UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---

FORM 10-K

---

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
     for the fiscal year ended December 31, 2007

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the transition period from ________ to ________

Commission file number    0-21221



Microvision, Inc.



|Delaware                                                       | 91-1600822                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

6222 185th Ave NE
Redmond, Washington      98052

(425) 936-6847

Securities registered pursuant to Section 12(b) of the Exchange Act:



|Title of each class           | Name of each exchange on which registered
|----------------------------- | -----------------------------------------
|Common Stock, $.001 par value | NASDAQ Global Market                     

Securities registered pursuant to Section 12(g) of the Exchange Act:None

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Act. Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes

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 such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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):

|Large accelerated filer      ̈ | Accelerated filer    x | Non-accelerated filer     ̈ (Do not check if a smaller reporting company) | Smaller reporting company     ̈
|----------------------------- | ---------------------- | ------------------------------------------------------------------------ | ------------------------------

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes
oNox

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2007 was
approximately $229.7 million (based on the closing price for the registrant's Common Stock on the NASDAQ Global
Market of $5.00 per share).

The number of shares of the registrant's Common Stock outstanding as of February 29, 2008 was 56,730,000.

Documents Incorporated by Reference

Portions of the registrant's definitive Proxy Statement to be filed with the Commission pursuant to Regulation 14A in
connection with the registrant's Annual Meeting of Shareholders to be held on June 25, 2008 are incorporated herein by
reference into Part III of this report.




Microvision, Inc.

                        2007 ANNUAL REPORT ON FORM 10-K
                               TABLE OF CONTENTS



|Part I.    |                                                                                                             | Page
|---------- | ----------------------------------------------------------------------------------------------------------- | ----
|Item 1.    | Description of Business                                                                                     | **  
|Item 1A.   | Risk Factors                                                                                                | **  
|Item 1B.   | Unresolved Staff Comments                                                                                   | **  
|Item 2.    | Properties                                                                                                  | **  
|Item 3.    | Legal Proceedings                                                                                           | **  
|Item 4.    | Submission of Matters to a Vote of Security Holders                                                         | **  
|Item 4A.   | Executive Officers of the Registrant                                                                        | **  
|Part II.   |                                                                                                             |     
|Item 5.    | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securites | **  
|Item 6.    | Selected Financial Data                                                                                     | **  
|Item 7.    | Management's Discussion and Analysis of Financial Condition and Results of Operations                       | **  
|Item 7A.   | Quantitative and Qualitative Disclosures About Market Risks                                                 | **  
|Item 8.    | Financial Statements and Supplementary Data                                                                 | **  
|Item 9.    | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                        | **  
|Item 9A.   | Controls and Procedures                                                                                     | **  
|Item 9B.   | Other Information                                                                                           | **  
|Part III.  |                                                                                                             |     
|Item 10.   | Directors and Executive Officers and Corporate Governance                                                   | **  
|Item 11.   | Executive Compensation                                                                                      | **  
|Item 12.   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters              | **  
|Item 13.   | Certain Relationships and Related Transactions, and Director Independence                                   | **  
|Item 14.   | Principal Accounting Fees and Services                                                                      | **  
|Part IV.   |                                                                                                             |     
|Item 15.   | Exhibits, Financial Statement Schedules                                                                     | **  
|Signatures |                                                                                                             | **  



PART I

Preliminary Note Regarding Forward-Looking Statements

This report contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and is subject to the safe harbor created by those
sections.  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
"anticipate," "believe," "estimate,"
"expect," "goal," "may," "plan,"
"project," "will," and similar expressions identify forward-
looking statements.  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
below in Item 1A.

ITEM 1.	BUSINESS

Overview

We are developing miniature display and imaging engines based upon our
integrated photonics module technology platform.  Our technology platform
combines two dimensional Micro-Electrical Mechanical system ("MEMS")
light scanning technologies, lasers, optics, electronics, and our system
controls expertise into compact display or imaging solutions that we anticipate
will lead to new applications and high-volume 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.

In 2006, we announced our strategy to develop and supply a proprietary
display engine called PicoPTM.  The PicoP display engine enables an ultra-
miniature video projector capable of producing color rich, high resolution,
large images, but is small and low power enough to be embedded directly into
mobile devices, such as cell phones.  PicoP-based miniature display engines are
being marketed to potential original equipment manufacturer (OEM) customers who
would embed them into a variety of consumer and automotive products.  The
primary objective for consumer applications is to provide mobile device users
with a large screen viewing experience produced by a small embedded projector.
Mobile devices may include cell phones, portable media players (PMPs), PDAs,
gaming consoles, laptop computers, digital cameras, and other consumer
electronics products.  These potential products would allow users to watch
movies, play videos, and display images and other data onto a variety of
surfaces.   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.  The PicoP display engine could also be modified to be
embedded into a pair of glasses to provide the mobile user with a see-through or
occluded personal display to view movies, play games or access other content.

The development and procurement of intellectual property rights relating to
our technologies is a key aspect of our business strategy.  Since our inception
in 1993, we have acquired under license agreements exclusive rights to various
technologies.  We also generate intellectual property as a result of our ongoing
performance on development contracts and our internal research and development
activities.

Technology

Our bi-directional MEMS scanning mirror is the key component of our
integrated technology platform and is one of our core competencies.  Our MEMS
design is a silicon device at the center of which is a tiny mirror. This mirror
is connected to small flexures which allow it to oscillate.  The 2D MEMS scanner
oscillates vertically and horizontally to capture (imaging) or reproduce
(display) an image pixel-by-pixel.  2D MEMS scanners are used in our PicoP
display engine that powers Pico Projector Displays, Vehicle Displays and
Wearable Displays.  A 1D MEMS scanner used in our ROV Bar Code Scanner,
oscillates along one axis only and is used to capture a bar code image.

Our PicoP display engine technology platform includes electronics, laser
light sources, a MEMS Scanner, and optics combined using Microvision's
proprietary system control expertise, gained through years of internal research
and development.  Our unique display and imaging engines use a single beam of
laser light and a single small scanning mirror to create a brilliant, full
color, high contrast, uniform display over the entire field of view, from a
small and thin package.

We believe that our proprietary light scanning technology offers significant
advantages over traditional display and imaging systems.  Depending on the
specific product application, these advantages may include:

- Small and thin package size
- Higher brightness and contrast
- Higher resolution
- Reduced power requirements
- Reduced heat generation
- Simpler optical design that does not require a focusing lens
- Lower price at volume

Business Strategy

Our business strategy is to promote our technology in the form of integrated
and embedded components to leading OEMs for widespread use in display and
imaging product applications, as well as leverage our technology expertise into
our own end-user products such as our ROV Bar Code Scanner.  Presently we are
focused on the following steps to implement our business strategy:

Target leading OEMs to integrate our PicoP display engines into their
products.  We have also partnered with original design manufacturers and tier
one suppliers to produce advanced prototypes and demonstration units to be used
to market to their OEM customers directly by us or by our partners.

Expand and solidify the supply chain architecture to support high volume
manufacturing of the PicoP display engine, its subsystems and its components.

Continue to promote awareness of our technology platform to all members
of the value chain.  We are continually in contact with OEMs, original design
manufacturers and mobile content providers to understand the features our PicoP
display engines must have in order to provide desired benefits to all members of
the value chain.  We have and will continue to integrate this information into
the design and development of our technology platform.

Continue rapid advancement of our technology platform and roadmap.

Product and Marketing Focus:

Pico Projector Displays

We are working with partners to develop small projector displays as stand
alone systems or embedded into mobile products. The display industry is calling
this new class of projectors "pico projectors".  We believe our PicoP
display engine can meet the cost, size and power requirements to be embedded
into portable hand-held devices including mobile phones or function as a stand
alone accessory device that connects to a mobile video source such as a video
iPod®, cell phone or laptop computer.  We plan to enter into agreements with
OEMs that will result in production and distribution of the PicoP-based
products.

In January 2008, at the Consumer Electronics Show in Las Vegas, we
demonstrated for the first time an advanced prototype of our accessory projector
based on the PicoP display engine.  The PDA sized prototype, named SHOWTM,
is battery operated, completely self contained, and can project a full color,
WVGA (848 X 480 pixels), DVD quality image.  SHOW connects directly to laptop
computers, mobile phones, PMPs, digital cameras, and other mobile devices with
video out capability to project large, high-resolution images and video onto any
surface.  A number of SHOW prototypes will be provided to select OEM and carrier
partners for customer feedback and applications development in the first half of
2008.

During 2007, we entered into agreements with several global high volume
manufacturers, including Motorola Inc., to develop advanced prototypes using our
PicoP display engine for embedded and accessory mobile projection
applications.

Vehicle Displays

We believe an automotive head-up display (HUD) improves driver safety by
reducing the distraction of looking away from the road to read information such
as GPS mapping images, audio controls and other automobile instrumentation.   We
are working with Tier 1 suppliers to develop a HUD based on our PicoP display
engine.  We have produced prototypes that demonstrate our PicoP's ability to
project a high-resolution readable image during day or night onto the windscreen
of an automobile to provide the driver with a variety of information related to
the car's operation.  We believe that an automotive HUD based on the PicoP
display engine offers three distinct advantages over competing head-up
displays:

- Size - Our prototype display is less than half the size of current
competitive offerings.  This smaller form factor can accommodate a wider variety
of vehicle configurations.

- Contrast Ratio - Our prototype has a contrast ratio an order of magnitude
higher than current competitive offerings.  The high contrast ratio allows the
driver to see the display clearly in any ambient lighting conditions.

- Installation Cost - Our prototype can be electronically customized to match
the unique curvature of a particular automobile's windshield, thereby reducing
installation time and cost.  The current competitive offerings must be manually
adjusted to match the curvature of a windshield.

We are currently working with Tier 1 automotive suppliers to market a PicoP
enabled HUD to their OEM customers.  We expect that a Tier I supplier would
integrate our PicoP display engine subsystem into their HUD product package for
sale to automobile manufacturers.  During 2007, we entered into additional
agreements with Tier 1 suppliers to develop prototype HUDs to demonstrate our
PicoP display engine to their automotive OEM customers.

Wearable Displays

We believe the PicoP display engine can be modified and integrated with a
light-weight optical design to create a full color near-eye wearable display
platform.  This wearable display platform could be in the form of ruggedized
helmet mounted display systems or lightweight fashionable eyewear displays.
Wearable displays could be used to provide personal viewing of information that
originates from a mobile device and arrives at the display through a wired or
wireless connection.  We believe that wearable displays based on the PicoP
display engine could provide the following advantages over competing wearable
display technologies:

- See-through performance - See-through eyewear displays enable the wearer to
interact with the real world and their personal mobile services at the same
time. Unlike competing wearable displays, a see-through display does not
obstruct the wearer's vision or reduce their awareness of what is happening
around them.

- Daylight readability - The high-brightness capability of color eyewear based
on the PicoP enables images to be clearly visible in brightly lit ambient
environments, including direct sunlight. Current LCD-based head worn displays
are difficult to see in bright light environments.

- Fashion and ergonomics - We are developing thin and lightweight optics that
can be integrated with the PicoP display engines so that our OEM partners can
design wearable displays that match conventional eyewear frames in size and
weight and provide significantly improved ergonomics compared to competing
wearable displays.

We are working with the US Army and 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.
We plan to work with OEMs and system integrators to incorporate the PicoP
display engine into integrated solutions for potential military and commercial
customers.

Bar Code Scanners

We currently market our line of hand held bar code scanners and bar code
scanner enabled enterprise solutions.  In October 2007, we introduced the ROV
Scanner product line, which replaced our FLIC Scanner product line.

The ROV Scanner incorporates our proprietary MEMS technology and is designed
to accommodate mobile workers who need simple and affordable data collection
solutions on the mobile platforms of their choosing.  Like its predecessor, the
ROV Scanner has lower power consumption and total operating cost than competing
laser bar code scanners. ROV Scanners are manufactured for us by a contract
manufacturer located in Malaysia.  We distribute ROV Scanners directly to end
users through value added resellers, original equipment manufacturers and phone
and internet orders.

Go-To-Market Strategy

Certain potential applications using the PicoP display engines, such as
an automotive HUD or pico projector for mobile phones, could require integration
of our technology with other related technologies.  In markets requiring high
volume production of the PicoP display engine components or subsystems that are
to be integrated with other components, we may provide designs for components,
subsystems and systems to OEMs under licensing agreements.

We expect that some customers will require unique designs for their products.
We expect that such relationships will generally involve a period of co-
development during which engineering, manufacturing and marketing professionals
from potential customers and OEMs would work with our technical staff to modify
the PicoP display engine for their targeted market and application.  We may
charge fees to our customers or OEMs to fund the costs of the engineering effort
incurred on such development projects.  The nature of the relationships with
such customers or OEMs may vary from partner to partner depending on the
proposed specifications for the PicoP display engine, the product to be
developed, and the customers' or OEMs' design, manufacturing and distribution
capabilities.  We believe that by limiting our own direct manufacturing
investment for products, we will reduce our capital requirements and risks
inherent in taking the PicoP display engine to the consumer market.

Human Factors, Ergonomics and Safety

As part of our research and development activities, we conduct ongoing
research on safety factors that must be addressed by products incorporating our
technology, including such issues as the maximum permissible laser exposure
limits established by International Electrotechnical Commission
("IEC") and others.  Independent experts have concluded that laser
exposure to the eye resulting from use of the light scanning displays under
normal operating conditions would be below the calculated maximum permissible
exposure level set by IEC.

In addition, Microvision works with and commissions outside independent
experts in the field of laser safety to assist in meeting safety specifications
as requested by our customers.

Competitive Conditions

The information display industry is highly competitive.  Our potential
display products will compete with established manufacturers of mature display
technologies such as miniaturized cathode ray tube and flat panel display
devices, as well as companies developing new display technologies.  Our
competitors include companies such as Texas Instruments Incorporated, 3M, Light
Blue Optics Ltd., and Explay in the pico projection display segment and Siemens
VDO and Nippon Seiki in the vehicle displays segment, most of which have much
greater financial, technical and other resources than we do.  Many of our
competitors are developing alternative miniature display technologies.  Our
competitors may succeed in developing information display technologies and
products that could render our technology or our proposed products commercially
infeasible or technologically obsolete.

The information display industry has been characterized by rapid and
significant technological advances.  Our technology and potential products may
not remain competitive with such advances, and we may not have sufficient funds
to invest in new technologies, products or processes.  Although we believe our
technology platform and proposed display products could deliver images of a
substantially better quality and resolution from a smaller form factor device
than those of commercially available miniaturized liquid crystal displays and
cathode ray tube based display products, manufacturers of liquid crystal
displays and cathode ray tubes may develop further improvements of screen
display technology that could reduce or eliminate the anticipated advantages of
our proposed products.

We compete with other companies in the display industry and other
technologies for government funding.  In general, our government customers plan
to integrate our technology into larger systems.  Ongoing contracts are awarded
based on our past performance on government contracts, the customer's progress
in integrating our technology into the customer's overall program objectives,
and the status of the customer's overall program.

The image capture industry is also highly competitive.  Our current and
planned bar code products will compete with existing laser and wand-type
scanners produced by established bar code companies.  Our current products
compete on the basis of price and performance.  Motorola Inc. acquired Symbol
Technologies, a dominant player in the bar code industry, in January 2007 and
sells products that directly compete with our current and planned bar code
products.

Intellectual Property and Proprietary Rights

Since our inception in 1993, we have acquired under license agreements
exclusive rights to various technologies, including, among others, rights
related to the ability to superimpose images on the user's field of view and
with a retinal display, and rights related to the design and fabrication of
micro miniature devices using semiconductor fabrication techniques.  In some
cases, the licensors have retained limited, non-commercial rights with respect
to the technology, including the right to use the technology for non-commercial
research and for instructional purposes. Some licensors have the right to
consent to our sublicensing arrangements and to the prosecution and settlement
by us of our of infringement disputes.

We also generate intellectual property as a result of our ongoing performance
on development contracts and our internal research and development activities.
The inventions covered by our patent applications generally relate to component
miniaturization, specific implementation of various system components and design
elements to facilitate mass production.  We consider protection of these key
enabling technologies and components to be a fundamental aspect of our strategy
to penetrate diverse markets with unique products.  As such, we intend to
continue to develop our portfolio of proprietary and patented technologies at
the system, component and process levels.

Our ability to compete effectively in the display and image capture market
will depend, in part, on our ability and the ability of the licensors to
maintain the proprietary nature of these technologies.

We also rely on unpatented proprietary technology.  To protect our rights in
these areas, we require all employees and, where appropriate, contractors,
consultants, advisors and collaborators, to enter into confidentiality and non-
compete agreements.  There can be no assurance, however, that these agreements
will provide meaningful protection for our trade secrets, know-how or other
proprietary information in the event of any unauthorized use, misappropriation
or disclosure of such trade secrets, know-how or other proprietary information.

We have registered the marks "MicroHud" and the "tri-
curve" logo with the United States Patent and Trademark Office.  We have
filed for registration of various other marks including "PicoP" and
"ROV" with the United States Patent and Trademark Office.

Additional Information

We perform research and development to design and develop our technology
platform and modifications to the PicoP display engine that will be required for
specific applications.  Research and development expense for the fiscal years
ended December 31, 2007, 2006 and 2005 was $14.9 million, $10.7 million,
and $6.6 million, respectively. Substantially all of our revenue has been
generated from development contracts to develop the light scanning technology to
meet customer specifications.  Our customers have included both the United
States government and commercial enterprises.  In 2007, 61% of revenue was
derived from performance on development contracts with the United States
government, 25% from performance on development contracts with commercial
customers and the remainder from sales of ROV, Flic and Nomad units.  One
commercial customer, Visteon, accounted for approximately 15% of total revenue
during 2007.  In 2006, 51% of revenue was derived from performance on
development contracts with the United States government, 24% from performance on
development contracts with commercial customers and the remainder from sales of
Flic and Nomad units.  One commercial customer, Ethicon Endo-Surgery Inc.,
accounted for approximately 11% of total revenue during 2006.  In 2005, 35% of
revenue was derived from performance on development contracts with the United
States government, 42% from performance on development contracts with commercial
customers and the remainder from sales of Nomad and Flic units. In 2005, Ethicon
Endo-Surgery Inc. accounted for 33% of total revenue.  Our contracts with the
United States government can be terminated for convenience by the United States
government at any time. See Management's Discussion and Analysis of Financial
Condition and Results of Operations.

We had a backlog of $4.1 million at December 31, 2007 compared to a backlog
of $7.1 million at December 31, 2006.  The backlog at December 31, 2007, is
composed of $3.8 million in development contracts entered into through December
31, 2007 and $245,000 in orders for ROV and Flic.  Microvision plans to complete
all of the backlog contracts by the end of 2008.

Employees

As of February 29, 2008, we had 152 employees.

Further Information

Microvision was founded in 1993 as a Washington corporation and
reincorporated in 2003 under the laws of the State of Delaware.  Our principal
office is located at 6222 185th Avenue NE, Redmond WA 98052 and our
telephone number is 425-936-6847.

Our Internet address is www.microvision.com.  We make available free of
charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC.  Investors can access this material by visiting our
website, clicking on "Investors" and then on "SEC Filings."

ITEM 1A.	RISK FACTORS

Risk Factors Relating to the Microvision Business

We have a history of operating losses and expect to incur significant
losses in the future.

We have had substantial losses since our inception.  We cannot assure you
that we will ever become or remain profitable.

- As of December 31, 2007, we had an accumulated deficit of $259.4 million.
- We incurred consolidated net losses of $187.4 million from inception through
2004, $28.2 million in 2005, $24.0 million in 2006, and $19.8 million in
2007.

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 our technology platform and development
of demonstration units.  We are unable to accurately estimate future revenues
and operating expenses based upon historical performance.

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 2008 and likely thereafter.  We
cannot be certain that we will achieve positive cash flow at any time in the
future.

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.

Based on our current operating plan, we believe we have sufficient cash
to fund operations through at least March 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:

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

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.

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.

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.

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.

It may become more difficult to sell our stock in the public market.

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, the market price of our
stock traded below $5.00 per share.  On February 29, 2008, the closing price of
our stock was $2.52.

Our lack of the financial and technical resources relative to our
competitors may limit our revenues, potential profits, overall market share or
value.

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.

We may not be able to keep up with rapid technological change and our
financial results may suffer.

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.

We may not succeed in these efforts because of:

- delays in product development,
- lack of market acceptance for our products, or
- lack of funds to invest in product development and marketing.

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

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.

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.

Our planned future products are dependent on advances in technology by
other companies.

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.

Our products may be subject to future health and safety regulations that
could increase our development and production costs.

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.

If we cannot manufacture products at competitive prices, our financial
results will be adversely affected.

To date, we have produced limited quantities of our ROV and Flic products for
commercial sale and demonstration units for research, development and
demonstration purposes.  The cost per unit for these units currently exceeds the
level at which we could expect to profitably sell these products.  If we cannot
lower our cost of production, we may face increased demands on our financial
resources, possibly requiring additional equity and/or debt financing to sustain
our business operations.

Our dependence on sales to distributors increases the risks of managing
our supply chain and may result in excess inventory or inventory shortages.

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.

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.

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.

Our future growth will suffer if we do not achieve sufficient market
acceptance of our products to compete effectively.

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.

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.

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:

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

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.

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.

