MicroVision(MVIS) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents MicroVision's unaudited condensed financial statements, management's discussion, market risk, and internal controls Item 1. Financial Statements (Unaudited) This section presents MicroVision's unaudited condensed financial statements for Q1 2022 and 2021, including balance sheets, operations, comprehensive loss, equity, cash flows, and notes Condensed Balance Sheets This section presents MicroVision's financial position, detailing assets, liabilities, and shareholders' equity as of March 31, 2022, and December 31, 2021 Condensed Balance Sheet Highlights (in thousands) | Item | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $55,611 | $82,647 | | Investment securities, available-for-sale | $47,651 | $32,720 | | Total current assets | $106,942 | $119,430 | | Total assets | $117,769 | $130,225 | | Total current liabilities | $9,404 | $12,462 | | Total liabilities | $14,301 | $17,471 | | Total shareholders' equity | $103,468 | $112,754 | Condensed Statements of Operations This section outlines MicroVision's financial performance for the three months ended March 31, 2022 and 2021, including revenue, expenses, and net loss Condensed Statements of Operations Highlights (Three Months Ended March 31, in thousands, except per share data) | Item | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Total revenue | $350 | $479 | | Gross profit | $346 | $484 | | Research and development expense | $7,593 | $4,462 | | Sales, marketing, general and administrative expense | $5,877 | $2,247 | | Total operating expenses | $13,470 | $6,709 | | Loss from operations | $(13,124) | $(6,225) | | Net loss | $(13,168) | $(6,231) | | Net loss per share - basic and diluted | $(0.08) | $(0.04) | Condensed Statements of Comprehensive Loss This section details MicroVision's comprehensive loss for the three months ended March 31, 2022 and 2021, including net loss and other comprehensive income/loss components Condensed Statements of Comprehensive Loss Highlights (Three Months Ended March 31, in thousands) | Item | 2022 | 2021 | | :-------------------------------- | :------- | :------- | | Net loss | $(13,168) | $(6,231) | | Unrealized loss on investment securities, available-for-sale | $(105) | $- | | Comprehensive loss | $(13,273) | $(6,231) | Condensed Statements of Shareholders' Equity This section presents changes in MicroVision's shareholders' equity for the three months ended March 31, 2022, reflecting common stock, additional paid-in capital, and accumulated deficit Condensed Statements of Shareholders' Equity Highlights (Three Months Ended March 31, in thousands) | Item | Balance at Jan 1, 2022 | Share-based comp expense | Exercise of options | Net loss | Other comp loss | Balance at Mar 31, 2022 | | :-------------------------------- | :--------------------- | :--------------------- | :------------------ | :------- | :-------------- | :---------------------- | | Common Stock (Par value) | $164 | $1 | $- | $- | $- | $165 | | Additional paid-in capital | $742,042 | $3,733 | $253 | $- | $- | $746,028 | | Accumulated other comprehensive loss | $(19) | $- | $- | $- | $(105) | $(124) | | Accumulated deficit | $(629,433) | $- | $- | $(13,168) | $- | $(642,601) | | Total shareholders' equity | $112,754 | $3,734 | $253 | $(13,168) | $(105) | $103,468 | Condensed Statements of Cash Flows This section details MicroVision's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2022 and 2021 Condensed Statements of Cash Flows Highlights (Three Months Ended March 31, in thousands) | Cash Flow Activity | 2022 | 2021 | | :-------------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(10,907) | $(4,531) | | Net cash used in investing activities | $(16,080) | $(565) | | Net cash (used in) provided by financing activities | $(49) | $63,572 | | Change in cash, cash equivalents, and restricted cash | $(27,036) | $58,476 | | Cash, cash equivalents, and restricted cash at end of period | $56,703 | $75,773 | Notes to Condensed Financial Statements This section provides detailed explanations and disclosures supporting MicroVision's condensed financial statements, covering accounting policies, revenue, investments, and other financial items - MicroVision, Inc. is developing lidar sensors and sensor fusion software for Level 2+ and Level 3 Advanced Driver Assisted Systems (ADAS) in automotive safety and autonomous driving applications, utilizing its patented laser beam scanning (LBS) technology[30][31] - The company's strategy has shifted to increase value by completing development of its 1st Generation LRL module for automotive applications, believing the ADAS market is significantly larger than previous AR markets[32] - The company has incurred significant losses since inception, funding operations primarily through common stock sales, convertible preferred stock, warrants, convertible debt, and to a lesser extent, development contract revenues, product sales, and licensing activities[33] Net Loss Per Share (Three Months