MicroVision(MVIS) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Presents unaudited condensed financial statements for Q1 2020, including balance sheets, operations, equity, and cash flows with explanatory notes Condensed Balance Sheets Highlights the company's financial position, showing assets, liabilities, and equity changes between December 2019 and March 2020 Condensed Balance Sheet Highlights (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :----------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $2,325 | $5,837 | | Total current assets | $3,290 | $7,837 | | Total assets | $6,904 | $11,836 | | Total current liabilities | $12,962 | $14,456 | | Total liabilities | $14,178 | $15,813 | | Total shareholders' equity (deficit) | $(7,274) | $(3,977) | - Total assets decreased by approximately 41.6% from $11.8 million at December 31, 2019, to $6.9 million at March 31, 2020[12] - Shareholders' equity (deficit) worsened from $(3.98) million at December 31, 2019, to $(7.27) million at March 31, 2020[12] Condensed Statements of Operations Details revenue, expenses, and net loss for Q1 2020 and 2019, reflecting operational performance Condensed Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change ($) | Change (%) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Product revenue | $1,247 | $199 | $1,048 | 526.6% | | License and royalty revenue | $212 | $- | $212 | - | | Contract revenue | $10 | $1,652 | $(1,642) | (99.4%) | | Total revenue | $1,469 | $1,851 | $(382) | (20.6%)| | Total cost of revenue | $1,399 | $1,243 | $156 | 12.6% | | Gross profit | $70 | $608 | $(538) | (88.5%) | | Research and development expense | $3,683 | $5,973 | $(2,290) | (38.3%) | | Sales, marketing, general and admin | $1,771 | $2,699 | $(928) | (34.4%) | | Total operating expenses | $5,004 | $8,672 | $(3,668) | (42.3%) | | Net loss | $(4,934) | $(8,068) | $3,134 | (38.8%) | | Net loss per share - basic and diluted | $(0.04) | $(0.08) | $0.04 | (50.0%) | - Net loss decreased by 38.8% from $(8.07) million in Q1 2019 to $(4.93) million in Q1 2020, primarily due to a significant reduction in operating expenses[14] - Gross profit declined by 88.5% despite an increase in product and license revenue, due to a sharp decrease in high-margin contract revenue[14] Condensed Statements of Shareholders' Equity (Deficit) Outlines changes in shareholders' equity, including stock transactions and accumulated deficit, for Q1 2020 and 2019 Shareholders' Equity (Deficit) Changes (in thousands) | Metric | Balance at Jan 1, 2020 | Share-based compensation expense | Sales of common stock | Net loss | Balance at Mar 31, 2020 | | :----------------------- | :--------------------- | :------------------------------- | :-------------------- | :------- | :---------------------- | | Common Stock (Shares) | 125,803 | - | 5,075 | - | 130,878 | | Common Stock (Par value) | $126 | - | $5 | - | $131 | | Additional paid-in capital | $568,496 | $156 | $1,476 | - | $570,128 | | Accumulated deficit | $(572,599) | - | - | $(4,934) | $(577,533) | | Total shareholders' equity (deficit) | $(3,977) | $156 | $1,481 | $(4,934) | $(7,274) | - The accumulated deficit increased by $4.93 million during Q1 2020 due to the net loss incurred[17] - Sales of common stock contributed $1.48 million to additional paid-in capital during Q1 2020[17] Condensed Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for Q1 2020 and 2019 Condensed Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(5,437) | $(7,647) | | Net cash provided by (used in) investing activities | $450 | $(313) | | Net cash provided by financing activities | $1,475 | $1,173 | | Change in cash, cash equivalents, and restricted cash | $(3,512) | $(6,787) | | Cash, cash equivalents, and restricted cash at end of period | $2,760 | $7,414 | - Net cash used in operating activities decreased by $2.21 million (28.9%) in Q1 2020 compared to Q1 2019, primarily due to reduced operating expenses[20][94] - Investing activities shifted from using $313,000 cash in Q1 2019 to providing $450,000 in Q1 2020, driven by proceeds from the sale of property and equipment[20][95] Notes to Condensed Financial Statements Provides detailed explanations of accounting policies, significant events, and financial instrument details, including going concern status and revenue recognition 1. MANAGEMENT'S STATEMENT Addresses the company's going concern status, strategic shift, and near-term funding expectations - The company has incurred significant losses since inception and faces substantial doubt regarding its ability to continue as a going concern[23][27] - An OEM informed the company that products using its interactive display module would not launch in 2020 as planned, leading to a 60% headcount reduction and a strategic shift to licensing module products and technology, or exploring a potential sale/merger[23] - With current operating plans, including anticipated