If we experience delays or failures in developing commercially viable
products, we may have lower revenues.

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.

Our success will depend, in part, on our ability to secure significant
third party manufacturing resources.

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.

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.

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.

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.

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.

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.

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.

During the full years 2007 and 2006, 61% and 51%, 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.

Our development agreements have long sales cycles, which make it difficult
to plan our expenses and forecast our revenues.

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.

Our development contracts may not lead to products that will be
profitable.

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.

Our revenues are highly sensitive to developments in the defense
industry.

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.

If we lose our rights under our third party technology licenses, our
operations will be adversely affected.

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.

We are dependent on third parties in order to develop, manufacture, sell
and market our products.

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.

Loss of any of our key personnel could have a negative effect on the
operation of our business.

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.

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.

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:

- 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;
- changes in evaluations and recommendations by any securities analysts
following our stock or our industry generally;
- announcements by other companies in our industry;
- changes in business or regulatory conditions;
- announcements or implementation by our competitors of technological
innovations or new products;
- the status of particular development programs and the timing of performance
under specific development agreements;
- economic and stock market conditions; or
- other factors unrelated to our company or industry.

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.

If we fail to manage expansion effectively, our revenue and expenses could
be adversely affected.

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.

ITEM 1B.	UNRESOLVED STAFF COMMENTS

None

ITEM 2.	PROPERTIES

We currently lease approximately 67,000 square feet of combined use office,
laboratory and manufacturing space at our headquarters facility in Redmond,
Washington.  The 90 month lease expires in 2013.

ITEM 3.	LEGAL PROCEEDINGS

We are subject to various claims and pending or threatened lawsuits in the
normal course of business.  We are not currently party to any legal proceedings
that we believe would have a material adverse effect on the Company's financial
position, results of operations or cash flows.

We have sued our 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.
We believe these claims are without merit and intend to defend them vigorously.
However, an adverse outcome could have a material adverse affect on our
financial condition.

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of shareholders during the fourth
quarter of the year ending December 31, 2007.

ITEM 4A.	EXECUTIVE OFFICERS OF THE REGISTRANT

Executive officers are appointed by our Board of Directors and hold office
until their successors are elected and duly qualified.  Mr. Tokman also serves
as a director of Microvision.  The following persons serve as executive officers
of Microvision:

Alexander Tokman, age 46, has served as President, Chief Executive Officer
and a director of Microvision since January 2006.  Mr. Tokman served as
Microvision's President and Chief Operating Officer from July 2005 to January
2006.   From April 1995 to July 2005, Mr. Tokman served in various
cross-functional and cross-business leadership positions at GE Healthcare, a
subsidiary of General Electric most recently as a General Manager of its Global
Molecular Imaging and Radiopharmacy unit from May 2003 to June 2005.  From
November 1989 to March 1995 Mr. Tokman served as technical programs lead and a
head of I&RD at Tracor Applied Sciences a subsidiary of then Tracor, Inc.
Mr. Tokman has both a M.S. and B.S. in Electrical Engineering from the
University of Massachusetts, Dartmouth.  He also is a certified Six Sigma &
DFSS Black Belt and Master Black Belt.

Ian D. Brown, age 45, has served as Vice President, Sales and Marketing of
Microvision since February 2006. Prior to joining Microvision, from March 1994
to February 2006, Mr. Brown served in various Sales and Marketing positions with
General Electric Healthcare, Americas. Most recently, from April 2004 to
February 2006, Mr. Brown served as the Sales and Marketing Manager--Nuclear
Medicine. From April 1989 to March 1994 Mr. Brown served as Technical
Author--Nuclear Medicine Operator Documentation with IGE Medical Systems, Radlett, UK.
Mr. Brown holds Ordinary & Higher National Certificates in Medical Physics
& Physiological Measurements from Paddington College, London, Post Graduate
Diploma in Management studies, University of Hertfordshire. He also holds a Six
Sigma Black Belt.

Sid Madhavan, age 41, joined Microvision in April 2006 as Vice President of
Research and Product Development. Madhavan, who worked for GE Healthcare from
1998 to 2006 where he most recently served as an Engineering Subsystem Manager
for a $2.1 billion Molecular Imaging and Computer Tomography business, is a
certified Six Sigma Black Belt and brings over fifteen years of engineering
product development and management experience. Sid Madhavan received his B.S.
degree in Electronics and Communications from Madurai Kamaraj University in
India and his M.S. in Electrical Engineering from Texas A&M.

Thomas M. Walker, age 43, joined Microvision in May 2002 and serves as Vice
President, General Counsel and Secretary. Prior to joining Microvision, Mr.
Walker served as Senior Vice President, General Counsel and Secretary of
Advanced Radio Telecom Corp., a publicly held technology and services company
where he managed domestic and international legal affairs from April 1996 to
April 2002. Prior to that, Mr. Walker advised publicly and privately held
businesses while practicing in the Los Angeles offices of the law firms of
Pillsbury Winthrop and Buchalter, Nemer Fields and Younger. Mr. Walker holds a
B.A. from Claremont McKenna College and a J.D. from the University of Oregon.

Jeff T. Wilson, age 47, has served as Chief Financial Officer since April
2006, Principal Financial Officer since January 2006 and Principal Accounting
Officer of Microvision since August 1999. Mr. Wilson served as Vice President,
Accounting of Microvision from April 2002 to April 2006 and as Director of
Accounting of Microvision from August 1999 to March 2002. Prior to joining
Microvision, from 1991 to 1999, Mr. Wilson served in various accounting
positions for Siemens Medical Systems, Inc., a developer and manufacturer of
medical imaging equipment. Prior to 1991, Mr. Wilson served as a manager with
the accounting firm Price Waterhouse (currently PricewaterhouseCoopers LLP). Mr.
Wilson is a Certified Public Accountant. Mr. Wilson holds a B.S. in Accounting
from Oklahoma State University.

PART II

ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on The NASDAQ Global Market under the symbol
"MVIS."  As of February 29, 2008, there were approximately 374 holders
of record of 56,730,000 shares of common stock outstanding.  We have never
declared or paid cash dividends on our common stock.  We currently anticipate
that we will retain all future earnings to fund the operations of our business
and do not anticipate paying dividends on the common stock in the foreseeable
future.

Our common stock began trading publicly on August 27, 1996.  The quarterly
high and low sales prices of the Company's common stock for each full quarterly
period in the last two fiscal years and the year to date as reported by The
NASDAQ Global Market are as follows:

`Common Stock
                                                       --------------------
Quarter Ended                                            HIGH        LOW
                                                       ---------  ---------
2006
March 31, 2006                                        $    4.25  $    2.41
June 30, 2006                                              4.19       1.88
September 30, 2006                                         2.00       1.16
December 31, 2006                                          3.52       1.35

2007                                                                       
March 31, 2007                                        $    4.08  $    2.98
June 30, 2007                                              5.90       3.62
September 30, 2007                                         6.08       4.40
December 31, 2007                                          4.75       3.83

2008                                                                       
January 1, 2008 to February 29, 2008                  $    4.65  $    1.95`

ITEM 6.	SELECTED FINANCIAL DATA

A summary of selected financial data as of and for the five years ended
December 31, 2007 is set forth below.  It should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this
Form 10-K.

`Years Ended December 31,
                                                                 ---------- ----------- ----------- ----------- -----------
                                                                    2007        2006        2005        2004        2003
                                                                 ----------  ----------  ----------  ----------  ----------
                                                                              (in thousands, except per share data)        
Statement of Operations Data:                                                                                              
Revenue                                                         $   10,484  $    7,043  $   14,746  $   11,418  $   14,652
Net loss available for common shareholders                         (19,787)    (27,257)    (30,284)    (33,543)    (26,163)
Basic and diluted net loss per share                                 (0.40)      (0.81)      (1.35)      (1.56)      (1.46)
Weighted average shares outstanding basic and diluted               49,963      33,572      22,498      21,493      17,946 
Balance Sheet Data:                                                                                                        
Cash and cash equivalents                                       $   13,399  $   14,552  $    6,860  $    1,268  $   10,700
Investments available-for-sale                                      22,411          --          --          --      11,078
Working capital                                                     30,043      19,160      (4,723)        903      19,781
Total assets                                                        45,298      35,325      23,363      25,538      33,918
Long-term liabilities                                                2,201       2,616       4,412          52       2,204
Mandatorily redeemable preferred stock                                  --          --       4,166       7,647          --
Total shareholders' equity (deficit)                                33,061      21,864      (3,509)      7,190      23,295`

Statement of Operations and Balance Sheet data for 2003 includes financial
information for our previously consolidated subsidiary Lumera.  Lumera was
deconsolidated in July 2004.

ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are developing miniature display and imaging engines based upon our
technology platform. Our technology platform utilizes our expertise in two
dimensional Micro-Electrical Mechanical systems ("MEMS"), lasers, optics and
electronics to create a high quality video or still image from a small form
factor device with lower power needs than conventional display technologies.

In 2006, we announced our strategy to develop and supply a proprietary
display engine called PicoP to potential OEM customers who will embed them into
a variety of consumer and automotive products. The primary objective for
consumer applications is to provide users of mobile devices with a large screen
viewing experience produced by a small embedded projector. Mobile devices may
include cell phones, PDA's, gaming consoles and other consumer electronics
products. These potential products would allow users to watch movies, play
videos, display images, and other data onto a variety of surfaces. The PicoP
with some modification could be embedded into the dashboard of an automobile or
an airplane to create a heads up display (HUD) that could project point-by-point
navigation, critical operational, safety and other information important to the
driver or pilot. The PicoP could be further modified to be embedded into a pair
of glasses to provide the mobile user with a see-through or occluded personal
display to view movies, play games or access other content.

We have incurred substantial losses since inception and expect to incur a
substantial loss during the fiscal year ended December 31, 2008.

Key Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States.  The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
liabilities.  On an on-going basis, we evaluate our estimates, including those
related to revenue recognition, contract losses, bad debts, investments and
contingencies and litigation.  We base our estimates on historical experience,
terms of existing contracts, our evaluation of trends in the display and image
capture industries, information provided by our current and prospective
customers and strategic partners, information available from other outside
sources, and on various other assumptions we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these estimates under different
assumptions or conditions.

We believe the following key accounting policies require more significant
judgments and estimates used in the preparation of its consolidated financial
statements:

Revenue Recognition.  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.  We use this revenue recognition methodology because
we can make reliable estimates of the revenue and costs.  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.
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.

Our product sales generally include acceptance provisions.  We recognize
revenue for product shipments upon acceptance of the product by the customer or
expiration of the contractual acceptance period.

Losses on Uncompleted Contracts.  We establish an allowance for
estimated losses if a contract has an estimated cost to complete that is in
excess of the remaining contract value.  The entire estimated loss is recorded
in the period in which the loss is first determined.  We determine the estimated
cost to complete a contract through a detailed review of the work to be
completed, the resources available to complete the work and the technical
difficulty of the remaining work.  If the revised estimated cost to complete the
contract is higher than the total contract revenue, the entire contract loss is
recognized.  The actual cost to complete a contract can vary significantly from
the estimated cost, due to a variety of factors including availability of
technical staff, availability of materials and technical difficulties that arise
during a project.  Most of our development contracts are cost plus fixed fee
type contracts.  Under these types of contracts, we are not required to spend
more than the contract value to complete the contracted work.

Allowance for uncollectible receivables.  We maintain allowances for
uncollectible receivables, including accounts receivable, cost and estimated
earnings in excess of billings on uncompleted contracts and receivables from
related parties.  We review several factors in determining the allowances
including the customer's and related party's past payment history and financial
condition.  If the financial condition of our customers or the related parties
with whom we have receivables were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances could be required.

Inventory.  We value inventory at the lower of cost or market with
cost determined on a weighted average cost basis.  We review several factors in
determining the market value of our inventory including evaluating the
replacement cost of the raw materials and the net realizable value of the
finished goods.  If we do not achieve our targeted sales prices, if market
conditions for our components or products were to decline or if we do not
achieve our sales forecast, additional reductions in the carrying value of the
inventory would be required.

Employee Share-Based Compensation.  We issue share-based compensation
to employees in the form of options exercisable into our common stock.  We
account for employee share-based compensation under the guidance provided by
Financial Accounting Standards Board ("FASB") issued FASB Statement
No. 123(R), Share-Based Payment.  We use the Black-Scholes option pricing
model to estimate the value of these instruments.  We use this model because it
results in reasonable estimated fair values for our standard options, is widely
accepted and provides comparability across a wide range of similar companies.
To use the Black-Scholes options pricing model we must evaluate a range of
variables and determine estimates of future option lives, stock volatility and
interest rates.  In addition, once estimated fair values are developed, we must
estimate prevesting forfeiture rates.  Changes in these estimates could result
in a materially different valuation of the stock-based compensation.  Other
models for valuing stock-based compensation exist and the use of an alternative
model could result in a materially different valuation of the compensation
expense.

The key accounting policies described above are not intended to be a
comprehensive list of all of our accounting policies.  In many cases, the
accounting treatment of a particular transaction is specifically dictated by
generally accepted accounting principles, with no need for us to apply judgment
or make estimates.  There are also areas in which our judgment in selecting any
available alternative would not produce a materially different result to our
consolidated financial statements.  Additional information about our accounting
policies, and other disclosures required by generally accepted accounting
principles, are set forth in the notes to our consolidated financial
statements.

Inflation has not had a material impact on our revenues, or income from
continuing operations over the three most recent fiscal years.

Results of Operations

YEAR ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED DECEMBER 31, 2006

Contract Revenue.

`% of                  % of
                                                            contract              contract
                                                   2007      revenue     2006      revenue   $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------  ---------  ---------
Government revenue                              $   6,430       71.4  $   3,586       68.0  $   2,844       79.3
Commercial revenue                                  2,580       28.6      1,689       32.0        891       52.8
                                                 ---------             ---------             ---------
Total contract revenue                          $   9,010             $   5,275             $   3,735       70.8
                                                 =========             =========             =========`

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

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 higher during 2007 than in 2006, due to higher beginning government
contract backlog and an increased level of activity on commercial contracts
compared to the prior year.

In May 2007, we announced that we had entered into a $3.2 million contract
with the U.S. Air Force to provide a lightweight, see-through, full-color
eyewear display prototype to the government.  The contract, which continues a
development activity with the Air Force, specifies the development, design,
verification, testing, and delivery of a lightweight, see-through full-color
wearable display for evaluation by several DOD project offices.

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
one period to another.

Our backlog of development contracts at December 31, 2007 was $3.8 million
compared to $6.8 million at December 31, 2006.  The backlog is composed of
development contracts entered through December 31, 2007. We plan to complete the
entire contract backlog during 2008.

Product Revenue.

`% of                  % of
                                                             product               product
                                                   2007      revenue     2006      revenue   $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------  ---------  ---------
Rov revenue                                     $      90        6.1  $      --        0.0  $      90      N/A
Flic revenue                                        1,303       88.4      1,589       89.9       (286)     (18.0)
Nomad revenue                                          81        5.5        179       10.1        (98)     (54.7)
                                                 ---------             ---------             ---------
Total product revenue                           $   1,474             $   1,768             $    (294)     (16.6)
                                                 =========             =========             =========`

We have earned product revenue from sales of ROV, Flic and Nomad.

In May 2007, we announced the launch of ROV, our new bar code scanner
product.  The ROV is based on our proprietary MEMS technology.  ROV is being
manufactured by our contract manufacturing partner in Malaysia.  We had planned
to begin commercial shipments of ROV during the third quarter of 2007.  During
our Beta evaluation, we determined that ROV did not meet our quality standards.
We delayed the launch of ROV production until we could correct the deficiencies.
Commercial shipments of ROV began during the fourth quarter of 2007.

The decrease in Flic revenue in 2007 compared to 2006 was the result of the
timing of the release of ROV. We believe that many of our customers were waiting
for the availability of ROV before placing orders for our bar code scanning
products.

The decrease in Nomad revenue was the result of our decision in June 2006 to
no longer promote the Nomad product.  The Nomad had not gained the commercial
acceptance we had planned when it was introduced.

Our quarterly revenue may vary substantially due to the timing of product
orders from customers, production constraints and raw material availability.

The backlog of product orders at December 31, 2007 was approximately
$245,000, compared to $353,000 at December 31, 2006, all of which is scheduled
for delivery during 2008.

Cost of Contract Revenue.

`% of                  % of
                                                            contract              contract
                                                   2007      revenue     2006      revenue   $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------  ---------  ---------
Cost of contract revenue                        $   4,916       54.6  $   3,398       64.4  $   1,518       44.7`

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.

The cost of contract revenue as a percentage of revenue was lower in 2007
than in 2006 as a result of negotiating better terms on contracts entered into
in late 2006 and early 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.

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.

Cost of Product Revenue.

`% of                  % of
                                                             product               product
                                                   2007      revenue     2006      revenue   $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------  ---------  ---------
Cost of product revenue                         $   1,690      114.7  $   4,768      269.7  $  (3,078)     (64.6)`

Cost of product revenue includes both the direct and allocated indirect
costs of manufacturing ROVs and Flics sold to customers.  Direct costs include
labor, materials and other costs incurred directly in the manufacture of ROV and
Flic.  Indirect costs include labor and other costs associated with operating
our manufacturing capabilities and capacity.

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 2007 and 2006, we expensed approximately $289,000 and
$1,224,000, respectively, of manufacturing overhead associated with production
capacity in excess of production requirements.

The decline in cost of product revenue as a percentage of product revenue for
2007 compared to 2006 is attributable to the following factors:

- The decision in June 2006 to no longer support the Nomad product line.
During 2006, we recorded expenses of $1.2 million associated with the Nomad
product line that were not repeated in 2007.

- Reduced direct cost and overhead on the Flic product line resulting in a
savings of approximately 108% for the year ended December 31, 2007 compared to
the same period in 2006.

- The absence of losses associated with noncancelable purchase contracts.  In
2006, we recorded a loss of $310,000 to cost of product revenue as a result of
commitments to purchase materials for the Flic scanner that were in excess of
our estimated future proceeds from the sale of the Flic scanners.

We expect that the cost of product revenue on an absolute dollar basis will
increase in the future as expected sales of commercial products increase.  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.

Research and Development Expense.

`2007       2006     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Research and development                        $  14,944  $  10,715  $   4,229       39.5`

Research and development expense consists of:

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

Our research and development department works on both contract revenue
projects and internally funded development projects.  We allocate the research
and development department overhead to cost of contract revenue and research and
development expense based on the proportion of direct labor cost incurred in
cost of contract revenue and research and development, respectively.

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.

We believe that a substantial level of continuing research and development
expense will be required to develop additional commercial products using the
light scanning technology.  Accordingly, we anticipate our level of research and
development spending will continue to be substantial.

Sales, Marketing, General and Administrative Expense.

`2007       2006     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Sales, marketing, general and administrative    $  15,779  $  17,362  $  (1,583)      (9.1)`

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.

In early 2006, we announced our plan to reduce spending in sales, marketing,
general and administrative expenses.  We continue to aggressively manage these
costs as part of our strategy of accelerating the development of products based
on the PicoP while controlling the cash burn.  The decrease in sales, marketing,
general and administrative expense in 2007 compared to 2006 is the result of the
cost reduction efforts.

Interest Income and Expense.

`2007       2006     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Interest income                                 $   1,358  $     719  $     639       88.9`

`2007       2006     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Interest expense                                $     513  $   5,753  $  (5,240)     (91.1)`

The increase in interest income in 2007 from 2006 results from higher average
cash and investment securities balances.

In March 2005, we raised $10 million before issuance costs of $423,000 from
the issuance of convertible notes ("March Notes") and warrants to purchase an
aggregate of 462,000 shares of Microvision common stock. In December 2005, we
raised $10 million before issuance costs of $134,000 from the issuance of
convertible notes ("December Notes"), 838,000 shares of Microvision common stock
and warrants to purchase an aggregate of 1,089,000 shares of Microvision common
stock.  The decrease in interest expense from the prior year relates to the
lower outstanding balance of our March and December Notes in 2007 than in 2006.

Gain (Loss) on Derivative Instruments, Net.

`2007       2006     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Gain (loss) on derivative instruments, net      $    (483) $   1,627  $  (2,110)    (129.7)`

In connection with the issuance of our March Notes and our December Notes
(together, the "Notes"), we concluded that the note holders' right to
convert all or a portion of the Notes into our common stock is an embedded
derivative instrument as defined by FAS 133, Accounting for Derivative
Instruments and Hedging Activities.  We determine the value of the
derivative features at each balance sheet date using the Black-Scholes option
pricing model.  Due to the retirement of our Notes in March 2007, the value of
the derivative feature decreased to zero.  The change in value of $68,000 from
December 31, 2007 to the date of retirement of the Notes was recorded as a non-
operating gain and is included in "Gain (loss) on derivative instruments, net"
in the consolidated statement of operations.

We issued warrants to purchase 2,302,000 shares of common stock in connection
with the issuance of the 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, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock,because we cannot engage in certain corporate transactions affecting
the common stock unless we make a cash payment to the holders of the warrants.
We record changes in the fair values of the warrants in the statement of
operations each period.  We valued the warrants at December 31, 2007 using the
Black-Scholes option pricing model with the following assumptions:  expected
volatility of 67%; expected dividend yield of 0%; risk free interest rates
ranging from 3.05% to 3.07%; and contractual lives ranging from .6 years to 2.9
years.  The change in value of the warrants of $85,000 in 2007 was recorded as a
non-operating loss and is included in "Gain (loss) on derivative
instruments, net" in the consolidated statement of operations.

