MicroVision, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone Q4 filing; unaudited Q4 results are included below. Amounts are in U.S. dollars.
Business context
MicroVision develops PicoP laser beam scanning technology for projection, sensing and LiDAR applications, including consumer electronics, automotive and augmented/mixed reality. After failing to secure an OEM launch for its modules in 2020, management said it would prioritize licensing its modules and related technology. Existing component production for a customer continued, but management said its volume and gross profit were insufficient to support expenses.
Key financial metrics
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $8.9 million | $17.6 million |
| Gross profit | $0.3 million (3.6% margin) | $7.0 million (39.6% margin) |
| Operating expenses | $26.8 million | $34.2 million |
| Operating loss | $26.5 million | $27.2 million |
| Net loss | $26.5 million | $27.3 million |
| Basic and diluted loss per share | $0.24 | $0.31 |
| Cash used in operating activities | $24.0 million | $22.6 million |
| Cash and cash equivalents at year-end | $5.8 million | $13.8 million |
| Working capital | $(6.6) million | $(0.5) million |
| Total assets / total liabilities | $11.8 million / $15.8 million | $23.0 million / $18.9 million |
| Shareholders’ equity (deficit) | $(4.0) million | $4.1 million |
FY2019 revenue comprised $5.3 million of product revenue, $3.4 million of contract revenue and $0.1 million of license and royalty revenue. The company recorded $2.2 million of inventory write-downs, compared with $4.4 million in 2018. Customer concentration was high: one customer generated 86% of 2019 revenue and a second generated 13%.
Q4 2019: Revenue was $4.6 million, gross profit $1.2 million, net loss $3.3 million and loss per share $0.03. The quarter’s net loss included a $770,000 reversal of previously accrued bonuses.
At year-end, the company had $9.8 million of contract liabilities related to a customer prepayment for future component purchases. Management expected to apply a further $2.3 million against shipments in the first three quarters of 2020; the prepayment could weigh on reported operating cash flow until earned. Lease liabilities totaled $2.0 million for operating leases and $34,000 for finance leases. No separate borrowing balance is presented in the supplied financial statements.
Material changes versus 2018
- Revenue fell 49.5%, principally because 2018 included $10.0 million of license revenue, while 2019 included none of that upfront license fee; development contract revenue also declined.
- Gross margin contracted sharply, from 39.6% to 3.6%. Product costs exceeded product revenue in 2019, including inventory write-downs.
- Net loss improved modestly, but operating cash use increased to $24.0 million. Year-end cash fell by $7.9 million, including restricted cash, to $6.3 million total.
- Working capital moved further into deficit and shareholders’ equity became negative. Common shares outstanding rose to 125.8 million at December 31, 2019 from 100.1 million a year earlier, reflecting equity financing and share-based issuances.
Outlook, risks and unusual items
- Going concern and funding: Management said existing cash and anticipated proceeds under its Lincoln Park purchase agreement were expected to fund operations only into Q2 2020. Additional capital would be needed thereafter, with no assurance it could be raised on acceptable terms. Management and the auditor identified substantial doubt about the company’s ability to continue as a going concern. The financial statements assume continued operation.
- OEM setback and workforce reduction: In February 2020, a top-tier North American OEM advised that it would not launch products using MicroVision’s interactive display module in 2020. The company reduced headcount by approximately 60%; it expected about $104,000 of related severance expense in Q1 2020. Management said it expected significant losses in 2020.
- Financing and dilution: The company raised $16.9 million net from financing activities in 2019, primarily through common-stock issuance. A December 2019 agreement with Lincoln Park allowed up to $15.0 million of additional stock sales over 24 months, subject to contractual conditions.
- Nasdaq listing: The company had until June 9, 2020 to evidence a closing bid price of at least $1.00 for 10 consecutive business days. It said a reverse stock split could be considered; continued listing was not assured.
- Customer and execution risks: Revenue depends heavily on a small number of customers, while commercialization relies on third parties and single- or limited-source suppliers. The company also cited competition, long sales cycles, funding needs and uncertainty of customer adoption.
- Legal matter: MicroVision sought $4.0 million, plus interest and arbitration costs, from Ragentek in Hong Kong arbitration over an unfulfilled purchase order. The company said it could not predict the likelihood of a favorable outcome.
- Other items: The company recorded $160,000 of patent impairment in 2019. It agreed to return $432,000 to a distributor in connection with previously shipped display modules.
Important facts for investors to verify
- Current cash, operating cash burn and the status and terms of subsequent financing, including any Lincoln Park share sales.
- Whether the company obtained new licensees or commercial customers, and whether the $6.7 million year-end product backlog converted into shipments and cash.
- How the $9.8 million customer prepayment is applied, the resulting revenue and gross profit, and its effect on operating cash flow.
- Post-restructuring costs, staffing and ability to maintain product development and supplier relationships.
- Nasdaq listing compliance and any reverse stock split or additional dilution.
- Developments in the Ragentek arbitration and any other material legal or contingent liabilities.