Table of Contents
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| ☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
| Emerging growth company | ||||||
Table of Contents
TABLE OF CONTENTS
2
Table of Contents
ITEM 1. |
FINANCIAL STATEMENTS |
March 31, |
December 31, |
|||||||
2023 |
2022 |
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Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Investment securities, available-for-sale |
||||||||
Restricted cash, current |
||||||||
Accounts receivable, net |
||||||||
Contract assets |
||||||||
Inventory |
||||||||
Advance to Ibeo |
||||||||
Other current assets |
||||||||
Total current assets |
||||||||
Property and equipment, net |
||||||||
Operating lease right-of-use |
||||||||
Restricted cash |
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Intangible assets, net |
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Other assets |
||||||||
Total assets |
$ | $ | ||||||
Liabilities and shareholders’ equity |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | $ | ||||||
Accrued liabilities |
||||||||
Accrued liability for Ibeo business combination |
||||||||
Contract liabilities |
||||||||
Current portion of operating lease liability |
||||||||
Current portion of finance lease obligations |
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Other current liabilities |
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Total current liabilities |
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Operating lease liability, net of current portion |
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Deferred tax liabilities |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 10 ) |
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Shareholders’ equity |
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Preferred stock, par value $ |
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Common stock, par value $ shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
( |
) | ||||||
Accumulated deficit |
( |
) | ( |
) | ||||
Total shareholders’ equity |
||||||||
Total liabilities and shareholders’ equity |
$ | $ | ||||||
Three Months Ended |
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March 31, |
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2023 |
2022 |
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| Revenue |
$ | $ | ||||||
| Cost of revenue |
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| Gross profit |
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| Research and development expense |
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| Sales, marketing, general and administrative expense |
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| Total operating expenses |
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| Loss from operations |
( |
) | ( |
) | ||||
| Bargain purchase gain, net of tax |
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| Other income (expense), net |
( |
) | ||||||
| |
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| Net loss before taxes |
( |
) | ( |
) | ||||
| Provision for income taxes |
( |
) | ||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| |
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| Net loss per share - basic and diluted |
$ | ( |
) | $ | ( |
) | ||
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| Weighted-average shares outstanding - basic and diluted |
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Three Months Ended |
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March 31, |
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2023 |
2022 |
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| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Other comprehensive loss: |
||||||||
| Unrealized gain (loss) on investment securities, available for sale |
( |
) | ||||||
| Foreign currency translation adjustments |
||||||||
| Total comprehensive income |
( |
) | ||||||
| |
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| Comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
| |
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Common Stock |
Additional paid-in capital |
Accumulated other comprehensive loss |
Total shareholders’ equity |
|||||||||||||||||||||
Shares |
Par value |
Accumulated deficit |
||||||||||||||||||||||
| Balance at January 1, 2022 |
$ | ( |
) | $ | ( |
) | $ | |||||||||||||||||
| Share-based compensation expense |
||||||||||||||||||||||||
| Exercise of options |
||||||||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| Other comprehensive loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| |
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| Balance at March 31, 2022 |
( |
) | ( |
) | ||||||||||||||||||||
| |
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| Balance at January 1, 2023 |
$ | ( |
) | $ | ( |
) | ||||||||||||||||||
| Share-based compensation expense |
||||||||||||||||||||||||
| Sales of common stock |
||||||||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| Other comprehensive loss |
— | |||||||||||||||||||||||
| |
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|||||||||||||
| Balance at March 31, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||
| |
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Three Months Ended March 31, |
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2023 |
2022 |
|||||||
Cash flows from operating activities |
||||||||
Net loss |
$ | ( |
) | $ | ( |
) | ||
Adjustments to reconcile net loss to net cash used in operations: |
||||||||
Depreciation and amortization |
||||||||
Bargain purchase gain, net of tax |
( |
) | ||||||
Impairment of property and equipment |
||||||||
Inventory write-downs |
||||||||
Share-based compensation expense |
||||||||
Net accretion of premium on short-term investments |
( |
) | ||||||
Change in: |
||||||||
Accounts receivable |
( |
) | ||||||
Contract assets |
( |
) | ||||||
Inventory |
( |
) | ( |
) | ||||
Other current and non-current assets |
||||||||
Accounts payable |
( |
) | ||||||
Accrued liabilities |
||||||||
Contract liabilities and other current liabilities |
( |
) | ( |
) | ||||
Operating lease liabilities |
( |
) | ( |
) | ||||
Other long-term liabilities |
||||||||
Net cash used in operating activities |
( |
) | ( |
) | ||||
Cash flows from investing activities |
||||||||
Sales of investment securities |
||||||||
Purchases of investment securities |
( |
) | ( |
) | ||||
Ca s h paid for Ibeo business combination |
( |
) | ||||||
Purchases of property and equipment |
