Microvision Annual Meeting of Shareholders June 9, 2011

CAVEAT
I am human. Mistakes will be made. The SEC and Investor Relations are the bastions of truth. So, feel free to correct me, ask them, or better yet, do all of that and then ask the other attendees what they think (valuationguy was there too). Multiple points of view, a diversity of opinion. Good stuff. (Yada. Yada. I've done this often enough that the CAVEAT has become mostly a copy & paste, partly because I am lazy, mostly because I hope it's good enough.)

PRE-MEETING
Microvision's Annual Stockholder's Meetings (ASM) are as much about the demos as they are about the presentations.

The ShowWX+, the company's main product, was displayed but usually as a part of something else. One projector was attached to what someone called a sled, a holder that removed the need for cables; a small thing, but a big improvement for some because it gets rid of cable clutter. The RetroTouch was a new item. It is a hardware/software prototype that allows the user to interface with the image without having to touch anything. The rastering beam can be calibrated to notice a pen tip (special?) as a pointer which can then be used as a mouse and cursor control. The simplest demo is as a way to operate pan and zoom controls without having to walk back the projector or computer each time. It is easy to brainstorm a multitude of applications.

A slightly larger unit called the PicoPanda was on display. The extra volume may be why it was able to operate independently: onboard operating system and display files. Supposedly it is being launched next month in China. (I must have missed a press release.)

The prototype Disney "3-D" game and controller were there. This version of 3-D is different that watching a movie. As the device is moved around a room, the display changes the orientation of the view. Point it up and it painted a picture of the sky. Point it down and it would sweep through a landscape and then show ground. Along the way it could include real time motion of an object, in this case a flying carpet. It looked like a flying disk version of the Intel/Microvision game controller.

The car HUD was there, as always, though there could have been some Pioneer influence, but I didn't witness any.

I think some displays were showing clearer pictures than in previous years, but I didn't corral them to find out if it was product variability or improved image projection quality.

What wasn't there was: the NionCom MemoryKick, the ROV bar code scanner, eyewear of any sort, and the Intel Game Controller.


FORMAL MEETING (taken out of chronological order because it's components are short and the results were no surprise)
Everything passed - as usual.
But, there was a split I found interesting on the non-binding vote on compensation timing. Almost 17 million shares were for the three year review, but there were about 9 million for yearly reviews. Considering proxies and institutional holders, I wonder how the split would look they counted shareholders instead of shares.
(By the way, compliments to the gentleman who announced the results. Nice clear voice, no need for a microphone, good presence. Possibly the most confidence I witnessed in any of the corporate officers.)


BUSINESS PRESENTATION
Aside from the demos, this is the major part of the meeting, the CEO's description of the company's operations, prospects, and strategy.
After a brief note that this meeting is for the shareholders, he pulled up a video that chronicled the company's accomplishments of the last twelve months. Most of it was press releases and awards.
The company's main goals are: 1) to become profitable, and 2) to rid the world of squinting disease (an allusion to people having to squint at tiny screens instead of a big, bright Microvision display). They intend to do this via projector engines rather than products, though the ShowWX product has been instrumental in gaining credibility for the technology and the company, while also being a training ground for the company. They intend to be platform-agnostic.

The market potential is estimated (with great variability) at about 100%-200% CAGR for the next five years, with players entering the field the same way Microvision did, stand-alone product first, embedded later, especially into cell phones and such (Industry projection of ~20,000,000 units in five years - if I read that chart correctly). Laptops are decreasing in significance.

The car HUD (Head Up Display) market is more appealing in some ways because of higher profit margins, also because the auto companies are returning to adding features instead of ignoring everything except fuel efficiency. Pioneer's cooperation was frequently emphasized.

Eyewear was the foundation of the company's first strategy, but it has slipped because finding appropriate transparent content is difficult and it needs a better user interface.

The prototypes and their "bells and whistles" are not pursued as products but as inspirations for the prospective OEMs. (Videos of MSFT's virtual phone, and MIT's auto-read and update software)

Direct Green Lasers are expected to be in supply late 2011 or early 2012 at one-fifth the cost of the current green lasers, which is also why products are being delayed and why the current products don't make the company any money. The HD versions are being put on hold pending the DGLs.

Intellectual Property continues strong, especially with the purchase of Motorola patents and such.

Key Priorities for 2011 are: 1) commercialize DGL with Pioneer, and get samples out to OEMs in 4Q11 (which makes any 2011 DGL product launches less likely); 2) sell existing products as proof of business; and 3) simplify operations including the design site in Singapore (which takes advantage of subsidies).

He expects them to be successful because the products, DGLs, Pioneer, Motorola news items are all more positive than they were last year.


QUESTIONS & ANSWERS (paraphrased for ease of typing)
? The DGLs being produced by five different companies are interchangeable; which was not the case with the early components.
? They are trying to encourage users to submit cool videos and demos.
? Pioneer will probably launch product in 1H12.
? The devices sold by Apple online (EMEA) will be with the existing (non-profitable) products, though this is also a familiarization process with Apple.
? NionCom MemoryKick was a lesson in commitment. Their units are not included in the backlog.
? MVIS Sled Android by EOY (Evidently I missed most of that question and answer. I was looking up the backlog in the annual report and couldn't find it quickly enough to ask my question.)
? Five suppliers of DGLs: Sumitomo, OSRAM, Nicheo?, ?, ?
? Apple is fixing the iPod (and probably others) to support video-out which increases demand for projectors.
? Dilution and Azimuth are the best options they have available.


MY SUMMARY & CONCLUSION (feel free to disagree and doubt)
The technology works and is cool enough, but the company was seriously hampered by the cost of the synthetic green lasers in the first units. They couldn't make money and the OEMs decided to wait until the Direct Green Lasers are available. Fine for the OEMs, but the delay puts Microvision into a cash crunch, therefore the cost cutting. The need and the demand continue, and are better understood throughout the industry now. The supply is limited by DGLs, which should be available cheaply in 2012(because of volume and competition). By the end of next year, the company's finances could be much improved - unfortunately, I've thought that for the last five years, of not more.The guess comes down to whether THESE next twelve months are the positive turning point.

The demand for the stock is dramatically reduced. The stock is trading at $1.15. The crowd looked like it was smaller than last years'. The stock will probably be diluted without some other cash flow. Supply of stock goes up, demand is down (for now), the price is less likely to go up.

But, there is still so much upside potential, and there is so much potential near term news, that maybe the stock rises in anticipation. It hasn't happened in a long time, but it could as larger players become more confident in the technology, the market, and the company.


DISCLOSURE
I'll continue to HOLD, because it isn't worth it to sell, for me and because I continue to HOPE; which I've said before is not the preferred investing strategy, as a matter of fact, Hope is more speculative. But hope can prevail. I might even buy as I diversify out of DNDN, but I think there are other possibilities too, and some of them are already making money (GGOX, AMSC, etc.)

LTBH since 2000, hesitant to mention the company to friends, but too drawn to the potential and the drama to keep from telling the story.