Business Context and Reporting Period
Company: MICROVISION, INC.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2000
Business Overview: Microvision develops retinal scanning display technology and, through its subsidiary Lumera Corporation, organic non-linear optical materials for telecommunications. The company is in a pre-commercialization phase, generating revenue primarily from government and commercial development contracts and the sale of engineering prototypes. The company expects to introduce a production version of its retinal scanning display in 2001.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2000 |
Nine Months Ended Sep 30, 2000 |
Nine Months Ended Sep 30, 1999 |
|---|---|---|---|
| Contract Revenue | $1,970,500 | $5,256,000 | $5,160,200 |
| Cost of Revenue | $1,716,900 | $4,068,300 | $3,741,100 |
| Gross Margin | $253,600 (12.9%) | $1,187,700 (22.6%) | $1,419,100 (27.5%) |
| Operating Expenses | $8,885,100 | $23,012,400 | $12,368,900 |
| Net Loss | $(7,682,900) | $(19,688,500) | $(10,443,700) |
| Net Loss Per Share (Basic/Diluted) | $(0.65) | $(1.75) | $(1.62) |
| Cash and Cash Equivalents | $16,061,200 (as of Sep 30, 2000) | ||
| Total Investment Securities | $33,702,400 (as of Sep 30, 2000) | ||
| Total Debt (Current + Long-term) | $737,600 (as of Sep 30, 2000) |
Material Changes vs. Prior Period
- Revenue Growth: Revenue for the three months ended September 30, 2000, increased 34% to $2.0 million compared to $1.5 million in the prior year period. However, for the nine-month period, revenue growth was flat, increasing only 2% to $5.3 million. Management attributes the lack of nine-month growth to the completion of two large contracts and the timing of new contract modifications.
- Cost of Revenue: Cost of revenue surged 249% in the three-month period and 9% in the nine-month period. The nine-month increase was primarily driven by a $400,000 provision for estimated losses on uncompleted development contracts.
- Operating Expenses: Total operating expenses increased significantly, with Research and Development (R&D) rising 109% year-over-year for the nine months to $13.9 million. This reflects hiring, laboratory expansion, and a $10 million development agreement extension with Cree, Inc. Marketing, General, and Administrative expenses rose 45% to $8.0 million.
- Liquidity Position: Cash and cash equivalents increased from $2.8 million at year-end 1999 to $16.1 million at September 30, 2000, driven by $36.7 million in net proceeds from the issuance of common stock during the period.
Guidance, Outlook, and Risks
- Outlook: The company plans to introduce a production version of its retinal scanning display in mid-2001. It expects to continue incurring substantial losses and negative cash flow at least through 2001. Management believes current cash and investment balances ($52.3 million total) will satisfy budgeted requirements for at least the next 12 months.
- Strategic Agreements: In April 2000, the company entered a two-year, $10 million extension with Cree, Inc. for LED/laser diode development. In October 2000 (subsequent event), subsidiary Lumera entered an exclusive license agreement with the University of Washington for optical materials technology.
- Risks and Contingencies:
- Market Acceptance: No assurance that retinal scanning displays or optical materials will achieve commercial acceptance.
- Profitability: The company has an accumulated deficit of $59.2 million and expects losses to continue as it scales R&D and operations.
- Intellectual Property: Reliance on licensed technology from the University of Washington; risk of patent challenges or infringement claims.
- Manufacturing: Lack of in-house commercial manufacturing capacity; reliance on third-party partners.
- Capital Needs: May require additional financing to accelerate development or respond to competitive pressures, which could result in shareholder dilution.
Investor Verification Checklist
- Contract Backlog: Verify the $7.3 million backlog mentioned in the filing and the specific terms of the Cree, Inc. extension agreement.
- Contract Loss Provision: Review the details of the $400,000 estimated loss on uncompleted contracts to understand the specific projects at risk.
- Product Timeline: Assess the feasibility of the mid-2001 commercial product introduction given the current prototype stage.
- Cash Burn Rate: Monitor the rate of cash consumption against the $52.3 million liquidity position to determine the runway before additional financing is required.
- Stock Dilution: Track the impact of outstanding options (2.97 million shares) and warrants (459,045 shares) on future share count and potential market price pressure.