In January 2006, we sold 2.6 million shares of Lumera common stock for $10.3
million.  As a result of the reduction in ownership, we changed to the cost
basis of accounting for our investment in Lumera in accordance with FAS 115.
In connection with the change in accounting method, we recorded $476,000 in
"Other current assets" for the fair value of warrants previously received to
purchase 170,500 shares of Lumera common stock.  On the transaction date, the
warrants were initially 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.  As
of December 31, 2007, 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 3.11%; and contractual
life of 3.2 years.  As of December 31, 2007, the fair value of the warrants
decreased to $130,000 and the change in value of $465,000 in 2007 was recorded
as a loss to "Gain (loss) on derivative instruments, net."

Equity in losses of Lumera and Gain on sale of investment in
Lumera.

Equity in losses of Lumera:

`2007       2006     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Equity in losses of Lumera                      $       0  $    (290) $     290     (100.0)`

Gain on sale of securities of equity investment:

`2007       2006     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Gain on sale of investment in Lumera            $   6,606  $   8,738  $  (2,132)     (24.4)`

In 2006, we sold 2.9 million shares of our Lumera common stock for $12.2
million.  We recorded a "Gain on sale of investment in Lumera" of
approximately $8.7 million.  In January 2006, we recorded a charge of $290,000
for our proportion of Lumera net loss for the period preceding change in
accounting method.

During 2007, we sold 1,714,000 shares of Lumera common stock for gross
proceeds of $8.7 million and we recorded a gain of $6.6 million.  As of December
31, 2007, we owned 36,000 shares of Lumera common stock.

Income Taxes.

No provision for income taxes has been recorded because we have experienced
net losses from inception through December 31, 2007.  At December 31, 2007, we
had net operating loss carry-forwards of approximately $200.0 million for
federal income tax reporting purposes.  In addition, we have research and
development tax credits of $3.6 million.  The net operating losses begin
expiring in 2008 if not previously utilized.  In certain circumstances, as
specified in the Internal Revenue Code, a 50% or more ownership change by
certain combinations of our shareholders during any three-year period would
result in a limitation on our ability to utilize a portion of our net operating
loss carry-forwards.  We have determined that such a change of ownership
occurred during 1995 and that the annual utilization of loss carry-forwards
generated through the period of that change will be limited to approximately
$761,000.  An additional change of ownership occurred in 1996 and the annual
limitation for losses generated in 1996 is approximately $1.6 million.

We adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, on January 1, 2007.  We did not have any
unrecognized tax benefits which would require an adjustment to the January 1,
2007 beginning balance of retained earnings.  We did not have any unrecognized
tax benefits at January 1, 2007 and at December 31, 2007.

We recognize interest accrued and penalties related to unrecognized tax
benefits in tax expense.  During the years ended December 31, 2007 and 2006, we
recognized no interest and penalties.

Inducement for Conversion of Preferred Stock

`2007       2006     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Inducement for conversion of preferred stock    $       0  $  (3,076) $   3,076     (100.0)`

In May 2006, we entered into a Conversion Agreement with the holders of
our Series A Convertible Preferred Stock to convert 5,000 shares of Preferred
Stock. The details of the conversion are discussed under "Inducement for
Conversion of Preferred Stock" presented below.

YEAR ENDED DECEMBER 31, 2006 COMPARED TO YEAR ENDED DECEMBER 31, 2005

Contract Revenue.

`% of                  % of
                                                            contract              contract
                                                   2006      revenue     2005      revenue   $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------  ---------  ---------
Government revenue                              $   3,586       68.0  $   5,209       45.7  $  (1,623)     (31.2)
Commercial revenue                                  1,689       32.0      6,177       54.3     (4,488)     (72.7)
                                                 ---------             ---------             ---------
Total contract revenue                          $   5,275             $  11,386             $  (6,111)     (53.7)
                                                 =========             =========             =========`

During 2005, we earned $4.9 million from work performed on a contract with
Ethicon Endo-Surgery, Inc., a subsidiary of Johnson & Johnson, integrating
our technology into certain medical devices compared to $806,000 during 2006.
We delivered the prototype devices as required and completed the work under the
contract in 2006.



In September 2006, we entered into an 18 month $5.95 million contract with
General Dynamics C4 Systems to supply full-color, daylight readable, see-through
helmet-mounted displays as part of the U.S. Army's Mounted Warrior HMD
Improvement Program.  General Dynamics holds prime contracts with the U.S. Army
for other Warrior programs including Land Warrior, Air Warrior and Future Force
Warrior Advanced Technology Demonstration.  The contract specifies the
development and delivery of ten full-color display units for evaluation.

In September 2006, we also entered into a 12 month agreement with Visteon, a
global Tier 1 automotive supplier.  Under the agreement, we worked with Visteon
to design and produce a series of advanced automotive head-up display samples.
Visteon, working in collaboration with us, is expected to use the samples to
demonstrate the performance of our laser-based light scanning technology and to
refine commercial product requirements of automotive head-up displays.

Our backlog of development contracts at December 31, 2006 was $6.8 million
compared to $2.8 million at December 31, 2005.

Product Revenue.

`% of                  % of
                                                             product               product
                                                   2006      revenue     2005      revenue   $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------  ---------  ---------
Flic revenue                                    $   1,589       89.9  $   1,569       46.7  $      20        1.3
Nomad revenue                                         179       10.1      1,791       53.3     (1,612)     (90.0)
                                                 ---------             ---------             ---------
Total product revenue                           $   1,768             $   3,360             $  (1,592)     (47.4)
                                                 =========             =========             =========`

During 2005, we sold 165 Nomad units totaling $1.2 million to General
Dynamics and there was no corresponding sale in 2006.  The Nomad did not gain
the commercial acceptance we had planned when it was introduced.  In June 2006,
we decided not to continue to promote the Nomad product.

The backlog of product orders at December 31, 2006 was approximately
$353,000, compared to $579,000 at December 31, 2005.

Cost of Contract Revenue.

`% of                  % of
                                                            contract              contract
                                                   2006      revenue     2005      revenue   $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------  ---------  ---------
Cost of contract revenue                        $   3,398       64.4  $   6,456       56.7  $  (3,058)     (47.4)`

Our research and development department works on both contract revenue
projects and internally funded development projects.  We allocate the research
and development department overhead to cost of contract revenue and research and
development expense based on the proportion of direct labor cost incurred in
cost of contract revenue and research and development, respectively.  As a
result of the lower direct labor cost in cost of contract revenue in 2006,
approximately $1,329,000, less overhead was allocated to cost of contract
revenue than in 2005.

Cost of Product Revenue.

`% of                  % of
                                                             product               product
                                                   2006      revenue     2005      revenue   $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------  ---------  ---------
Cost of product revenue                         $   4,768      269.7  $   8,636      257.0  $  (3,868)     (44.8)`

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 2006, we expensed approximately $1,224,000, or $234,000 less
than in 2005, of manufacturing overhead associated with production capacity in
excess of production requirements.

Cost of product revenue for 2006 includes the write-off of a total of
$1,181,000 of inventory, compared to $3,732,000 for 2005.  The write-offs were
due to changes in product design, our decision not to promote the Nomad product,
and customer demand that caused components and accessories to become obsolete or
slow-moving.  We value our inventory at the lower of cost or market and reduce
the value of our inventory to its estimated scrap value when we determine that
we will probably not sell the inventory during the next 12 months. As a result
of our decision not to promote the Nomad product we also recorded $100,000 in
depreciation expense to fully depreciate the fixed assets used in Nomad
production.

We have periodically entered into noncancelable purchase contracts in order
to ensure the availability of materials to support Flic production.  We
periodically assess the need to provide for impairment on these purchase
contracts and record a loss on purchase commitments when required.  In December
2006, we recorded a loss of $310,000 to cost of product revenue as a result of
commitments to purchase materials for the Flic scanner that are in excess of our
estimated future proceeds from the sale of the Flic scanners.

Research and Development Expense.

`2006       2005     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Research and development                        $  10,715  $   6,587  $   4,128       62.7`

During 2006, we directed more engineering labor to work on internally funded
development projects than planned resulting in higher research and development
expense. Total costs incurred by our research and development department for
cost of contract revenue and research and development expense activities were
higher during 2006 than 2005.  Research and development expense was higher in
2006 than 2005 due to higher direct labor, subcontractor and material costs.
The higher proportions of direct labor on internally funded projects relative to
revenue projects in 2006 than in 2005 resulted in more indirect overhead cost
absorption into research and development expense in 2006.  In addition, 2006
included $396,000 and $324,000, respectively, for FAS 123R option expense and
severance that did not occur in 2005.

Sales, Marketing, General and Administrative Expense.

`2006       2005     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Sales, marketing, general and administrative    $  17,362  $  20,352  $  (2,990)     (14.7)`

During 2006, we made significant reductions in staff and marketing expenses
related to the discontinuation of the Nomad product, reductions in corporate
staff expenses, professional fees, and increased focus and efficiencies in
operations.  These reductions were offset in part in non-cash compensation cost
arising from the adoption of FAS 123(R) of $1.4 million and severance costs of
$518,000, which did not occur in 2005.

In January 2006, two senior officers with outstanding loans from the Company
left the Company. Because the loans were not fully secured and collection was
uncertain, we increased the allowance by $1,031,000 in December 2005. In
accordance with the terms, the loans were due in January 2007. Neither of the
officers has repaid their loans. One of the officers pledged 50,000 shares of
Lumera common stock as collateral for the loans .  In May 2007, we foreclosed on
the collateral and sold the shares for net proceeds of $227,000.  We are
pursuing collection of the remaining outstanding balances. As a result of a
review of the financial position of the former executives and the potential
difficulty in collecting loans from former employees, the Company recorded
additional allowances for doubtful accounts for the receivables from senior
officers of $542,000 during the year ended December 31, 2006.  A third executive
with outstanding loans from the Company left the Company in August 2007 and his
loans will be due in August 2008.

Interest Income and Expense.

`2006       2005     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Interest income                                 $     719  $     263  $     456      173.4`

`2006       2005     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Interest expense                                $   5,753  $   3,253  $   2,500       76.9`

The increase in interest income in 2006 from 2005 results from higher cash
and cash equivalents investment balances, and higher interest rates earned on
balances during 2006 than in 2005.

The increase in interest expense relates to the amortization of the discount
recorded on the March 2005 and December 2005 convertible notes (together the
"Notes") for the value attributed to the embedded derivative feature
of the Notes and associated warrants. This was partially offset by the stated
interest on the Notes being lower in 2006 than in 2005 due to a lower average
balance resulting from payments on the Notes.

Gain (Loss) on Derivative Instruments, Net.

The following table shows the gain on derivative instruments, net:

`2006       2005     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Gain (loss) on derivative instruments, net      $   1,627  $   5,975  $  (4,348)     (72.8)`

In connection with the issuance of our Notes, we concluded that the note
holders' right to convert all or a portion of the Notes into our common stock is
an embedded derivative instrument as defined by FAS 133, Accounting for
Derivative Instruments and Hedging Activities. We determine the value of the
derivative features at each balance sheet date using the Black-Scholes option
pricing model. At December 31, 2006, we used the following assumptions: expected
volatilities of 67%; expected dividend yields of 0%; risk free interest rate of
4.96%; and contractual lives of 2.5 months. The contractual lives are the same
as the principal repayment dates when valuing the derivative features. Due to
changes in our stock price and the short remaining lives, the aggregate fair
value of the embedded derivative instruments decreased to $68,000 at December
31, 2006. The change in value of $1,300,000 for 2006 was recorded as a non-
operating gain and is included in "Gain on derivative instruments, net" in the
consolidated statement of operations.

We issued warrants to purchase 2,302,000 shares of common stock in connection
with the issuance of the 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, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock,
because we cannot engage in certain corporate transactions affecting the common
stock unless we make a cash payment to the holders of the warrants. We record
changes in the fair values of the warrants in the statement of operations each
period. We valued the warrants at December 31, 2006 using the Black-Scholes
option pricing model with the following assumptions: expected volatilities of
67%; expected dividend yields of 0%; risk free interest rates ranging from 4.72%
to 4.90%; and contractual lives ranging from 1.6 years to 3.9 years. The change
in value of the warrants of $880,000 in 2006 was recorded as a non-operating
gain and is included in "Gain on derivative instruments, net" in the
consolidated statement of operations.

In January 2006, we sold 2.6 million shares of Lumera common stock, reduced
our ownership, and changed to the cost basis of accounting for our investment in
Lumera in accordance with FAS 115. Changes in the fair value of our warrant,
exercisable at $8.80, to purchase 170,500 shares of Lumera common stock
beginning from the January 2006 sale are included in "Gain on derivative
instruments, net" in the consolidated statement of operations each period. On
the transaction date, the warrants were initially 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. As of December 31, 2006, 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 4.7%; and contractual life of 4.2 years. As of December 31, 2006, the
fair value of the warrants increased to $595,000 and the change in value of
$119,000 was recorded as a gain to "Loss on derivative instruments, net."

In May 2006, we entered into an agreement with the holders of our Series A
Convertible Preferred Stock to convert 5,000 shares of preferred stock to common
stock. As consideration for the conversion, we issued a total of 1,353,000
shares of our common stock, of which 565,000 shares were issued as an inducement
to convert ("Incentive Shares"). In connection with the conversion, we also
agreed to register the Incentive Shares and to provide price protection on the
Incentive Shares. We determined the price protection feature of the Incentive
Shares included an embedded derivative feature as defined by FAS 133. The value
of the derivative feature at conversion was estimated to be $401,000 using the
Black-Scholes option pricing model with the following assumptions: expected
volatility of 65%; expected dividend yield of 0%; risk free interest rate of
4.9%; and contractual life of 0.3 years. We recorded the initial value of the
embedded derivative feature as a non-operating expense included in "Inducement
for conversion of preferred stock" in the consolidated statement of operations.
In August 2006, we determined the final value and paid the liability of
$1,074,000. The changes in the estimated fair value of the derivative feature
$673,000 was included as a non-operating expense in "Gain on derivative
instruments, net."

Loss on debt extinguishment.

`2006       2005     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Loss on debt extinguishment                     $       0  $  (3,313) $   3,313    (100.0)`

In July 2005, we entered into an agreement to amend the March Notes.  In
connection with the amendment, we issued three year warrants to purchase 750,000
shares of Microvision common stock with an initial exercise price of $6.84 per
share; reduced the conversion price on the March Notes to $5.85 per share and
the price at which we can mandatorily convert the Notes was reduced to $10.24;
and removed the note holders' right to exchange the Notes into Lumera common
stock.  We concluded that the amendment of the March Notes met the criteria of a
debt extinguishment and recorded a charge of $3,313,000 for the change in the
fair value of the debt in July 2005.

Equity in losses of Lumera and Gain on sale of securities of equity
investment in Lumera.

Equity in losses of Lumera:

`2006       2005     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Equity in losses of Lumera                      $    (290) $  (3,242) $   2,952      (91.1)`

Gain on sale of securities of equity investment:

`2006       2005     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Gain on sale of investment in Lumera            $   8,738  $   2,700  $   6,038     223.6`

In January 2006, we sold 2.6 million shares of our Lumera common stock for
$10.3 million. We recorded a "Gain on sale of securities of equity investment"
of approximately $7.3 million. As a result of the reduction in ownership, we
changed to the cost basis of accounting for our investment in Lumera in
accordance with FAS 115. We recorded our proportionate share of Lumera losses,
$290,000, for the period preceding the sale in January 2006, compared to the
full year in 2005.

Income Taxes.

At December 31, 2006, we had net operating loss carry-forwards of
approximately $198.0 million for federal income tax reporting purposes.  In
addition, we had research and development tax credits of $2.9 million.

Inducement for Conversion of Preferred Stock.

`2006       2005     $ change   % change
(in thousands)                                   ---------  ---------  ---------  ---------                      
Inducement for conversion of preferred stock    $  (3,076) $  (1,184) $  (1,892)    159.8`

In September 2004, we raised $10.0 million before issuance costs of $90,000
from the sale of 10,000 shares of convertible preferred stock and a warrant to
purchase 362,000 shares of common stock.   The preferred stock terms include a
dividend of 3.5% per annum, payable quarterly in cash or registered common
stock, at our election, subject to certain conditions.

The net cash proceeds of $9,910,000 were allocated to the preferred stock and
the warrant based on the relative fair values of the securities.  The warrants
were valued using the Black-Scholes option pricing model with the following
assumptions:  expected volatility, 75%; risk free interest rate, 3.4%, and
contractual life five years.  $1.3 million of the proceeds were allocated to the
warrant and was recorded as an increase to additional paid-in capital.

Subsequent to the relative fair value allocation, the effective conversion
price of the convertible preferred stock was less than the closing price of our
common stock on the date of commitment to purchase the preferred stock,
resulting in the recognition of a beneficial conversion feature in accordance
with Emerging Issues Task Force No 00-27 "Application of Issue No. 98-5 to
Certain Convertible Instruments."  This beneficial conversion feature was
measured as $1.2 million, which represents the difference between the fair value
of the common stock and the effective conversion price.  This beneficial
conversion feature was recorded to additional paid-in capital and will be
recorded as a deemed dividend to preferred stockholders (accretion) using the
effective interest method, over the stated life of the preferred stock, which is
three years.  During 2005, we recorded $280,000 in dividends on the preferred
stock and $303,000 in accretion of the beneficial conversion feature of the
preferred stock.

In May 2006, we entered into a Conversion Agreement with the holders of our
Series A Convertible Preferred Stock to convert 5,000 shares of Preferred Stock.
As consideration for the conversion, we issued a total of 1,353,066 shares of
our common stock, $.001 par value, of which 565,000 shares were issued as an
inducement to convert ("Incentive Shares"). The value of the Incentive Shares of
$2.0 million together with unamortized discounts of $0.6 million and fees of
$0.1 million were recorded as "Inducement for conversion of preferred stock" in
the consolidated statement of operations.

In connection with the conversion, we were required to register the Incentive
Shares. Under the conversion agreement, we agreed to pay the difference, only if
positive, of $3.62 minus the 45 day trailing volume weighted average price as of
the 45th trading day after the effective date of the required registration
statement with respect to any of the Incentive Shares that were sold by the
holder during the 45 day period or that were held in an economically neutral
position as of the end of the 45 day period. We determined that the price
protection feature of the Incentive Shares included an embedded derivative
feature as defined by Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities ("FAS 133"). We
estimated the initial value of the derivative feature at conversion to be
$401,000 using the Black-Scholes option pricing model with the following
assumptions: expected volatility 65%, dividend yield of 0%, risk free interest
rate 4.9% and contractual life 0.3 years and recorded it as a non- operating
expense included in "Inducement for conversion of preferred stock" in the
consolidated statement of operations.

The value of the derivative feature fluctuated with the value of our common
stock and, to a lesser extent, with changes in valuation variables. In August
2006, the Company determined and recorded the final value and paid the liability
of $1,074,000. The change in estimated fair value of the derivative feature of
$673,000 was included as a non-operating expense in "Gain on Derivative
instruments, net".  In August 2005, the preferred stock holder agreed to convert
5,000 shares of our preferred stock into 734,000 shares of common stock.  As an
inducement to convert the preferred stock we issued 124,000 shares of our common
stock to the preferred stock holder and adjusted the exercise price from $8.16
to $6.84 per share for the existing warrants to purchase 362,000 shares of
common stock issued in connection with the original sale of preferred stock.
The total value of the 124,000 common shares issued of $701,000, the change in
the value of the warrants of $62,000 and the amount of unamortized beneficial
conversion feature on the preferred stock of $421,000 was recorded as an
inducement to convert the preferred stock and charged to common shareholders in
2005.  The warrants were valued using the Black-Scholes option pricing model
with the following assumption:  expected volatility 65%, risk free interest rate
4.25% and contractual life 4.1 years.

Liquidity and Capital Resources

We have incurred significant losses since inception.  We have funded
operations to date primarily through the sale of common stock, convertible
preferred stock, warrants, the issuance of convertible debt and, to a lesser
extent, from development contract revenues and product sales.  At December 31,
2007, we had $35.8 million in cash, cash equivalents, and investment securities,
available-for-sale.  In June and July 2007, we received $34,092,000 from the
exercise of 12,855,000 publicly traded warrants after we exercised our right to
call these warrants.   In addition, during the year ended December 31, 2007, we
sold approximately 1,714,000 shares of Lumera common stock for gross proceeds of
$8,717,000.  Based on our current operating plan, we believe we have sufficient
cash to fund operations through at least March 2009.   We will require
additional cash to fund our 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 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.

Cash used in operating activities totaled $21.3 million during 2007, compared
to $27.1 million during 2006.

We had the following material gains and charges, and changes in assets and
liabilities during the year ended December 31, 2007.

