Business Context and Reporting Period
Company: MICROVISION, INC.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 1999
Business Overview: Microvision is a development-stage company focused on commercializing Virtual Retinal Display (VRD) technology. The company generates revenue primarily through government and commercial development contracts. It has incurred substantial losses since inception and expects to continue doing so as it invests in R&D, laboratory facilities, and prototype development.
Key Financial Metrics
| Metric | Six Months Ended June 30, 1999 |
Six Months Ended June 30, 1998 |
Balance Sheet June 30, 1999 |
|---|---|---|---|
| Contract Revenue | $3,694,500 | $3,764,100 | - |
| Cost of Revenue | $3,249,100 | $2,654,600 | - |
| Gross Margin | $445,400 (12.1%) | $1,109,500 (29.5%) | - |
| Net Loss | $(7,180,700) | $(3,359,700) | - |
| Net Loss Per Share (Basic/Diluted) | $(1.27) | $(0.56) | - |
| Cash and Cash Equivalents | - | - | $7,866,200 |
| Total Assets | - | - | $19,124,700 |
| Total Liabilities | - | - | $5,633,300 |
| Accumulated Deficit | - | - | $(31,238,100) |
Cash Flow (Six Months Ended June 30, 1999):
- Net cash used in operating activities: $(8,971,600)
- Net cash used in investing activities: $(3,702,700)
- Net cash provided by financing activities: $18,271,500
Material Changes vs. Prior Period
- Revenue Decline: Contract revenue decreased by 2% ($69,600) for the six-month period compared to 1998. This was driven by a 32% drop in revenue during the second quarter due to a reorientation of the R&D department toward product development, which reduced billable direct labor hours on existing contracts.
- Expense Surge:
- R&D Expenses: Increased 63% to $3.47 million, driven by hiring, lab expansion, and a new $2.6 million development contract with Cree Research, Inc.
- SG&A Expenses: Increased 68% to $4.24 million due to expanded sales, marketing, and administrative staff.
- Margin Compression: Gross margin fell from 29.5% in the prior year to 12.1% due to increased indirect costs (capacity building) outpacing direct project costs.
- Liquidity Improvement: Cash and cash equivalents increased from $2.27 million (Dec 31, 1998) to $7.87 million (June 30, 1999), bolstered by significant equity financing.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
Management expects to continue incurring significant operating losses through at least the year 2000. The company plans to expand its technical staff and laboratory facilities to commercialize VRD technology. Future success depends on securing OEM partnerships and market acceptance of VRD products. The company believes its current cash position ($10.1 million including investments) plus subsequent financing ($28.6 million raised post-period) will fund operations for at least 12 months.
Recent Financing & Subsequent Events:
- Raised $5.0 million in Series B Preferred Stock (Jan 1999), redeemed in May 1999 for common stock.
- Raised $6.0 million in common stock (Apr 1999).
- Raised $4.5 million from Cree Research, Inc. (May 1999) alongside a development contract.
- Post-Period: In July 1999, the company received $27.0 million from the exercise of 2.25 million warrants.
Key Risks:
- Commercialization Risk: No commercial products have been produced; success depends on market acceptance of VRD technology.
- Capital Requirements: Continued need for additional financing; inability to raise funds could force significant operational limitations.
- Intellectual Property: Reliance on patents licensed from the University of Washington; risk of infringement claims or failure to protect proprietary technology.
- Year 2000 Compliance: Potential for operational disruption if internal or third-party systems fail Y2K compliance.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $10.1 million cash balance (plus subsequent $28.6 million) against the projected burn rate of ~$9 million per six months.
- Revenue Recognition: Review the "percentage of completion" accounting method and the impact of the R&D reorientation on future revenue recognition.
- Dilution Impact: Assess the impact of the 2.25 million shares issued in July 1999 and outstanding options/warrants on future earnings per share.
- Contract Dependencies: Evaluate the concentration risk regarding the $2.6 million Cree Research contract and reliance on government defense contracts.
- Lease Obligations: Confirm the financial impact of the new 7-year lease (approx. $861k base rent in year 1) and the $1.15 million lease bond requirement.