MicroVision(MVIS) - 2023 Q4 - Annual Report

PART I. Company Information MicroVision develops and supplies lidar hardware and software solutions, primarily for automotive ADAS markets ITEM 1. Business Overview MicroVision focuses on automotive lidar and ADAS, leveraging LBS technology and the Ibeo acquisition, with 2023 revenue concentrated from a single, non-recurring customer Overview MicroVision develops and supplies lidar hardware and software solutions for automotive and ADAS markets, leveraging LBS technology - MicroVision is a global developer and supplier of lidar hardware and software solutions, primarily focused on automotive lidar and ADAS markets[14] - The company's core technology is laser beam scanning (LBS), based on patented expertise in micro-electromechanical systems (MEMS), laser diodes, opto-mechanics, electronics, algorithms, and software[15] - In January 2023, MicroVision acquired strategic assets of Germany-based Ibeo, a lidar hardware and software provider, which developed the first automotive-qualified lidar sensor for serial production[16][20] - The integrated solution for the automotive market combines MEMS-based dynamic-range lidar sensors and perception software, targeted for premium automotive OEMs and Tier 1 suppliers[17] - Product suite includes MAVIN (dynamic-range, long-range), MOVIA (short-range flash-based) lidar sensors, and MOSAIK validation software tool[18] - Revenue in fiscal year 2023 was largely from Microsoft Corporation for high-definition display system components, an arrangement that will not continue[21] - The company has incurred significant losses since inception and expects to continue to incur significant losses in the near term, funding operations primarily through stock sales[22] Industry and Market Strategy MicroVision develops lidar sensors and perception software for L2+ and L3 ADAS, focusing on automotive safety - MicroVision is developing lidar sensors and perception software for Level 2+ (L2+) and Level 3 (L3) ADAS markets, focusing on automotive safety and autonomous driving[25] - The MAVIN™ MEMS-based high-speed lidar sensors use pioneering laser beam scanning (LBS) technology, designed to provide high resolution at range and velocity of moving objects with a dynamic field of view at 30 hertz[25] - The go-to-market strategy involves building partnerships with OEMs, Tier-1 automotive suppliers, and silicon companies[27] Technology and Competitive Strength The company's strength lies in its long history of delivering reliable LBS- and MEMS-based hardware and software - A significant competitive strength is the long history of delivering LBS- and MEMS-based hardware and related firmware/software that meets reliability, predictability, and scalability standards[28] - Proprietary LBS technology combines a MEMS scanning mirror, laser diode light sources, electronics, and optics controlled by proprietary system control algorithms, with edge computing and machine learning[29] - The MAVIN DR dynamic-range automotive lidar sensor is designed to perform up to 220 meters with an output resolution of up to 15.0 million points per second, providing low-latency, high-resolution point clouds and velocity data[31] - Proprietary scan locking feature ensures immunity from sunlight and other lidar sensor interference[31] Products and Revenue Strategy The product suite includes MAVIN, MOVIA lidar sensors, and MOSAIK software for automotive and industrial markets - Post-Ibeo acquisition, the product suite includes MEMS-based high-speed automotive lidar sensors (MAVIN DR), perception software, flash-based automotive lidar sensors (MOVIA), lidar sensors for non-automotive industrial markets, and reference/validation software (MOSAIK)[32][34][36][37] - MAVIN DR combines short-, medium-, and long-range sensing into one form factor, enabling ADAS features at highway speeds up to 130 km/h[34] - MOVIA sensors support a revenue strategy including royalty revenues from automotive production and sales in industrial, smart infrastructure, robotics, and commercial vehicle markets[36] - MOSAIK validation solution automates data classification/annotation, significantly reducing time and resources for OEMs to validate ADAS/AV systems[37] Research and Development R&D efforts focus on technology leadership, performance, cost reduction, and functional safety, supported by global teams - Research and development efforts are focused on maintaining technology leadership, improving performance, reducing costs, and ensuring functional safety and flexible design[38] - As of December 31, 2023, R&D teams comprised approximately 270 engineering and technical staff located in Redmond, Washington, Hamburg, Germany, and Nuremberg, Germany[38] Sales and Marketing Sales and marketing target automotive OEMs, Tier 1 suppliers, and industrial markets via an account-based approach - Sales and marketing approach is account-based, business-to-business, targeting automotive OEMs, Tier 1 suppliers, and industrial markets[39] - Business development offices are located in Germany and the United States[39] Manufacturing The company invests in manufacturing capabilities and new contract manufacturer relationships to become a Tier 1 supplier - The company is investing in manufacturing capabilities, evaluating Tier 1 relationships, and establishing new relationships with contract manufacturers to become a Tier 1 supplier[40] - Historically, products were manufactured by contract manufacturers based on proprietary designs, with MEMS and ASICs produced by single-source semiconductor foundries[40] Competitive Conditions The lidar industry is crowded and evolving, with competition from larger, better-resourced entities and internal OEM solutions - The lidar sensing industry is highly crowded and rapidly evolving, with competition from pureplay lidar developers (some with significant capital from de-SPAC transactions) and internally developed solutions by OEMs and Tier 1 suppliers[41] - Competitors are often significantly larger, more well-resourced, and have longer operating histories and brand recognition[41] - Risk that competitors develop innovative technologies that render MicroVision's technology obsolete or that MicroVision lacks sufficient funds to invest in new technologies[41][42] Intellectual Property and Proprietary Rights LBS technology is protected by an extensive patent portfolio of over 700 patents and trade secrets - Intellectual property is generated from internal R&D, technology acquisitions, and development contracts, focusing on LBS technology, component miniaturization, power reduction, and mass production design[43] - The company holds an extensive patent portfolio