Ended March 31, in thousands, except loss per share data) | Item | 2022 | 2021 | | :-------------------------------- | :--------- | :--------- | | Net loss available for common shareholders - basic and diluted | $(13,168) | $(6,231) | | Weighted-average common shares outstanding - basic and diluted | 164,563 | 155,454 | | Net loss per share - basic and diluted | $(0.08) | $(0.04) | - For both periods, outstanding options and nonvested restricted/performance stock units were excluded from diluted net loss per share calculations as their effect would have been anti-dilutive[36] Disaggregated Revenue by Timing of Recognition (Three Months Ended March 31, in thousands) | Timing of Revenue Recognition | 2022 (License and royalty revenue) | 2021 (License and royalty revenue) | | :-------------------------------- | :--------------------------------- | :--------------------------------- | | Products transferred at a point in time | $350 | $479 | | Product and services transferred over time | $- | $- | | Total | $350 | $479 | Contract Liabilities (in thousands) | Item | March 31, 2022 | December 31, 2021 | $ Change | % Change | | :-------------------------------- | :------------- | :---------------- | :------- | :------- | | Contract liabilities | $(4,915) | $(5,265) | $350 | (6.6)% | - The company expects to recognize an additional $2.2 million in license and royalty revenue in the remainder of 2022 from a $10.0 million upfront payment received from a customer in April 2017, with the remaining contract liability recognition uncertain beyond 12 months[45] Investment Securities, Available-for-Sale (as of March 31, 2022, in thousands) | Asset Type | Fair Value (Level 2) | | :-------------------------------- | :------------------- | | Corporate debt securities | $34,174 | | U.S. Treasury securities | $13,477 | | Total | $47,651 | - For the three months ended March 31, 2022 and 2021, one customer accounted for 100% of total revenue ($350,000 and $479,000, respectively)[55] Inventory (in thousands) | Item | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Raw materials | $1,815 | $1,780 | | Total Inventory | $1,815 | $1,780 | Share-Based Compensation Expense (Three Months Ended March 31, in thousands) | Expense Category | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Research and development expense | $1,833 | $1,184 | | Sales, marketing, general and administrative expense | $1,901 | $454 | | Total | $3,734 | $1,638 | Options and Restricted Stock Activity (as of March 31, 2022) | Item | Shares | Weighted-Average Exercise Price / Price | | :-------------------------------- | :------- | :------------------------------------ | | Options Outstanding | 1,338,000 | $1.38 | | Options Exercisable | 1,013,000 | $1.58 | | Unvested RSUs/PSUs (Dec 31, 2021) | 2,625,000 | $13.05 | | Granted RSUs/PSUs | 1,742,000 | $4.07 | | Unvested RSUs/PSUs (Mar 31, 2022) | 4,025,000 | $9.17 | - The company entered into two new office lease agreements in September 2021 in Redmond, Washington, with initial terms of 128 and 120 months, respectively, and total minimum lease payments of $6.4 million and $13.0 million[64][65] Lease Expense (Three Months Ended March 31, in thousands) | Lease Type | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Operating lease expense | $244 | $116 | | Total finance lease expense | $9 | $9 | | Total lease expense | $253 | $125 | Maturities of Lease Liabilities (as of March 31, 2022, in thousands) | Years Ended December 31, | Operating leases | Finance leases | | :-------------------------------- | :--------------- | :------------- | | 2022 | $600 | $19 | | 2023 | $535 | $21 | | 2024 | $551 | $- | | 2025 | $567 | $- | | Thereafter | $4,069 | $- | | Total minimum lease payments | $6,322 | $40 | - 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[69] - As of March 31, 2022, the company had issued 4.0 million shares of common stock for net proceeds of $67.8 million under a $140.0 million ATM equity offering agreement entered in June 2021, with no transactions in Q1 2022[70][99] - Under a $50.0 million ATM equity offering agreement from February 2021, the company issued 2.5 million shares for net proceeds of $48.8 million, with no further shares available[71][100] - Under a $13.0 million ATM equity offering agreement from December 2020, the company issued a total of 2.1 million shares for net proceeds of $12.7 million, with no further shares available[72][101] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on MicroVision's Q1 2022 financial condition and operational results, highlighting the strategic shift to automotive lidar, performance drivers, liquidity, and COVID-19 impact Overview and Business Strategy This section outlines MicroVision's primary focus on automotive lidar sensors and perception software for ADAS, leveraging its MEMS-based LBS technology, and discusses revenue expectations - MicroVision's development efforts are primarily focused on automotive lidar sensors and perception software for Advanced Driver-Assistance Systems (ADAS), leveraging