MicroVision, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This annual filing also reports unaudited fourth-quarter results. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Business context
MicroVision develops PicoP miniature laser display and imaging technology for consumer electronics, automotive, and industrial applications. In 2012, it shifted toward an “ingredient brand” licensing and partner-manufacturing model intended to reduce its cash requirements. Pioneer’s aftermarket automotive head-up display was the company’s first commercial product under this model; MicroVision supplied MEMS and key electronics. The company also sold SHOWWX pico projectors and ROV barcode scanners, but said it did not expect to increase investment in those product lines.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $8.365 million | $5.617 million |
| Gross margin | $1.441 million, 17.2% of revenue | $(7.448) million, negative 132.6% of revenue |
| Operating loss | $(22.867) million | $(36.030) million |
| Net loss | $(22.693) million | $(35.808) million |
| Net loss per share | $(1.05) | $(2.57) |
| Cash used in operating activities | $(20.621) million | $(27.887) million |
- Revenue comprised $6.782 million of product sales and $1.583 million of contract revenue. Product revenue rose 56.3%; contract revenue rose 23.8%.
- Research and development expense was $13.135 million, down 14.0%; sales, marketing, general and administrative expense was $11.252 million, down 15.5%.
- At year-end, cash and cash equivalents were $6.850 million, working capital was $1.831 million, total assets were $12.938 million, and shareholders’ equity was $5.054 million. Cash was down from $13.075 million a year earlier.
- Total liabilities were $7.884 million. Long-term debt was $67,000, all current; capital lease obligations totaled $68,000.
- Financing activities provided $14.488 million, primarily from 2012 stock and warrant offerings. Common shares outstanding increased to 25.237 million from 17.019 million at year-end 2011.
- Fourth-quarter 2012 revenue was $2.727 million, gross margin $1.238 million, net loss $4.074 million, and net loss per share $0.16.
Material changes and unusual items
- The sharp improvement in gross margin reflected a shift away from lower-margin SHOWWX sales toward Pioneer component sales, lower inventory write-downs, and the absence of contract losses recorded in 2011. Product cost of revenue included $1.094 million of inventory write-downs in 2012, versus $1.563 million in 2011; a $498,000 credit for lower-than-estimated warranty costs also benefited 2012.
- MicroVision impaired $284,000 of intangible assets after abandoning prosecution of 35 patents. It also recorded $500,000 of losses on adverse purchase commitments for SHOWWX materials.
- One commercial customer accounted for 61% of 2012 revenue and 96% of year-end accounts receivable. The customer was Pioneer. Management lowered expectations for significant 2013 follow-on Pioneer HUD orders after Pioneer reported weaker car-navigation results.
- The company raised approximately $15.5 million gross through May and June 2012 share-and-warrant offerings. The resulting share issuance and warrants create potential dilution.
- The filing notes a 1-for-8 reverse stock split effective February 17, 2012; reported share and per-share data reflect the split.
Outlook, risks, and contingencies
- Management expected available cash to fund operations through the second quarter of 2013 and said additional capital would be required thereafter. It planned to seek equity or debt financing, but gave no assurance that funding would be available on acceptable terms or in time.
- The company expected substantial losses and negative cash flow at least through 2013 and anticipated continued substantial R&D spending. The independent auditor’s report included an explanatory paragraph expressing substantial doubt about MicroVision’s ability to continue as a going concern.
- Key risks include financing needs, uncertain market adoption and commercialization timing, reliance on partners and suppliers, rapid technology change, intellectual-property disputes, and dependence on a small number of customers. The U.S. government may terminate development contracts for convenience.
- On February 26, 2013, MicroVision received a Nasdaq deficiency notice for failing to meet the $50 million minimum market value of listed securities. The filing stated a deadline of August 26, 2013 to regain compliance, with potential delisting if it failed to do so.
- The company leased its Redmond headquarters under a lease expiring in August 2013. Management reported no pending legal proceedings it believed reasonably likely to have a material adverse effect.
Important facts for investors to verify
- Whether MicroVision obtained sufficient financing after the filing to fund operations beyond the stated second-quarter 2013 runway, and on what dilution or debt terms.
- Whether Pioneer placed follow-on HUD orders, and whether customer concentration and receivable exposure declined.
- Whether the licensing and ingredient-brand strategy generated durable royalty, component, or partner-funded development revenue and improved cash needs as intended.
- Whether Nasdaq listing compliance was restored by the stated deadline.
- Whether inventory valuation, warranty estimates, adverse purchase commitments, and patent impairment assumptions remained appropriate as product plans changed.