10-Q

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number

001-34170

MicroVision, Inc.

(Exact name of registrant as specified in its charter)


Delaware		91-1600822
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

18390 NE 68

Street

Redmond, Washington 98052

(Address of Principal Executive Offices, including Zip Code)

(425)

936-6847

(Registrant’s Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	MVIS	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act).

YES ☐ NO ☒

The number of shares of the registrant’s common stock outstanding as of August 4, 2023 was 187,783,274.

PART I.

ITEM 1. FINANCIAL STATEMENTS

MicroVision, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)


	June 30,			December 31,
	2023			2022
Assets
Current assets
Cash and cash equivalents	$	62,308		$	20,536
Investment securities, available-for-sale		31,565			62,173
Restricted cash, current		3,263			—
Accounts receivable, net		821			—
Inventory		2,933			1,861
Advance to Ibeo		—			4,132
Deferred tax current		53			—
Other current assets		2,332			2,306

Total current assets		103,275			91,008
Property and equipment, net		9,949			6,830
Operating lease right-of-use asset		14,422			14,579
Restricted cash		961			1,418
Intangible assets, net		18,321			75
Non-current deferred tax assets		392			—
Other assets		1,335			1,086

Total assets	$	148,655		$	114,996

Liabilities and shareholders’ equity
Current liabilities
Accounts payable	$	1,890		$	2,061
Accrued liabilities		6,595			2,058
Accrued liability for Ibeo business combination		6,191			—
Contract liabilities		5,729			4,601
Current portion of operating lease liability		2,285			1,846
Current portion of finance lease obligations		8			21
Other current liabilities		—			839

Total current liabilities		22,698			11,426
Operating lease liability, net of current portion		13,371			13,829
Other long-term liabilities		81			—

Total liabilities		36,150			25,255

Commitments and contingencies (Note 10)
Shareholders’ equity
Preferred stock, par value $0.001; 25,000 shares authorized; no and no shares issued and outstanding		—			—
Common stock, par value $0.001; 310,000 shares authorized; 187,620 and 170,503 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		188			171
Additional paid-in capital		835,410			772,221
Subscriptions receivable		(925	)		—
Accumulated other comprehensive loss		(8	)		(127	)
Accumulated deficit		(722,160	)		(682,524	)

Total shareholders’ equity		112,505			89,741

Total liabilities and shareholders’ equity	$	148,655		$	114,996

The accompanying notes are an integral part of these financial statements.

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MicroVision, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Revenue	$	329		$	314		$	1,111		$	664
Cost of Revenue		701			18			1,245			22

Gross profit		(372	)		296			(134	)		642

Research and development expense		13,851			7,700			26,543			15,293
Sales, marketing, general and administrative expense		9,692			6,265			18,429			12,142
Gain on disposal of fixed assets		(15	)		—			(15	)		—

Total operating expenses		23,528			13,965			44,957			27,435

Loss from operations		(23,900	)		(13,669	)		(45,091	)		(26,793	)
Bargain purchase gain, net of tax		—			—			1,706			—
Other income		3,570			72			4,209			28

Net loss before taxes		(20,330	)		(13,597	)		(39,176	)		(26,765	)
Income tax expense		(279	)		—			(460	)		—

Net loss	$	(20,609	)	$	(13,597	)	$	(39,636	)	$	(26,765	)

Net loss per share - basic and diluted	$	(0.12	)	$	(0.08	)	$	(0.23	)	$	(0.16	)

Weighted-average shares outstanding - basic and diluted		177,302			165,238			176,009			164,902

The accompanying notes are an integral part of these financial statements.

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MicroVision, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands)

(Unaudited)


										Accumulated
	Common Stock				Additional					other						Total
			Par		paid-in		Subscriptions			comprehensive			Accumulated			shareholders’
	Shares		value		capital		receivable			loss			deficit			equity
Balance at March 31, 2023		176,026	$	176	$	787,856	$	—		$	57		$	(701,551	)	$	86,538
Share-based compensation expense		536		1		3,477		—			—			—			3,478
Exercise of options		180		—		168		—			—			—			168
Sales of common stock, net		10,878		11		43,909		(925	)		—			—			42,995
Net loss		—		—		—		—			—			(20,609	)		(20,609	)
Other comprehensive loss		—		—		—		—			(65	)		—			(65	)

