10-Q 1 form10-q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________to _________

 

Commission file number 001-34170

 

 

MicroVision, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   91-1600822

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

18390 NE 68th Street

Redmond, Washington 98052

(Address of Principal Executive Offices, including Zip Code)

 

(425) 936-6847

(Registrant’s Telephone Number, including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class  

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value per share   MVIS   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ☒ NO ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES ☒ NO ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐ NO

 

The number of shares of the registrant’s common stock outstanding as of November 3, 2023 was 189,985,743.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
PART I. FINANCIAL INFORMATION  
   
Item 1. Financial Statements (unaudited) 3
Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 4
Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022 5
Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022 6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
Item 4. Controls and Procedures 27
   
PART II. OTHER INFORMATION  
   
Item 1. Legal Proceedings 27
Item 1A. Risk Factors 27
Item 5. Other information 36
Item 6. Exhibits 36
Signatures 37

 

2

 

 

PART I.

 

ITEM 1. FINANCIAL STATEMENTS

 

MicroVision, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

 

   September 30,   December 31, 
   2023   2022 
Assets          
Current assets          
Cash and cash equivalents  $49,366   $20,536 
Investment securities, available-for-sale   28,677    62,173 
Restricted cash, current   3,263    - 
Accounts receivable, net   740    - 
Inventory   3,616    1,861 
Advance to Ibeo   -    4,132 
Other current assets   5,765    2,306 
Total current assets   91,427    91,008 
           
Property and equipment, net   9,461    6,830 
Operating lease right-of-use asset   14,223    14,579 
Restricted cash   961    1,418 
Intangible assets, net   17,766    75 
Other assets   2,110    1,086 
Total assets  $135,948   $114,996 
           
Liabilities and shareholders’ equity          
Current liabilities          
Accounts payable  $2,294   $2,061 
Accrued liabilities   7,204    2,058 
Accrued liability for Ibeo business combination   6,118    - 
Contract liabilities   4,958    4,601 
Current portion of operating lease liability   2,432    1,846 
Current portion of finance lease obligations   2    21 
Other current liabilities   1,058    839 
Total current liabilities   24,066    11,426 
           
Operating lease liability, net of current portion   13,027    13,829 
Other long-term liabilities   597    - 
Total liabilities   37,690    25,255 
           
Commitments and contingencies (Note 10)   -      
           
Shareholders’ equity          
Preferred stock, par value $0.001; 25,000 shares authorized; no and no shares issued and outstanding   -    - 
Common stock, par value $0.001; 310,000 shares authorized; 189,829 and 170,503 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively   190    171 
Additional paid-in capital   843,975    772,221 
Subscriptions receivable   (323)   - 
Accumulated other comprehensive gain (loss)   45    (127)
Accumulated deficit   (745,629)   (682,524)
Total shareholders’ equity   98,258    89,741 
Total liabilities and shareholders’ equity  $135,948   $114,996 

 

The accompanying notes are an integral part of these financial statements.

 

3

 

 

MicroVision, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

                 
   2023   2022   2023   2022 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
                 
Revenue  $1,047   $-   $2,158   $664 
                     
Cost of Revenue   625    45    1,870    67 
                     
Gross profit   422    (45)   288    597 
                     
Research and development expense   15,584    7,535    42,127    22,828 
Sales, marketing, general and administrative expense   8,743    5,522    27,172    17,664 
Gain on disposal of fixed assets   (10)   -    (25)   - 
Total operating expenses   24,317    13,057    69,274    40,492 
                     
Loss from operations   (23,895)   (13,102)   (68,986)   (39,895)
                     
Bargain purchase gain, net of tax   -    -    1,706    - 
Other income   637    251    4,846    279 
                     
Net loss before taxes   (23,258)   (12,851)   (62,434)   (39,616)
                     
Income tax expense   (211)   -    (671)   - 
Net loss  $(23,469)  $(12,851)  $(63,105)  $(39,616)
                     
Net loss per share - basic and diluted  $(0.12)  $(0.08)  $(0.35)  $(0.24)
                     
Weighted-average shares outstanding - basic and diluted   188,306    165,687    180,156    165,167 

 

The accompanying notes are an integral part of these financial statements.

 

4

 

 

MicroVision, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

                 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
Net loss  $(23,469)  $(12,851)  $(63,105)  $(39,616)
                     
Other comprehensive loss:                    
Unrealized gain (loss) on investment securities, available-for-sale   22    (16)   117    (175)
Foreign currency translation adjustments   31    -    55    - 
Total comprehensive income (loss)   53    (16)   172    (175)
Comprehensive loss  $(23,416)  $(12,867)  $(62,933)  $(39,791)

 

The accompanying notes are an integral part of these financial statements.

 

5

 

 

MicroVision, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands)

(Unaudited)

 

                             
               Accumulated         
   Common Stock   Additional       other       Total 
       Par   paid-in   Subscriptions   comprehensive   Accumulated   shareholders’ 
   Shares   value   capital   receivable   loss   deficit   equity 
Balance at June 30, 2023   187,620   $188   $835,410   $     (925)  $        (8)  $(722,160)  $112,505 
Share-based compensation expense   411    -    4,343    -    -    -    4,343 
Exercise of options   11    -    7    -    -    -    7 
Sales of common stock, net   1,787    2    4,215    602    -    -    4,819 
Net loss   -    -    -    -    -    (23,469)   (23,469)
Other comprehensive loss   -    -    -    -    53    -    53 
Balance at September 30, 2023   189,829   $190   $843,975   $(323)  $45   $(745,629)  $98,258 
                                    
Balance at January 1, 2023   170,503   $171   $772,221   $-   $(127)  $(682,524)  $89,741 
Share-based compensation expense   1,410    1    10,769    -    -    -    10,770 
Exercise of options   191    -    175    -    -    -    175 
Sales of common stock, net   17,725    18    60,810    (323)   -    -    60,505 
Net loss   -    -    -    -    -    (63,105)   (63,105)
Other comprehensive income   -    -    -    -    172         172 
Balance at September 30, 2023   189,829   $190   $843,975   $(323)  $45   $(745,629)  $98,258 
                                    
Balance at June 30, 2022   165,438   $165   $750,311   $-   $(178)  $(656,198)  $94,100 
Share-based compensation expense   240    -    4,081    -    -    -    4,081 
Exercise of options   207    1    310    -    -    -    311 
Net loss   -    -    -    -    -    (12,851)   (12,851)
Other comprehensive loss   -    -    -    -    (16)   -    (16)
Balance at September 30, 2022   165,885   $166   $754,702   $-   $(194)  $(669,049)  $85,625 
                                    
Balance at January 1, 2022   164,363   $164   $742,042   $-   $(19)  $(629,433)  $112,754 
Share-based compensation expense   997    1    11,934    -    -    -    11,935 
Exercise of options   525    1    726    -    -    -    727 
Net loss   -    -    -    -    -    (39,616)   (39,616)
Other comprehensive loss   -    -    -    -    (175)   -    (175)
Balance at September 30, 2022   165,885   $166   $754,702   $-   $(194)  $(669,049)  $85,625 

 

The accompanying notes are an integral part of these financial statements.

