Business Context and Reporting Period
Company: Microvision, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2006
Business Overview: Microvision designs and markets scanned beam display and image capture products, including the Flic laser bar code scanner. The company is developing modular integrated photonics modules for automotive head-up displays, pico projectors, and color eyewear. Revenue is derived from product sales and development contracts with the U.S. government and commercial customers.
Key Financial Metrics (Nine Months Ended Sept 30, 2006)
| Metric | Value (in thousands) |
|---|---|
| Total Revenue | $5,201 |
| Gross Margin | $(942) |
| Net Loss | $(15,303) |
| Net Loss Available to Common Shareholders | $(18,576) |
| Diluted Net Loss Per Share | $(0.60) |
| Cash and Cash Equivalents (Sept 30, 2006) | $14,026 |
| Total Current Assets | $21,713 |
| Total Current Liabilities | $10,220 |
| Convertible Notes Payable (Current Portion) | $4,732 |
| Accumulated Deficit | $(230,953) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 56.8% to $5.2 million from $12.0 million in the prior year period. Contract revenue fell 60.4% due to lower commercial backlog and timing of government contracts. Product revenue dropped 44.7%, driven by the discontinuation of the Nomad product and lower Flic sales volume in the quarter.
- Loss Reduction: Net loss decreased to $15.3 million from $22.8 million in the prior year. This improvement was primarily due to a $7.3 million gain on the sale of Lumera common stock securities, which offset higher operating expenses.
- Operating Expenses: Research and Development (R&D) expenses increased 24.3% to $7.3 million, largely due to the adoption of FAS 123(R) share-based compensation accounting and a shift of resources to internally funded projects. SG&A expenses decreased slightly by 5.5% to $13.1 million.
- Liquidity Improvement: Cash and cash equivalents increased from $6.9 million at year-end 2005 to $14.0 million, bolstered by a $25.3 million equity offering in June 2006 and proceeds from the sale of Lumera stock.
Guidance, Outlook, and Risks
- Liquidity Outlook: Management believes current cash and investment securities ($14.6 million) will satisfy budgeted requirements through April 2007. The company plans to raise additional capital to fund operations beyond that date.
- Debt Obligations: Final payments on convertible notes totaling approximately $5.8 million are due March 15, 2007. The company intends to repay these in cash. 1.8 million shares of Lumera stock are pledged as collateral for these notes.
- Product Strategy: The company discontinued promotion of the Nomad product in June 2006. Future focus is on the Flic scanner and development of the integrated photonics module for automotive and consumer applications. A new $5.95 million contract with General Dynamics C4 Systems was signed in September 2006.
- Risks: Significant risks include the need for additional financing, potential inability to achieve market acceptance for scanned beam technology, reliance on a limited number of government contracts, and the volatility of the Lumera stock price which serves as collateral for debt.
Investor Verification Checklist
- Cash Runway: Verify the company's ability to secure additional financing before April 2007 to avoid operational curtailment.
- Debt Repayment: Confirm the plan and funding source for the $5.8 million convertible note payment due March 15, 2007.
- Lumera Collateral: Monitor the market price of Lumera common stock, as a significant drop could impact the collateral value for the company's debt.
- Revenue Sustainability: Assess the transition from contract-based revenue to commercial product sales, given the decline in government and commercial contract revenue.
- Share-Based Compensation: Review the ongoing impact of FAS 123(R) adoption on future operating expenses and net loss.