MicroVision: Schedules Conference Call to Discuss 2011 Strategy and Preliminary 2010 Results

Press Release

Source: MicroVision, Inc.

On Friday February 11, 2011, 8:00 am EST

REDMOND, Wash.--(BUSINESS WIRE)-- MicroVision, Inc. (NASDAQ:MVIS - News), a leader in innovative ultra-miniature projection display technology, today announced it will host a conference call to discuss its 2011 business strategy and preliminary financial and operating results for the fourth quarter and full year of 2010 on Tuesday, February 15, 2011 at 8:30 a.m. ET / 5:30 a.m. PT.

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Here's the link...

http://finance.yahoo.com/news/MicroVision-Schedules-bw-2223156935.html?x=0&.v=1

It comes as a surprise that 4^th Qtr earnings conference call is being held on February 15th at 5:30am PST. It is much earlier than the usual first week of March and always after the market close at 4:30pm EST. Some folks would speculate; and take this as a sign of something good... and for a change, they may just be right.

It is quite apparent that the 5:30am PST conference call [at 8:30am EST] is being intentionally organized to conclude before the US markets open at 9:30am EST... while it is still early pm in the Kingdom of Japan; ̶the home of Pioneer Corporation. In my opinion, the decision to hold the CC this early in the morning; is not only to accommodate what Pioneer Corp may have to say... but also to influence the MVIS stock activity in the US financial markets.

Make sure to pull-up your shorts... because there is news on the tab that could impact your financial health in the “short run”.

With the conference call timing issue out of the way, let's now focus on the subject of the CC...

“... to discuss 2011 strategy” as it says in the headline to the Press Release.

I expect most of the CC time being spent here on the subject of 2011 strategy...

I expect Microvision and Pioneer Corp [to be present in some way or form] and lay the foundation for a total makeover and a fresh start for Microvision... with its CEO “in tow” to pitch the financial orgy of last four years as just a bad dream.

In the name of  “... 2011 strategy”, I expect to hear about major changes announced [which could be an on-going process] in all business aspects of Microvision... with Pioneer's finger prints, influence, and involvement being quite visible.

Here's business aspects that are expected to be discussed and significantly influenced , hopefully for the better, in my opinion...

* More visibility to Pioneer relationship and agreement

* New organizational structure

* Staffing levels and re-assignments

* Cost cutting [and cost sharing] measures

* Current and new funding source(s) and structure

* Diode Green Laser program and the role of SHG green laser

* Inventory write-downs and losses

* Significant drop in cost of "bill of materials" for SHOWwx line 
* Ramp-down SHOWwx production to parallel inventories 
* HEMP OEM coming out party

* New products in the pipe line with garbled time-lines as usual

We should see more confidence in CEO Tokman's voice after years of babbling and garbled communications. It takes gumption [and some charisma] to let go the “VP of Sales, Marketing and Business Development”... and still manage to survive as the CEO of the company.

Microvision will survive; and will do just fine under the virtual “halo” of big brother Pioneer Corporation of Japan.

Anant Goel

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 3^rd 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 12^th 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

Microvision: $48 Million in Additional Funding

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 MVIS stock price that dropped sharply after the CC.

I know a few VCs and hedge fund managers who have participated in secondary financings… the kind Microvision has engaged most recently with Azimuth.

Let me explain, using a hypothetical example, how this additional $48 million funding may be in play already and running its course…

• Microvision wants to raise $48 million and the stock was trading at $2.00 on November 1, 2010.

• If the deal was done, without the average price over 20 day period, there would be 26.7 million shares offered at $1.80 [$2.00 at 10% discount]. However, that is not the case… the investor [fund] is going with the average over 20 days clause… for a reason of course.

• After the agreement, the hedge fund would short sell the stock starting at $2.00 and go as far down as the most recent support level at $1.45… to raise $20 million and be 10 million shares [more or less] short… thereby limiting the net invested capital outlay to only $28 million. The $28 million net being the comfortable level of investment the hedge fund may want to make in the current financial market.

• Let’s assume the average price over a 20 day period, as a direct result of this short selling, is now $1.50. However, the conversion price will be $1.35 considering the 10% discount. That gives the hedge fund 35.6 million shares in exchange for $28 million net invested [$48 million - $20 million] vs. the 26.7 million shares they would have gotten for $48 million invested without the manipulation.

• In time, the hedge fund would cover the 10 million short shares from the 35.6 million shares received from Microvision treasury.

• The net result, the hedge fund got 25.6 million shares [35.6 million – 10 million] for a net investment of only $28 million [$48 million – $20 million].

So, the hedge fund just improved their average cost to $1.10 per share… and invested a total of only $28 million in these cash constrained financial environment.

Is it illegal? No.

Is it immoral? No.

Is it the American way? Oh YES.

On a more important note; the dilution from raising the additional $48 million to stay as a going concern─ while Microvision waits for cheap diode green lasers─ is only about 35.6 million additional shares… possibly increasing the total to 130.6 million shares from the current 95 million before this funding.

That’s not all that bad considering the dilution is only about 37% from $2.05 trading range... and seems to be already baked-in the $1.45 price as of this day.

Unfortunately, life is not that simple. The terms of Azimuth funding are lot more complicated than that and there are limits to the progressively lower amounts that can be funded as the stock price goes down.

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 some other “knight in shining armor” coming to Microvision rescue?

It surely looks that way from what I hear.

Anant Goel

Microvision: What Business Growth Strategy?

Every business has to plan for growth and executives should make sure their growth plans are consistent with their dynamic business plan. A dynamic business plan is an updated version that is kept current to reflect the ever-changing business-operating environment. Especially in the technology and DOT.com businesses, where the product cycles are so short and consumer preferences are mostly dependent on the next hot product or service.

