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PART I.
Preliminary Note Regarding Forward-Looking Statements
This Annual Report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is subject to the safe harbor created by those sections. Such statements may include,
but are not limited to, projections of revenues, income or loss, capital expenditures, plans for product development and cooperative arrangements, technology development by third
parties, future operations, financing needs or plans of MicroVision, Inc. ("we," "our," or "us"), as well as assumptions relating to the foregoing. The
words "anticipate," "could," "would," "believe," "estimate," "expect," "goal," "may,"
"plan," "project," "will," and similar expressions identify forward-looking statements. Factors that could cause actual results to differ materially from
those projected in our forward-looking statements include risk factors identified below in Item 1A.
ITEM 1. BUSINESS
Overview
MicroVision, Inc. is developing a lidar sensor to be used in automotive safety and autonomous driving
applications. Our lidar sensor uses our pioneering laser beam scanning (LBS) technology. Our LBS technology is based on our patented expertise in systems that include micro-electrical
mechanical systems (MEMS), laser diodes, opto-mechanics, electronics, algorithms and software and how those elements are packaged into a small form factor. Our lidar
sensor also utilizes edge computing and machine intelligence as part of the solution.
Though automotive lidar is our priority now, we have developed solutions for Augmented Reality, Interactive Displays, and Consumer Lidars.
We are developing our 1st generation lidar sensor, which we call Long Range Lidar (LRL), for OEM and Tier-1 automotive suppliers to be incorporated into automotive active
collision avoidance systems and autonomous driving vehicles. This product will also be targeted for sales to technology companies focused on Mobility as a Service (MaaS). MaaS
customers are currently major users of automotive lidar sensors.
In addition to our automotive lidar sensor, we have developed micro-display concepts and designs that could be utilized in head-mounted Augmented Reality (AR) headsets and
have developed a 1440i MEMS module that can support augmented reality headsets. We have also developed a display solution targeted at the smart speakers market, which we
call an Interactive Display module. This display is designed to project onto a countertop, tabletop or a wall from inside a smart speaker. The user can then touch the projected image
on any surface on which the display is visible and it will behave like a touchscreen, as on a tablet or smartphone. Lastly, we have developed a small lidar sensor, which we call
Consumer Lidar, for use indoors with smart home systems. This allows for a smart home system to understand what is happening in the home and then enable the smart home to
respond in an appropriate way.
For the past few years, our strategy has been to sell AR displays or components, Interactive Displays, or Consumer
Lidars to original equipment manufacturers (OEMs) and original design manufacturers (ODMs) for incorporation into their products. However, while we do have a well-known
customer for one of these products which generates royalty income, the volume of sales and resulting royalties from that product are not significant, and we have been unable to
secure additional customers to launch one of our products.
As a result, since February 2020, we have focused our attention on strategic alternatives, including a potential sale or merger of the Company, sale of part of the Company,
strategic minority investment, as well as licensing and other transactions. We currently have no agreements or commitments to engage in any specific strategic transactions, and our
exploration of various strategic alternatives may not result in any specific action or transaction. We may be unable to identify, successfully negotiate with and consummate a suitable
transaction with a buyer or other strategic partner on favorable terms, on the timeline we expect, or at all. If we determine to engage in a strategic transaction, we cannot predict the
impact that such a transaction might have on our operations or stock price, and we cannot predict the impact on our stock price or operations if we fail to enter into such a
transaction.
While we continue to pursue strategic alternatives, we plan to focus on increasing the value of the Company by completing development of our 1st
Generation LRL module to a level that it would be ready to scale in the market. We believe our technology and designs for automotive lidar can be successful in the market, and our
solutions will have features and performance that exceed market needs and competitive products and will provide us several sustainable strategic advantages in the market. In
November 2020, we announced the results of initial product tests of our 1st Generation LRL module that demonstrated key features, including an ability to be immune to interference
signals from other lidars, rogue malicious signals and interference caused by sunlight.
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We believe we are on track to complete our A-Sample hardware along with selected benchmarked data in the April 2021 timeframe. These could be used for demonstration to
interested parties. Following completion of the A-Sample hardware we will work to internally verify all features perform as expected. In addition to verification we will conduct
reliability and compliance testing. It is possible the 1st Generation LRL could be available for sale, in small quantities, in the third or fourth quarter of 2021.
We have incurred substantial losses since inception, and we expect to incur a significant loss during the fiscal year ending December 31, 2021.
MicroVision, Inc. was founded in 1993 as a Washington corporation and reincorporated in 2003 under the laws of the State of Delaware. Our headquarters is located at 6244
185th Avenue NE, Suite 100, Redmond, Washington 98052, and our telephone number is (425) 936-6847.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free-of-charge
from the investor page of our website, accessible at www.microvision.com, as soon as reasonably practicable after such material is electronically filed with the Securities and
Exchange Commission (SEC). Copies of these filings may also be obtained by visiting the SEC's website, www.sec.gov, which contains current, quarterly and annual reports, proxy
and information statements and other information regarding issuers that file electronically.
Impact of COVID-19 on Our Business
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to be spread throughout the United States and the
world. The impact from the COVID-19 outbreak is uncertain and may impact our business and results of operations and could impact our financial condition in the future. We are
unable to accurately predict the full impact that COVID-19 may have due to numerous uncertainties, including the severity, duration and spread of the outbreak, and actions that may
be taken by governmental authorities.
Several of the suppliers of components in our LBS modules have experienced closures or have been operating at reduced capacity, resulting in lower than planned product
shipments. Continued disruptions to the supply chain could have a material impact on our future operating results.
As a result of the COVID-19 pandemic, including related governmental guidance or directives, we are still requiring most office-based employees to work remotely. We may
experience reductions in productivity and disruptions to our business routines while our remote work policy remains in place, or if our employees become ill and are unable to work.
This could have an adverse effect on the timing of our development activities, our ability to raise additional capital, our ability to enter into licensing agreements, or our ability to
complete a potential sale or merger of the Company.
In April 2020, we received funds in the amount of $1.6 million pursuant to a loan under the Paycheck Protection Program of the 2020 CARES Act ("PPP") administered by the
Small Business Administration. The loan has an interest rate of 0.98% and a term of 24 months. No payments are due for the first 10 months following the 24-week covered period,
although interest accrues during that period. Thereafter, the loan is repayable in monthly installments over the next 18 months to retire the loan plus accrued interest. Funds from
the loan may only be used for certain purposes, including payroll, benefits, rent and utilities, and a portion of the loan used to pay certain costs may be forgivable, all as provided by
the terms of the PPP. The CARES Act reduces the amount of the PPP loan that may be forgiven if the borrower reduces full-time equivalent employees during the covered period as
compared to a base period. As of December 31, 2020, all of the funds received under the PPP had been used for qualified purposes. We intend to apply for partial forgiveness of the
loan under PPP guidelines. Based on the terms of the PPP, we estimate the amount of the loan that will be forgiven will be approximately $690,000, subject to approval by our
lender in accordance with PPP guidelines. The loan is evidenced by a promissory note, which contains customary events of default relating to, among other things, payment defaults
and breaches of representations and warranties. We may prepay the loan at any time prior to maturity with no prepayment penalties.
Technology
Our patented LBS technology combines a MEMS scanning mirror, laser diode light sources, electronics, and optics that are controlled using our proprietary system control
algorithms along with edge computing and machine learning in some systems. The MEMS scanning mirror is a key component of our technology system and is one of our core
competencies. Our MEMS scanning mirror is a silicon device that oscillates in a precisely controlled closed loop pattern so that we can place a pixel of light at a precise point. This
allows us to generate a projected image pixel-by-pixel for use in lidar sensing and display. Scanning modules with our technology can be designed to operate in one of three
different modes: lidar sensing only, display and lidar sensing combined, and display only. For applications that
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include a projected display, our PicoP® scanning technology
creates a brilliant, full color, high-contrast, uniform image over the entire field-of-view from a small and thin module with low power consumption. Our Consumer Lidar scanning
module is small with high resolution, low power and low latency which are features that are important for its applications. We believe that our proprietary technology offers significant
advantages over other lidar sensing systems and traditional displays.
