MicroVision, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Unaudited results; dollar figures below are in millions unless otherwise stated. MicroVision develops and commercializes its PicoP display and imaging technology, primarily through development work, licensing, and partnerships with manufacturers.
Financial performance and liquidity
- Revenue: $1.219 million, down 32% from $1.801 million in Q1 2013. Development revenue rose to $1.193 million from $0.300 million; product revenue fell to $0.009 million from $1.219 million, primarily because there were no component sales to Pioneer. Contract revenue declined to $0.017 million from $0.282 million.
- Margins and operating results: Reported gross margin was $1.220 million versus $1.000 million. Total cost of revenue was reported as negative $0.001 million in 2014, reflecting credits; the filing reports no conventional gross-margin percentage. Operating loss narrowed to $3.055 million from $3.648 million.
- Net loss: $8.018 million, or $0.23 per share, compared with $3.654 million, or $0.14 per share. The 2014 loss included a $4.967 million loss on warrant exchange, which was noncash.
- Cash flow: Operating cash use was $2.931 million versus $3.502 million. Investing cash use was $0.077 million. Financing provided $12.971 million, mainly from the March equity-and-warrant offering. Cash and cash equivalents increased to $15.338 million from $5.375 million at year-end.
- Balance sheet: Current assets were $15.778 million and current liabilities $4.421 million at March 31. Total liabilities were $4.954 million; the balance sheet lists $0.005 million of current capital lease obligations and no other debt balance. Shareholders’ equity was $13.313 million, versus a deficit of $1.696 million at December 31, 2013.
- Capital and dilution: The March offering raised $13.9 million gross, with approximately $1.0 million in issuance costs, through 7.2 million shares and warrants for 2.1 million shares. Separately, 3.713 million shares were issued in a warrant exchange without cash proceeds.
Material changes and business developments
- Development revenue increased under a $4.6 million collaborative agreement signed in March 2013; cumulative revenue recognized on that agreement was $4.1 million at March 31, 2014. Collaborative-development backlog was $0.498 million, down from $4.3 million a year earlier.
- Product backlog was approximately $0.147 million, versus $0.744 million a year earlier; contract backlog was $0.939 million, versus $0.045 million. Total open-order backlog was reported as $1.6 million.
- Research and development expense increased 13% to $2.543 million. Sales, marketing, general and administrative expense declined 18.5% to $1.959 million. A $0.227 million gain from sales of previously reserved inventory also benefited operating expenses.
- One commercial customer accounted for 98% of Q1 revenue; one customer represented 83% of net accounts receivable at quarter-end.
Outlook, risks, and contingencies
- Management expected available cash to fund operations through the third quarter of 2014 and stated that additional capital would be required thereafter. The company planned to seek equity or debt financing, but gave no assurance financing would be available on acceptable terms or in time. If funding is insufficient, it may substantially limit operations, including development spending and staffing.
- The company reported substantial historical losses, expected a substantial loss for 2014, and cited its auditor’s prior-year going-concern explanatory paragraph expressing substantial doubt about its ability to continue as a going concern.
- On March 31, 2014, supplier Asia Optical filed for arbitration seeking $3.6 million plus attorneys’ fees, interest, and arbitration costs over alleged failure to take delivery of and pay for products. MicroVision is defending the claim; the filing says the likelihood and potential loss could not be predicted.
- Other key risks include dependence on a small number of customers and third-party partners, uncertain product acceptance and commercialization, need for additional capital, competition and rapid technological change, supplier concentration, and intellectual-property and product-liability exposure. The company had accrued approximately $0.5 million for adverse purchase commitments.
- Management said disclosure controls and procedures were effective at quarter-end and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether MicroVision secured financing after the stated runway through Q3 2014, and on what terms.
- Progress and remaining economics of the collaborative agreement, including the sharp decline in its backlog and the status of customer acceptance and payments.
- Whether customer concentration, product sales, and total backlog changed after March 31, 2014.
- Developments and any reserve implications in the Asia Optical arbitration claim.
- The dilution and potential cash proceeds associated with outstanding warrants and other securities.