with over 700 issued and pending patents worldwide, including approximately 330 acquired from Ibeo in January 2023[44] - Relies on unpatented proprietary technology and trade secrets, protected by confidentiality and non-compete agreements with employees, contractors, and partners[46] - Registered trademarks include "MAVIN™," "MOVIA™," "MOSAIK™," "SAFE MOBILITY AT THE SPEED OF LIFE," "PicoP®," and "MicroVision®"[47] Employees, People Operations and Workplace Safety MicroVision employs 340 staff globally, prioritizing talent attraction, retention, diversity, and employee safety - As of the end of fiscal year 2023, MicroVision had approximately 340 predominantly full-time employees globally[49] - Key objectives include attracting, retaining, motivating, and rewarding employees through skill-building, competitive compensation, and promoting diversity and inclusivity[50][51] - Committed to employee safety, health, and well-being, with policies and practices in place, including working with third-party experts for laser safety compliance (IEC standards)[52][53] ITEM 1A. Risk Factors MicroVision faces significant risks, including operating losses, capital needs, revenue concentration, and intense competition Risk Factors Related to Our Business The company has a history of substantial operating losses and will require additional capital, potentially diluting shareholders - The company has a history of substantial operating losses and expects to incur significant losses and negative cash flow at least through 2024 and likely thereafter[56][58] - Additional capital will be required to fund operations beyond the next 12 months, and raising it through equity or debt securities may dilute current shareholders' investment[59][61] Accumulated Deficit and Net Losses | Metric | Amount (Millions USD) | | :----------------------- | :-------------------- | | Accumulated Deficit (Dec 31, 2023) | $765.4 | | Net Loss (2023) | $82.8 | | Net Loss (2022) | $53.1 | | Net Loss (2021) | $43.2 | | Accumulated Deficit (Dec 31, 2020) | $586.2 | Risks Related to our Financial Statements and Results Revenue concentration, internal control weaknesses, stock price volatility, and limited financial resources pose significant financial risks - Revenue is highly concentrated; in 2023, one commercial customer accounted for 63% of total revenue, and no further revenue is expected from this customer (Microsoft) post-2023[63][249] - A material weakness in internal controls was identified in Q2 2021, and the internal control environment will become more complex with the Ibeo acquisition, increasing the risk of future material weaknesses[64][65] - The stock price has been significantly volatile, trading between $1.82 and $8.20 in the 52 weeks ending February 26, 2024, with a loss per share of $(0.45) in 2023[66] - Risk of delisting from The Nasdaq Global Market if listing maintenance standards are not met, which could reduce stock liquidity and subject it to 'penny stock' rules[70][71] - Lack of financial resources relative to competitors (pureplay lidar developers, OEMs, Tier 1s) may limit revenues, profits, and market share[73] Risks Related to Our Operations Operational risks include supply chain dependencies, managing expansion, potential lawsuits, and securing profitable OEM awards - Difficulty in qualifying contract manufacturers, Tier 1 partners, or foundries, or changes in the supply chain, could cause delays, lost revenues, and damaged customer relationships due to reliance on single or limited-source suppliers[75] - Historically dependent on third parties for product development, manufacturing, sales, and marketing, which reduces control and introduces risks related to product warranty, liability, and quality control[76][78] - Potential for costly lawsuits related to LBS technology or other technologies, which could limit the ability to commercialize products[79][80] - Failure to effectively manage expansion, particularly with increased global operations and the Ibeo acquisition, could strain management systems and resources, affecting business and financial results[81][85][87] - Targeting large automotive OEMs with substantial negotiating power and potentially competitive internal solutions means significant investment may not secure profitable series production awards[82] - Inability to obtain effective intellectual property protection for products, processes, and technology could lead to increased competition[91][93] - Risk of significant product liability claims if products are alleged to be defective or cause harmful effects, leading to litigation, damages, and reputational harm[95][96] - Operations could be adversely impacted by information technology system failures, network disruptions, or cybersecurity incidents, despite ongoing security measures[97][99] - Loss of key personnel or inability to attract and retain qualified new personnel could negatively affect business operations and strategy execution[101] Risks Related to Development for the Automotive Industry Automotive development risks include OEM adoption delays, product defects, and competition from alternative technologies - Failure to secure 'series production awards' from automotive OEMs or Tier 1 suppliers for ADAS systems could materially and adversely affect future business prospects, as design cycles are long (5-7+ years)[102] - The complexity of products and limited visibility into usage conditions could result in unforeseen delays or expenses from undetected defects, errors, or reliability issues in hardware or software[103] - Adverse conditions in the automotive industry or global economy (e.g., business cycles, interest rates, consumer confidence, political volatility) could negatively impact demand for products[104] - Significant developments in alternative technologies (e.g., cameras, radar) may adversely affect demand for lidar technology, potentially rendering MicroVision's solution less competitive[105] - ADAS features may experience delayed adoption by OEMs due to evolving regulatory frameworks, new emissions/safety requirements, and cost pressures, negatively impacting business prospects[106] - Rapidly evolving lidar and ADAS markets make it difficult to forecast customer adoption rates, demand, and selling prices, leading to uncertainty in future financial performance[107][108] ITEM 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - The company has no unresolved staff comments[109] ITEM 1C. Cybersecurity MicroVision strengthens cybersecurity with Board oversight and management, aiming for TISAX certification Risk Management and Strategy Cybersecurity measures include policies, evaluations, third-party products, and