For automotive lidar, we believe that our sensor will meet the specifications set by OEM's, have high resolution within all range targets, collect large number of points per
degree, have dynamic field of view that covers near, mid and far field of view in a single sensor, and provide clustered velocity data for objects in the fields of view at low latency.
We also believe our solution will operate in full sunlight and in the presence of lidars in other nearby vehicles. In Augmented Reality (AR) applications, our technology enables high
resolution of 1440i for large fields of view with low weight and low latency and persistence. Our Interactive Display gives an instant on and off, full color, focus-free, 720p projected
image that is capable of responding as if it were a capacitance touch screen from any surface the projection can be seen on while maintaining Class 1 laser safety requirements.
Our Consumer Lidar has a small size and is intended for use indoors with smart home systems. It is designed to enable a smart home system to understand what is happening in
the home and respond in an appropriate way.
Markets for Our Technology
All of the uses of the technology that we have developed require that they become a component inside the products of other companies.
For automotive lidar, our LRL sensor would be sold to automotive Tier-1 manufacturers, automotive OEMs, and MaaS technology companies. The sensor is targeted for Level 3
(L3) autonomous safety and Level 4 (L4) autonomous driving applications.
For displays or components for the AR market, we would sell our displays or components to an OEM or ODM for them to incorporate into their product. Our AR technology
provides for large fields of view in up to 1440i resolutions with light weight and low latency and persistence.
The Interactive Display modules we would produce using our technology would be assembled inside a smart speaker or other device. The customer for Interactive Display
would be an electronics OEM or ODM.
Lastly, our Consumer Lidar would be sold to OEMs or ODMs to incorporate in their overall smart home or smart home security product.
Products and Services
In 2019, our revenue was derived from the sale of components, from development contracts, and from royalty fees for LBS technology.
Beginning in the third quarter of 2019 and through the end of February 2020, we were selling components to a high-definition display system that we developed for a well-known
customer under a development agreement. The volume and resulting revenue and gross profit from this business was fairly low. Therefore, in March 2020, we transferred production
of the components to the customer. Starting in March 2020, we earned a royalty from the customer for each unit shipped, with amounts applied against the prepayment that we had
previously received from the customer until the prepayment is exhausted. The value of the royalty is approximately equal to the amount of gross profit we would have earned if we
continued to produce and ship the components. We believe this arrangement will help us conserve cash, and still preserves our ability to experience financial benefits should the
volume of components increase in the future.
Research and Development
We believe our research and development efforts have earned us a leadership position in the field of LBS technology and applications as applied to consumer electronics,
automotive and other markets. Our ability to attract customers and grow revenue will depend on our ability to maintain our LBS technology leadership, to continually improve
performance, reduce costs, reduce the size of component parts and scanning modules, and to increase the number of applications and products enabled by our LBS
technology.
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Our research and development team is located in Redmond, Washington and as of December 31, 2020, was comprised of 37 engineering and technical staff in optics, software
engineering, electrical engineering, product engineering, and MEMS design.
Sales and Marketing
Our sales and marketing approach is account based, business-to-business targeting of OEMs and ODMs. Our business development efforts are headed by executive
management and are supported by engineers that assist customers during the design cycles of products. The engineers are located in Redmond, Washington. We engage potential
customers directly, participate in trade shows, and maintain a website.
Manufacturing
We are not manufacturing any products at this time. When we have produced products or components in the past, our products were manufactured by a contract
manufacturer based on our proprietary design, process, test, quality and reliability standards and incorporated our LBS technology and included MEMS and ASICs that were
produced to order by semiconductor foundries.
Our past manufacturing has not been subject to seasonal variations as our shipments have been relatively small and were in the early stages of product introduction. In the
future, depending on our customers' product mix, we may be affected by seasonal fluctuations which could affect working capital demands.
While we are not currently having products produced, below describes how we had products produced in the past and is likely how it will be done again if we were to begin
production. We provided forecasts that allow our contract manufacturers to stock component parts and other materials and plan capacity. Our contract manufacturers procured raw
materials in volumes consistent with our forecasts, manufactured and/or assembled the products and performed tests according to our specifications. Products were shipped to our
customers or shipped to our Redmond, Washington headquarters to be inventoried. We procured some specific components and either sold them or consigned them to our contract
manufacturers. We held some inventories of these components. Our contract manufacturers procured additional raw materials we did not own until the finished goods were
completed by our contract manufacturer. Title to the products transferred from our contract manufacturers to us and then to our customers when we completed our performance
obligations. If raw materials were unused, or the products were not sold within specified periods of time, we may have incurred carrying charges or obsolete material charges for
component parts that our contract manufacturers purchased to build products to meet our forecasts or customer orders.
Many of the raw materials used in our components are standard to the consumer electronics industry. Our MEMS, MEMS die, and ASICs have historically been manufactured
to our specifications by separate single-source suppliers.
Human Factors, Ergonomics and Safety
We work with third party independent experts in the field of laser safety to assist in meeting safety specifications. In addition, we monitor developments in the area of
permissible laser exposure limits as established by International Electrotechnical Commission (IEC) and others. Independent experts have concluded that laser exposure to the eye
resulting from use of LBS devices under normal operating conditions would be below the calculated maximum permissible exposure level set by the IEC.
Competitive Conditions
The automotive lidar and consumer display industries are highly competitive. Potential products incorporating our LBS technology will compete with the products of other
manufacturers or, in the case of our display technology, compete with established technologies, such as flat panel display devices, as well as companies developing new display and
sensing technologies. Our competitors include companies such as Velodyne, Innoviz, Luminar Technologies, Aeva, Ouster, Quanergy, Texas Instruments, Intel, Bosch, Opus,
Mirrorcle, Maradin, Himax, Pioneer, Sony (LCOS) and others, some of which have much greater financial, technical and other resources than us. Many of our competitors may be
currently developing alternative lidar sensing or miniature display technologies. Our competitors may succeed in developing innovative technologies and products that could render
our technology or our proposed products commercially infeasible or technologically obsolete.
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The lidar sensing and consumer display industries have been characterized by rapid and significant technological advances. Our LBS technology system and potential products
may not be competitive with such advances, and we may not have sufficient funds to invest in new technologies, products or processes. Although we believe our technology system
and proposed products could deliver higher performance and have other advantages, manufacturers of competing technologies may develop improvements to their technology that
could reduce or eliminate the anticipated advantages of our proposed products.
Lidar sensing is a new market, and we believe we are developing products that will have cost and performance benefits over what competitors may offer. However,
manufacturers of competing technologies or products may develop improvements to the size, performance, and cost of their products, that could reduce or eliminate the anticipated
advantages of our proposed products.
Intellectual Property and Proprietary Rights
We create intellectual property from three sources: internal research and development activities, technology acquisitions, and performance on development contracts. The
inventions covered by our patent applications generally relate to systems controls in our LBS technology, component miniaturization, power reduction, feature enhancements,
specific implementation of various system components, and design elements to facilitate mass production. Protecting these key-enabling technologies and components is a
fundamental aspect of our strategy to penetrate diverse markets with unique products. As such, we intend to continue to develop our portfolio of proprietary and patented LBS
technologies at the system, component, and process levels.
We believe our extensive patent portfolio is the largest, broadest, and earliest filed LBS technology portfolio. We have been granted over 450
issued patents and pending patents worldwide. As our technology develops, we periodically review our patent portfolio and eliminate patents that are deemed of low
value. Due to this ongoing portfolio management practice, the number of patents in our portfolio will vary at any given time.
Since our inception in 1993, we have acquired through portfolio purchases, patents that grant us exclusive rights to various LBS technologies. From time to time some of these
patents may expire or be abandoned to better utilize resources expended to maintain and generate new intellectual property.
Our ability to compete effectively in automotive lidar, AR, or any other market we may enter may depend, in part, on our ability and the ability of our licensors to maintain the
proprietary nature of these technologies.
We also rely on unpatented proprietary technology. To protect our rights in these areas, we require all employees, and where appropriate, contractors, consultants, advisors
and collaborators, to enter into confidentiality and non-compete agreements. There can be no assurance, however, that these agreements will provide meaningful protection for our
trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary
information.
