating to defense applications of our technology.  We believe that
development programs and sales of potential products in this market will
represent a significant portion of our future revenues.  Developments that
adversely affect the defense sector, including delays in government funding and
a general economic downturn, could cause our revenues to decline
substantially.</P>

<B><P>If we lose our rights under our third party technology licenses, our
operations will be adversely affected.</P>
</B>
<P>Our business depends in part on technology rights licensed from third
parties.  We could lose our exclusivity or other rights to use the technology
under our licenses if we fail to comply with the terms and performance
requirements of the licenses.    In addition, certain licensors may terminate a
license upon our breach and have the right to consent to sublicense
arrangements.  If we were to lose our rights under any of these licenses, or if
we were unable to obtain required consents to future sublicenses, we would lose
a competitive advantage in the market, and may even lose the ability to
commercialize our products completely.  Either of these results could
substantially decrease our revenues.</P>

<B><P>We are dependent on third parties in order to develop, manufacture, sell
and market our products.</P>
</B>
<P>Our strategy for commercializing our technology and products incorporating
the PicoP display engine includes entering into cooperative development,
manufacturing, sales and marketing arrangements with corporate partners,
original equipment manufacturers and other third parties.  We cannot be certain
that we will be able to negotiate arrangements on acceptable terms, if at all,
or that these arrangements will be successful in yielding commercially viable
products.  If we cannot establish these arrangements, we would require
additional capital to undertake such activities on our own and would require
extensive manufacturing, sales and marketing expertise that we do not currently
possess and that may be difficult to obtain.  In addition, we could encounter
significant delays in introducing the PicoP display engine or find that the
development, manufacture or sale of products incorporating the PicoP display
engine would not be feasible.  To the extent that we enter into cooperative
development, sales and marketing or other joint venture arrangements, our
revenues will depend upon the performance of third parties.  We cannot be
certain that any such arrangements will be successful.</P>

<B><P>Loss of any of our key personnel could have a negative effect on the
operation of our business.</P>
</B>
<P>Our success depends on our executive officers and other key personnel and on
the ability to attract and retain qualified new personnel.  Achievement of our
business objectives will require substantial additional expertise in the areas
of sales and marketing, research and product development and manufacturing.
Competition for qualified personnel in these fields is intense, and the
inability to attract and retain additional highly skilled personnel, or the loss
of key personnel, could reduce our revenues and adversely affect our
business.</P>

<B><P>We are dependent on a small number of customers for our revenue.  Our
quarterly performance may vary substantially and this variance, as well as
general market conditions, may cause our stock price to fluctuate greatly and
potentially expose us to litigation.</P>
</B>
<P>Our revenues to date have been generated primarily from a limited number of
development contracts with U.S. government entities and commercial partners.
Our quarterly operating results may vary significantly based on:</P>

<UL>

<LI>reductions or delays in funding of development programs involving new
information display technologies by the U.S. government or our current or
prospective commercial partners;</LI>
<LI>changes in evaluations and recommendations by any securities analysts
following our stock or our industry generally;</LI>
<LI>announcements by other companies in our industry;</LI>
<LI>changes in business or regulatory conditions;</LI>
<LI>announcements or implementation by our competitors of technological
innovations or new products;</LI>
<LI>the status of particular development programs and the timing of performance
under specific development agreements;</LI>
<LI>economic and stock market conditions; or</LI>
<LI>other factors unrelated to our company or industry.</LI>
</UL>


<P>In one or more future quarters, our results of operations may fall below the
expectations of securities analysts and investors and the trading price of our
common stock may decline as a consequence.  In addition, following periods of
volatility in the market price of a company's securities, shareholders often
have instituted securities class action litigation against that company.  If we
become involved in a class action suit, it could divert the attention of
management, and, if adversely determined, could require us to pay substantial
damages.</P>

<B><P>If we fail to manage expansion effectively, our revenue and expenses could
be adversely affected.</P>
</B>
<P>Our ability to successfully offer products and implement our business plan in
a rapidly evolving market requires an effective planning and management process.
The growth in business and relationships with customers and other third parties
has placed, and will continue to place, a significant strain on our management
systems and resources.  We will need to continue to improve our financial and
managerial controls, reporting systems and procedures and will need to continue
to train and manage our work force.</P>

<B><P><A NAME="item6">ITEM 6.</B>&#9;<B>Exhibits </A></P></B>

<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=3 WIDTH=638>
<TR><TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P>10.1</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP">
<FONT SIZE=2><P>Microvision 2006 Incentive Plan, as amended</FONT></TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P>31.1</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP">
<FONT SIZE=2><P>Chief Executive Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002</FONT></TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P>31.2</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP">
<FONT SIZE=2><P>Chief Financial Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 Of the
Sarbanes-Oxley Act of 2002</FONT></TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P>32.1</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP">
<FONT SIZE=2><P>Chief Executive Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002</FONT></TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P>32.2</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP">
<FONT SIZE=2><P>Chief Financial Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002</FONT></TD>
</TR>
</TABLE>


<FONT SIZE=2>
<B><P ALIGN="CENTER"><A NAME="sign">SIGNATURES </A></P></B>


<P>&#9;Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.</P>

<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=619>
<TR><TD WIDTH="53%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="47%" VALIGN="TOP">
<B><FONT SIZE=2><P>MICROVISION, INC.</B></FONT></TD>
</TR>
</TABLE>