proceeds from Lincoln Park and a PPP loan, the company expects to fund operations through Q4 2020 but will require additional capital thereafter[25] 2. NET LOSS PER SHARE Presents the calculation of net loss per share for Q1 2020 and 2019, considering common shares outstanding Net Loss Per Share Data (in thousands, except loss per share) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss available for common shareholders | $(4,934) | $(8,068) | | Weighted-average common shares outstanding | 127,214 | 101,971 | | Net loss per share - basic and diluted | $(0.04) | $(0.08) | - Dilutive securities (options and warrants) were anti-dilutive and thus excluded from net loss per share calculations for both periods[29][30] 3. LONG-TERM CONTRACTS Details changes in long-term contracts, including a shift to a royalty model and prepayment application - In March 2020, the company entered an agreement for a major technology customer to take over production of components, shifting from component sales to a royalty model[31] - Royalties earned will be applied against the remaining $9.3 million prepayment received from the customer until exhausted[31] - The original April 2017 contract for LBS display system development totaled $15.1 million in fees, with $15.0 million recognized as of December 31, 2019[31] 4. REVENUE RECOGNITION Explains the company's revenue recognition policies and disaggregates revenue by timing of transfer - Revenue is recognized when control of promised goods or services is transferred to customers, following the 5-step model of Topic 606[32][33] Disaggregated Revenue by Timing of Recognition (in thousands) | Revenue Type | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Products transferred at a point in time | $1,463 | $215 | | Product and services transferred over time | $6 | $1,636 | | Total | $1,469 | $1,851 | - Contract liabilities decreased by 7.1% from $10.2 million at December 31, 2019, to $9.49 million at March 31, 2020[41] Estimated Future Revenue from Remaining Performance Obligations (in thousands) | Revenue Type | Remainder of 2020 | | :---------------------- | :---------------- | | License and royalty revenue | $1,375 | | Contract revenue | $15 | 5. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS AND SUPPLIERS Identifies significant customer and supplier concentrations and associated risks - For the three months ended March 31, 2020, one customer accounted for 100% of total revenue ($1.5 million) and 100% of net accounts receivable ($552,000)[46] - The company relies on single or limited-source suppliers for a significant concentration of components, posing risks of increased costs, lost revenues, or delivery delays[48] 6. INVENTORY Provides a breakdown of inventory and details any write-downs for the period Inventory Breakdown (in thousands) | Inventory Type | March 31, 2020 | December 31, 2019 | | :------------- | :------------- | :---------------- | | Raw materials | $- | $- | | Finished goods | $- | $192 | | Total | $- | $192 | - Inventory write-downs of $168,000 were recorded during the three months ended March 31, 2020[51] 7. SHARE-BASED COMPENSATION Reports share-based compensation expense and unrecognized amounts for stock options, RSUs, and PSUs Share-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of product revenue | $- | $1 | | Research and development expense | $39 | $123 | | Sales, marketing, general and admin | $150 | $227 | | Total | $189 | $351 | - Total share-based compensation expense decreased by 46.2% from $351,000 in Q1 2019 to $189,000 in Q1 2020[53] - As of March 31, 2020, unrecognized share-based compensation totaled $791,000 for stock options, $240,000 for RSUs, and $12,000 for PSUs, to be amortized over 1.3 to 1.8 years[54] 8. LEASES Details lease accounting adoption, lease expenses, and future lease liability maturities - The company adopted ASU 2016-02 (Topic 842) on January 1, 2019, recognizing an operating ROU asset of $1.6 million and a lease liability of $2.5 million, with no material impact on the Statement of Operations or Cash Flows[55] Lease Expense (in thousands) | Expense Type | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :----------------------- | :-------------------------------- | :-------------------------------- | | Operating lease expense | $116 | $116 | | Finance lease expense | $6 | $5 | | Total lease expense | $122 | $121 | Lease Liabilities Maturities as of March 31, 2020 (in thousands) | Year | Operating Leases | Finance Leases | | :--- | :--------------- | :------------- | | 2020 | $496 | $21 | | 2021 | $676 | $9 | | 2022 | $696 | $- | | 2023 | $175 | $- | | Total minimum lease payments | $2,043 | $30 | 9. COMMITMENTS AND CONTINGENCIES Outlines legal proceedings, including an arbitration case, and other potential financial impacts - The company filed a Notice of Arbitration in Hong Kong against Ragentek in March 2019, seeking $4.0 million plus interest