MicroVision, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statements are unaudited. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless noted.
Business context and reporting period
MicroVision develops laser beam scanning (LBS) technology marketed as PicoP, for applications including interactive projection, sensing, automotive LiDAR, and augmented and mixed reality. After an OEM informed the company in February that products using its interactive display module would not launch in 2020, MicroVision cut headcount by approximately 60% and shifted near-term focus toward licensing its modules and technology. It is also exploring strategic alternatives, including a potential sale or merger.
In March, a major technology customer took over production of components MicroVision had been making. MicroVision will instead receive royalties on units shipped, applied against the customer’s remaining prepayment. The company also sold related fixed assets to the customer.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $1.469 million | $1.851 million; down 20.6% |
| Gross profit and margin | $0.070 million; 4.8% | $0.608 million; 32.8% |
| Operating expenses | $5.004 million | $8.672 million |
| Operating loss | $4.934 million | $8.064 million |
| Net loss | $4.934 million; $0.04 per share | $8.068 million; $0.08 per share |
| Cash used in operating activities | $5.437 million | $7.647 million |
| Cash and cash equivalents at quarter-end | $2.325 million | $5.837 million at Dec. 31, 2019 |
| Total assets / total liabilities | $6.904 million / $14.178 million | $11.836 million / $15.813 million at Dec. 31, 2019 |
| Shareholders’ deficit | $7.274 million | $3.977 million at Dec. 31, 2019 |
Product revenue rose to $1.247 million from $0.199 million, primarily due to shipments to a major technology customer. License and royalty revenue was $0.212 million, versus none in the prior-year quarter. Contract revenue fell to $0.010 million from $1.652 million after the major development contract was completed in 2019. Product costs exceeded product revenue, and the company recorded a $0.168 million inventory write-down. A $0.450 million gain on fixed-asset disposal reduced operating expenses.
Cash and cash equivalents plus restricted cash totaled $2.760 million at March 31. Investing activities provided $0.450 million, including $0.525 million from the asset sale; financing activities provided $1.475 million, principally from common stock issuance. Current assets were $3.290 million against current liabilities of $12.962 million. At quarter-end, operating and finance lease liabilities totaled $1.872 million and $0.028 million, respectively; the filing reports no other material borrowing outstanding at that date.
Material changes and outlook
- Research and development expense declined 38.3% to $3.683 million; sales, marketing, general and administrative expense fell 34.4% to $1.771 million. Management attributed the reductions mainly to lower personnel-related costs and, for R&D, lower materials and subcontractor costs.
- Management said available resources, including anticipated Lincoln Park stock-sale proceeds and the April 2020 Paycheck Protection Program (PPP) loan, were expected to fund operations through Q4 2020. Additional capital will be needed beyond then; financing availability and timing are uncertain. The filing states these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- In April, MicroVision received a $1.571 million PPP loan at 0.98% interest, with a 24-month term and possible forgiveness for qualifying uses. From after quarter-end through May 6, the company reported issuing 11.5 million additional shares and raising $6.2 million under its Lincoln Park purchase agreement. Shares outstanding were 142,552,628 on May 6, compared with 130,878,000 at March 31.
- Management expects significant losses in 2020. It did not provide quantified revenue or earnings guidance. It stated that successful licensing or sufficient fundraising could enable a focus on automotive LiDAR development.
Risks, contingencies and unusual items
- COVID-19 disruptions had affected supplier operations and shipments; further supply-chain interruptions, remote-work impacts, and difficulty raising capital, entering licensing agreements, or completing a strategic transaction could adversely affect the business.
- All Q1 revenue came from one customer, which also represented 100% of quarter-end accounts receivable. Product revenue backlog was zero; contract backlog was also zero at March 31, 2020.
- The company relies on single- or limited-source suppliers and third parties for manufacturing. Supplier disruption could delay deliveries, raise costs, or reduce revenue.
- Nasdaq listing compliance remained at risk. The filing describes extensions through August 24, 2020 for the minimum bid-price requirement and November 27, 2020 for the market-value requirement. Shareholder proposals included a reverse split and an increase in authorized shares.
- MicroVision is pursuing Hong Kong arbitration against Ragentek seeking $4.0 million plus interest and costs; the company said it could not predict the likelihood of a favorable outcome.
- The $9.271 million contract-liability balance primarily relates to a customer prepayment. Royalties are applied against the remaining prepayment, and timing of recognition of the remainder is uncertain.
Important facts for investors to verify
- Whether new licensing, product, or strategic-transaction agreements generate meaningful revenue and cash before the company’s stated Q4 2020 funding horizon.
- Actual cash burn, proceeds and share issuance under the Lincoln Park agreement, and the dilution and terms of any additional financing.
- Progress on Nasdaq bid-price and market-value compliance, and the outcome of shareholder votes on the reverse split and authorized-share proposal.
- Customer shipments, royalty reports, application of the customer prepayment, and the extent of customer and supplier concentration.
- Developments in COVID-19-related supply constraints, the Ragentek arbitration, and the PPP loan’s permitted use and potential forgiveness.