MicroVision, Inc. — 2016 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2016; fourth-quarter figures are also noted below. MicroVision develops and commercializes PicoP laser beam scanning technology for miniature projection, interactive displays and 3D sensing. Its strategy combines engine sales, technology licensing and component sales. Sony was its dominant commercial customer.
Financial performance and position
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $14.761 million | $9.188 million |
| Gross profit / gross margin | $4.387 million / 29.7% | $2.008 million / 21.9% |
| Operating loss | $16.458 million | $14.550 million |
| Net loss | $16.472 million | $14.542 million |
| Basic and diluted loss per share | $0.32 | $0.31 |
| Cash used in operating activities | $14.821 million | $5.827 million |
| Cash and cash equivalents at year-end | $15.139 million | $7.888 million |
| Working capital at year-end | $10.104 million | $3.371 million |
Revenue increased 61% year over year, primarily from higher component sales to Sony. Product revenue was $12.849 million (87% of total); royalty revenue was $1.803 million; contract revenue was $109,000. Research and development expense rose 40% to $12.134 million, and sales, marketing, general and administrative expense rose 11% to $8.743 million. The company reported $20.106 million in total assets and $12.632 million in total liabilities. The filing does not present a material conventional borrowing balance; long-term liabilities mainly include deferred revenue. Contractual long-term liability payments were $85,000.
Fourth quarter: Revenue was $2.905 million, gross profit $505,000, net loss $5.370 million and loss per share $0.09. In fourth-quarter 2015, revenue was $1.846 million, gross profit $379,000, net loss $4.298 million and loss per share $0.09.
Material changes versus the prior comparable period
- Annual revenue rose from $9.188 million to $14.761 million, while net loss widened from $14.542 million to $16.472 million.
- Product revenue nearly doubled to $12.849 million; the company completed delivery of its outstanding Sony product orders. Product-order backlog fell from $11.0 million at year-end 2015 to zero at year-end 2016.
- Ongoing Sony per-unit royalties increased; reported royalty revenue also included $1.0 million of the upfront license fee recognized over time.
- Operating cash use increased substantially. Financing provided $22.963 million, principally through equity offerings, and year-end cash rose by $7.251 million.
- Common shares outstanding increased from 47.423 million to 68.093 million during 2016, reflecting equity financing and other issuances.
Outlook, risks and unusual items
- Management expected a significant loss in 2017. Based on its operating plan and excluding additional proceeds from available stock-sale facilities, it estimated cash would fund operations into the third quarter of 2017; additional capital would be needed thereafter. Management and the auditor cited substantial doubt about the company’s ability to continue as a going concern.
- Planned engines included a small-form-factor display engine, an interactive display engine and a mid-range LiDAR engine. Display-engine samples began shipping in December 2016; management targeted mass-production readiness in Q2 2017. Interactive-engine samples were expected in Q2 2017 and production readiness in Q3; LiDAR samples were expected in the second half of 2017 and production readiness in the first half of 2018.
- Customer concentration is substantial: Sony accounted for 91% of 2016 revenue, compared with 98% in 2015. Product-order backlog was zero at year-end, while contract backlog was $942,000.
- Key risks include dependence on external and limited-source manufacturers, uncertain market adoption and long sales cycles, competition, continued operating losses, and the need for additional financing. The company had $6.4 million in open purchase obligations.
- A supplier arbitration claim seeks $3.6 million plus fees, interest and costs. MicroVision disputes the claim; the filing says the likelihood and range of potential loss cannot be predicted.
- In December 2016, the company raised approximately $15.1 million gross through two stock offerings. A separate Lincoln Park stock-purchase facility had up to $15.0 million remaining, subject to conditions, including a $1.00 minimum share price and a six-month issuance restriction following the December offering.
- The company disclosed $500,000 accrued for excess purchase commitments related to its SHOWWX pico projector. It also recorded $297,000 of additional depreciation in Q4 after revising the useful life of production equipment.
- A forthcoming revenue-accounting standard was expected to materially affect reported periods: the company anticipated recognizing the $8.0 million Sony upfront license payment in Q1 2015 under the new method, increasing 2015 revenue by $7.2 million and reducing 2016 revenue by $1.0 million.
Important facts for investors to verify
- Whether MicroVision obtained sufficient financing after the stated Q3 2017 cash runway, and on what terms and with what dilution.
- Whether the planned engines reached sampling and production milestones and generated repeat customer orders.
- Whether Sony-related component sales and royalties continued after the 2016 order backlog was exhausted, and whether customer concentration declined.
- The outcome and financial impact, if any, of the $3.6 million supplier arbitration claim.
- The actual effects of adopting the new revenue-recognition standard, including any retrospective adjustments.
The independent auditor issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting, while emphasizing the going-concern uncertainty.