<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=619>
<TR><TD WIDTH="47%" VALIGN="TOP">
<FONT SIZE=2><P>Date:  November 7, 2008</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=2><P>BY:</FONT></TD>
<TD WIDTH="47%" VALIGN="TOP">
<U><FONT SIZE=2><P>   /s/  Alexander Y. Tokman         </U><BR>
                Alexander Y. Tokman<BR>
                Chief Executive Officer<BR>
                (Principal Executive Officer)</FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2><P>&#9;</P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=619>
<TR><TD WIDTH="47%" VALIGN="TOP">
<FONT SIZE=2><P>Date:  November 7, 2008</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<FONT SIZE=2><P>BY:</FONT></TD>
<TD WIDTH="47%" VALIGN="TOP">
<U><FONT SIZE=2><P>   /s/  Jeff Wilson            </U><BR>
                Jeff Wilson     <BR>
                Chief Financial Officer<BR>
                (Principal Financial Officer) </FONT></TD>
</TABLE>



<FONT SIZE=2>



<B>
<P ALIGN="CENTER"><A NAME="index">
EXHIBIT INDEX</P></B>

<P>The following documents are filed.</P>

<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=3 WIDTH=85%>
<TR><TD WIDTH="11%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P>Exhibit Number</U></FONT></TD>
<TD WIDTH="89%" VALIGN="BOTTOM">
<U><FONT SIZE=2><P>Description</U></FONT></TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P>10.1</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP">
<FONT SIZE=2><P><A HREF="exh10-1.htm">Microvision 2006 Incentive Plan, as amended</A></FONT></TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P>31.1</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP">
<FONT SIZE=2><P><A HREF="exh31-1.htm">Chief Executive Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002</A></FONT></TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P>31.2</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP">
<FONT SIZE=2><P><A HREF="exh31-2.htm">Chief Financial Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002</A></FONT></TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P>32.1</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP">
<FONT SIZE=2><P><A HREF="exh32-1.htm">Chief Executive Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002</A></FONT></TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<FONT SIZE=2><P>32.2</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP">
<FONT SIZE=2><P><A HREF="exh32-2.htm">Chief Financial Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002</A></FONT></TD>
</TR>
</TABLE>


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<SEQUENCE>3
<FILENAME>exh10-1.htm
<DESCRIPTION>EXHIBIT 10-1
<TEXT>
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<B><P ALIGN="CENTER">MICROVISION, INC.</P>
<P ALIGN="CENTER">2006 INCENTIVE PLAN, AS AMENDED</P>
<OL>

<LI>DEFINED TERMS </LI>
</B><P>Exhibit A, which is incorporated by reference, defines the terms used in the Plan and sets forth certain operational rules related to those terms. </P>
<B><LI>EFFECTIVE DATE </LI>
</B><P>This Microvision, Inc. 2006 Incentive Plan, as amended, amends, restates and renames the Company's 1996 Stock Option Plan. The Plan was originally adopted by the Board on July 10, 1996 and approved by the stockholders of the Company on August 9, 1996. This amendment and restatement of the Plan, shall become effective if, and at such time as, the stockholders of the Company have approved this amendment and restatement. </P>
<B><LI>PURPOSE </LI>
</B><P>The purpose of the Microvision, Inc. 2006 Incentive Plan, as amended, is to provide means by which the Company may attract, reward and retain the services or advice of current or future employees, officers, consultants or independent contractors of, and other advisors to, the Company and to provide added incentives to them by encouraging stock ownership in the Company.</P>
<B><LI>ADMINISTRATION </LI>
</B><P>The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan; determine eligibility for and grant Awards; determine, modify or waive the terms and conditions of any Award; prescribe forms, rules and procedures; and otherwise do all things necessary to carry out the purposes of the Plan. In the case of any Award intended to be eligible for the performance-based compensation exception under Section 162(m), the Administrator will exercise its discretion consistent with qualifying the Award for that exception. Determinations of the Administrator made under the Plan will be conclusive and will bind all parties. </P>
<B><LI>LIMITS ON AWARDS UNDER THE PLAN </LI>
<OL TYPE="a">

<U><LI>Number of Shares</B></U>. A maximum of 11,400,000 shares of Stock may be delivered in satisfaction of Awards under the Plan. The number of shares of Stock delivered in satisfaction of Awards shall, for purposes of the preceding sentence, be determined net of shares of Stock withheld by the Company in payment of the exercise price of the Award or in satisfaction of tax withholding requirements with respect to the Award. The limit set forth in this Section 5(a) shall be construed to comply with Section 422 of the Code and regulations thereunder. To the extent consistent with the requirements of Section 422 of the Code and regulations thereunder, and with other applicable legal requirements (including applicable stock exchange requirements), Stock issued under awards of an acquired company that are converted, replaced, or adjusted in connection with the acquisition shall not reduce the number of shares available for Awards under the Plan.<SUP> </LI>
</SUP><B><U><LI>Type of Shares</B></U>. Stock delivered by the Company under the Plan may be authorized but unissued Stock or previously issued Stock acquired by the Company. No fractional shares of Stock will be delivered under the Plan.</LI>
<B><U><LI>Section 162(m) Limits</B></U>. The maximum number of shares of Stock for which Stock Options may be granted to any person in any calendar year and the maximum number of shares of Stock subject to SARs granted to any person in any calendar year will each be 2,000,000. The maximum number of shares subject to other Awards granted to any person in any calendar year will be 2,000,000 shares. The maximum amount payable to any person in any year under Cash Awards will be $3,000,000. The foregoing provisions will be construed in a manner consistent with Section 162(m).</LI></OL>

