Business Context and Reporting Period
Company: MICROVISION, INC.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2011
Business Overview: MicroVision develops high-resolution miniature laser display and imaging engines based on proprietary PicoP display engine technology. The company sells accessory pico projectors (SHOWWX line) and enters into development contracts with commercial and U.S. government customers.
Key Financial Metrics
| Metric (in thousands) | Q1 2011 | Q1 2010 |
|---|---|---|
| Total Revenue | $1,119 | $668 |
| Gross Margin | $(1,420) | $(619) |
| Net Loss | $(9,037) | $(9,117) |
| Net Loss Per Share (Basic/Diluted) | $(0.09) | $(0.10) |
| Cash and Cash Equivalents (End of Period) | $14,469 | $33,027 |
| Net Cash Used in Operating Activities | $(8,141) | $(9,574) |
| Total Debt (Current + Long-term) | $224 | $244 |
| Accumulated Deficit | $(388,067) | $(379,030) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 67.5% to $1.119 million, driven primarily by a 207.6% increase in Pico projector revenue ($812k vs $264k). Contract revenue declined 21.8% to $233k due to reduced sales of prototype units.
- Widening Gross Loss: Gross margin deteriorated to a loss of $1.42 million (negative 126.9% margin) compared to a $619k loss in the prior year. This was driven by product costs exceeding revenue and a $461k inventory write-down for lower of cost or market adjustments.
- Expense Reduction: Operating expenses decreased 14.3% to $7.619 million. Research and Development (R&D) fell 13.4% to $4.327 million, and Sales, Marketing, General and Administrative (SG&A) expenses fell 15.1% to $3.299 million, largely due to a 20% workforce reduction in January 2011.
- Derivative Gains: The company recorded a $395k gain on derivative instruments in Q1 2010 which did not recur in Q1 2011, as the related warrants expired unexercised.
- Backlog Reduction: Product order backlog dropped significantly to approximately $591k from $16.8 million in the prior year, primarily due to the removal of $11.9 million in orders from an OEM customer who delayed their product launch.
Guidance, Outlook, and Risks
- Liquidity and Going Concern: Management anticipates sufficient cash to fund operations through August 2011. The company requires additional capital thereafter. The independent auditor has expressed substantial doubt about the company's ability to continue as a going concern.
- Financing Activities: In March 2011, the company raised $3.1 million via a committed equity financing facility with Azimuth Opportunity, Ltd. Approximately $34.5 million or 2.6 million shares remain available under this facility. A subsequent facility for up to $40 million was entered into in May 2011.
- Strategic Shift: The company is simplifying operations to reduce cash requirements, focusing on next-generation PicoP technology based on direct green lasers while limiting investment in current-generation synthetic green laser technology.
- Key Risks:
- Dependence on a small number of customers and distributors.
- High cost of production for current products relative to selling price.
- Uncertainty regarding market acceptance of PicoP technology.
- Potential need to curtail operations if additional financing is not secured on acceptable terms.
Investor Verification Checklist
- Cash Runway: Verify the timeline for the next capital raise given the August 2011 liquidity horizon.
- Inventory Valuation: Assess the impact of the $461k inventory write-down and the sustainability of product margins given costs exceed revenue.
- Backlog Stability: Confirm the status of the removed $11.9 million OEM order and the likelihood of future large-scale commercial contracts.
- Financing Terms: Review the dilution impact of the Azimuth equity facilities and the discount rates applied to share sales.
- Going Concern Status: Monitor for any further auditor qualifications or changes in the company's ability to secure funding.