MicroVision, Inc. — Q2 2011 Form 10-Q
Business context and reporting period. The unaudited report covers the quarter and six months ended June 30, 2011. MicroVision is developing PicoP miniature laser display and imaging engines, sells SHOWWX accessory pico projectors, and performs development work for commercial and government customers. Its strategy is to commercialize PicoP through OEMs and development partners.
Financial performance and position
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Product revenue | $0.904 | $2.015 | $1.790 | $2.385 |
| Contract revenue | $0.251 | $0.073 | $0.484 | $0.371 |
| Total revenue | $1.155 | $2.088 | $2.274 | $2.756 |
| Gross loss (gross margin) | $(2.225) (−192.6%) | $(1.270) (−60.8%) | $(3.645) (−160.3%) | $(1.889) (−68.5%) |
| Operating loss | $(9.280) | $(11.130) | $(18.319) | $(20.635) |
| Net loss | $(9.175) | $(11.073) | $(18.212) | $(20.190) |
| Net loss per share | $(0.09) | $(0.12) | $(0.17) | $(0.23) |
| Operating cash used | — | — | $(15.532) | $(22.268) |
- At June 30, cash and cash equivalents were $9.339 million; available-for-sale investments were $0.009 million. Current assets were $16.490 million and current liabilities $10.982 million. Total assets were $23.059 million.
- Total liabilities were $11.687 million. Long-term debt, including its current portion, was $0.203 million; capital lease obligations totaled $0.129 million. Accumulated deficit was $397.242 million.
- Six-month financing cash inflow was $5.476 million, including $5.6 million raised before issuance costs through equity-facility draws. Cash declined $10.074 million from year-end 2010 to $9.339 million.
Material changes versus comparable periods
- Q2 revenue fell 44.7% year over year, driven by a 56.4% decline in pico-projector revenue. First-half revenue declined 17.5%. Contract revenue increased 243.8% in Q2 and 30.5% for the first half.
- Net loss narrowed year over year in both periods, but gross loss worsened: product costs substantially exceeded product revenue, and contract costs also exceeded contract revenue.
- Operating expenses declined: R&D fell 42.4% in Q2 and 29.3% for the first half; sales, marketing, general and administrative expense fell 6.3% and 10.8%, respectively. Management attributed much of the reduction to lower subcontractor and payroll costs, including workforce reductions.
- Operating cash use improved by $6.736 million year over year for the first half, primarily due to lower inventory purchases and cost reductions. The company still used $15.532 million in operating cash.
Outlook, risks, and unusual items
- Funding: Management expected existing cash to fund operations only through October 2011 and said additional cash would be required thereafter. The filing cites substantial doubt about going concern from the auditor’s 2010 report. If financing is unavailable or sales and working-capital needs disappoint, the company may substantially limit operations, delay projects, and reduce staff, costs, capital spending, and R&D.
- Financing and dilution: A new Azimuth committed equity facility began July 8, 2011, allowing sales up to the lesser of $40 million or 21,018,431 shares over 24 months, subject to conditions and draw limits. Shares are priced at a 3.5%–10% discount to volume-weighted average price; availability is not assured. The prior facility was cancelled in July 2011.
- Commercialization: Pico-projector production costs currently exceed selling prices. Q2 and first-half cost of product revenue included inventory write-downs of $0.483 million and $0.944 million, respectively, and costs of excess manufacturing capacity. Management expects 2011 R&D and SG&A to decline from 2010, while noting substantial continuing R&D will be needed. It expects few new development contracts in 2011.
- Programs and backlog: A Q2 agreement with a major automotive manufacturer covers PicoHUD test vehicles; later milestones could lead to a production-vehicle introduction in 2014, but that outcome is not assured. June 30 backlog was approximately $1.7 million—$0.533 million of product orders and $1.2 million of development contracts and prototype orders—scheduled within 12 months.
- Customer and related-party exposure: Q2 revenue included $0.409 million from an initial PicoP-engine sale to Walsin Lihwa, which owned approximately 9.2% of MicroVision’s common stock and planned a product launch in China in late 2011. The entire amount remained in accounts receivable at quarter-end.
- Management reported no pending litigation it believed would materially adversely affect the company. It identified financing, market acceptance, manufacturing economics, customer concentration, technology execution, intellectual property, supplier dependence, and product safety as significant risks.
Most important facts for investors to verify
- Whether the company obtained financing after the stated October 2011 cash runway, and the terms, availability, and dilution from Azimuth facility draws.
- Actual cash burn and liquidity relative to management’s operating plan, including whether additional expense reductions became necessary.
- Whether PicoP product selling prices, manufacturing costs, and inventory values improved enough to address persistent negative gross margins and write-downs.
- Whether Walsin’s planned commercialization occurred and the related receivable was collected; also monitor customer concentration and product-order conversion.
- Progress, funding, and milestones for the automotive HUD program and other OEM partnerships; the potential 2014 production timing is forward-looking, not a commitment.