<B><LI>ELIGIBILITY AND PARTICIPATION </LI>
</B><P>The Administrator may grant Awards to any current or future Employee, officer, director, consultant or independent contractor of, or other advisor to, the Company or its subsidiaries. Eligibility for ISOs is limited to employees of the Company or of a "parent corporation" or "subsidiary corporation" of the Company as those terms are defined in Section 424 of the Code.</P>
<B><LI>RULES APPLICABLE TO AWARDS </LI>
<OL TYPE="a">

<U><LI>All Awards </LI>
<OL>

<LI>Award Provisions</B></U>. The Administrator will determine the terms of all Awards, subject to the limitations provided herein. By accepting any Award granted hereunder, the Participant agrees to the terms of the Award and the Plan. Notwithstanding any provision of this Plan to the contrary, awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition may contain terms and conditions that are inconsistent with the terms and conditions specified herein, as determined by the Administrator. </LI>
<B><U><LI>Term of Plan</B></U>. No Awards may be made after September 21, 2016, but previously granted Awards may continue beyond that date in accordance with their terms. </LI>
<B><U><LI>Transferability</B></U>. Neither ISOs nor, except as the Administrator otherwise expressly provides, other Awards may be transferred other than by will or by the laws of descent and distribution, and during a Participant's lifetime ISOs (and, except as the Administrator otherwise expressly provides, other non-transferable Awards requiring exercise) may be exercised only by the Participant. </LI>
<B><U><LI>Vesting, Etc.</B></U> The Administrator may determine the time or times at which an Award will vest or become exercisable and the terms on which an Award requiring exercise will remain exercisable. Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of an Award, regardless of any adverse or potentially adverse tax consequences resulting from such acceleration. Unless the Administrator expressly provides otherwise, however, the following rules will apply: immediately upon the cessation of the Participant's Employment, each Award requiring exercise that is then held by the Participant or by the Participant's permitted transferees, if any, will cease to be exercisable and will terminate, and all other Awards that are then held by the Participant or by the Participant's permitted transferees, if any, to the extent not already vested will be forfeited, except that: </LI>
<OL TYPE="A">

<LI>subject to (B) and (C) below, all Stock Options and SARs held by the Participant or the Participant's permitted transferees, if any, immediately prior to the cessation of the Participant's Employment, to the extent then exercisable, will remain exercisable for the lesser of (i) a period of three months or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 7(a)(4), and will thereupon terminate; </LI>
<LI>all Stock Options and SARs held by a Participant or the Participant's permitted transferees, if any, immediately prior to the Participant's death or Disability, to the extent then exercisable, will remain exercisable for the lesser of (i) the one year period ending with the first anniversary of the Participant's death or Disability or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 7(a)(4), and will thereupon terminate; and </LI>
<LI>all Stock Options and SARs held by a Participant or the Participant's permitted transferees, if any, immediately prior to the cessation of the Participant's Employment will immediately terminate upon such cessation if the Administrator in its sole discretion determines that such cessation of Employment has resulted for reasons which cast such discredit on the Participant as to justify immediate termination of the Award. </LI></OL>

<B><U><LI>Taxes</B></U>. The Administrator will make such provision for the withholding of taxes as it deems necessary. The Administrator may, but need not, hold back shares of Stock from an Award or permit a Participant to tender previously owned shares of Stock in satisfaction of tax withholding requirements (but not in excess of the minimum withholding required by law). </LI>
<B><U><LI>Dividend Equivalents, Etc</U>.</B> The Administrator may provide for the payment of amounts in lieu of cash dividends or other cash distributions with respect to Stock subject to an Award. Any entitlement to dividend equivalents or similar entitlements shall be established and administered consistent either with exemption from, or compliance with, the requirements of Section 409A to the extent applicable. </LI>
<B><U><LI>Foreign Qualified Grants</B></U>. Awards under this Plan may be granted to officers and Employees of the Company and other persons described in Section 6 who reside in foreign jurisdictions as the Administrator may determine from time to time. The Administrator may adopt supplements to the Plan as needed to comply with the applicable laws of such foreign jurisdictions and to give Participants favorable treatment under such laws; <I>provided</I>, <I>however</I> that no award shall be granted under any such supplement on terms more beneficial to such Participants than those permitted by this Plan. </LI>
<B><U><LI>Corporate Mergers, Acquisitions, Etc</B></U>. The Administrator may grant Awards under this Plan having terms, conditions and provisions that vary from those specified in this Plan provided that such Awards are granted in substitution for, or in connection with the assumption of, existing Awards granted or issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, acquisition of property or stock, reorganization or liquidation to which the Company is a party. </LI>
<B><U><LI>Rights Limited</B></U>. Nothing in the Plan will be construed as giving any person the right to continued employment or service with the Company or its Affiliates, or any rights as a stockholder except as to shares of Stock actually issued under the Plan. The loss of existing or potential profit in Awards will not constitute an element of damages in the event of termination of Employment for any reason, even if the termination is in violation of an obligation of the Company or Affiliate to the Participant. </LI>
<B><U><LI>Section 162(m)</B></U>. This Section 7(a)(8) applies to any Performance Award intended to qualify as performance-based for the purposes of Section 162(m) other than a Stock Option or SAR. In the case of any Performance Award to which this Section 7(a)(8) applies, the Plan and such Award will be construed to the maximum extent permitted by law in a manner consistent with qualifying the Award for such exception. With respect to such Performance Awards, the Administrator will preestablish, in writing, one or more specific Performance Criteria no later than 90 days after the commencement of the period of service to which the performance relates (or at such earlier time as is required to qualify the Award as performance-based under Section 162(m)). Prior to grant, vesting or payment of the Performance Award, as the case may be, the Administrator will certify whether the applicable Performance Criteria have been attained and such determination will be final and conclusive. No Performance Award to which t
his Section 7(a)(8) applies may be granted after the first meeting of the stockholders of the Company held in 2011 until the listed performance measures set forth in the definition of "Performance Criteria" (as originally approved or as subsequently amended) have been resubmitted to and reapproved by the stockholders of the Company in accordance with the requirements of Section 162(m) of the Code, unless such grant is made contingent upon such approval.</LI></OL>

