MicroVision, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. Financial statements are unaudited. MicroVision develops and commercializes its PicoP display technology, primarily through customer collaborations and an ingredient-brand strategy supplying or licensing technology to OEMs.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Total revenue | $0.964 million | $2.613 million | $4.635 million | $5.638 million |
| Gross margin | $0.880 million (91.3%) | $1.475 million (56.4%) | $2.887 million (62.3%) | $0.203 million (3.6%) |
| Operating loss | $4.112 million | $4.001 million | $11.198 million | $18.791 million |
| Net loss | $3.667 million | $3.845 million | $10.757 million | $18.619 million |
| Net loss per share | $0.13 | $0.15 | $0.40 | $0.91 |
- Revenue mix in Q3 2013 was $0.176 million product, $0.128 million contract, and $0.660 million development revenue. The development revenue came from a $4.6 million collaborative agreement signed in March 2013.
- For the nine months, operating expenses were $14.085 million, down from $18.994 million in 2012. Research and development expense fell 27% and sales, marketing, general and administrative expense fell 24%.
- Cash used in operating activities for the nine months was $9.949 million, versus $16.951 million in 2012. Investing activities used $0.237 million; financing activities provided $11.657 million, primarily from stock-and-warrant offerings. Cash increased $1.471 million to $8.321 million.
- At September 30, total assets were $12.015 million and total liabilities $12.205 million, leaving a $0.190 million shareholders’ deficit. Working capital deficit was $2.9 million, including a $6.716 million non-cash warrant liability. Long-term debt was zero; current capital lease obligations were $0.029 million.
Changes and notable items
- Revenue declined 63% in Q3 and 18% for the nine-month period year over year. Product revenue fell 92% in Q3 and 47% year to date; management attributed the decline to lower Pioneer component sales and lower sales of PicoP engines and finished units. The company said it had fulfilled Pioneer’s open orders and did not expect follow-on orders for its aftermarket HUD product.
- Development revenue, absent in the prior-year periods, partly offset lower product and contract revenue. Development-agreement backlog was $2.8 million; total reported backlog was $3.2 million, scheduled for completion within 12 months. Product backlog was only $0.147 million, compared with $4.3 million a year earlier.
- Gross margin improved substantially year to date, partly because of product mix, lower inventory write-downs and reduced excess-capacity costs. Inventory write-downs were $0.303 million in the first nine months, versus $1.094 million in 2012.
- May and September equity offerings raised $5.85 million and $6.6 million, respectively, before issuance costs. Their warrants include conditional exchange provisions and are recorded as liabilities. The September-quarter warrant revaluation produced a $0.397 million non-cash gain. At quarter-end, the exchange feature could have required issuance of an estimated 3.86 million shares, with a fair value of $6.716 million.
Liquidity, outlook and risks
- Management estimated that cash would fund operations only through February 2014 and said additional capital would be needed beyond then. The company planned to seek equity or debt financing but warned that funding might not be available on acceptable terms or in time. If funding fell short, it might substantially reduce operations, including delaying development and cutting staff, R&D and capital spending.
- The filing states MicroVision expected a substantial loss for 2013 and expected substantial losses and negative cash flow at least through 2014, likely thereafter. Management said continuing R&D spending would remain substantial.
- Key risks include dependence on additional financing, uncertain market acceptance and commercialization of PicoP technology, reliance on third-party OEMs and manufacturers, customer concentration, volatile and unpredictable contract revenue, competition and rapid technological change, and intellectual-property, product-liability and supply-chain risks. Three commercial customers generated about 89% of nine-month revenue; one customer represented 52% of net receivables.
- The company noted its auditor’s prior-year going-concern explanatory paragraph expressing substantial doubt about its ability to continue as a going concern. Management’s current liquidity outlook likewise depends on obtaining further financing.
- Management reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter. Interest-rate and foreign-exchange exposures were described as not material.
Important facts for investors to verify
- Whether MicroVision secured financing sufficient to extend the stated February 2014 cash runway, and the terms and dilution of any financing.
- Progress, customer acceptance, remaining deliverables and cash collections under the $4.6 million collaboration, including whether backlog converted into recognized revenue.
- Whether new product orders or OEM partnerships replaced the lost expected Pioneer follow-on orders, and how concentrated revenue and receivables remain.
- Changes in operating cash burn, working capital, and the fair value and potential share dilution from the warrant exchange provisions.
- Whether projected costs, contract estimates, inventory values and technology commercialization assumptions changed after quarter-end.