Saturday, December 11, 2010

Microvision: Equity or Debt Financing to Stay as Going Concern

During the month of August 2010, Microvision raised $12.5 million dollars from Azimuth Fund in order to prepare the 3rd Qtr 2010 financial on a “going concern basis.

Here's what they said in the 10-Q filing for the 3rd Qtr earning report...

“In August 2010, we received a report from our independent public accounting firm regarding the consolidated financial statements for the year ended December 31, 2009 that includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. Our financial statements have been prepared on a going concern basis.

In August 2010, we entered into a committed equity financing facility under which we may sell up to the lesser of $60.0 million or 17,771,901 shares of our common stock to Azimuth Opportunity, Ltd over a 24-month term. In September 2010, we raised $12.5 million through the sale of approximately 6.3 million shares of our common stock under this facility. As of September 30, 2010 we have the lesser of approximately $47.5 million or 11.4 million shares of common stock remaining available under the facility, though we may not be able to sell shares under the facility in the amounts desired or at all. Based on our current operating plan, we anticipate that we have sufficient cash and cash equivalents to fund our operations through April 2011.”

Now three months later, in November 2010, I would expect Microvision to address the “going concern basis” issue again... because they probably burned another $12 million dollars during the three months from August to November leaving them essentially at the same financial spot they were in August of 2010.

Today is December 12th and so far we have not heard a thing about any additional funding from Azimuth or any other form of equity or debt financing. We did, however, hear about the Memorandum of Understanding [MOU] with Pioneer Corporation of Japan...
MicroVision and Pioneer to Jointly Commercialize Innovative Laser Display Products

Here's the link to the news...
http://www.businesswire.com/news/home/20101208005686/en/MicroVision-Pioneer-Jointly-Commercialize-Innovative-Laser-Display

According to the news on MOU with Pioneer...

REDMOND, Wash.--(BUSINESS WIRE)--MicroVision, Inc. (NASDAQ: MVIS), a leader in innovative ultra-miniature laser display technology, announced today that it has entered into a memorandum of understanding (MOU) with Pioneer Corporation, one of the top original equipment manufacturers (OEMs) of high-performance audio, video and computer equipment for the home, car and business markets, to develop, manufacture and distribute display engines and display engine subsystems for consumer and in-vehicle head-up displays (HUDs) using the MicroVision PicoP® laser display technology.
“We believe that by combining our respective market and product development capabilities, and leveraging best practices in manufacturing, MicroVision and Pioneer can accelerate introducing next-generation laser display products while reducing the total cost for both companies in getting there.”
Earlier this year, the two companies executed a joint development agreement to develop two critical components of the PicoP display engine: a laser light source module using direct red, blue, and green lasers and a separate display engine subsystem based on MicroVision’s patented PicoP laser scanning technology. Both are key pieces of the next-generation PicoP display engine that will offer OEMs significant commercial advantages in price, size, power, and performance for embedded solutions ranging from cell phones and eyewear, to airplanes and automobiles.”

Now this is what I'm wondering, just like thousands of other Microvision investors...

This is almost middle of December, and since there is no news of SEC filings on any funding from Azimuth or any other entity; there's the risk of “going concern” statement from the independent accounting firm in the 10-K Annual Report... unless the funding issue has been addressed, in some shape or form, by the MOU and soon to be announced details of some equity stake in Microvision by Pioneer Corporation.

If Pioneer Corporation were to share cost of future development, manufacture and distribution of whatever CE products and modular components they have agreed to; and also take an equity stake in Microvision; that would explain the silence on the funding front.

However, if Pioneer shares the cost of future engagement with Microvision, but does not take an equity position, then there would be some need for additional funding... possibly from the Azimuth Fund facility.

At the most recent 3rd Qtr earnings conference call, Mr. Jeff Wilson, Microvision CFO addressed the $48 million funding that is still available from Azimuth… but left some of us wondering how that may play-out in view of current MVIS stock price that dropped sharply after the CC.

“The terms of Azimuth funding are quite complicated to say the least. However, one thing seems clear that with MVIS stock trading at $1.25 or lower, there may not be any funding available from Azimuth?

Does that mean Pioneer Corporation is our “knight in shining armor” coming to Microvision rescue?

It surely looks that way from what I hear.

However, even with some equity funding and future cost shared with Pioneer, there is the impact of low MVIS stock price on Azimuth funding to flow. Here’s what the terms of Azimuth funding say in the 8-K filing…

“Threshold Price” is the lowest price at which the Company may sell Shares during the applicable Pricing Period as set forth in a Fixed Request Notice (not taking into account the applicable percentage discount during such Pricing Period determined in accordance with Section 3.2); provided, however, that at no time shall the Threshold Price be lower than $1.25 per share."

Microvision's first draw was allowed to be up to 12.5 million, but the subsequent draws are not. Subsequent draw limits are tied to the price of the stock. Since MVIS is currently in the price group─ $1.75 to $2.00, the maximum fixed amount they can request is $2 million dollars per draw every three weeks.