We have registered the name "PicoP®" and "MicroVision®" with the United States Patent and Trademark Office.
Employees
As of March 9, 2021, we had 52 full-time employees. None of our employees are represented by a labor union.
Our principal human capital objectives are to attract, retain, motivate, and reward our employees to achieve results for our customers and us. To achieve these objectives, our
human capital programs seek to (i) support skill building and prepare our employees for advancement through continuous learning, (ii) reward our employees through compensation
awards and resources intended to motivate our employees and promote well-being and (iii) continuously identify opportunities for development through regular employee input and
engagement.
We also strive for continuous improvement in the diversity and inclusivity among our employees, management, and board of directors, and seek to promote job opportunities to a
diverse pool of qualified candidates. We are also committed to providing an inclusive work environment free of discrimination or harassment of any kind and is supported by policies,
communications, and reporting and resolution resources.
Protecting the safety, health, and well-being of our employees is also a key priority. Throughout the COVID-19 pandemic, we have remained focused on the health and safety of
our employees by implementing new safety protocols. We have implemented work-from-home procedures where possible, required the wearing of masks and physical distancing on
the job, and increased cleaning procedures and provided cleaning supplies.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below together with the other information set forth in this report, which could materially affect our business, financial condition
and future results. The risks described below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also
may materially adversely affect our business, financial condition and operating results.
Risk Factors Related to Our Business and Industry
We have a history of operating losses and expect to incur significant losses in the future.
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We have had substantial losses since our inception. We cannot assure you that we will ever become or remain profitable.
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As of December 31, 2020, we had an accumulated deficit of $586.2 million.
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We had an accumulated deficit of $546.1 million from inception through December 31, 2018, a net loss of $26.5 million in 2019, and a net loss of $13.6 million in 2020.
The likelihood of our success must be considered in light of the expenses, difficulties and delays frequently encountered by companies formed to develop and commercialize
new technologies. In particular, our operations to date have focused primarily on research and development of our LBS technology system and development of demonstration units.
We are unable to accurately estimate future revenues and operating expenses based upon historical performance.
We cannot be certain that we will succeed in obtaining additional development revenue or commercializing our technology or products. In light of these factors, we expect to
continue to incur significant losses and negative cash flow at least through 2021 and likely thereafter. There is significant risk that we will not achieve positive cash flow at any time
in the future.
We were unable to secure a customer to launch one of our module products in 2020, as planned. As a result, we plan to focus our attention in the near
term on strategic alternatives, including a potential sale or merger of the Company, sale of part of the Company, strategic minority investment, as well as licensing and other
transactions. There is substantial risk that these efforts will be unsuccessful. Such efforts may also be impeded by the impact of COVID-19 on parties who might have otherwise
been interested in pursuing a transaction or on economic and market conditions generally. We currently have no agreements or commitments to engage in any specific strategic
transactions, and our exploration of various strategic alternatives may not result in any specific action or transaction. We may be unable to identify, successfully negotiate with and
consummate a suitable transaction with a buyer or other strategic partner on favorable terms, on the timeline we expect, or at all. If we determine to engage in a strategic
transaction, we cannot predict the impact that such a transaction might have on our operations or stock price, and we cannot predict the impact on our stock price or operations if we
fail to enter into such a transaction.
COVID-19 has had an adverse effect on our business, and the future COVID-19 effects on our financial position and business prospects are uncertain.
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to be spread throughout the United States and the
world. The impact from the COVID-19 outbreak is uncertain and may impact our business and results of operations and could impact our financial condition in the future. We are
unable to accurately predict the full impact that COVID-19 may have due to numerous uncertainties, including the severity, duration and spread of the outbreak, and actions that may
be taken by governmental authorities.
The adverse impacts of the pandemic on our business and future financial performance could include, but are not limited to:
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our ability to raise additional capital,
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our ability to enter into licensing agreements,
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our technology development plans and timelines,
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significant declines in revenue due to supply chain disruptions,
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our operating effectiveness resulting from employees working remotely or being ill and unable to work,
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and our ability to complete a sale or merger of the Company.
We may require additional capital to fund our operations and to implement our business plan. If we do not obtain additional capital, we may be required to curtail our operations
substantially. Raising additional capital may dilute the value of current shareholders' shares.
Based on our current operating plan and including $61.4 million raised under At-the-Market equity offering agreements with Craig-Hallum Capital Group since December 31,
2020, we anticipate that we have sufficient cash and cash equivalents to fund our operations for at least the next 12 months. We may require additional capital to fund our operating
plan past that time. We may seek to obtain additional capital through the issuance of equity or debt securities, product sales and/or licensing activities. There can be no assurance
that any such efforts to obtain additional capital would be successful.
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While we continue to pursue strategic alternatives, we plan to focus on developing our automotive lidar module. This would involve introducing
new technology into an emerging market which creates significant uncertainty about our ability to accurately project revenue, costs and cash flows. Our capital requirements will
depend on many factors, including, but not limited to, the commercial success of our LBS modules, the rate at which OEMs and ODMs introduce products incorporating our LBS
technology and the market acceptance and competitive position of such products. If revenues are less than we anticipate, if the mix of revenues and the associated margins vary
from anticipated amounts or if expenses exceed the amounts budgeted, we may require additional capital earlier than expected to fund our operations. In addition, our operating
plan provides for the development of strategic relationships with suppliers of components, products and systems, and equipment manufacturers that may require additional
investments by us.
Additional capital may not be available to us or, if available, may not be available on terms acceptable to us or on a timely basis. Raising additional capital may involve issuing
securities with rights and preferences that are senior to our common stock and may dilute the value of our current shareholders' shares. If adequate capital resources are not
available on a timely basis, we may consider limiting our operations substantially and we may be unable to continue as a going concern. This limitation of operations could include
reducing investments in our research and development projects, staff, operating costs, and capital expenditures which could jeopardize our ability to achieve our business goals or
satisfy our customer requirements. In February 2020, we reduced headcount by approximately 60% following an OEM's decision not to incorporate our technology into its products.
As a result, further cost reduction efforts may be particularly difficult to implement.
Qualifying a contract manufacturer or foundry for our products could cause us to experience delays that result in lost revenues and damaged customer relationships.
We rely on single or limited-source suppliers to manufacture our products. Establishing a relationship with a contract manufacturer or foundry is a time-consuming process, as
our unique technology may require significant manufacturing process adaptation to achieve full manufacturing capacity. Accordingly, we may be unable to establish a relationship
with a contract manufacturer at prices or on other terms that are acceptable to us.
Changes in our supply chain may result in increased cost and delay and may subject us to risks and uncertainties regarding, but not limited to, product warranty, product liability
and quality control standards. The loss of any single or limited-source supplier, the failure of any of these suppliers to perform as expected or the disruption in the supply chain of
components from these suppliers could cause significant delays in product deliveries, which may result in lost revenues and damaged customer relationships. To the extent that we
are not able to establish a relationship with a contract manufacturer or foundry in a timely manner, we may be unable to meet contract or production milestones, which could have a
material adverse effect on our financial condition, results of operations and cash flows.
Our success will depend, in part, on our ability to secure and retain significant third-party manufacturing resources.
Our success will depend, in part, on our ability to provide our components and future products in commercial quantities at competitive prices and on schedule. Accordingly, we
will be required to obtain and retain access, through business partners or contract manufacturers, to manufacturing capacity and processes for the commercial production of our
expected future products.
Our foreign contract manufacturers could experience severe financial difficulties or other disruptions in their business, and such continued supply could be significantly reduced
or terminated. In addition, we cannot be certain that we will successfully obtain and retain access to needed manufacturing resources concurrent with a significant increase in our
planned production levels. Future manufacturing limitations of our suppliers could constrain the number of products that we are able to develop and produce.
We are dependent on third parties in order to develop, manufacture, sell and market products incorporating our LBS technology, scanning modules, and the scanning
module components.