and arbitration costs for failure to perform purchase order obligations[59] - Management believes no other current legal proceedings are reasonably possible to have a material adverse effect on financial position, results of operations, or cash flows[60] 10. COMMON STOCK Describes common stock transactions, including agreements for future stock sales and capital raised - In December 2019, the company entered a Common Stock Purchase Agreement with Lincoln Park Capital Fund, LLC, allowing the sale of up to $16.0 million in common stock over 24 months[61] - As of March 31, 2020, the company issued 7.0 million shares and raised $2.4 million under the Lincoln Park agreement[61] - In January 2019, the company raised $1.2 million (before costs) through a registered direct offering of 2.0 million common shares to a private investor[62] 11. SUBSEQUENT EVENTS Discloses significant events occurring after the reporting period, such as PPP loans and further stock sales - In April 2020, the company received a $1,570,881 loan under the Paycheck Protection Program (PPP) of the 2020 CARES Act, with a 0.98% interest rate and 24-month term, potentially forgivable for certain uses[63] - Subsequent to March 31, 2020, and through May 6, 2020, the company issued an additional 11.5 million shares and raised $6.2 million under the Lincoln Park Common Stock Purchase Agreement[64] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on financial performance, condition, and future outlook, including strategic shifts, COVID-19 impact, and liquidity Overview Introduces MicroVision's technology, strategic shift to licensing, and exploration of strategic alternatives - MicroVision, Inc. is a pioneer in laser beam scanning (LBS) technology, marketed as PicoP®, used in interactive projection, consumer LiDAR, automotive LiDAR, and augmented/mixed reality[67] - Due to the inability to secure a customer for a module product launch in 2020, the company is shifting its focus to licensing module products and technology, and exploring strategic alternatives like a sale or merger[68] - If successful in securing a significant licensing agreement or raising sufficient equity, the company plans to focus on developing its automotive LiDAR module[69] - In March 2020, the company transferred component production to a customer, now receiving royalties applied against a prepayment, aiming to conserve cash while retaining financial reward potential[70] Impact of COVID-19 on Our Business Assesses the uncertain impact of the COVID-19 pandemic on business operations and financial condition - The COVID-19 pandemic's impact is uncertain but may affect business, operations, and financial condition, with full effects difficult to predict[73] - Supply chain disruptions from component suppliers operating at reduced capacity have resulted in lower than planned product shipments[74] - Remote work for most office-based employees may lead to reduced productivity and disruptions, potentially adversely affecting development activities, capital raising, licensing agreements, or M&A efforts[75] Key accounting policies and estimates Confirms no significant changes to critical accounting policies from the prior annual report - No significant changes to critical accounting judgments, policies, and estimates were made from the Annual Report on Form 10-K for the year ended December 31, 2019[76] Results of operations Analyzes revenue and expense performance for Q1 2020 versus Q1 2019, highlighting key changes Product revenue Analyzes the significant increase in product revenue and the shift in production arrangements Product Revenue (in thousands) | Period | 2020 | 2019 | $ Change | % Change | | :-------------------------- | :--- | :--- | :------- | :------- | | Three Months Ended March 31 | $1,247 | $199 | $1,048 | 526.6% | - The significant increase in product revenue was primarily due to product shipments to a major technology company[78] - In March 2020, the company completed an agreement for the customer to take over production of components, resulting in zero product revenue backlog at March 31, 2020[78] License and royalty revenue Explains the increase in license and royalty revenue due to increased sales of royalty-bearing products License and Royalty Revenue (in thousands) | Period | 2020 | 2019 | $ Change | % Change | | :-------------------------- | :--- | :--- | :------- | :------- | | Three Months Ended March 31 | $212 | $- | $212 | - | - The increase in license and royalty revenue was primarily due to increased sales of royalty-bearing products[81] Contract revenue Details the substantial decrease in contract revenue due to the completion of a major development contract Contract Revenue (in thousands) | Period | 2020 | 2019 | $ Change | % Change | | :-------------------------- | :--- | :--- | :------- | :------- | | Three Months Ended March 31 | $10 | $1,652 | $(1,642) | (99.4%) | - The substantial