MicroVision(US:MVIS)2020-08-06 00:07markdown PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed financial statements for the three and six months ended June 30, 2020, and 2019, including balance sheets, statements of operations, statements of shareholders' equity, and statements of cash flows, revealing significant operating losses, a strategic shift, and substantial doubt about the company's going concern ability [Condensed Balance Sheets](index=4&type=section&id=Condensed%20Balance%20Sheets) As of June 30, 2020, total assets were $11.5 million, a slight decrease from $11.8 million at the end of 2019, while total liabilities decreased to $14.0 million from $15.8 million, improving the total shareholders' deficit to $(2.5) million from $(4.0) million due to increased cash from stock sales Condensed Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $7,805 | $5,837 | | Total current assets | $8,106 | $7,837 | | Total assets | $11,506 | $11,836 | | **Liabilities & Equity** | | | | Total current liabilities | $12,078 | $14,456 | | Total liabilities | $14,028 | $15,813 | | Total shareholders' equity (deficit) | $(2,522) | $(3,977) | [Condensed Statements of Operations](index=5&type=section&id=Condensed%20Statements%20of%20Operations) For the six months ended June 30, 2020, total revenue decreased to $2.1 million from $3.1 million year-over-year, resulting in a net loss of **$7.2 million**, a significant improvement from the **$17.1 million** loss in 2019, primarily due to sharply reduced operating expenses, particularly in research and development, with net loss per share improving to **$(0.05)** from **$(0.16)** Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $587 | $1,240 | $2,056 | $3,091 | | Gross profit (loss) | $588 | $(583) | $658 | $25 | | Loss from operations | $(2,299) | $(8,983) | $(7,233) | $(17,047) | | Net loss | $(2,304) | $(8,990) | $(7,238) | $(17,058) | | Net loss per share | $(0.02) | $(0.08) | $(0.05) | $(0.16) | [Condensed Statements of Shareholders' Equity (Deficit)](index=6&type=section&id=Condensed%20Statements%20of%20Shareholders%27%20Equity%20(Deficit)) The shareholders' deficit improved from **$(7.3) million** at the end of Q1 2020 to **$(2.5) million** at June 30, 2020, primarily driven by the sale of common stock, which raised **$8.3 million** in the first six months of 2020, offsetting the **$7.2 million net loss** for the period - For the six months ended June 30, 2020, the company raised **$8.3 million from the sale** of **17.4 million shares** of common stock[16](index=16&type=chunk) - The total shareholders' deficit improved from **$(4.0) million** at the start of 2020 to **$(2.5) million** at June 30, 2020, despite a **$7.2 million net loss**, due to capital raised from stock sales[16](index=16&type=chunk) [Condensed Statements of Cash Flows](index=7&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) For the first six months of 2020, net cash used in operating activities was **$8.4 million**, a significant reduction from **$16.4 million** in the prior-year period, mainly due to lower operating expenses, while net cash from financing activities was **$9.9 million**, primarily from stock issuance and a PPP loan, resulting in a period-end cash balance of **$8.2 million** Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,370) | $(16,358) | | Net cash provided by (used in) investing activities | $431 | $(513) | | Net cash provided by financing activities | $9,907 | $7,719 | | **Change in cash, cash equivalents, and restricted cash** | **$1,968** | **$(9,152)** | [Notes to Condensed Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) The notes detail the company's critical financial situation, highlighting significant losses since inception and raising substantial doubt about its ability to continue as a going concern, following an OEM's decision not to launch a product using MicroVision's technology, a subsequent **60%** headcount reduction, and a strategic shift to explore a potential sale or merger, with the company securing a **$1.57 million loan** and relying on equity sales for funding, but needing shareholder approval for more authorized shares, while a single customer accounted for **100%** of revenue in the first half of 2020 - The company has incurred significant losses since inception, and these factors raise substantial doubt regarding its ability to continue as a going concern[22](index=22&type=chunk)[26](index=26&type=chunk) - Following an OEM's decision not to launch a product with the company's technology in 2020, MicroVision reduced its headcount by approximately **60%** and is now focused on strategic alternatives, including a potential sale or merger[22](index=22&type=chunk) - The company anticipates having sufficient cash to fund operations only through **Q4 2020** and requires additional capital, seeking shareholder approval to increase authorized shares after a similar proposal failed in May 2020[24](index=24&type=chunk) - In April 2020, the company received a **$1.57 million loan** under the Paycheck Protection Program (PPP)[31](index=31&type=chunk) - A single customer accounted for **100%** of total revenue for the three and six months ended June 30, 2020[46](index=46&type=chunk) - As of June 30, 2020, the company has raised a total of **$9.3 million under its Common Stock Purchase Agreement** with Lincoln Park Capital[61](index=61&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's strategic shift towards exploring a sale, merger, or licensing deal after a key OEM partner canceled a 2020 product launch, with a focus on LBS technology for automotive LiDAR, noting a significant decrease in revenue and operating expenses year-over-year, and expressing major liquidity concerns with cash expected to last only through **Q4 2020**, raising substantial doubt about its going concern ability, alongside the uncertain impact of COVID-19 on supply chain and business operations [Overview and COVID-19 Impact](index=16&type=section&id=Overview%20and%20COVID-19%20Impact) MicroVision, a pioneer in LBS technology, has shifted its focus to pursuing strategic alternatives, including a potential sale or merger, after being unable to secure a customer for a 2020 product launch, with plans to prioritize developing its automotive LiDAR module if funding is secured, while the COVID-19 pandemic has added uncertainty, causing supply chain disruptions and potentially impacting development timelines and strategic efforts due to remote work policies - The company is focusing on strategic alternatives, including a potential sale or merger, after failing to secure a customer for a 2020 product launch[68](index=68&type=chunk) - If sufficient funds are raised, the company plans to focus on developing its automotive LiDAR module[69](index=69&type=chunk) - The COVID-19 pandemic has caused supply chain disruptions and may adversely affect development, capital