Business Context and Reporting Period
Company: Microvision, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Business Overview: Microvision develops miniature display and imaging engines based on its integrated photonics module technology platform, specifically the PicoP display engine. The company targets consumer electronics (embedded projectors), automotive (head-up displays), and wearable displays. Historically, revenue has been derived from development contracts with the U.S. government and commercial customers, alongside sales of ROV handheld bar code scanners.
Key Financial Metrics
| Metric (in thousands) | 2008 | 2007 |
|---|---|---|
| Total Revenue | $6,611 | $10,484 |
| Net Loss | $(32,620) | $(19,787) |
| Net Loss Per Share (Basic/Diluted) | $(0.53) | $(0.40) |
| Cash and Cash Equivalents | $25,533 | $13,399 |
| Investment Securities (Available-for-Sale) | $2,705 | $22,411 |
| Total Assets | $36,964 | $45,298 |
| Working Capital | $24,347 | $30,043 |
| Long-Term Liabilities | $1,776 | $2,201 |
| Accumulated Deficit | $(292,041) | $(259,421) |
Revenue Composition (2008): Contract revenue was $4.87 million (73% of total), split between government (46%) and commercial (54%). Product revenue was $1.74 million (27% of total), primarily from bar code scanners.
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 37% to $6.6 million, driven primarily by a 65% drop in government contract revenue ($2.2M vs $6.4M in 2007) due to reduced contract activity and lower beginning backlog.
- Increased Losses: Net loss widened to $32.6 million from $19.8 million. This was exacerbated by a 51% increase in Research and Development (R&D) expenses to $22.6 million as the company accelerated PicoP product development.
- Investment Impairment: The company recorded a $300,000 other-than-temporary impairment on Student Loan Auction-Rate Securities (SLARS) due to market illiquidity.
- Derivative Gain: A non-operating gain of $2.2 million was recorded on derivative instruments (warrants) due to the decline in the company's stock price and decreasing time to expiration.
- Inventory Write-downs: Cost of product revenue included $475,000 in inventory write-downs, compared to $84,000 in 2007.
Guidance, Outlook, and Risks
Outlook and Capital Needs: Microvision expects to incur substantial losses in 2009. The operating plan includes the launch of the first accessory product (SHOW WX pico projector) and further development of automotive and eyewear applications. The company states it will require additional capital in 2009 to fund these efforts, likely through equity or debt issuance. Management believes current cash and investments are sufficient to fund operations through at least February 28, 2010, provided they reduce the scope of business if necessary.
Key Risks and Contingencies:
- Liquidity Risk: Dependence on additional financing; failure to raise capital could force curtailment of operations.
- Market Acceptance: Uncertainty regarding the commercial success and market acceptance of the PicoP display engine.
- Government Contracts: Significant revenue reliance on U.S. government contracts, which can be terminated for convenience at any time.
- Legal Proceedings: Ongoing litigation against former CEO Richard Rutkowski to collect $1.7 million in loans, with counterclaims filed by the former CEO seeking over $15 million.
- Investment Liquidity: $2.7 million in SLARS are illiquid; selling them may result in losses below book value.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $28.2 million in cash and investments to fund operations through early 2010 without immediate dilution.
- Product Launch Timeline: Confirm the status of the SHOW WX pico projector launch and initial OEM partnerships for 2009.
- Government Contract Backlog: Assess the $1.2 million backlog (down from $4.1 million in 2007) and the risk of further government funding reductions.
- Legal Exposure: Monitor the outcome of the litigation with former CEO Richard Rutkowski regarding the $1.7 million loan and $15 million counterclaim.
- Investment Valuation: Review the valuation methodology for the illiquid SLARS and potential for further impairment charges.