MicroVision, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. MicroVision develops and licenses PicoP laser beam scanning technology for miniature projection and 3D sensing; its model combines technology licenses and royalties with sales of key components and engineering or support services.
Financial performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $9.188 million | $3.485 million |
| Gross profit (margin) | $2.008 million (21.9%) | $2.441 million (70.1%) |
| Operating loss | $14.550 million | $13.168 million |
| Net loss | $14.542 million | $18.120 million |
| Basic and diluted loss per share | $0.31 | $0.44 |
| Cash used in operating activities | $5.827 million | $12.952 million |
| Cash and cash equivalents at year-end | $7.888 million | $8.349 million |
| Working capital | $3.371 million | $5.040 million |
| Total assets / total liabilities | $14.042 million / $14.195 million | $11.945 million / $5.073 million |
FY2015 revenue comprised $6.452 million product sales, $1.165 million royalties, and $1.571 million contract revenue; there was no development revenue. Product cost was $6.384 million, leaving a thin product gross margin. Fourth-quarter revenue was $1.846 million, gross profit $0.379 million, net loss $4.298 million, and loss per share $0.09.
Liquidity was limited: management estimated available cash would fund the operating plan only through June 2016, assuming no further proceeds from the existing at-the-market (ATM) facility. The balance sheet showed a $153,000 shareholders’ deficit. Contractual obligations totaled $4.090 million, including $2.497 million of open purchase obligations and $1.365 million of operating lease payments. The filing does not present material borrowings as a key funding source; reported long-term liabilities were principally deferred revenue and deferred rent.
Changes versus the prior period
- Revenue rose 164% year over year, driven by Sony component shipments and licensing. Product revenue increased from $0.352 million to $6.452 million; royalties increased from $40,000 to $1.165 million.
- Revenue mix shifted from engineering and development work toward products and royalties. In 2015, 70% of revenue was product sales, 13% royalties, and 17% contract work; 2014 included 49% development revenue.
- Gross profit fell despite higher sales, and gross margin declined to 21.9% from 70.1%, largely because product cost was 98.9% of product revenue.
- Net loss narrowed, mainly because 2014 included a $4.967 million warrant-exchange loss. Operating loss increased as operating expenses rose and gross profit declined.
- Operating cash use improved, partly reflecting an $8.0 million upfront Sony license payment recorded as deferred revenue. Cash nevertheless declined by $0.461 million during 2015 after investing and financing cash flows.
Outlook, risks and unusual items
- Management expected a significant loss in FY2016 and substantial ongoing research and development spending. It planned to seek additional funding through equity or debt issuance, product sales, and licensing; availability and terms were uncertain. The auditor’s report included a going-concern paragraph expressing substantial doubt about the company’s ability to continue as a going concern.
- Sony accounted for 98% of FY2015 revenue and 91% of year-end accounts receivable. The company’s customer concentration creates material exposure to changes in one customer’s orders, product launches, or ability to pay.
- Product backlog was $11.0 million at year-end, scheduled for delivery within 12 months; fulfillment depended on supply-chain execution and customer performance. Backlog is not a guarantee of revenue.
- The March 2015 Sony license provided an $8.0 million upfront fee and ongoing per-unit royalties. The upfront fee is recognized over an expected eight-year service period, rather than entirely upon receipt.
- MicroVision depended on single- or limited-source suppliers, including foreign manufacturers; manufacturing delays and quality issues had previously delayed deliveries. Competition, technology adoption, long sales cycles, and continuing financing needs were significant risks.
- A supplier, Asia Optical, sought $3.6 million plus fees and interest in arbitration over alleged unpaid orders. MicroVision contested the claim; the company said it could not predict the likelihood or range of loss. A separate $500,000 accrual covered excess purchase commitments for discontinued SHOWWX materials.
- The company raised capital through stock sales and warrant exercises during 2015, increasing shares outstanding. Further equity financing could dilute existing shareholders.
- The auditor gave an unqualified opinion on the financial statements and internal controls, while separately highlighting going-concern uncertainty. Management reported effective disclosure controls and internal control over financial reporting.
Most important facts for investors to verify
- Whether MicroVision obtained financing or other cash after the filing, and whether cash runway extended beyond the stated June 2016 estimate.
- Whether Sony shipments, per-unit royalties, and the $11.0 million product backlog converted into sustained revenue and improved gross margins.
- Whether customer concentration declined and whether additional customers adopted PicoP-enabled products.
- The outcome and potential financial impact of the Asia Optical arbitration and any changes in the $500,000 adverse purchase commitment accrual.
- Future share issuance, ATM usage, warrant exercises, and resulting dilution.