- "Non cash interest expense, net"

- "Gain on sale of investment in Lumera"

- "Billings in excess of costs and estimated earnings on uncompleted
contracts"

- "Inventory"

`December 31,
                                                                   ------------------------
                                                                      2007         2006
                                                                   -----------  -----------
Raw materials                                                     $   122,000  $   146,000
Work in process                                                        10,000           --
Finished goods                                                        629,000      897,000
                                                                   -----------  -----------
                                                                  $   761,000  $ 1,043,000
                                                                   ===========  ===========`

Cash used in investing activities totaled $14.2 million in 2007 compared to
cash provided by investing activities of $11.8 million in 2006.  Cash used in
investing activities in 2007 includes net purchases of $22.3 million of
investment securities with a portion of the proceeds from the call of our public
warrants. In January 2006, we sold 2.6 million shares of our Lumera common stock
for $10.3 million.  In 2006, we had no net purchases of investment securities.
During 2007, we sold 1.7 million shares of Lumera common stock for $8.7 million.
In addition, we used cash of $1.1 million for capital expenditures in 2007,
compared to $2.2 million during the same period in 2006.  Capital expenditures
include leasehold improvements to leased office space and computer hardware and
software, laboratory equipment and furniture and fixtures to support operations.
The decrease is due to the absence of expenditures for leasehold improvements to
our new facility that we incurred in 2006.

Cash provided by financing activities totaled $34.4 million in 2007, compared
to $23.0 million in 2006.

The following is a list of scheduled payments we made in connection with our
March and December 2005 convertible notes during 2007 and 2006.

- During 2007:
- cash payments of $1.4 million in principal and $28,000 in interest, and
- issued 459,000 shares of its common stock in payment of $1.4 million in
principal and $21,000 in interest.

- During 2006:
- cash payments of $9.6 million in principal and $722,000 in interest,
and
- issued 1.4 million shares of our common stock in payment of $1.7 million in
principal and $88,000 in interest.

The following is a list of securities issuances during 2007 and 2006.

- On June 21, 2007, we exercised our right to call our publicly traded
warrants.  Under the terms of the publicly traded warrants, the warrant holders
had until July 6, 2007 to exercise their warrants or the warrants would expire.
We received $34,092,000 from the exercise of 12,855,000 publicly traded warrants
after we exercised our right to call these warrants.

- In November 2006, we raised $7.9 million before issuance costs of $779,000
through an underwritten public offering of 3,318,000 shares of our common stock.

- In June and July 2006, we raised an aggregate of $27.1 million before
issuance cost of $2.2 million through an underwritten public offering of 11.6
million shares of our common stock and warrants to purchase 12.4 million shares
of our common stock.  The warrants have an exercise price of $2.65 per share, a
five year term, and are not exercisable for one year from the date of issuance.
The warrants are callable after one year from the date of issuance if the
average closing bid price of our stock is over $5.30 for any 20 consecutive
trading days.  In connection with the offering, the Company issued the
underwriter a warrant to purchase 537,500 shares of Microvision common stock at
an exercise price of $2.76 per share.  The Company also issued the underwriter a
warrant to acquire 537,500 warrants, identical to those sold in the offering, at
an exercise price of $0.16 per warrant.  Both warrants will be exercisable for a
period of 4 years beginning on the first anniversary of the date of
issuance.

We may also raise cash through future sales of our preferred or common stock,
issuance of debt securities or other borrowings.  Should expenses exceed the
amounts budgeted, we may require additional cash earlier than expected to
further the development of our technology, for expenses associated with product
development, and to respond to competitive pressures or to meet unanticipated
development difficulties.  The operating plan also provides for the development
of strategic relationships with systems and equipment manufacturers that may
require additional investments.  There can be no assurance that additional
financing will be available to us or that, if available, it will be available on
acceptable terms on a timely basis.  If adequate funds are not available to
satisfy either short-term or long-term capital requirements or planned revenues
are not generated, that we may be required to limit its operations
substantially.  This limitation of operations may include reductions in staff
and discretionary costs, which may include non-contractual research costs.  Our
cash 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 our technology and the
market acceptance and competitive position of such products.

Future operating expenditures and capital requirements will depend on
numerous factors, including the following:

- the progress of research and development programs,
- the progress in commercialization activities and arrangements,
- the cost of filing, prosecuting, defending and enforcing any patent claims
and other intellectual property rights,
- competing technological and market developments, and
- our ability to establish cooperative development, joint venture and
licensing arrangements.

In order to maintain our exclusive rights under our license agreement with
the University of Washington, we are obligated to make royalty payments to the
University of Washington with respect to the Virtual Retinal Display technology.
If we are successful in establishing original equipment manufacturer co-
development and joint venture arrangements, we expect our partners to fund
certain non-recurring engineering costs for technology development and/or for
product development.  Nevertheless, we expect our cash requirements to remain
high as we expand our activities and operations with the objective of
commercializing the light scanning technology.

The following table lists our contractual obligations (in thousands):

`December 31,
                                               ------------------------------------------------------------------
                                                 2008       2009       2010       2011       2012     After 2012     Total
                                               ---------  ---------  ---------  ---------  ---------  -----------  ---------
Contractual Obligations:                                                                                                    
Open purchase orders *                        $   3,654  $     178  $      --  $      --  $      --  $        --  $   3,832
Minimum payments under capital leases                55         49         40          8         --           --        152
Minimum payments under operating leases             896        852        881        905        935          564      5,033
Minimum payments under research, royalty
 and licensing agreements                           215        215        175        350        350           --  +   1,305
                                               ---------  ---------  ---------  ---------  ---------  -----------  ---------
    Total                                     $   4,820  $   1,294  $   1,096  $   1,263  $   1,285  $       564  $  10,322
                                               =========  =========  =========  =========  =========  ===========  =========`

*	Open purchase orders represent commitments to purchase inventory,
materials, capital equipment and other goods used in the normal course of the Company's business.

+	License and royalty obligations continue through the lives of the
underlying patents, which is currently
through at least 2017.

New accounting pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 157 Accounting for Fair Value Measurements (FAS 157). FAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. FAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. The Company is currently assessing the financial impact of
FAS 157 on its financial statements.

In June 2007, the Emerging Issues Task Force (EITF) reached a final consensus
on EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods
or Services to Be Used in Future Research and Development Activities (EITF 07-
3). EITF 07-3 requires nonrefundable advance payments for goods or services that
will be used or rendered for future research and development activities to be
capitalized and recognized as an expense as the related goods are delivered or
the related services are performed.  EITF 07-3 is effective for financial
statements issued for fiscal years beginning after December 15, 2007 and interim
periods within those fiscal years. The Company is currently assessing the
financial impact of EITF 07-3 on its financial statements.

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, 2007 and interim periods within those fiscal
years. The Company is currently assessing the financial impact of EITF07-1 on
its financial statements.

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Of our total cash equivalents and investment securities available-for-sale
balance, 61% 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 39% 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.

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.

At December 31, 2007, $8.8 million of our marketable securities
portfolio was invested in AAA rated investments in auction-rate debt securities.
Auction-rate securities are long-term variable rate bonds tied to short-term
interest rates. After the initial issuance of the securities, the interest rate
on the securities is reset periodically, at intervals established at the time of
issuance (e.g., every seven, fourteen or twenty-eight days), based on market
demand for a reset period. Auction-rate securities are bought and sold in the
marketplace through a competitive bidding process often referred to as a
"Dutch auction". If there is insufficient interest in the securities
at the time of an auction, the auction may not be completed and the rates may be
reset to predetermined "penalty" or "maximum"
rates. Following such a failed auction, we would not be able to access our
funds that are invested in the corresponding auction-rate securities until a
future auction of these investments is successful or new buyers express interest
in purchasing these securities in between reset dates.

At the time of our initial investment and
through the date of this Report, all of our auction-rate securities in which we
invest remain AAA rated. As of March 12, 2008, we successfully liquidated into cash
equivalents, $4.5 million of the $8.8 million of auction-rate securities held at
December 31, 2007. The $4.5 million equaled our original purchase value.
The remaining $4.3 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.
The underlying assets of our remaining auction-rate securities are student loans and
municipal bonds insured by AMBAC, and the Federal Family Education Loan Program. As
of March 3, 2008, AMBAC was rated AAA by Moody's and Standard and Poor's and AA
by Fitch Ratings. Although these insurers are highly rated, they are reported to
be experiencing financial difficulty, which could negatively affect their
ratings and thus the ratings of the auction-rate securities that we hold. If the
underlying issuers are unable to successfully clear future auctions or
if their credit rating deteriorates and the deterioration is deemed to be
other-than-temporary, we would be required to adjust the carrying value of the
auction-rate securities through an impairment charge to earnings. Any of
these events could affect our results of operations and our financial condition.
In the event we need to access these funds, we could be required to sell these
securities at an amount below our original purchase value. However, based on our
ability to access our cash and cash equivalents and our other liquid
investments, totaling $31.5 million at December 31, 2007, we do not expect
to be required to sell these securities at a loss.

The values of cash equivalents and investment securities, available-for-sale,
by maturity date as of December 31, 2007, are as follows:

`Amount      Percent
                                          ------------  ---------  
Cash and cash equivalents                $  1,186,000        3.3 %
Less than one year                         22,309,000       62.3
One to two years                            3,515,000        9.8
Greater than five years                     8,800,000       24.6
                                          ------------  ---------
                                         $ 35,810,000      100.0 %
                                          ============  =========`

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.

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

|                                                                                                                                                                     | Page
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|Report of Independent Registered Public Accounting Firm                                                                                                              | XX  
|                                                                                                                                                                     |     
|Consolidated Balance Sheets as of December 31, 2007 and 2006                                                                                                         | XX  
|                                                                                                                                                                     |     
|Consolidated Statements of
Operations for the years ended December 31, 2007, 2006 and 2005                                                                           | XX  
|                                                                                                                                                                     |     
|Consolidated Statements of Mandatory Redeemable Convertible
Preferred Stock and Shareholders' Equity (Deficit)  for the years ended December
31, 2007, 2006 and 2005 | XX  
|                                                                                                                                                                     |     
|Consolidated Statements
of Comprehensive Loss for the years ended December 31, 2007, 2006 and
2005                                                                   | XX  
|                                                                                                                                                                     |     
|Consolidated  Statements of
Cash Flows for the years ended December 31, 2007, 2006 and 2005                                                                          | XX  
|                                                                                                                                                                     |     
|Notes to Consolidated
Financial Statements                                                                                                                           | XX  
|                                                                                                                                                                     |     
|Valuation and Qualifying
Accounts and Reserves                                                                                                                       | XX  

---



Report of Independent Registered Public Accounting Firm

To the Board of Directors 
   and Shareholders of Microvision, Inc.:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Microvision, Inc. at December 31, 2007 and December 31, 2006, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2007 in conformity with accounting principles
generally accepted in the United States of America.  In addition, in our
opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007 based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The
Company's management is responsible for these financial statements and financial
statement schedule, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management's Report on
Internal Control over Financial Reporting.  Our responsibility is to express
opinions on these financial statements, on the financial statement schedule, and
on the Company's internal control over financial reporting based on our
integrated audits.  We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).  Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all
material respects.  Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation.  Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed
risk.  Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.

As discussed in Note 13 to the financial statements, during the year ended
December 31, 2006, the Company changed the manner in which it accounts for stock
based compensation.

A company's internal control over financial reporting is a process designed
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.  A company's internal control
over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements.  Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Seattle, Washington
   March 12, 2008

---





Microvision, Inc.Consolidated Balance Sheets
                    (in thousands, except share and per share amounts)

`December 31,
                                                                                       ----------------------
                                                                                          2007        2006
                                                                                       ----------  ----------
Assets                                                                                                       
Current assets
  Cash and cash equivalents                                                           $   13,399  $   14,552
  Investment securities, available-for-sale                                               22,411          --
  Accounts receivable, net of allowances of $123 and $216                                  1,885       1,166
  Costs and estimated earnings in excess of billings on uncompleted contracts                443         565
  Inventory                                                                                  761       1,043
  Current restricted investment in Lumera                                                     --      10,693
  Other current assets                                                                     1,180       1,986
                                                                                       ----------  ----------
    Total current assets                                                                  40,079      30,005

  Property and equipment, net                                                              4,047       4,011
  Restricted investments                                                                   1,125       1,268
  Other assets                                                                                47          41
                                                                                       ----------  ----------
      Total assets                                                                    $   45,298  $   35,325
                                                                                       ==========  ==========

Liabilities and Shareholders' Equity                                                                         
Current liabilities
  Accounts payable                                                                    $    2,146  $    1,785
  Accrued liabilities                                                                      4,154       3,698
  Billings in excess of costs and estimated earnings on uncompleted contracts                970         200
  Liability associated with common stock warrants                                          2,657       2,572
  Liability associated with embedded derivative feature                                       --          68
  Current portion of notes payable                                                            --       2,418
  Current portion of capital lease obligations                                                44          45
  Current portion of long-term debt                                                           65          59
                                                                                       ----------  ----------
    Total current liabilities                                                             10,036      10,845

  Capital lease obligations, net of current portion                                           88         132
  Long-term debt, net of current portion                                                     393         457
  Deferred rent, net of current portion                                                    1,720       2,027
                                                                                       ----------  ----------
    Total liabilities                                                                     12,237      13,461
                                                                                       ----------  ----------

Commitments and contingencies                                                                 --          --

Shareholders'  Equity
  Common stock, par value $.001; 125,000 shares authorized; 56,730 and
  42,921 shares issued and outstanding                                                        57          43
  Additonal paid-in capital                                                              292,374     253,086
  Receivables from related parties, net                                                       --        (250)
  Accumulated other comprehensive income                                                      51       8,619

  Accumulated deficit                                                                   (259,421)   (239,634)
                                                                                       ----------  ----------
    Total shareholders'  equity                                                           33,061      21,864
                                                                                       ----------  ----------
      Total liabilities and shareholders' equity                                          45,298      35,325
                                                                                       ==========  ==========`

The accompanying notes are an integral part of these consolidated financial statements.



---





Microvision, Inc.Consolidated Statements of Operations
                    (in thousands, except share and per share amounts)

`Years Ended December 31,
                                                                                         ----------------------------------
                                                                                            2007        2006        2005
                                                                                         ----------  ----------  ----------
Contract revenue                                                                        $    9,010  $    5,275  $   11,386
Product revenue                                                                              1,474       1,768       3,360
                                                                                         ----------  ----------  ----------
Total revenue                                                                               10,484       7,043      14,746
                                                                                         ----------  ----------  ----------

Cost of contract revenue                                                                     4,916       3,398       6,456
Cost of product revenue                                                                      1,690       4,768       8,636
                                                                                         ----------  ----------  ----------
Total cost of revenue                                                                        6,606       8,166      15,092
                                                                                         ----------  ----------  ----------
    Gross margin                                                                             3,878      (1,123)       (346)
                                                                                         ----------  ----------  ----------


Research and development expense                                                            14,944      10,715       6,587
Sales, marketing, general and administrative expense                                        15,779      17,362      20,352
(Gain) loss on disposal of fixed assets                                                       (117)       (198)         --
                                                                                         ----------  ----------  ----------
Total operating expenses                                                                    30,606      27,879      26,939
                                                                                         ----------  ----------  ----------
Loss from operations                                                                       (26,728)    (29,002)    (27,285)

Interest income                                                                              1,358         719         263
Interest expense                                                                              (513)     (5,753)     (3,253)
Gain (loss) on derivative instruments, net                                                    (483)      1,627       5,975
Loss on debt extinguishment                                                                     --          --      (3,313)
Other expense                                                                                  (27)        (23)        (28)
                                                                                         ----------  ----------  ----------
Net loss before Lumera transactions                                                        (26,393)    (32,432)    (27,641)

Equity in losses of Lumera                                                                      --        (290)     (3,242)
Gain on sale of investment in Lumera                                                         6,606       8,738       2,700
                                                                                         ----------  ----------  ----------
Net loss                                                                                $  (19,787) $  (23,984) $  (28,183)

Stated dividend on mandatorily redeemable convertible preferred stock                           --         (59)       (280)
Accretion to par value of preferred stock                                                       --        (138)       (637)
Inducement for conversion of preferred stock                                                    --      (3,076)     (1,184)
                                                                                         ----------  ----------  ----------
Net loss available for common shareholders                                              $  (19,787) $  (27,257) $  (30,284)
                                                                                         ==========  ==========  ==========
Net loss per share basic and diluted                                                    $    (0.40) $    (0.81) $    (1.35)
                                                                                         ==========  ==========  ==========

Weighted-average shares outstanding basic and diluted                                       49,963      33,572      22,498
                                                                                         ==========  ==========  ==========`

The accompanying notes are an integral part of these consolidated financial statements.

---





Microvision, Inc.Consolidated Statements of Madatorily Redeemable Convertable Preferred Stock and Stockholders' Equity
                      (in thousands)

`Shareholders' Equity (Deficit)
                                                           Mandatorily     --------------------------------------------------------------------------------------------------------------------------
                                                           redeemable     |
                                                          convertible     |                                                 Subscriptions  Receivables   Accumulated
                                                         preferred stock  |    Common Stock      Additional                  receivable       from          other                         Total
                                                       -------------------|-------------------     paid-in      Deferred    from related     related    comprehensive  Accumulated    Shareholders'
                                                        Shares    Amount  | Shares   Par Value     capital     Compensation    parties       parties       income        defecit     Equity (Deficit)
                                                       --------  ---------|--------  ---------  -------------  -----------  -------------  -----------  -------------  ------------  ----------------
Balance at December 31, 2004                                10  $   7,647 | 21,509  $      22  $     196,929  $      (305) $        (166) $    (1,823) $          --  $   (187,467) $          7,190
Issuance of stock, options and warrants to                                |
  non-employees for services                                              |      7                        65                                                                                      65
Deferred compensation on stock options                                    |                              144         (144)                                                                        --
Amortization of share-based compensation                                  |                                           364                                                                        364
Exercise of warrants and options                                          |      5         --             20                                                                                      20
Sales of common stock                                                     |  2,171          2          9,908                                                                                   9,910
Conversion of preferred stock                               (5)    (4,539)|    855          1          4,538                                                                                   4,539
Conversion of senior secured exchageable covertible notes                 |    310         --          1,837                                                                                   1,837
Stock received for subscriptions receivable                               |    (28)        --           (169)                        166                                                          (3)
Inducement to preferred shareholders                                      |                             (763)                                                                                   (763)
Issuance of common stock and change in warrant value to                   |
  preferred shareholders                                                  |                              763                                                                                     763
Beneficial conversion feature of mandatorily redeemable                   |
  convertible preferred stock                                         421 |                             (421)                                                                                   (421)
Issuance of common stock for payment on senior                            |
  exchangeable convertible notes                                          |    258         --            867                                                                                     867
Issuance of common stock for payment of interest                          |
  on senior secured exchangeable convertible notes                        |     40         --            130                                                                                     130
Issuance of common stock on preferred dividend                            |     11         --             62                                                                                      62
Dividend on preferred stock                                               |                             (280)                                                                                   (280)
Non-cash accretion on mandatorily redeemable                              |
  convertible preferred stock                                         637 |                             (637)                                                                                   (637)
Allowance for doubtful accounts on receivables from                       |
  related parties                                                         |                                                                     1,031                                          1,031
Net loss                                                                  |                                                                                                (28,183)          (28,183)
                                                       --------  ---------|--------  ---------  -------------  -----------  -------------  -----------  -------------  ------------  ----------------
Balance at December 31, 2005                                 5      4,166 | 25,138         25        212,993          (85)            --         (792)            --      (215,650)           (3,509)
Amortization of share-based compensation                                  |                            1,740           85                                                                      1,825
Exercise of warrants and options                                          |     16                        44                                                                                      44
Sales of common stock and warrants                                        |
 (net of issuance costs of $3.0 million)                                  | 14,867         15         32,015           --                                                                     32,030
Conversion of preferred stock                               (5)    (5,000)|    786          1          4,999                                                                                   5,000
Inducement to preferred shareholders                                      |                           (2,379)                                                                                 (2,379)
Unamortized discount and offering costs                                   |
 on preferred stock                                                   419 |                             (419)                                                                                   (419)
Issuance of common stock and change in                                    |
  warrant value to preferred shareholders                                 |    565          1          1,978                                                                                   1,979
Beneficial conversion feature of                                          |
 mandatorily redeemable convertible preferred stock                   278 |                             (278)                                                                                   (278)
Non-cash accretion on mandatorily redeemable convertible                  |
 preferred stock                                                      137 |                             (137)                                                                                   (137)
Issuance of common stock for payment on senior                            |
 secured exchangeable convertible notes                                   |  1,466          1          1,966                                                                                   1,967
Issuance of common stock for payment of interest on senior                |
 secured exchangeable convertible notes                                   |     67                        88                                                                                      88
Issuance of common stock on preferred dividend                            |     16                        59                                                                                      59
Dividend on preferred stock                                               |                              (59)                                                                                    (59)
Warrants to purchase Lumera common stock                                  |                              476                                                                                     476
Allowance for doubtful accounts on receivables from                       |
  related parties                                                         |                                                                       542                                            542
Other comprehensive income                                                |                                                                                    8,619                           8,619
Net loss                                                                  |                                                                                                (23,984)          (23,984)
                                                       --------  ---------|--------  ---------  -------------  -----------  -------------  -----------  -------------  ------------  ----------------
Balance at December 31, 2006                                --         -- | 42,921         43        253,086           --             --         (250)         8,619      (239,634)           21,864
Amortization of share-based compensation                                  |                            1,886                                                                                   1,886
Exercise of warrants and options                                          | 13,350         13         35,883                                                                                  35,896
Sales of common stock and warrants                                        |                              130           --                                                                        130
Issuance of common stock for payment on senior                            |
 secured exchangeable convertible notes                                   |    452          1          1,367                                                                                   1,368
Issuance of common stock for payment of interest on senior                |
 secured exchangeable convertible notes                                   |      7                        22                                                                                      22
Sale of Lumera stock held as collateral on receivables                    |
  from related parties                                                    |                                                                       227                                            227
Allowance for doubtful accounts on receivables from                       |
  related parties                                                         |                                                                        23                                             23
Other comprehensive income                                                |                                                                                   (8,568)                         (8,568)
Net loss                                                                  |                                                                                                (19,787)          (19,787)
                                                       --------  ---------|--------  ---------  -------------  -----------  -------------  -----------  -------------  ------------  ----------------
Balance at December 31, 2007                                --  $      -- | 56,730  $      57  $     292,374  $        --  $          --  $        --  $          51  $   (259,421) $         33,061
                                                       ========  ========= ========  =========  =============  ===========  =============  ===========  =============  ============  ================`

The accompanying notes are an integral part of these consolidated financial statements.