Our business strategy for commercializing our technology in products incorporating LBS technology includes entering into development, manufacturing, licensing, sales and
marketing arrangements with OEMs, ODMs and other third parties. These arrangements reduce our level of control over production and distribution and may subject us to risks and
uncertainties regarding, but not limited to, product warranty, product liability and quality control standards.
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We cannot be certain that we will be able to negotiate arrangements on acceptable terms, if at all, or that these arrangements will be successful in yielding commercially viable
products. If we cannot establish these arrangements, we would require additional capital to undertake such activities on our own and would require extensive manufacturing, sales
and marketing expertise that we do not currently possess and that may be difficult to obtain.
In addition, we could encounter significant delays in introducing our LBS technology or find that the development, manufacture or sale of products incorporating our technology
would not be feasible. To the extent that we enter into development, manufacturing, licensing, sales and marketing or other arrangements, our revenues will depend upon the
performance of third parties. We cannot be certain that any such arrangements will be successful.
We cannot be certain that our technology system or products incorporating our LBS technology will achieve market acceptance. If our technology system or products
incorporating our technology do not achieve market acceptance, our revenues may not grow.
Our success will depend in part on customer acceptance of our LBS technology. Our technology may not be accepted by manufacturers who use lidar sensing and display
technologies in their products, by systems integrators, OEMs, and ODMs who incorporate the scanning module components into their products or by end users of these products.
To be accepted, our LBS technology must meet the expectations of our current and potential customers in the consumer electronics, automotive, and other markets. If our
technology system or products incorporating our LBS technology do not achieve market acceptance, we may not be able to continue to develop our technology.
Future products incorporating our LBS technology and scanning modules are dependent on advances in technology by other companies.
Our LBS technology will continue to rely on technologies, such as laser diode light sources and other components that are developed and produced by other companies. The
commercial success of certain future products incorporating our LBS technology will depend, in part, on advances in these and other technologies by other companies. We may,
from time to time, contract with and support companies developing key technologies in order to accelerate the development of them for our or our customers' specific uses. There
are no guarantees that such activities will result in useful technologies or products that will be profitable.
We are dependent on a small number of customers for our revenue. Our quarterly performance may vary substantially and this variance, as well as general market
conditions, may cause our stock price to fluctuate greatly and potentially expose us to litigation.
In 2020, one customer accounted for $3.0 million in revenue, representing 97% of our total revenue. In 2019, one customer accounted for $7.7 million in revenue, representing
86% of our total revenue and a second customer accounted for $1.2 million in revenue, representing 13% of our total revenue. Our customers take time to obtain, and the loss of a
significant customer could negatively affect our revenue. Our quarterly operating results may vary significantly based upon:
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Market acceptance of products incorporating our LBS technology;
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Changes in evaluations and recommendations by any securities analysts following our stock or our industry generally;
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Announcements by other companies in our industry;
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Changes in business or regulatory conditions;
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Announcements or implementation by our competitors of technological innovations or new products;
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The status of particular development programs and the timing of performance under specific development agreements;
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Economic and stock market conditions; or
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Other factors unrelated to our company or industry.
In one or more future quarters, our results of operations may fall below the expectations of securities analysts and investors and the trading price of our common stock may
decline as a consequence. In addition, following periods of volatility in the market price of a company's securities, shareholders often have instituted securities class action litigation
against that company.
If we become involved in a class action suit, it could divert the attention of management and, if adversely determined, could require us to pay substantial damages.
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We or our customers may fail to perform under open orders or agreements, which could adversely affect our operating results and cash flows.
We or our customers may be unable to meet the performance requirements and obligations under open orders or agreements, including performance specifications, milestones
or delivery dates, required by such purchase orders or agreements. Furthermore, our customers may be unable or unwilling to perform their obligations thereunder on a timely
basis, or at all if, among other reasons, our products and technologies do not achieve market acceptance, our customers' products and technologies do not achieve market
acceptance or our customers otherwise fail to achieve their operating goals. To the extent we are unable to perform under such purchase orders or agreements or to the extent
customers are unable or unwilling to perform, our operating results and cash flows could be adversely affected.
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result, investors in our common stock could incur substantial
losses.
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future. During the 12 months prior to the date of this report, our common
stock has traded at a low of $0.15 and a high of $24.18. From the beginning of 2021 through March 9, 2021, our common stock has traded at a low of $4.86 and a high of $24.18.
We may incur rapid and substantial decreases in our stock price in the foreseeable future that are unrelated to our operating performance or prospects. For the fiscal year ended
December 31, 2020, we incurred a loss per share of $(0.10).
As a result of this volatility, investors may experience losses on their investment in our common stock. The market price for our common stock may be influenced by many
factors, including the following:
-
investor reaction to our business strategy;
-
the success of competitive products or technologies;
-
any developments with respect to our pursuit of strategic alternatives, including a potential sale or merger of the Company, sale of part of the Company, strategic minority
investment, or licensing and other transactions;
-
the timing and results of our development efforts with respect to our first generation LRL module;
-
changes in regulatory or industry standards applicable to our technologies;
-
variations in our financial and operating results or those of companies that are perceived to be similar to us;
-
developments concerning our collaborations or partners;
-
developments or disputes with any third parties that supply, manufacture, sell or market any of our products;
-
developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our products;
-
actual or perceived defects in any of our products, if commercialized, and any related product liability claims;
-
our ability or inability to raise additional capital and the terms on which we raise it;
-
declines in the market prices of stocks generally;
-
trading volume of our common stock;
-
sales of our common stock by us or our stockholders;
-
general economic, industry and market conditions; and
-
other events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues
including health epidemics or pandemics, such as the recent outbreak of COVID-19, and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather
and climate conditions, whether occurring in the United States or elsewhere, could disrupt our operations, disrupt the operations of our suppliers or result in political or economic
instability.
Since the stock price of our common stock has fluctuated in the past, has been recently volatile and may be volatile in the future, investors in our common stock could incur
substantial losses. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted
against us, could result in substantial costs and diversion of management's attention and resources, which could materially and adversely affect our business, financial condition,
results of operations and growth prospects. There can be no guarantee that our stock price will remain at current levels or that future sales of our common stock will not be at prices
lower than those sold to investors.
9
Additionally, securities of certain companies have recently experienced significant and extreme volatility in stock price due to short sellers of shares of common stock, known as
a "short squeeze." These short squeezes have caused extreme volatility in both the stock prices of those companies and in the market, and have led to the price per
share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. Many investors who have purchased shares in those
companies at an inflated rate face the risk of losing a significant portion of their original investment, as in many cases the price per share has declined steadily as interest in those
stocks have abated. While we have no reason to believe our shares would be the target of a short squeeze, there can be no assurance that we will not be in the future, and you may
lose a significant portion or all of your investment if you purchase our shares at a rate that is significantly disconnected from our underlying value.
We may not be able to maintain our listing on The Nasdaq Global Market and it may become more difficult to sell our stock in the public market.
Our common stock is listed on The Nasdaq Global Market. To maintain our listing on this market, we must meet Nasdaq's listing maintenance standards. If we are unable to
continue to meet Nasdaq's listing maintenance standards for any reason, our common stock could be delisted from The Nasdaq Global Market. If our common stock were delisted,
we may seek to list our common stock on The Nasdaq Capital Market, the NYSE American or on a regional stock exchange or, if one or more broker-dealer market makers comply
with applicable requirements, the over-the-counter (OTC) market. Listing on such other market or exchange could reduce the liquidity of our common stock. If our common stock
were to trade in the OTC market, an investor would find it more difficult to dispose of, or to obtain accurate quotations for the price of, the common stock.
A delisting from The Nasdaq Global Market and failure to obtain listing on another market or exchange would subject our common stock to so-called penny stock rules that
impose additional sales practice and market-making requirements on broker-dealers who sell or make a market in such securities. Consequently, removal from The Nasdaq Global
Market and failure to obtain listing on another market or exchange could affect the ability or willingness of broker-dealers to sell or make a market in our common stock and the
ability of purchasers of our common stock to sell their securities in the secondary market.
On March 9, 2021, the closing price of our common stock was $14.08 per share.