<B><U><LI>Awards Requiring Exercise </LI>
<OL>

<LI>Time And Manner Of Exercise</B></U>. Unless the Administrator expressly provides otherwise,&nbsp;an Award requiring exercise by the holder will not be deemed to have been exercised until the Administrator receives a notice of exercise (in form acceptable to the Administrator) signed by the appropriate person and accompanied by any payment required under the Award. If the Award is exercised by any person other than the Participant, the Administrator may require satisfactory evidence that the person exercising the Award has the right to do so. Awards may be exercised in whole or in part. </LI>
<B><U><LI>Exercise Price</B></U>. The exercise price (or the base value from which appreciation is to be measured) of each Award requiring exercise shall be 100% (in the case of an ISO granted to a ten-percent shareholder within the meaning of Section 422(b)(6) of the Code, 110%) of the fair market value of the Stock subject to the Award, determined as of the date of grant, or such higher amount as the Administrator may determine in connection with the grant. Fair market value shall be determined by the Administrator consistent with the requirements of Section 422 and Section 409A. Without the affirmative vote of holders of a&nbsp;majority of the shares of Stock cast in person or by proxy at a meeting of the stockholders of the Company at which a&nbsp;quorum representing a majority of all outstanding shares of Stock is present or represented by proxy, the Committee shall not approve a program providing for either (a) the cancellation of outstanding Awards requiring exercise and the grant in substitution ther
efor of new Awards having a lower exercise price that has the effect of a repricing or (b) the amendment of such Awards to reduce the exercise price thereof.&nbsp; The preceding sentence shall not be construed to apply to: (i) "issuing or assuming a stock option in a transaction to which section 424(a) applies," within the meaning of Section 424 of the Code or (ii) the substitution or assumption of an Award by reason of or pursuant to a corporate transaction, to the extent such substitution or assumption would not be treated as a grant of a new stock right or a change in the form of payment for purposes of Section 409A of the Code within the meaning of Prop. Treas. Reg. Section 1.409A-1(b)(5)(iii)(D)(3), Notice 2005-1, A-4(d) and any subsequent Section 409A guidance. </LI>
<B><U><LI>Payment Of Exercise Price</B></U>. Where the exercise of an Award is to be accompanied by payment, the Administrator may determine the required or permitted forms of payment, subject to the following: all payments will be by cash or check acceptable to the Administrator, or, if so permitted by the Administrator and if legally permissible, (i) through the delivery of shares of Stock that have been outstanding for at least six months (unless the Administrator approves a shorter period) and that have a fair market value equal to the exercise price, (ii) by delivery to the Company of a promissory note of the person exercising the Award, payable on such terms as are specified by the Administrator, (iii) through a broker-assisted exercise program acceptable to the Administrator, (iv) by other means acceptable to the Administrator, or (v) by any combination of the foregoing permissible forms of payment. The delivery of shares in payment of the exercise price under clause (a)(i) above may be accomplished e
ither by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator may prescribe. </LI>
<B><U><LI>409A Exemption</U>. </B>Except as the Administrator otherwise determines, no Award requiring exercise shall have deferral features, or shall be administered in a manner, that would cause such Award to fail to qualify for exemption from Section 409A.</LI></OL>

<B><U><LI>Awards Not Requiring Exercise</LI></OL>

</B></U><P>Restricted Stock and Unrestricted Stock, whether delivered outright or under Awards of Stock Units or other Awards that do not require exercise, may be made in exchange for such lawful consideration, including services, as the Administrator determines. Any Award resulting in a deferral of compensation subject to Section 409A shall be construed to the maximum extent possible, as determined by the Administrator, consistent with the requirements of Section 409A.</P>
<B><LI>EFFECT OF CERTAIN TRANSACTIONS </LI>
<OL TYPE="a">

<U><LI>Mergers, <I>etc.</B></I></U> Except as otherwise provided in an Award, the following provisions shall apply in the event of a Covered Transaction: </LI>
<OL>