 

6

 

 

MicroVision, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

         
   Nine Months Ended 
   September 30, 
   2023   2022 
Cash flows from operating activities          
Net loss  $(63,105)   (39,616)
           
Adjustments to reconcile net loss to net cash used in operations:          
Depreciation and amortization   6,288    1,425 
Bargain purchase gain, net of tax   (1,706)   - 
Gain on disposal of fixed assets   (25)   - 
Impairment of property and equipment   12    60 
Inventory write-downs   61    60 
Share-based compensation expense   11,506    11,935 
Net accretion of premium on short-term investments   (986)   290 
           
Change in:          
Accounts receivable   (740)   - 
Inventory   (619)   (42)
Other current and non-current assets   (3,214)   (662)
Accounts payable   896    (2,160)
Accrued liabilities   4,321    418 
Contract liabilities and other current liabilities   (1,405)   (386)
Operating lease liabilities   (1,813)   (938)
Other long-term liabilities   17    - 
Net cash used in operating activities   (50,512)   (29,616)
           
Cash flows from investing activities          
Sales of investment securities   61,700    34,700 
Purchases of investment securities   (27,101)   (63,726)
Cash paid for Ibeo business combination   (11,233)   - 
Purchases of property and equipment   (1,981)   (2,017)
Net cash provided by (used in) investing activities   21,385    (31,043)
           
Cash flows from financing activities          
Principal payments under finance leases   (19)   (20)
Principal payments under long-term debt   -    (392)
Proceeds from stock option exercises   175    727 
Net proceeds from issuance of common stock   60,607    - 
Net cash provided by financing activities   60,763    315 
           
Change in cash, cash equivalents, and restricted cash   31,636    (60,344)
Cash, cash equivalents, and restricted cash at beginning of period   21,954    83,739 
Cash, cash equivalents, and restricted cash at end of period  $53,590   $23,395 
           
Supplemental schedule of non-cash investing and financing activities          
Non-cash additions to property and equipment  $-   $645 
Amounts issued to escrow for acquisition consideration  $3,263   $- 
Acquisition of right-to-use asset  $1,294   $9,622 
Accrued financing fees  $101   $- 
Issuance of common stock for subscriptions receivable  $323   $- 
Foreign currency translation adjustments  $55   $- 
Unrealized loss on investment securities, available-for-sale  $117   $175 

 

The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of September 30, 2023 and December 31, 2022:

 

   September 30,   December 31, 
   2023   2022 
Cash and cash equivalents  $49,366   $20,536 
Restricted cash, current   3,263    - 
Restricted cash   961    1,418 
Cash, cash equivalents and restricted cash  $53,590   $21,954 

 

The accompanying notes are an integral part of these financial statements.

 

7

 

 

MicroVision, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. MANAGEMENT’S STATEMENT

 

The Condensed Consolidated Balance Sheets as of September 30, 2023, the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss and the Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022, and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022, have been prepared by MicroVision, Inc. (“we” or “our”) and have not been audited. In the opinion of management, all adjustments necessary to state fairly the financial position at September 30, 2023 and the results of operations and cash flows for all periods presented have been made and consist of normal recurring adjustments. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules of the Securities and Exchange Commission (SEC). The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. You should read these Condensed Consolidated financial statements in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the operating results that may be attained for the entire fiscal year.

 

We are developing lidar sensors and perception software to address the needs of the Level 2+, or L2+, and Level 3, or L3, advanced driver-assistance systems (ADAS) markets to be used in automotive safety and autonomous driving applications. Our micro-electromechanical systems, or MEMS-based high-speed lidar sensors, which we call MAVIN™, use our pioneering laser beam scanning (LBS) technology. Our solution-based development approach recognizes two key realities of the L2+ and L3 markets: that safety is mission critical and that OEMs require cost efficiency and integration adaptability. With these factors in mind, we believe that our best-in-class MAVIN lidar sensors support critical safety needs by providing the highest resolution at range and velocity of moving objects with a dynamic field of view while running at 30 hertz, thus enabling ADAS features, such as automatic emergency braking, forward collision warning, and automatic emergency steering, at higher speeds of operation than most competing products.

 

We completed the acquisition of Ibeo Automotive Systems GmbH (“Ibeo”) assets on January 31, 2023 pursuant to the terms and subject to the conditions of the Asset Purchase Agreement, dated December 1, 2022, and amended as of January 31, 2023, by and between our wholly owned subsidiary, MicroVision GmbH organized under the laws of The Federal Republic of Germany, and Ibeo for a purchase price of EUR 15.0 million, or approximately $16.3 million, subject to potential reduction on the terms set forth in the Asset Purchase Agreement. Pursuant to the Asset Purchase Agreement, the purchase price also included advanced funds to Ibeo so that it could continue its operations while in insolvency during the period between signing and closing. Specifically, we advanced to Ibeo EUR 3.9 million, or approximately $4.1 million in December 2022; EUR 2.7 million, or approximately $3.0 million in January 2023; and EUR 599,000, or approximately $650,000 in February 2023 shortly after the closing. These fund advances included amounts related to headcount reductions carried out by Ibeo management, decreasing the number of employees to transfer in connection with the acquisition to approximately 250 employees. These headcount reduction costs of EUR 2.3 million, or approximately $2.5 million, were reimbursed to MicroVision by way of deduction from the purchase price in accordance with the Asset Purchase Agreement.

 

We have incurred significant losses since inception. We have funded our operations to date primarily through the sale of common stock, convertible preferred stock, warrants, the issuance of convertible debt and, to a lesser extent, from development contract revenues, product sales and licensing activities.

 

At September 30, 2023, we had total liquidity of $78.0 million including $49.4 million in cash and cash equivalents and $28.7 million in short-term investment securities. Based on our current operating plan, we anticipate that we have sufficient cash and cash equivalents to fund our operations for at least the next 12 months. As of September 30, 2023, we have approximately $30.6 million available under the ATM agreement.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of MicroVision, Inc. and MicroVision GmbH. MicroVision GmbH is a wholly owned subsidiary of MicroVision, Inc. All material intercompany accounts and transactions have been eliminated in consolidation.

 

8

 

 

Foreign Currency Translation

 

The functional currency for our German operation is the Euro, which represents the currency of its primary economic environment. The results of operations for the German operation are translated from the local currency into U.S. dollars using the average exchange rates during each period. All assets and liabilities are translated using exchange rates at the end of each period, with foreign currency translation adjustments included as a component of other comprehensive loss. All equity transactions and certain assets are translated using historical rates. The consolidated financial statements are presented in U.S. dollars.

 

Segment Information

 

We determine operating segments based on how our chief operating decision maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. Our CODM is our Executive Management team, who reviews our operating results on a consolidated basis. We operate as one segment, which relates to sale and servicing of lidar hardware and software. The profitability of our product group is not a determining factor in allocating resources and the CODM does not evaluate profitability below the level of the consolidated company.

