MicroVision, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. Financial statements are unaudited. MicroVision develops and licenses its PicoP laser display technology, focusing on an ingredient-brand model and partnerships with OEMs. It reported significant losses and expects to incur a substantial loss for full-year 2013.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $1.870 million | $1.295 million | $3.671 million | $3.025 million |
| Gross margin | $1.007 million (53.9%) | $1.328 million (102.5%) | $2.007 million (54.7%) | $(1.272) million (-42.0%) |
| Operating loss | $(3.433) million | $(4.962) million | $(7.086) million | $(14.790) million |
| Net loss | $(3.436) million | $(4.971) million | $(7.090) million | $(14.774) million |
| Net loss per share | $(0.13) | $(0.26) | $(0.27) | $(0.82) |
Q2 revenue included $917,000 product revenue, $73,000 contract revenue and $880,000 development revenue. Six-month revenue included $2.136 million product, $355,000 contract and $1.180 million development revenue. Operating expenses were $4.440 million in Q2 and $9.093 million for the half year; R&D and selling, marketing, general and administrative expenses were lower than prior-year periods, mainly due to reduced staffing and subcontractor costs.
- Cash and liquidity: Cash and cash equivalents were $6.003 million at June 30, down from $6.850 million at year-end 2012. Working capital deficit was $2.6 million; total current liabilities were $10.065 million versus current assets of $7.452 million.
- Cash flow: Six-month operating cash use was $6.296 million, compared with $13.012 million in 2012. Investing cash use was $83,000; financing provided $5.532 million, principally from the May equity-and-warrant offering. Cash declined by $847,000 over the half year.
- Debt and equity: Balance-sheet long-term debt was $17,000 current; capital lease obligations totaled $43,000 current, with none reported long term. Shareholders’ equity was $202,000. A $3.755 million warrant liability was recorded in connection with the May offering.
Material changes and notable items
- Revenue increased 44% in Q2 and 21% for the first half year. Development revenue was new versus the prior-year periods, reflecting a March 2013 collaborative R&D agreement worth $4.6 million; $880,000 was recognized in Q2 and $1.2 million in the first half.
- Product revenue rose 22% in Q2 but declined 6% for the half year. Management attributed the changes to higher component sales to Pioneer, offset by lower accessory projector and display-engine sales. The product backlog was $282,000, down from $4.4 million a year earlier.
- Contract revenue fell 87% in Q2 and 52% in the first half, mainly due to lower test-equipment sales and reduced government-contract activity. Contract backlog was $104,000, compared with $1.0 million a year earlier. Development-agreement backlog was $3.4 million, bringing total reported backlog to approximately $3.8 million.
- Comparative gross margin is affected by unusual 2012 accounting: Q2 2012 product cost was negative $281,000, including a $1.4 million credit after renegotiation of component purchase prices for previously written-down inventory. First-half 2013 product costs included $303,000 of inventory write-downs, versus $1.1 million in the first half of 2012.
- In May, the company raised $5.85 million before approximately $362,000 of issuance costs by selling 2.6 million shares and warrants for up to 2.0 million additional shares. The warrants have a $2.886 exercise price and five-year term; their exchange feature may result in share issuance, subject to a cap.
Outlook, risks and contingencies
- Management estimated existing cash would fund operations through October 2013 and said additional financing would be required thereafter. It planned to seek equity or debt financing but cautioned that funding may not be available on acceptable terms or in time. If not obtained, it could substantially limit operations, delay development projects and reduce staffing, R&D and capital spending.
- The company disclosed that its 2012 auditor’s report included a going-concern explanatory paragraph expressing substantial doubt about its ability to continue as a going concern. It expects substantial losses and negative cash flow at least through 2013 and likely thereafter; no assurance of profitability or positive cash flow was given.
- Key risks include dependence on a small number of customers (two commercial customers represented 93% of Q2 and 89% of first-half revenue), uncertain market adoption and timing of product launches, reliance on third-party partners and suppliers, competition and technology changes, and the need for additional capital. The filing also identifies IP, product-liability, manufacturing, foreign-market and NASDAQ-listing risks.
- Accrued adverse purchase commitments were approximately $500,000. Management said it was not party to legal proceedings believed reasonably likely to have a material adverse effect. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether MicroVision secured financing sufficient to support operations beyond the stated October 2013 cash runway, and the terms and dilution associated with any financing.
- Progress, customer acceptance, remaining costs and revenue recognition for the $4.6 million collaborative development agreement and the $3.4 million development backlog.
- Whether revenue concentration, Pioneer order expectations and the low product and contract backlogs changed after the reporting date.
- Cash burn, working-capital needs, warrant-liability valuation and potential share issuance under the warrant exchange provisions.
- The effects of inventory obsolescence, purchase commitments and the company’s continued operating losses on liquidity and going-concern risk.