( |
) | ( |
) | ||||
Net cash provided by (used in) investing activities |
( |
) | ||||||
Cash flows from financing activities |
||||||||
Principal payments under finance leases |
( |
) | ( |
) | ||||
Principal payments under long-term debt |
( |
) | ||||||
Proceeds from stock option exercises |
||||||||
Net proceeds from issuance of common stock |
||||||||
Net cash (used in) provided by financing activities |
( |
) | ||||||
Change in cash, cash equivalents, and restricted cash |
( |
) | ||||||
Cash, cash equivalents, and restricted cash at beginning of period |
||||||||
Cash, cash equivalents, and restricted cash at end of period |
$ | $ | ||||||
Supplemental schedule of non-cash investing and financing activities |
||||||||
Non-cash additions to property and equipment |
$ | $ | ||||||
Acquisition of right-of-use asset |
$ | $ | ||||||
| Settlement of preexisting Advance to Ibeo in exchange for net assets acquired |
$ | $ | ||||||
Amounts issued to escrow for acquisition consideration |
$ | $ | ||||||
Amounts held back for acquisition consideration |
$ | $ | ||||||
Foreign currency translation adjustments |
$ | $ | ||||||
March 31, 2023 |
December 31, 2022 |
|||||||
Cash and cash equivalents |
$ | $ | ||||||
Restricted cash, current |
||||||||
Restricted cash |
||||||||
Cash, cash equivalents, and restricted cash |
$ | $ | ||||||
Three Months Ended |
||||||||
March 31, |
||||||||
2023 |
2022 |
|||||||
| Numerator: |
||||||||
| Net loss available for common shareholders - basic and diluted |
$ | ( |
) | $ | ( |
) | ||
| |
|
|
|
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| Denominator: |
||||||||
| Weighted-average common shares outstanding - basic and diluted |
||||||||
| |
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|
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| Net loss per share - basic and diluted |
$ | ( |
) | $ | ( |
) | ||
| |
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|
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Amount |
Weighted Average Useful Life (in years) |
|||||||
| Purchase consideration: |
||||||||
| Cash paid at closing (1) |
$ |
|||||||
| Cash in escrow (2) |
||||||||
| Holdback amount (3) |
||||||||
| Advances to Ibeo (4) |
||||||||
| |
|
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| Total purchase consideration |
$ |
|||||||
| |
|
|||||||
| Inventory |
$ | |||||||
| Other current assets |
||||||||
| Operating lease right-of-use |
||||||||
| Property and equipment, net |
||||||||
| Intangible assets: |
||||||||
| Acquired technology |
||||||||
| Order backlog |
||||||||
| Contract liabilities |
( |
) | ||||||
| Operating lease liabilities |
( |
) | ||||||
| Deferred tax liabilities |
( |
) | |
|
| |||
| |
|
|||||||
| Total identifiable net assets |
$ | |||||||
| |
|
|
|
|
|
|
|
|
| Bargain purchase gain (1) |
( |
) | ||||||
(1) |
Represents $ |
(2) |
Recorded as restricted cash and accrued liability to Ibeo in our condensed consolidated balance sheet. |
(3) |
Recorded in accrued liability to Ibeo in our condensed consolidated balance sheet. |
(4) |
Represents $ |
(5) |
The bargain purchase gain represents the excess of the fair value of the underlying net assets acquired and liabilities assumed over the purchase consideration and is included in Bargain purchase gain in the Condensed Consolidated Statement of Operations. The bargain purchase gain was attributable to the negotiation process with Ibeo during its insolvency proceedings resulting in cash consideration paid being less than the fair value of the net assets. |
| • | Recognition of the bargain purchase gain as if incurred in the first quarter of 2022; |
| • | Acquisition-related costs of $ |
Three Months Ended |
||||||||
March 31, |
||||||||
2023 |
2022 |
|||||||
| Total revenue |
$ | $ | ||||||
| Net loss |
( |
) | ( |
) | ||||
Three Months Ended March 31, 2023 |
||||||||||||||||
Product |
Royalty |
Contract |
||||||||||||||
revenue |
revenue |
revenue |
Total |
|||||||||||||
| |
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| Products transferred at a point in time |
$ | $ | $ | $ | ||||||||||||
| Product and services transferred over time |
||||||||||||||||
| |
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| Total |
$ | $ | |
$ | $ | |||||||||||
| |
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|
|
|||||||||
Three Months Ended March 31, 2022 |
||||||||||||||||
Product |
Royalty |
Contract |
||||||||||||||
revenue |
revenue |
revenue |
Total |
|||||||||||||
| |
||||||||||||||||
| Products transferred at a point in time |
$ | |
$ | $ | |
$ | ||||||||||
| Product and services transferred over time |
||||||||||||||||
| |
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|
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| Total |
$ | $ | $ | $ | ||||||||||||
| |
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|
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March 31, 2023 |
December 31, 2022 |
$ Change |
% Change |
|||||||||||||
Contract assets |
$ | $ | $ | |||||||||||||
Contract liabilities |
( |
) | ( |
) | ( |
) | ||||||||||
Net contract assets (liabilities) |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||
Remainder of 2023 |
2024 |
|||||||
Revenue |
$ | |
$ | |
||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
As of March 31, 2023 |
||||||||||||||||
Assets |
||||||||||||||||
Corporate debt securities |
$ | $ | $ | $ | ||||||||||||
U.S. Treasury securities |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
As of December 31, 2022 |
||||||||||||||||
Assets |
||||||||||||||||
Corporate debt securities |
$ | $ | $ | $ | ||||||||||||
U.S. Treasury securities |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Investment |
||||||||||||||||
Cost/ |
Gross |
Gross |
Securities, |
|||||||||||||
Amortized |
Unrealized |
Unrealized |
Available- |
|||||||||||||
Cost |
Gains |
Losses |
For-Sale |
|||||||||||||
As of March 31, 2023 |
||||||||||||||||
Assets |
||||||||||||||||
Corporate debt securities |
$ | $ | $ | ( |
) | $ | ||||||||||
U.S. Treasury securities |
( |
) | ||||||||||||||
| $ | $ | $ | ( |
) | $ | |
||||||||||
Investment |
||||||||||||||||
Cost/ |
Gross |
Gross |
Securities, |
|||||||||||||
Amortized |
Unrealized |
Unrealized |
Available- |
|||||||||||||
Cost |
Gains |
Losses |
For-Sale |
|||||||||||||
As of December 31, 2022 |
||||||||||||||||
Assets |
||||||||||||||||
Corporate debt securities |
$ | $ | $ | ( |
) | $ | ||||||||||
U.S. Treasury securities |
( |
) | ||||||||||||||
| $ | $ | $ | ( |
) | $ | |||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