decrease in contract revenue was attributed to decreased contract activity, as the April 2017 customer contract was completed in 2019[83] - Contract backlog was zero at March 31, 2020, down from $1.3 million at March 31, 2019[83] Cost of product revenue Examines the increase in cost of product revenue, including inventory write-downs Cost of Product Revenue (in thousands) | Period | 2020 | % of product revenue (2020) | 2019 | % of product revenue (2019) | $ Change | % Change | | :-------------------------- | :--- | :-------------------------- | :--- | :-------------------------- | :------- | :------- | | Three Months Ended March 31 | $1,395 | 111.9% | $288 | 144.7% | $1,107 | 384.4% | - Cost of product revenue increased due to higher product shipments, with inventory write-downs of $168,000 recorded in Q1 2020[86] Cost of contract revenue Discusses the decrease in cost of contract revenue due to reduced development activity Cost of Contract Revenue (in thousands) | Period | 2020 | % of contract revenue (2020) | 2019 | % of contract revenue (2019) | $ Change | % Change | | :-------------------------- | :--- | :--------------------------- | :--- | :--------------------------- | :------- | :------- | | Three Months Ended March 31 | $4 | 40.0% | $955 | 57.8% | $(951) | (99.6%) | - The decrease in cost of contract revenue was primarily due to reduced activity on the April 2017 development contract, which was completed in 2019[87] Research and development expense Analyzes the reduction in R&D expense driven by lower personnel and material costs Research and Development Expense (in thousands) | Period | 2020 | 2019 | $ Change | % Change | | :-------------------------- | :--- | :--- | :------- | :------- | | Three Months Ended March 31 | $3,683 | $5,973 | $(2,290) | (38.3%) | - The decrease in R&D expense was due to reduced personnel-related compensation and benefits, and lower direct materials and subcontractor costs[88] Sales, marketing, general and administrative expense Explains the decrease in SG&A expense due to reduced personnel and purchased services Sales, Marketing, General and Administrative Expense (in thousands) | Period | 2020 | 2019 | $ Change | % Change | | :-------------------------- | :--- | :--- | :------- | :------- | | Three Months Ended March 31 | $1,771 | $2,699 | $(928) | (34.4%) | - The decrease was attributed to reduced personnel-related compensation and benefits expenses, and lower purchased services[89] Liquidity and capital resources Details the company's cash position, funding history, future capital needs, and going concern doubt - The company had $2.3 million in cash and cash equivalents at March 31, 2020, and has historically funded operations through stock sales, convertible securities, and development/licensing activities[91] - Current operating plans, including anticipated proceeds from Lincoln Park and a PPP loan, are expected to fund operations through Q4 2020, but additional capital will be required thereafter[92] - The need for additional capital raises substantial doubt about the company's ability to continue as a going concern, with plans to seek equity or debt, product sales, or licensing activities[92][93] Operating activities Analyzes the change in cash used in operating activities, primarily due to reduced expenses - Cash used in operating activities decreased to $5.4 million in Q1 2020 from $7.6 million in Q1 2019, primarily due to reduced operating expenses[94] Investing activities Explains the shift in cash flow from investing activities, driven by asset sales - Net cash provided by investing activities was $450,000 in Q1 2020, a shift from $313,000 used in Q1 2019, driven by $525,000 from the sale of fixed assets to a customer[95] Financing activities Details capital raised through stock issuances and other financing arrangements - The company raised $2.4 million through the issuance of 7.0 million shares under the Lincoln Park Common Stock Purchase Agreement as of March 31, 2020[96] - In January 2019, $1.2 million was raised from a registered direct offering of 2.0 million common shares[97] Item 3. Quantitative and Qualitative Disclosures About Market Risk Assesses exposure to market risks, concluding that interest rate and foreign exchange rate risks are not material Interest rate and market liquidity risk Evaluates the company's exposure to interest rate fluctuations and market liquidity for cash and equivalents - All cash and cash equivalents have variable interest rates, leading to a belief that exposure to market and interest rate risk is not material[98] - The investment policy prioritizes principal preservation, adequate liquidity, and return for its $2.3 million in cash and cash equivalents[99] Foreign exchange rate risk Assesses the company's exposure to currency fluctuations, noting primary transactions are in U.S. dollars - Major contracts and payments are currently made in U.S. dollars, and