Business Context and Reporting Period
Company: Microvision, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2008
Business Overview: Microvision develops compact, low-power, high-resolution displays and imaging systems based on silicon micro-mirror (MEMS) technology. The company's primary commercial focus is the PicoP display engine for mobile devices and automotive heads-up displays, alongside legacy sales of ROV and Flic bar code scanners. Revenue is derived from product sales and development contracts with U.S. government and commercial customers.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2008 |
Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenue | $1,622 | $4,192 |
| Gross Margin | $719 (44.3%) | $2,188 (52.2%) |
| Operating Loss | $(9,265) | $(16,357) |
| Net Loss | $(9,266) | $(14,304) |
| Net Loss Per Share (Basic/Diluted) | $(0.16) | $(0.25) |
| Cash and Cash Equivalents | $10,039 | $10,039 (Ending Balance) |
| Investment Securities (Available-for-Sale) | $10,650 | $10,650 (Ending Balance) |
| Total Current Assets | $23,709 | $23,709 (Ending Balance) |
| Total Current Liabilities | $6,351 | $6,351 (Ending Balance) |
| Long-Term Debt | $358 | $358 (Ending Balance) |
| Accumulated Deficit | $(273,725) | $(273,725) (Ending Balance) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue for the three months ended June 30, 2008, decreased 39% to $1.6 million from $2.7 million in the prior year period. Contract revenue dropped 55% due to a lower beginning backlog, while product revenue increased 39% driven by bar code scanner sales.
- Increased Operating Expenses: Operating expenses rose 37% to $10.0 million for the quarter. Research and Development (R&D) expenses surged 83% to $5.9 million as the company accelerated development of the PicoP display engine.
- Net Loss Volatility: The net loss for the quarter was $9.3 million, compared to $2.2 million in the prior year. The prior year period included a one-time $6.0 million gain on the sale of an investment in Lumera, which is not present in the current period.
- Derivative Gains: The company recorded a $1.4 million gain on derivative instruments for the six months ended June 30, 2008, compared to a $2.6 million loss in the prior year, primarily due to changes in the fair value of common stock warrants.
- Cash Flow: Net cash used in operating activities increased to $14.9 million for the six months ended June 30, 2008, from $11.5 million in the prior year, reflecting higher operating losses.
Guidance, Outlook, and Risks
- Liquidity and Financing: As of June 30, 2008, the company held approximately $20.7 million in cash and investment securities. In July 2008 (subsequent to the period end), Microvision raised approximately $26.0 million through a stock offering. Management believes this capital is sufficient to fund operations until late 2009 but will require additional financing thereafter.
- Product Outlook: The company expects its first commercial PicoP-based accessory projector to be available in the first half of 2009. Development continues on automotive heads-up displays and military helmet-mounted displays.
- Investment Liquidity Risk: Approximately $3.0 million of the investment portfolio is held in auction-rate securities. Due to global credit market conditions, auctions for these securities have failed, rendering them temporarily illiquid. However, the company maintains they are AAA-rated and does not expect to sell them at a loss.
- Legal Contingencies: The company is litigating with a former CEO to collect $1.7 million in unpaid loans. The former CEO has filed counterclaims seeking over $15 million in damages. An adverse outcome could materially affect financial condition.
- Operational Risks: The company faces risks related to market acceptance of PicoP technology, dependence on third-party manufacturers, and the potential for significant future losses as it scales R&D.
Investor Verification Checklist
- Runway Validation: Verify the sufficiency of the $26.0 million raised in July 2008 to sustain operations through late 2009 given the high burn rate (approx. $14.3M net loss in H1 2008).
- Auction-Rate Securities: Confirm the current liquidity status and fair value of the $3.0 million held in auction-rate securities, given the market freeze.
- Contract Backlog: Assess the $526,000 development contract backlog as of June 30, 2008, which is significantly lower than the $7.4 million backlog in the prior year.
- Legal Exposure: Monitor the status of the litigation with the former CEO regarding the $1.7 million loan and the $15 million counterclaim.
- R&D Efficiency: Evaluate the return on the 83% increase in R&D spending and the timeline for the commercial launch of the PicoP accessory projector.