MicroVision, Inc. — Q3 2014 Form 10-Q
Business and period: Unaudited results for the quarter and nine months ended September 30, 2014. MicroVision develops and licenses its PicoP display technology and sells related components, prototypes, and engineering services. Unless stated otherwise, financial figures below are in millions of dollars.
Financial results
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $0.968 | $0.964 | $2.798 | $4.635 |
| Gross margin | $0.600 (62.0%) | $0.880 (91.3%) | $2.263 (80.9%) | $2.887 (62.3%) |
| Operating loss | $(3.356) | $(4.086) | $(9.817) | $(11.166) |
| Net loss | $(3.355) | $(3.667) | $(14.774) | $(10.757) |
| Net loss per share | $(0.08) | $(0.13) | $(0.36) | $(0.40) |
At September 30, cash and cash equivalents were $10.896 million, versus $5.375 million at December 31, 2013; current assets were $12.010 million and current liabilities $4.124 million. Total liabilities were $4.647 million. The balance sheet reports no current capital-lease obligation and no warrant liability; it does not identify material outstanding borrowings. Shareholders’ equity was $9.704 million, compared with a $1.696 million deficit at year-end.
For the nine months, operating cash use was $9.909 million, investing cash use $0.139 million, and financing cash provided $15.569 million, principally from stock and warrant issuance. Cash increased $5.521 million. The filing states cash is expected to fund operations only through the first quarter of 2015; additional capital will be needed thereafter.
Changes and operating trends
- Q3 revenue was nearly flat year over year, but its composition shifted: development revenue fell 65% to $0.230 million, product revenue fell 91% to $0.016 million, and contract revenue rose to $0.722 million from $0.128 million, primarily from customized display-module deliveries to a worldwide logistics company.
- Nine-month revenue declined 40%, driven by product revenue falling to $0.044 million from $2.312 million and development revenue decreasing to $1.691 million from $1.840 million. Contract revenue increased to $1.063 million from $0.483 million.
- Operating expenses declined year over year, including nine-month R&D expense of $7.148 million (down 4%) and sales, marketing, general and administrative expense of $5.416 million (down 18%). Management attributed reductions largely to lower equipment, personnel, noncash compensation, and depreciation costs.
- The nine-month net loss increased despite a lower operating loss, mainly because of a $4.967 million loss recorded on the February 2014 warrant exchange. The exchange issued approximately 3.7 million shares. The company also raised $13.9 million gross in a March stock-and-warrant offering and approximately $2.9 million gross through its ATM program by September 30. Common shares outstanding increased to 44.444 million from 32.069 million at year-end.
- Product backlog was approximately $2.0 million, up from $0.147 million a year earlier; contract backlog was $0.068 million, down from $0.308 million. Collaborative development backlog was zero after completion of a $4.6 million agreement.
Outlook, risks, and contingencies
Management expects substantial losses in 2014 and continued substantial R&D spending. The filing warns that losses and negative cash flow are expected at least through 2015 and possibly longer. Management plans to seek additional funds through equity or debt; availability, timing, and terms are uncertain. If financing is inadequate, the company may substantially limit operations, including reducing development investment, staffing, and R&D. The 2013 auditor’s report included an explanatory paragraph raising substantial doubt about the company’s ability to continue as a going concern.
Revenue is highly concentrated: three customers accounted for 92% of Q3 and 91% of nine-month 2014 revenue, and one customer represented all accounts receivable at September 30. Key risks include uncertain market adoption of PicoP technology, dependence on partners and suppliers, lengthy and unpredictable sales cycles, potential dilution from future financing, and reliance on a small customer base.
A supplier, Asia Optical, is pursuing arbitration seeking $3.6 million plus fees, interest, and costs over alleged undelivered and unpaid products. MicroVision is defending the claim; management says the likelihood and range of any loss cannot presently be predicted. The company also reported $0.5 million accrued for adverse purchase commitments.
Important facts for investors to verify
- Whether the company secures financing in time to extend its stated runway beyond Q1 2015, and the resulting dilution or debt burden.
- Conversion of the $2.0 million product backlog into accepted deliveries and cash, and the timing and margin of those sales.
- Customer concentration, accounts-receivable collection, and whether new customers or programs reduce reliance on a few counterparties.
- Developments and potential exposure in the Asia Optical arbitration and any changes to the $0.5 million purchase-commitment accrual.
- Operating cash use, continuing losses, and progress toward commercial adoption of PicoP-based products.