its patented MEMS-based laser beam scanning (LBS) technology[75][76] - The company completed its A-Sample long-range lidar module in 2021 and expects to test and demonstrate its ADAS solution capabilities during the first half of 2022[77][78] - While small quantities of sales are forecasted for 2022, significant, sustained revenue from the ADAS solution is not expected in the near term[78] - Revenue in the past two fiscal years and the current quarter was derived solely from Microsoft Corporation, related to components for a high-definition display system, generating insignificant royalty income[80] Results of Operations This section analyzes MicroVision's financial performance for the three months ended March 31, 2022 and 2021, detailing changes in revenue, cost of revenue, and operating expenses License and Royalty Revenue (Three Months Ended March 31, in thousands) | Item | 2022 | 2021 | $ Change | % Change | | :-------------------------------- | :----- | :----- | :------- | :------- | | License and royalty revenue | $350 | $479 | $(129) | (26.9)% | - The decrease in license and royalty revenue was due to a lower number of royalty-bearing products distributed by the customer[87] Cost of Product Revenue (Three Months Ended March 31, in thousands) | Item | 2022 | 2021 | $ Change | % Change | | :-------------------------------- | :----- | :----- | :------- | :------- | | Cost of product revenue | $4 | $(5) | $9 | (180.0)% | - The credit in 2021 was related to the reversal of accrued warranty liabilities due to lower-than-expected warranty claims[88] Research and Development Expense (Three Months Ended March 31, in thousands) | Item | 2022 | 2021 | $ Change | % Change | | :-------------------------------- | :----- | :----- | :------- | :------- | | Research and development expense | $7,593 | $4,462 | $3,131 | 70.2% | - The increase in R&D expense was primarily driven by increased salary and benefits ($1.5 million), higher non-cash compensation ($648,000), and higher non-labor direct expenses related to lidar sensor development ($611,000)[90] Sales, Marketing, General and Administrative Expense (Three Months Ended March 31, in thousands) | Item | 2022 | 2021 | $ Change | % Change | | :-------------------------------- | :----- | :----- | :------- | :------- | | Sales, marketing, general and administrative expense | $5,877 | $2,247 | $3,630 | 161.5% | - The increase in SG&A expense was mainly due to higher non-cash compensation ($1.4 million), increased professional services and consulting costs ($804,000), increased business insurance expense ($565,000), and increased salary and benefits ($493,000)[93] Liquidity and Capital Resources This section assesses MicroVision's financial liquidity and capital resources as of March 31, 2022, including cash, investments, and cash flow activities, and its ability to fund future operations - As of March 31, 2022, total liquidity was $103.3 million, comprising $55.6 million in cash and cash equivalents and $47.7 million in short-term investment securities[94] - Based on the current operating plan, the company anticipates having sufficient cash and cash equivalents to fund operations for at least the next 12 months[95] Net Cash Flow Activities (Three Months Ended March 31, in thousands) | Activity | 2022 | 2021 | | :-------------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(10,907) | $(4,531) | | Net cash used in investing activities | $(16,080) | $(565) | | Net cash (used in) provided by financing activities | $(49) | $63,572 | - Cash used in operating activities increased primarily due to higher operating expenses supporting lidar sensor development[96] - Net cash used in investing activities significantly increased due to purchases of short-term investment securities ($16.7 million) and property and equipment ($884,000)[97] - Net cash used in financing activities in 2022 contrasts with net cash provided in 2021, primarily due to principal payments on long-term debt ($294,000) and lower proceeds from stock option exercises ($253,000 vs. $2.1 million in 2021), with no ATM equity offering transactions in Q1 2022[98][99] Continuing Impact of COVID-19 on Business This section addresses the ongoing adverse effects of the COVID-19 pandemic on MicroVision's business operations, including productivity, supply chain, and development activities - The ongoing COVID-19 pandemic continues to impact business operations, potentially causing reductions in productivity, disruptions to business routines, and adverse effects on development and productization activities[82] - Supply chain disruptions due to supplier closures or reduced capacity have resulted in lower component availability, and global travel restrictions have hampered business development efforts[83] Key Accounting Policies and Estimates This section confirms that there have been no significant changes to MicroVision's critical accounting judgments, policies, and estimates since its last annual report - 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 