---



Microvision, Inc.Consolidated Statements of Comprehensive Loss
                      (in thousands)

`Years Ended December 31,
                                                                                         ----------------------------------
                                                                                            2007        2006        2005
                                                                                         ----------  ----------  ----------
Net loss                                                                                $  (19,787) $  (23,984) $  (28,183)
                                                                                         ----------  ----------  ----------
Other comprehensive loss
    Unrealized gain (loss) on investment securities, available-for-sale:
        Unrealized holding gain (loss) arising during period                                (1,962)     17,357
        Less: reclassification adjustment for gains realized in net loss                    (6,606)     (8,738)         --
                                                                                         ----------  ----------  ----------
        Net unrealized gain (loss)                                                          (8,568)      8,619          --
                                                                                         ----------  ----------  ----------
Comprehensive loss                                                                      $  (28,355) $  (15,365) $  (28,183)
                                                                                         ==========  ==========  ==========`

The accompanying notes are an integral part of these
consolidated financial statements.

---



Microvision, Inc.Consolidated Statement of Cash Flows
                                 (in thousands)

`Years Ended December 31,
                                                                                         -------------------------------
                                                                                           2007       2006       2005
                                                                                         ---------  ---------  ---------
Cash flows from operating activities                                                                                    
  Net loss                                                                              $ (19,787) $ (23,984) $ (28,183)
  Adjustments to reconcile net loss to net cash used in operations:
    Depreciation                                                                              953      1,218      1,602
    (Gain) loss on disposal of fixed assets                                                  (117)      (198)        --
    Non-cash expenses related to issuance of stock, warrants, and options,
     and amortization of deferred compensation                                              1,897      1,825        429
    Non-cash interest expense, net                                                            371      4,753      2,730
    Loss (gain) on derivative instruments                                                     482     (1,627)    (2,659)
    Inventory write-downs                                                                      84      1,181      3,732
    Allowance for receivables from related parties                                             23        542      1,031
    Equity in losses of Lumera                                                                 --        290      3,242
    Gain on sale of investment in Lumera                                                   (6,606)    (8,738)    (2,700)
    Net accretion of discount on short-term investments                                       (80)        --         --
    Loss on debt extinguishment                                                                --         --      3,313
    Non-cash deferred rent                                                                   (277)      (231)       (21)
    Allowance for estimated contract losses                                                    --         --        (53)
  Change in:
    Accounts receivable                                                                      (719)       214      3,847
    Costs and estimated earnings in excess of billings on uncompleted contracts               122        639       (607)
    Inventory                                                                                 198     (1,465)    (1,324)
    Other current assets                                                                      408        121         61
    Other assets                                                                               (6)        83        340
    Accounts payable                                                                          461       (689)    (1,050)
    Accrued liabilities                                                                       515     (1,139)      (190)
    Billings in excess of costs and estimated earnings on uncompleted contracts               770        149     (3,267)
                                                                                         ---------  ---------  ---------
      Net cash used in operating activities                                               (21,308)   (27,056)   (19,727)
                                                                                         ---------  ---------  ---------
Cash flows from investing activities                                                                                    
  Sales of investment securities                                                            7,200         --      1,248
  Purchases of investment securities                                                      (29,504)        --     (1,248)
  Sales of restricted investment securities                                                 2,329      1,100      1,238
  Purchases of restricted investment securities                                            (2,329)      (268)    (2,101)
  Decrease in restricted investment                                                           143         --         --
  Decrease in restricted cash                                                                  --        755       (755)
  Collections of receivables from related parties                                             227         --         --
  Sale of long-term investment - Lumera                                                     8,637     12,142      3,893
  Proceeds on sale of property and equipment                                                  117        200         --
  Purchases of property and equipment                                                      (1,058)    (2,152)    (1,239)
                                                                                         ---------  ---------  ---------
      Net cash provided by (used in) investing activities                                 (14,238)    11,777      1,036
                                                                                         ---------  ---------  ---------
Cash flows from financing activities                                                                                    
  Principal payments under capital leases                                                     (45)       (40)       (46)
  Principal payments under long-term debt                                                     (58)       (55)       (77)
  Increase in long-term debt                                                                   --        536         --
  Proceeds from issuance of notes and warrants                                                 --         --     14,148
  Payments on notes payable                                                                (1,400)    (9,600)    (1,000)
  Increase in deferred rent                                                                    --      1,042      1,492
  Payment of embedded derivative feature of preferred stock conversion                         --     (1,074)        --
  Payment of preferred dividend                                                                --        (43)      (173)
  Net proceeds from issuance of common stock and warrants                                  35,896     32,205      9,939
                                                                                         ---------  ---------  ---------
      Net cash provided by financing activities                                            34,393     22,971     24,283
                                                                                         ---------  ---------  ---------
Net increase (decrease) in cash and cash equivalents                                       (1,153)     7,692      5,592
Cash and cash equivalents at beginning of period                                           14,552      6,860      1,268
                                                                                         ---------  ---------  ---------
Cash and cash equivalents at end of period                                              $  13,399  $  14,552      6,860
                                                                                         =========  =========  =========
                                                                                                                        
Supplemental disclosure of cash flow information                                                                        
Cash paid for interest                                                                  $      92  $     786  $     348
                                                                                         =========  =========  =========
                                                                                                                        
Supplemental schedule of non-cash investing and financing activities                                                    
Property and equipment acquired under capital leases                                    $      --  $      80  $     135
                                                                                         =========  =========  =========
Other non-cash additions to property and equipment                                      $      46  $     115  $     812
                                                                                         =========  =========  =========
Conversion of preferred stock into common stock                                         $      --  $   4,417  $   4,117
                                                                                         =========  =========  =========
Deferred compensation - warrants, options and stock grants                              $      --  $      --  $     209
                                                                                         =========  =========  =========
Issuance of common stock for payment of principal and interest on senior
   secured exchangeable convertible notes                                               $   1,388  $   1,755  $     997
                                                                                         =========  =========  =========
Conversion of convertible debt into common stock                                        $      --  $     344  $      --
                                                                                         =========  =========  =========
Inducement for conversion of preferred stock                                            $      --  $   3,076  $      --
                                                                                         =========  =========  =========`

The accompanying notes are an integral part of these financial statements.

---



1. 	The Company

Microvision is developing miniature display and imaging engines based upon
its integrated photonics module technology platform.  Microvision has entered
into contracts with commercial and U.S. government customers to develop
applications using our technology.  Microvision has one commercially marketed
product, ROV, a hand-held bar code scanner that incorporates the Company's
proprietary MEMS technology.

Microvision has incurred significant losses since inception.  Based on its
current operating plan, the Company believes it has sufficient cash to fund
operations through at least March 2009.   The Company will require additional
cash to fund its operating plan past that time. The Company plans to obtain
additional cash through the issuance of equity or debt securities. There can be
no assurance that such cash will be available to the Company, or if available,
on terms acceptable to the Company on a timely basis.

The Company's operating plan calls for the addition of sales, marketing,
technical and other staff and the purchase of additional laboratory and
production equipment.  The Company's future expenditures and capital
requirements will depend on numerous factors, including the progress of its
research and development program, the progress in commercialization activities
and arrangements, the cost of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights, competing technological
and market developments and the ability of the Company to establish cooperative
development, joint venture and licensing arrangements.  There can be no
assurance that additional financing will be available to the Company or that, if
available, it will be available on terms acceptable to the Company or on a
timely basis.  If adequate funds are not available to satisfy either short-term
or long-term capital requirements or proceeds for the sales of Lumera common
stock are less than anticipated, or planned revenues are not generated, the
Company may be required to limit its operations substantially.  This limitation
of operations may include reduction in capital expenditures and reductions in
staff and discretionary costs, which may include non-contractual research costs.
The Company's capital requirements will depend on many factors, including, but
not limited to, the rate at which the Company can, directly or through
arrangements with original equipment manufacturers, introduce products
incorporating the light scanning technology and the market acceptance and
competitive position of such products.

2. 	Summary of significant accounting policies

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles of the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those estimates.
The Company's management has identified the following areas where significant
estimates and assumptions have been made in preparing the financial statements:
revenue recognition, allowance for uncollectible receivables and management
loans, inventory valuation and valuation of derivative financial
instruments.

Principles of consolidation

The consolidated financial statements include Microvision and equity
investments in which Microvision has the ability to exercise significant
influence but does not have voting control.

At December 31, 2005, Microvision owned 28% of Lumera's common stock.  In
2005 and 2006, the Company accounted for Lumera as an equity investment.  In
January 2006, Microvision sold 2,550,000 shares of its Lumera common stock.  As
a result of the reduction in ownership, Microvision changed to the cost basis of
accounting for its investment in Lumera in accordance with FAS 115.  Microvision
also owns a warrant exercisable at $8.80 to purchase 170,500 shares of Lumera
common stock.

Cash, cash equivalents and investment securities, available-for-sale

The Company considers all investments that contractually mature within 90
days of the date of purchase to be cash equivalents.

Inventory

Inventory consists of raw material; work in process and finished goods
for the Company's ROV and Flic products.  Inventory is recorded at the lower of
cost or market with cost determined on the weighted-average method.  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.

Restricted investments

As of December 31, 2007, restricted investments include $1.1 million in
irrevocable letters of credit as security on a lease agreement for the corporate
headquarters building in Redmond, WA.  The required letter of credit balance
decreases over the term of the lease, which expires in 2013.

Property and equipment

Property and equipment is stated at cost and depreciated over the
estimated useful lives of the assets (two to five years) using the straight-line
method.  Leasehold improvements are depreciated over the shorter of estimated
useful lives or the lease term.

Revenue recognition

Revenue has primarily been generated from contracts for further
development of the light scanning technology and to produce demonstration units
for commercial enterprises and the United States government.  Revenue on such
contracts is recorded using the percentage-of-completion method measured on a
cost incurred basis.  The percentage of completion method is used because the
Company can make reasonably dependable estimates of the contract cost.  Changes
in contract performance, contract conditions, and estimated profitability,
including those arising from contract penalty provisions, and final contract
settlements, may result in revisions to costs and revenues and are recognized in
the period in which the revisions are determined.  Profit incentives are
included in revenue when realization is assured.  If the U.S. Government cancels
a contract, the Company would receive payment for work performed and costs
committed to prior to the cancellation.

The Company recognizes losses, if any, as soon as identified.  Losses occur
when the estimated direct and indirect costs to complete the contract exceed
unrecognized revenue.  The Company evaluates the reserve for contract losses on
a contract-by-contract basis.

Revenue from product shipments is recognized in accordance with Staff
Accounting Bulletin No. 104 "Revenue Recognition."  Revenue is
recognized when there is sufficient evidence of an arrangement, the selling
price is fixed or determinable and collection is reasonably assured.  Revenue
for product shipments is recognized upon acceptance of the product by the
customer or expiration of the contractual acceptance period, after which there
are no rights of return.  Provisions are made for warranties at the time revenue
is recorded.  Warranty expense was not material for any periods presented.

Concentration of credit risk and sales to major customers

Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash equivalents, investments and
accounts receivable.  The Company typically does not require collateral from its
customers.  The Company has a cash investment policy that generally restricts
investments to ensure preservation of principal and maintenance of liquidity.
The investment securities portfolio is comprised of short-term highly rated
commercial paper, U.S. government agency notes and auction rate securities.

At December 31, 2007, $8.8 million of the Company's marketable securities
portfolio was invested in AAA rated investments in auction-rate debt securities.
Auction-rate securities are long-term variable rate bonds tied to short-term
interest rates. After the initial issuance of the securities, the interest rate
on the securities is reset periodically, at intervals established at the time of
issuance (e.g., every seven, fourteen or twenty-eight days), based on market
demand for a reset period. Auction-rate securities are bought and sold in the
marketplace through a competitive bidding process often referred to as a
"Dutch auction". If there is insufficient interest in the securities
at the time of an auction, the auction may not be completed and the rates may be
reset to predetermined "penalty" or "maximum" rates.
Following such a failed auction, the company would not be able to access its
funds that are invested in the corresponding auction-rate securities until a
future auction of these investments is successful or new buyers express interest
in purchasing these securities in between reset dates.

At the time of its initial
investment and through the date of this Report, all of the Company's auction-
rate securities in which it invests remain AAA rated. As of March 12, 2008, the Company
successfully liquidated into cash equivalents, $4.5 million of the $8.8 million
of auction-rate securities held at December 31, 2007. The $4.5 million equaled
the original purchase value.
The remaining $4.3 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.
The underlying assets of the Company's remaining auction-rate
securities are student loans and municipal bonds insured by AMBAC, and the Federal
Family Education Loan Program. As of March 3, 2008, AMBAC was rated AAA by
Moody's and Standard and Poor's and AA by Fitch Ratings. Although these insurers
are highly rated, they are reported to be experiencing financial difficulty,
which could negatively affect their ratings and thus the ratings of the auction-
rate securities that the Company holds. If the underlying issuers are unable to
successfully clear future auctions or if their credit rating deteriorates and
the deterioration is deemed to be other-than-temporary, the Company would be
required to adjust the carrying value of the auction-rate securities through
impairment charge to earnings. Any of these events could affect the Company's
results of operations and financial condition. In the event the Company needs to
access these funds, it could be required to sell these securities at an amount
below its original purchase value. However, based on the Company's ability to
access our cash and cash equivalents and its other liquid investments, totaling
$31.5 million at December 31, 2007 it does not expect to be required to sell
these securities at a loss.

The United States government accounted for approximately 61%, 51%, and 35% of
total revenue during 2007, 2006 and 2005, respectively.  Visteon  accounted for
approximately 15% of total revenue during 2007 and Ethicon Endo-Surgery Inc.
accounted for approximately 11% of total revenue during 2006. Contracts with
three commercial customers represented 22%, 17%, and 38% of total revenues
during 2007, 2006, and 2005, respectively.  The United States government
accounted for approximately 28% and 45% of the accounts receivable balance at
December 31, 2007 and 2006, respectively.

Income taxes

Deferred tax assets and liabilities are recorded for differences between
the financial statement and tax bases of the assets and liabilities that will
result in taxable or deductible amounts in the future, based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income.  Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.  Income tax
expense is recorded for the amount of income tax payable for the period
increased or decreased by the change in deferred tax assets and liabilities
during the period.

Net loss per share

Basic net loss per share is calculated on the basis of the weighted-
average number of common shares outstanding during the periods.  Net loss per
share assuming dilution is calculated on the basis of the weighted-average
number of common shares outstanding and the dilutive effect of all potentially
dilutive securities, including common stock equivalents and convertible
securities.  Net loss per share assuming dilution for 2007, 2006 and 2005 is
equal to basic net loss per share because the effect of dilutive securities
outstanding during the periods including options and warrants computed using the
treasury stock method, is anti-dilutive.

As of December 31, 2007, 2006 and 2005, the Company excluded the following
convertible securities from diluted net loss per share as the effect of
including them would have been anti-dilutive.  The shares shown represent the
number of shares of common stock which would be issued upon conversion as of the
years ended December 31, 2007, 2006 and 2005.

`December 31,
                                                                   -------------------------------------
                                                                      2007         2006         2005
                                                                   -----------  -----------  -----------             
Publicly traded warrants                                                   --   12,362,000           --
Options and private warrants                                        9,518,000   10,906,000    9,440,000
Notes payable                                                              --      620,000    3,101,000
Mandatorily redeemable convertible preferred stock                         --           --      786,000
                                                                   -----------  -----------  -----------
                                                                    9,518,000   23,888,000   13,327,000
                                                                   ===========  ===========  ===========`

Research and development

Research and development costs are expensed as incurred.

Fair value of financial instruments

The Company's financial instruments include cash and cash equivalents,
accounts receivable, accounts payable, accrued liabilities and long-term debt.
The carrying amount of long-term debt at December 31, 2007 and 2006 was not
materially different from the fair value based on rates available for similar
types of arrangements.  The carrying value of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities approximate fair
value due to the short maturities.  The convertible notes are not publicly
traded and it is not practicable for the Company to estimate the fair value of
the convertible notes due to the absence of comparable publicly traded financial
instruments.  The convertible notes were retired in March 2007.

Long-lived assets

The Company evaluates the recoverability of its long-lived assets when an
impairment is indicated based on expected undiscounted cash flows and recognizes
impairment of the carrying value of long-lived assets, if any, based on the fair
value of such assets.

Stock-based compensation

The Company has one employee incentive compensation plan and one board of
director stock-based compensation plan.  Both are more fully described in Note
13.

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 adopted
FAS123(R) effective January 1, 2006.  The Company accounts for equity
instruments issued to non-employees in accordance with the provisions of FAS No.
123 and Emerging Issues Task Force Issue No. 96-18.  The following table shows
the amount of stock-based compensation expense included in the Statement of
Operations:

`Year Ended December 31,
                                                                   ------------------------------------
                                                                      2007         2006         2005
                                                                   -----------  -----------  ----------             
Cost of contract revenue                                          $   138,000  $    80,000  $       --
Cost of product revenue                                                20,000       70,000          --
Research and development expense                                      365,000      246,000          --
Sales, marketing, general and administrative expense                1,274,000    1,429,000     429,000
                                                                   -----------  -----------  ----------
                                                                  $ 1,797,000  $ 1,825,000  $  429,000
                                                                   ===========  ===========  ==========`

Reclassifications

Certain reclassifications have been made to prior year financial statements
to conform to classifications used in the current year.  These reclassifications
had no impact on net loss, shareholders' equity or cash flows as previously reported.

New accounting pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 157 Accounting for Fair Value Measurements (FAS 157). FAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. FAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. The Company is currently assessing the financial impact of
FAS 157 on its financial statements.

In June 2007, the Emerging Issues Task Force (EITF) reached a final consensus
on EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods
or Services to Be Used in Future Research and Development Activities (EITF 07-
3). EITF 07-3 requires nonrefundable advance payments for goods or services that
will be used or rendered for future research and development activities to be
capitalized and recognized as an expense as the related goods are delivered or
the related services are performed.  EITF 07-3 is effective for financial
statements issued for fiscal years beginning after December 15, 2007 and interim
periods within those fiscal years. The Company is currently assessing the
financial impact of EITF 07-3 on its financial statements.

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, 2007 and interim periods within those fiscal
years. The Company is currently assessing the financial impact of EITF07-1 on
its financial statements.

3. 	Long-term contracts

Cost and estimated earnings in excess of billings on uncompleted contracts
comprises amounts of revenue recognized on contracts that the Company has not
yet billed to customers because the amounts were not contractually billable at
December 31, 2007 and 2006.  The following table summarizes when the Company
will be contractually able to bill the balance as of December 31, 2007 and
2006.

`Year Ended December 31,
                                                                      --------------------------
                                                                          2007          2006
                                                                      ------------  ------------
Billable within 30 days                                              $    434,000  $    547,000
Billable between 31 and 90 days                                                --            --
Billable after 90 days                                                      9,000        18,500
                                                                      ------------  ------------
                                                                     $    443,000  $    565,500
                                                                      ============  ============`

The Company's current contracts with the U.S. government are primarily cost
plus fixed fee type contracts.  Under the terms of a cost plus fixed fee
contract, the U.S. government reimburses the Company for negotiated actual
direct and indirect cost incurred in performing the contracted services.  The
Company is under no obligation to spend more than the contract value to complete
the contracted services.  The period of performance is generally one year.  Each
of the Company's contracts with the United States government can be terminated
for convenience by the government at any time.  To date, the U.S. government has
not terminated a contract with the Company.

In May 2007, the Company announced that it had entered into a $3,181,000
contract with the U.S. Air Force to provide a lightweight, see-through, full-
color eyewear display prototype to the government.  The contract, which
continues a development activity with the Air Force, specifies the development,
design, verification, testing, and delivery of a lightweight, see-through full-
color wearable display for evaluation by several DOD project offices.

In September 2006, the Company entered into a 12 month development agreement
with Visteon, a major global Tier 1 automotive supplier, to develop a commercial
scanned-beam head-up display (HUD) product for automotive applications.  Under
the agreement, Visteon and Microvision will design and produce a series of
advanced HUD samples, including devices specifically designed to be compatible
with automotive environmental requirements.

