MicroVision, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed March 8, 2012. The filing is an annual report, not a standalone fourth-quarter filing. Per-share and share figures reflect the 1-for-8 reverse stock split effective February 17, 2012.
Business context
MicroVision develops miniature laser display and imaging engines using its PicoP technology, and sells SHOWWX accessory projectors and PicoP engines while pursuing customer development contracts. Its strategy centers on OEM integration and licensing for consumer, automotive, enterprise, and industrial products. The company was developing a next-generation engine using direct green lasers; samples had been provided to OEMs for evaluation.
Financial performance and position
| Metric | FY2011 | FY2010 |
|---|---|---|
| Total revenue | $5.617 million | $4.740 million |
| Product revenue | $4.338 million | $3.850 million |
| Contract revenue | $1.279 million | $0.890 million |
| Gross margin (loss) | $(7.448) million | $(11.482) million |
| Operating loss | $(36.030) million | $(48.334) million |
| Net loss | $(35.808) million | $(47.460) million |
| Net loss per share | $(2.57) | $(4.17) |
| Cash used in operating activities | $(27.887) million | $(46.196) million |
- Revenue increased about 18.5% year over year; net loss narrowed about 24.5%. Product sales were 77% of revenue, with the remainder from government and commercial development work.
- Product costs remained far above product revenue: $11.640 million, including $1.563 million of inventory write-downs, $1.3 million of excess-capacity overhead, and approximately $850,000 of warranty expense. Contract costs exceeded contract revenue; two contracts generated recognized losses.
- Research and development expense fell to $15.279 million from $21.600 million, and sales, marketing, general and administrative expense fell to $13.314 million from $15.252 million, reflecting reduced staffing and cost controls.
- At year-end, cash and cash equivalents were $13.075 million, available-for-sale investments $8,000, working capital $5.913 million, and total assets $23.870 million. Total liabilities were $13.068 million and shareholders’ equity was $10.802 million.
- Balance-sheet debt was approximately $160,000, with $111,000 of capital-lease obligations. Restricted investments of $786,000 collateralized letters of credit and were not ordinary available cash.
- Fourth-quarter 2011 revenue was $1.504 million, gross loss $2.922 million, and net loss $9.806 million.
Material changes and notable items
- Product revenue rose 12.7%, principally from higher PicoP engine sales and a one-time projector sale; barcode revenue declined 37% as MicroVision continued to deemphasize that product.
- Product-order backlog fell to approximately $1.4 million from $12.7 million at year-end 2010. ESPlus deferred most of a $3.5 million engine order into 2012 as it worked on commercial readiness; MicroVision removed $2.8 million of those orders from year-end backlog and was renegotiating the delivery schedule.
- Total backlog was $2.1 million, down from $13.7 million, including approximately $624,000 of development contracts and prototype/evaluation orders. The filing said the remaining backlog was expected to be completed within one year.
- MicroVision reduced operating costs through a workforce reduction of about 20%, lower inventory purchases, partner cost-sharing, and shifting product development to outside design manufacturers. It raised approximately $21.4 million net from financing activities, including equity sales and a November public offering with warrants, while common shares outstanding increased.
- Annual inventory write-downs declined substantially from $9.6 million in 2010 to $1.6 million in 2011, but the company continued to report substantial negative gross margins.
Outlook, risks, and contingencies
- Management expected continuing substantial losses and negative cash flow at least through 2012. Based on its operating plan, it said cash would fund operations only through June 2012 and that additional financing would be required thereafter. Equity or debt financing might not be available on acceptable terms; absent funding, the company could curtail operations, delay development, or reduce staff and R&D.
- The independent auditor’s report included an explanatory paragraph expressing substantial doubt about MicroVision’s ability to continue as a going concern. The statements were prepared on a going-concern basis without adjustments for the uncertainty.
- Management planned to introduce a direct-green-laser PicoP engine during 2012. Pioneer had announced intent to bring an in-vehicle HUD product to market in 2012, but MicroVision’s MOU with Pioneer was non-binding and contemplated a future commercial and manufacturing agreement.
- Key risks include product-market acceptance, manufacturing costs and scalability, reliance on third-party suppliers and partners, customer concentration, technology and green-laser availability, competition, financing needs, and intellectual-property protection. U.S. government contracts may be terminated for convenience.
- Purchase commitments totaled $5.254 million due within one year; total disclosed contractual obligations were $23.995 million, including long-term research, royalty, and licensing commitments. Management reported no legal proceedings it believed reasonably likely to have a material adverse effect.
- Management and the auditor reported effective internal control over financial reporting as of year-end; the auditor gave an unqualified opinion on the financial statements subject to the going-concern explanatory paragraph.
Important facts for investors to verify
- Whether the company obtained financing after the stated June 2012 cash runway, and the resulting dilution, debt, and liquidity.
- Whether ESPlus resumed or replaced the deferred order and whether reported backlog converted into delivered products and cash receipts.
- Whether direct-green-laser engines and Pioneer’s HUD progressed to commercial launches, and whether the underlying agreements became binding.
- Whether unit economics improved: product costs substantially exceeded product revenue in FY2011, and inventory valuation, warranty costs, and excess manufacturing capacity remain relevant.
- How customer concentration, supplier dependence, and contractual commitments affect cash needs and execution risk.