MicroVision, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited financial statements; dollar amounts below are in millions unless stated otherwise.
Business context and reporting period
MicroVision develops laser beam scanning technology marketed as PicoP for interactive projection, consumer and automotive LiDAR, and augmented and mixed reality applications. After an OEM indicated in February that its interactive-display product would not launch in 2020, MicroVision reduced headcount by approximately 60% and shifted its near-term focus to strategic alternatives, including a sale or merger, sale of part of the business, a minority investment, licensing, or other transactions. In March, the customer for a major display-system development program took over component production; MicroVision now earns royalties applied against a customer prepayment.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0.587 | $1.240 | $2.056 | $3.091 |
| Gross profit (loss) | $0.588 | $(0.583) | $0.658 | $0.025 |
| Operating expenses | $2.887 | $8.400 | $7.891 | $17.072 |
| Operating loss | $(2.299) | $(8.983) | $(7.233) | $(17.047) |
| Net loss | $(2.304) | $(8.990) | $(7.238) | $(17.058) |
| Basic and diluted loss per share | $(0.02) | $(0.08) | $(0.05) | $(0.16) |
Q2 revenue fell about 53% year over year; first-half revenue fell about 33%. First-half gross margin was approximately 32%, compared with less than 1% in 2019. Q2 reported gross profit exceeded revenue because cost of product revenue was reported as a $1,000 credit; investors should review the underlying accounting detail. One customer represented 100% of revenue in both 2020 periods.
For the first half, research and development expense declined 56% to $5.290 million and sales, marketing, general and administrative expense declined 41% to $3.051 million. Management attributed the reductions principally to lower personnel-related costs and, for R&D, lower materials and subcontractor costs.
Cash, liquidity, debt, and capital
- June 30 cash and cash equivalents were $7.805 million; cash, cash equivalents, and restricted cash totaled $8.240 million. Cash and cash equivalents were $5.837 million at December 31, 2019.
- Operating activities used $8.370 million in the first half, versus $16.358 million in the prior-year period. Financing provided $9.907 million, including $8.349 million net proceeds from common-stock issuance and $1.571 million of PPP loan proceeds. Investing provided $0.431 million, including $0.525 million from sale of fixed assets.
- At June 30, current assets were $8.106 million and current liabilities were $12.078 million. Total liabilities were $14.028 million, and shareholders’ deficit was $2.522 million.
- The PPP loan bears 0.98% interest, has a 24-month term, and may be partly forgivable; the amount of forgiveness was not yet known. Reported long-term debt was $1.574 million, split between current and long-term portions.
- Common shares outstanding increased to 143.433 million from 125.803 million at year-end. The company had raised $9.3 million under its current Lincoln Park purchase agreement by June 30.
Material changes, outlook, and risks
Management expected available cash to fund operations through Q4 2020 and stated that additional capital would be required beyond then. It planned to seek funding through equity or debt, product sales, and/or licensing, but warned that financing may not be available on acceptable terms or in time. If funding is insufficient, the company may substantially limit operations. Management concluded that these conditions raise substantial doubt about MicroVision’s ability to continue as a going concern; the statements contain no adjustments for a possible inability to continue.
A proposal to increase authorized common shares failed at the May 19, 2020 shareholder meeting despite receiving a majority of votes cast; a special meeting was planned for October 8, 2020 to consider authorization again. Management said additional authorized shares were needed to raise significant equity capital.
MicroVision reported zero product backlog and zero contract backlog at June 30, 2020. It expected to apply approximately $1.1 million of customer prepayment against royalties in the second half of 2020; timing of recognition of the remaining $8.7 million contract liability was uncertain. The company expected significant losses in 2020 and did not provide a specific revenue or earnings forecast.
Risks include reliance on a single customer, limited-source suppliers, uncertain adoption and commercialization of its technology, capital-raising and going-concern risk, COVID-19-related supply and operational disruptions, and execution risk around strategic alternatives. MicroVision was pursuing a Hong Kong arbitration against Ragentek seeking $4.0 million plus interest and costs; it could not predict the likelihood of success. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether MicroVision secured additional financing or strategic transactions before its stated cash runway ended, and the outcome of the October 2020 authorized-share vote.
- Subsequent cash burn, operating reductions, and the company’s current going-concern assessment.
- Whether the sole customer continued royalty-bearing shipments and how quickly the $8.7 million contract liability was recognized.
- The amount and status of PPP loan forgiveness and repayment obligations.
- The status and potential financial effect of the Ragentek arbitration and any material supplier or COVID-19 disruptions.