<B><U><LI>Assumption or Substitution</B></U>. If the Covered Transaction is one in which there is an acquiring or surviving entity, the Administrator may provide for the assumption of some or all outstanding Awards or for the grant of new awards in substitution therefor by the acquiror or survivor or an affiliate of the acquiror or survivor. </LI>
<B><U><LI>Cash-Out of Awards</B></U>. If the Covered Transaction is one in which holders of Stock will receive upon consummation a payment (whether cash, non-cash or a combination of the foregoing), the Administrator may provide for payment (a "cash-out"), with respect to some or all Awards, equal in the case of each affected Award to the excess, if any, of (A) the fair market value of one share of Stock (as determined by the Administrator in its reasonable discretion) times the number of shares of Stock subject to the Award, over (B) the aggregate exercise or purchase price, if any, under the Award (in the case of an SAR, the aggregate base price above which appreciation is measured), in each case on such payment terms (which need not be the same as the terms of payment to holders of Stock) and other terms, and subject to such conditions, as the Administrator determines.<SUP> </LI>
</SUP><B><U><LI>Acceleration of Certain Awards</B></U>. If the Covered Transaction (whether or not there is an acquiring or surviving entity) is one in which there is no assumption, substitution or cash-out, each Award requiring exercise will become fully exercisable, and the delivery of shares of Stock deliverable under each outstanding Award of Stock Units (including Restricted Stock Units and Performance Awards to the extent consisting of Stock Units) will be accelerated and such shares will be delivered, prior to the Covered Transaction, in each case on a basis that gives the holder of the Award a reasonable opportunity, as determined by the Administrator, following exercise of the Award or the delivery of the shares, as the case may be, to participate as a stockholder in the Covered Transaction. </LI>
<B><U><LI>Termination of Awards Upon Consummation of Covered Transaction</B></U>. Each Award (unless assumed pursuant to Section 8(a)(1) above), other than outstanding shares of Restricted Stock (which shall be treated in the same manner as other shares of Stock, subject to Section 8(a)(5) below), will terminate upon consummation of the Covered Transaction. </LI>
<B><U><LI>Additional Limitations</B></U>. Any share of Stock delivered pursuant to Section&nbsp;8(a)(2) or Section 8(a)(3) above with respect to an Award may, in the discretion of the Administrator, contain such restrictions, if any, as the Administrator deems appropriate to reflect any performance or other vesting conditions to which the Award was subject. In the case of Restricted Stock, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect of such Stock in connection with the Covered Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Plan.</LI></OL>

<B><U><LI>Change in and Distributions With Respect to Stock </LI>
<OL>

<LI>Basic Adjustment Provisions</B></U>. In the event of a stock dividend, stock split or combination of shares (including a reverse stock split), recapitalization or other change in the Company's capital structure, the Administrator will make appropriate adjustments to the maximum number of shares specified in Section 5(a) that may be delivered under the Plan and to the maximum share limits described in Section 5(c), and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change. </LI>
<B><U><LI>Certain Other Adjustments</B></U>. The Administrator may also make adjustments of the type described in Section 8(b)(1) above to take into account distributions to stockholders other than those provided for in Section 8(a) and 8(b)(1), or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of Awards made hereunder, having due regard for the qualification of ISOs under Section 422 of the Code, the performance-based compensation rules of Section 162(m), and the requirements of Section 409A, where applicable. </LI>
<B><U><LI>Continuing Application of Plan Terms</B></U>. References in the Plan to shares of Stock will be construed to include any stock or securities resulting from an adjustment pursuant to this Section 8.</LI></OL>
</OL>

<B><LI>LEGAL CONDITIONS ON DELIVERY OF STOCK </LI>
</B><P>The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previously delivered under the Plan until: (i) the Company is satisfied that all legal matters in connection with the issuance and delivery of such shares have been addressed and resolved; (ii) if the outstanding Stock is at the time of delivery listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance; and (iii) all conditions of the Award have been satisfied or waived. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act. The Company may require that certificates evidencing Stock issued under the Plan bear an appropriate 
legend reflecting any restriction on transfer applicable to such Stock, and the Company may hold the certificates pending lapse of the applicable restrictions. </P>
<B><LI>AMENDMENT AND TERMINATION </LI>
</B><P>The Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of Awards; <I>provided</I>, that except as otherwise expressly provided in the Plan the Administrator may not, without the Participant's consent, alter the terms of an Award so as to affect adversely the Participant's rights under the Award, unless the Administrator expressly reserved the right to do so at the time of the Award. Any amendments to the Plan shall be conditioned upon stockholder approval only to the extent, if any, such approval is required by law (including the Code and applicable stock exchange requirements), as determined by the Administrator.</P>
<B><LI>OTHER COMPENSATION ARRANGEMENTS </LI>
</B><P>The existence of the Plan or the grant of any Award will not in any way affect the Company's right to Award a person bonuses or other compensation in addition to Awards under the Plan.</P>
<B><LI>MISCELLANEOUS </LI>
<OL TYPE="a">

<U><LI>Waiver of Jury Trial</B></U>. By accepting an Award under the Plan, each Participant waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan and any Award, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim shall be tried before a court and not before a jury. By accepting an Award under the Plan, each Participant certifies that no officer, representative, or attorney of the Company has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers. </LI>
<B><U><LI>Limitation of Liability</U>.</B> Notwithstanding anything to the contrary in the Plan, neither the Company, any Affiliate, nor the Administrator, nor any person acting on behalf of the Company, any Affiliate, or the Administrator, shall be liable to any Participant or to the estate or beneficiary of any Participant or to any other holder of an Award by reason of any acceleration of income, or any additional tax, asserted by reason of the failure of an Award to satisfy the requirements of Section 422 or Section 409A or by reason of Section 4999 of the Code; provided, that nothing in this Section 11(b) shall limit the ability of the Administrator or the Company to provide by separate express written agreement with a Participant for a gross-up payment or other payment in connection with any such tax or additional tax.</LI></OL>
</OL>