When it comes to growth plans, the two ends of the spectrum are, for example, should a company grow quickly and unprofitably, like Amazon and Hotmail─ before it got acquired by Microsoft for $480 million, or slowly with a careful eye on the bottom line, like Ben & Jerry's ice cream parlors? It all depends on how much venture capital you have access to and what the competition is doing!

The worst thing you can do is fail to decide whether you're going to be a Ben & Jerry's company, or a Hotmail company, or an Amazon company.

There are three possible scenarios when focusing on the challenges of growing a business and picking the right growth model that is consistent with your business plan and positions you for whatever your ultimate goal is…

Number one: you want to be the gorilla of your industry in a hurry like Amazon.
Number two: you want to ramp-up your business fast and position for an acquisition like Hotmail.
Number three: you want to be a brick and mortar company producing steady profits like Ben & Jerry’s.

Regardless of what your business model is, the CEO and the CFO of the company need to formalize their business growth strategy and evangelize to the man in-charge of running the day-to-day operation of the business. Building a company is no small task? You've got one very important decision to make, because it affects everything else you do. No matter what else you do, you absolutely must figure out which camp you're in, and gear everything you do accordingly, or you're going to have a disaster on your hands.

THE DECISION MAKING PROCESS:

Whether to grow slowly, organically, and profitably, or whether to have a big bang with very fast growth with lots of capital spent in a hurry, that is the question?

The first model, popularly called "Get Big Fast" (a.k.a. "Land Grab"), requires you to raise a lot of capital, and work as quickly as possible to get big fast without concern for profitability. I'm going to call this the “Amazon”, because Jeff Bezos, the founder of Amazon, has practically become the celebrity spokes-model for Get Big Fast.

The second model is called "Hotmail for Sale or Fail". As for the name of our model “Hotmail for Sale or Fail”, I just made it up to make the point. This model requires you to raise only a small amount of capital, position for acquisition, and work as quickly as possible to build momentum to show there is promise of getting big fast… without concern for profitability. I'm going to call this “Hotmail” model, because Hotmail fits this model very well.

The third model, organic growth model, is to start small, with limited goals, and slowly build a business over a long period of time. I'm going to call this “Ben & Jerry’s” model, because Ben & Jerry’s fit this model pretty well.

Now the question is: “where on earth does the Microvision business model fit-in?"

The short answer is...

 "Nowhere"

Microvision’s current business growth strategy is either non-existent or is severely flawed after the green laser debacle of late… that still continues to haunt Microvision even after 4 years.

Here’s one clue to the non-existent, or flawed, business growth strategy…

In early 2007, Alex Tokman, CEO of Microvision, was quite aware of the following facts…

*  Embedded pico projector was to be the holly grail for Microvision.
*  Without diode RGB lasers; the power, size, and cost of the laser light source based on SHG green lasers would be prohibitive for embedded applications.
*  In 2007, diode green lasers were 4 to 5 years away… as like in 2011/2012 time frame.

If you were to assume correctly, and AT was aware of these facts as early as in 2007, then why in hell his management team carried-on with an army of personnel in SG&A [and R&D] to continually spend over $12 million dollars every Qtr for the last four years. If AT had used this readily available information and some gumption to control costs to say $6 million per Qtr… today there would be lot less pressure to raise money to continue with operations─ while still waiting for diode/SHG green lasers, because Microvision would have saved over $96 million dollars in costs without sacrificing much.

Microvision management should have either changed their business growth strategy to “hunker down” and coast on a low cost/low profile basis until the green laser technology was mature enough with more plausible cost and performance metrics… or let someone else run the company, instead of pushing the company hard on the downward spiral of financial gloom and doom while waiting for diode/SHG green lasers.

Microvision’s current business growth strategy assures that they will continue to lose money-- as they are now… and continue to do so all of the next year and five years from now. The cost and availability of green lasers today, or a year or two from now, plays a role but its financial impact on the bottom-line profitability is very small when you consider the vicious [large volume/lower cost/lower absolute dollar margin] cycle associated with commodity products such as PDEs and IPMs that are sold to consumer product OEMs.

As long as Microvision corporate management is fixated on just selling their laser light based PDEs and IPMs in an OEM market that has all the makings of a commodity market… they will be at the mercy of the OEMs; for consumer product introduction time-lines, consumer product pricing, product marketing, and commodity component pricing with no pricing power.

Just look around and tell me if you see any embedded mobile phone camera makers or the touch screen makers [for things like iPad or iPhone] making any money worth crowing about. On the other hand, consumer product OEMs like Apple, with vision and gumption, come to market with one consumer product at a time─ on their terms, and rake-in billions in revenue and profits.

The current Microvision business model calls for hundreds of millions in sales of PDEs and IPMs to make a few millions dollars in net profit in a commodity type pricing environment … and that too, if and when the OEM customers let that happen.

Microvision still has time to re-configure its business growth model and seriously consider launching its own branded consumer products ─ possibly in partnership with large OEMs; and be the shaker, baker, and maker of its own destiny.

Just take the current situation of Microvision patiently waiting on its hands and feet─ and spending $12 million dollars per Qtr; while the OEM for the High End Media Player (HEMP) procrastinates on product configuration, product introduction time-lines, and product marketing and pricing issues.

In the best case scenario, the current Microvision business model can, in a year or two, only produce modest earnings growth of perhaps 12% per years for many years to come… and may never come even close to the hyper growth in revenue and earnings that we once believed was possible.

Anant Goel