MicroVision(MVIS) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents unaudited condensed financial statements, detailing significant increases in cash and equity, a shift to royalty revenue, and a substantial rise in net loss Condensed Balance Sheets Condensed Balance Sheet Highlights (in thousands): | Item | June 30, 2021 | December 31, 2020 | Change ($) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $135,288 | $16,862 | $118,426 | 702.3% | | Total current assets | $136,324 | $17,560 | $118,764 | 676.3% | | Total assets | $140,417 | $21,006 | $119,411 | 568.5% | | Total current liabilities | $10,399 | $10,028 | $371 | 3.7% | | Total liabilities | $11,520 | $11,997 | $(477) | (4.0)% | | Total shareholders' equity | $128,897 | $9,009 | $119,888 | 1330.8% | Condensed Statements of Operations Condensed Statements of Operations Highlights (in thousands): | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product revenue | $0 | $0 | $0 | $1,247 | | License and royalty revenue | $746 | $572 | $1,225 | $784 | | Contract revenue | $0 | $15 | $0 | $25 | | Total revenue | $746 | $587 | $1,225 | $2,056 | | Gross profit | $777 | $588 | $1,261 | $658 | | Research and development expense | $7,376 | $1,607 | $11,838 | $5,290 | | Sales, marketing, general and administrative expense | $8,355 | $1,280 | $10,602 | $3,051 | | Total operating expenses | $15,731 | $2,887 | $22,440 | $7,891 | | Loss from operations | $(14,954)$ | $(2,299)$ | $(21,179)$ | $(7,233)$ | | Net loss | $(14,962)$ | $(2,304)$ | $(21,193)$ | $(7,238)$ | | Net loss per share - basic and diluted | $(0.09)$ | $(0.02)$ | $(0.13)$ | $(0.05)$ | - Total revenue for the six months ended June 30, 2021, decreased by 40.5% to $1.225 million from $2.056 million in the prior year, primarily due to a 100% decrease in product revenue as the company shifted to royalty-based revenue recognition[15] - Net loss for the six months ended June 30, 2021, significantly widened to $(21.193) million from $(7.238) million in the prior year, driven by substantial increases in research and development expense (123.8%) and sales, marketing, general and administrative expense (247.5%)[15] Condensed Statements of Shareholders' Equity (Deficit) Changes in Shareholders' Equity (in thousands) for Six Months Ended June 30, 2021: | Item | Amount | | :-------------------------------- | :------- | | Balance at January 1, 2021 | $9,009 | | Share-based compensation expense | $9,535 | | Exercise of options | $2,510 | | Sales of common stock | $129,036 | | Net loss | $(21,193)| | Balance at June 30, 2021 | $128,897 | - Total shareholders' equity increased significantly from $9.009 million at January 1, 2021, to $128.897 million at June 30, 2021, primarily due to $129.036 million from sales of common stock, partially offset by a net loss of $21.193 million[17] Condensed Statements of Cash Flows Condensed Statements of Cash Flows Highlights (in thousands) for Six Months Ended June 30: | Activity | 2021 | 2020 | | :------------------------------------ | :--------- | :--------- | | Net cash used in operating activities | $(11,277)$ | $(8,370)$ | | Net cash provided by (used in) investing activities | $(1,884)$ | $431 | | Net cash provided by financing activities | $131,587 | $9,907 | | Change in cash, cash equivalents, and restricted cash | $118,426 | $1,968 | | Cash, cash equivalents, and restricted cash at end of period | $135,723 | $8,240 | - Net cash provided by financing activities surged to $131.587 million for the six months ended June 30, 2021, from $9.907 million in the prior year, primarily driven by $125.470 million in net proceeds from common stock issuance[20] - Cash used in operating activities increased to $11.277 million in 2021 from $8.370 million in 2020, mainly due to increased operating expenses[20] Notes to Condensed Financial Statements Note 1. Management's Statement - MicroVision is focused on developing its 1st Generation Long Range Lidar (LRL) module for the automotive market, aiming for features and performance exceeding competitors[24] - The company's past strategy of selling AR, Interactive, or Consumer Lidars to OEMs/ODMs has not secured significant additional customers, with only one customer generating royalty income[25] - Since February 2020, MicroVision has been exploring strategic alternatives (e.g., sale, merger, licensing) while continuing LRL development[25] - As of June 30, 2021, the company had $135.3 million in cash and cash equivalents, projected to fund operations for at least the next 12 months[27] Note 2. Net Loss Per Share Net Loss Per Share (in thousands, except per share data): | Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss available for common shareholders - basic and diluted | $(14,962)$ | $(2,304)$ | $(21,193)$ | $(7,238)$ | | Weighted-average common shares outstanding - basic and diluted | 158,818 | 140,107 | 157,136 | 133,661 | | Net loss per share - basic and diluted | $(0.09)$ | $(0.02)$ | $(0.13)$ | $(0.05)$ | - Basic and diluted net loss per share are equal because the effect of potentially dilutive securities (options, restricted/performance stock