MicroVision, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011; unaudited. Financial amounts below are in millions of dollars unless stated otherwise. MicroVision develops PicoP miniature laser display and imaging technology, sells SHOWWX accessory projectors, and pursues commercial and government development contracts.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $1.839 | $1.301 | $4.113 | $4.057 |
| Gross loss | $(0.881) | $(2.811) | $(4.526) | $(4.700) |
| Operating expenses | $6.943 | $9.475 | $21.617 | $28.221 |
| Operating loss | $(7.824) | $(12.286) | $(26.143) | $(32.921) |
| Net loss | $(7.790) | $(11.850) | $(26.002) | $(32.040) |
| Net loss per share | $(0.07) | $(0.13) | $(0.25) | $(0.36) |
- Q3 revenue rose 41% year over year, driven mainly by PicoP engine sales and a one-time projector sale; nine-month revenue was up about 1%. Product revenue was $1.525 million in Q3 and $3.315 million for nine months. Contract revenue was $0.314 million and $0.798 million, respectively.
- Gross margin remained negative: gross loss equaled about 48% of Q3 revenue and 110% of nine-month revenue. Product costs continued to exceed product revenue; excess-capacity manufacturing overhead was $0.247 million in Q3 and $0.945 million year to date.
- Operating expenses fell 27% in Q3 and 23% year to date, principally due to lower R&D subcontractor and payroll costs and workforce reductions. R&D spending remained substantial at $11.446 million for nine months.
- Cash and cash equivalents were $9.369 million at September 30, down from $19.413 million at December 31, 2010; available-for-sale securities were $0.008 million. Restricted investments were an additional $1.019 million. Total assets were $21.953 million, total liabilities $11.342 million, and shareholders’ equity $10.611 million.
- Nine-month operating cash use was $21.805 million, versus $35.028 million in 2010. Investing cash use was $0.005 million; financing provided $11.766 million, primarily from equity financing draws. Cash declined by $10.044 million during the period.
- At September 30, long-term debt was $0.182 million, and capital lease obligations totaled $0.124 million. The filing reports no material market-risk exposure from interest rates or foreign exchange.
Changes, outlook and key risks
- Product revenue improved in Q3, but nine-month product revenue declined 4%; bar-code revenue continued to fall after the company stopped marketing that product. The company recognized $0.944 million of inventory write-downs during the first nine months, compared with $3.830 million in 2010. Q3 cost of product revenue benefited from sales of inventory written down previously, reducing cost by about $1.7 million.
- Product backlog was approximately $4.2 million, including a $3.5 million ESPlus follow-on order scheduled for Q4 shipment. The company reported total open-order backlog of $5.1 million, including $0.933 million of development-contract backlog. Backlog is subject to customer and delivery performance risks.
- MicroVision completed an initial approximately $0.5 million ESPlus order in Q3; ESPlus launched its embedded-projector media player in October 2011. A development agreement with an automotive manufacturer covers test-vehicle HUD prototypes; further milestones could lead to a production-vehicle introduction in 2014, but that outcome is not assured.
- Management estimated existing cash would fund operations through January 2012 and said additional cash would be needed thereafter. It planned to seek equity or debt financing and warned that unavailable or delayed financing could require substantial operating cuts, including reduced R&D, staffing and development activity. The auditor’s 2010 report included a going-concern substantial-doubt paragraph.
- Two Azimuth committed equity facilities remained available at quarter-end, subject to conditions and share-price thresholds: the May facility had up to approximately $38.5 million or 19.2 million shares remaining; the September facility, up to approximately $30 million or 14.4 million shares. Q3 draws raised $6.5 million gross in total under these facilities, with dilution risk. The earlier facility was cancelled in July.
- Other risks include sustained losses and negative cash flow, product costs above selling prices, uncertain market acceptance and revenue timing, customer concentration, dependence on third-party technology and limited suppliers, and intellectual-property and product-liability exposure. The company also disclosed a Nasdaq bid-price deficiency notice dated October 26, 2011, with until April 23, 2012 to regain compliance.
- Management stated that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter. No litigation was identified as reasonably likely to have a material adverse effect.
Important facts for investors to verify
- Whether planned financing was obtained after quarter-end and whether it provided adequate runway beyond January 2012; confirm the terms, availability and dilution from Azimuth facilities.
- Whether the $3.5 million ESPlus order shipped and was collected as expected, and whether customer demand supports repeat sales; assess customer concentration and the $0.409 million Walsin-related receivable.
- Whether product unit economics and manufacturing utilization improved, including the effects of prior inventory write-downs, excess-capacity costs and remaining inventory valuation.
- Progress on automotive HUD milestones and other commercialization plans, while distinguishing development prospects from committed production revenue.
- Subsequent Nasdaq listing compliance and any effect on share liquidity or access to capital.