Business Context and Reporting Period
Company: MICROVISION, INC.
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2003
Business Overview: Microvision operates in two segments: the Microvision segment, developing scanned beam technology for displays (Nomad) and image capture (Flic); and the Lumera segment, developing electro-optical polymer materials for telecommunications. The company relies heavily on U.S. government development contracts and has a history of significant operating losses.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2003 |
Six Months Ended June 30, 2003 |
Six Months Ended June 30, 2002 |
|---|---|---|---|
| Revenue | $4,511 | $8,048 | $8,538 |
| Gross Margin | $2,310 (51.2%) | $4,438 (55.1%) | $4,532 (53.1%) |
| Net Loss | $(6,692) | $(14,088) | $(14,874) |
| Net Loss Per Share (Basic/Diluted) | $(0.38) | $(0.83) | $(1.12) |
| Cash and Cash Equivalents | $9,275 (Balance Sheet) | -- | |
| Total Assets | $27,800 | -- | |
| Accumulated Deficit | $(142,195) | -- |
Cash Flow (Six Months Ended June 30, 2003):
- Net cash used in operating activities: $(14,351)
- Net cash provided by investing activities: $2,238
- Net cash provided by financing activities: $11,516
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 5% ($200,000) for the quarter and 6% ($500,000) for the six months compared to the prior year. This was driven by a shift in revenue mix; U.S. government contracts dropped from 78% to 60% of revenue for the quarter, while commercial contracts increased.
- Cost of Revenue: Remained flat at $2.2 million for the quarter but decreased 10% to $3.6 million for the six months due to lower direct costs on contracts.
- R&D Expenses: Increased slightly ($100,000) for the quarter due to facility closure costs in San Mateo ($370,000) and severance ($275,000). For the six months, R&D decreased 3% ($400,000) primarily because a $1.4 million expense related to a Cree, Inc. development agreement in 2002 did not recur.
- Inventory Write-down: The company recorded a $450,000 write-down of Nomad inventory during the six months ended June 30, 2003.
- Related Party Receivables: An additional $200,000 allowance for doubtful accounts was recorded for loans to senior officers, bringing the total allowance to $900,000.
Guidance, Outlook, and Risks
Liquidity and Capital Resources:
- Microvision raised $12.6 million (gross) in March 2003 via a common stock and warrant offering.
- Management believes Microvision's cash ($10.7 million) will fund operations through December 2003.
- Lumera expects to raise $1.7 million in a private placement to fund operations through October 2003. There is no assurance this financing will be consummated.
- Lumera owes the University of Washington $1.6 million under a sponsored research agreement, due by September 30, 2003. Failure to pay could result in the loss of licensed technology.
Outlook and Commentary:
- The company expects to continue incurring substantial losses and negative cash flow at least through 2003.
- Plans include introducing a next-generation Nomad system and a wireless Flic scanner in late 2003.
- Backlog of development contracts as of June 30, 2003, was $3.4 million, all scheduled for completion within 12 months.
Key Risks:
- Financing: Dependence on additional capital to continue operations; failure to raise funds could force substantial operational limitations.
- Government Contracts: 52-60% of revenue is derived from U.S. government contracts, which are subject to termination for convenience.
- Market Acceptance: Uncertainty regarding the commercial viability of scanned beam displays and polymer materials.
- Intellectual Property: Reliance on licenses from the University of Washington; risk of infringement claims or loss of exclusivity.
Investor Verification Checklist
- Lumera Financing Status: Verify if the anticipated $1.7 million private placement for Lumera has been completed and if the $1.6 million payment to the University of Washington was made by the September 30, 2003 deadline.
- Government Contract Renewals: Monitor the status of the $3.4 million backlog and the renewal of U.S. Army contracts, given the high revenue concentration.
- Product Commercialization: Assess the market reception and sales volume of the Nomad and Flic products, as production costs currently exceed revenue.
- Related Party Loans: Review the collectability of the $1.8 million in receivables from related parties, noting the existing $900,000 allowance for doubtful accounts.
- Cash Burn Rate: Track the monthly cash burn rate to confirm the runway through December 2003 remains valid given ongoing R&D and facility costs.