As of March 31, 2023 |
||||||||||||||||
Maturity date |
||||||||||||||||
Less than one year |
$ | $ | $ | ( |
) | $ | ||||||||||
| $ | $ | |||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
As of December 31, 2022 |
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Maturity date |
||||||||||||||||
Less than one year |
$ | $ | $ | ( |
) | $ | ||||||||||
| $ | $ | |||||||||||||||
Less than Twelve Months |
Twelve Months or Greater |
Total |
||||||||||||||||||||||
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
|||||||||||||||||||
As of March 31, 2023 |
||||||||||||||||||||||||
Corporate debt securities |
$ | $ | ( |
) | $ | $ | $ | |
$ | ( |
) | |||||||||||||
U.S. Treasury securities |
( |
) | ( |
) | ||||||||||||||||||||
| $ | $ | ( |
) | $ | $ | $ | $ | ( |
) | |||||||||||||||
Less than Twelve Months |
Twelve Months or Greater |
Total |
||||||||||||||||||||||
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
|||||||||||||||||||
As of December 31, 2022 |
||||||||||||||||||||||||
Corporate debt securities |
$ | $ | ( |
) | $ | $ | $ | $ | ( |
) | ||||||||||||||
U.S. Treasury securities |
( |
) | ( |
) | ||||||||||||||||||||
| $ | $ | ( |
) | $ | $ | $ | $ | ( |
) | |||||||||||||||
(in thousands) |
March 31, 2023 |
December 31, 2022 |
||||||
Raw materials |
$ | $ | ||||||
Work in process |
— | |||||||
Finished goods |
||||||||
| $ | $ | |||||||
(in thousands) |
March 31, 2023 |
December 31, 2022 |
||||||
Production equipment |
$ | $ | ||||||
Leasehold improvements |
||||||||
Computer hardware and software/lab equipment |
||||||||
Office furniture and equipment |
||||||||
Less: Accumulated depreciation |
( |
) | ( |
) | ||||
| $ | $ | |||||||
As of March 31, 2023 |
||||||||||||||||
(in thousands) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Weighted Average Remaining Period (Years) |
||||||||||||
Acquired technology |
$ | $ | $ | |||||||||||||
Backlog |
||||||||||||||||
| $ | $ | |||||||||||||||
| As of December 31, 2022 |
||||||||||||||||
(in thousands) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Weighted Average Remaining Period (Years) |
||||||||||||
| Acquired technology |
$ | $ | $ | |||||||||||||
| |
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|
|
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| $ | $ | |||||||||||||||
| |
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|
|
|
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Years Ended December 31, |
Cost of Revenue |
Research and Development Expense |
Total |
|||||||||
| 2023 |
$ |
$ |
$ |
|||||||||
| 2024 |
||||||||||||
| 2025 |
||||||||||||
| 2026 |
||||||||||||
| Thereafter |
— |
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| |
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| |
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|
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Share-based compensation expense |
Three Months Ended |
|||||||
March 31, |
||||||||
(in thousands) |
2023 |
2022 |
||||||
| Research and development expense |
$ | $ | ||||||
| Sales, marketing, general and administrative expense |
||||||||
| |
|
|
|
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| $ | $ | |||||||
| |
|
|
|
|||||
Options |
Shares |
Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term (years) |
Aggregate Intrinsic Value |
||||||||||||
| Outstanding as of March 31, 2023 |
$ | $ | ||||||||||||||
| Exercisable as of March 31, 2023 |
$ | $ | ||||||||||||||
Weighted-average |
||||||||
Shares |
price |
|||||||
| Unvested as of December 31, 2022 |
$ | |||||||
| Granted |
||||||||
| Vested |
( |
) | ||||||
| Forfeited |
( |
) | ||||||
| |
|
|||||||
| Unvested as of March 31, 2023 |
$ | |||||||
| |
|
|
|
|||||
Three Months Ended March 31, |
||||||||
(in thousands) |
2023 |
2022 |
||||||
| Operating lease expense |
$ | $ | ||||||
| |
|
|
|
|||||
| Finance lease expense: |
||||||||
| Amortization of leased assets |
||||||||
| Interest on lease liabilities |
||||||||
| |
|
|
|
|||||
| Total finance lease expense |
||||||||
| |
|
|
|
|||||
| Total lease expense |
$ | $ | ||||||
| |
|
|
|
|||||
Three Months Ended March 31, |
||||||||
(in thousands) |
2023 |
2022 |
||||||
| Cash paid for amounts included in measurement of lease liabilities: |
||||||||
| Operating cash flows from operating leases |
$ | $ | ||||||
| Operating cash flows from finance leases |
||||||||
| Financing cash flows from finance leases |
||||||||
(in thousands) |
March 31, 2023 |
December 31, 2022 |
||||||
| Operating leases |
||||||||
| Operating lease right-of-use |
$ | $ | ||||||
| |
|
|
|
|||||
| Current portion of operating lease liability |
||||||||
| Operating lease liability, net of current portion |
||||||||
| |
|
|
|
|||||
| Total operating lease liabilities |
$ | $ | ||||||
| |
|
|
|
|||||
| Finance leases |
||||||||
| Property and equipment, at cost |
$ | $ | ||||||
| Accumulated depreciation |
( |
) | ||||||
| |
|
|
|
|||||
| Property and equipment, net |
$ | $ | ||||||
| |
|
|
|
|||||
| Current portion of finance lease obligations |
$ | $ | ||||||
| Finance lease obligations, net of current portion |
||||||||
| |
|
|
|
|||||
| Total finance lease liabilities |
$ | $ | ||||||
| |
|
|
|
|||||
| Weighted Average Remaining Lease Term |
||||||||
| Operating leases |
||||||||
| Finance leases |
||||||||
| Weighted Average Discount Rate |
||||||||
| Operating leases |
% | % | ||||||
| Finance leases |
% | % | ||||||
(in thousands) |
Operating leases |
Finance leases |
||||||
| Years Ended December 31, |
||||||||
| 2023 |
||||||||
| 2024 |
||||||||
| 2025 |
||||||||
| 2026 |
||||||||
| Thereafter |
||||||||
| |
|
|
|
|||||
| Total minimum lease payments |
||||||||
| Less: amount representing interest |
( |
) | ||||||
| |
|
|
|
|||||
| Present value of capital lease liabilities |
$ | $ | ||||||
| |
|
|
|
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Table of Contents
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-looking statements
The information set forth in this report in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 3, “Quantitative and Qualitative Disclosures about Market Risk,” includes “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 and expenses, and measures of income or loss, status of product development and performance, market opportunity and future demand, partner and customer engagement, strategic plans, 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,” “believe,” “estimate,” “expect,” “goal,” “may,” “plan,” 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.