exposure to currency fluctuations from past or future foreign currency arrangements is not considered material[100] Item 4. Controls and Procedures Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2020[101] - No changes in internal control over financial reporting occurred during Q1 2020 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[101] PART II. OTHER INFORMATION Item 1. Legal Proceedings Details ongoing legal matters, including an arbitration case, and confirms no other material adverse effects are expected - The company filed a Notice of Arbitration in Hong Kong against Ragentek in March 2019, seeking $4.0 million plus interest and arbitration costs for breach of a purchase order[103] - Management does not believe any other current legal proceedings are reasonably possible to have a material adverse effect on the company's financial position, results of operations, or cash flows[104] Item 1A. Risk Factors Outlines significant risks to the business, including operating losses, capital needs, COVID-19 impact, and competitive challenges Risk Factors Related to Our Business and Industry Highlights the company's history of substantial operating losses and accumulated deficit - The company has a history of substantial operating losses since inception, with an accumulated deficit of $577.5 million as of March 31, 2020, and expects to incur significant losses in the future[106][108][109] Inability to secure customer for module products and strategic alternatives Discusses the failure to secure an OEM customer, leading to a strategic shift and associated risks - The company failed to secure an OEM customer for a module product launch in 2020, leading to a strategic shift towards licensing or exploring a potential sale/merger[110] - There is substantial risk that these strategic efforts will be unsuccessful, potentially exacerbated by the impact of COVID-19 on interested parties or general economic conditions[110] COVID-19 Impact Examines the adverse effects and uncertainties of the COVID-19 pandemic on business and financial prospects - The COVID-19 pandemic has adversely affected the business, and its future impact on financial position and business prospects remains uncertain due to various unpredictable factors[111] - Potential adverse impacts include reduced ability to raise capital, enter licensing agreements, delays in technology development, significant revenue declines from supply chain disruptions, reduced operating effectiveness from remote work, and challenges in completing a sale or merger[114] Need for Additional Capital and Going Concern Doubt Addresses the critical need for additional capital, going concern doubt, and potential shareholder dilution - The company anticipates having sufficient cash to fund operations only through Q4 2020 and will require additional capital thereafter, raising substantial doubt about its ability to continue as a going concern[112][114] - Efforts to obtain additional capital through equity or debt securities, product sales, or licensing activities may not be successful or on acceptable terms, potentially leading to substantial operational curtailment and shareholder dilution[112][114] - Capital requirements are uncertain and depend on factors like commercial success of LBS modules, OEM/ODM product introductions, market acceptance, and expense management[113] Shareholder Approval for Proxy Items Explains risks related to shareholder approval of proxy items, including potential Nasdaq delisting and funding limitations - Failure to approve a reverse stock split proposal could lead to Nasdaq delisting if the minimum $1.00 bid price requirement is not met by August 24, 2020[115] - Without approval for increasing authorized shares, the company's ability to raise cash for operations will be limited, potentially jeopardizing its going concern status[116] - Lack of approval for adding shares to the Employee Incentive Plan could hinder the ability to attract and retain skilled personnel in a competitive market[117] Supply Chain and Manufacturing Risks Details risks associated with reliance on single-source suppliers and qualifying new contract manufacturers - The company relies on single or limited-source suppliers, and qualifying new manufacturers is a time-consuming process, risking delays, increased costs, lost revenues, and damaged customer relationships[119][120] - Changes in the supply chain may lead to increased costs, delays, and risks related to product warranty, liability, and quality control standards[120] Dependence on Third Parties Highlights reliance on third-party manufacturing, licensing, and marketing arrangements and associated risks - Success depends on securing third-party manufacturing resources to produce components and products at competitive prices and on schedule[121] - The business strategy relies on development, manufacturing, licensing, sales, and marketing arrangements with