Business Context and Reporting Period
Company: Microvision, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: Microvision develops high-resolution miniature display and imaging engines based on its PicoP technology platform, utilizing MEMS, lasers, and optics. The company generates revenue through development contracts (primarily with the U.S. government) and the sale of bar code scanners (ROV). The company is in a pre-commercialization phase for its primary PicoP products, with plans to launch an accessory projector in 2009.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2009 |
Six Months Ended June 30, 2009 |
Six Months Ended June 30, 2008 |
|---|---|---|---|
| Total Revenue | $987 | $1,938 | $4,192 |
| Gross Margin | $(83) | $244 | $2,188 |
| Net Loss | $(10,394) | $(19,259) | $(14,304) |
| Net Loss Per Share (Basic/Diluted) | $(0.15) | $(0.28) | $(0.25) |
| Cash and Cash Equivalents | $23,616 | $23,616 | $10,039 |
| Total Assets | $33,733 | $33,733 | $36,964 |
| Total Liabilities | $8,624 | $8,624 | $9,313 |
| Accumulated Deficit | $(311,300) | $(311,300) | $(292,041) |
Liquidity: As of June 30, 2009, the company held $26.3 million in cash, cash equivalents, and investment securities. This includes $2.7 million in illiquid Student Loan Auction Rate Securities (SLARS).
Material Changes vs. Prior Period
- Revenue Decline: Total revenue for the six months ended June 30, 2009, decreased 53.8% to $1.9 million from $4.2 million in the prior year period. Contract revenue dropped 53.6% due to reduced contract activity and lower backlog. Product revenue (bar code scanners) fell 54.4% due to decreased purchasing volume by small and mid-sized businesses amid global economic conditions.
- Widening Losses: Net loss increased to $19.3 million for the six months ended June 30, 2009, compared to $14.3 million in the prior year. This was driven by a $2.2 million swing in derivative instrument results (from a gain to a loss) and higher R&D expenses.
- Derivative Losses: The company recorded a non-operating loss of $802,000 on common stock warrants for the six months ended June 30, 2009, compared to a gain of $1.4 million in the same period in 2008. This change was due to fluctuations in the company's stock price.
- Inventory Write-downs: Cost of product revenue included $340,000 in inventory write-downs for the six months ended June 30, 2009, compared to none in the prior year.
- Financing Activity: In June 2009, the company raised approximately $15.0 million through the sale of common stock and warrants to Max Display Enterprises Limited (a subsidiary of Walsin Lihwa).
Guidance, Outlook, and Risks
Outlook and Capital Needs: Management states that current cash and investment securities are sufficient to fund operations into June 2010. However, to fully fund the operating plan for 2009 and 2010 (including the launch of the first accessory product and further PicoP development), the company will require additional capital. If adequate funds are not available by January 2010, the company intends to consider reducing the scope of its business, which could include delaying projects, reducing staff, and cutting R&D investment.
Key Risks and Contingencies:
- Liquidity Risk: The company has a history of operating losses and an accumulated deficit of $311.3 million. Continued profitability is not guaranteed.
- Illiquid Investments: $2.7 million of the company's portfolio is held in SLARS, which have been illiquid since February 2008 due to failed auctions. While currently valued at fair value, selling these securities could result in losses.
- Related Party Litigation: The company is suing a former officer and his spouse to collect $1.73 million in outstanding loans. The defendants have filed counterclaims seeking damages in excess of $15 million. An adverse outcome could materially affect the company's financial condition.
- Market Acceptance: Success depends on the commercialization of PicoP technology, which faces competition and requires significant further development.
Investor Verification Checklist
- Cash Runway: Verify the company's ability to secure additional financing before January 2010 to avoid operational cutbacks.
- SLARS Valuation: Monitor the fair value of the $2.7 million in Student Loan Auction Rate Securities and the potential for further impairment charges.
- Related Party Litigation: Track the status of the lawsuit regarding the $1.73 million officer loan and the $15 million counterclaim.
- Derivative Liability: Observe the volatility of the liability associated with common stock warrants, which significantly impacts net income/loss.
- Product Launch: Confirm the timeline and market reception of the planned accessory projector launch in 2009.