Overview
MicroVision, Inc. is a global developer of lidar hardware and software solutions focused primarily on automotive lidar and advanced driver-assistance systems (ADAS) markets where we can deliver safe mobility at the speed of life. We develop a suite of light detection and ranging, or lidar, sensors and perception and validation software to the automotive market for ADAS and autonomous vehicle (AV) applications, as well as to complementary markets for non-automotive applications including industrial, robotics and smart infrastructure. Our long history of developing and commercializing the core components of our lidar hardware and related software, combined with the experience of the team recently acquired from Ibeo Automotive Systems (Ibeo) with automotive-grade qualification, provides a potentially compelling advantage over the less-experienced recent entrants into this market.
Founded in 1993, MicroVision, Inc. is a pioneer in laser beam scanning, or LBS, technology, which is based on our patented expertise in micro-electromechanical systems, or MEMS, laser diodes, opto-mechanics, electronics, algorithms and software and how those elements are packaged into a small form factor. Throughout our history, we have combined our proprietary technology with our development expertise to create innovative solutions to address existing and emerging market needs, such as augmented reality microdisplay engines; interactive display modules; consumer lidar components; and, most recently, automotive lidar sensors and software solutions for the automotive market.
On January 31, 2023, we completed the acquisition of certain assets of Ibeo Automotive Systems GmbH, which was founded in 1998 as a lidar hardware and software provider. Ibeo developed and launched the first lidar sensor to be automotive qualified for serial production with a Tier 1 automotive supplier and that is currently available in passenger cars by premium OEMs. Ibeo developed software solutions, including perception and validation software, which are also used by premium OEMs. In addition, Ibeo sold its products for non-automotive uses such as industrial, smart infrastructure and robotics applications.
For the automotive market, our integrated solution combines our MEMS-based dynamic-range lidar sensor and perception software, to be integrated on our custom ASIC, targeted for sale to premium automotive OEMs and Tier 1 automotive suppliers. We believe that our MEMS-based lidar sensor, or MAVIN sensor, and perception software demonstrates best-in-class features and performance that exceed market expectations and outperform competitive products. Our ADAS solution is intended to leverage edge computing and custom ASICs to enable our hardware and perception software to be integrated into an OEM’s ADAS stack.
In addition to our dynamic-range and long-range MAVIN sensor and perception software solution for the automotive market, our product suite includes short- and mid-range lidar sensors, both MEMS-based and flash-based, for automotive and industrial applications, including smart infrastructure, robotics, and other commercial segments. Also, our validation software tool is used by OEMs and other customers including Tier 1s for validating vehicle sensors for ADAS and AV applications. The tool includes software that automates the manual data classification or annotation process, significantly reducing the time and resources required by OEMs to validate their ADAS and AV systems.
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In the recent past, we developed micro-display concepts and designs for use in head-mounted augmented reality, or AR, headsets and developed a 1440i MEMS module supporting AR headsets. We also developed an interactive display solution targeted at the smart speakers market and a small consumer lidar sensor for use indoors with smart home systems.
Although our development and productization efforts are now solely focused on our lidar sensors and related software solutions, our revenue in the two fiscal years ended December 31, 2022 was derived from one customer, Microsoft Corporation, related to components that we developed for a high-definition display system. Our arrangement with this customer generates royalty income; however, the volume of sales and resulting royalties from that arrangement are not significant.
We have been unable to secure the customers needed to successfully launch our products. We have incurred substantial losses since inception, and we expect to incur a significant loss during the fiscal year ending December 31, 2023.
Key accounting policies and estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated 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. Except for changes in accounting for business combinations associated with our acquisition of Ibeo assets, there have been no significant changes to our critical accounting judgments, policies, and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2022.
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Results of operations
Revenue
| (in thousands) | 2023 | 2022 | $ change | % change | ||||||||||||
| Three Months Ended March 31, |
$ | 782 | $ | 350 | $ | 432 | 123.4 | |||||||||
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 recognize 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.
The increase in revenue for the three months ended March 31, 2023 compared to the same period in 2022 was due to activity on contracts obtained in the acquisition of Ibeo assets.
