Business Context and Reporting Period
Company: MICROVISION, INC.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2000
Business Overview: Microvision develops retinal scanning display technology to project high-resolution images directly onto the viewer's retina. The company is currently in the research and development phase, generating revenue primarily through government and commercial development contracts and the sale of engineering prototypes. The company plans to introduce a production version of its display in 2001.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2000 |
Six Months Ended June 30, 2000 |
Six Months Ended June 30, 1999 |
|---|---|---|---|
| Contract Revenue | $1,176,000 | $3,285,500 | $3,694,500 |
| Gross Margin | $292,100 (24.8%) | $934,100 (28.4%) | $445,400 (12.1%) |
| Net Loss | $(6,932,400) | $(12,005,600) | $(7,180,700) |
| Net Loss Per Share (Basic/Diluted) | $(0.60) | $(1.09) | $(1.27) |
| Cash and Cash Equivalents | $13,277,200 (as of June 30, 2000) | ||
| Investment Securities | |||
| Total Current Assets | $61,305,900 | ||
| Total Current Liabilities | $3,659,700 | ||
| Accumulated Deficit | $(51,541,700) |
Material Changes vs. Prior Period
- Revenue Decline: Contract revenue decreased 16% ($217,000) for the quarter and 11% ($409,000) for the six months compared to the prior year. This was primarily due to the completion of two large development contracts, creating a temporary low point in activity before new contract modifications were signed.
- Expense Increases:
- R&D Expenses: Increased 75% ($1.9M) for the quarter and 134% ($4.6M) for the six months. This reflects hiring, lab expansion, and a new $10 million development agreement with Cree, Inc.
- SG&A Expenses: Increased 40% ($1.0M) for the quarter and 42% ($1.8M) for the six months due to expanded sales and administrative staff.
- Improved Gross Margin: Despite lower revenue, gross margin improved significantly (from a loss of $146,600 in Q2 1999 to a profit of $292,100 in Q2 2000) due to lower direct costs and overhead allocation.
- Financing Activity: The company raised approximately $36.3 million in net proceeds from common stock issuances during the six months ended June 30, 2000, including a $25 million sale to Cree, Inc. and General Electric Pension Trust.
Guidance, Outlook, and Risks
- Outlook: Management expects to introduce a production version of the retinal scanning display in mid-2001. The company anticipates continued high levels of R&D spending and expects operating losses to continue at least through 2001.
- Liquidity: As of June 30, 2000, the company held $54.4 million in cash, cash equivalents, and investment securities. Management believes this is sufficient to fund operations for at least the next 12 months.
- Key Risks:
- Market Acceptance: No assurance that the retinal scanning technology will achieve commercial acceptance or compete with established display technologies.
- Manufacturing: The company currently lacks the capability to manufacture products in commercial quantities and relies on third-party partners.
- Intellectual Property: Risks related to patent infringement claims, the validity of the University of Washington license, and the ability to protect proprietary technology.
- Capital Needs: Future financing may be required; failure to secure funds could force significant operational reductions.
- Unusual Items: The company entered into a $10 million, two-year extension with Cree, Inc. in April 2000 to develop semiconductor light-emitting diodes and laser diodes. $4.5 million is due in the first year, secured by a letter of credit backed by $3.4 million in pledged investments.
Investor Verification Checklist
- Contract Backlog: Verify the $6.9 million backlog of development contracts and the timing of revenue recognition for the new $7.8 million contract modification.
- Cree Agreement Terms: Review the specific milestones and payment obligations under the $10 million Cree, Inc. extension agreement.
- Product Roadmap: Assess the feasibility of the mid-2001 commercial product launch given the current reliance on prototypes.
- Capital Runway: Monitor cash burn rates against the $54.4 million liquidity position to determine if additional equity financing will be needed before 2001.
- Patent Status: Confirm the status of pending patent applications and the security of the exclusive license from the University of Washington.