units) was anti-dilutive[28][29] Note 3. Long-Term Contracts - The five-year license agreement with Sharp Corporation for laser beam scanning (LBS) technology was amended in February 2021, extending the term to six years and adding twelve months to the initial exclusivity period due to COVID-19 impacts[30] Note 4. Revenue Recognition - Revenue is recognized when control of promised goods or services is transferred to customers, following a 5-step model, with all revenue generated from customer contracts[31][32] Disaggregated Revenue by Timing of Recognition (in thousands): | Timing of Revenue Recognition | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :---------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | :----------------------------- | | Products transferred at a point in time | $746 | $1,225 | $572 | $2,035 | | Product and services transferred over time | $0 | $0 | $15 | $21 | | Total | $746 | $1,225 | $587 | $2,056 | - Contract liabilities decreased by $1.225 million (15.8%) from December 31, 2020, to June 30, 2021, with $1.2 million applied against the Microsoft Corporation prepayment during the six months ended June 30, 2021[38] - An additional $1.1 million in license and royalty revenue is expected to be recognized in the remainder of 2021 from the prepayment, with the remaining $6.5 million contract liability classified as current but likely to be recognized beyond 12 months[40][41] Note 5. Concentration of Credit Risk and Major Customers and Suppliers - One customer, Microsoft Corporation, accounted for 100% of total revenue for the three and six months ended June 30, 2021 ($746 thousand and $1.2 million, respectively) and 2020 ($587 thousand and $2.1 million, respectively)[43] - The company relies on single or limited-source suppliers for components, posing risks of increased costs, revenue loss, or significant delays if supply chain disruptions occur[44] Note 6. Inventory Inventory (in thousands): | Item | June 30, 2021 | December 31, 2020 | | :----------- | :------------ | :---------------- | | Raw materials | $151 | $0 | | Finished goods | $0 | $0 | | Total | $151 | $0 | - Inventory consists solely of raw materials, valued at $151 thousand as of June 30, 2021, and is computed using the first-in, first-out (FIFO) method at the lower of cost and net realizable value[45] Note 7. Share-Based Compensation Share-Based Compensation Expense (in thousands): | Expense Category | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development expense | $2,201 | $103 | $3,387 | $142 | | Sales, marketing, general and administrative expense | $5,696 | $97 | $6,148 | $247 | | Total | $7,897 | $200 | $9,535 | $389 | - Share-based compensation expense significantly increased for the six months ended June 30, 2021, to $9.535 million from $389 thousand in the prior year, primarily due to higher non-cash compensation and changes in incentive/retention programs[48][88] - Unrecognized share-based compensation related to RSUs was $25.0 million (expensed over 2.6 years) and for non-executive PSUs was $10.4 million (expensed over 1.2 years) as of June 30, 2021[52] Note 8. Leases Total Lease Expense (in thousands): | Period | 2021 | 2020 | | :------------------------------- | :----- | :----- | | Three Months Ended June 30, | $126 | $123 | | Six Months Ended June 30, | $251 | $246 | Supplemental Balance Sheet Information Related to Leases (in thousands): | Item | June 30, 2021 | December 31, 2020 | | :------------------------------------ | :------------ | :---------------- | | Operating lease right-of-use assets | $753 | $946 | | Total operating lease liabilities | $1,153 | $1,450 | | Total finance lease liabilities | $57 | $75 | - The weighted-average remaining lease term for operating leases was 1.8 years and for finance leases was 1.5 years as of June 30, 2021[55] Note 9. Commitments and Contingencies - The company is not currently party to any legal proceedings that management believes are reasonably possible to have a material adverse effect on its financial position, results of operations, or cash flows[56] Note 10. Common Stock - In June 2021, MicroVision entered into a $140.0 million At-The-Market (ATM) equity offering agreement, issuing 4.0 million shares for $67.8 million in net proceeds by June 30, 2021[57] - In February 2021, the company completed a $50.0 million ATM equity offering, issuing 2.5 million shares for $48.8 million in net proceeds[58] - In December 2020, a $13.0 million ATM equity offering resulted in $12.7 million in net proceeds from 2.1 million shares issued by January 2021[59] Note 11. Subsequent Event - Approximately $690 thousand of the $1.6 million Paycheck Protection Program (PPP) loan received in April 2020 was approved for forgiveness in July 2021, which will be recorded as a gain on extinguishment of debt in the third quarter of 2021[62] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses financial performance, highlighting the strategic shift to automotive lidar, COVID-19 impacts, increased operating expenses, and enhanced liquidity from equity offerings Overview - MicroVision is developing a 1st