Our lack of financial and technical resources relative to our competitors may limit our revenues, potential profits, overall market share or value.
Our products and potential products incorporating our LBS technology will compete with established manufacturers of existing products and companies developing new
technologies. Many of our competitors have substantially greater financial, technical and other resources than we have. Because of their greater resources, our competitors may
develop products or technologies that may be superior to our own. The introduction of superior competing products or technologies could result in reduced revenues, lower margins
or loss of market share, any of which could reduce the value of our business. Additionally, for a variety of reasons, customers may choose to purchase from suppliers that
have substantially greater financial, technical or other resources than we have.
We may not be able to keep up with rapid technological change and our financial results may suffer.
The automotive lidar and consumer display industries have been characterized by rapidly changing technology, accelerated product obsolescence and continuously evolving
industry standards. Our success will depend upon our ability to further develop our LBS technology system and to cost effectively introduce new products and features in a timely
manner to meet evolving customer requirements and compete with competitors' product advances. We may not succeed in these efforts due to:
-
Delays in product development;
-
Lack of market acceptance for our technology or products incorporating our LBS technology; or
-
Lack of funds to invest in product research, development and marketing.
The occurrence of any of the above factors could result in decreased revenues, market share and value of our business.
We could face lawsuits related to our use of LBS technology or other technologies. Defending these suits would be costly and time-consuming. An adverse outcome, in any
such matter, could limit our ability to commercialize our technology or products incorporating our LBS technology, reduce our revenues and increase our operating expenses.
10
We are aware of several patents held by third parties that relate to certain aspects of light scanning displays and 3D sensing products. These patents could be used as a basis
to challenge the validity, limit the scope or limit our ability to obtain additional or broader patent rights of our patents. A successful challenge to the validity of our patents could limit
our ability to commercialize our technology or products incorporating our LBS technology and, consequently, materially reduce our revenues. Moreover, we cannot be certain that
patent holders or other third parties will not claim infringement by us with respect to current and future technology. Because U.S. patent applications are held and examined in
secrecy, it is also possible that presently pending U.S. applications will eventually be issued with claims that will be infringed by our products or our technology.
The defense and prosecution of a patent suit would be costly and time-consuming, even if the outcome were ultimately favorable to us. An adverse outcome in the defense of a
patent suit could subject us to significant costs, require others and us to cease selling products incorporating our technology, require us to cease licensing our technology or require
disputed rights to be licensed from third parties. Such licenses, if available, would increase our operating expenses. Moreover, if claims of infringement are asserted against our
future co-development partners or customers, those partners or customers may seek indemnification from us for any damages or expenses they incur.
If we fail to manage expansion effectively, our revenue and expenses could be adversely affected.
Our ability to successfully offer products incorporating LBS technology and implement our business plan in a rapidly evolving market requires an effective planning and
management process. The growth in business and relationships with customers and other third parties has placed, and will continue to place, a significant strain on our
management systems and resources. We will need to continue to improve our financial and managerial controls, reporting systems and procedures, and will need to continue to
train and manage our work force. Following our substantial reduction in headcount in February 2020, the risks associated with strained resources are heightened.
If we fail to adequately reduce and control our manufacturing, supply chain and operating costs, our business, financial condition, and operating results could be adversely
affected.
We incur significant costs related to procuring components and increasing our production capabilities to manufacture our products. We may experience delays, cost overruns or
other unexpected costs associated with an increase in production. If we are unsuccessful in our efforts to reduce and control our manufacturing, supply chain and operating costs
and keep costs aligned with the levels of revenues we generate, our business and financial condition could suffer.
Our technology and products incorporating our LBS technology may be subject to future environmental, health and safety regulations that could increase our development
and production costs.
Our technology and products incorporating our LBS technology could become subject to future environmental, health and safety regulations or amendments that could
negatively impact our ability to commercialize our technology and products incorporating our LBS technology. Compliance with any such new regulations would likely increase the
cost to develop and produce products incorporating our LBS technology, and violations may result in fines, penalties or suspension of production. If we become subject to any
environmental, health, or safety laws or regulations that require us to cease or significantly change our operations to comply, our business, financial condition and operating results
could be adversely affected.
Our operating results may be adversely impacted by worldwide political and economic uncertainties and specific conditions in the markets we address.
In the recent past, general worldwide economic conditions have experienced a downturn due to slower economic activity, concerns about inflation, increased energy costs,
decreased consumer confidence, reduced corporate profits and capital spending, and adverse business conditions. Any continuation or worsening of the current global economic
and financial conditions could materially adversely affect: (i) our ability to raise, or the cost of, needed capital, (ii) demand for our current and future products, and (iii) our ability to
commercialize products. Additionally, infectious diseases including COVID-19 may cause an unexpected downturn in economic conditions. We cannot predict the timing, strength,
or duration of any economic slowdown or subsequent economic recovery, worldwide, regionally or in the display industry.
Because we plan to continue using foreign suppliers, our operating results could be harmed by economic, political, regulatory and other factors in foreign countries.
11
We currently use foreign suppliers and plan to continue to use foreign suppliers to manufacture current and future components and products, where appropriate. These
international operations are subject to inherent risks, which may adversely affect us, including, but not limited to:
-
Political and economic instability;
-
High levels of inflation, historically the case in a number of countries in Asia;
-
Burdens and costs of compliance with a variety of foreign laws, regulations and sanctions;
-
Foreign taxes and duties;
-
Changes in tariff rates or other trade, tax or monetary policies; and
-
Changes or volatility in currency exchange rates and interest rates.
Our suppliers' facilities could be damaged or disrupted by a natural disaster or labor strike, either of which would materially affect our financial position, results of operations
and cash flows.
A major catastrophe, such as an earthquake, monsoon, flood, infectious disease including the COVID-19 virus, or other natural disaster, labor strike, or work stoppage at our
suppliers' facilities or our customers, could result in a prolonged interruption of our business. A disruption resulting from any one of these events could cause significant delays in
product shipments and the loss of sales and customers, which could have a material adverse effect on our financial condition, results of operations, and cash flows.
If we are unable to obtain effective intellectual property protection for our products, processes and technology, we may be unable to compete with other companies.
Intellectual property protection for our products, processes and technology is important and uncertain. If we do not obtain effective intellectual property protection for our
products, processes and technology, we may be subject to increased competition. Our commercial success will depend, in part, on our ability, to maintain the proprietary nature of
our LBS technology and other key technologies by securing valid and enforceable patents and effectively maintaining unpatented technology as trade secrets.
We protect our proprietary LBS technology by seeking to obtain United States and foreign patents in our name, or licenses to third party patents, related to proprietary
technology, inventions, and improvements that may be important to the development of our business. However, our patent position involves complex legal and factual questions.
The standards that the United States Patent and Trademark Office and its foreign counterparts use to grant patents are not always applied predictably or uniformly and can
change.
Additionally, the scope of patents is subject to interpretation by courts and their validity can be subject to challenges and defenses, including challenges and defenses based on
the existence of prior art. Consequently, we cannot be certain as to the extent to which we will be able to obtain patents for our new products and technology or the extent to which
the patents that we already own, protect our products and technology. Reduction in scope of protection or invalidation of our licensed or owned patents, or our inability to obtain new
patents, may enable other companies to develop products that compete directly with ours on the basis of the same or similar technology.
We also rely on the law of trade secrets to protect unpatented know-how and technology to maintain our competitive position. We try to protect this know-how and technology
by limiting access to the trade secrets to those of our employees, contractors and partners, with a need-to-know such information and by entering into confidentiality agreements with
parties that have access to it, such as our employees, consultants and business partners. Any of these parties could breach the agreements and disclose our trade secrets or
confidential information, or our competitors might learn of the information in some other way. If any trade secret not protected by a patent were to be disclosed to or independently
developed by a competitor, our competitive position could be negatively affected.
We could be subject to significant product liability claims that could be time-consuming and costly, divert management attention and adversely affect our ability to obtain and
maintain insurance coverage.