Cost of revenue
| (in thousands) | 2023 | % of product revenue |
2022 | % of product revenue |
$ change | % change | ||||||||||||||||||
| Three Months Ended March 31, |
$ | 544 | 69.6 | $ | 4 | 1.1 | $ | 540 | 13,500.0 | |||||||||||||||
Cost of revenue includes the direct and allocated indirect costs of products and services 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, overhead, and other costs associated with operating our manufacturing capabilities and our research and development department. Overhead includes the costs of procuring, inspecting and storing material, facility and other costs, and is allocated to cost of revenue based on the proportion of indirect labor which supported revenue activities.
Cost of revenue can fluctuate significantly from period to period, depending on the product mix and volume, the level of overhead expense and the volume of direct material purchased. The increase in cost of revenue for the three months ended March 31, 2023 compared to the same period in 2022 was due to increased contract activity and the amortization of intangible assets obtained in the acquisition of Ibeo assets.
Research and development expense
| (in thousands) | 2023 | 2022 | $ change | % change | ||||||||||||
| Three Months Ended March 31, |
$ | 12,692 | $ | 7,593 | $ | 5,099 | 67.2 | |||||||||
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.
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The increase in research and development expense during the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to higher salary and benefits expenses related to transferred employees in the acquisition of Ibeo assets of approximately $4.0 million.
Sales, marketing, general and administrative expense
| (in thousands) | 2023 | 2022 | $ change | % change | ||||||||||||
| Three Months Ended March 31, |
$ | 8,737 | $ | 5,877 | $ | 2,860 | 48.7 | |||||||||
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 increase in sales, marketing, general and administrative expense during the three months ended March 31, 2023 compared to the same period in 2022 was primarily attributed to higher salary and benefits expenses related to transferred employees in the acquisition of Ibeo assets of approximately $1.6 million and increased professional fees of approximately $1.0 million.
Bargain purchase gain, net of tax
| (in thousands) | 2023 | 2022 | $ change | % change | ||||||||||||
| Three Months Ended March 31, |
$ | 1,706 | $ | — | $ | 1,706 | — | |||||||||
During the three months ended March 31, 2023, we recorded a bargain purchase gain related to the acquisition of assets from Ibeo. The bargain purchase gain represents the excess of the fair value of the underlying net assets acquired and liabilities assumed over the purchase consideration paid in the transaction.
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 March 31, 2023, we had $23.2 million in cash and cash equivalents and $44.5 million in short-term investment securities.
Based on our current operating plan, we anticipate that we have sufficient cash and cash equivalents to fund our operations for at least the next 12 months.
Operating activities
Cash used in operating activities totaled $13.5 million during the three months ended March 31, 2023 compared to cash used in operating activities of $10.9 million during the same period in 2022. 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 increased operating expenses to support the development of our lidar sensor.
Investing activities
During the three months ended March 31, 2023, net cash provided by investing activities was $6.3 million compared to net cash used in investing activities of $16.1 million during the three months ended March 31, 2022. During the three months ended March 31, 2023, we purchased short-term investment securities totaling $3.9 million and sold short-term investment securities totaling $22.0 million. During the three months ended March 31, 2022, we purchased short-term investment securities totaling $16.7 million and sold short-term investment securities totaling $1.5 million. During the three months ended March 31, 2023, we made payments totaling $11.2 million related to the acquisition of Ibeo assets. Purchases of property and equipment during the three months ended March 31, 2023 and 2022 were $615,000 and $884,000, respectively.
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Financing activities
Net cash provided by financing activities totaled $12.7 million during the three months ended March 31, 2023, compared to net cash used financing activities of $49,000 during the same period of 2022. During the three months ended March 31, 2022, we made principal payments under long-term debt totaling $294,000 related to the loan under the Paycheck Protection Program of the 2020 CARES Act (PPP) administered by the Small Business Administration. Proceeds received from stock option exercises totaled $253,000 during the three months ended March 31, 2022. Principal payments under finance leases were $6,000 during the three months ended March 31, 2023 compared to $8,000 during the three months ended March 31, 2022.
In June 2021, we entered into a $140.0 million ATM equity offering agreement with Craig-Hallum. Under the agreement we are able, at our discretion, to offer and sell shares of our common stock having an aggregate value of up to $140.0 million through Craig-Hallum. As of December 31, 2022, we had issued 8.3 million shares of our common stock for net proceeds of $81.8 million under this ATM agreement. During the quarter ended March 31, 2023, we issued 5.0 million shares of our common stock for net proceeds of $12.5 million under the agreement. As of March 31, 2023, we have approximately $43.5 million available under this ATM agreement.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest rate and market liquidity risk
As of March 31, 2023, all of our cash and cash equivalents have variable interest rates; however, we believe our exposure to market and interest rate risk is not material. Due to the generally short-term maturities of our investment securities, we believe that the market risk arising from our holdings of these financial instruments is not significant. We do not believe that inflation has had a material effect on our business, financial condition or results of operations; however, we do anticipate our labor costs to increase as a result of inflationary pressures.