In September 2006, the Company entered into an 18 month, $5,945,000 contract
with General Dynamics C4 Systems to supply full-color, daylight readable, see-
through helmet-mounted displays as part of the U.S. Army's Mounted Warrior HMD
Improvement Program.  General Dynamics holds prime contracts with the U.S. Army
for other Warrior programs including Land Warrior, Air Warrior and Future Force
Warrior Advanced Technology Demonstration.  The contract specifies the
development and delivery of ten full-color display units for evaluation.

In June 2005, the Company entered into a 12 month, $4,359,000 contract with
General Dynamics C4 Systems to continue the development of a helmet-mounted
display for the Air Warrior Block 3 system.  General Dynamics is under contract
with the U.S. Army's Product Manager -- Air Warrior in Huntsville, Ala., to
develop and integrate the Air Warrior Block 3 system.  The Microvision helmet-
mounted display is being designed as a full-color, see-through, daylight and
night-readable, high-resolution display.

The following table summarizes the costs incurred on the Company's revenue
contracts:

`December 31,  December 31,
                                                                          2007          2006
                                                                      ------------  ------------
Costs and estimated earnings incurred on uncompleted contracts       $  9,357,000  $  4,340,500
Billings on uncompleted contracts                                      (9,884,000)   (3,975,000)
                                                                      ------------  ------------
                                                                     $   (527,000) $    365,500
                                                                      ============  ============
Included in accompanying balance sheets under the following captions:                           

Costs and estimated earnings in excess of billings on uncompleted
 contracts                                                           $    443,000  $    565,500
Billings in excess of costs and estimated earnings on uncompleted
 contracts                                                               (970,000)     (200,000)
                                                                      ------------  ------------
                                                                     $   (527,000) $    365,500
                                                                      ============  ============`

4.	Investment securities, available-for-sale

The following table summarizes the composition of the Company's available-
for-sale investment securities at December 31, 2007 and 2006:

`Year Ended December 31,
                                                                      --------------------------
                                                                          2007          2006
                                                                      ------------  ------------
Lumera common stock                                                        95,000            --
U.S. government debt securites                                          4,486,000            --
U.S. corporate debt securites                                           9,030,000            --
Auction rate securites                                                  8,800,000            --
                                                                      ------------  ------------
                                                                     $ 22,411,000  $         --
                                                                      ============  ============`

The available-for-sale investment securities at December 31, 2007 consisted
of the following:

`Gross        Gross
                                             Amortized   Unrealized   Unrealized    Estimated
                                               Cost         Gains       Losses      Fair Value
                                            -----------  -----------  -----------  ------------
Type of security:
    Lumera common stock                    $    43,000  $    52,000  $        --  $     95,000
    Corporate debt and equity securities     9,031,000        2,000       (5,000)    9,028,000
    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
                                            -----------  -----------  -----------  ------------
                                           $22,360,000  $    57,000  $    (6,000) $ 22,411,000
                                            ===========  ===========  ===========  ============
Maturity date:
    Less than one year                     $10,045,000                            $ 10,096,000
    Due in 1-3 years                         3,515,000                               3,515,000
    Greater than five years                  8,800,000                               8,800,000
                                            -----------                            ------------
                                           $22,360,000                            $ 22,411,000
                                            ===========                            ============`

5.	Inventory

Inventory consists of the following:

`December 31,   December 31,
                                                           2007           2006
                                                       -------------  ------------
Raw materials                                         $     122,000  $    146,000
Work in process                                              10,000            --
Finished goods                                              629,000       897,000
                                                       -------------  ------------
                                                      $     761,000  $  1,043,000
                                                       =============  ============`

The inventory at December 31, 2007 and 2006 consisted of raw materials, work
in process and finished goods for ROV and Flic.  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 the normal course of
business during the next twelve months.  In 2007, 2006 and 2005, Microvision
recorded inventory write-downs of $84,000, $1,181,000 and $3,732,000,
respectively.  The 2006 write-down of $1,181,000 includes a $210,000 write-down
of Nomad inventory.

During the second quarter of 2006, the Company determined that it would no
longer promote the Nomad product and recorded an expense of $210,000 to reduce
the value of Nomad inventory to zero.  In addition, the Company recorded
$100,000 as additional accelerated depreciation expense related to fixed assets
used in Nomad production. Both inventory and fixed asset balances related to
Nomad production are zero.

6.	Accrued liabilities

Accrued liabilities consist of the following:

`December 31,
                                                       ---------------------------
                                                           2007           2006
                                                       -------------  ------------
Bonuses                                               $   1,500,000  $    700,000
Payroll and payroll taxes                                   656,000       603,000
Compensated absences                                        458,000       382,000
Deferred rent credit                                        306,000       278,000
Adverse purchase commitments                                     --       310,000
Professional Fees                                           447,000       406,000
Other                                                       787,000     1,019,000
                                                       -------------  ------------
                                                      $   4,154,000  $  3,698,000
                                                       =============  ============`

7.	Property and equipment, net

Property and equipment consists of the following:

`December 31,
                                                       ---------------------------
                                                           2007           2006
                                                       -------------  ------------
Production equipment                                  $   2,815,000  $  2,350,000
Leasehold improvements                                    3,304,000     3,252,000
Computer hardware and software/lab equipment              6,879,000     6,625,000
Office furniture and equipment                            1,490,000     1,444,000
                                                       -------------  ------------
                                                         14,488,000    13,671,000
Less: Accumulated depreciation                          (10,441,000)   (9,660,000)
                                                       -------------  ------------
                                                      $   4,047,000  $  4,011,000
                                                       =============  ============`

Depreciation expense was $953,000, $1,218,000 and $1,602,000 in 2007, 2006
and 2005, respectively.

8.	Receivables from related parties

In January 2006, two senior officers with outstanding loans from the Company
left the Company.  Because the lines of credit were not fully secured and
collection was uncertain, the Company increased the allowance by $1,031,000 in
December 2005.  In
accordance with the terms, the loans were due in January 2007.  Neither of the
officers has repaid their loans.  One of the officers pledged 50,000 shares of
Lumera common stock as collateral for the loans.  In May 2007, the Company
foreclosed on the collateral and sold the shares for net proceeds of $227,000.
The Company is pursuing collection of the remaining outstanding balances.  A
third executive with outstanding loans from the Company left the Company in
August 2007 and his loans will be due in August 2008.  As a result of a review
of the financial position of the former executives and the potential difficulty
in collecting loans from former employees, the Company has recorded additional
allowances for doubtful accounts for the receivables from senior officers of
$23,000 during 2007 and $542,000 during 2006.  As of December 31, 2007 and
December 31, 2006, the total amount outstanding under the lines of credit was
$2,496,000 and $2,723,000, respectively.  As of December 31, 2007 and December
31, 2006, the allowance for receivables from related parties was $2,496,000 and
$2,473,000, respectively.

The interest on the lines of credit is forgiven if the executive is an
employee of the Company at December 31 of the respective year.  Compensation
expense of $0, $22,000 and $156,000 was recognized in 2007, 2006 and 2005,
respectively, for interest forgiven.

9.	Accounting for Lumera

Investment Securities, Available-for-Sale

In January 2006, Microvision sold 2,550,000 shares of its Lumera common stock
for $10.3 million. Microvision recorded a "Gain on sale of securities of
equity investment" of approximately $7.3 million. As a result of the
reduction in ownership below 20% and reduced influence over Lumera management,
Microvision changed to the cost basis of accounting for its investment in Lumera
in accordance with FAS 115.

In 2007, the Company sold 1,714,000 shares of Lumera common stock for $8.7
million.  The Company recorded a "Gain on sale of securities of equity
investment" of approximately $6.6 million.

As of December 31, 2007, Microvision owned 36,000 shares of Lumera common
stock, recorded at fair market value.  The shares of common stock are recorded
as "Investment securities, available-for-sale".

As of December 31, 2006, Microvision owned 1,750,000 shares of Lumera common
stock, recorded at fair market value.  The shares were pledged as collateral for
the Company's Notes.  The shares of common stock were recorded as "Current
restricted investments".

The cost, net unrealized gain and estimated fair market value of the shares
of Lumera common stock as of December 31, 2007, are shown below:

`Net     Estimated
                                Unrealized   Fair
                       Cost       Gain       Value
                     ---------  ---------  ---------             
Lumera common stock $  43,000  $  52,000  $  95,000
                     =========  =========  =========`

Warrant

In connection with the change in accounting from equity to cost basis in
January 2006, the Company recorded $476,000 in "Other current assets"
for the fair value of a warrant previously received to purchase 170,500 shares
of Lumera common stock at an exercise price of $8.80 per share.  On the
transaction date, the warrant was 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 4.6%; and contractual life of
5.1 years.

At December 31, 2007, the warrant was revalued 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 3.1%; and contractual
life of 3.2 years.  The fair value of the warrant decreased to $130,000 at
December 31, 2007 from $595,000 at December 31, 2006 and the change in value of
$465,000 was recorded as a non-operating loss and is included in "Gain
(loss) on derivative instruments, net" in the consolidated statement of
operations.

10.	Long-term Notes

The following table summarizes the activity in 2007 and 2006 related to
the issuance of convertible notes (in thousands):

`Embedded     Common       Loss on
                                                                                    derivative  stock and   extinguishment
                                                                Notes    Warrants    feature       APIC         of debt        Total
                                                              ---------  ---------  ----------  ----------  ---------------  ---------
Balances at December 31, 2005                                    9,343      3,452       1,368       5,721           (3,313)
Principal payments on notes                                    (11,567)                             1,967                      (9,600)
Discount accretion for the year ended December 31, 2006          4,642                                                          4,642
Changes in market value for the year ended December 31, 2006                 (880)     (1,300)                                 (2,180)
                                                              ---------  ---------  ----------  ----------  ---------------  ---------
Balances at December 31, 2006                                    2,418      2,572          68       7,688           (3,313)
Principal payments on notes                                     (2,767)                             1,367                      (1,400)
Discount accretion for the year ended December 31, 2007            349                                                            349
Changes in market value for the year ended December 31, 2007                   85         (68)                                     17
                                                              ---------  ---------  ----------  ----------  ---------------  ---------
Balances at December 31, 2007                                $      --  $   2,657  $       --  $    9,055  $        (3,313)
                                                              =========  =========  ==========  ==========  ===============`

In March 2007, the Company made the final scheduled payments in connection
with its March and December convertible notes as follows:

- cash payments of $1,400,000 in principal and $28,000 in interest, and
- issued 459,000 shares of its common stock in payment of $1,367,000 in
principal and $21,000 in interest.

March Notes

In March 2005, the Company raised $10,000,000, before issuance costs of
$423,000, from the issuance of convertible March Notes ("March Notes")
and warrants to purchase an aggregate of 462,000 shares of Microvision common
stock.  The March Notes were convertible on demand by the holders into
Microvision common stock at a conversion price of $6.84 per share of Microvision
common stock.  The initial conversion price was subject to adjustment in the
event Microvision issued common stock or common stock equivalents at a price per
share of common stock below the conversion price of the March Notes.  Due to
below market issuances of Company's common stock, the conversion price of the
March Notes at December 31, 2006 was $5.17 per share of common stock.  In
addition, upon the request of the Note holders, the Company was required to
redeem the March Notes for cash upon a change of control or an event of default
at a redemption price equal to 125% of the then outstanding balance of the March
Notes.  The Company had pledged 1,750,000 shares of its Lumera common stock as
collateral for the March Notes and the December Notes described below.

The terms of the March Notes included interest at LIBOR plus 3.0% payable
quarterly in cash or Microvision common stock, at the election of the Company,
subject to certain conditions.  If the Company chose to pay interest in
Microvision common stock as opposed to cash, the price was based on 92% of the
arithmetic average of the volume weighted average prices for the 10 trading days
prior to the payment date.  The March Notes were payable in six equal quarterly
installments beginning in December 2005.  The Company could, subject to certain
conditions, elect to make the principal payments in common stock in lieu of
cash.  If the Company elected to pay principal in common stock, the Note holders
could have elected to receive Microvision or Lumera common stock.  Payment in
stock would have been issued at a 10% discount to the arithmetic average of the
volume weighted average prices for the 15 trading days prior to the payment
date.

The Company concluded that the note holders' right to convert all or a
portion of the March Notes into Microvision or Lumera common stock was an
embedded derivative instrument as defined by FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
("FAS 133").  Accordingly, $2,955,000 of the cash proceeds were
allocated to the embedded derivative instrument, which represented the fair
value of the instrument on the date of issuance.  The derivative instrument was
valued using the higher of the Microvision or Lumera conversion feature.

The warrants issued with the March Notes vested on the date of grant, have an
exercise price of $6.84 per common share and expire in March 2010.  The initial
exercise price is subject to adjustment in the event Microvision issues common
stock or common stock equivalents at a price per share of common stock below the
exercise price of the warrant.  Due to below market issuances of the Company's
common stock the exercise price of the warrants issued with the March Notes was
$5.85 as of December 31, 2007.  The warrants met the definition of a derivative
instrument that must be accounted for as a liability under the provisions of
Emerging Issues Task Force Issue No. 00-19, "Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock," because the Company cannot engage in certain corporate transactions
affecting the common stock unless it makes a cash payment to the holders of the
warrants.  Accordingly, $1,651,000 of the cash proceeds were allocated to the
warrants, which represents the fair value of the warrants on the date of
issuance and the amount was recorded as a current liability.  Subsequent changes
in the fair value of the warrants will be recorded in the statement of
operations each period.

In July 2005, the Company entered into an agreement to amend the March Notes.
In connection with the amendment, the Company issued three year warrants to
purchase 750,000 shares of Microvision common stock at an exercise price of
$6.84 per share.  The conversion price of the amended March Notes and exercise
price of the warrants are subject to anti-dilution adjustments, subject to
conditions.  In addition, the price at which the note holders can convert the
March Notes to Microvision common stock was reduced to $5.85 per share, and the
price at which the Company can mandatorily convert the March Notes to
Microvision common stock was reduced to $10.24.  The note holders may convert
all or a portion of their March Notes.

The amended conversion feature continued to meet the definition of a
derivative under FAS 133 and accordingly has been recorded at fair value and
included within long-term liabilities.  The carrying amount of the derivative is
adjusted to fair value at each balance sheet date.  The adjustments for the
years ended December 31, 2007 and 2006 were $7,000 and $323,000, respectively.
The adjustments were recorded in "Gain (loss) on derivative instrument
instruments, net" in the statement of operations.

The combined liability for both the initial warrant and the additional
warrant was valued at $729,000 and $883,000 at December 31, 2007 and 2006,
respectively.  The combined adjustments in value were $154,000, $390,000 and
$2,672,000 for the years ended December 31, 2007, 2006 and 2005, respectively.
The warrants were valued using the Black-Scholes option pricing model with the
following assumptions:  expected volatilities of 67%, 67% and 58% to 65%;
expected dividend yields of 0%; risk free interest rates ranging from 3.05% to
3.07%, 4.74% to 4.90% and 4.36% to 4.39%; and contractual lives ranging from 0.6
to 2.2 years, 1.6 to 3.2 years and 2.6 to 4.2 years at December 31, 2007, 2006
and 2005, respectively.

December Notes

In December 2005, the Company raised $10,000,000, before issuance costs
of $134,000, from the issuance of notes ("December Notes"), 838,000 shares of
common stock and warrants to purchase an aggregate of 1,089,000 shares of
Microvision common stock.  The December Notes were convertible on demand by the
holders into Microvision common stock at a conversion price of $3.94 per share.
The note holders had the right to convert all or a portion of their December
Notes.  In addition, upon the request of the note holders, the Company was
required to redeem the notes for cash upon a change of control or an event of
default at a redemption price equal to 125% of the then outstanding balance of
the December Notes.  The Company had pledged 1,750,000 shares of its Lumera
common stock as collateral for the December Notes and the notes issued as of
March 2005 ("March Notes") described above.  Those shares have been classified
as a "Current restricted investments" on the Company's consolidated balance
sheet.

The terms of the December Notes included interest at LIBOR plus 3.0%,
provided that the interest rate should not be less than 6% or greater than 8%
payable quarterly in cash or Microvision common stock if the stock price was
greater than $4.06 per share, at the election of the Company, subject to certain
additional conditions.    If the Company chose to pay interest in Microvision
common stock as opposed to cash, the price was based on 90% of the arithmetic
average of the volume weighted average prices for the 20 trading days prior to
the payment date.  The December Notes were payable in five equal quarterly
installments beginning in March 2006.  The Company could have elected to make
the principal payments in common stock in lieu of cash if the stock price was
greater than $4.06 per share, subject to certain other conditions.  If the
Company elected to pay principal in stock, the stock would have been issued at a
10% discount to the arithmetic average of the volume weighted average prices for
the 15 trading days prior to the payment date.

The Company concluded that the note holders' right to convert all or a
portion of the December Notes into Microvision common stock was an embedded
derivative instrument as defined by FASB Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133").  Accordingly,
$1.1 million of the cash proceeds were allocated to the embedded derivative
instrument, which represented the fair value of the instrument on the date of
issuance.  The changes in value for the years ended December 31, 2007 and 2006
of $60,000 and $978,000 were recorded as non-operating gains and included in
"Gain (loss) on derivative features of note payable" in the
consolidated statement of operations.

The warrants issued with the December Notes vested on the date of grant, have
an exercise price of $3.94 per share of common stock share and expire in
December 2010.  The warrants met the definition of a derivative instrument that
must be accounted for as a liability under the provisions of Emerging Issues
Task Force Issue No. 00-19, "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock,"
because the Company cannot engage in certain corporate transactions affecting
the common stock unless it makes a cash payment to the holders of the warrants.
Accordingly, $2.2 million of the cash proceeds were allocated to the warrants,
which represents the fair value of the warrants on the date of issuance and the
amount was recorded as a current liability.  Subsequent changes in the fair
value of the warrants will be recorded in the statement of operations each
period.

The liability for the warrants was valued at $1,928,000 and $1,689,000 at
December 31, 2007 and 2006, respectively.  The adjustments in value were
$239,000 and $490,000 during the years ended December 31, 2007 and 2006,
respectively.  The warrants were valued using the Black-Scholes option pricing
model with the following assumptions:  expected volatilities of 67%; expected
dividend yields of 0%; risk free interest rates of 3.07% and 4.72%; and
contractual lives of 2.9 and 3.9 years at December 31, 2007 and 2006,
respectively.

The Microvision common stock was valued at the closing price on the date of
closing of $3.60 per share.  Aggregate proceeds of $3.0 million were allocated
to the common stock.  The remaining gross proceeds of $3.7 million were
allocated to the notes.

11.	Common stock

On June 21, 2007, the Company exercised its right to call its publicly
traded warrants.  The Company received $34,092,000 from the exercise of
12,855,000 publicly traded warrants.

In November 2006, the Company raised $7.9 million, before issuance costs of
$779,000, through an underwritten public offering of 3,318,000 shares of our
common stock.

In June and July 2006, the Company raised an aggregate of $27.1 million,
before issuance costs of $2.2 million, through an underwritten public offering
of 11.6 million shares of our common stock and warrants to purchase 12.4 million
shares of our common stock.  The warrants have an exercise price of $2.65 per
share, a five year term, and are not exercisable for one year from the date of
issuance.  The warrants are callable after one year from the date of issuance if
the average closing bid price of our stock is over $5.30 for any 20 consecutive
trading days.  In connection with the offering, the Company issued the
underwriter a warrant to purchase 537,500 shares of Microvision common stock at
an exercise price of $2.76 per share.  The Company also issued the underwriter a
warrant to acquire 537,500 warrants, identical to those sold in the offering, at
an exercise price of $0.16 per warrant.  Both warrants will be exercisable for a
period of 4 years beginning on the first anniversary of the date of
issuance.

12.	 Warrants

On June 21, 2007, the Company exercised its right to call its publicly traded
warrants.  The Company received $34,092,000 from the exercise of 12,855,000
publicly traded warrants.

The following summarizes activity with respect to Microvision common stock
warrants during the three years ended December 31, 2007:

`Warrants to   Weighted-
                                             purchase     average
                                              common     excercise
                                              Shares       price
                                           ------------  ---------
Outstanding at December 31, 2004             1,718,000  $   13.76
Granted:
Exercise price greater than intrinsic value  2,602,000       5.59
Exercise price equal to intrinsic value          7,000       5.32
Exercised                                           --         --
Canceled/expired                              (207,000)     25.14
                                           ------------
Outstanding at December 31, 2005             4,120,000       6.99
Granted:
Exercise price greater than intrinsic value 12,900,000       2.66
Exercise price equal to intrinsic value        537,000       2.81
Exercised                                           --         --
Canceled/expired                                    --         --
                                           ------------
Outstanding at December 31, 2006            17,557,000       3.50
Granted:
Exercise price greater than intrinsic value    537,000       2.65
Exercise price equal to intrinsic value         25,000       3.42
Exercised                                  (13,803,000)      2.59
Canceled/expired                              (252,000)      6.30
                                           ------------
Outstanding at December 31, 2007             4,064,000  $    6.19
                                           ============
Exercisable at December 31, 2007             4,064,000  $    6.19
                                           ============`

The following table summarizes information about the weighted-average fair
value of Microvision common stock warrants granted:

`Year Ended December 31,
                                                             -------------------------------------
                                                                2007         2006         2005
                                                             -----------  -----------  -----------
Exercise price greater than fair value                      $        --  $      1.81  $      2.74
Exercise price equal to fair value                                 2.08           --         3.24
Exercise price less than fair value                                0.47         2.00           --`

The following table summarizes information about Microvision common stock
warrants outstanding and exercisable at December 31, 2007:

`Warrants outstanding          Warrants exercisable
                                     ---------------------------------  ------------------------
                                       Number     Weighted
                                  outstanding at   average   Weighted      Number      Weighted
                                         at       remaining   average   exercisable at  average
                                     December 31, contractual excercise  December 31,   excercise
Range of exercise prices                2007        life       price        2007         price
-----------------------------------  -----------  ---------  ---------  -------------  ---------
                                                (years)                                      
$2.76                                   361,000       3.43  $    2.76        361,000       2.76
$3.42-$3.90                             687,000       2.13       3.83        687,000       3.83
$3.94                                 1,090,000       2.92       3.94      1,090,000       3.94
$5.32-$5.85                           1,219,000       1.19       5.85      1,219,000       5.85
$6.50                                   507,000       0.18       6.50        507,000       6.50
$34.00                                  200,000       2.61      34.00        200,000      34.00
                                     -----------                        -------------
$2.76-$34.00                          4,064,000                            4,064,000
                                     ===========                        =============`

The fair value of the Microvision common stock warrants granted was estimated
on the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in 2007, 2006 and 2005,
respectively: dividend yield of zero percent for all years; expected volatility
of 47%, 65% and 70%; risk-free interest rates of 4.9%, 5.0%, and 4.2% and
expected lives of 0.3, 5 and 4 years, respectively.