Balance at June 30, 2023		187,620	$	188	$	835,410	$	(925	)	$	(8	)	$	(722,160	)	$	112,505

Balance at January 1, 2023		170,503	$	171	$	772,221	$	—		$	(127	)	$	(682,524	)	$	89,741
Share-based compensation expense		999		1		6,426		—			—			—			6,427
Exercise of options		180		—		168		—			—			—			168
Sales of common stock, net		15,938		16		56,595		(925	)		—			—			55,686
Net loss		—		—		—		—			—			(39,636	)		(39,636	)
Other comprehensive income		—		—		—		—			119			—			119

Balance at June 30, 2023		187,620	$	188	$	835,410	$	(925	)	$	(8	)	$	(722,160	)	$	112,505

Balance at March 31, 2022		164,887	$	165	$	746,028	$	—		$	(124	)	$	(642,601	)	$	103,468
Share-based compensation expense		423		—		4,120		—			—			—			4,120
Exercise of options		128		—		163		—			—			—			163
Net loss		—		—		—		—			—			(13,597	)		(13,597	)
Other comprehensive loss		—		—		—		—			(54	)		—			(54	)

Balance at June 30, 2022		165,438	$	165	$	750,311	$	—		$	(178	)	$	(656,198	)	$	94,100

Balance at January 1, 2022		164,363	$	164	$	742,042	$	—		$	(19	)	$	(629,433	)	$	112,754
Share-based compensation expense		757		1		7,853		—			—			—			7,854
Exercise of options		318		—		416		—			—			—			416
Net loss		—		—		—		—			—			(26,765	)		(26,765	)
Other comprehensive loss		—		—		—		—			(159	)		—			(159	)

Balance at June 30, 2022		165,438	$	165	$	750,311	$	—		$	(178	)	$	(656,198	)	$	94,100

The accompanying notes are an integral part of these financial statements.

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MicroVision, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended
	June 30,
	2023			2022

Cash flows from operating activities
Net loss	$	(39,636	)	$	(26,765	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization		4,151			901
Bargain purchase gain, net of tax		(1,706	)		—
Gain on disposal of fixed assets		(15	)		—
Impairment of property and equipment		12			60
Inventory write-downs		56			17
Share-based compensation expense		6,815			7,854
Non-cash interest expense		—			9
Net accretion of premium on short-term investments		(695	)		269
Change in:
Accounts receivable		(821	)		—
Inventory		69			(70	)
Other current and non-current assets		(31	)		1,213
Accounts payable		246			(1,874	)
Accrued liabilities		4,138			246
Contract liabilities and other current liabilities		(1,692	)		(1,845	)
Operating lease liabilities		(1,096	)		(619	)
Other long-term liabilities		81			—

Net cash used in operating activities		(30,124	)		(20,604	)

Cash flows from investing activities
Sales of investment securities		48,700			14,500
Purchases of investment securities		(17,302	)		(38,134	)
Cash paid for Ibeo business combination		(11,233	)		—
Purchases of property and equipment		(1,484	)		(1,128	)

Net cash provided by (used in) investing activities		18,681			(24,762	)

Cash flows from financing activities
Principal payments under finance leases		(13	)		(15	)
Principal payments under long-term debt		—			(392	)
Proceeds from stock option exercises		168			416
Net proceeds from issuance of common stock		55,866			—

Net cash provided by financing activities		56,021			9

Change in cash, cash equivalents, and restricted cash		44,578			(45,357	)
Cash, cash equivalents, and restricted cash at beginning of period		21,954			83,739

Cash, cash equivalents, and restricted cash at end of period	$	66,532		$	38,382

Supplemental schedule of non-cash investing and financing activities
Non-cash additions to property and equipment	$	167		$	255

Amounts issued to escrow for acquisition consideration	$	3,263		$	—

Accrued financing fees	$	180		$	—
Issuance of common stock for subscription receivable	$	925		$	—

Foreign currency translation adjustments	$	24		$	—

Unrealized gain (loss) in investment securities, available-for-sale	$	95		$	159

The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of June 30, 2023 and December 31, 2022:


	June 30,		December 31,
	2023		2022
Cash and cash equivalents	$	62,308	$	20,536
Restricted cash, current		3,263		—
Restricted cash		961		1,418

Cash, cash equivalents and restricted cash	$	66,532	$	21,954

The accompanying notes are an integral part of these financial statements.