We could be subject to product liability claims if any of the product applications are alleged to be defective or cause harmful effects. For example, because some of the
scanning modules incorporating our LBS technology could scan a low power beam of colored light into the user's eye, the testing, manufacture, marketing and sale of these products
involve an inherent risk that product liability claims will be asserted against us.
12
Additionally, any misuse of our technology or products incorporating our LBS technology by end users or third parties that obtain access to our technology, could result in
negative publicity and could harm our brand and reputation. Product liability claims or other claims related to our products or our technology, regardless of their outcome, could
require us to spend significant time and money in litigation, divert management time and attention, require us to pay significant damages, harm our reputation or hinder acceptance
of our products. Any successful product liability claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable or reasonable
terms. An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the
commercialization of our products and our LBS technology.
Our contracts and collaborative research and development agreements have long sales cycles, which makes it difficult to plan our expenses and forecast our revenues.
Our contracts and collaborative research and development agreements have long sales cycles that involve numerous steps including determining the product application,
exploring the technical feasibility of a proposed product, evaluating the costs of manufacturing a product or qualifying a contract manufacturer for production. Typically, these
contracts and agreements involve several face-to-face meetings before they conclude. Infectious diseases including COVID-19 may delay face-to-face meetings and closing
contracts and agreements. Our long sales cycle, which can last several years, makes it difficult to predict the quarter in which revenue recognition will occur. Delays in entering into
contracts and collaborative research and development agreements could cause significant variability in our revenues and operating results for any particular period.
Our contracts and collaborative research and development agreements may not lead to any product or any products that will be profitable.
Our contracts and collaborative research and development agreements, including without limitation, those discussed in this document, are exploratory in nature and are intended
to develop new types of products for new applications. Our efforts may prove unsuccessful and these relationships may not result in the development of any product or any products
that will be profitable.
Our operations could be adversely impacted by information technology system failures, network disruptions, or cyber security breaches.
We rely on information technology systems to process, transmit, store, and protect electronic data between our employees, our customers and our suppliers. Our systems are
vulnerable to damage or interruptions due to events beyond our control, including, but are not limited to, natural disasters, power loss, telecommunications failures, computer
viruses, hacking, or other cyber security issues. Our system redundancy may be inadequate and our disaster recovery planning may be ineffective or insufficient to account for all
eventualities. Additionally, we maintain insurance coverage to address certain aspects of cyber risks. Such insurance coverage may be insufficient to cover all losses or all claims
that may arise, should such an event occur.
Loss of any of our key personnel could have a negative effect on the operation of our business.
Our success depends on our executive officers and other key personnel and on the ability to attract and retain qualified new personnel. Achievement of our business
objectives will require substantial additional expertise in the areas of sales and marketing, research and product development and manufacturing. Competition for qualified
personnel in these fields is intense, and the inability to attract and retain additional highly skilled personnel, or the loss of key personnel, could hinder our ability to compete
effectively in the LBS markets and adversely affect our business strategy execution and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
In July 2017, we entered into a 65 month facility lease amendment on 31,142 square feet of combined use office, laboratory and manufacturing space at our headquarters facility in
Redmond, Washington. The lease agreement includes extension and rent escalation provisions over the term of the lease.
13
ITEM 3. LEGAL PROCEEDINGS
In March 2019, we filed a Notice of Arbitration in Hong Kong against Ragentek as a result of its failure to perform its obligations under a purchase order with us. During
2019, we reached an agreement with the distributor in our Ragentek contract on the final transaction price of the units shipped to them. As part of the agreement reached in 2019,
we agreed to return $432,000 of the original transaction price to our distributor. During 2020, payments totaling $332,000 were made to the distributor and we settled all claims with
Ragentek and our distributor. Per the terms of the agreement in 2020, the final $100,000 payment to our distributor was no longer required. Upon settlement we dismissed the
arbitration.
We are also subject to various claims and pending or threatened lawsuits in the normal course of business. We are not currently party to any other legal proceedings that
management believes are reasonably possible to have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers are appointed by our Board of Directors and hold office until their successors are elected and duly qualified. The following persons serve as executive officers
of MicroVision, Inc.:
Sumit Sharma, age 47, was appointed Chief Executive Officer in February 2020 and served as Chief Operating Officer from June 2018 to February 2020, after serving as Vice
President of Product Engineering and Operations since February 2017 and Vice President and Senior Director of Operations since September 2015. Prior to MicroVision, from April
2015 to September 2015, he was a Product Development and Operations consultant at BlueMadison Consulting. From November 2013 to March 2015, he was the Senior Director,
Advanced Manufacturing Operations and Technology Development at Jawbone. From March 2011 to October 2013, he was the Head of Manufacturing Operations for project
GLASS at Google. Mr. Sharma has extensive experience in optics, wearable technology, product development and qualification for automotive industry. Mr. Sharma also has
deep experience in global operations and developing strategic partnerships. A patent holder, Mr. Sharma received his baccalaureate degree in engineering from New Jersey
Institute of Technology.
Stephen P. Holt, age 58, joined MicroVision in April 2013 as Chief Financial Officer. Prior to MicroVision, from May 2007 to May 2012, he served
as Chief Financial Officer of PixelOptics, where he played a lead role in bringing the company's first electronic focusing eyewear product to market. At this venture capital-backed
start-up, Mr. Holt raised capital and negotiated strategic partner agreements to license technology in addition to implementing policies and procedures to create an infrastructure
capable of supporting rapid growth while maintaining a strong internal control environment. From March 2006 to April 2007, he was the Chief Financial Officer of Interstate
Distributors, a trucking and transportation services company. From December 2003 to March 2006, he was the Chief Financial Officer of a group of companies consisting of
Activelight, Boxlight, Cinelight and Projector Wholesale Supply. These companies were value-added resellers and distributors of audio-visual and projection equipment. Mr. Holt, a
Certified Management Accountant, holds a B.S. from California State University, Chico and an M.B.A. from Santa Clara University.
14
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock began trading publicly on August 27, 1996. Our common stock trades on The Nasdaq Global Market under the ticker symbol "MVIS." We
have never declared or paid cash dividends on our common stock. We currently anticipate that we will retain all future earnings to fund the operations of our business and do not
anticipate paying dividends on the common stock in the foreseeable future.
As of March 9, 2021, there were approximately 115 holders of record of 157,327,415 shares of common stock outstanding. As many of our shares of common stock are held by
brokerages and institutions on behalf of shareholders, we are unable to estimate the total number of beneficial holders of our common stock represented by these record holders.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are developing our 1st generation lidar sensor, which we call Long Range Lidar, for OEM and Tier-1 automotive suppliers to be incorporated into automotive active
collision avoidance systems and autonomous driving vehicles. This product will also be targeted for sales to technology companies focused on Mobility as a Service (MaaS). MaaS
customers are currently major users of automotive lidar sensors.
Though automotive lidar is our priority now, we have developed solutions for Augmented Reality, Interactive Displays, and Consumer Lidars.
For the past few years, our strategy has been to sell AR displays or components, Interactive Displays, or Consumer Lidars to original equipment manufacturers (OEMs) and original
design manufacturers (ODMs) for incorporation into their products. However, while we do have a well-known customer for one of these products which generates royalty income,
the volume of sales and resulting royalties from that product are not significant, and we have been unable to secure additional customers to launch one of our products.
As discussed above, we plan to focus our attention on strategic alternatives, including a potential sale or merger of the Company, sale of part of the Company, strategic minority
investment, as well as licensing and other transactions.
We have incurred substantial losses since inception and expect to incur a significant loss during the fiscal year ending December 31, 2021. We have funded operations to date
primarily through the sale of common stock, convertible preferred stock, warrants, the issuance of convertible debt and, to a lesser extent, from development contract revenues,
product sales and licensing activities. There can be no assurance that additional capital will be available or that, if available, it will be available on terms acceptable to us on a timely
basis. We cannot be certain that we will succeed in commercializing our technology or products.
Impact of COVID-19 on Our Business
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to be spread throughout the United States and the
world. The impact from the COVID-19 outbreak is uncertain and may impact our business and results of operations and could impact our financial condition in the future. We are
unable to accurately predict the full impact that COVID-19 may have due to numerous uncertainties, including the severity, duration and spread of the outbreak, and actions that may
be taken by governmental authorities.