 

2. NET LOSS PER SHARE

 

Basic net loss per share is calculated using the weighted-average number of common shares outstanding during the period. Net loss per share, assuming dilution, is calculated using the weighted-average number of common shares outstanding and the dilutive effect of all potentially dilutive securities, including common stock equivalents and convertible securities. Net loss per share, assuming dilution, is equal to basic net loss per share because the effect of dilutive securities outstanding during the period, including options and warrants computed using the treasury stock method, is anti-dilutive.

 

The components of basic and diluted net loss per share were as follows (in thousands, except loss per share data):

 

 SCHEDULE OF BASIC AND DILUTED NET LOSS PER SHARE

   2023   2022   2023   2022 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
Numerator:                    
Net loss available for common shareholders - basic and diluted  $(23,469)  $(12,851)  $(63,105)  $(39,616)
Denominator:                    
Weighted-average common shares outstanding - basic and diluted   188,306    165,687    180,156    165,167 
                     
Net loss per share - basic and diluted  $(0.12)  $(0.08)  $(0.35)  $(0.24)

 

For the three and nine months ended September 30, 2023 and 2022, we excluded the following securities from net loss per share as the effect of including them would have been anti-dilutive: outstanding options exercisable into a total of 752,000 and 954,000 shares of common stock, respectively, and 10,323,000 and 9,591,000 nonvested restricted and performance stock units, respectively.

 

3. BUSINESS COMBINATION

 

On January 31, 2023, we completed the acquisition of certain net assets of Ibeo, a lidar hardware and software provider based in Hamburg, Germany. The purpose of the acquisition was to acquire certain Ibeo assets, intellectual property, and teams, which will enable us to expand our total addressable market and diversify our revenue profile.

 

Total consideration related to this transaction, subject to settlement of working capital adjustments, was approximately EUR 19.9 million or $21.6 million, consisting of approximately (i) EUR 7.0 million or $7.6 million in cash paid at closing, (ii) EUR 6.6 million or $7.1 million in cash advanced to Ibeo prior to closing, (iii) EUR 3.0 million or $3.3 million held in escrow for 13 months to be available to cover properly established claims by MicroVision, (iv) EUR 0.6 million or $0.7 million in costs paid on behalf of the seller, and (v) EUR 2.7 million or $2.9 million in cash held back at closing and to be offset by any working capital adjustments, which the parties continue to work through. The remaining balance of EUR 2.7 million will be paid once the seller has accepted and approved all the associated holdback calculations, which we expect to incur during the fourth quarter of 2023. In addition, we incurred $0.6 million of acquisition-related costs associated with the acquisition during the three months ended March 31, 2023, which were included in Sales, marketing, general and administrative expense.

 

9

 

 

The transaction has been accounted for as a business combination. The results of operations for the acquisition are included in our consolidated financial statements from the date of acquisition onwards.

 

The following table summarizes the preliminary purchase price allocation to assets acquired and liabilities assumed (in thousands):

 

 SCHEDULE OF RECOGNIZED IDENTIFIED ASSETS ACQUIRED AND LIABILITIES ASSUMED

       Weighted Average 
  Amount   Useful Life (in years) 
Purchase consideration:          
Cash paid at closing(1)  $8,245      
Cash in escrow(2)   3,263      
Holdback amount(3)   2,928      
Advances to Ibeo(4)   7,120      
Total purchase consideration  $21,556      
           
Inventory  $1,197      
Other current assets   703      
Operating lease right-of-use asset   234      
Property and equipment, net   5,330      
Intangible assets:          
Acquired technology   17,987    13 
Order backlog   26    1 
Contract liabilities   (1,178)     
Operating lease liabilities   (234)     
Deferred tax liabilities   (803)     
Total identifiable net assets  $23,262      
Bargain purchase gain(5)   (1,706)     

 

(1)Represents $7.6 million in cash paid at closing and $0.7 million in cash paid shortly after close.
(2)Recorded as restricted cash and accrued liability to Ibeo in our condensed consolidated balance sheet. Pursuant to the terms of the Asset Purchase Agreement, $3.3 million will be withheld from the Purchase Price and held in escrow for a maximum period of 13 months post-Closing as partial security for potential claims arising out of or in connection with the Asset Purchase Agreement.
(3)Recorded in accrued liability to Ibeo in our condensed consolidated balance sheet. Payment of this amount is pending review of holdback from the sellers.
(4)Represents $4.1 million and $3.0 million in cash advanced to Ibeo in December 2022 and January 2023, respectively.
(5)The bargain purchase gain represents the excess of the fair value of the underlying net assets acquired and liabilities assumed over the purchase consideration and is included in bargain purchase gain in the Condensed Consolidated Statement of Operations. The bargain purchase gain was attributable to the negotiation process with Ibeo during its insolvency proceedings resulting in cash consideration paid being less than the fair value of the net assets.

 

The estimated fair value of acquired technology was calculated through the income approach using the multi-period excess earnings and relief from royalty methodologies. The estimated fair value of the order backlog was calculated through the income approach using the multi-period excess earnings methodology.

 

The initial allocation of the purchase price was based on preliminary valuations and assumptions and is subject to change within the measurement period. We expect to finalize the allocation of the purchase price as soon as practicable and no later than one year from the acquisition date.

 

10

 

 

Supplemental Unaudited Pro Forma Information

 

The below unaudited pro forma financial information summarizes the combined results of operations for the Company and Ibeo as if the acquisition had been completed on January 1, 2022. The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2022 or the results of our future operations of the combined businesses. Nonrecurring pro forma adjustments include:

 

Recognition of the bargain purchase gain as if incurred in the first quarter of 2022;
   
Acquisition-related costs of $1.1 million are assumed to have been incurred on January 1, 2022.

 

The following table summarizes the unaudited pro forma results (in thousands):

 

 

   2023   2022   2023   2022 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
Total revenue  $1,047    63    2,707    5,580 
Net loss   (23,469)   (34,874)   (60,506)   (91,963)

 

4. REVENUE RECOGNITION

 

The following is a description of principal activities from which we generate revenue. Revenues are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We generate all of our revenue from contracts with customers.

 

We evaluate contracts based on the 5-step model as stated in Topic 606 as follows: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price, and (v) recognize revenue when (or as) performance obligations are satisfied.

 

A contract contains a promise (or promises) to transfer goods or services to a customer. A performance obligation is a promise (or a group of promises) that is distinct, as defined in the revenue standard.

 

The transaction price is the amount of consideration an entity expects to be entitled to from a customer in exchange for providing the goods or services. A number of factors should be considered to determine the transaction price, including whether there is variable consideration, a significant financing component, noncash consideration, or amounts payable to the customer. The determination of variable consideration will require a significant amount of judgment. In estimating the transaction price we will use either the expected value method or the most likely amount method.

 

The transaction price is allocated to the separate performance obligations in the contract based on relative standalone selling prices. Determining the relative standalone selling price can be challenging when goods or services are not sold on a standalone basis. The revenue standard sets out several methods that can be used to estimate a standalone selling price when one is not directly observable. Allocating discounts and variable consideration must also be considered. Allocating the transaction price can require significant judgement on our part.