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MicroVision, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. MANAGEMENT’S STATEMENT

The Condensed Consolidated Balance Sheets as of June 30, 2023, the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss and the Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2023 and 2022, and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022, have been prepared by MicroVision, Inc. (“we” or “our”) and have not been audited. In the opinion of management, all adjustments necessary to state fairly the financial position at June 30, 2023 and the results of operations and cash flows for all periods presented have been made and consist of normal recurring adjustments. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules of the Securities and Exchange Commission (SEC). The

year-end

condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. You should read these Condensed Consolidated financial statements in conjunction with the financial statements and notes thereto included in our Annual Report on Form

10-K

for the fiscal year ended December 31, 2022. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the operating results that may be attained for the entire fiscal year.

We are developing lidar sensors and perception software to address the needs of the Level 2+, or L2+, and Level 3 or L3, advanced driver-assistance systems (ADAS) markets to be used in automotive safety and autonomous driving applications. Our micro-electromechanical systems, or MEMS-based high-speed lidar sensors, which we call MAVIN

™

, use our pioneering laser beam scanning (LBS) technology. Our solution-based development approach recognizes two key realities of the L2+ and L3 markets: that safety is mission critical and that OEMs require cost efficiency and integration adaptability. With these factors in mind, we believe that our

best-in-class

MAVIN lidar sensors support critical safety needs by providing the highest resolution at range and velocity of moving objects with a dynamic field of view while running at 30 hertz, thus enabling ADAS features, such as automatic emergency braking, forward collision warning, and automatic emergency steering, at higher speeds of operation than most competing products.

We completed the acquisition of Ibeo Automotive Systems GmbH (“Ibeo”) assets on January 31, 2023 pursuant to the terms and subject to the conditions of the Asset Purchase Agreement, dated December 1, 2022, and amended as of January 31, 2023, by and between our wholly owned subsidiary, MicroVision GmbH organized under the laws of The Federal Republic of Germany, and Ibeo for a purchase price of EUR 15.0 million, or approximately $16.3 million, subject to potential reduction on the terms set forth in the Asset Purchase Agreement. Pursuant to the Asset Purchase Agreement, the purchase price also included advanced funds to Ibeo so that it could continue its operations while in insolvency during the period between signing and closing. Specifically, we advanced to Ibeo EUR 3.9 million, or approximately $4.1 million in December 2022; EUR 2.7 million, or approximately $3.0 million in January 2023; and EUR 599,000, or approximately $650,000 in February 2023 shortly after the closing. These fund advances included amounts related to headcount reductions carried out by Ibeo management, decreasing the number of employees to transfer in connection with the acquisition to approximately 250 employees. These headcount reduction costs of EUR 2.3 million, or approximately $2.5 million, were reimbursed to MicroVision by way of deduction from the purchase price in accordance with the Asset Purchase Agreement.

We have incurred significant losses since inception. We have funded our 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 June 30, 2023, we had total liquidity of $93.9 million including $62.3 million in cash and cash equivalents and $31.6 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.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of MicroVision, Inc. and MicroVision GmbH. MicroVision GmbH is a wholly owned subsidiary of MicroVision, Inc. All material intercompany accounts and transactions have been eliminated in consolidation.

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Foreign Currency Translation

The functional currency for our German operation is the Euro, which represents the currency of its primary economic environment. The results of operations for the German operation are translated from the local currency into U.S. dollars using the average exchange rates during each period. All assets and liabilities are translated using exchange rates at the end of each period, with foreign currency translation adjustments included as a component of other comprehensive loss. All equity transactions and certain assets are translated using historical rates. The consolidated financial statements are presented in U.S. dollars.

Segment Information

We determine operating segments based on how our chief operating decision maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. Our CODM is our Executive Management team, who reviews our operating results on a consolidated basis. We operate as one segment, which relates to sale and servicing of lidar hardware and software. The profitability of our product group is not a determining factor in allocating resources and the CODM does not evaluate profitability below the level of the consolidated company.