<B><P>&nbsp;</P>
<P ALIGN="CENTER">EXHIBIT A</P>
<U><P ALIGN="CENTER">Definition of Terms</P>
</B></U><P>The following terms, when used in the Plan, will have the meanings and be subject to the provisions set forth below:</P>
<B><P>"Administrator":</B> The Board, except that the Board may delegate (i) to one or more of its members such of its duties, powers and responsibilities as it may determine; <I>provided</I>, that with respect to any delegation described in this clause (i) only the Board may amend or terminate the Plan as provided in Section 10; (ii) to one or more officers of the Company the power to grant rights or options to the extent permitted by Section 157(c) of the Delaware General Corporation Law; (iii) to one or more officers of the Company the authority to allocate other Awards among such persons (other than officers of the Company) eligible to receive Awards under the Plan as such delegated officer or officers determine consistent with such delegation; <I>provided</I>, that with respect to any delegation described in this clause (iii) the Board (or a properly delegated member or members of the Board) shall have authorized the issuance of a specified number of shares of Stock under such Awards and shall have spec
ified the consideration, if any, to be paid therefor; and (iv) to such Employees or other persons as it determines such ministerial tasks as it deems appropriate. In the event of any delegation described in the preceding sentence, the term "Administrator" shall include the person or persons so delegated to the extent of such delegation. </P>
<B><P>"Affiliate"</B>: Any corporation or other entity owning, directly or indirectly, 50% or more of the outstanding Stock of the Company, or in which the Company or any such corporation or other entity owns, directly or indirectly, 50% of the outstanding capital stock (determined by aggregate voting rights) or other voting interests. However, for purposes of determining eligibility for the grant of a Stock Option or SAR, the term "Affiliate" shall mean a person standing in a relationship to the Company such that the Company and such person are treated as a single employer under Section 414(b) and Section 414(c) of the Code, in accordance with the definition of "service recipient" under Section 409A of the Code.</P>
<B><P>"Award":</B> Any or a combination of the following: </P><DIR>
<DIR>
<DIR>
<DIR>

<P>(i) Stock Options. </P>
<P>(ii) SARs.</P>
<P>(iii) Restricted Stock.</P>
<P>(iv) Unrestricted Stock.</P>
<P>(v) Stock Units, including Restricted Stock Units. </P>
<P>(vi) Performance Awards.</P>
<P>(vii) Cash Awards.</P>
<P>(viii) Awards (other than Awards described in (i) through (vii) above) that are convertible into or otherwise based on Stock. </P></DIR>
</DIR>
</DIR>
</DIR>