Two million dollars every four weeks [including 5 days waiting period] is about $6 million a Qtr and that is not so bad when you consider that Microvision is able to share future development cost with Pioneer; and with some equity funding [from Pioneer] they can make the Azimuth funding facility last to the middle of 2011.

That's the good part of the story.

The bad part is...

If the price drops below $1.25, then they can't raise anything, and that's obviously bad.

When you have only $21 million in cash─ as of September 30, 2010, spend $3 to $4 million per month, but you can only raise a maximum of about $2 million per month─ with the stock price in $1.75 to $2.00 range, the math is simple to do. You would run out of cash by middle of 2011… even though there would theoretically still be cash left on the Azimuth funding deal.

Not that I think the BODs would let them get all the way down to zero before adopting creative sources of alternate funding [like Pioneer] or dramatically cutting cost before shutting things down.

I see future cost sharing with Pioneer... with some equity funding as well.  What I don't see is any efforts to dramatically cut costs... and that has me wondering why?

At this point, it seems that any dilutive financing is pretty much priced into the stock.

Now consider this...

What would happen if the company issued debt instead?

Or, even better, what if a “white knight” like Pioneer took an equity stake in the company as Walsin Liwa did in 2009.

“Microvision could very well be the phoenix that rises from the ashes once the last remaining negative event [financing] is behind them.”

[… to quote Paul Marganski at http://www.picopros.com/]

Anant Goel

Wednesday, December 8, 2010

Microvision: White Knight in Shining Armor (part 2)

Here's the news from this morning...

December 08, 2010
06:00 AM Eastern Time 

MicroVision and Pioneer to Jointly Commercialize Innovative Laser Display Products

REDMOND, Wash.--(BUSINESS WIRE)--MicroVision, Inc. (NASDAQ: MVIS), a leader in innovative ultra-miniature laser display technology, announced today that it has entered into a memorandum of understanding (MOU) with Pioneer Corporation, one of the top original equipment manufacturers (OEMs) of high-performance audio, video and computer equipment for the home, car and business markets, to develop, manufacture and distribute display engines and display engine subsystems for consumer and in-vehicle head-up displays (HUDs) using the MicroVision PicoP® laser display technology.
“We believe that by combining our respective market and product development capabilities, and leveraging best practices in manufacturing, MicroVision and Pioneer can accelerate introducing next-generation laser display products while reducing the total cost for both companies in getting there.”
Earlier this year, the two companies executed a joint development agreement to develop two critical components of the PicoP display engine: a laser light source module using direct red, blue, and green lasers and a separate display engine subsystem based on MicroVision’s patented PicoP laser scanning technology. Both are key pieces of the next-generation PicoP display engine that will offer OEMs significant commercial advantages in price, size, power, and performance for embedded solutions ranging from cell phones and eyewear, to airplanes and automobiles.

The MOU establishes the framework of a future manufacturing and commercial distribution agreement for PicoP-based display engines to be used in consumer, after-market and embedded automotive products. Pioneer has announced it is targeting commercial introduction of an in-vehicle HUD using PicoP technology into the consumer market in 2012.

“Pioneer has a strong history of bringing cutting edge technologies to mass markets,” stated Alexander Tokman, president and CEO of MicroVision. “We believe that by combining our respective market and product development capabilities, and leveraging best practices in manufacturing, MicroVision and Pioneer can accelerate introducing next-generation laser display products while reducing the total cost for both companies in getting there.”

Both Pioneer and MicroVision were recently recognized as finalists for the CEATEC Innovation Awards for 2010. Pioneer was recognized in the Automotive category for its demonstration of a HUD using laser scanning technology provided by MicroVision, and MicroVision was recognized in the Components category for its SHOWWX laser pico projector, powered by the PicoP display engine.

Continues...
*****
Here's the link...
http://www.businesswire.com/news/home/20101208005686/en/MicroVision-Pioneer-Jointly-Commercialize-Innovative-Laser-Display

In my last post─ on the subject of “Microvision: White Knight in Shining Armor”─ I wrote…

“Something is cooking at Microvision; and considering the available options at this stage, and knowing how Microvision management operates, it could be the “knight in shining armor” knocking at the door shortly.”

Well, there you have it.

Today's news is about Memorandum of Understanding; which in my opinion is the precursor to Pioneer Corporation coming on-board as the joint venture strategic partner... in other words, our “knight in shining armor”.

The reason I say Pioneer is coming on-board as the joint venture partner; is very obvious from the wording of the press release...

“We believe that by combining our respective market and product development capabilities, and leveraging best practices in manufacturing, MicroVision and Pioneer can accelerate introducing next-generation laser display products while reducing the total cost for both companies in getting there.”

And then consider this...