 

Revenue is recognized when (or as) the customer obtains control of the good or service/performance obligations are satisfied. Topic 606 provides guidance to help determine if a performance obligation is satisfied at a point in time or over time. Where a performance obligation is satisfied over time, the related revenue is also recognized over time.

 

11

 

 

Disaggregation of revenue

 

The following table provides information about disaggregated revenue by timing of revenue recognition, (in thousands):

 

 

                 
   Three Months Ended September 30, 2023 
       License and         
   Product   royalty   Contract     
   revenue   revenue   revenue   Total 
Timing of revenue recognition:                    
Products transferred at a point in time  $1,047   $       -   $       -   $1,047 
Product and services transferred over time   -    -    -    - 
Total  $1,047   $-   $-   $1,047 

 

                 
   Nine Months Ended September 30, 2023 
       License and         
   Product   royalty   Contract     
   revenue   revenue   revenue   Total 
Timing of revenue recognition:                    
Products transferred at a point in time  $1,898   $      -   $-   $1,898 
Product and services transferred over time   -    -    260    260 
Total  $1,898   $-   $260   $2,158 

 

                 
    Three Months Ended September 30, 2022  
         License and           
    Product    royalty    Contract      
    revenue    revenue    revenue    Total 
Timing of revenue recognition:                    
Products transferred at a point in time  $-   $-   $-   $- 
Product and services transferred over time   -    -    -    - 
Total  $-   $-   $-   $- 

 

                 
   Nine Months Ended September 30, 2022 
       License and         
   Product   royalty   Contract     
   revenue   revenue   revenue   Total 
Timing of revenue recognition:                    
Products transferred at a point in time  $       -   $664   $         -   $664 
Product and services transferred over time   -    -    -    - 
Total  $-   $664   $-   $664 

 

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Contract balances

 

Under Topic 606, our rights to consideration are presented separately depending on whether those rights are conditional or unconditional. We present our unconditional rights to consideration as “accounts receivable” in our Balance Sheet.

 

Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands, except percentages):

 

 SCHEDULE OF CONTRACT WITH CUSTOMER, CONTRACT ASSET, CONTRACT LIABILITY, AND RECEIVABLE

   September 30,   December 31,         
   2023   2022   $ Change   % Change 
                 
Contract assets  $-   $-   $-    - 
Contract liabilities   4,958    4,601    357    7.8 
Net contract assets (liabilities)  $4,958   $4,601   $357    7.8 

 

In April 2017, we signed a contract with Microsoft Corporation to develop an LBS display system. Under the agreement, we received an upfront payment of $10.0 million. As of December 31, 2022, we had applied $5.4 million against the contract liability. During the three and nine months ended September 30, 2023, we applied $0 against the contract liability with this customer.

 

In connection with our January 2023 acquisition of assets from Ibeo, we assumed contract liabilities totaling approximately $1.2 million. During the three and nine months ended September 30, 2023, we recognized revenue totaling $787,000 and $926,000 respectively, against the contract liability.

 

Transaction price allocated to the remaining performance obligations

 

The $10.0 million upfront payment received from our customer as noted above was being recognized as revenue as component sales were transferred to the customer. Under the new arrangement reached in March 2020, the royalties we expect to earn will be applied against the remaining prepayment. Because we do not have information on projected future shipments by our customer, we are not able to estimate the timing of revenue recognition related to the remaining performance obligations; however, the underlying agreement is scheduled to expire on December 31, 2023. The $4.6 million contract liability at September 30, 2023 is classified as a current liability on our balance sheet. It is unclear at this time whether recognition of revenue may extend beyond the next twelve months.

 

The remaining balance of the contract liabilities assumed in our acquisition of assets from Ibeo was approximately $252,000 as of September 30, 2023.

 

The following table provides information about the estimated timing of revenue recognition (in thousands):

 

 SCHEDULE OF ESTIMATED TIMING OF REVENUE RECOGNITION

   Remainder of 2023   2024 
           
Revenue  $   347   $     - 

 

 

5. INVESTMENT SECURITIES, AVAILABLE-FOR-SALE AND FAIR VALUE MEASUREMENTS

 

Our investment securities, available-for-sale are comprised of corporate and government debt securities. The principal markets for the debt securities are dealer markets which have a high level of price transparency. The market participants for debt securities are typically large money center banks and regional banks, brokers, dealers, pension funds, and other entities with debt investment portfolios.

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the authoritative guidance establishes a three level fair value inputs hierarchy and requires an entity to maximize the use of observable valuation inputs and minimize the use of unobservable inputs. We use market data, assumptions and risks we believe market participants would use in measuring the fair value of the asset or liability, including the risks inherent in the inputs and the valuation techniques. The hierarchy is summarized below.

 

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Level 1 - Quoted prices in active markets for identical assets and liabilities at the measurement date that the reporting entity has the ability to access.

 

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 - Unobservable inputs for which there is little or no market data, which requires us to develop our own assumptions, which are significant to the measurement of the fair values.

 

The valuation inputs hierarchy classification for assets measured at fair value on a recurring basis are summarized below as of September 30, 2023 and December 31, 2022 (in thousands). These tables do not include cash held in our money market savings accounts.

 

  Level 1   Level 2   Level 3   Total 
As of September 30, 2023                    
Assets                    
Corporate debt securities  $   -   $9,215   $   -   $9,215 
U.S. Treasury securities   -    19,462    -    19,462 
   $-   $28,677   $-   $28,677 

 

  Level 1   Level 2   Level 3   Total 
As of December 31, 2022                    
Assets                    
Corporate debt securities  $   -   $15,500   $    -   $15,500 
U.S. Treasury securities   -    46,673    -    46,673 
   $-   $62,173   $-   $62,173 

 

Our short-term investments are summarized below as of September 30, 2023 and December 31, 2022 (in thousands).

 

               Investment 
   Cost/   Gross   Gross   Securities, 
   Amortized   Unrealized   Unrealized   Available- 
   Cost   Gains   Losses   For-Sale 
As of September 30, 2023                    
Assets                    
Corporate debt securities  $9,220   $         1   $       (6)  $9,215 
U.S. Treasury securities   19,468    -    (6)   19,462 
   $28,688   $1   $(12)  $28,677 

 

               Investment 
   Cost/   Gross   Gross   Securities, 
   Amortized   Unrealized   Unrealized   Available- 
   Cost   Gains   Losses   For-Sale 
As of December 31, 2022                    
Assets                    
Corporate debt securities  $15,538   $           -   $    (38)  $15,500 
U.S. Treasury securities   46,762    2    (91)   46,673 
   $62,300   $2   $(129)  $62,173 

 

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The maturities of the investment securities available-for-sale as of September 30, 2023 and December 31, 2022 are shown below (in thousands):

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Estimated 
   Cost   Gains   Losses   Fair Value 
As of September 30, 2023                    
Maturity date                    
Less than one year  $28,688   $         1   $    (12)  $28,677 
   $28,688             $28,677 