training, with TISAX certification as a priority - Cybersecurity measures include policies for internal compliance, regular security evaluations, third-party products (intrusion prevention, multifactor identification, anti-virus), and employee training[110] - Prioritizing enhancements to the response system and continuity plans due to rapid global operations growth from the Ibeo acquisition[110] - Actively evaluating cybersecurity measures and seeking enhancements, including engaging a third-party auditor and global standardization of training, to achieve TISAX certification for automotive industry information security[111] Risks from Cybersecurity Threats No material cybersecurity incidents have occurred, but future incidents could disrupt global operations - No material cybersecurity incidents have occurred that have affected or are reasonably likely to materially affect the company's operations or financial condition[113] - Any material incident could disrupt global operations, internal/external communications, and management[113] Governance The Audit Committee oversees cybersecurity risk, with the CFO and IT team managing day-to-day operations - The Audit Committee, with delegated authority from the Board, oversees enterprise risk, including cybersecurity threats, and reports regularly to the Board[114] - The Chief Financial Officer (CFO) oversees the IT team and is responsible for approving the IT budget, hiring IT personnel, and approving cybersecurity processes[118] - An outside consulting firm serves as the chief information security officer, assisting the internal IT team with cybersecurity oversight[118] - The IT team has day-to-day responsibility for assessing, monitoring, and managing cybersecurity risks, with plans to establish a dedicated cybersecurity team as part of long-term growth[119] ITEM 2. Properties MicroVision leases office, lab, and testing spaces in Redmond, Nuremberg, and Hamburg, with a new Hamburg lease planned - Leases approximately 16,681 square feet for general office space in Redmond, Washington, with a 128-month term commenced November 1, 2021[121] - Leases approximately 36,062 square feet for product testing and lab space in Redmond, Washington, with a 120-month term commenced December 1, 2022[122] - Leases office and product testing space in Nuremberg, Germany (3,533 sq ft and 3,810 sq ft respectively), both with 60-month terms commenced in 2022[123][124] - Assumed three leases in Hamburg, Germany (totaling approximately 45,208 sq ft) in connection with the January 2023 Ibeo acquisition, covering office, test vehicle garages, IT network, and laser testing space[125] - Entered into a new lease for approximately 60,000 square feet in central Hamburg, Germany, in December 2023, intended to replace existing Hamburg office space, with commencement expected between August 1, 2024, and December 31, 2024[126] ITEM 3. Legal Proceedings MicroVision is involved in various claims but expects no material adverse effect on its financial position - The company is subject to various claims and pending or threatened lawsuits in the normal course of business[128][324] - Management does not believe any current legal proceedings are reasonably possible to have a material adverse effect on financial position, results of operations, or cash flows[128][324] ITEM 4. Mine Safety Disclosures This item is not applicable to MicroVision, Inc - Not applicable[129] ITEM 4A. Executive Officers of the Registrant MicroVision's executive officers bring extensive experience in product development, finance, and legal affairs - Sumit Sharma, age 50, serves as Chief Executive Officer (appointed Feb 2020), with extensive experience in optics, wearable technology, product development, and qualification for the automotive industry[130] - Anubhav Verma, age 38, joined as Chief Financial Officer in November 2021, bringing extensive experience in Mergers and Acquisitions (M&A), Capital Markets, and Strategic Finance[131] - Drew Markham, age 56, joined as Vice President, General Counsel and Secretary in June 2021, with prior experience as a legal consultant to publicly traded technology companies[132] PART II. Financial Information This section details MicroVision's financial performance, market for common equity, and disclosures about market risk ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities MicroVision's common stock trades on Nasdaq, has never paid dividends, and recently raised capital via ATM offerings Market Information Common stock trades on Nasdaq under "MVIS", no cash dividends paid, with 195.3 million shares outstanding - Common stock trades on The Nasdaq Global Market under "MVIS" since August 27, 1996[134] - No cash dividends have been declared or paid, and none are anticipated in the foreseeable future[134] - As of February 26, 2024, 195,267,385 shares of common stock were outstanding, held by approximately 144 record holders[6][135] Stock Performance Graph The report includes a stock performance graph comparing MicroVision's stock return against industry indices - The report includes a stock performance graph comparing the cumulative total return of MicroVision common stock, the Russell 2000 Index, and the Dow Jones US Electronic and Electrical Equipment Index from 2018 through 2023[137] Recent Sales of Unregistered Securities The company recently sold common stock to executive officers and Board members under a Section 4(a)(2) exemption - On November 21, 2023, the company sold 50,761 shares of common stock at $1.97 per share for approximately $0.1 million to its CEO, CFO, General Counsel, and certain Board members[139] - On March 13, 2023, the company sold 100,000 shares of common stock to its CEO at $2.14 per share for $0.2 million[140] - These sales were undertaken in reliance upon an exemption from registration requirements pursuant to Section 4(a)(2) of the Securities Act[140] ITEM 6. Reserved This item is reserved and contains no information ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations MicroVision's 2023 financials show increased revenue and expenses from the Ibeo acquisition, leading to a higher net loss Overview Development focuses on automotive lidar and ADAS, with expected continued losses funded primarily through stock sales - Development and commercialization efforts are focused on automotive lidar and ADAS markets, combining lidar sensors (MEMS-based dynamic-range and flash-based short/mid-range) with perception software for integration on custom ASICs[143] - The company has incurred substantial losses since inception and expects a significant loss in fiscal year 2024, funding operations primarily through stock sales, convertible preferred