<B><P>"Board":</B> The Board of Directors of the Company.</P>
<B><P>"Cash Award":</B> An Award denominated in cash.</P>
<B><P>"Code":</B> The U.S. Internal Revenue Code of 1986 as from time to time amended and in effect, or any successor statute as from time to time in effect.</P>
<B><P>"Company":</B> Microvision, Inc.</P>
<B><P>"Covered Transaction": </B>Any of (i) a consolidation, merger, or similar transaction or series of related transactions, including a sale or other disposition of stock, in which the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company's then outstanding common stock by a single person or entity or by a group of persons and/or entities acting in concert, (ii) a sale or transfer of all or substantially all the Company's assets, or (iii)&nbsp;a dissolution or liquidation of the Company.<B> </B>Where a Covered Transaction involves a tender offer that is reasonably expected to be followed by a merger described in clause (i) (as determined by the Administrator), the Covered Transaction shall be deemed to have occurred upon consummation of the tender offer.</P>
<B><P>"Disability":</B> The total and permanent disability of any Participant, as determined by the Administrator in its sole discretion. Without limiting the generality of the foregoing, the Administrator may, but is not required to, rely on a determination of disability by the Company's long term disability carrier or the Social Security Administration.</P>
<B><P>"Employee":</B> Any person who is employed by the Company or an Affiliate.</P>
<B><P>"Employment": </B>A Participant's employment or other service relationship with the Company and its Affiliates. Employment will be deemed to continue, unless the Administrator expressly provides otherwise, so long as the Participant is employed by, or otherwise is providing services in a capacity described in Section 6 to the Company or its Affiliates. If a Participant's employment or other service relationship is with an Affiliate and that entity ceases to be an Affiliate, the Participant's Employment will be deemed to have terminated when the entity ceases to be an Affiliate unless the Participant transfers Employment to the Company or its remaining Affiliates.</P>
<B><P>"ISO":</B> A Stock Option intended to be an "incentive stock option" within the meaning of Section 422 of the Code. Each option granted pursuant to the Plan will be treated as providing by its terms that it is to be a non-incentive stock option unless, as of the date of grant, it is expressly designated as an ISO. </P>
<B><P>"Participant":</B> A person who is granted an Award under the Plan.</P>
<B><P>"Performance Award"</B>: An Award subject to Performance Criteria. The Committee in its discretion may grant Performance Awards that are intended to qualify for the performance-based compensation exception under Section 162(m) and Performance Awards that are not intended so to qualify.</P>
<B><P>"Performance Criteria"</B>: Specified criteria, other than the mere continuation of Employment or the mere passage of time, the satisfaction of which is a condition for the grant, exercisability, vesting or full enjoyment of an Award. For purposes of Awards that are intended to qualify for the performance-based compensation exception under Section 162(m), a Performance Criterion will mean an objectively determinable measure of performance relating to any or any combination of the following (measured either absolutely or by reference to an index or indices and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one 
or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings. A Performance Criterion and any targets with respect thereto determined by the Administrator need not be based upon an increase, a positive or improved result or avoidance of loss. To the extent consistent with the requirements for satisfying the performance-based compensation exception under Section&nbsp;162(m), the Administrator may provide in the case of any Award intended to qualify for such exception that one or more of the Performance Criteria applicable to such Award will be adjusted in an objectively determinable manner to reflect eve
nts (for example, but without limitation, acquisitions or dispositions) occurring during the performance period that affect the applicable Performance Criterion or Criteria.</P>
<B><P>"Plan":</B> The Microvision, Inc. 2006 Incentive Plan, as amended, as from time to time amended and in effect.</P>
<B><P>"Restricted Stock":</B> Stock subject to restrictions requiring that it be redelivered or offered for sale to the Company if specified conditions are not satisfied.</P>
<B><P>"Restricted Stock Unit":</B> A Stock Unit that is, or as to which the delivery of Stock or cash in lieu of Stock is, subject to the satisfaction of specified performance or other vesting conditions.</P>
<B><P>"Section 162(m)":</B> Section 162(m) of the Code.</P>
<B><P>"Section 409A":</B> Section 409A of the Code.</P>
<B><P>"SAR": </B>A right entitling the holder upon exercise to receive an amount (payable in shares of Stock of equivalent value) equal to the excess of the fair market value of the shares of Stock subject to the right over the fair market value of such shares at the date of grant. </P>
<B><P>"Stock":</B> Common Stock of the Company, par value $.001 per share.</P>
<B><P>"Stock Option":</B> An option entitling the holder to acquire shares of Stock upon payment of the exercise price.</P>
<B><P>"Stock Unit"</B>: An unfunded and unsecured promise, denominated in shares of Stock, to deliver Stock or cash measured by the value of Stock in the future.</P>
<B><P>"Unrestricted Stock": </B>Stock not subject to any restrictions under the terms of the Award<B>.</P>
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<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>4
<FILENAME>exh31-1.htm
<DESCRIPTION>EXHIBIT 31-1
<TEXT>
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<HEAD>
<TITLE>Q3 2008 Exhibit 31.1 </TITLE>
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<FONT SIZE=2><B><P ALIGN="RIGHT">Exhibit 31.1 </P>
</B>

<B><P ALIGN="CENTER">
                    CERTIFICATION PURSUANT TO<BR>
       RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,<BR>
                  AS ADOPTED PURSUANT TO<BR>
       SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002</P>
</B>


<P ALIGN="JUSTIFY">
I, Alexander Y. Tokman, certify that:

<DIR>

<P ALIGN="JUSTIFY">
1.   I have reviewed this quarterly report on Form 10-Q of Microvision, Inc.;


<P ALIGN="JUSTIFY">
2.   Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;

<P ALIGN="JUSTIFY">
3.   Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;


<P ALIGN="JUSTIFY">
4.   The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

<DIR>

<P ALIGN="JUSTIFY">
(a)   Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;

<P ALIGN="JUSTIFY">
(b)   Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;

<P ALIGN="JUSTIFY">
(c)   Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

<P ALIGN="JUSTIFY">
(d)   Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
</DIR>

<P ALIGN="JUSTIFY">
5.   The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

<DIR>

<P ALIGN="JUSTIFY">
(a)   All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and

<P ALIGN="JUSTIFY">
(b)   Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
</DIR>
</DIR>

<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=85%>
<TR><TD WIDTH="54%" VALIGN="TOP">
<FONT SIZE=2><P>Date:<U> November 7, 2008 </U></FONT></TD>
<TD WIDTH="46%" VALIGN="TOP">
<FONT SIZE=2><P>By: <U>/s/ Alexander Y. Tokman <BR>
</U>   Alexander Y. Tokman <BR>
 Chief Executive Officer
</FONT></TD>
</TR>
</TABLE>


<BR>
<BR>
<BR>
<HR WIDTH="85%">
<BR>
<BR>
<BR>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>5
<FILENAME>exh31-2.htm
<DESCRIPTION>EXHIBIT 31-2
<TEXT>
<HTML>
<HEAD>
<TITLE>Q3 2008 Exhibit 31.2 </TITLE>
</HEAD>
<BODY LINK="#0000ff" VLINK="#800080" BGCOLOR="#ffffff">
<font FACE="Times New Roman" SIZE="2">


<FONT SIZE=2><B><P ALIGN="RIGHT">Exhibit 31.2 </P>
</B>


<B><P ALIGN="CENTER">
                    CERTIFICATION PURSUANT TO<BR>
       RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,<BR>
                  AS ADOPTED PURSUANT TO<BR>
       SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002</P>
</B>


<P ALIGN="JUSTIFY">
I, Jeff T. Wilson, certify that:

<DIR>

<P ALIGN="JUSTIFY">
1.   I have reviewed this quarterly report on Form 10-Q of Microvision, Inc.;


<P ALIGN="JUSTIFY">
2.   Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;

<P ALIGN="JUSTIFY">
3.   Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;


<P ALIGN="JUSTIFY">
4.   The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:


<DIR>

<P ALIGN="JUSTIFY">
(a)   Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;

<P ALIGN="JUSTIFY">
(b)   Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;

<P ALIGN="JUSTIFY">
(c)   Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

<P ALIGN="JUSTIFY">
d)   Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
</DIR>

<P ALIGN="JUSTIFY">
5.   The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):

<DIR>

<P ALIGN="JUSTIFY">
(a)   All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and

<P ALIGN="JUSTIFY">
(b)   Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
</DIR>
</DIR>

<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=85%>
<TR><TD WIDTH="54%" VALIGN="TOP">
<FONT SIZE=2><P>Date:<U> November 7, 2008 </U></FONT></TD>
<TD WIDTH="46%" VALIGN="TOP">
<FONT SIZE=2><P>By: <U>/s/ Jeff T. Wilson<BR>
</U>   Jeff T. Wilson<BR>
 Chief Financial Officer
</FONT></TD>
</TR>
</TABLE>

<BR>
<BR>
<BR>
<HR WIDTH="85%">
<BR>
<BR>
<BR>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>6
<FILENAME>exh32-1.htm
<DESCRIPTION>EXHIBIT 32-1
<TEXT>
<HTML>
<HEAD>
<TITLE>Q3 2008 Exhibit 32.1 </TITLE>
</HEAD>
<BODY LINK="#0000ff" VLINK="#800080" BGCOLOR="#ffffff">
<font FACE="Times New Roman" SIZE="2">

<FONT SIZE=2><B><P ALIGN="RIGHT">Exhibit 32.1 </P>
</B>

<B><P ALIGN="CENTER">
                           CERTIFICATION PURSUANT TO<BR>
                       SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,<BR>
                                 AS ADOPTED PURSUANT TO<BR>
                              SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</P>
</B>

<FONT SIZE=2><P ALIGN="JUSTIFY">
Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, the undersigned, as chief executive officer of
Microvision, Inc. (the "Company"), does hereby certify that to the undersigned's knowledge:

<DIR>

<FONT SIZE=2><P ALIGN="JUSTIFY">
 1) &nbsp;&nbsp;  the Company's Form 10-Q for the quarter ended September 30, 2008
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

<FONT SIZE=2><P ALIGN="JUSTIFY">
2) &nbsp;&nbsp; the information contained in the Company's Form 10-Q for the quarter ended September 30, 2008
fairly presents, in all material respects, the financial condition and results of operations of the Company.

</DIR>

<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=85%>
<TR><TD WIDTH="54%" VALIGN="TOP">
<FONT SIZE=2><P>Date:<U>November 7, 2008 </U></FONT></TD>
<TD WIDTH="46%" VALIGN="TOP">
<FONT SIZE=2><P>By: <U>/s/ Alexander Y. Tokman <BR>
</U>   Alexander Y. Tokman <BR>
 Chief Executive Officer
</FONT></TD>
</TR>
</TABLE>

<BR>
<BR>
<BR>
<HR WIDTH="85%">
<BR>
<BR>
<BR>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>7
<FILENAME>exh32-2.htm
<DESCRIPTION>EXHIBIT 32-2
<TEXT>
<HTML>
<HEAD>
<TITLE>Q3 2008 Exhibit 32.2 </TITLE>
</HEAD>
<BODY LINK="#0000ff" VLINK="#800080" BGCOLOR="#ffffff">
<font FACE="Times New Roman" SIZE="2">

<FONT SIZE=2><B><P ALIGN="RIGHT">Exhibit 32.2 </P>
</B>

<B><P ALIGN="CENTER">
                           CERTIFICATION PURSUANT TO<BR>
                       SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,<BR>
                                 AS ADOPTED PURSUANT TO<BR>
                              SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</P>
</B>

<FONT SIZE=2><P ALIGN="JUSTIFY">
Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, the undersigned, as chief financial officer of
Microvision, Inc. (the "Company"), does hereby certify that to the undersigned's knowledge:

<DIR>

<FONT SIZE=2><P ALIGN="JUSTIFY">
 1) &nbsp;&nbsp;  the Company's Form 10-Q for the quarter ended September 30, 2008
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

<FONT SIZE=2><P ALIGN="JUSTIFY">
2) &nbsp;&nbsp; the information contained in the Company's Form 10-Q for the quarter ended September 30, 2008
fairly presents, in all material respects, the financial condition and results of operations of the Company.

</DIR>

<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=85%>
<TR><TD WIDTH="54%" VALIGN="TOP">
<FONT SIZE=2><P>Date:<U> November 7, 2008 </U></FONT></TD>
<TD WIDTH="46%" VALIGN="TOP">
<FONT SIZE=2><P>By: <U>/s/ Jeff T. Wilson<BR>
</U>   Jeff T. Wilson<BR>
 Chief Financial Officer
</FONT></TD>
</TR>
</TABLE>

<BR>
<BR>
<BR>
<HR WIDTH="85%">
<BR>
<BR>
<BR>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
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<SEQUENCE>8
<FILENAME>logo.gif
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