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Estimated 
   Cost   Gains   Losses   Fair Value 
As of December 31, 2022                    
Maturity date                    
Less than one year  $62,300   $        2   $   (129)  $62,173 
   $62,300             $62,173 

 

The following table summarizes investments that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for more than 12 months as of September 30, 2023 and December 31, 2022 (in thousands):

 

   Less than Twelve Months   Twelve Months or Greater   Total 
       Gross       Gross       Gross 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
As of September 30, 2023                              
Corporate debt securities  $2,988   $    (6)  $    -   $        -   $2,988   $      (6)
U.S. Treasury securities   12,570    (6)   -    -    12,570    (6)
   $15,558   $(12)  $-   $-   $15,558   $(12)

 

   Less than Twelve Months   Twelve Months or Greater   Total 
       Gross       Gross       Gross 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
As of December 31, 2022                              
Corporate debt securities  $12,295   $    (38)  $     -   $          -   $12,295   $     (38)
U.S. Treasury securities   34,530    (91)   -    -    34,530    (91)
   $46,825   $(129)  $-   $-   $46,825   $(129)

 

6. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS AND SUPPLIERS

 

Concentration of credit risk

 

Financial instruments that potentially subject us to a concentration of credit risk are primarily cash equivalents and investment securities. As of September 30, 2023, our cash and cash equivalents are comprised of operating checking accounts and short-term highly rated money market savings accounts. Our short-term investments are comprised of highly rated corporate bonds and U.S. Treasury securities.

 

Concentration of major customers and suppliers

 

For the three months ended September 30, 2023, one commercial customer accounted for $742,000 in revenue, representing 71% of our total revenue and a second commercial customer accounted for $78,000 in revenue, representing 8% of our total revenue. For the nine months ended September 30, 2023, one commercial customer accounted for $825,000 in revenue, representing 38% of our total revenue, a second commercial customer accounted for $364,000 in revenue, representing 17% of our total revenue, a third commercial customer accounted for $246,000 in revenue, representing 11% of our total revenue, and a fourth customer accounted for $206,000 in revenue, representing 10% of our total revenue. For the three and nine months ended September 30, 2022, one customer accounted for $0 and $664,000 in revenue, respectively, representing 100% of our total revenue for each period.

 

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Typically, a significant concentration of our components and the products we have sold are manufactured and obtained from single or limited-source suppliers. The loss of any single or limited-source supplier, the failure of any of these suppliers to perform as expected, or the disruption in the supply chain of components from these suppliers could subject us to risks and uncertainties including, but not limited to, increased cost of sales, possible loss of revenues, or significant delays in product development or product deliveries, any of which could adversely affect our financial condition and operating results.

 

7. FINANCIAL STATEMENT COMPONENTS

 

The following financial statement components changed significantly as a result of our January 2023 acquisition of assets from Ibeo.

 

Inventory

 

Inventory consists of the following:

 

 

   September 30,   December 31, 
(in thousands)  2023   2022 
Raw materials  $1,562   $1,556 
Work in process   305    305 
Finished goods   1,749    - 
Total inventory  $3,616   $1,861 

 

Inventory is computed using the first-in, first-out (FIFO) method and is stated at the lower of cost and net realizable value. Management periodically assesses the need to account for obsolescence of inventory and adjusts the carrying value of inventory to its net realizable value when required.

 

Property and equipment

 

Property and equipment consists of the following:

 

 

   September 30,   December 31, 
(in thousands)  2023   2022 
Production equipment  $6,140   $6,140 
Leasehold improvements   3,843    3,789 
Computer hardware and software/lab equipment   12,110    10,515 
Office furniture and equipment   5,196    1,804 
Property and equipment, gross    27,289    22,248 
Less: Accumulated depreciation   (17,828)   (15,418)
Property and equipment, net   $9,461   $6,830 

 

Depreciation expense was $1.1 million and $153,000 for the three months ended September 30, 2023 and 2022, respectively. Depreciation expense was $2.8 million and $533,000 for the nine months ended September 30, 2023 and 2022, respectively.

 

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Intangible assets

 

The components of intangible assets were as follows:

 

 

As of September 30, 2023  Gross       Net   Weighted 
   Carrying   Accumulated   Carrying   Average Remaining 
(in thousands)  Amount   Amortization   Amount   Period (Years) 
Acquired technology  $20,172   $2,415   $17,757       12 
Backlog   26    17    9    - 
   $20,198   $2,432   $17,766      

 

As of December 31, 2022  Gross       Net   Weighted 
   Carrying   Accumulated   Carrying   Average Remaining 
(in thousands)  Amount   Amortization   Amount   Period (Years) 
Acquired technology  $   951   $       876   $     75           4 
   $951   $876   $75      

 

Amortization expense was $573,000 and $10,000 for the three months ended September 30, 2023 and 2022, respectively. Amortization expense was $1.6 million and $30,000 for the nine months ended September 30, 2023 and 2022, respectively.

 

The following table outlines our estimated future amortization expense related to intangible assets held at September 30, 2023 by line item on the statement of operations (in thousands):

 

 

       Research and     
   Cost of   Development     
Years Ended December 31,  Revenue   Expense   Total 
2023  $387   $        179   $566 
2024   1,548    556    2,104 
2025   1,548    52    1,600 
2026   1,548    24    1,572 
Thereafter   11,924    -    11,924 
Total  $16,955   $811   $17,766 

 

8. SHARE-BASED COMPENSATION

 

We issue share-based compensation to employees in the form of stock options, restricted stock units (RSUs), and performance stock units (PSUs). We account for the share-based awards by recognizing the fair value of share-based compensation expense on a straight-line basis over the service period of the award, net of estimated forfeitures. The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model. The fair value of RSUs and non-executive PSUs is determined by the closing price of our common stock on the grant date or the period end date for the awards that are being measured by the service inception date. Changes in estimated inputs or using other option valuation methods may result in materially different option values and share-based compensation expense.

 

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The following table summarizes the amount of share-based compensation expense by line item on the statements of operations:

 

(in thousands)  2023   2022   2023   2022 
Share-based compensation expense  Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
(in thousands)  2023   2022   2023   2022 
Research and development expense  $2,194   $1,831   $4,438   $5,681 
Sales, marketing, general and administrative expense   2,497    2,250    7,068    6,254 
Total Share-based compensation expense  $4,691   $4,081   $11,506   $11,935 

 

Options activity and positions

 

The following table summarizes shares, weighted-average exercise price, weighted-average remaining contractual term and aggregate intrinsic value of options outstanding and options exercisable as of September 30, 2023:

 

           Weighted-     
       Weighted-   Average     
       Average   Remaining   Aggregate 
      Exercise   Contractual   Intrinsic 
Options  Shares   Price   Term (years)   Value 
Outstanding as of September 30, 2023   752,000   $1.35    4.9   $746,000 
                     
Exercisable as of September 30, 2023   752,000   $1.35    4.9   $746,000 

 

As of September 30, 2023, there is no unrecognized share-based employee compensation related to stock options.