“Earlier this year, the two companies executed a joint development agreement to develop two critical components of the PicoP display engine: a laser light source module using direct red, blue, and green lasers and a separate display engine subsystem based on MicroVision’s patented PicoP laser scanning technology. Both are key pieces of the next-generation PicoP display engine that will offer OEMs significant commercial advantages in price, size, power, and performance for embedded solutions ranging from cell phones and eyewear, to airplanes and automobiles.”

We're all too familiar with the Azimuth funding situation, so I believe at this point the management had to be looking at some serious alternatives. Here's some quotes from the 3rd Qtr earnings conference call...

"...As a result of these events, most recent events, we have immediately accelerated our internal efforts to develop and commercialize the best performance, tiniest, low-cost engine for the high-volume consumer applications based on direct green lasers. We're in the process currently of selecting strong partners, who will help us to accelerate this effort, such that, our time-lines match the commercialization of the direct green laser time-lines."

This is what Alex Tokman, Microvision CEO said, when answering a question about cost containment...

"...We're gonna rely for, uh, for this second-generation engine, we're gonna very closely ally ourselves with, uh, one or two strategic partners, who will take on a lot more of a development and manufacturing than what we've done in the past."

I don't know what this means to you?

But to me, it means strategic partnership with sharing of joint venture costs and surely there's a possibility of equity funding from a strategic partner.

Once the market realizes the full impact of this strategic partnership with Pioneer Corporation, the MVIS stock price may start on the path to recovery, which in turn should allow Microvision to tap into the remaining money under the Azimuth facility starting now and more at a later date.

For a company like Microvision, with huge future potential but running out of cash while waiting for cheap diode lasers, Pioneer is the “knight in shining armor” and is the friendly enterprise that comes-on-board upon invitation of the management… and possibly offers cash, but surely shares development costs, for the next crucial 36 months, in exchange for an opportunity to joint venture in mega billion dollar market potential.

The good thing in this relationship is that; there are no stock dilutions from progressively increasing number of shares and warrants.

Having said that… 
Microvision’s current financial situation leaves them vulnerable to possible “hostile takeover” and the corporate management may be exploring every possible cost saving and additional funding strategy for the company in an effort to continue as an independent enterprise.

The only problem is; it may be too late to conserve available capital, including additional funds raised thru Azimuth─ if any, and make it last another 36 months as an independent “going concern”.

This joint venture strategic partnership, or whatever else you may call it, is the best of all possible avenues to financial survival and future growth without giving away the keys to the store.

I’m sure the recent purchase of a patent portfolio from Motorola was at the heart of this deal with Pioneer... because, it not only strengthens Microvision’s patent portfolio but also makes their [Microvision] laser based pico projection technology IP portfolio so much more broader that companies like Pioneer may find it cheaper to “join them” rather than “fight them”.

That is all good.

However, it’s not more patents and diversity of products that Microvision needs at this stage. What they need is fiscal responsibility to conserve capital for the next 24 to 36 months while they patiently wait for cheap diode/SHG green lasers… because without cheap green lasers, Microvision will not survive as a financially viable independent entity,­ with or without Pioneer.

You are right, this joint venture with Pioneer [ whether you see it for what it is or not] is the most significant and positive news for Microvision employees and its investors.

It may not be obvious to the naked eye...
  • Pioneer is the "knight in shining armor" and they don't even know it. Equity funding from Pioneer is always possible... but it is not necessary while Azimuth funding is still in place.
  • This “knight in shining armor” comes with NO stock dilution to the existing stockholders... and that's a very good thing under the circumstances.
  • Microvision just transferred [some] of their SG&A and R&D cost to the joint venture with Pioneer... without laying-off any key personnel.
  • Microvision just about [indirectly] solved its funding issue... because, sooner or later the market would recognize the financial significance of this joint venture and with PPS increasing gradually, the funding from Azimuth would keep flowing.
  • Microvision just expanded their product offering to include Integrated RGB Laser Light Modules, Integrated Photonic Modules, and PicoP Display Engines.
The biggest news is...

This joint venture would now allow Microvision to introduce [spec] consumer products in partnership with Pioneer as a strategically aligned OEM with deep pockets... rather than waiting for OEM customers to come to the table with firm commitment to dollars, time-lines and product configurations.

Anant Goel


Monday, December 6, 2010

Microvision: What’s New in Laser Land?

The Red-Green-Blue (RGB) laser light sourcing has, for a long time, been one of the blocking factors for MEMS-based pico-projector development.

Technical challenges have been overcome by some laser manufacturers [like Osram for one example] that are now providing the three basic colors. It is expected that these lasers will be mass-produced in a single bar─ that is a platform integrating the three laser sources in one instead of three individual lasers, by early 2011.

Single bar RGB laser light source for MEMS pico projectors is expected to be much more cost effective and scalable to mass production. Not only that, there are other benefits of reduced physical size, lower energy consumption and faster modulation rates.

Laser pico projector pricing is then strongly related not only to the cost of RGB laser light source and production volumes but also to initial technology choices, the business model and product strategy.

Anant Goel