2. NET LOSS PER SHARE

Basic net loss per share is calculated using the weighted-average number of common shares outstanding during the period. Net loss per share, assuming dilution, is calculated using the weighted-average number of common shares outstanding and the dilutive effect of all potentially dilutive securities, including common stock equivalents and convertible securities. Net loss per share, assuming dilution, is equal to basic net loss per share because the effect of dilutive securities outstanding during the period, including options and warrants computed using the treasury stock method, is anti-dilutive.

The components of basic and diluted net loss per share were as follows (in thousands, except loss per share data):


	Three Months Ended June 30,						Six Months Ended June 30,

	2023			2022			2023			2022
Numerator:
Net loss available for common shareholders - basic and diluted	$	(20,609	)	$	(13,597	)	$	(39,636	)	$	(26,765	)

Denominator:
Weighted-average common shares outstanding - basic and diluted		177,302			165,238			176,009			164,902

Net loss per share - basic and diluted	$	(0.12	)	$	(0.08	)	$	(0.23	)	$	(0.16	)

For the three and six months ended June 30, 2023 and 2022, we excluded the following securities from net loss per share as the effect of including them would have been anti-dilutive: outstanding options exercisable into a total of 752,000 and 1,153,000 shares of common stock, respectively, and 9,626,000 and 9,788,000 nonvested restricted and performance stock units, respectively.

3. BUSINESS COMBINATION

On January 31, 2023, we completed the acquisition of certain net assets of Ibeo, a lidar hardware and software provider based in Hamburg, Germany. The purpose of the acquisition was to acquire certain Ibeo assets, intellectual property, and teams, which will enable us to expand our total addressable market and diversify our revenue profile.

Total consideration related to this transaction, subject to settlement of working capital adjustments, was approximately EUR 19.9 million or $21.6 million, consisting of approximately (i) EUR 7.0 million or $7.6 million in cash paid at closing, (ii) EUR 6.6 million or $7.1 million in cash advanced to Ibeo prior to closing, (iii) EUR 3.0 million or $3.3

million held in escrow for 13 months to be available to cover properly established claims by MicroVision, (iv) EUR

0.6 million or $0.7 million in costs paid on behalf of the seller, and (v) EUR 2.7 million or $2.9

million in cash held back at closing and to be offset by any working capital adjustments, which the parties continue to work through. The remaining balance of EUR 2.7 million will be paid once the seller has accepted and approved all the associated holdback calculations. In addition, we incurred $

0.6 million of acquisition-related costs associated with the acquisition during the three months ended March 31, 2023, which were included in Sales, marketing, general and administrative expense.

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The transaction has been accounted for as a business combination. The results of operations for the acquisition are included in our consolidated financial statements from the date of acquisition onwards.

The following table summarizes the preliminary purchase price allocation to assets acquired and liabilities assumed (in thousands):


	Amount			Weighted Average Useful Life (in years)
Purchase consideration:
Cash paid at closing (1)	$	8,245
Cash in escrow (2)		3,263
Holdback amount (3)		2,928
Advances to Ibeo (4)		7,120

Total purchase consideration	$	21,556

Inventory	$	1,197
Other current assets		703
Operating lease right-of-use asset		234
Property and equipment, net		5,330
Intangible assets:
Acquired technology		17,987			13
Order backlog		26			1
Contract liabilities		(1,178	)
Operating lease liabilities		(234	)
Deferred tax liabilities		(803	)

Total identifiable net assets	$	23,262

Bargain purchase gain (1)		(1,706	)

(1)	Represents $ 7.6 million in cash paid at closing and $ 0.7 million in cash paid shortly after close.

(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 $ 4.1 million and $ 3.0 million in cash advanced to Ibeo in December 2022 and January 2023, respectively.

(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 pu

rchase 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.

The estimated fair value of acquired technology was calculated through the income approach using the multi-period excess earnings and relief from royalty methodologies. The estimated fair value of the order backlog was calculated through the income approach using the multi-period excess earnings methodology.

The initial allocation of the purchase price was based on preliminary valuations and assumptions and is subject to change within the measurement period. We expect to finalize the allocation of the purchase price as soon as practicable and no later than one year from the acquisition date.

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Revenue and net loss from the acquisition included in our condensed consolidated statement of operations through June 30, 2023 is $1.1 million and $15.1 million, respectively.

