Business Context and Reporting Period
Company: Microvision, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2007
Business Overview: Microvision develops miniature display and imaging engines based on integrated photonics module (IPM) architecture and MEMS light scanning technologies. Revenue is derived from government and commercial development contracts and the sale of products such as the Flic barcode scanner.
Key Financial Metrics
| Metric (in thousands) | Q1 2007 | Q1 2006 |
|---|---|---|
| Total Revenue | $2,235 | $2,472 |
| Gross Margin | $941 (42.1%) | $27 (1.1%) |
| Net Loss | $(6,892) | $475 (Income) |
| Net Loss Per Share (Basic/Diluted) | $(0.16) | $0.01 |
| Cash and Cash Equivalents | $7,305 | $7,035 |
| Investment Securities (Lumera) | $8,768 | $0 |
| Total Debt (Current + Long-term) | $502 | $2,934 |
| Accumulated Deficit | $(246,526) | $(239,634) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 9.6% to $2.2 million. While contract revenue increased 6.8% to $1.9 million due to higher backlog, product revenue plummeted 51.8% to $0.3 million, driven by a 56.9% drop in Flic scanner sales.
- Profitability Shift: The company reported a net loss of $6.9 million compared to a net income of $0.5 million in the prior year. The prior year's income was significantly boosted by a $7.3 million one-time gain on the sale of Lumera investment.
- Gross Margin Improvement: Gross margin improved dramatically to 42.1% from 1.1% year-over-year. This was driven by the discontinuation of the Nomad product line (saving ~$0.55 million) and reduced overhead on the Flic line.
- Debt Reduction: The company retired its convertible notes in March 2007, paying $1.4 million in cash and issuing 459,000 shares of common stock. Consequently, interest expense dropped 74.3% to $0.5 million.
- Derivative Losses: A $0.65 million loss on derivative instruments (warrants) offset some gains, compared to a $1.9 million gain in the prior period.
Guidance, Outlook, and Risks
- Liquidity Outlook: Management anticipates requiring additional cash by February 2008 to fund operations. There is no assurance that financing will be available on acceptable terms. Failure to secure funds could force substantial reductions in staff and operations.
- Subsequent Events: Between March 31 and May 10, 2007, the company sold 758,000 shares of Lumera stock for $4.2 million, expecting to record a $3.2 million gain in Q2 2007.
- Product Strategy: The company announced the launch of "Rov," a new barcode scanner, in May 2007. It also secured a contract with a Tier 1 automotive supplier for PicoP display solutions, though no revenue was recognized in Q1.
- Risk Factors:
- Capital Needs: History of operating losses and an accumulated deficit of $246.5 million.
- Concentration Risk: Heavy reliance on U.S. government contracts (84.6% of contract revenue) which can be terminated for convenience.
- Investment Volatility: Significant exposure to the market price of Lumera common stock.
- Intellectual Property: Risks of patent infringement lawsuits and reliance on third-party technology licenses.
Investor Verification Checklist
- Cash Runway: Verify the timeline for the anticipated need for additional capital (February 2008) and the status of any financing efforts.
- Lumera Holdings: Confirm the current market value and liquidity of the remaining Lumera shares (992,000 shares) and the impact of recent sales on the stock price.
- Government Contract Stability: Assess the risk of termination for the government contracts comprising the majority of the $6.5 million backlog.
- Related Party Receivables: Review the status of the $2.7 million in loans to former senior officers, of which $2.5 million is reserved as uncollectible.
- Product Launch Viability: Monitor the commercial uptake of the new "Rov" product and the progress of the automotive PicoP contract.