stock, warrants, convertible debt, and, to a lesser extent, development contracts, product sales, and licensing[145] Key Accounting Policies and Estimates Significant judgments are required for business combinations, intangible asset valuation, revenue recognition, and share-based payments - Key accounting policies requiring significant judgments and estimates include business combinations, valuation of intangibles, revenue recognition, inventory valuation, share-based payments, income taxes, and depreciable lives assessment[147][218] - Business combinations are accounted for under the acquisition method, allocating fair value of purchase consideration to acquired assets and liabilities, with any excess over consideration recognized as a bargain purchase gain[149][223] - Intangible assets (acquired technology, patents) are amortized using the straight-line method over estimated benefit periods (1-17 years) and reviewed for impairment[150][227] - Share-based compensation expense for stock options, RSUs, and PSUs is recognized on a straight-line basis over the service period, with fair values estimated using Black-Scholes or binomial option pricing models[151][255] Results of Operations Revenue surged by 993.2% in 2023 due to a Microsoft contract and Ibeo acquisition, increasing R&D and SG&A expenses Revenue (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | $ Change | % Change | | :-------------------- | :----- | :--- | :------- | :------- | | Revenue | $7,259 | $664 | $6,595 | 993.2% | - Revenue increase primarily due to recognition of remaining $4.6 million from a Microsoft contract (terminated Dec 31, 2023) and customer contracts assumed from the January 2023 Ibeo acquisition[154][155] Cost of Revenue (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | $ Change | % Change | | :-------------------- | :----- | :--- | :------- | :------- | | Cost of Revenue | $2,772 | $100 | $2,672 | 2,672.0% | - Cost of revenue increased due to $1.4 million amortization of Ibeo intangible assets and higher materials/labor associated with increased revenue[158] Research and Development Expense (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | $ Change | % Change | | :-------------------- | :------ | :------ | :------- | :------- | | R&D Expense | $56,707 | $30,413 | $26,294 | 86.5% | - R&D expense increase primarily due to $21.2 million higher salary and benefits from increased headcount (Ibeo acquisition), $1.6 million increased depreciation, and $1.6 million increased facilities and IT expenses[160] Sales, Marketing, General and Administrative Expense (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | $ Change | % Change | | :-------------------- | :------ | :------ | :------- | :------- | | SG&A Expense | $36,689 | $24,041 | $12,648 | 52.6% | - SG&A expense increase primarily due to $7.0 million higher salary and benefits (Ibeo acquisition), $1.3 million increased professional services for the acquisition, $1.1 million increased non-cash compensation, and $1.1 million increased depreciation[162] Bargain Purchase Gain, Net of Tax (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | $ Change | % Change | | :-------------------- | :----- | :--- | :------- | :------- | | Bargain Purchase Gain | $1,669 | $- | $1,669 | - | - Bargain purchase gain resulted from the Ibeo acquisition, representing the excess of the fair value of acquired net assets over the purchase consideration[163] Other Income (Expense), Net (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | $ Change | % Change | | :-------------------- | :----- | :--- | :------- | :------- | | Other Income (Expense)| $5,510 | $799 | $4,711 | 589.6% | - Increase in other income primarily due to a $3.0 million incentive payment for terminating a previous building lease and income from investment securities[164] - Income tax expense of $1.1 million in 2023 (vs. $0.0 million in 2022) mainly related to profitability in foreign jurisdictions from the Ibeo acquisition, partially offset by a deferred income tax benefit[165] Liquidity and Capital Resources Total liquidity was $73.8 million at year-end 2023, sufficient for 12 months, but additional capital will be needed - At December 31, 2023, total liquidity was $73.8 million, comprising $45.2 million in cash and cash equivalents and $28.6 million in investment securities[167][217] - Approximately $19.0 million remains available under the existing $35.0 million ATM facility[167][291] - The company anticipates sufficient cash and cash equivalents to fund operations for at least the next 12 months but will require additional capital thereafter[167][217] Cash Flows from Operating Activities (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | $ Change | | :-------------------- | :------- | :------- | :------- | | Net cash used in operating activities | $(67,090)| $(38,019)| $(29,071)| - Increased cash used in operating activities primarily due to higher operating expenses from the Ibeo acquisition and a $3.1 million payment for MOVIA sensor inventory buildup[168] Cash Flows from Investing Activities (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | $ Change | | :-------------------- | :------- | :------- | :------- | | Net cash provided by (used in) investing activities | $21,822 | $(38,073)| $59,895 | - Investing activities shifted from cash used to cash provided, driven by higher sales of investment securities ($76.7 million) compared to purchases ($41.7 million) in 2023, and $11.2 million in payments for the Ibeo acquisition[169][170] Cash Flows from Financing Activities (2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | $ Change | | :-------------------- | :------- | :------- | :------- | | Net cash provided by financing activities | $72,438 | $14,307 | $58,131 | - Financing activities were significantly higher in 2023 due to $72.3 million net proceeds from common stock issuance (ATM offerings)[171][175][291][292][293] Contractual Obligations Contractual obligations total $35.7 million, mainly open purchase obligations and operating lease payments due within one year Contractual Obligations as of December 31, 2023 (in thousands) | Contractual Obligations | < 1 year | 1-3 years | 3-5 years | > 5 years | Total | | :---------------------- | :------- | :-------- | :-------- | :-------- | :------- | | Open purchase obligations | $10,414 | $320 | $- | $- | $10,734 | | Operating leases | $2,951 | $6,819 | $6,686 | $8,527 | $24,983 | | Total | $13,365| $7,139| $6,686| $8,527| $35,717| - Open purchase obligations represent commitments for materials, capital equipment, and maintenance, totaling $10.7 million, with most ($10.4 million) due within one year[176] - Minimum