 

Restricted stock activity and positions

 

The following table summarizes activity and positions with respect to RSUs and PSUs for the nine months ended September 30, 2023:

 

       Weighted-average 
   Shares   price 
Unvested as of December 31, 2022   8,866,000   $        3.85 
Granted   3,254,000   $4.02 
Vested   (1,374,000)  $7.86 
Forfeited   (423,000)  $8.09 
Unvested as of September 30, 2023   10,323,000   $3.19 

 

During the nine months ended September 30, 2023, we issued 2.6 million PSUs to non-executive employees subject to the achievement of development goals. These shares are liabilities subject to mark-to-market accounting as the number of shares was not fixed when issued. One-third of these shares will vest in connection with 2023 achievement of the milestones and the remaining two-thirds will vest over two years from June 30, 2023.

 

During the nine months ended September 30, 2023, we issued 106,000 shares for the partial achievement of internal performance milestones during the fourth quarter of 2022. These shares were valued based on the closing price of our common stock on the dates of grant and vest quarterly over two years. We had canceled 426,000 PSUs in the fourth quarter of 2022 related to the same internal performance milestones.

 

During the nine months ended September 30, 2023, we issued 408,000 time-based RSUs to non-executive employees for promotion, retention, and new hire grants. These shares were valued based on the closing price of our common stock on the dates of grant. These shares vest over three or four years from the date of grant.

 

During the nine months ended September 30, 2023, we issued 275,000  time-based RSUs to independent directors for annual equity compensation. These shares were valued based on the closing price of our common stock on the dates of grant. These shares vest quarterly, with the final installment vesting the earlier of the one year anniversary of the grant date or the day before the next annual meeting.

 

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As of September 30, 2023, our unrecognized share-based compensation related to RSUs was $6.6 million, which we plan to expense over the next 1.5 years. Our unrecognized share-based compensation related to the executive PSUs was $5.9 million, which we plan to expense over the next 2.0 years and our unrecognized share-based compensation related to the non-executive PSUs was $4.6 million, which we plan to expense over the next 1.1 years.

 

In June 2022, we issued 6.0 million PSUs to our executive officers. The PSUs are subject to the achievement of performance goals and time-based vesting. The PSUs will become eligible to vest if the closing price of our common stock reaches or exceeds specified price thresholds for at least 20 consecutive trading days during the performance period through December 31, 2025. If the performance goals are met, the portion of the PSUs deemed earned will become subject to time-based vesting in equal quarterly installments over two years starting from the date on which the goal is achieved. These PSUs were valued using a Monte Carlo simulation model using the following inputs: stock price, volatility, and risk-free interest rates.

 

During the nine months ended September 30, 2022, we issued 2.4 million PSUs to non-executive employees subject to the achievement of development goals. These shares were valued based on the closing price of our common stock on the dates of grant. These shares vest quarterly over two years from the achievement of established performance criteria.

 

During the nine months ended September 30, 2022, we issued 511,000 time-based RSUs to non-executive employees for promotion, retention, and new hire grants. These shares were valued based on the closing price of our common stock on the dates of grant. These shares vest over three or four years from the date of grant.

 

9. LEASES

 

We lease our office space and certain equipment under finance and operating leases. Our leases have remaining lease terms of one to ten years. Our office lease agreement includes both lease and non-lease components, which are accounted for separately. Our finance leases contain options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless we are reasonably certain to exercise the purchase option.

 

In September 2021, we entered into an office lease with Redmond East Office Park LLC, a Washington limited liability company, pursuant to which we will lease approximately 16,681 square feet of space located in Redmond, Washington that we will use primarily for general office space. The lease provides for an initial term of 128 months that commenced November 1, 2021. Pursuant to the lease, annual base rent was approximately $500,000 for the first year and is subject to annual increases of 3.0%. In addition to base rent, we pay additional rent comprised of our proportionate share of any operating expenses, real estate taxes, and management fees. We have the option to extend the term for one ten-year renewal period, provided that the rent would be subject to market adjustment at the beginning of the renewal term. The total minimum lease payments related to this lease is $6.4 million.

 

In September 2021, we entered into a second office lease with Redmond East Office Park LLC, pursuant to which we will lease approximately 36,062 square feet of space located in Redmond, Washington that we will use primarily for product testing and lab space. The lease provides for an initial term of 120 months that commenced on December 1, 2022. Pursuant to the lease, annual base rent will be approximately $1.1 million for the first year and is subject to annual increases of 3.0%. In addition to base rent, we will pay additional rent comprised of our proportionate share of any operating expenses, real estate taxes, and management fees. We have the option to extend the term for one ten-year renewal period, provided that the rent would be subject to market adjustment at the beginning of the renewal term. The total minimum lease payments related to this lease are $13.0 million. During the quarter ended June 30, 2023, we received a payment of $3.0 million as an incentive to terminate our previous building lease. The gain is recorded as other income in our statement of operations.

 

In April 2022, we entered into an office lease with Universal-Investment-Gesellschaft mbH, a German investment company, pursuant to which we lease approximately 3,533 square feet of space located in Nuremberg, Germany that we use primarily for product testing for engineering and development activities. The lease provides for a term of 60 months that commenced May 1, 2022. Pursuant to the lease, annual base rent is approximately $76,000 per year. The total minimum lease payments related to this lease is approximately $380,000.

 

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In September 2022, we entered into a second office lease with Universal-Investment-Gesellschaft mbH, a German investment company, pursuant to which we lease approximately 3,810 square feet of space located in Nuremberg, Germany that we use primarily for general office space for business development activities. The lease provides for a term of 60 months that commenced November 15, 2022. Pursuant to the lease, annual base rent is approximately $92,000 per year. The total minimum lease payments related to this lease is approximately $461,000.

 

In connection with our January 2023 acquisition of assets from Ibeo, we assumed three leases in Hamburg, Germany. One lease is with IntReal International Real Estate Kapitalverwaltungsgesellschaft and covers approximately 5,511 square feet of space for IT network equipment through December 31, 2026. Pursuant to the lease, annual base rent is approximately $65,000 per year. The total remaining minimum lease payments related to this lease are approximately $259,000. During the quarter ended March 31, 2023, we recorded a right-of-use asset in the amount of $234,000 on our balance sheet. A second lease is with Neuer Holtigbaum and covers approximately 32,529 square feet of office space and long-range laser testing space through August 2023. During the quarter ended September 30 2023, we amended this lease and extended until August 2024. The total remaining minimum lease payments related to this lease are approximately $190,000. The third lease is with BG BAU Berufsgenossenschaft der Bauwirtschaft and covers approximately 13,127 square feet of garage space to house our test and demonstration vehicles through July 31, 2024. The total remaining minimum lease payments related to this lease are approximately $146,000.

