MicroVision, Inc. — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. Unaudited consolidated financial statements. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
MicroVision develops PicoP miniature laser display and imaging technology. In February 2012, it began shifting toward an “Image by PicoP” ingredient-brand model, licensing technology and selling components to OEMs, while continuing accessory projector sales and development work. Its PicoP technology was integrated into Pioneer’s Cyber Navi navigation system. The company reported that it expected to make its next-generation HD PicoP Gen2 technology available to OEMs during 2012.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Total revenue | $2.613 | $1.839 | $5.638 | $4.113 |
| Gross profit (loss) | $1.475 | $(0.881) | $0.203 | $(4.526) |
| Operating expenses | $5.476 | $6.943 | $18.994 | $21.617 |
| Operating loss | $(4.001) | $(7.824) | $(18.791) | $(26.143) |
| Net loss | $(3.845) | $(7.790) | $(18.619) | $(26.002) |
| Net loss per share, basic and diluted | $(0.15) | $(0.57) | $(0.91) | $(1.96) |
- Q3 revenue rose 42% year over year; nine-month revenue rose 37%. Product revenue increased 32% in Q3 and 30% for the nine months. Contract revenue increased 64% and 58%, respectively. Royalty revenue was $83,000 in both 2012 periods, with none reported in 2011.
- Gross margin improved to 56% in Q3 from a gross loss in the prior-year quarter; nine-month gross margin was about 4%, compared with a gross loss in 2011. The improvement reflected component sales with higher margins than SHOWWX projectors, as well as lower cost of product revenue. Nine-month 2012 product costs included $1.1 million of inventory write-downs.
- R&D and sales, marketing, general and administrative expenses declined year over year, principally due to lower staffing and stock-based compensation costs. The company recorded a $46,000 Q3 gain on disposal of fixed assets; other income was $156,000.
Cash, liquidity and capital
- Cash and cash equivalents were $10.743 million at September 30, 2012, down from $13.075 million at year-end 2011. Current assets were $12.962 million and current liabilities $8.187 million; shareholders’ equity was $8.574 million.
- Operating cash use was $16.951 million for the first nine months, versus $21.805 million a year earlier. Investing cash use was $70,000; financing provided $14.689 million, primarily from stock and warrant offerings. Cash declined $2.332 million over the period.
- Long-term debt was $91,000, all current; capital lease obligations totaled $80,000. The company had no long-term debt beyond the current portion at quarter-end.
- Management said existing cash was expected to fund operations through Q2 2013, but additional funding would be required thereafter. May and June 2012 equity and warrant offerings raised approximately $15.5 million gross in total. As of November 2, 2012, 25.08 million common shares were outstanding.
Changes, outlook and risks
- In April 2012, MicroVision reduced its workforce by approximately 25%; it recorded about $370,000 in severance and restructuring costs during the first nine months and expected to make remaining payments in Q4. Management said the ingredient-brand model was expected to reduce future R&D and SG&A spending, while continued R&D would be needed to advance PicoP and support customers.
- Management planned to sell remaining SHOWWX inventory through Q4 2012 and expected royalty and licensing revenue to grow as OEM integrations expanded. These are expectations, not guaranteed outcomes. Product backlog was approximately $4.3 million, scheduled for delivery within a year; development-contract backlog was $184,000. Total open-order backlog was reported as $4.5 million.
- The filing notes substantial doubt about the company’s ability to continue as a going concern in the predecessor auditor’s 2011 report. Management cautioned that sales, working-capital needs and cash flows were difficult to forecast in an emerging market; additional financing might not be available on acceptable terms or in time. If funding falls short, it may curtail operations, delay development, reduce staff and costs, or cut capital expenditures. Potential funding sources included securities issuance and monetizing selected non-core patents.
- Key risks include sustained losses and cash burn, dependence on a small number of customers and partners, uncertain market acceptance and product timing, reliance on single suppliers for key components, competition and rapid technological change, and intellectual-property, product-liability and financing risks. Pioneer accounted for 78% of Q3 revenue and 54% of nine-month revenue, and 81% of quarter-end receivables.
- Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. The filing described routine claims and threatened lawsuits but no proceedings management believed were reasonably likely to have a material adverse effect.
Important facts for investors to verify
- Whether cash burn and sales performance support the stated runway through Q2 2013, and whether additional financing or patent monetization occurs.
- OEM adoption, commercial launches and realized royalties from the PicoP ingredient-brand strategy, including progress and timing for Gen2.
- Revenue and receivables concentration with Pioneer, and the conversion, deliverability and collectability of reported backlog.
- Whether component-sales margins persist and whether inventory write-downs, excess capacity costs or other unusual charges recur.
- The effect of equity and warrant issuance on dilution and future financing needs.