OEMs, ODMs, and other third parties, which reduces control and introduces risks[123] - There is no certainty that such arrangements will be on acceptable terms or successful in yielding commercially viable products, potentially requiring additional capital and expertise if they fail[124][125] Market Acceptance Risk Discusses the uncertainty of market acceptance for PicoP® scanning technology and its impact on revenue growth - The company's success is contingent on customer acceptance of its PicoP® scanning technology, which must meet expectations in consumer electronics, automotive, and other markets[126] - Failure to achieve market acceptance for its technology or products could prevent revenue growth and further technology development[126] Dependence on Third-Party Technology Advances Explains reliance on other companies for advances in key supporting technologies for future products - Future products incorporating PicoP® scanning technology rely on advances in technologies like laser diode light sources and other components developed by other companies[127] - There are no guarantees that supporting companies developing key technologies will result in useful or profitable products[127] Customer Concentration and Revenue Volatility Addresses high customer concentration, potential revenue volatility, and stock price fluctuations - The company is highly dependent on a small number of customers, with one customer accounting for 100% of revenue in Q1 2020, making it vulnerable to customer loss[128] - Quarterly operating results can vary significantly due to factors like market acceptance, analyst recommendations, competitor announcements, and economic conditions, leading to stock price fluctuations and potential litigation[128][131] Performance Under Agreements Outlines risks of non-performance by the company or customers under open orders and agreements - There is a risk that either the company or its customers may fail to meet performance requirements and obligations under agreements, including specifications, milestones, or delivery dates[132] - Such failures, or customers' inability/unwillingness to perform, could adversely affect operating results and cash flows, especially if products do not achieve market acceptance[132] Nasdaq Listing Risk Details the risk of delisting from The Nasdaq Global Market due to non-compliance with listing standards - The company faces a risk of delisting from The Nasdaq Global Market due to not meeting the minimum $1.00 bid price and $50,000,000 market value requirements[133][135] - Nasdaq granted extensions for compliance until August 24, 2020 (bid price) and November 27, 2020 (market value) due to the COVID-19 pandemic[136] - Delisting could reduce stock liquidity, make it harder to sell shares, and potentially subject the stock to 'penny stock' rules[137][138] Competitive Disadvantage Discusses the company's financial and technical resource limitations relative to competitors - Many competitors possess substantially greater financial, technical, and other resources, potentially enabling them to develop superior products or technologies[140] - The introduction of superior competing products could lead to reduced revenues, lower margins, or loss of market share, diminishing the company's value[140] Rapid Technological Change Highlights the challenge of keeping pace with rapid technological changes in the industry - The consumer display and 3D sensing industries are characterized by rapidly changing technology and evolving standards, requiring continuous development and timely introduction of new products[141] - Failure to keep pace due to product development delays, lack of market acceptance, or insufficient funds for R&D and marketing could adversely affect financial results[141] Intellectual Property Litigation Risk Addresses the risk of lawsuits related to intellectual property and the costs of defense - The company is aware of third-party patents related to light scanning displays and 3D sensing, which could lead to infringement claims or challenges to its own patents[142] - Defending patent suits is costly and time-consuming, and an adverse outcome could limit commercialization, reduce revenues, increase operating expenses, or require licensing from third parties[143] Management of Expansion and Cost Control Emphasizes the importance of effective growth management and cost control, especially after headcount reductions - Effective management of growth and relationships with customers and third parties is crucial, as expansion places significant strain on management systems and resources[144] - Failure to adequately reduce and control manufacturing, supply chain, and operating costs, especially after a substantial headcount reduction, could adversely affect business and financial condition[144][145] Regulatory and Economic Uncertainties Discusses potential impacts of future environmental, health, and safety