13.	Share-Based Compensation

Stock Option Exchange

Subject to the terms of its tender offer filed in April 2006, on May 17,
2006, the Company exchanged 2.2 million existing options for 2.2 million new
options affecting 105 employees.  The new options have an exercise price of
$2.77.  The new options vested 25% on the grant date and will vest 25% on each
subsequent annual anniversary.  The tender offer did not result in the
acceleration of vesting of any options.  The new options have the same
expiration dates as the options exchanged.  The Company also adjusted the
exercise price of 386,000 options not subject to the tender offer to $2.77 on
the same date affecting 19 employees.

The tender offer was accounted for in accordance with FAS 123(R).  The
Company will recognize the $496,000 incremental fair value of the modified
options over the value of the options prior to modification, as determined on
the modification date, as additional non-cash compensation.  The incremental
expense is recognized ratably over the vesting periods of the options, 25% on
the grant date with the remaining 75% straight-line over the remaining vesting
period.  The incremental fair value of the modified options was estimated using
the Black-Scholes option pricing model with the following assumptions.

`Pre-         Post-
                                                                   modification modification
                                                                   -----------  -----------                         
Weighted average:
   Exercise price                                                 $      8.84  $      2.77
   Volatility                                                              73%          65%
   Expected term (years)                                                  6.9          4.2
   Risk free rate                                                         5.0%         5.0%
   Pre-vest forfeiture rate                                               5.0%         5.0%`

Share-based Compensation Prior to Adopting Statement of Financial
Accounting Standards No. 123, as revised December 2004 ("FAS 123(R)") on January 1, 2006

Prior to January 1, 2006, the Company accounted for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
("APB 25") and related amendments and interpretations including the
Financial Accounting Standards Board Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation("FIN 44"), and
complied with the disclosure provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation("FAS
123").  The Company accounts for equity instruments issued to non-employees
in accordance with the provisions of FAS 123 and Emerging Issues Task Force
Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services ("EITF 96-18").

If compensation expense for employee and director options had been determined
using the fair values at the grant dates consistent with the methodology
prescribed under FAS 123 in 2005, the Company's consolidated net loss available
to common shareholders and associated net loss per share would have increased to
the pro forma amounts shown below (in thousands):

`Year Ended
                                                                    December 31,
                                                                        2005
                                                                     ----------       
Net loss available for common shareholders, as reported             $  (30,284)
Add: Stock-based employee compensation expense included in net loss
   available for common shareholders, as reported                           94
Deduct: Total stock-based employee compensation expense determined
   under fair value based method for all awards                         (1,931)
                                                                     ----------
Net loss available for common shareholders, pro forma               $  (32,121)
                                                                     ==========
Net loss per share as reported                                      $    (1.35)
                                                                     ==========
  Basic and diluted pro forma                                       $    (1.43)
                                                                     ==========`

Adoption of FAS 123(R)

The Company adopted Statement of Financial Accounting Standards No. 123, as
revised December 2004 ("FAS 123(R)") effective January 1, 2006.  FAS
123(R) requires all employee share-based awards granted after the effective date
to be valued at fair value, and to be expensed over the applicable vesting
period.  In addition, companies must begin recognizing compensation expense
related to any awards that are not fully vested as of the adoption date.
Compensation expense for such unvested employee awards will be measured based on
the fair value of the awards as previously calculated and inter-period
attribution method used in developing the pro forma disclosures in accordance
with the provisions of FAS 123.  The valuation of and accounting for share-based
awards include a number of complex and subjective estimates.  These estimates
include, but are not limited to, the future volatility of our stock price,
future employee stock option exercise behaviors and future employee
terminations.

The Company adopted the Modified Prospective Application ("MPA")
method to account for the transition from Accounting Principles Board Opinion
No. 25 - Accounting for Stock Issued to Employees ("APB 25") and FAS
123 to FAS 123(R).  As prescribed by MPA, the Company will not restate prior
period financial statements.  Under guidance contained in APB 25 and FAS 123,
the Company had accounted for award forfeitures as they occur.  Under FAS
123(R), the Company estimates the forfeiture rate on the grant date and adjusts
the estimate through the vesting date.  The Company has made a policy decision
to change its share-based compensation expense attribution method for grants
made on or after the adoption date to use the straight-line method.  The
accelerated expense attribution method under Financial Accounting Standards
Board Interpretation No. 28 ("FIN 28") will continue to be applied for
outstanding grants not vested as of the FAS 123(R) adoption date.  Upon adopting
FAS 123(R), the Company reversed $85,000 of unamortized deferred compensation as
of December 31, 2005 against additional paid in capital.

As a result of adopting FAS 123(R), the Company's net loss for each of the
years ended December 31, 2007 and  December 31, 2006 was $1.8 million greater
than had it continued to account for share-based employee compensation under APB
25.  In addition, basic and diluted net loss per share was greater by $0.04 per
share.

The share-based employee compensation cost charged against loss was as shown
below (in thousands):

`Year Ended December 31,
                                                                   ------------------------------------
                                                                      2007         2006         2005
                                                                   -----------  -----------  ----------   
Share-based employee compensation cost charged against loss       $     1,797  $     1,825  $       94
                                                                   ===========  ===========  ==========`

Description of Incentive Plans

The Company currently has two incentive plans ("Incentive Plans") that have
been approved by shareholders.  Both Incentive Plans are administered by the
Board of Directors, or its designated committee ("Plan Administrator"), and
provide for various awards as determined by the Plan Administrator.

In July 2006, the 1996 Stock Option Plan (the "1996 Plan") expired.
In September 2006, Company shareholders approved the 2006 Microvision, Inc.
Incentive Plan which amends, restates and renames the 1996 Plan ("2006
Incentive Plan").  All awards outstanding under the 1996 Plan remain
outstanding under the 2006 Incentive Plan.  The 2006 Incentive Plan retained the
8.0 million share authorization that was under the 1996 Plan and permits
granting non-qualified stock options ("NSOs"), incentive stock options
("ISOs"), stock appreciation rights, restricted or unrestricted stock,
deferred stock, other share-based awards, or cash awards to employees, officers
and certain non-employees of the Company.  Any award may be a performance-based
award.  Awards granted under the 2006 Incentive Plan have generally been to
employees under non-qualified stock option agreements with the following
provisions: exercise prices greater than or equal to the Company's closing stock
price on the date of grant; vesting periods ranging from three years to four
years; expiration 10 years from the date of grant; and optionees who terminate
their service after vesting have a limited time to exercise their options
(typically three to twelve months).

The Independent Director Stock Option Plan ("Director Option Plan")
has 900,000 shares authorized and permits granting NSOs to independent directors
of the Company.  In June 2005, shareholders approved an amendment to the
Director Option Plan, increasing the number of shares reserved for the plan by
400,000 to 900,000 shares. Under the Director Option Plan, upon initial election
or appointment to the Board of Directors, Directors receive a fully vested
option to purchase 15,000 shares of common stock and a second option to purchase
15,000 shares of common stock.  Upon reelection to the Board, Directors receive
a subsequent option to purchase 15,000 shares of common stock.  The second
initial option grant and any reelection grant vests the earlier of one year from
date of grant or the day before the next regularly scheduled annual shareholder
meeting.  Grants awarded under the Director Option Plan generally, have the
following terms: exercise price equal to the Company's closing stock price on
the date of grant; expiration 10 years from the date of grant, and vested grants
remain exercisable until their expiration dates if a director leaves the Board.

Options Valuation Methodology and Assumptions

The Company uses the Black-Scholes option valuation model to determine the
fair value of the options and uses the closing price of its common stock as the
fair market value of its stock on that date.

The Company considers historical stock price volatilities, volatilities of
similar companies and other factors in determining its estimates of future
volatilities.

The Company follows the guidance provided by Staff Accounting Bulletin No.
107 ("SAB 107") for estimating "plain vanilla" option lives.
For  "non plain vanilla" options, the Company uses historical lives,
including post-termination exercise behavior, publications, comparable company
estimates, and other factors as the basis for estimating expected lives.

Risk free rates are based on the U.S. Treasury Yield Curve as published by
the U.S. Treasury.

The following table summarizes the weighted-average
valuation assumptions and weighted-average grant date fair value of options
granted, excluding grants issued under the Company's tender offer which require
an incremental valuation methodology and are disclosed above, during the periods
shown below:

`Year Ended December 31,
                                                                   ------------------------------------
                                                                      2007         2006         2005
                                                                   -----------  -----------  ----------             
Assumptions (weighted average)
Volatility                                                                 68%          72%         70%
Expected term (in years)                                                  6.2          6.1         5.1
Risk-free rate                                                            5.0%         5.0%        4.0%
Expected dividends                                                         --           --          --
Pre-vest forfeiture rate                                                  5.0%         5.0%       n/a
Grant date fair value of options granted                          $      2.67  $      2.26  $     3.44`

Options Activity and Positions

The following table summarizes activity and positions with respect to options
for the year ended December 31, 2006:

`Weighted
                                                                                              Average
                                                                                 Weighted    Remaining
                                                                                  Average    Contractual  Aggregate
                                                                                 Exercise       Term      Intrinsic
Options                                                              Shares        Price      (years)       Value
-----------------------------------------------------------------  -----------  -----------  ----------  -----------
Outstanding as of December 31, 2004                                 5,118,000  $     11.72         7.6  $   683,000
Granted                                                               574,000         5.33
Exercised                                                              (5,000)        4.03
Forfeited or expired                                                 (367,000)       10.99
                                                                   -----------
Outstanding at December 31, 2005                                    5,320,000        11.09         6.8  $     3,000
Granted  *                                                          4,280,000         2.99
Exercised                                                             (16,000)        2.77
Forfeited or expired  *                                            (3,873,000)        9.62
                                                                   -----------
Outstanding as of December 31, 2006                                 5,711,000         6.04         6.9  $ 1,384,000
Granted                                                             1,617,000         4.08
Exercised                                                             (84,000)        2.78
Forfeited or expired                                               (1,790,000)        9.05
                                                                   -----------
Outstanding as of December 31, 2007                                 5,454,000  $      4.52         6.9  $ 3,320,000
                                                                   ===========  ===========  ==========  ===========

Vested and expected to vest as of December 31, 2007                 5,060,000  $      4.59         6.8  $ 3,122,000
                                                                   ===========  ===========  ==========  ===========

Exercisable as of December 31, 2007                                 2,290,000  $      5.72         5.0  $ 1,770,000
                                                                   ===========  ===========  ==========  ===========`

* Includes 2.2 million shares exchanged pursuant to stock option exchange
disclosed above

The total intrinsic value of options exercised during the years ended
December 31, 2007, 2006 and 2005 were $163,000, $5,000 and $9,000,
respectively.

As of December 31, 2007, the Company's unamortized share-based compensation
was $4.8 million.  The Company plans to amortize this share-based compensation
cost over the next 2.5 years.

During 2006, the Board of Directors approved the immediate vesting of options
to purchase 45,000 shares that had been issued to three independent directors.
The directors subsequently resigned from the Board of Directors.  The Company
determined that the accelerated vesting was a modification of an award with a
service vesting condition.  The total fair value of each modified option was
measured as the value of the original grant plus the value of the modified grant
on its modification date.  On the modification date, the total value of the
modified awards was estimated to be $91,000, of which $84,000 was previously
amortized, and the remaining value of $7,000 was immediately expensed as
compensation cost.

In July 2005, the Company granted options to purchase an aggregate of 300,000
shares of common stock at an exercise price of $5.32 to an executive officer.
The exercise price of the options was less than the fair market value of the
shares on the date of grant.  According to guidance in Accounting Principles
Bulletin No. 25 ("APB 25"), the Company recorded $144,000 of deferred
compensation and amortized $59,000 to compensation expense related to these
options in 2005.  Upon adopting FAS 123(R) on January 1, 2006, the Company
reversed the remaining unamortized deferred compensation of $85,000 to
additional paid-in capital.

14.	Commitments and contingencies

Agreements with the University of Washington ("UW")

In October 1993, the Company entered into a Research Agreement and an
exclusive license agreement ("License Agreement") with the UW.  The
License Agreement grants the Company the rights to certain intellectual
property, including the technology being subsequently developed under the
Microvision research agreement ("Research Agreement"), whereby the
Company has an exclusive, royalty-bearing license to make, use and sell or
sublicense the licensed technology.  In consideration for the license, the
Company agreed to pay a one-time nonrefundable license issue fee of $5,134,000.
Payments under the Research Agreement were credited to the license fee.  In
addition to the nonrefundable fee, which has been paid in full, the Company is
required to pay certain ongoing royalties.  Beginning in 2001, the Company is
required to pay the UW a nonrefundable license maintenance fee of $10,000 per
quarter, to be credited against royalties due.

Litigation

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

Lease commitments

The Company leases its office space and certain equipment under noncancelable
capital and operating leases with initial or remaining terms in excess of one
year.

The Company entered into a 90 month facility lease that commenced in February
2006.  The lease includes extension and rent escalation provisions over the 90
month term of the lease. Rent expense will be recognized on a straight-line
basis over the lease term.

Future minimum rental commitments under capital and operating leases for
years ending December 31 are as follows:

`Capital       Operating
                                                     leases         leases
                                                  -------------  -------------
2008                                             $      55,000  $     896,000
2009                                                    49,000        852,000
2010                                                    40,000        881,000
2011                                                     8,000        905,000
2012                                                        --        935,000
Thereafter                                                  --        564,000
                                                  -------------  -------------
Total minimum lease payments                           152,000  $   5,033,000
                                                                 =============
Less: Amount representing interest                     (20,000)
                                                  -------------
Present value of capital lease obligations             132,000
Less: Current portion                                  (44,000)
                                                  -------------
Long-term obligation at December 31, 2007        $      88,000
                                                  =============`

The capital leases are collateralized by the related assets financed and by securtiy deposits held by the lessors
under the lease agreements.  The cost and accumulated depreciation of equipment under capital leases was
$1,017,000 and $886,000, respectively, at December 31, 2007 and $1,017,000 and $837,000, respectively, at December
31, 2006.

Net rent expense was $830,000, $1,082,000, and $1,435,000 for 2007, 2006 and 2005, respectively.  Sub-lease income
of $0, $125,000 and $575,000 for 2007, 2006 and 2005 respectively, was included as a reduction in rent expense.

Long-term debt

Adverse purchase commitments

The Company has periodically entered into noncancelable purchase contracts in
order to ensure the availability of materials to support Flic production.
Management periodically assesses the need to provide for impairment on these
purchase contracts and records a loss on purchase commitments when required.  In
December 2006, the Company recorded a loss of $310,000 to cost of product
revenue as a result of commitments to purchase materials for the Flic scanner
that are in excess of our estimated future proceeds from the sale of the Flic
scanners.

15.	Income taxes

A provision for income taxes has not been recorded for 2007, 2006 and 2005
due to the valuation allowances placed against the net operating losses and
deferred tax assets arising during such periods.  A valuation allowance has been
recorded for all deferred tax assets because based on the Company's history of
losses since inception, the available objective evidence creates sufficient
uncertainty regarding the realizability of the deferred tax assets.

At December 31, 2007, Microvision has net operating loss carry forwards of
approximately $200.0 million, for federal income tax reporting purposes.  In
addition, Microvision has research and development tax credits of $3.6 million.
The net operating loss carry forwards and research and development credits
available to offset future taxable income, if any, will expire in varying
amounts from 2008 to 2027 if not previously utilized.  In certain circumstances,
as specified in the Internal Revenue Code, a 50% or more ownership change by
certain combinations of the Company's stockholders during any three-year period
would result in limitations on the Company's ability to utilize its net
operating loss carry-forwards.  The Company has determined that such a change
occurred during 1995 and the annual utilization of loss carry-forwards generated
through the period of that change will be limited to approximately $761,000.  An
additional change occurred in 1996; and the limitation for losses generated in
1996 is approximately $1,600,000.

Deferred tax assets are summarized as follows:

`December 31,
                                                  ----------------------------
                                                      2007           2006
                                                  -------------  -------------
Deferred tax assets, current
   Reserves                                      $   2,460,000  $   2,408,000
   Other                                               712,000        375,000
                                                  -------------  -------------
Total gross deferred tax assets, current             3,172,000      2,783,000
                                                  -------------  -------------
Deferred tax assets, noncurrent
   Net operating loss carryforwards                 68,658,000     66,152,000
   R&D credit carryforwards                          3,601,000      2,894,000
   Depreciation/amortization deferred               10,848,000      7,837,000
   Other                                             2,581,000      1,870,000
                                                  -------------  -------------
Total gross deferred tax assets, noncurrent         85,688,000     78,753,000
                                                  -------------  -------------
Deferred tax liabilities, noncurrent
   Loss in equity subsidiary                                --     (2,436,000)
   Convertible debt                                 (1,209,000)    (2,535,000)
                                                  -------------  -------------
Total gross deferred tax liabilities, noncurrent    (1,209,000)    (4,971,000)
                                                  -------------  -------------
Net deferred taxes before valuation allowance       87,651,000     76,565,000
Less: Valuation allowance                          (87,651,000)   (76,565,000)
                                                  -------------  -------------
Deferred tax assets                              $          --  $          --
                                                  =============  =============`

The valuation allowance and the research and development credit carry
forwards account for substantially all of the difference between the Company's
effective income tax rate and the Federal statutory tax rate of 34%.

Certain net operating losses arise from the deductibility for tax purposes of
compensation under nonqualified stock options equal to the difference between
the fair value of the stock on the date of exercise and the exercise price of
the options.  For financial reporting purposes, the tax effect of this deduction
when recognized is accounted for as a credit to shareholders' equity.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, on January 1, 2007.  The Company did not have
any unrecognized tax benefits which would require an adjustment to the January
1, 2007 beginning balance of retained earnings.  The Company did not have any
unrecognized tax benefits at January 1, 2007 and at December 31, 2007.

The Company recognizes interest accrued and penalties related to unrecognized
tax benefits in tax expense.  During the years ended December 31, 2007 and 2006
the Company recognized no interest and penalties.

The Company files income tax returns in the U.S. federal jurisdiction and
various states.  The tax years 2004-2006 generally remain open to examination by major
taxing jurisdictions to which the Company is subject.

16.	Retirement savings plan

The Company has a retirement savings plan ("the Plan") that
qualifies under Internal Revenue Code Section 401(k).  The Plan covers all
qualified employees.  Contributions to the Plan by the Company are made at the
discretion of the Board of Directors.

In February 2000, the Board of Directors approved a plan amendment to match
50% of employee contributions to the Plan up to 6% of the employee's per pay
period compensation, starting on April 1, 2000.  During 2007, 2006 and 2005, the
Company contributed $295,000, $308,000 and $321,000, respectively, to the Plan
under the matching program.

17.	Segment Information

The accounting policies used to derive reportable segment results are
described in Note 2, "Summary of Significant Accounting Policies."

From inception in 2000 to July 2004, Lumera was a consolidated subsidiary and
treated as a separate segment within Microvision.  Subsequent to July 2004,
Lumera became an equity method investment.  Since July 2004, Microvision has
operated as one segment.

At January 31, 2006 and December 31 2005, Lumera was a significant
unconsolidated equity investment of Microvision.  For the one month period ended
January 31, 2006, Lumera revenue was $168,000, gross profit was $82,000, loss
from operations was $1,109,000 and net loss was $1,040,000.  For 2005, Lumera
revenue was $1,509,000, gross profit was $587,000, loss from operations was
$11,108,000 and net loss was $10,453,000.

