MicroVision, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Financial statements are unaudited. MicroVision develops laser beam scanning technology and related components for display, sensing, and other applications.
Financial performance and position
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $1.240 | $2.014 | $3.091 | $4.202 |
| Gross profit (loss) | $(0.583) | $0.333 | $0.025 | $0.648 |
| Gross margin | (47.0%) | 16.5% | 0.8% | 15.4% |
| Operating expenses | $8.400 | $8.784 | $17.072 | $16.219 |
| Net loss | $(8.990) | $(8.459) | $(17.058) | $(15.591) |
| Net loss per share | $(0.08) | $(0.10) | $(0.16) | $(0.19) |
Revenue was almost entirely contract revenue: $1.240 million for Q2 and $2.892 million for the first half of 2019. Product revenue was $199,000 for the first half and zero in Q2; there was no license and royalty revenue in 2019. One customer accounted for 97% of Q2 and 92% of first-half revenue.
- Cash flow: Operating activities used $16.358 million in the first half, versus $12.253 million in the prior-year period. Investing activities used $513,000; financing activities provided $7.719 million, primarily from common-stock issuance.
- Liquidity: Cash and cash equivalents were $4.614 million at June 30, down from $13.766 million at year-end; including restricted cash, the total was $5.049 million. Current assets were $8.143 million against current liabilities of $17.333 million.
- Balance sheet: Total assets were $14.240 million, total liabilities $18.970 million, and shareholders’ deficit $4.730 million. Accumulated deficit was $563.174 million. Finance lease obligations were $45,000; operating lease liabilities were $2.261 million.
- Share issuance: Shares outstanding rose to 110.223 million from 100.105 million at year-end. The company reported $7.592 million of stock sales in the first half, before related offering costs as applicable.
Material changes versus the prior comparable period
- Q2 revenue fell 38% year over year; first-half revenue fell 26%, reflecting reduced development-contract activity. Contract backlog, including prototype and evaluation-kit orders, was approximately $220,000, compared with $5.7 million a year earlier. Product backlog was $71,000, compared with $4.3 million.
- Gross margin deteriorated to a Q2 loss, with $852,000 of inventory write-downs recorded in the quarter. First-half gross profit fell to $25,000 from $648,000.
- First-half net loss increased by $1.467 million, while operating cash use increased by $4.105 million.
- In Q2 the company reduced its workforce by approximately 27%, following substantial completion of development work under its April 2017 contract. It recorded approximately $390,000 in severance expense.
Outlook, risks, contingencies, and unusual items
- Going concern and funding: Management said current cash, expected proceeds under the April 2017 development contract, and anticipated sales under the Lincoln Park purchase agreement were expected to fund operations into Q4 2019. Additional capital will be needed thereafter. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern. If timely financing is unavailable, management may substantially limit operations. No specific revenue or earnings guidance was provided.
- Development contract: The company invoiced the final $2.5 million of development fees in June 2019 and had recognized $14.9 million of revenue on the agreement by quarter-end. A separate $10 million upfront payment remains a liability and, if the customer elects to manufacture using MicroVision components, would be applied to future purchases. The filing warns that the per-unit prepayment exceeds estimated per-unit gross profit and could pressure operating cash flow until earned. Failure to meet milestones or a repayment obligation could increase capital needs.
- Financing and dilution: The Lincoln Park agreement permits common-stock sales of up to $11 million over 24 months, subject to limitations and conditions; $4.6 million had been raised under it by June 30. Further equity financing could dilute existing shareholders, and access to additional capital is not assured.
- Nasdaq listing: MicroVision received a deficiency notice because its bid price had remained below $1.00 for 30 consecutive business days. It had until December 10, 2019 to regain compliance; the filing said the share price had not met the threshold since notice. Delisting could reduce trading liquidity.
- Legal matter: The company initiated Hong Kong arbitration against Ragentek seeking $4.0 million plus interest and costs for alleged failure to perform under a purchase order. The outcome was not predictable. The filing also disclosed $1.2 million in open purchase obligations.
- Other risks: Revenue and receivables are highly concentrated in one customer, and the company relies on single- or limited-source suppliers. Commercial adoption, long sales cycles, competition, technology execution, and its continuing losses and negative cash flow are material uncertainties.
- Accounting change: Adoption of lease accounting guidance in 2019 resulted in recognition of operating lease assets and liabilities; management reported no material impact on the statements of operations or cash flows.
Important facts for investors to verify
- Whether the company secured sufficient financing to operate beyond the projected Q4 2019 cash runway, and the terms and dilution from any financing.
- Whether the development-contract customer completed remaining obligations and whether it proceeds to manufacture products using MicroVision components.
- Changes in customer concentration, product and contract backlog, and conversion of development work into commercial sales.
- Progress on the Ragentek arbitration and any effect on cash collection or revenue.
- Nasdaq bid-price compliance and any resulting listing or liquidity consequences.