payments under operating leases total $25.0 million, including payments for a forward-starting lease for MicroVision GmbH expected to commence in late 2024[176][177] Recent Accounting Pronouncements Information on recent accounting pronouncements is detailed in Note 2, "Summary of significant accounting policies" - Refer to Note 2, "Summary of significant accounting policies," for information on recent accounting pronouncements[178] ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Market and interest rate risks are not material due to short-term investments, but foreign exchange risk exists from Euro operations Interest Rate and Market Liquidity Risks Market and interest rate risks are not material due to variable interest rates on cash and short-term investment maturities - All cash and cash equivalents have variable interest rates, but exposure to market and interest rate risks is not material[179] - Market risk from investment securities is not significant due to their short-term maturities[179] - Investment policy goals are principal preservation, adequate liquidity, and return[180] Cash and Investment Securities as of December 31, 2023 (in thousands) | Category | Amount | Percent | | :---------------------- | :------- | :------ | | Cash and cash equivalents | $45,167 | 61.2% | | Less than one year (Investments) | $28,611 | 38.8% | | Total | $73,778| 100.0%| Foreign Exchange Rate Risk Foreign exchange rate risk exists due to Euro-denominated financial statements of international subsidiaries, potentially affecting consolidated results - Major contracts and payments are in U.S. dollars or Euros, and changes in exchange rates may affect revenue and operating results[181] - International subsidiary financial statements are denominated in Euros, subjecting consolidated financial statements to foreign currency translation impact[181] - The company may use foreign currency hedges for material exposure[181] ITEM 8. Financial Statements and Supplementary Data This section presents MicroVision's audited consolidated financial statements and notes for 2023, 2022, and 2021 Report of Independent Registered Public Accounting Firm Moss Adams LLP issued an unqualified opinion on MicroVision's consolidated financial statements and internal control - Moss Adams LLP audited the consolidated financial statements for MicroVision, Inc. as of December 31, 2023 and 2022, and for the three years ended December 31, 2023[186] - Issued an unqualified opinion that the consolidated financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with GAAP[186] - Also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[187] - Identified the business combination, specifically the valuation of acquired intangible assets from Ibeo, as a critical audit matter due to complex valuation models and significant subjective auditor judgment[191][192] Consolidated Balance Sheets The consolidated balance sheets present the company's financial position as of December 31, 2023 and 2022 Consolidated Balance Sheet (in thousands) | | December 31, 2023 | December 31, 2022 | | :--------------------------------------- | :---------------- | :---------------- | | Assets | | | | Cash and cash equivalents | $45,167 | $20,536 | | Investment securities, available-for-sale| $28,611 | $62,173 | | Restricted cash, current | $3,263 | $- | | Accounts receivable, net | $949 | $- | | Inventory | $3,874 | $1,861 | | Advance to Ibeo | $- | $4,132 | | Other current assets | $4,890 | $2,306 | | Total current assets | $86,754 | $91,008 | | Property and equipment, net | $9,032 | $6,830 | | Operating lease right-of-use asset | $13,758 | $14,579 | | Restricted cash, net of current portion | $961 | $1,418 | | Intangible assets, net | $17,235 | $75 | | Other assets | $1,895 | $1,086 | | Total assets | $129,635 | $114,996 | | Liabilities and shareholders' equity | | | | Accounts payable | $2,271 | $2,061 | | Accrued liabilities | $8,640 | $2,058 | | Accrued liability for Ibeo business combination | $6,300 | $- | | Contract liabilities | $300 | $4,601 | | Current portion of operating lease liability | $2,323 | $1,846 | | Current portion of finance lease obligations | $- | $21 | | Other current liabilities | $669 | $839 | | Total current liabilities | $20,503 | $11,426 | | Operating lease liability, net of current portion | $12,714 | $13,829 | | Other long-term liabilities | $614 | $- | | Total liabilities | $33,831 | $25,255 | | Common stock | $195 | $171 | | Additional paid-in capital | $860,765 | $772,221 | | Accumulated other comprehensive gain (loss) | $210 | $(127) | | Accumulated deficit | $(765,366) | $(682,524) | | Total shareholders' equity | $95,804 | $89,741 | | Total liabilities and shareholders' equity | $129,635 | $114,996 | Consolidated Statements of Operations The consolidated statements of operations detail the company's financial performance for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Operations (in thousands, except per share data) | | Year Ended December 31, 2023 | Year Ended December 31, 2022 | Year Ended December 31, 2021 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $7,259 | $664 | $2,500 | | Cost of revenue | $2,772 | $100 | $2 | | Gross profit | $4,487 | $564 | $2,498 | | Research and development expense | $56,707 | $30,413 | $24,111 | | Sales, marketing, general and administrative expense | $36,689 | $24,041 | $22,256 | | Gain on disposal of fixed assets | $(34) | $- | $- | | Total operating expenses | $93,362 | $54,454 | $46,367 | | Loss from operations | $(88,875) | $(53,890) | $(43,869) | | Bargain purchase gain, net of tax | $1,669 | $- | $- | | Gain on debt extinguishment | $- | $- | $692 | | Other income (expense), net | $5,510 | $799 | $(23) | | Net loss before taxes | $(81,696) | $(53,091) | $(43,200) | | Income tax expense | $(1,146) | $- | $- | | Net loss | $(82,842) | $(53,091) | $(43,200) | | Net loss per share - basic and diluted | $(0.45) | $(0.32) | $(0.27) | | Weighted-average shares outstanding - basic and diluted | 182,802 | 165,958 | 160,662 | Consolidated Statements of Comprehensive Loss The consolidated statements of comprehensive loss present the net loss and other comprehensive income/loss for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Comprehensive Loss (in thousands) | | Year Ended December 31, 2023 | Year Ended December 31, 2022 | Year Ended December 31, 2021 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss | $(82,842) | $(53,091) | $(43,200) | | Other comprehensive loss | | | | | Unrealized gain (loss) on investment securities, available-for-sale | $153 | $(108) | $(19) | | Unrealized gain on translation | $184 | $- | $- | | Comprehensive loss | $(82,505) | $(53,199) | $(43,219) | Consolidated Statements of Shareholders' Equity (Deficit) The consolidated statements of shareholders' equity (deficit) detail changes in equity for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Shareholders' Equity (Deficit) (in thousands) | | Common Stock Shares | Common Stock Par value | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total shareholders' equity (deficit) | | :--------------------------------------- | :------------------ | :--------------------- | :------------------------- | :----------------------------------- | :------------------ | :----------------------------------- | | Balance at December 31, 2020 | 152,926 | 153 | 601,224 | $- | $(586,233) | $9,009 | | Share-based compensation expense | 2,365 | 2 | 15,282 | $- | $- | $15,284 | | Exercise of options | 1,518 | 2 | 2,652 | $- | $- | $2,654 | | Sales of common stock, net of issuance costs | 7,554 | 7 | 122,884 | $- | $- | $129,026 | | Net loss | - | - | - | $- | $(43,200) | $(43,200) | | Other comprehensive loss | - | - | - | $(19) | $- | $(19) | | Balance at December 31, 2021 | 164,363 | 164 | 742,042 | $(19) | $(629,433) | $112,754 | | Share-based compensation expense | 1,294 | 1 | 15,460 | $- | $- | $15,461 | | Exercise of options | 525 | 1 | 725 | $- | $- | $726 | | Sales of common stock, net of issuance costs | 4,321 | 5 | 13,994 | $- | $- | $13,999 | | Net loss | - | - | - | $- | $(53,091) | $(53,091) | | Other comprehensive loss | - | - | - | $(108) | $- | $(108) | | Balance at December 31, 2022 | 170,503 | 171 | 772,221 | $(127) | $(682,524) | $89,741 | | Share-based compensation expense | 1,946 | 2 | 16,139 | $- | $- | $16,141 | | Exercise of options | 191 | - | 175 | $- | $- | $175 | | Sales of common stock, net of issuance costs | 22,096 | 22 | 72,230 | $- | $- | $72,252 | | Net loss | - | - | - | $- | $(82,842) | $(82,842) | | Other comprehensive gain | - | - | - | $337 | $- | $337 | | Balance at December 31, 2023 | 194,736 | 195 | 860,765 | $210 | $(765,366) | $95,804 | Consolidated Statements of Cash Flows The consolidated statements of cash flows present the cash inflows and outflows from operating, investing, and financing activities for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Cash Flows (in thousands) | | Year Ended December 31, 2023 | Year Ended December 31, 2022 | Year Ended December 31, 2021 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Cash flows from operating activities | | | | | Net loss | $(82,842) | $(53,091) | $(43,200) | | Depreciation and amortization | $7,864 | $2,246 | $1,464 | | Share-based compensation expense | $16,141 | $15,461 | $15,284 | | Net cash used in operating activities | $(67,090) | $(38,019) | $(29,404) | | Cash flows from investing activities | | | | | Sales of investment securities | $76,700 | $60,576 | $- | | Purchases of investment securities | $(41,710) | $(90,158) | $(32,825) | | Cash paid for Ibeo business combination | $(11,233) | $- | $- | | Net cash provided by (used in) investing activities | $21,822 | $(38,073) | $(35,318) | | Cash flows from financing activities | | | | | Net proceeds from issuance of common stock | $72,284 | $13,999 | $122,891 | | Net cash provided by financing activities | $72,438 | $14,307 | $131,164 | | Change in cash, cash equivalents, and restricted cash | $27,437 | $(61,785) | $66,442 | | Cash, cash equivalents, and restricted cash at end of period | $49,391 | $21,954 | $83,739 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements 1. The Company and Liquidity MicroVision develops lidar sensors and software, with significant losses and reliance on stock sales for funding - MicroVision is developing and commercializing lidar sensors and software for automotive safety and autonomous driving applications, utilizing patented laser beam scanning (LBS) technology[213] - The company completed the acquisition of Ibeo Automotive Systems GmbH assets on January 31, 2023, for approximately $16.3 million, to expand technology and product portfolio[215] - Significant losses have been incurred since inception, with expectations of continued losses in fiscal year 2024, funded primarily through common stock sales[216] - As of December 31, 2023, total liquidity was $73.8 million ($45.2 million cash, $28.6 million investment securities), with $19.0 million available under an existing ATM agreement[217] - Sufficient cash and cash equivalents are anticipated to fund operations for at least the next 12 months, but additional capital will be required thereafter[217] 2. Summary of Significant Accounting Policies This note outlines key accounting policies and estimates, including business combinations, revenue recognition, and share-based payments - Financial statements are prepared in accordance with GAAP, requiring estimates and judgments in areas such as business combinations, intangible asset valuation, revenue recognition, inventory, share-based payments, and income taxes[218] - Fair value of financial instruments (cash, investments, receivables, payables) approximates carrying value due to short maturities; cash equivalents and short-term investments are highly rated debt securities[219][220][221] - Consolidated financial statements include MicroVision, Inc. and its wholly-owned German subsidiary, MicroVision GmbH, with intercompany accounts eliminated[222] - Business combinations are accounted for using the acquisition method, allocating purchase consideration to acquired assets and liabilities at fair value, with any excess recognized as a bargain purchase gain[223] - The functional currency for German operations is the Euro, with results translated into U.S. dollars; foreign currency translation adjustments are included in other comprehensive loss[224] - The company operates as one segment, related to the sale and servicing of lidar hardware and software[225] - Inventory is valued at the lower of cost (FIFO) and net realizable value, with periodic assessments for obsolescence[226] - Intangible assets (acquired technology, patents) are amortized straight-line over 1-17 years and reviewed for impairment[227] - Revenue is recognized when control of goods or services is transferred to customers, following a 5-step model (Topic 606), with significant judgment in determining transaction price and allocating to performance obligations[235][236][237][238][239] - Product revenue is recognized at shipment, license/royalty revenue at a point in time for right-to-use licenses or over time for right-to-access, and contract revenue over time or at completion based on control transfer[240][241][242] - Cost of product revenue includes direct and allocated indirect costs of products sold; cost of contract