 

The components of lease expense were as follows:

 

(in thousands)  2023   2022   2023   2022 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
(in thousands)  2023   2022   2023   2022 
Operating lease expense  $667   $365   $1,949   $865 
Finance lease expense:                    
Amortization of leased assets   6    6    19    19 
Interest on lease liabilities   -    1    1    2 
Total finance lease expense   6    7    20    21 
Total lease expense  $673   $372   $1,969   $886 

 

Supplemental cash flow information related to leases was as follows:

 

(in thousands)  2023   2022 
   Nine Months Ended 
   September 30, 
(in thousands)  2023   2022 
Cash paid for amounts included in measurement of lease liabilities:        
Operating cash flows from operating leases  $1,813    938 
Operating cash flows from finance leases   1    2 
Financing cash flows from finance leases   19    20 

 

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Supplemental balance sheet information related to leases was as follows:

 

   September 30,   December 31, 
(in thousands)  2023   2022 
Operating leases          
Operating lease right-of-use assets  $14,223   $14,579 
           
Current portion of operating lease liability   2,432    1,846 
Operating lease liability, net of current portion   13,027    13,829 
Total operating lease liabilities  $15,459   $15,675 
           
Finance leases          
Property and equipment, at cost  $112   $112 
Accumulated depreciation   (93)   (80)
Property and equipment, net  $19   $32 
           
Current portion of finance lease obligations  $2   $21 
Finance lease obligations, net of current portion   -    - 
Total finance lease liabilities  $2   $21 
           
Weighted Average Remaining Lease Term          
Operating leases   8.7 years    9.6 years 
Finance leases   0.1 years    0.8 years 
           
Weighted Average Discount Rate          
Operating leases   4.6%   4.6%
Finance leases   5.6%   6.3%

 

As of September 30, 2023, maturities of lease liabilities were as follows:

 

(in thousands)  Operating   Finance 
Years Ended December 31,  leases   leases 
2023  $642   $2 
2024   2,340        - 
2025   2,003    - 
2026   2,023    - 
Thereafter   11,631    - 
Total minimum lease payments   18,639    2 
Less: amount representing interest   (3,180)   - 
Present value of capital lease liabilities  $15,459   $2 

 

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10. COMMITMENTS AND CONTINGENCIES

 

Purchase commitments

 

During the quarter ended September 30, 2023, we entered into a $12.3 million purchase commitment with a contract manufacturing partner for the production of MOVIA sensor inventory to support direct sales to both automotive and non-automotive customers. We made a payment of $3.1 million during the third quarter and expect to make the remaining future payments by the end of the second quarter of 2024 based on an agreed sensor delivery schedule.

 

Litigation

 

We are subject to various claims and pending or threatened lawsuits in the normal course of business. We are not currently party to any legal proceedings that management believes are reasonably possible to have a material adverse effect on our financial position, results of operations or cash flows.

 

11. COMMON STOCK

 

In June 2021, we entered into a $140.0 million ATM equity offering agreement with Craig-Hallum. Under the agreement we are able, at our discretion, to offer and sell shares of our common stock having an aggregate value of up to $140.0 million through Craig-Hallum. As of December 31, 2022, we had issued 8.3 million shares of our common stock for net proceeds of $81.8 million under this ATM agreement. During the quarter ended March 31, 2023, we issued 5.0 million shares of our common stock for net proceeds of $12.5 million under the agreement. The sales agreement was terminated in June 2023.

 

In June 2023, we entered into a $45.0 million ATM equity offering agreement with Craig-Hallum. Under the agreement, we are able, at our discretion, to offer and sell shares of our common stock having an aggregate value of up to $45.0 million through Craig-Hallum. As of June 30, 2023, we had completed sales under such sales agreement, having sold 10.9 million shares for net proceeds of $43.9 million. No further shares are available for sales under this agreement.

 

In August 2023, we entered into a $35.0 million ATM equity offering agreement with Craig-Hallum. Under the agreement, we are able, at our discretion, to offer and sell shares of our common stock having an aggregate value of up to $35.0 million through Craig-Hallum. As of September 30, 2023, we had completed sales under such sales agreement, having sold 1.8 million shares for net proceeds of $4.2 million. As of September 30, 2023, we had issued 150,000 shares of our common stock for net proceeds of $323,000 that was received in October 2023. The $323,000 is classified as subscriptions receivable on our September 30, 2023 balance sheet and is not included in the cash balance as of September 30, 2023. As of September 30, 2023, we have approximately $30.6 million available under this ATM agreement.

 

12. INCOME TAXES

 

We recognized income tax expense of $211,000 and $0 during the quarters ended September 30, 2023 and 2022, respectively. The income tax expense for the nine months ended September 30, 2023 was largely the result of income in foreign jurisdictions, partially offset by a deferred income tax benefit generated by the reduction to a deferred tax liability created as a result of the acquisition of Ibeo assets in Q1 2023. The change in income tax expense during the quarter ended September 30, 2023 was largely the result of profitability in our foreign jurisdictions related to the Ibeo acquisition.

 

As of September 30, 2023, we continue to have no unrecognized tax positions.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-looking statements

 

The information set forth in this report in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 3, “Quantitative and Qualitative Disclosures about Market Risk,” includes “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is subject to the safe harbor created by those sections. Such statements may include, but are not limited to, projections of revenues and expenses, and measures of income or loss, status of product development and performance, market opportunity and future demand, partner and customer engagement, strategic plans, future operations, financing needs or plans of MicroVision, Inc. (“we,” “our,” or “us”), as well as assumptions relating to the foregoing. The words “anticipate,” “could,” “believe,” “estimate,” “expect,” “goal,” “may,” “plan,” and similar expressions identify forward-looking statements. Factors that could cause actual results to differ materially from those projected in our forward-looking statements include risk factors identified below in Item 1A.

 

Overview

 

MicroVision, Inc. is a global developer of lidar hardware and software solutions focused primarily on automotive lidar and advanced driver-assistance systems (ADAS) markets where we can deliver safe mobility at the speed of life. We develop a suite of light detection and ranging, or lidar, sensors and perception and validation software for sale to the automotive market for ADAS and autonomous vehicle (AV) applications, as well as to complementary markets for non-automotive applications including industrial, robotics and smart infrastructure. Our long history of developing and commercializing the core components of our lidar hardware and related software, combined with the experience of the team recently acquired from Ibeo Automotive Systems (Ibeo) with automotive-grade qualification, provides a potentially compelling advantage over the less-experienced recent entrants into this market.

 

Founded in 1993, MicroVision, Inc. is a pioneer in laser beam scanning, or LBS, technology, which is based on our patented expertise in micro-electromechanical systems, or MEMS, laser diodes, opto-mechanics, electronics, algorithms and software and how those elements are packaged into a small form factor. Throughout our history, we have combined our proprietary technology with our development expertise to create innovative solutions to address existing and emerging market needs, such as augmented reality microdisplay engines; interactive display modules; consumer lidar components; and, most recently, automotive lidar sensors and software solutions for the automotive market.

 

On January 31, 2023, we completed the acquisition of certain assets of Ibeo Automotive Systems GmbH, which was founded in 1998 as a lidar hardware and software provider. Ibeo developed and launched the first lidar sensor to be automotive qualified for serial production with a Tier 1 automotive supplier and that is currently available in passenger cars by premium OEMs. Ibeo developed software solutions, including perception and validation software, which are also used by premium OEMs. In addition, Ibeo sold its products for non-automotive uses such as industrial, smart infrastructure and robotics applications.