fiscal year ended December 31, 2021[84] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section assesses MicroVision's exposure to market risks, including interest rate, liquidity, and foreign exchange, concluding these are not material due to short-term investments and U.S. dollar contracts - The company believes its exposure to market and interest rate risk is not material due to variable interest rates on cash and cash equivalents and the generally short-term maturities of its investment securities[102] - Foreign exchange rate risk is not material as major contracts and licensing activity payments are currently made in U.S. dollars, although future foreign currency arrangements may occur[104] Cash and Cash Equivalents and Investment Securities (as of March 31, 2022, in thousands) | Item | Amount | Percent | | :-------------------------------- | :----- | :------ | | Cash and cash equivalents | $55,611 | 53.9% | | Less than one year (Investments) | $47,651 | 46.1% | | Total | $103,262 | 100.0% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022, under the supervision of management, including the Principal Executive Officer and Principal Financial Officer[105] - There were no material changes in internal control over financial reporting during the quarter ended March 31, 2022[105] PART II. OTHER INFORMATION This section covers MicroVision's legal proceedings, risk factors, exhibits, and signatures, providing additional context beyond the financial statements Item 1. Legal Proceedings The company is subject to routine claims but has no legal proceedings management believes would materially adversely affect its financial position, results, or cash flows - 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[108] Item 1A. Risk Factors This section outlines significant risks that could materially affect MicroVision's business, financial condition, and future results, categorized by business operations, financial performance, general operations, and automotive industry challenges Risks Related to Our Business This section details risks associated with MicroVision's business, including a history of operating losses, potential need for additional capital, and the ongoing adverse effects of the COVID-19 pandemic - The company has a history of substantial operating losses since inception and expects to incur significant losses in the future, with no assurance of achieving or maintaining profitability[110][112][114] - Additional capital may be required to fund operations beyond the next 12 months, and there is no assurance that such capital will be available on acceptable terms or without diluting current shareholders' investment[114][117] - The COVID-19 pandemic continues to have an adverse effect on the business, potentially causing difficulties in raising capital, delays in technology development, supply chain disruptions, and challenges in engaging with potential customers and partners[113][115] Risks Related to our Financial Statements and Results This section highlights financial risks, including revenue concentration from a single customer, internal control weaknesses, stock price volatility, Nasdaq listing compliance, and competitive resource limitations - The company's revenue is generated from a single customer, accounting for 100% of total revenue for the three months ended March 31, 2022 and 2021, making it highly vulnerable to the loss of this customer[118] - A material weakness was identified in internal controls supporting the determination of equity award grant dates, which could lead to material misstatements in financial statements and harm investor confidence[119] - The company's stock price has fluctuated significantly, recently declined, and may remain volatile, potentially causing substantial losses for investors, including risks from 'short squeezes' disconnected from underlying value[120][122][123] - Failure to maintain listing on The Nasdaq Global Market could reduce stock liquidity and subject it to 'penny stock rules,' making it more difficult for investors to trade shares[124][125] - The company's financial and technical resources are substantially less than many competitors, which may limit its revenues, potential profits, overall market share, or value[127] Risks Related to Our Operations This section covers operational risks, including supply chain reliance, dependence on third parties, potential litigation, management of expansion, customer negotiation power, regulatory changes, and global economic uncertainties - Reliance on single or limited-source suppliers and contract manufacturers for components and products creates risks of delays, increased costs, and damaged customer relationships if supply chain disruptions occur[128] - The business strategy depends on third parties (OEMs, ODMs) for development, manufacturing, licensing, sales, and marketing, which reduces control and introduces risks of unsuccessful arrangements or inability to commercialize technology[129][130][131] - The company could face costly lawsuits related