Business Context and Reporting Period
Company: MICROVISION, INC.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2000
Business Overview: Microvision develops retinal scanning display (RSD) technology that projects images directly onto the viewer's retina, as well as imaging solutions (e.g., bar code readers) and optical materials. In 2000, the company formed a subsidiary, Lumera Corporation, to commercialize organic non-linear optical chromophore materials for telecommunications. The company has not yet achieved commercial product sales volume and relies primarily on development contracts with the U.S. government (91% of 2000 revenue) and commercial partners.
Key Financial Metrics
| Metric (in thousands) | 2000 | 1999 |
|---|---|---|
| Revenue | $8,121 | $6,903 |
| Cost of Revenue | $6,076 | $4,944 |
| Gross Margin | $2,045 (25.2%) | $1,959 (28.4%) |
| Research & Development Expense | $19,520 | $10,199 |
| Marketing, General & Admin Expense | $10,475 | $7,205 |
| Net Loss | $(26,601) | $(14,718) |
| Net Loss Per Share (Basic/Diluted) | $(2.33) | $(2.04) |
| Cash, Cash Equivalents & Investments | $40,717 | $32,167 |
| Working Capital | $40,551 | $32,802 |
| Total Assets | $56,171 | $41,619 |
| Long-term Obligations | $714 | $836 |
Cash Flow Summary (2000): Net cash used in operating activities was $23.1 million. Net cash used in investing activities was $9.3 million (primarily purchases of property and equipment). Net cash provided by financing activities was $36.9 million (primarily proceeds from stock issuances).
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 18% to $8.1 million, driven by higher levels of development contract business, particularly with the U.S. Army.
- Expense Surge: Operating expenses increased significantly. R&D expenses rose 91% to $19.5 million due to expanded technical staff, laboratory equipment, and a $10 million extension of a development agreement with Cree, Inc. for LED/laser diode development. SG&A expenses rose 45% to $10.5 million.
- Net Loss Expansion: Net loss widened to $26.6 million from $14.7 million in 1999, reflecting the aggressive investment in R&D and the lack of commercial product revenue.
- Subsidiary Formation: Lumera Corporation was established in 2000 to develop optical materials. Microvision funded all Lumera operations, incurring $2.9 million in losses and investing $3.2 million in capital assets for the subsidiary.
- Contract Loss Provision: Cost of revenue included a $295,000 provision for estimated losses on uncompleted contracts, reflecting strategic investments in partner projects.
Guidance, Outlook, and Risks
Outlook and Guidance:
- The company expects to continue incurring substantial losses and negative cash flow at least through 2001.
- Commercial product sales are not expected to be significant in 2001. The first commercial product, "Nomad" (a monochrome head-worn display), is planned for shipment in 2001.
- Management believes current cash and investment balances ($40.7 million) will satisfy budgeted requirements for at least the next 12 months.
- Backlog at year-end was $4.5 million, expected to be completed in 2001.
- Market Acceptance: No assurance that retinal scanning display technology will achieve market acceptance or that competitors will not render the technology obsolete.
- Liquidity: The company has a history of operating losses (accumulated deficit of $66.1 million) and may require additional equity or debt financing, which could dilute shareholders.
- Intellectual Property: Reliance on exclusive licenses from the University of Washington for core technology. Loss of exclusivity or patent challenges could materially harm the business.
- Customer Concentration: The U.S. government accounted for 91% of revenue in 2000. Delays in government funding could cause revenue to decline substantially.
- Lumera Risks: Lumera's success depends on the commercial acceptance of optical materials in the highly competitive telecommunications sector.
Investor Verification Checklist
- Commercial Viability: Verify the status of the "Nomad" product launch and any confirmed orders beyond the current backlog.
- Burn Rate: Confirm the company's cash runway given the $23.1 million operating cash burn and the expectation of continued losses.
- Government Dependency: Assess the risk of revenue volatility given that 91% of revenue is derived from U.S. government contracts.
- Intellectual Property Status: Review the terms of the University of Washington license agreements and any pending litigation regarding patent validity.
- Lumera Progress: Evaluate the commercial traction of Lumera's optical materials and the $9 million research commitment to the University of Washington.
- Dilution Risk: Monitor the number of outstanding options (3.2 million) and warrants (463,000) and potential future equity raises.