18.	Quarterly Financial Information (Unaudited)

The following table presents the Company's unaudited quarterly financial
information for the years ending December 31, 2007 and 2006:

`Year Ended December 31, 2007
                                        ----------------------------------------------------------
                                        December 31,   September 30,    June 30,       March 31,
                                        -------------  -------------  -------------  -------------
Revenue                                $   2,988,000  $   2,599,000  $   2,662,000  $   2,235,000
Gross Margin                               1,092,000        846,000        999,000        941,000
Net loss available for common shareholde  (6,022,000)    (4,718,000)    (2,155,000)    (6,892,000)
Net loss per share basic and diluted           (0.11)         (0.08)         (0.05)         (0.16)

                                                       Year Ended December 31, 2006
                                        ----------------------------------------------------------
                                        December 31,   September 30,    June 30,       March 31,
                                        -------------  -------------  -------------  -------------
Revenue                                $   1,842,000  $     823,000  $   1,906,000  $   2,472,000
Gross Margin                                (181,000)      (195,000)      (774,000)        27,000
Net loss available for common shareholde  (8,681,000)    (7,692,000)   (11,215,000)       331,000
Net loss per share basic and diluted           (0.21)         (0.20)         (0.38)          0.01`

During 2006, the Company recorded inventory write-offs and adverse purchase
commitments of $1,491,000, of which $900,000 was during the quarter ended
December 31, 2006.

---



MICROVISION, INC.
                  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                  (in thousands)

`Additions
                                                                       ------------------------
                                                          Balance at   Charges to   Charges to                  Balance at
                                                         beginning of   costs and      other                      end of
                      Description                        fiscal period  expenses     accounts     Deductions   fiscal period
-------------------------------------------------------  ------------  -----------  -----------  ------------  -------------
    Year Ended December 31, 2005
        Allowance for receivables from related parties  $        900  $     1,031  $        --  $         --  $       1,931
        Tax valuation allowance                               63,972           --        7,056            --         71,028

    Year Ended December 31, 2006
        Allowance for receivables from related parties         1,931          542           --            --          2,473
        Tax valuation allowance                               71,028           --        5,537            --         76,565

    Year Ended December 31, 2007
        Allowance for receivables from related parties         2,473           23           --            --          2,496
        Tax valuation allowance                               76,565           --       11,086            --         87,651`

ITEM 9. 	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have been no changes in or disagreements with accountants in accounting
or financial disclosure matters during the Company's fiscal years ended December
31, 2007 and 2006.

ITEM 9A. 	CONTROLS AND PROCEDURES 
(a)Evaluation of disclosure controls and procedures. Our Chief Executive
Officer ("CEO") and the Chief Financial Officer ("CFO")
evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), prior to the filing of this Form 10-K. Based on that
evaluation, our CEO and CFO concluded that, as of December 31, 2007, our
disclosure controls and procedures were, in design and operation effective.

(b) Management's Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Our management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control - Integrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on its
evaluation under the framework in Internal Control - Integrated Framework,our management concluded that our internal control over financial reporting
was effective as of December 31, 2007. 
The effectiveness of our internal control over financial reporting as of
December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their attestation report, which
is included in Item 8 of  this Annual Report on Form 10-K under the heading
"Report of Independent Registered Public Accounting Firm."

(c) Changes in internal controls over financial reporting. There have
not been any changes in the Company's internal control over financial reporting
during the quarter ended December 31, 2007 which have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.

ITEM 9B.	OTHER INFORMATION

None

PART III

ITEM 10. 	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Information regarding executive officers is included in Part I of this Annual
Report on Form 10-K in Item 4A.  The information required by this Item and not
provided in Item 4A will appear under the caption "Discussion of Proposals
Recommended by the Board" in the Proxy Statement, which section is
incorporated in this Item by reference.  The Proxy Statement will be filed prior
to the Company's annual shareholders' meeting scheduled to be held on June 25,
2008.

ITEM 11.	EXECUTIVE COMPENSATION.

The information required by this Item will appear under the captions
"Executive Compensation," "Compensation Committee Interlocks and
Insider Participation" and "Director Compensation for 2007" in
the Proxy Statement, which sections are incorporated in this Item by
reference.

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
 AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Information as of December 31, 2007 regarding equity compensation plans
approved and not approved by stockholders is summarized in the following
table:

`Equity Compensation Plan Information
                                                         ---------------------------------------------------------------------
                                                              Number of             Weighted-          Number of securities
                                                           securities to be     average excercise     remaining available for
                                                             issued upon             price of         further issuance under
                                                             excercise of          outstanding          equity compensation
                                                             outstanding        options, warrants        plans (excluding
                                                          options, warrants         and rights        securities reflected in
                                                              and rights                                    column (a))
Plan Category                                                    (a)                   (b)                      (c)
-------------------------------------------------------  --------------------  --------------------  -------------------------
Equity compensation plans approved by shareholders                 5,453,000  $               4.52                  2,560,000
Equity compensation plans not approved by shareholders               233,000                 29.79                         --
                                                         --------------------                        -------------------------
    Total                                                          5,686,000  $               5.55                  2,560,000
                                                         ====================                        =========================`

In August 2000, the Company issued two non-plan warrants to purchase an
aggregate of 200,000 shares of Microvision common stock to two consultants in
connection with entering into certain consulting agreements with the Company.
Subsequently, one of the consultants was elected to the Board of Directors by
shareholders.  The warrants were fully exercisable as of December 31, 2007.  The
warrants have an exercise price of $34.00 per share and are exercisable prior to
their expiration in August 2010.  As of the date of grant, all but 25,000 of the
underlying shares of common stock issuable to each consultant upon exercise of
the warrants were subject to lock-up restrictions that prevent the holder from
transferring such shares.  The number of shares subject to the lock-up
restrictions is reduced by 25,000 for each consultant on each June 7 subsequent
to the grant date.  Rather than issue shares of common stock upon exercise of
the warrants, the Company may elect to redeem the warrants if, in the opinion of
the Board of Directors upon advice of counsel, it would be unlawful to issue the
underlying securities.  The warrants are transferable upon prior written
approval of the Company.  The Company cannot unreasonably withhold such approval
with respect to transfers of warrants to purchase at least 10,000 shares that
are not subject to the lock-up restrictions.  If the Company terminates the
consulting agreement due to the consultant's failure to provide consulting
services during the first three years of the agreement, the consultant must
return to the Company a pro-rata portion of the 75,000 warrants initially
subject to the lock-up restrictions based on the number of calendar days
remaining in the initial three year period.  The number, class and price of
securities for which the warrants may be exercised are subject to adjustment for
certain changes in the Company's capital structure.  The number of securities
and exercise price per share will be proportionately adjusted if outstanding
shares of the Company's common stock are divided into a greater number of shares
or combined into a smaller number of shares, or a stock dividend is paid on the
common stock.  In the event of a change in the common stock from a merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, or other change in the capital structure of the Company, the
Company will, as a condition of the change in capital structure, make provision
for the warrant holder to receive upon the exercise of the warrants the kind and
amount of shares of stock, other securities or property to which the holder
would have been entitled if, immediately prior to the change in capital
structure, the warrant holder had held the number of shares of common stock
obtainable upon the exercise of the warrants, and the exercise price will be
proportionately adjusted.

In July 2005, Microvision issued a warrant to purchase 6,925 shares of common
stock to a third party for services.  The warrant is immediately exercisable,
has an exercise price of $5.32 per share, and expires in July 2010.  The number
and price of securities for which the warrant may be exercised are subject to
adjustment for certain changes in the Company's capital structure.  Where the
outstanding shares of common stock are divided into a greater number of shares,
combined into a smaller number of shares, or a stock dividend is paid on the
common stock, the exercise price per share shall be proportionately adjusted by
the ratio of common shares outstanding immediately before and after the
transaction.  In the event of a change in the common stock from a
reorganization, reclassification, consolidation, or merger, the holder will be
entitled to receive, upon the exercise of the warrants, the same amount and kind
of securities, cash or property to which the holder would have been entitled if,
immediately prior to the change in capital structure, the warrant holder had
held the number of shares of common stock obtainable upon the exercise of the
warrants.

In February 2007, Microvision issued a warrant to purchase 25,000 shares of
common stock to a third party for services.  The warrant is immediately
exercisable, has an exercise price of $3.42 per share, and expires in February
2012.  The number and price of securities for which the warrant may be exercised
are subject to adjustment for certain changes in the Company's capital
structure.  Where the outstanding shares of common stock are divided into a
greater number of shares, combined into a smaller number of shares, or a stock
dividend is paid on the common stock, the exercise price per share shall be
proportionately adjusted by the ratio of common shares outstanding immediately
before and after the transaction.  In the event of a change in the common stock
from a reorganization, reclassification, consolidation, or merger, the holder
will be entitled to receive, upon the exercise of the warrants, the same amount
and kind of securities, cash or property to which the holder would have been
entitled if, immediately prior to the change in capital structure, the warrant
holder had held the number of shares of common stock obtainable upon the
exercise of the warrants.

The other information required by this Item will appear under the caption
"Information About Microvision Common Stock Ownership" in the Proxy
Statement, which section is incorporated in this Item by reference.

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.

The information required by this Item will appear under the captions
"Certain Relationships and Related Transactions" and "Board
Meetings and Committees" in the Proxy Statement, which sections are
incorporated in this Item by reference.

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this Item will appear under the caption
"Independent Registered Public Accounting Firm" in the Proxy
Statement, which section is incorporated in this Item by reference.

PART IV

ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) 	Documents filed as part of the report:

Financial Statements

Report of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2007 and 2006

Statements of Operations for the years ended December 31, 2007, 2006
and 2005

Consolidated Statements of Mandatory Redeemable Convertible Preferred
Stock and
Shareholders' Equity (Deficit) for the years ended December 31, 2007, 2006
and 2005

Statements of Comprehensive Loss for the years ended December 31,
2007, 2006 and 2005

Statements of Cash Flows for the years ended December 31, 2007, 2006
and 2005

Notes to Consolidated Financial Statements

Valuation and Qualified Accounts and Reserves for the years ended December
31, 2007, 2006 and 2005

(b)	Exhibits

The following exhibits are referenced or included in this report.

|3.1   | Certificate of Incorporation of Microvision, Inc., as amended
(17)                                                                                                                                                                     
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2   | Bylaws of Microvision, Inc.(2)                                                                                                                                                                                                         
|4.1   | Form of Specimen Stock Certificate for Common
Stock.(2)                                                                                                                                                                                
|4.2   | Warrant No. 76 to Purchase Common Stock of Microvision, Inc.
issued September 10, 2004 to Satellite Strategic Finance Associates, LLC.(6)                                                                                              
|4.3   | Form of Warrant issued under the Securities Purchase Agreement
dated as of March 11, 2005 by and among Microvision, Inc. and the investors
listed on the Schedule of Buyers thereto.(7)                                                
|4.4   | Form of Warrant issued as of July 25, 2005 under the Master
Amendment Agreement dated as of July 25, 2005 by and among Microvision, Inc. and
the investors listed on the Schedule of Buyers thereto.(10)                               
|4.5   | Warrant No. 86 to Purchase Common Stock of Microvision, Inc.
issued August 9, 2005 to Satellite Strategic Finance Partners, Ltd.(12)                                                                                                   
|4.6   | Warrant No. 87 to Purchase Common Stock of Microvision, Inc.
issued August 9, 2005 to Satellite Strategic Finance Associates, LLC.(12)                                                                                                 
|4.7   | Warrant No. 88 to Purchase Common Stock of Microvision, Inc.
issued August 31, 2005 to Omicron Master Trust(13)                                                                                                                        
|4.8   | Form of Warrant issued under the Securities Purchase Agreement
dated as of November 30, 2005 by and among Microvision, Inc. and the investors
listed on the Schedule of Buyers thereto.(14)                                            
|4.9   | Registration Rights Agreement dated as of May 3, 2006 by and
between Microvision, Inc. and Satellite Strategic Finance Associates,
LLC.(15)                                                                                            
|4.10  | Form of Underwriter's Warrant Agreement dated June 5, 2006 by
and between Microvision, Inc. and MDB Capital Group,
LLC.(16)                                                                                                            
|10.1  | Assignment of License and Other Rights between The University of
Washington and the Washington Technology Center and the H. Group, dated July 25,
1993.(1)                                                                             
|10.2  | Project II Research Agreement between The University of
Washington and the Washington Technology Center and Microvision, Inc., dated
October 28, 1993.(1)+                                                                             
|10.3  | Exclusive License Agreement between The University of Washington
and Microvision, Inc., dated October 28, 1993.(1)+                                                                                                                    
|10.4  | Exclusive License Agreement between the University of Washington
and Microvision, Inc. dated March 3, 1994.(5)                                                                                                                         
|10.5  | Microvision, Inc. 2006 Incentive Plan.(17)*                                                                                                                                                                                            
|10.6  | Independent Director Stock Option Plan, as
amended.(4)*                                                                                                                                                                                
|10.7  | Executive Loan Plan and Related Form of
Note.(3)*                                                                                                                                                                                      
|10.8  | License and Development Agreement dated as of December 30, 2004
by and between Microvision, Inc. and Ethicon Endo-Surgery,
Inc.(8)+                                                                                                    
|10.9  | Employment Agreement between Microvision, Inc. and Alexander Y.
Tokman dated July 18, 2005.(9)                                                                                                                                         
|10.10 | Lease Agreement between CarrAmerica Reality Operating
Partnership, L.P. and Microvision, Inc., dated July 15,
2005.(11)                                                                                                                
|23    | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                              
|31.1  | Principal Executive Officer certification pursuant to Rule 13a-
14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                          
|31.2  | Principal Financial Officer certification pursuant to Rule 13a-
14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                          
|32.1  | Principal Executive Officer certification pursuant to Rule 13a-
14(b) or Rule 15d-14(b) and Section 1350, Chapter 63 of Title 18 United States
Code (18 U.S.C. 1350), as adopted pursuant to Section 906 of Sarbanes-Oxley Act
of 2002.
|32.2  | Principal Financial Officer certification pursuant to Rule 13a-
14(b) or Rule 15d-14(b) and Section 1350, Chapter 63 of Title 18 United States
Code (18 U.S.C. 1350), as adopted pursuant to Section 906 of Sarbanes-Oxley Act
of 2002.

(1)	Incorporated by reference to the Company's Form SB-2 Registration
Statement, Registration No. 333-05276-LA.

(2)	Incorporated by reference to the Company's Post-Effective Amendment to
Form S-3 Registration Statement, Registration No. 333-102244.

(3) 	Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 2001, available at the SEC's Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549 under the Company's
Commission File Number, 0-21221.

(4) 	Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended June 30, 2002.

(5) 	Incorporated by reference to the Company's Current Report on Form 8-K
filed on March 5, 2003.

(6)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on September 10, 2004.

(7)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on March 14, 2005.

(8)	Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 2004.

(9)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on July 7, 2005.



(10) 	Incorporated by reference to the Company's Current Report on Form 8-K filed on July 29, 2005.

(11) 	Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended June 30, 2005.

(12)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on August 10, 2005.

(13)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on September 2, 2005.

(14) 	Incorporated by reference to the Company's Current Report on Form 8-K filed on December 1, 2005.

(15)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on May 5, 2006.

(16)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on May 31, 2006.

(17)	Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 2006.

+	Subject to confidential treatment.

*	Management contracts and compensatory plans and arrangements required to
be filed as exhibits pursuant to Item 15(b) of this Report.

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

|                     |    | MICROVISION, INC.                                                         
|-------------------- | -- | --------------------------------------------------------------------------
|Date: March 12, 2008 | By | Alexander Tokman Alexander Tokman
   President and Chief Executive Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the following capacities on March 12, 2008.

|Signature                                 | Title                                                                
|----------------------------------------- | ---------------------------------------------------------------------
|/s/ Alexander Tokman   Alexander Tokman   | Chief Executive Officer and Director
   (Principal Executive Officer)
|                                          |                                                                      
|/s/ Jeff Wilson   Jeff Wilson             | Chief Financial Officer                                              
|                                          |                                                                      
|/s/ Richard A. Cowell   Richard A. Cowell | Director                                                             
|                                          |                                                                      
|/s/ Slade Gorton   Slade Gorton           | Director                                                             
|                                          |                                                                      
|Marc Onetto                               | Director                                                             
|                                          |                                                                      
|/s/ Jeanette Horan   Jeanette Horan       | Director                                                             
|                                          |                                                                      
|/s/ Brian Turner   Brian Turner           | Director                                                             

---



EXHIBIT INDEX

The following documents are filed herewith or have been included as exhibits
to previous filings with the Securities and Exchange Commission and are
incorporated by reference as indicated below.

|3.1   | Certificate of Incorporation of Microvision, Inc., as amended
(17)                                                                                                                                                                    
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2   | Bylaws of Microvision, Inc.(2)                                                                                                                                                                                                        
|4.1   | Form of Specimen Stock Certificate for Common
Stock.(2)                                                                                                                                                                               
|4.2   | Warrant No. 76 to Purchase Common Stock of Microvision, Inc.
issued September 10, 2004 to Satellite Strategic Finance Associates, LLC.(6)                                                                                             
|4.3   | Form of Warrant issued under the Securities Purchase Agreement
dated as of March 11, 2005 by and among Microvision, Inc. and the investors
listed on the Schedule of Buyers thereto.(7)                                               
|4.4   | Form of Warrant issued as of July 25, 2005 under the Master
Amendment Agreement dated as of July 25, 2005 by and among Microvision, Inc. and
the investors listed on the Schedule of Buyers thereto.(10)                              
|4.5   | Warrant No. 86 to Purchase Common Stock of Microvision, Inc.
issued August 9, 2005 to Satellite Strategic Finance Partners, Ltd.(12)                                                                                                  
|4.6   | Warrant No. 87 to Purchase Common Stock of Microvision, Inc.
issued August 9, 2005 to Satellite Strategic Finance Associates, LLC.(12)                                                                                                
|4.7   | Warrant No. 88 to Purchase Common Stock of Microvision, Inc.
issued August 31, 2005 to Omicron Master Trust(13)                                                                                                                       
|4.8   | Form of Warrant issued under the Securities Purchase Agreement
dated as of November 30, 2005 by and among Microvision, Inc. and the investors
listed on the Schedule of Buyers thereto.(14)                                           
|4.9   | Registration Rights Agreement dated as of May 3, 2006 by and
between Microvision, Inc. and Satellite Strategic Finance Associates,
LLC.(15)                                                                                           
|4.10  | Form of Underwriter's Warrant Agreement dated June 5, 2006 by
and between Microvision, Inc. and MDB Capital Group,
LLC.(16)                                                                                                           
|10.1  | Assignment of License and Other Rights between The University of
Washington and the Washington Technology Center and the H. Group, dated July 25,
1993.(1)                                                                            
|10.2  | Project II Research Agreement between The University of
Washington and the Washington Technology Center and Microvision, Inc., dated
October 28, 1993.(1)+                                                                            
|10.3  | Exclusive License Agreement between The University of Washington
and Microvision, Inc., dated October 28, 1993.(1)+                                                                                                                   
|10.4  | Exclusive License Agreement between the University of Washington
and Microvision, Inc. dated March 3, 1994.(5)                                                                                                                        
|10.5  | Microvision, Inc. 2006 Incentive Plan.(17)*                                                                                                                                                                                           
|10.6  | Independent Director Stock Option Plan, as
amended.(4)*                                                                                                                                                                               
|10.7  | Executive Loan Plan and Related Form of
Note.(3)*                                                                                                                                                                                     
|10.8  | License and Development Agreement dated as of December 30, 2004
by and between Microvision, Inc. and Ethicon Endo-Surgery,
Inc.(8)+                                                                                                   
|10.9  | Employment Agreement between Microvision, Inc. and Alexander Y.
Tokman dated July 18, 2005.(9)                                                                                                                                        
|10.10 | Lease Agreement between CarrAmerica Reality Operating
Partnership, L.P. and Microvision, Inc., dated July 15,
2005.(11)                                                                                                               
|23    | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                             
|31.1  | Principal Executive Officer certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                          
|31.2  | Principal Financial Officer certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                          
|32.1  | Principal Executive Officer certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350, Chapter 63 of Title 18 United States
Code (18 U.S.C. 1350), as adopted pursuant to Section 906 of Sarbanes-Oxley Act
of 2002.
|32.2  | Principal Financial Officer certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350, Chapter 63 of Title 18 United States
Code (18 U.S.C. 1350), as adopted pursuant to Section 906 of Sarbanes-Oxley Act
of 2002.

(1)	Incorporated by reference to the Company's Form SB-2 Registration
Statement, Registration No. 333-05276-LA.

(2)	Incorporated by reference to the Company's Post-Effective Amendment to
Form S-3 Registration Statement, Registration No. 333-102244.

(3) 	Incorporated by reference to the Company's Annual Report on Form 10-
K for the year ended December 31, 2001, available at the SEC's Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549 under the Company's
Commission File Number, 0-21221.

(4) 	Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended June 30, 2002.

(5) 	Incorporated by reference to the Company's Current Report on Form 8-K
filed on March 5, 2003.

(6)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on September 10, 2004.

(7)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on March 14, 2005.

(8)	Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 2004.

(9)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on July 7, 2005.

(10) 	Incorporated by reference to the Company's Current Report on Form 8-K filed on July 29, 2005.

(11) 	Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended June 30, 2005.

(12)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on August 10, 2005.

(13)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on September 2, 2005.

(14) 	Incorporated by reference to the Company's Current Report on Form 8-K filed on December 1, 2005.

(15)	Incorporated by reference to the Company's Current Report on Form 8-K filed on May 5, 2006.

(16)	Incorporated by reference to the Company's Current Report on Form 8-K
filed on May 31, 2006.

(17)	Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 2006.

+	Subject to confidential treatment.

*	Management contracts and compensatory plans and arrangements required to
be filed as exhibits pursuant to Item 15(b) of this Report.