Business Context and Reporting Period
Company: MICROVISION, INC.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2001
Business Overview: Microvision develops retinal scanning display technology and optical materials. Operations are divided into two segments: Microvision (retinal displays) and Lumera Corporation (optical materials). The company is pre-commercial, deriving revenue primarily from government and commercial development contracts.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 30, 2001 |
6 Months Ended June 30, 2001 |
6 Months Ended June 30, 2000 |
|---|---|---|---|
| Revenue | $1,772 | $4,109 | $3,286 |
| Cost of Revenue | $1,081 | $2,643 | $2,352 |
| Gross Margin | $691 (39%) | $1,466 (36%) | $934 (28%) |
| Operating Expenses | $12,102 | $24,332 | $14,128 |
| Net Loss | $(8,567) | $(18,786) | $(12,006) |
| Net Loss Per Share (Basic/Diluted) | $(0.72) | $(1.57) | $(1.09) |
Liquidity and Balance Sheet (as of June 30, 2001)
- Cash and Cash Equivalents: $8,811
- Investment Securities (Available-for-sale): $34,036
- Total Current Assets: $47,956
- Total Current Liabilities: $5,275
- Long-term Debt: $262 (net of current portion)
- Accumulated Deficit: $(84,923)
- Working Capital: $42,681
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 51% ($600k) in the quarter and 25% ($800k) in the six months compared to the prior year periods. All revenue was derived from development contracts.
- Expense Surge: Research and Development (R&D) expenses increased 83% in the quarter and 101% in the six months. This was driven by the expansion of the Lumera segment, including a $3.0 million stock issuance to the University of Washington for a sponsored research agreement and a $1.1 million expense for the "HALO" technology license.
- Segment Activity: The Lumera segment, which had no significant activity in 2000, generated $23k in revenue but incurred $2.4 million in losses for the quarter ended June 30, 2001.
- Financing Activity: Lumera raised $21.4 million in March 2001 through the sale of mandatorily redeemable convertible preferred stock, significantly bolstering cash flow from financing activities ($22.2 million for the six months).
Outlook, Risks, and Management Commentary
Guidance and Outlook
- Product Launches: Microvision plans to introduce a production version of a retinal scanning display in late 2001. Lumera plans to introduce an electro-optic modulator in late 2002.
- Backlog: Contract backlog as of June 30, 2001, was $7.9 million, all scheduled for completion within the next 12 months.
- Cash Runway: Management believes current cash and investment balances ($42.8 million) will satisfy budgeted requirements for at least the next 12 months, though additional capital may be needed to accelerate development.
Risks and Contingencies
- Market Acceptance: No assurance that retinal scanning displays or optical materials will achieve commercial acceptance.
- Profitability: The company has a history of operating losses and expects to incur substantial losses through 2002 and likely thereafter.
- Intellectual Property: Reliance on exclusive licenses from the University of Washington; risks of patent challenges or infringement suits exist.
- Concentration: Revenues are highly sensitive to defense and aerospace industry funding and the telecommunications sector (for Lumera).
- Manufacturing: The company currently lacks the capability to manufacture products in commercial quantities and relies on third-party partners.
Investor Verification Checklist
- Contract Backlog: Verify the $7.9 million backlog and the specific terms of the Aircrew Integrated Helmet System and Virtual Cockpit Optimization Program modifications.
- Lumera Funding: Confirm the terms of the $21.4 million preferred stock issuance and the obligations associated with the University of Washington sponsored research agreement (quarterly payments of $750k).
- R&D Spend Efficiency: Assess the correlation between the 101% increase in R&D spend and tangible progress toward the late 2001 product launch.
- Liquidity Needs: Monitor cash burn rates against the stated 12-month runway, particularly given the high fixed costs of the Lumera research agreement.
- Patent Status: Review the status of pending patent applications for retinal scanning and optical materials to assess IP protection strength.