revenue includes direct and allocated indirect costs of performing on contracts and producing prototypes[245][246] - Financial instruments are subject to concentration of credit risk, primarily cash equivalents and accounts receivable; significant concentration of components from single/limited-source suppliers poses supply chain risks[248][250] - Deferred tax assets and liabilities are recorded for temporary differences, with valuation allowances established when realization is not more likely than not[251] - Basic and diluted net loss per share are equal because the effect of potentially dilutive securities (options, RSUs) is anti-dilutive[252] - Research and development costs are expensed as incurred, with a substantial level of continuing R&D expected[254] Share-Based Compensation Expense (in thousands) | Line Item | 2023 | 2022 | 2021 | | :-------------------------------------- | :------ | :------ | :------ | | Research and development expense | $6,531 | $6,933 | $6,125 | | Sales, marketing, general and administrative expense | $9,610 | $8,528 | $9,159 | | Total | $16,141| $15,461| $15,284| 3. Business Combination Details the January 2023 Ibeo acquisition for approximately $21.6 million, resulting in a bargain purchase gain - On January 31, 2023, MicroVision acquired certain net assets of Ibeo Automotive Systems, a German lidar hardware and software provider, to expand its technology and product portfolio[258] - Total consideration for the Ibeo acquisition was approximately EUR 20.0 million ($21.6 million), including cash paid at closing, prior advances, escrowed funds, and costs paid on behalf of the seller[259] - The accrued liability for the Ibeo business combination includes $3.3 million held in escrow and a $3.0 million holdback amount expected to be paid in Q1 2024[260] Final Purchase Price Allocation for Ibeo Acquisition (in thousands) | Item | Amount | Weighted Average Useful Life (years) | | :------------------------------------- | :------- | :----------------------------------- | | Purchase consideration: | | | | Cash paid at closing | $8,245 | | | Payable to Ibeo | $6,246 | | | Advances to Ibeo | $7,120 | | | Total purchase consideration | $21,611| | | 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 | | Intangible assets: Order backlog | $26 | 1 | | Contract liabilities | $(1,178) | | | Operating lease liabilities | $(234) | | | Deferred tax liabilities | $(785) | | | Total identifiable net assets | $23,280| | | Bargain purchase gain | $(1,669)| | - A bargain purchase gain of $1.7 million was recorded because the cash consideration paid was less than the fair value of the net assets acquired, resulting from negotiations during Ibeo's insolvency proceedings[262][263] - Unaudited pro forma financial information shows that if the acquisition had occurred on January 1, 2022, total revenue would have been $7.8 million in 2023 and $7.0 million in 2022, with net losses of $(80.2) million and $(115.8) million, respectively[265] 4. Revenue Recognition Revenue is recognized when control of goods or services is transferred to customers, following a 5-step model - Revenue is recognized when control of promised goods or services is transferred to customers, based on a 5-step model (Topic 606) that involves identifying contracts, performance obligations, transaction price, allocation, and recognition timing[266][267][268][271][272] Disaggregated Revenue by Timing of Recognition (in thousands) | Timing of Revenue Recognition | 2023 | 2022 | 2021 | | :---------------------------- | :------ | :--- | :--- | | Products transferred at a point in time | $7,013 | $664 | $2,500 | | Product and services transferred over time | $246 | $- | $- | | Total | $7,259| $664| $2,500| - In 2023, $4.6 million of revenue was recognized from a Microsoft contract (terminated Dec 31, 2023) by applying it against a contract liability, as further deliveries are unlikely[275] - Assumed contract liabilities of approximately $1.2 million from the Ibeo acquisition, against which $1.0 million in revenue was recognized during 2023[277] Transaction Price Allocated to Remaining Performance Obligations (in thousands) | Year | Revenue | | :--- | :------ | | 2024 | $300 | | 2025 | $- | 5. Investment Securities, Available-for-Sale and Fair Value Measurements Investment securities are classified as available-for-sale and measured at fair value using a three-level hierarchy - Investment securities are classified as available-for-sale, stated at fair value with unrealized gains/losses in other comprehensive income (loss)[221] - Fair value measurements use a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[280][281][282] Investment Securities by Fair Value Hierarchy (in thousands) | As of December 31, 2023 | Level 1 | Level 2 | Level 3 | Total | | :---------------------- | :------ | :-------- | :------ | :-------- | | Corporate debt securities | $- | $8,471 | $- | $8,471 | | U.S. Treasury securities | $- | $20,140 | $- | $20,140 | | Total | $- | $28,611| $- | $28,611| | As of December 31, 2022 | Level 1 | Level 2 | Level 3 | Total | | :---------------------- | :------ | :-------- | :------ | :-------- | | Corporate debt securities | $- | $15,500 | $- | $15,500 | | U.S. Treasury securities | $- | $46,673 | $- | $46,673 | | Total | $- | $62,173| $- | $62,173| Short-Term Investments (in thousands) | As of December 31, 2023 | Cost/Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Investment Securities, Available For-Sale | | :---------------------- | :------------------ | :--------------------- | :---------------------- | :---------------------------------------- | | Corporate debt securities | $8,466 | $6 | $(1) | $8,471 | | U.S. Treasury securities | $20,119 | $21 | $- | $20,140 | | Total | $28,585 | $27 | $(1) | $28,611 | | As of December 31, 2022 | Cost/Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Investment Securities, Available For-Sale | | :---------------------- | :------------------ | :--------------------- | :---------------------- | :---------------------------------------- | | Corporate debt securities | $15,538 | $- | $(38) | $15,500 | | U.S. Treasury securities | $46,762 | $2 | $(91) | $46,673 | | Total | $62,300 | $2 | $(129) | $62,173 | - All investment securities available-for-sale as of December 31, 2023 and 2022, have maturities of less than one year[285] 6. Inventory Inventory components, including raw materials, work in process, and finished goods, are valued at the lower of cost and net realizable value Inventory Components (in thousands) | Category | December 31, 2023 | December 31, 2022 | | :-------------- | :---------------- | :---------------- | | Raw materials | $1,574 | $1,556 | | Work in process | $305 | $305 | | Finished Goods | $1,995 | $- | | Total | $3,874 | $1,861 | - Total inventory increased from $1.861 million in 2022 to $3.874 million in 2023, primarily due to the addition of finished goods inventory[286] 7. Property and Equipment Details the cost and accumulated depreciation of property and equipment, including production and lab equipment Property and Equipment (in thousands) | Category | December 31, 2023 | December 31, 2022 | | :---------------------------- | :---------------- | :---------------- | | Production equipment | $6,140 | $6,140 | | Leasehold improvements | $3,843 | $3,789 | | Computer hardware and software/lab equipment | $12,149 | $10,515 | | Office furniture and equipment| $5,367 | $1,804 | | Total cost | $27,499 | $22,248 | | Less: Accumulated depreciation| $(18,467) | $(15,418) | | Net property and equipment| $9,032 | $6,830 | - Net property and equipment increased from $6.830 million in 2022 to $9.032 million in 2023[287] - Depreciation expense was $3.1 million in 2023, $0.7 million in 2022, and $0.9 million in 2021[287] 8. Intangible Assets Intangible assets, primarily acquired technology from Ibeo, are amortized over their useful lives Intangible Assets (in thousands) | As of December 31, 2023 | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Period (Years) | | :---------------------- | :-------------------- | :----------------------- | :------------------ | :---------------------------------------- | | Acquired technology | $20,172 | $2,940 | $17,232 | 12 | | Backlog | $26 | $23 | $3 | - | | Total | $20,198 | $2,963 | $17,235 | | | As of December 31, 2022 | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Period (Years) | | :---------------------- | :-------------------- | :----------------------- | :------------------ | :---------------------------------------- | | Acquired technology | $951 | $876 | $75 | 4 | | Total | $951 | $876 | $75 | | - Net intangible assets significantly increased from $75 thousand in 2022 to $17.235 million in 2023, primarily due to acquired technology from the Ibeo acquisition[288] - Amortization expense was $2.1 million in 2023, compared to $0.0 million in 2022 and 2021[288] Estimated Future Amortization Expense (in thousands) | Years Ended December 31, | Cost of Revenue | Research and Development Expense | Total | | :----------------------- | :-------------- | :------------------------------- | :------- | | 2024 | $1,548 | $584 | $2,132 | | 2025 | $1,548 | $54 | $1,602 | | 2026 | $1,548 | $25 | $1,573 | | 2027 | $1,508 | $- | $1,508 | | Thereafter | $10,420 | $- | $10,420 | | Total | $16,572 | $663 | $17,235| 9. Accrued Liabilities Accrued liabilities increased significantly in 2023, driven by payroll, payroll taxes, and income taxes payable Accrued Liabilities (in thousands) | Category | December 31, 2023 | December 31, 2022 | | :---------------------- | :---------------- | :---------------- | | Bonuses | $1,359 | $537 | | Payroll and payroll taxes | $3,704 | $766 | | Income taxes payable | $2,111 | $- | | Accrued professional fees | $236 | $378 | | Liabilities to suppliers| $885 | $130 | | Other | $345 | $247 | | Total | $8,640 | $2,058 | - Total accrued liabilities increased significantly from $2.058 million in 2022 to $8.640 million in 2023, driven by increases in payroll, payroll taxes, and income taxes payable[290] - The accrued liability for Ibeo business combination ($6.3 million) includes $3.3 million held in escrow and a $3.0 million holdback amount due in Q1 2024[290] 10. Common Stock Details common stock issuances, including shares sold through at-the-market equity offerings in 2023 - In August 2023, the company entered into a $35.0 million ATM equity offering agreement, selling 6.1 million shares for net proceeds of $15.5 million by December 31, 2023, with $19.0 million remaining available[291] - In June 2023, a $45.0 million ATM equity offering agreement was completed, selling 10.9 million shares for net proceeds of $43.9 million[292] - A $140.0 million ATM equity offering agreement from June 2021 was terminated in June 2023, under which 5.0 million shares were issued for $12.5 million net proceeds in Q1 2023[293] 11. Share-Based Compensation Share-based compensation expense is recognized for stock options, RSUs, and PSUs, with complex valuation estimates - Share-based compensation is allocated using the straight-line attribution method, with valuation involving complex estimates for stock price volatility, exercise behaviors, turnover, and forfeiture rates[294] - The 2022 Incentive Plan has 20.0 million shares authorized, with 9.4 million shares available for awards as of December 31, 2023[295] - Stock options are valued using the Black-Scholes model, considering historical volatilities, expected lives, risk-free rates, and expected dividends[296][297][298] Options Activity and Positions (in thousands) | Options Activity | Shares | Weighted average exercise price | | :-------------------------------- | :----- | :------------------------------ | | Outstanding as of December 31, 2022 | 945 | $1.26 | | Exercised | (191) | $0.92 | | Forfeited or expired | (2) | $0.28 | | Outstanding as of December 31, 2023 | 752| $1.35 | | Vested and expected to vest as of December 31, 2023 | 752 | $1.35 | | Exercisable as of December 31, 2023 | 752 | $1.35 | - No unrecognized share-based compensation related to options as of December 31, 2023[300] Restricted Stock Activity and Positions (in thousands) | RSU/PSU Activity | Shares | Weighted-average price | | :-------------------------------- | :----- | :--------------------- | | Unvested as of December 31, 2022 | 8,866 | $3.85 | | Granted | 3,491 | $3.89 | | Vested | (1,872)| $6.98 | | Forfeited | (502) | $7.47 | | Unvested as of December 31, 2023| 9,983| $3.09 | - In 2023, 2.6 million PSUs were issued to non-executive employees (subject to development goals), 0.1 million shares for partial achievement of milestones, and 0.6 million time-based RSUs for promotion/retention/new hires[301][302][303] - Unrecognized share-based compensation as of December 31, 2023: $5.0 million for RSUs (expensed over 1.6 years), $5.1 million for executive PSUs (expensed over 1.8 years), and $3.3 million for non-executive PSUs (expensed over 1.0 year)[311] 12. Leases The company leases office space and equipment under finance and operating leases, with details on ROU assets, liabilities, and lease expenses - The company leases office space and equipment under finance and operating leases, with terms ranging from one to ten years[312] - Operating lease ROU assets and liabilities are recognized at commencement based on the present value of lease payments, using