regulations - Future environmental, health, and safety regulations could increase development and production costs for PicoP® scanning technology and products, with violations potentially leading to fines or production suspension[146] Worldwide Political and Economic Uncertainties Examines how global political and economic uncertainties, including pandemics, can affect operations - Global economic downturns, including those caused by infectious diseases like COVID-19, could adversely affect the company's ability to raise capital, demand for products, and commercialization efforts[147] Foreign Operations Risks Details risks associated with relying on foreign contract manufacturers, such as political instability and currency fluctuations - Continued reliance on foreign contract manufacturers exposes the company to risks such as political/economic instability, inflation, foreign laws/regulations, taxes, duties, and currency exchange rate volatility[148][151] Natural Disaster and Supply Chain Disruption Highlights risks from natural disasters or labor strikes at manufacturing facilities - Major catastrophes (e.g., earthquakes, floods, infectious diseases like COVID-19) or labor strikes at contract manufacturers' facilities could cause prolonged business interruptions, significant delays, and loss of sales/customers[149] Intellectual Property Protection Stresses the importance of effective intellectual property protection and risks to competitive advantage - Effective intellectual property protection is crucial for competitive success, relying on patents and trade secrets for PicoP® scanning technology[150] - Uncertainty in patent scope, validity challenges, and the risk of trade secret disclosure could enable competitors to develop similar products, negatively affecting the company's competitive position[151][152][153] Product Liability Claims Addresses inherent product liability risks and potential costs, reputational harm, and insurance challenges - The company faces inherent product liability risks, particularly for scanning modules that project light into users' eyes, which could lead to claims, negative publicity, and harm to reputation[154][155] - Successful product liability claims could result in significant costs, divert management attention, and hinder the ability to obtain adequate insurance coverage[155] Long Sales Cycles Explains how long sales cycles make expense planning and revenue forecasting difficult - Long sales cycles for contracts and R&D agreements, often lasting several years, make it difficult to plan expenses and forecast revenues, leading to significant variability in operating results[156] - Infectious diseases like COVID-19 can further delay face-to-face meetings and contract closings, exacerbating forecasting challenges[156] Exploratory Nature of Contracts Notes that R&D agreements may not lead to profitable products - The company's contracts and collaborative R&D agreements are exploratory, and there is no guarantee that these efforts will result in the development of any profitable products[157] Information Technology System Failures Discusses risks from IT system failures, network disruptions, or cybersecurity breaches - Reliance on IT systems for data processing and protection exposes operations to risks from natural disasters, power loss, cyber attacks, and other disruptions[159] - System redundancy and disaster recovery planning may be inadequate, and insurance coverage for cyber risks may be insufficient to cover all potential losses[159] Loss of Key Personnel Highlights the negative impact of losing key personnel and challenges in attracting new talent - The company's success depends on its executive officers and key personnel, and the ability to attract and retain qualified new personnel in a competitive market[160] - Inability to attract or the loss of highly skilled personnel could hinder the ability to compete effectively and adversely affect business strategy execution and results of operations[160] Item 6. Exhibits Lists the exhibits filed as part of the Form 10-Q, including various certifications by the Principal Executive Officer and Principal Financial Officer, as well as XBRL (eXtensible Business Reporting Language) documents - The exhibits include certifications from the Principal Executive Officer and Principal Financial Officer as required by the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002[161] - XBRL Instance Document and Taxonomy Extension Documents (Schema, Calculation, Definition, Label, Presentation) are also filed[161] Signatures Contains the official signatures of MicroVision, Inc.'s Chief Executive Officer and Chief Financial Officer, certifying the accuracy and completeness of the Form 10-Q report - The report was duly signed on behalf of MicroVision, Inc. by Sumit Sharma, Chief Executive Officer and Director, and Stephen P. Holt, Chief Financial Officer, on May 7, 2020[164][165]