raising, and strategic transaction efforts[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) For the six months ended June 30, 2020, total revenue fell to **$2.1 million** from **$3.1 million** YoY, driven by a sharp decline in contract revenue after a major development contract was completed in 2019, partially offset by new license and royalty revenue of **$0.8 million**, while operating expenses were significantly reduced, with R&D expenses down **55.6%** and SG&A expenses down **40.8%** due to lower personnel-related costs and other savings following a major headcount reduction Revenue by Type (in thousands) | Revenue Type | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | % Change | | :--- | :--- | :--- | :--- | | Product revenue | $1,247 | $199 | 526.6% | | License and royalty revenue | $784 | $0 | N/A | | Contract revenue | $25 | $2,892 | (99.1)% | | **Total revenue** | **$2,056** | **$3,091** | **(33.5)%** | Operating Expenses (in thousands) | Expense Type | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | % Change | | :--- | :--- | :--- | :--- | | Research and development | $5,290 | $11,918 | (55.6)% | | Sales, marketing, general and administrative | $3,051 | $5,154 | (40.8)% | [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is critical, with **$7.8 million** in cash and cash equivalents at June 30, 2020, expected to fund operations only through **Q4 2020**, raising substantial doubt about its ability to continue as a going concern, as it plans to seek additional capital through equity or debt but requires shareholder approval to increase authorized shares, a proposal that previously failed, while cash used in operations decreased significantly to **$8.4 million in H1 2020** from **$16.4 million in H1 2019** due to lower expenses - The company anticipates having sufficient cash and cash equivalents to fund operations only through the **fourth quarter of 2020**[93](index=93&type=chunk) - The company requires additional capital and needs shareholder approval to increase authorized shares to raise significant cash through stock sales, a proposal which failed in a May 2020 vote[93](index=93&type=chunk) - Cash used in operating activities decreased to **$8.4 million in H1 2020** from **$16.4 million in H1 2019**, primarily due to reduced operating expenses[95](index=95&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=21&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's exposure to market risk is considered not material, with minimal interest rate risk as all cash and cash equivalents (**$7.8 million**) are in variable-rate operating and money market accounts, and foreign exchange rate risk also deemed immaterial as major contracts are denominated in U.S. dollars, though future hedges may be used if material exposure arises - Interest rate and market liquidity risk is considered not material as all cash and cash equivalents are held in variable interest rate operating and money market accounts[102](index=102&type=chunk) - Foreign exchange rate risk is not considered material as major contracts are currently made in U.S. dollars[104](index=104&type=chunk) [Item 4. Controls and Procedures](index=21&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the Principal Executive Officer and Principal Financial Officer, evaluated the company's disclosure controls and procedures as of June 30, 2020, and concluded they were effective, with no material changes in internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer have concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by the report[105](index=105&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[105](index=105&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=22&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in an arbitration proceeding against Ragentek in Hong Kong, initiated in March 2019, seeking **$4.0 million plus interest** and costs for breach of a purchase order, with the outcome currently unpredictable, and no other legal proceedings expected to have a material adverse effect - In March 2019, the company filed a Notice of Arbitration in Hong Kong against Ragentek, seeking **$4.0 million plus interest** and arbitration costs, with the likelihood of a favorable outcome currently unpredictable[108](index=108&type=chunk) [Item 1A. Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks to the company's business, including a history of operating losses, substantial doubt about its ability to continue as a going concern, and the need for additional capital which may not be available, with its focus on strategic alternatives like a sale or merger carrying substantial risk of failure, alongside other major risks involving the adverse impacts of COVID-19, dependence on single-source suppliers and a small number of customers, potential failure to achieve market acceptance for its technology, and the risk of delisting from Nasdaq - The company has a history of substantial losses, with an accumulated deficit of **$579.8 million as of June 30, 2020**, and expects to incur significant losses in the future[111](index=111&type=chunk)[116](index=116&type=chunk) - The company requires additional capital to fund operations beyond **Q4 2020**, and failure to obtain capital may require substantial curtailment of operations and raises doubt about its ability to continue as a going concern[117](index=117&type=chunk)[119](index=119&type=chunk) - The company's focus on strategic alternatives (sale, merger, licensing) is high-risk and may be unsuccessful, potentially impeded by COVID-19[114](index=114&type=chunk) - The company is dependent on a small number of customers, with one customer accounting for **100%** of revenue in the first six months of 2020[132](index=132&type=chunk) - The company relies on single or limited-source suppliers, and the loss of any such supplier could cause significant delays and damage customer relationships[122](index=122&type=chunk) - Failure to get shareholder approval to increase authorized shares would limit the ability to raise cash through stock sales, potentially jeopardizing the company's ability to continue as a going concern[120](index=120&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, which include certifications by the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act of 2002, and XBRL data files - The exhibits include certifications from the CEO and CFO pursuant to Sarbanes-Oxley Act Sections 302 and 906, as well as XBRL data files for interactive data[161](index=161&type=chunk) Signatures [Signatures](index=30&type=section&id=Signatures) The report is duly signed and authorized by the company's Chief Executive Officer, Sumit Sharma, and Chief Financial Officer, Stephen P. Holt, on August 5, 2020 - The report was signed on August 5, 2020, by Sumit Sharma, Chief Executive Officer, and Stephen P. Holt, Chief Financial Officer[165](index=165&type=chunk)