Generation Long Range Lidar (LRL) sensor for automotive safety and autonomous driving applications, leveraging its patented laser beam scanning (LBS) technology[65][66] - The A-Sample LRL module was completed in April 2021, with potential for small quantity sales in the fourth quarter of 2021[67] - The company's strategy has been to sell AR displays, Interactive Displays, or Consumer Lidars, but it has been unable to secure additional customers beyond Microsoft Corporation, leading to an ongoing exploration of strategic alternatives since February 2020[69][70] - MicroVision has incurred substantial losses since inception and expects to incur a significant loss during the fiscal year ending December 31, 2021[71] Impact of COVID-19 on Our Business - COVID-19 has caused supply chain disruptions, leading to lower component availability from suppliers, which could materially impact future operating results[73] - Remote work for office-based employees may reduce productivity and disrupt business routines, potentially affecting development activities, capital raising, licensing agreements, or strategic transactions[74] - Approximately $690 thousand of the $1.6 million Paycheck Protection Program (PPP) loan received in April 2020 was approved for forgiveness in July 2021[75] Key accounting policies and estimates - There have been no significant changes to the company's critical accounting judgments, policies, and estimates as described in its Annual Report on Form 10-K for the year ended December 31, 2020[76] Results of operations Product revenue Product Revenue (in thousands): | Period | 2021 | 2020 | $ Change | % Change | | :------------------------ | :--- | :--- | :------- | :------- | | Three Months Ended June 30, | $0 | $0 | $0 | - | | Six Months Ended June 30, | $0 | $1,247 | $(1,247) | (100.0)% | - Product revenue decreased by 100% for the six months ended June 30, 2021, to $0, due to ceasing product shipments in March 2020 and transferring production to the customer, shifting revenue recognition to royalties[78] License and royalty revenue License and Royalty Revenue (in thousands): | Period | 2021 | 2020 | $ Change | % Change | | :------------------------ | :--- | :--- | :------- | :------- | | Three Months Ended June 30, | $746 | $572 | $174 | 30.4% | | Six Months Ended June 30, | $1,225 | $784 | $441 | 56.3% | - License and royalty revenue increased by 56.3% for the six months ended June 30, 2021, to $1.225 million, primarily due to the shift from product revenue to royalty recognition after the customer took over component production in March 2020[81] - This royalty revenue is recognized as a reduction in a $10.0 million prepayment received in 2017, meaning no cash is received until the prepayment is exhausted[81] Contract revenue Contract Revenue (in thousands): | Period | 2021 | 2020 | $ Change | % Change | | :------------------------ | :--- | :--- | :------- | :------- | | Three Months Ended June 30, | $0 | $15 | $(15) | (100.0)% | | Six Months Ended June 30, | $0 | $25 | $(25) | (100.0)% | - Contract revenue decreased by 100% for the six months ended June 30, 2021, to $0, attributed to decreased support contract activity with the customer and no prototype shipments[83] Cost of product revenue Cost of Product Revenue (in thousands): | Period | 2021 | 2020 | $ Change | % Change | | :------------------------ | :---- | :---- | :------- | :-------- | | Three Months Ended June 30, | $(31) | $(1) | $(30) | 3,000.0% | | Six Months Ended June 30, | $(36) | $1,394 | $(1,430) | (102.6)% | - Cost of product revenue decreased by 102.6% for the six months ended June 30, 2021, to a credit of $36 thousand, primarily due to ceasing product shipments after transferring production to the customer in March 2020. The credits relate to the reversal of accrued warranty liabilities[84] Cost of contract revenue Cost of Contract Revenue (in thousands): | Period | 2021 | 2020 | $ Change | % Change | | :------------------------ | :--- | :--- | :------- | :------- | | Three Months Ended June 30, | $0 | $0 | $0 | - | | Six Months Ended June 30, | $0 | $4 | $(4) | (100.0)% | - Cost of contract revenue decreased by 100% for the six months ended June 30, 2021, to $0, primarily due to reduced contract activity[86] Research and development expense Research and Development Expense (in thousands): | Period | 2021 | 2020 | $ Change | % Change | | :------------------------ | :----- | :----- | :------- | :------- | | Three Months Ended June 30, | $7,376 | $1,607 | $5,769 | 359.0% | | Six Months Ended June 30, | $11,838 | $5,290 | $6,548 | 123.8% | - Research and development expense increased by 123.8% for the six months ended June 30, 2021, to $11.838 million, primarily due to higher non-cash compensation expense, increased headcount, and direct material and equipment expenses related to lidar sensor development[88] Sales, marketing, general and administrative expense Sales, Marketing, General and Administrative Expense (in thousands): | Period | 2021 | 2020 | $ Change | % Change | | :------------------------ | :------ | :----- | :------- | :------- | | Three Months Ended