Business Context and Reporting Period
Company: MICROVISION, INC.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: Microvision develops high-resolution miniature display and imaging engines based on its PicoP technology platform. The company focuses on embedded applications for consumer electronics, automotive head-up displays (HUD), and eyewear. It also maintains a legacy business in barcode scanners (ROV) and holds development contracts with the U.S. government.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 | Balance Sheet (Sep 30, 2009) |
|---|---|---|---|
| Total Revenue | $924 | $2,862 | -- |
| Net Loss | $(11,525) | $(30,784) | -- |
| Gross Margin (Loss) | $(175) | $69 | -- |
| Operating Loss | $(9,297) | $(27,860) | -- |
| Cash and Cash Equivalents | -- | -- | $17,759 |
| Total Assets | -- | -- | $27,752 |
| Total Liabilities | -- | -- | $11,837 |
| Shareholders' Equity | -- | -- | $15,915 |
| Net Cash Used in Operating Activities | -- | $(23,416) | -- |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue for the nine months ended September 30, 2009, decreased to $2.86 million from $5.09 million in the prior year period. This was driven by a 37.8% drop in contract revenue and a 60.6% drop in product revenue (barcode scanners) due to global economic conditions.
- Widening Losses: Net loss increased to $30.8 million for the nine-month period compared to $22.7 million in the prior year. The increase was primarily due to a $3.0 million non-operating loss on derivative instruments (warrants) and $978,000 in inventory write-downs.
- Inventory Write-downs: The company recorded a $638,000 write-down of ROV (barcode scanner) inventory in the quarter due to lower-than-planned revenue, contributing to a negative gross margin for the quarter.
- Derivative Liability: The liability associated with common stock warrants increased significantly from $331,000 at year-end 2008 to $3,379,000 at September 30, 2009, resulting in a $3.0 million loss on the income statement.
- Cash Position: Cash and cash equivalents decreased from $25.5 million at December 31, 2008, to $17.8 million at September 30, 2009, despite raising approximately $16.5 million in financing activities during the period.
Guidance, Outlook, and Risks
- Liquidity and Capital Needs: Management states that additional capital is required to fully fund the operating plan for 2010. If adequate funds are not available by January 2010, the company intends to reduce the scope of its business, potentially delaying projects and reducing staff. With current adjustments, the company believes it has sufficient cash to fund operations into June 2010.
- Product Strategy: The company recently launched its first accessory product (SHOWWX) based on the PicoP engine. Future focus includes embedded applications for automotive HUDs and eyewear.
- Investment Risks: The company holds $2.7 million in Student Loan Auction Rate Securities (SLARS) which have been illiquid since February 2008. While currently valued at fair value, further market deterioration could require additional impairment charges.
- Financing Activity: In June 2009, the company raised approximately $15 million from the sale of common stock and warrants to Max Display Enterprises Limited. In September and October 2009, additional funds were raised through warrant exercises.
Investor Verification Checklist
- Cash Runway: Verify the company's ability to secure additional financing before January 2010 to avoid operational cuts.
- Derivative Liability: Monitor the fair value of the outstanding stock warrants, as fluctuations in the company's stock price directly impact net income.
- SLARS Liquidity: Assess the risk of further impairment on the $2.7 million illiquid investment securities if credit markets worsen.
- Product Commercialization: Evaluate the market acceptance and cost structure of the new SHOWWX accessory projector to determine if it can achieve profitability.
- Inventory Valuation: Confirm the status of remaining ROV barcode scanner inventory and the likelihood of further write-downs.