Our investment policy generally directs that the investment managers should select investments to achieve the following goals: principal preservation, adequate liquidity and return. As of March 31, 2023, our cash and cash equivalents are comprised of short-term highly rated (A rated securities and above) money market savings accounts and our short-term investments are comprised of highly rated corporate and government debt securities (A rated securities and above). The values of cash and cash equivalents and investment securities, available-for-sale as of March 31, 2023, are as follows:
| (in thousands) | Amount | Percent | ||||||
| Cash and cash equivalents |
$ | 23,187 | 34.2 | % | ||||
| Less than one year |
44,544 | 65.8 | % | |||||
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| $ | 67,731 | 100.0 | % | |||||
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Foreign exchange rate risk
Our major contract and collaborative research and development agreements, product sales, and licensing activity payments are currently made in U.S. dollars or Euros. Changes in the relative value of the U.S. dollar to the Euro and other currencies may affect revenue and other operating results as expressed in U.S. dollars. In addition, our international subsidiary financial statements are denominated in Euros. As such, the consolidated financial statements will continue to remain subject to the impact of foreign currency translation as our international operations continue to expand. We may enter into foreign currency hedges to offset material exposure to currency fluctuations when we can adequately determine the timing and amounts of the exposure.
| ITEM 4. | CONTROLS AND PROCEDURES |
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report and, based on this evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II.
| ITEM 1. | LEGAL PROCEEDINGS |
We are 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 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
We have a history of operating losses and expect to incur significant losses in the future.
We have had substantial losses since our inception. We cannot assure you that we will ever become or remain profitable.
| • | As of March 31, 2023, we had an accumulated deficit of $701.6 million. |
| • | We incurred net losses of $682.5 million from inception through 2022, and a net loss of $19.0 million during the three months ended March 31, 2023. |
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, including products built around that technology such as our automotive lidar sensor, 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 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 2023 and likely thereafter. There is significant risk that we will not achieve positive cash flow at any time in the future.
We may require additional capital to fund our operations and to implement our business plan. Raising additional capital may dilute the value of current shareholders’ investment in us.
Based on our current operating plan, we anticipate that we have sufficient cash and cash equivalents to fund our operations for at least the next 12 months. We may, however, 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.
We are currently focused on developing and commercializing our automotive lidar solution. This involves 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 technology, the rate at which OEMs introduce systems incorporating our products and technology and the market acceptance and competitive position of such systems. Our expenses are expected to increase significantly as a result of the Ibeo acquisition and related headcount increase. 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.
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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’ investment in us. 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.
Risks Related to our Financial Statements and Results
Our revenue is generated from a small number of customers, and losing a significant customer could have a negative impact on our revenue.
For the three months ended March 31, 2023, one commercial customer accounted for $366,000 in revenue, representing 46% of our total revenue, a second commercial customer accounted for $192,000 in revenue, representing 24% of our total revenue, and a third commercial customer accounted for $83,000 in revenue, representing 10% of our total revenue. For the three months ended March 31, 2022, one customer accounted for $350,000 in revenue, representing 100% of our total revenue. The loss of a significant customer could negatively affect our revenue.
We have, in the past, identified a material weakness in our internal controls.
In the second quarter of 2021, we identified a material weakness in the controls that support our determination of the grant date of equity awards. If we identify further material weaknesses in our internal controls, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting obligations. Any such failure could cause investors to lose confidence in the accuracy of our financial reports, harm our reputation and adversely affect the market price of our common stock.
Our stock price has fluctuated in the past, has recently been in decline 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 significantly in the past, and may continue to be volatile in the future. Over the 52-week period ending May 5, 2023, our common stock has traded at a low of $1.82 and a high of $5.96. We may continue to experience sustained depression or substantial volatility in our stock price in the foreseeable future unrelated to our operating performance or prospects. For the fiscal year ended December 31, 2022, we incurred a loss per share of $(0.32).
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; |
| • | strategic developments; |
| • | the timing and results of our development and commercialization efforts with respect to our lidar sensors and ADAS solutions; |
| • | changes in regulatory or industry standards applicable to our technologies; |
| • | variations in our or our competitors’ financial and operating results; |
| • | 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 technology; |
| • | 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 |
| • | the effects of other events or factors, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics, such as the COVID-19 outbreak, and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere. |
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Since the price of our common stock has fluctuated in the past, has suffered recent declines 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.
Additionally, securities of certain companies have in the past few years 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. There can be no assurance that our shares will not be subject to a short squeeze in the future, and investors may lose a significant portion or all of their investment if they purchase our shares at a rate that is significantly disconnected from our underlying value.
If we are unable to maintain our listing on The Nasdaq Global Market, it could 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 May 5, 2023, the closing price of our common stock was $2.18 per share.
Our lack of financial resources relative to our competitors may limit our revenues, potential profits, overall market share or value.
Our products and solutions compete with other pureplay lidar developers, many of which have recently gone public through de-SPAC transactions and therefore have substantially greater financial resources than we have. Because of their greater resources, our competitors may develop or commercialize products more quickly than us and have access to more entrenched sales channels. This imbalance in financial resources and access could result for us 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 or other resources than we have.
Risks Related to Our Operations
Difficulty in qualifying a contract manufacturer, Tier 1 partner, or foundry for our products, or experiencing changes in our supply chain, could cause delays that may result in lost future revenues and damaged customer relationships.
Historically, we have relied on single or limited-source suppliers to manufacture our products. Establishing a relationship with a contract manufacturer, automotive Tier 1 partner, or foundry is a time-consuming process, as our unique technology may require significant manufacturing process adaptation to achieve full manufacturing capacity. To the extent that we are not able to establish a relationship with a contract manufacturer, Tier 1 partner, or foundry in a timely manner or at prices or on other terms that are acceptable to us, we may be unable to meet contract or production milestones. Moreover, changes in our supply chain could result in increased cost and delay and 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 could result in lost future revenues and damaged customer relationships.
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Historically, we have been dependent on third parties to develop, manufacture, sell and market products incorporating our technology.