June 30, | $8,355 | $1,280 | $7,075 | 552.7% | | Six Months Ended June 30, | $10,602 | $3,051 | $7,551 | 247.5% | - Sales, marketing, general and administrative expense increased by 247.5% for the six months ended June 30, 2021, to $10.602 million, primarily attributed to higher non-cash compensation expense and professional services[90] Liquidity and capital resources - As of June 30, 2021, MicroVision had $135.3 million in cash and cash equivalents, which is anticipated to be sufficient to fund operations for at least the next 12 months[92][93] - Cash used in operating activities increased to $11.3 million for the six months ended June 30, 2021, from $8.4 million in the prior year, primarily due to increased operating expenses for development activities[94] - Net cash provided by financing activities was $131.6 million for the six months ended June 30, 2021, significantly higher than $9.9 million in the prior year, driven by substantial net proceeds from common stock issuances through ATM equity offerings[20][96][97][98][99] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company assesses its exposure to market, interest rate, and foreign exchange risks as not material, with cash in variable rate accounts and contracts in USD - MicroVision believes its exposure to market and interest rate risk is not material, as all cash and cash equivalents have variable interest rates[100] - The company's exposure to currency fluctuations related to foreign purchase orders and supply agreements is not material, as major contracts and licensing activity payments are currently made in U.S. dollars[102] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective as of June 30, 2021, due to a material weakness in equity award grant date determination, with remediation ongoing - Disclosure controls and procedures were not effective as of June 30, 2021, due to a material weakness in controls supporting the determination of the grant date of equity awards[104][105] - Remediation activities are in progress, including revising processes for equity grants, defining documentation requirements, and training personnel[105][106] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is subject to routine legal claims but does not anticipate any current proceedings will materially affect its financial position or operations - MicroVision is not currently party to any legal proceedings that management believes are reasonably possible to have a material adverse effect on its financial position, results of operations, or cash flows[108] Item 1A. Risk Factors This section outlines significant risks, including operating losses, commercialization uncertainty, single-customer dependence, supply chain vulnerabilities, capital needs, stock volatility, intellectual property, competition, and internal control weaknesses - MicroVision has a history of substantial operating losses, with an accumulated deficit of $607.4 million as of June 30, 2021, and expects to incur significant losses in the future[110][113] - There is substantial risk that efforts to secure strategic alternatives (e.g., sale, merger) or successfully commercialize its automotive lidar technology will be unsuccessful, with no current agreements or commitments[114] - The company's ability to raise additional capital beyond the next 12 months is uncertain, and any future equity issuance could dilute current shareholders[116][118] - MicroVision is highly dependent on a single customer (Microsoft Corporation) for 100% of its revenue and relies on single or limited-source suppliers, posing significant risks if these relationships are disrupted[120][128] - The company's stock price has been highly volatile, trading between $1.25 and $28.00 in the past 12 months, and may be subject to further volatility, including potential 'short squeeze' risks[133][134][135] - A material weakness in internal controls related to the determination of equity award grant dates has been identified, which, if not remediated, could lead to material misstatements and harm investor confidence[132] - MicroVision faces intense competition from companies with greater resources and risks falling behind rapid technological changes in the automotive lidar and consumer display industries[139][140] - The company's success depends on its ability to obtain and maintain effective intellectual property protection for its LBS technology, which involves complex legal and factual questions and is subject to challenges[149][151] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including employment agreements, officer certifications, and Inline XBRL documents - Exhibits include the Employment Agreement for Sumit Sharma, Principal Executive Officer and Principal Financial Officer Certifications, and various Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents)[160] Signatures The report was officially signed by MicroVision, Inc.'s CEO and Director, Sumit Sharma, and CFO, Stephen P. Holt, on August 11, 2021 - The report was signed on August 11, 2021, by Sumit Sharma, Chief Executive Officer and Director, and Stephen P. Holt, Chief Financial Officer[164]