 

For the automotive market, our integrated solution combines our MEMS-based dynamic-range lidar sensor and perception software, to be integrated on our custom ASIC, targeted for sale to premium automotive OEMs and Tier 1 automotive suppliers. We believe that our MEMS-based lidar sensor, or MAVIN sensor, and perception software demonstrates best-in-class features and performance that exceed market expectations and outperform competitive products. Our ADAS solution is intended to leverage edge computing and custom ASICs to enable our hardware and perception software to be integrated into an OEM’s ADAS stack.

 

In addition to our dynamic-range and long-range MAVIN sensor and perception software solution for the automotive market, our product suite includes our short-range flash-based MOVIA lidar sensor, for automotive and industrial applications, including smart infrastructure, robotics, and other commercial segments. Also, our validation software tool, the MOSAIK suite, is used by OEMs and other customers including Tier 1s for validating vehicle sensors for ADAS and AV applications. The tool includes software that automates the manual data classification or annotation process, significantly reducing the time and resources required by OEMs to validate their ADAS and AV systems.

 

In the recent past, we developed micro-display concepts and designs for use in head-mounted augmented reality, or AR, headsets and developed a 1440i MEMS module supporting AR headsets. We also developed an interactive display solution targeted at the smart speakers market and a small consumer lidar sensor for use indoors with smart home systems.

 

Although our development and productization efforts are now solely focused on our lidar sensors and related software solutions, our revenue in the fiscal year ended December 31, 2022 was derived from one customer, Microsoft Corporation, related to components that we developed for a high-definition display system. Our arrangement with this customer generates royalty income; however, the volume of sales and resulting royalties from that arrangement are not significant.

 

We have been unable to secure the customers needed to successfully launch our products. We have incurred substantial losses since inception, and we expect to incur a significant loss during the fiscal year ending December 31, 2023.

 

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Key accounting policies and estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that materially affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. We evaluate our estimates on a continuous basis. We base our estimates on historical data, terms of existing contracts, our evaluation of trends in the consumer display and 3D sensing industries, information provided by our current and prospective customers and strategic partners, information available from other outside sources and on various other assumptions we believe to be reasonable under the circumstances. The results form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Except for changes in accounting for business combinations associated with our acquisition of Ibeo assets, there have been no significant changes to our critical accounting judgments, policies, and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2022.

 

Results of operations

 

Revenue

 

(in thousands)  2023   2022   $ change   % change 
Three Months Ended September 30,  $1,047   $-   $1,047    - 
Nine Months Ended September 30,   2,158    664    1,494    225.0 

 

Revenues are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We recognize revenue either at a point in time, or over time, depending upon the characteristics of the individual contract. If control of the deliverable(s) occur over time, the revenue is recognized in proportion to the transfer of control. If control passes to the customer only upon completion and transfer of the asset, revenue is recognized at the completion of the contract.

 

The increase in revenue for the three and nine months ended September 30, 2023 compared to the same period in 2022 was predominately due to software sales, but also included sales of lidar sensors, with sales to various customers as well as, activity on contracts obtained in the acquisition of Ibeo assets.

 

Cost of revenue

 

       % of       % of         
       product       product         
(in thousands)  2023   revenue   2022   revenue   $ change   % change 
Three Months Ended September 30,  $625    59.7   $45    -   $580    1,288.9 
Nine Months Ended September 30,   1,870    86.7    67    10.1    1,803    2,691.0 

 

Cost of revenue includes the direct and allocated indirect costs of products and services sold to customers. Direct costs include labor, materials, reserves for estimated warranty expenses, and other costs incurred directly, or charged to us by our contract manufacturers, in the manufacture of these products. Indirect costs include labor, overhead, and other costs associated with operating our manufacturing capabilities and our research and development department. Overhead includes the costs of procuring, inspecting and storing material, facility and other costs, and is allocated to cost of revenue based on the proportion of indirect labor which supported revenue activities.

 

Cost of revenue can fluctuate significantly from period to period, depending on the product mix and volume, the level of overhead expense and the volume of direct material purchased. The increase in cost of revenue for the three and nine months ended September 30, 2023 compared to the same period in 2022 was due to increased contract activity and the amortization of intangible assets obtained in the acquisition of Ibeo assets.

 

Research and development expense

 

(in thousands)  2023   2022   $ change   % change 
Three Months Ended September 30,  $15,584   $7,535   $8,049    106.8 
Nine Months Ended September 30,   42,127    22,828    19,299    84.5 

 

Research and development expense consists of compensation related costs of employees and contractors engaged in internal research and product development activities, direct material to support development programs, laboratory operations, outsourced development and processing work, and other operating expenses. We assign our research and development resources based on the business opportunity of the available projects, the skill mix of the resources available and the contractual commitments we have made to our customers. We believe that a substantial level of continuing research and development expense will be required to further develop our scanning technology.

 

The increase in research and development expense during the three months ended September 30, 2023 compared to the same period in 2022 was primarily due to higher salary and benefits expenses of approximately $5.5 million mostly related to transferred employees in the acquisition of Ibeo assets, increase is purchased services of $1.4 million, a higher depreciation of $525,000 and increase in non-cash share-based compensation of $363,000. The increase in research and development expense during the nine months ended September 30, 2023 compared to the same period in 2022 was primarily due to higher salary and benefits expenses of $16.3 million mostly related to transferred employees in the acquisition of Ibeo assets, a higher depreciation of $2.1 million and an increase in purchased services of $926,000.

 

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Sales, marketing, general and administrative expense

 

(in thousands)  2023   2022   $ change   % change 
Three Months Ended September 30,  $8,743   $5,522   $3,221    58.3 
Nine Months Ended September 30,   27,172    17,664    9,508    53.8 

 

Sales, marketing, general and administrative expense includes compensation and support costs for marketing, sales, management and administrative staff, and for other general and administrative costs, including legal and accounting services, consultants and other operating expenses.

 

The increase in sales, marketing, general and administrative expense during the three months ended September 30, 2023 compared to the same period in 2022 was primarily attributed to higher salary and benefits expenses of approximately of $1.7 million mostly related to transferred employees in the acquisition of Ibeo assets, increased professional fees of approximately $282,000, increased purchased services of $271,000, higher advertising expenses of $272,000 and increased non-cash share-based compensation expense of approximately $247,000. The increase in sales, marketing, general and administrative expense during the nine months ended September 30, 2023 compared to the same period in 2022 was primarily attributed to higher salary and benefits expenses of approximately $4.5 million mostly related to transferred employees in the acquisition of Ibeo assets, increased professional fees of approximately $1.7 million, increased depreciation expense of $846,000, increased non-cash share-based compensation expense of $814,000, increased purchased services of $577,000 and higher advertising expenses of $316,000.

 

Bargain purchase gain, net of tax

 

(in thousands)  2023   2022   $ change   % change 
Three Months Ended September 30,  $-   $-   $-       - 
Nine Months Ended September 30,   1,706    -    1,706    -