MicroVision, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Financial statements are unaudited. MicroVision develops and commercializes its PicoP display technology, principally through an ingredient-brand strategy and partnerships with OEMs.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Total revenue | $1.801 million | $1.730 million |
| Gross profit (loss) | $1.000 million | ($2.600 million) |
| Gross margin | 55.5% | (150.3%) |
| Operating expenses | $4.653 million | $7.228 million |
| Operating loss | ($3.653 million) | ($9.828 million) |
| Net loss | ($3.654 million) | ($9.803 million) |
| Net loss per share, diluted | ($0.14) | ($0.58) |
| Cash used in operating activities | $3.502 million | $6.191 million |
At March 31, 2013, cash and cash equivalents were $3.310 million, down from $6.850 million at year-end 2012. Working capital was in deficit by $1.2 million. Total assets were $8.740 million, total liabilities $6.968 million, and shareholders’ equity $1.772 million. Debt and capital lease obligations totaled approximately $98,000, including $42,000 of current long-term debt.
Changes from the prior-year quarter
- Revenue rose 4.1%: product revenue fell 20.3% to $1.219 million, contract revenue increased 40.3% to $282,000, and $300,000 of development revenue was recognized under a new collaboration.
- Gross profit improved by $3.6 million. Management attributed the change mainly to product mix shifting away from lower-margin SHOWWX projectors toward higher-margin components, and to the absence of the prior-year $1.1 million inventory write-down and excess-capacity costs.
- Research and development expense declined 42.8% to $2.252 million, and sales, marketing, general and administrative expense declined 26.9% to $2.403 million, mainly reflecting reduced staffing and subcontractor costs.
- Operating cash use decreased by $2.7 million, which management attributed to lower personnel costs, improved product margins, and cash-reduction measures.
Outlook, risks and unusual items
- Management expected existing cash to fund operations only through the second quarter of 2013 and said additional financing would be required thereafter. It planned to seek equity or debt financing, with no assurance of availability or acceptable terms. If financing is insufficient, it may substantially limit operations, including delaying projects and reducing staff, R&D and capital spending.
- The company expected a substantial loss for 2013 and stated that losses and negative cash flow were expected to continue at least through 2013 and likely thereafter. Its prior-year audit report included an explanatory paragraph expressing substantial doubt about its ability to continue as a going concern.
- In March 2013, MicroVision entered a $4.6 million collaborative R&D agreement with a prominent electronics company; $300,000 was recognized in Q1 and $4.3 million remained in collaboration backlog. Total reported backlog was $5.1 million, including approximately $744,000 of product orders and $45,000 of contract backlog. Backlog is subject to customer performance, acceptance and delivery risks.
- Two commercial customers generated approximately 84% of Q1 revenue and represented approximately 97% of net receivables. Management reduced expectations for significant 2013 follow-on orders from Pioneer after noting financial weakness in Pioneer’s group and lower performance in its car-navigation business.
- Inventory was $217,000, with aggregate obsolescence or scrap write-downs of approximately $9.975 million. Accrued adverse purchase commitments were $522,000. Management said it was not party to litigation expected to have a material adverse effect.
- In April 2013, the company signed a 65-month lease amendment for 24,000 square feet of office and laboratory space, expected to become its headquarters in June. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether financing was secured after the filing and whether subsequent cash flows extended the stated runway beyond Q2 2013.
- Progress, customer acceptance, remaining costs and cash collections under the $4.6 million collaboration, and the convertibility of reported backlog into revenue and cash.
- Actual follow-on demand from Pioneer and the effects of customer concentration on sales and receivables.
- Whether gross margins and operating cash use improved sustainably, rather than primarily because of prior-year write-downs and cost reductions.
- Potential dilution from future equity financing and the financial commitments associated with the new lease.