Several of the suppliers of components in our LBS modules have experienced closures or have been operating at reduced capacity, resulting in lower than planned product
shipments. Continued disruptions to the supply chain could have a material impact on our future operating results.
As a result of the COVID-19 pandemic, including related governmental guidance or directives, we are still requiring most office-based employees to work remotely. We may
experience reductions in productivity and disruptions to our
15
business routines while our remote work policy remains in place or if our employees become ill and are unable to work.
This could have an adverse effect on the timing of our development activities, our ability to raise additional capital, our ability to enter into licensing agreements, or our ability to
complete a potential sale or merger of the Company.
In April 2020, we received funds in the amount of $1.6 million pursuant to a loan under the Paycheck Protection Program of the 2020 CARES Act ("PPP")
administered by the Small Business Administration. The loan has an interest rate of 0.98% and a term of 24 months. No payments are due for the first 10 months following the 24-week
covered period, although interest accrues during that period. Thereafter, the loan is repayable in monthly installments over the next 18 months to retire the loan plus accrued
interest. Funds from the loan may only be used for certain purposes, including payroll, benefits, rent and utilities, and a portion of the loan used to pay certain costs may be
forgivable, all as provided by the terms of the PPP. The CARES Act reduces the amount of the PPP loan that may be forgiven if the borrower reduces full-time equivalent employees
during the covered period as compared to a base period. As of December 31, 2020, all of the funds received under the PPP had been used for qualified purposes. We intend to
apply for partial forgiveness of the loan under PPP guidelines. Based on the terms of the PPP, we estimate the amount of the loan that will be forgiven will be approximately
$690,000, subject to approval by our lender in accordance with PPP guidelines. The loan is evidenced by a promissory note, which contains customary events of default relating to,
among other things, payment defaults and breaches of representations and warranties. We may prepay the loan at any time prior to maturity with no prepayment penalties.
Key accounting policies and estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that materially affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. We evaluate our estimates on a continuous basis. We base our
estimates on historical data, terms of existing contracts, our evaluation of trends in the consumer display and 3D sensing industries, information provided by our current and
prospective customers and strategic partners, information available from other outside sources and on various other assumptions we believe to be reasonable under the
circumstances. The results form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
We believe the following key accounting policies require significant judgments and estimates used in the preparation of our financial statements.
Revenue recognition
Revenues are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to
receive in exchange for those goods or services. We generate all of our revenue from contracts with customers.
Our contract revenue in a particular period is dependent upon when we enter into a contract, the value of the contracts we have entered into, and the availability of technical
resources to perform work on the contracts. We recognize contract revenue either at a point in time, or over time, depending upon the characteristics of the individual contract. If
control of the deliverable(s) occur over time, the revenue is recognized in proportion to the transfer of control. If control passes to the customer only upon completion and transfer of
the asset, revenue is recognized at the completion of the contract. In contracts that include significant customer acceptance provisions, we recognize revenue only upon acceptance
of the deliverable(s).
We identify each performance obligation in our development contracts at contract inception. The contracts generally include product development and customization specified
by the customer. In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligations are distinct within
the context of the contract. Determining whether products and services are considered distinct performance obligations that should be accounted for
separately versus together may require significant judgment. Performance obligations that are not distinct at contract inception are combined.
If we identify multiple distinct performance obligations, we evaluate each performance obligation to determine if there is a stand-alone selling price.
In instances where stand-alone selling price is not directly observable, such as when we do not sell the product or service separately, we determine the stand-alone selling price using information that may
16
include market conditions and other observable inputs. Judgment is required to determine the stand-alone selling price for each distinct performance obligation.
Our development contracts are primarily fixed-fee contracts. If control of deliverables occurs over time, we recognize revenue on fixed fee contracts on the proportion of
total cost expended (under Topic 606, the `input method') to the total cost expected to complete the contract performance obligation. For contracts that require the input method for
revenue recognition, the determination of the total cost expected to complete the performance obligations on fixed fee contracts involves significant judgment. We incorporate
revisions to hour and cost estimates when the causal facts become known.
Share-based compensation
We issue share-based compensation to employees in the form of stock options and restricted stock units (RSUs), and performance stock units (PSUs). We account for the
share-based awards by recognizing the fair value of share-based compensation expense on a straight-line basis over the service period of the award, net of estimated forfeitures.
The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model. The fair value of RSUs is determined by the closing price of our common
stock on the grant date. The PSUs are valued using a binomial option pricing model using the following inputs: stock price, volatility, and risk-free interest rates. Changes in
estimated inputs or using other option valuation methods may result in materially different option values and share-based compensation expense.
Leases
Significant judgment may be required when determining whether a contract contains a lease, the length of the lease term, the allocation of the consideration in a contract
between lease and non-lease components, and the determination of the discount rate included in our office lease. We review the underlying objective of each contract, the terms of
the contract, and consider our current and future business conditions when making these judgments.
Income taxes
Significant judgment is required in evaluating our tax position and in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized.
Based on our history of losses since inception, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets. Our actual tax
exposure may differ from our estimates and any such differences may impact income our tax expense in the period in which such determination is made.
The key accounting policies described above are not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting principles, with no need for us to apply judgment or make estimates. There are also areas in which
our judgment in selecting any available alternative would not produce a materially different result to our financial statements. Additional information about our accounting policies,
and other disclosures required by generally accepted accounting principles, are set forth in the notes to our financial statements.
Inflation has not had a material impact on our revenues or income from continuing operations over the three most recent fiscal years.
Results of Operations
YEAR ENDED DECEMBER 31, 2020 COMPARED TO YEAR ENDED DECEMBER 31, 2019.
Product revenue
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
total
|
|
|
|
|
|
total
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
revenue
|
|
|
2019
|
|
|
revenue
|
|
|
$ change
|
|
|
% change
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$
|
1,347
|
|
|
43.6
|
|
$
|
5,345
|
|
|
60.2
|
|
$
|
(3,998)
|
|
|
(74.8)
|
17
Product revenue is revenue from sales of our products which are LBS modules and their components. Revenue is recognized when control of the goods passes to the
customer.
The decrease in product revenue for the year ended December 31, 2020 compared to the same period in 2019 was primarily due to reduced product shipments to a major
technology company. Beginning in the third quarter of 2019 and through the end of February 2020, we were selling components to a high definition display system that we
developed for a customer under a development agreement. The volume and resulting revenue and gross profit from this business was fairly low. Therefore, in March 2020 we
transferred production of the components to the customer. Starting in March 2020, we earn a royalty from the customer for each unit shipped.
Product revenue in 2019 included $1.2 million related to the sale of display modules that had been produced for Ragentek and delivered to our distributor in 2017. Our
distributor made payments in excess of revenue recognized and Ragentek failed to meet their obligations under the March 2017 order. During 2019, the remaining units held by our
distributor were sold to other customers and we reached an agreement with our distributor on the final transaction price of the units shipped to them.
Product revenue backlog at December 31, 2020 and 2019 was zero and $6.7 million, respectively. The December 31, 2019 backlog was primarily due to the production orders
received from a major technology company under the product supply agreement signed in April 2017. The reduction in product backlog was due to the transferring of production to
our customer.
License and royalty revenue
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
total
|
|
|
|
|
|
total
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
revenue
|
|
|
2019
|
|
|
revenue
|
|
|
$ change
|
|
|
% change
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License and royalty revenue
|
|
$
|
1,718
|
|
|
55.6
|
|
$
|
99
|
|
|
1.1
|
|
$
|
1,619
|
|
|
1,635.4
|
License and royalty revenue is revenue under license agreements to our PicoP® scanning technology. We recognize revenue on upfront license fees at a point in time if the
nature of the license granted is a right-to-use license, representing functional intellectual property with significant standalone functionality. If the nature of the license granted is a
right-to-access license, representing symbolic intellectual property, which excludes significant standalone functionality, we recognize revenue over the period of time we have
ongoing obligations under the agreement. We will recognize revenue from sales-based royalties on the basis of the quarterly reports provided by our customer as to the number of
royalty-bearing products sold or otherwise distributed. In the event that reports are not received, we will estimate the number of royalty-bearing products sold by our customers.