Our business strategy for commercializing our technology in products has historically included 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.
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 products and 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 could face lawsuits related to our use of LBS technology or other technologies, which would be costly, and any adverse outcome could limit our ability to commercialize our technology or products.
We are aware of several patents held by third parties that relate to certain aspects of light scanning displays, 3D sensing products, and other technologies that are core to our sensor hardware. 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 ability to generate 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 could eventually be issued with claims that could 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 our 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.
We target customers that are large companies with substantial negotiating power and potentially competitive internal solutions; if we are unable to sell our products to these customers, our prospects will be adversely affected.
Our potential customers, automotive OEMs in particular, are large, multinational companies with substantial negotiating power relative to us and, in some instances, may have internal solutions that are competitive to our products. These large, multinational companies also have significant resources, which may allow them to acquire or develop competitive technologies either independently or in partnership with others. Accordingly, even after investing significant resources to develop a product, we may not secure a series production award or, even after securing a series production award, may not be able to commercialize a product on profitable terms. If our products are not selected by these large companies or if these companies develop or acquire competitive technology or negotiate terms that are disadvantageous to us, it will have an adverse effect on our business prospects.
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Our technology and products may be subject to environmental, health and safety regulations that could increase our development and production costs.
Our technology and products could become subject to environmental, health and safety regulations or amendments that could negatively impact our ability to commercialize our technology and products. Compliance with any such current or new regulations would likely increase the cost to develop and commercialize products, 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 and currently, 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, the outbreaks of wars or infectious diseases, as recently experienced, 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 automotive or technology industries.
Because we have recently expanded and may continue expanding our international operations and using foreign suppliers, our operating results could be harmed by economic, political, regulatory and other factors in foreign countries.
During 2021, we established an office in Germany and on January 31, 2023 we completed our acquisition of Ibeo assets, with the result that we now have more employees and operations in Germany than in the U.S. In addition, we currently use foreign suppliers and plan to continue to do so 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, international terrorism and the outbreak of war, such as Russia’s invasion and continuing war against Ukraine; |
| • | High levels of inflation, as has historically been 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; |
| • | Changes or volatility in currency exchange rates and interest rates; |
| • | Global or regional health crises, such as COVID-19 or other epidemics and |
| • | Disruptions in global supply chains. |
We have recently and may in the future make acquisitions. If we fail to successfully select, execute or integrate our acquisitions, then our business, results of operations and financial condition could be materially adversely affected.
On December 1, 2022, we entered into an Asset Purchase Agreement to acquire certain assets from Ibeo Automotive Systems GmbH. We expended significant management time and effort, as well as capital, identifying, evaluating, negotiating, and executing this transaction and, since the closing of the acquisition on January 31, 2023, we have invested additional time and capital working to integrate our new Hamburg- and Detroit-based teams and operations. We cannot guarantee that these integration efforts will be successful, that the goals of the acquisition will be realized, or that the increase to our operating expenses or cash requirements will be manageable.
In the future, we may again undertake acquisitions to add new products and technologies, acquire talent, gain new sales channels or enter into new markets or sales territories. In addition to possible stockholder approval, we may need approvals and licenses from relevant government authorities for the acquisitions and to comply with any applicable laws and regulations, which could result in increased delay and costs, and may disrupt our business strategy if we fail to do so. Furthermore, acquisitions and the subsequent integration of new assets, businesses, key personnel, customers, vendors and suppliers require
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significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our operations. Acquired assets or businesses may not generate the financial results we expect. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. Moreover, the costs of identifying and consummating acquisitions may be significant.
Before our acquisition of assets from Ibeo, we had no experience with acquisitions or the integration of acquired technology and personnel. Failure to successfully identify, complete, manage and integrate acquisitions could materially and adversely affect our business, financial condition and results of operations and could cause our stock price to decline.
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 key technologies by securing valid and enforceable patents and effectively maintaining unpatented technology as trade secrets.
We protect our proprietary 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.
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Additionally, any misuse of our technology or products incorporating our 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 technology.
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 automotive or technology markets and adversely affect our business strategy execution and results of operations.
COVID-19 has had an adverse effect on our business, and the continuing 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 a pandemic, which continues to spread throughout the United States and the world. We are unable to fully assess or accurately predict the impact that COVID-19 has had and may continue to have on our operations due to numerous uncertainties.
The adverse impacts of the pandemic on our business thus far and on our future financial performance include, but are not limited to:
| • | difficulties in our ability to raise capital, |
| • | delays to our technology development plans and timelines, |
| • | significant declines or delays in revenue or development efforts due to supply chain disruptions, |
| • | obstacles or delays in meeting with potential customers and partners or entering into agreements with them, and |
| • | challenges to our operating effectiveness resulting from employees working remotely, or being ill and unable to work. |
Risks Related to Development for the Automotive Industry
If our products and solutions are not selected for inclusion in ADAS systems by automotive OEMs or automotive Tier 1 suppliers, our future prospects will be materially and adversely affected.
Automotive OEMs and Tier 1 suppliers design and develop ADAS technology over several years, undertaking extensive testing and qualification processes prior to selecting a product such as our lidar sensor for use in a particular system, product or vehicle model because such products will function as part of a larger system or platform and must meet certain other specifications. We have invested and will continue to invest significant time and resources to have our products considered and possibly selected by OEMs or Tier 1 suppliers for use in a particular system, product or vehicle model, which is known as a “series production win” or a “series production award.” In the case of ADAS technology, a series production award would mean that our lidar sensor and/or ADAS solution had been selected for use in a particular vehicle model. However, if we are unable to achieve a series production award with respect to a particular vehicle model, we may not have an opportunity to supply our products to the automotive OEM for that vehicle model for a period of many years. In many cases, this period can be as long as five to seven or more years. If our products are not selected by an automotive OEM or our suppliers for one
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vehicle model or if our products are not successful in that vehicle model, it is unlikely that our product will be deployed in other vehicle models of that OEM. If we fail to win a significant number of vehicle models from one or more of automotive OEMs or their suppliers, our future business prospects will be materially and adversely affected.
