Business Context and Reporting Period
Company: MICROVISION, INC.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: Microvision develops high-resolution miniature display and imaging engines based on its proprietary PicoP display engine platform, utilizing MEMS, lasers, optics, and electronics. The company targets OEMs for consumer electronics (pico projectors), automotive (head-up displays), and wearable displays. In 2009, the company launched the SHOWWX accessory projector and continued development of bar code scanners (ROV), though it reduced investment in the latter.
Key Financial Metrics
| Metric (in thousands) | 2009 | 2008 |
|---|---|---|
| Total Revenue | $3,833 | $6,611 |
| Net Loss | $(39,529) | $(32,620) |
| Net Loss Per Share (Basic/Diluted) | $(0.54) | $(0.53) |
| Cash and Cash Equivalents | $43,025 | $25,533 |
| Working Capital | $38,221 | $24,347 |
| Accumulated Deficit | $(331,570) | $(292,041) |
| Research & Development Expense | $24,577 | $22,575 |
| Operating Cash Flow | $(31,710) | $(31,160) |
Revenue Composition (2009): Contract revenue was $2.8 million (58.5% government, 41.5% commercial). Product revenue was $1.0 million (67.5% bar code scanners, 32.5% pico projectors).
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 42% to $3.8 million, driven by a 42% drop in contract revenue and a 42% drop in product revenue. Government contract revenue fell 26% and commercial contract revenue fell 56% due to reduced contract activity and lower backlog.
- Increased Losses: Net loss widened to $39.5 million from $32.6 million. This was exacerbated by a $506,000 loss on derivative instruments (warrants) compared to a $2.2 million gain in 2008, and increased inventory write-downs of $1.3 million (vs. $0.5 million in 2008).
- Product Mix Shift: The company launched the SHOWWX pico projector, generating $330,000 in revenue, while bar code scanner revenue declined 60% to $686,000 due to economic conditions and reduced marketing efforts.
- Liquidity Improvement: Cash and cash equivalents increased to $43.0 million from $25.5 million, primarily due to $48.1 million in net proceeds from equity financings (June, November, and December 2009).
Guidance, Outlook, and Risks
- Liquidity Outlook: Management anticipates sufficient cash to fund operations through the first quarter of 2011. Additional capital will be required thereafter, likely through equity or debt issuance.
- Commercialization Strategy: The company is transitioning from development contracts to commercial product sales. It plans to expand distribution for the SHOWWX projector and pursue OEM partnerships for embedded PicoP engines in automotive and mobile devices.
- Key Risks:
- History of Losses: The company has an accumulated deficit of $331.6 million and expects to incur significant losses in the future.
- Capital Requirements: Failure to secure additional financing could force curtailment of operations, staff reductions, and delayed development.
- Market Acceptance: Success depends on OEM adoption of PicoP technology and consumer acceptance of pico projectors.
- Government Contract Dependency: 43% of 2009 revenue came from U.S. government contracts, which can be terminated for convenience at any time.
- Inventory and Production Costs: Production costs for the SHOWWX currently exceed revenue; the company is in the early phase of commercial production.
Investor Verification Checklist
- Cash Runway: Verify the timeline for the next capital raise, as the company expects to exhaust current cash by Q1 2011.
- SHOWWX Unit Economics: Assess the path to profitability for the SHOWWX projector, given that production costs currently exceed sales prices.
- Government Contract Backlog: Review the $100,000 in remaining government contract backlog and the risk of non-renewal or termination.
- Derivative Liability: Monitor the fair value of outstanding warrants (10.4 million shares), which created a $506,000 non-cash loss in 2009 and could impact future earnings.
- Inventory Valuation: Scrutinize the $1.3 million in inventory write-downs and the remaining $926,000 inventory balance for potential further impairment.