In March 2020, we entered into an agreement for our customer to take over production of the components we had been producing for them. The agreement provides that,
beginning in March 2020, we will earn a royalty on each component shipped that is approximately equal to the gross profit we would have earned if we continued to produce and
ship the components. The increase in license and royalty revenue for the twelve months ended December 31, 2020 compared to the same period in 2019 was primarily due to this
change, moving to a royalty arrangement from recognizing product revenue.
Contract revenue
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
total
|
|
|
|
|
|
total
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
revenue
|
|
|
2019
|
|
|
revenue
|
|
|
$ change
|
|
|
% change
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract revenue
|
|
$
|
25
|
|
|
0.8
|
|
$
|
3,442
|
|
|
38.7
|
|
$
|
(3,417)
|
|
|
(99.3)
|
Contract revenue includes revenue from performance on development contracts and the sale of prototype units and evaluation kits based on our PicoP® scanning module.
Our contract revenue in a particular period is dependent upon when we enter into a contract, the value of the contracts we have entered into, and the availability of technical
resources to perform work on the contracts. We recognize contract revenue either at a point in time, or over time, depending upon the characteristics of the individual contract. If
control of the deliverable(s) occur over time, the revenue is recognized in proportion to the transfer of control. If control passes to the customer only upon completion
18
and transfer of the asset, revenue is recognized at the completion of the contract. In contracts that include significant customer acceptance provisions, we recognize revenue only upon acceptance
of the deliverable(s).
The decrease in contract revenue during the year ended December 31, 2020 compared to the same period in 2019 was attributed to decreased contract activity because the
contract with our April 2017 customer was completed in 2019. Our contract backlog, including orders for prototype units and evaluation kits, at December 31, 2020 and 2019 was zero.
Cost of product revenue
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
product
|
|
|
|
|
|
product
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
revenue
|
|
|
2019
|
|
|
revenue
|
|
|
$ change
|
|
|
% change
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
$
|
1,394
|
|
|
103.5
|
|
$
|
6,692
|
|
|
125.2
|
|
$
|
(5,298)
|
|
|
(79.2)
|
Cost of product revenue includes the direct and allocated indirect costs of products sold to customers. Direct costs include labor, materials, reserves for estimated warranty
expenses, and other costs incurred directly, or charged to us by our contract manufacturers, in the manufacture of these products. Indirect costs include labor, manufacturing
overhead, and other costs associated with operating our manufacturing capabilities and capacity. Manufacturing overhead includes the costs of procuring, inspecting and storing
material, facility and other costs, and is allocated to cost of product revenue based on the proportion of indirect labor which supported production activities.
Cost of product revenue can fluctuate significantly from period to period, depending on the product mix and volume, the level of manufacturing overhead expense and the
volume of direct material purchased. Cost of product revenue was lower during the twelve months ended December 31, 2020 compared to the same period in 2019 due to lower
product shipments to a major technology company and lower inventory write-downs. Inventory write-downs of $168,000 and $2.2 million were recorded in the twelve months ended
December 31, 2020 and 2019, respectively.
Cost of contract revenue
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
contract
|
|
|
|
|
|
contract
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
revenue
|
|
|
2019
|
|
|
revenue
|
|
|
$ change
|
|
|
% change
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of contract revenue
|
|
$
|
4
|
|
|
16.0
|
|
$
|
1,872
|
|
|
54.4
|
|
$
|
(1,868)
|
|
|
(99.8)
|
Cost of contract revenue includes both the direct and allocated indirect costs of performing on contracts and producing prototype units and evaluation kits. Direct costs include
labor, materials and other costs incurred directly in producing prototype units and evaluation kits or performing on a contract. Indirect costs include labor and other costs associated
with operating our research and development department and building our technical capabilities and capacity. Cost of contract revenue is determined by the level of direct and
indirect costs incurred, which can fluctuate substantially from period to period.
The decrease in the cost of contract revenue during the year ended December 31, 2020 compared to the same period in 2019 was attributed to reduced activity on the April
2017 development contract because the contract was completed in 2019.
Research and development expense
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$ change
|
|
|
% change
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expense
|
|
|
|
|
|
|
|
$
|
9,840
|
|
$
|
18,661
|
|
$
|
(8,821)
|
|
|
(47.3)
|
Research and development expense consists of compensation related costs of employees and contractors engaged in internal research and product development activities,
direct material to support development programs, laboratory operations, outsourced development and processing work, and other operating expenses. We assign our research and
development resources based on the business opportunity of the available projects, the skill mix of the resources available and the contractual commitments we have made to our
customers. We believe that a substantial level of continuing research and development expense will be required to further develop our scanning technology.
19
The decrease in research and development expense during the year ended December 31, 2020 compared to the same period in 2019 was attributable to reduced personnel-related
compensation and benefits expenses and lower direct materials and subcontractor costs.
Sales, marketing, general and administrative expense
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$ change
|
|
|
% change
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, marketing, general and administrative expense
|
|
|
|
|
|
|
|
$
|
5,917
|
|
$
|
8,133
|
|
$
|
(2,216)
|
|
|
(27.2)
|
Sales, marketing, general and administrative expense includes compensation and support costs for marketing, sales, management and administrative staff, and for other
general and administrative costs, including legal and accounting services, consultants and other operating expenses.
The decrease in sales, marketing, general and administrative expense during the year ended December 31, 2020 compared to the same period in 2019 was attributed to lower
personnel-related compensation and benefits expenses and lower professional and outside services costs. At the end of 2020 there were no sales or marketing personnel with the
Company.
Income taxes
No provision for income taxes has been recorded because we have experienced net losses from inception through December 31, 2020. At December 31, 2020, we had net
operating loss carryforwards of approximately $396.6 million for federal income tax reporting purposes. In addition, we have research and development tax credits of $8.8 million.
During 2020, $28.4 million federal net operating losses expired unused. A majority of the net operating loss carryforwards and research and development credits available to offset
future taxable income, if any, will expire in varying amounts from 2021 to 2040, if not previously used.
In certain circumstances, as specified in the Internal Revenue Code, a 50% or more ownership change by certain combinations of our shareholders during any three-year period
would result in a limitation on our ability to use a portion of our net operating loss carryforwards.
We recognize interest accrued and penalties related to unrecognized tax benefits in tax expense. We did not have any unrecognized tax benefits at December 31, 2020 or at
December 31, 2019.
Liquidity and Capital Resources
We have incurred significant losses since inception. We have funded operations to date primarily through the sale of common stock, convertible preferred stock, warrants, the
issuance of convertible debt and, to a lesser extent, from development contract revenues, product sales, and licensing activities. At December 31, 2020, we had $16.9 million in
cash and cash equivalents.
Based on our current operating plan and including $61.4 million received in 2021 under At-the-Market equity offering agreements with Craig-Hallum Capital Group, we anticipate
that we have sufficient cash and cash equivalents to fund our operations for at least the next 12 months. We may require additional capital to fund our operating plan past that time.
We may obtain additional capital through the issuance of equity or debt securities, and/or licensing activities. There can be no assurance that additional capital will be available to us
or, if available, will be available on terms acceptable to us or on a timely basis. If adequate capital resources are not available on a timely basis, we intend to consider limiting our
operations substantially. This limitation of operations could include further reductions in our research and development projects, staff, operating costs, and capital expenditures.
Operating activities
Cash used in operating activities totaled $16.1 million during 2020, compared to $24.0 million in 2019. Cash used in operating activities resulted primarily from cash used to
fund our net loss, after adjusting for non-cash charges such as share-based compensation, depreciation and amortization charges and changes in operating assets and liabilities.
The changes in cash used in operating activities were primarily attributed to reduced operating expenses and the timing of
20
payments received from customers during the year ended December 31, 2020 compared to the year ended December 31, 2019.
Investing activities
Cash provided by investing activities totaled $123,000 in 2020, compared to cash used in investing activities of $745,000 in 2019.