The complexity of our products and the limited visibility into the various environmental and other conditions under which potential customers may use the products could result in unforeseen delays or expenses from undetected defects, errors or reliability issues in hardware or software which could reduce the market adoption of our products, damage our reputation with prospective customers, expose us to product liability and other claims, and adversely affect our operating costs.
Our products are highly technical and complex and require high standards to manufacture and may experience defects, errors or reliability issues at various stages of development. We may be unable to timely manufacture or release products, or correct problems that have arisen or correct such problems to the customer’s satisfaction. Additionally, undetected errors, defects or security vulnerabilities could result in serious injury to the end users or bystanders of technology incorporating our products, inability of customers to commercialize technology incorporating our products, litigation against us, negative publicity and other consequences. These risks are particularly prevalent in the highly competitive ADAS market. These problems may also result in claims, including class actions, against us that could be costly to defend. Our reputation or brand may be damaged as a result of these problems and potential customers may be reluctant to buy our products, which could adversely affect our financial results.
Adverse conditions in the automotive industry or the global economy more generally could have adverse effects on our results of operations.
While we make our strategic planning decisions based on the assumption that the markets we are targeting will grow, our business is dependent, in large part on, and directly affected by, business cycles and other factors affecting the global automobile industry and global economy generally. Automotive production and sales are highly cyclical and depend on general economic conditions and other factors, including consumer spending and preferences, changes in interest rates and credit availability, consumer confidence, fuel costs, fuel availability, environmental impact, governmental incentives and regulatory requirements, and political volatility, especially in energy-producing countries and growth markets. In addition, automotive production and sales can be affected by our automotive OEM customers’ ability to continue operating in response to challenging economic conditions and in response to labor relations issues, regulatory requirements, trade agreements and other factors. The volume of automotive production in North America, Europe and the rest of the world has fluctuated, sometimes significantly, from year to year, and we expect such fluctuations to give rise to fluctuations in the demand for our products. Any significant adverse change in any of these factors may result in a reduction in automotive sales and production by our automotive OEM customers and could have a material adverse effect on our business, results of operations and financial condition.
Developments in alternative technology may adversely affect the demand for our lidar technology.
Significant developments in alternative technologies, such as cameras and radar, may materially and adversely affect our business prospects in ways we do not currently anticipate. Existing and other camera and radar technologies may emerge as OEMs’ preferred alternative to our solution, which would result in the loss of competitiveness of our lidar solution. Our R&D efforts may not be sufficient to adapt to these changes in technology and our solution may not compete effectively with these alternative systems.
ADAS features may be delayed in adoption by OEMs, which would negatively impact our business prospects.
The ADAS market is fast evolving and there is generally a lack of an established regulatory framework. Vehicle regulators globally continue to consider new and enhanced emissions requirements, including electrification, to meet environmental and economic needs as well as pursue new safety standards to address emerging traffic risks. To control new vehicle prices, among other concerns, OEMs may need to dedicate technology and cost additions to new vehicle designs to meet these emissions and safety requirements and postpone the consumer cost pressures of new ADAS features. As additional safety requirements are imposed on vehicle manufacturers, our business prospects may be materially impacted.
Because the lidar and ADAS markets are rapidly evolving, it is difficult to forecast customer adoption rates, demand, and selling prices for our products and solutions.
We are pursuing opportunities in rapidly evolving markets, including technological and regulatory changes, and it is difficult to predict the timing and size of the opportunities. For example, lidar-based ADAS solutions require complex technology and because these automotive systems depend on technology from many companies, commercialization of ADAS products could be delayed or impaired on account of certain technological components of ours or others not being ready to be deployed in
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vehicles. In addition, the selling prices we are able to ultimately charge in the future for the products we are currently developing may be less than what we currently project. Our future financial performance will depend on our ability to make timely investments in the correct market opportunities. If one or more of these markets experience a shift in prospective customer demand, our products may not compete as effectively, if at all, and they may not be designed into commercialized products. Given the evolving nature of the markets in which we operate, it is difficult to predict customer demand or adoption rates for our products, selling prices or the future growth of our target markets. If demand does not develop or if we cannot accurately forecast it, the size of our markets, inventory requirements or future financial results will be adversely affected.
Because lidar is new in the markets we are seeking to enter, our market forecasts may not materialize as anticipated.
Our market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not materialize as anticipated. These forecasts and estimates relating to the expected size and growth of the markets for lidar-based technology may prove to be inaccurate. Even if these markets experience the forecasted growth we anticipate, we may not grow our business at similar rates, or at all. Our future growth is subject to many factors, including market adoption of our products, which is subject to many risks and uncertainties. Accordingly, we cannot assure you that these forecasts will not be materially inaccurate.
| ITEM 6. | EXHIBITS |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MicroVision, Inc. | ||||||
| Date: May 10, 2023 | By | /s/ Sumit Sharma | ||||
| Sumit Sharma | ||||||
| Chief Executive Officer and Director (Principal Executive Officer) | ||||||
| Date: May 10, 2023 | By | /s/ Anubhav Verma | ||||
| Anubhav Verma | ||||||
| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||||||
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