to its LBS technology or other technologies, including patent infringement claims, which could limit commercialization, increase operating expenses, and divert management attention[132][133] - Failure to effectively manage expansion, particularly after a substantial headcount reduction, could strain management systems and resources, adversely affecting revenue and expenses[134] - Targeting large, multinational customers with substantial negotiating power and potentially competitive internal solutions makes it difficult to secure series production awards or commercialize products on profitable terms[135] - Future environmental, health, and safety regulations could increase development and production costs for the company's technology and products, potentially impacting commercialization[136] - Operating results may be adversely impacted by worldwide political and economic uncertainties, including economic downturns, inflation, increased energy costs, and global conflicts or health crises[137][139] - Expanding international operations and using foreign suppliers expose the company to economic, political, regulatory, and currency risks in foreign countries[138][139] - Potential acquisitions carry risks of integration difficulties, diversion of management resources, substantial cash use, dilutive equity issuances, and potential impairment charges[140][141] - Supplier facilities are vulnerable to natural disasters or labor strikes, which could result in prolonged interruptions, significant delays in product shipments, and loss of sales and customers[142] - Inability to obtain or maintain effective intellectual property protection for products, processes, and technology could lead to increased competition and negatively affect the company's competitive position[143][145][146] - The company could be subject to significant product liability claims, particularly for LBS technology scanning light into users' eyes, which could be costly, divert management attention, harm reputation, and affect insurance coverage[147][148] - Operations are vulnerable to information technology system failures, network disruptions, or cyber security breaches, which could lead to data damage, interruptions, and potential financial losses[149] - Loss of key personnel or inability to attract and retain qualified new personnel could negatively affect business operations, strategy execution, and ability to compete effectively[150] Risks Related to Development for the Automotive Industry This section addresses specific risks in automotive development, such as securing production wins, product complexity, industry conditions, alternative technologies, ADAS adoption delays, and market forecasting uncertainties - Failure to secure 'series production wins' from automotive OEMs or Tier 1 suppliers for ADAS systems would materially and adversely affect future business prospects due to extensive testing, qualification processes, and long design cycles[151] - The highly technical and complex nature of products, combined with limited visibility into usage conditions, could result in unforeseen delays, defects, errors, or reliability issues, damaging reputation and exposing the company to product liability claims[152] - Adverse conditions in the automotive industry or the global economy, such as cyclical production, changes in consumer spending, interest rates, or regulatory requirements, could negatively impact demand for products and results of operations[153] - Significant developments in alternative technologies, such as cameras and radar, may adversely affect the demand for lidar technology and reduce its competitiveness if OEMs prefer these alternatives[154] - Delays in the adoption of ADAS features by OEMs, potentially due to cost pressures or new safety standards, could negatively impact the company's business prospects[155] - The 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[157] - Market opportunity estimates and growth forecasts for lidar-based technology are subject to significant uncertainty and may not materialize as anticipated, affecting business growth and financial results[158] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various certifications (Principal Executive Officer, Principal Financial Officer) and Inline XBRL documents - The exhibits include certifications from the Principal Executive Officer and Principal Financial Officer, as required by the Sarbanes-Oxley Act of 2002[159] - Inline XBRL documents, including the instance document, taxonomy extension schema, calculation, definition, label, and presentation linkbase documents, are also filed as exhibits[159] Signatures The report is duly signed on behalf of MicroVision, Inc. by its Chief Executive Officer and Chief Financial Officer, certifying its submission as required by the Securities Exchange Act of 1934 - The report is signed by Sumit Sharma, Chief Executive Officer and Director (Principal Executive Officer), and Anubhav Verma, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer), on April 28, 2022[163]