MicroVision, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Financial statements are unaudited. MicroVision develops and licenses PicoP display technology for integration by OEMs and ODMs into consumer, automotive, and other products.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 / prior period |
|---|---|---|
| Total revenue | $0.901 million | $1.219 million |
| Gross profit (loss) | $(0.143) million; gross margin approximately (15.9)% | $1.220 million |
| Operating expenses | $3.819 million | $4.275 million |
| Operating loss | $(3.962) million | $(3.055) million |
| Net loss | $(3.962) million; $(0.09) per diluted share | $(8.018) million; $(0.23) per diluted share |
| Operating cash flow | $5.050 million provided | $2.931 million used |
| Cash and cash equivalents | $16.685 million at March 31 | $8.349 million at December 31, 2014 |
Product revenue was $741,000, royalty revenue $144,000, contract revenue $16,000, and development revenue zero. Product cost of revenue was $1.037 million, including $221,000 of excess-capacity manufacturing overhead and a $139,000 scrap provision. The balance sheet showed $6.733 million of current liabilities and $14.088 million of total liabilities, including $8.126 million of deferred revenue associated mainly with the upfront license payment. The filing does not show outstanding debt on the balance sheet.
Operating cash flow benefited primarily from the $8.0 million license prepayment, recorded as deferred revenue and expected to be recognized over eight years; it should not be read as recurring operating cash generation. Investing cash use was $69,000, and financing provided $3.355 million, including $2.3 million from warrant exercises and $1.0 million of ATM proceeds. The company had 46.177 million shares outstanding at quarter-end.
Material changes versus the prior comparable period
- Revenue declined $318,000, principally because the $1.193 million of development revenue recognized in Q1 2014 did not recur. Product sales rose from $1,000 to $741,000, while royalty revenue increased from $8,000 to $144,000.
- Gross profit fell to a loss, reflecting higher product costs and a prior-period cost credit. Operating loss increased by $907,000 as lower operating expenses did not offset the deterioration in gross profit.
- Net loss improved year over year largely because Q1 2014 included a $4.967 million loss on a warrant exchange; that item did not recur.
- Cash increased by $8.336 million from year-end, reflecting the license prepayment and financing proceeds. The 2015 operating cash inflow contrasts with the prior-year outflow but was substantially driven by the one-time prepayment.
Outlook, risks, and unusual items
- Management expected existing cash to fund operations through May 2016, but said additional capital would be needed afterward. It cautioned that financing might not be available on acceptable terms or in time; absent funding, substantial operating reductions could be considered.
- The company expected a substantial loss for full-year 2015 and anticipated continued substantial R&D spending. It cited uncertainty in forecasting revenue, costs, and cash needs for an emerging technology market. No specific revenue or earnings guidance was provided.
- The independent auditor’s report on the 2014 financial statements included a going-concern explanatory paragraph expressing substantial doubt about the company’s ability to continue as a going concern.
- Revenue concentration was high: one commercial customer represented 97% of Q1 revenue and 99% of quarter-end net accounts receivable. The company reported an $18.7 million open-order backlog, including approximately $17.2 million of product orders and $1.5 million of contract orders, scheduled for delivery or completion within 12 months; orders may be changed, delayed, or unfulfilled.
- A March 2015 license agreement granted a customer a non-exclusive PicoP license for an $8.0 million upfront payment and future per-unit royalties. The company also reported a $3.6 million supplier arbitration claim, plus fees, interest, and costs, which it contests; the outcome and potential loss could not be predicted. It had accrued $500,000 for excess SHOWWX material purchase commitments.
- Key risks include ongoing losses and financing needs, dependence on a small number of customers and third-party manufacturers, market adoption and competition, and potential supply disruptions. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the $17.2 million product backlog converts to shipments and revenue on schedule, and whether the customer concentration changes.
- Cash use excluding the $8.0 million advance, and whether actual liquidity remains consistent with management’s May 2016 runway estimate.
- Progress in commercial adoption and royalty generation under the PicoP license, including the timing of revenue recognition over eight years.
- Outcome and potential financial exposure from the Asia Optical arbitration and the adequacy of the related purchase-commitment accrual.
- Future financing needs, potential dilution, and any changes in the company’s going-concern risk.