Supplemental Unaudited Pro Forma Information

The below unaudited pro forma financial information summarizes the combined results of operations for the Company and Ibeo as if the acquisition had been completed on January 1, 2022. The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2022 or the results of our future operations of the combined businesses. Nonrecurring pro forma adjustments include:

•

Recognition of the bargain purchase gain as if incurred in the first quarter of 2022;

•

Acquisition-related costs of $

1.1

million are assumed to have been incurred on January 1, 2022.

The following table summarizes the unaudited pro forma results (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,

	2023			2022			2023			2022
Total revenue	$	329			2,796			1,660			5,517
Net loss		(20,609	)		(28,661	)		(42,235	)		(57,088	)

4. REVENUE RECOGNITION

The following is a description of principal activities from which we generate revenue. 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.

We evaluate contracts based on the

5-step

model as stated in Topic 606 as follows: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price, and (v) recognize revenue when (or as) performance obligations are satisfied.

A contract contains a promise (or promises) to transfer goods or services to a customer. A performance obligation is a promise (or a group of promises) that is distinct, as defined in the revenue standard.

The transaction price is the amount of consideration an entity expects to be entitled to from a customer in exchange for providing the goods or services. A number of factors should be considered to determine the transaction price, including whether there is variable consideration, a significant financing component, noncash consideration, or amounts payable to the customer. The determination of variable consideration will require a significant amount of judgment. In estimating the transaction price we will use either the expected value method or the most likely amount method.

The transaction price is allocated to the separate performance obligations in the contract based on relative standalone selling prices. Determining the relative standalone selling price can be challenging when goods or services are not sold on a standalone basis. The revenue standard sets out several methods that can be used to estimate a standalone selling price when one is not directly observable. Allocating discounts and variable consideration must also be considered. Allocating the transaction price can require significant judgement on our part.

Revenue is recognized when (or as) the customer obtains control of the good or service/performance obligations are satisfied. Topic 606 provides guidance to help determine if a performance obligation is satisfied at a point in time or over time. Where a performance obligation is satisfied over time, the related revenue is also recognized over time.

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Disaggregation of revenue

The following table provides information about disaggregated revenue by timing of revenue recognition, (in thousands):


	Three Months Ended June 30, 2023
	Product revenue		License and royalty revenue		Contract revenue		Total
Timing of revenue recognition:
Products transferred at a point in time	$	261	$	—	$	—	$	261
Product and services transferred over time		—		—		68		68

Total	$	261	$	—	$	68	$	329


	Six Months Ended June 30, 2023
	Product revenue		License and royalty revenue		Contract revenue		Total
Timing of revenue recognition:
Products transferred at a point in time	$	851	$	—	$	—	$	851
Product and services transferred over time		—		—		260		260

Total	$	851	$	—	$	260	$	1,111


	Three Months Ended June 30, 2022
	Product revenue		License and royalty revenue		Contract revenue		Total
Timing of revenue recognition:
Products transferred at a point in time	$	—	$	314	$	—	$	314
Product and services transferred over time		—		—		—		—

Total	$	—	$	314	$	—	$	314


	Six Months Ended June 30, 2022
	Product revenue		License and royalty revenue		Contract revenue		Total
Timing of revenue recognition:
Products transferred at a point in time	$	—	$	664	$	—	$	664
Product and services transferred over time		—		—		—		—

Total	$	—	$	664	$	—	$	664

Contract balances

Under Topic 606, our rights to consideration are presented separately depending on whether those rights are conditional or unconditional. We present our unconditional rights to consideration as “accounts receivable” in our Balance Sheet.

Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands, except percentages):


	June 30, 2023		December 31, 2022		$Change		% Change
Contract assets	$	—	$	—	$	—		—
Contract liabilities		5,729		4,601		1,128		24.5

Net contract assets (liabilities)	$	5,729	$	4,601	$	1,128		24.5

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In April 2017, we signed a contract with Microsoft Corporation to develop an LBS display system. Under the agreement, we received an upfront payment of $10.0 million. As of December 31, 2022, we had applied $5.4 million against the contract liability. During the three and six months ended June 30, 2023, we applied $0 against the contract liability with this customer.

In connection with our January 2023 acquisition of assets from Ibeo, we assumed contract liabilities totaling approximately $1.2 million. During the three and six months ended June 30, 2023, we recognized revenue totaling $27,000 and $137,000 respectively, against the contract liability with the customer.

Contract acquisition costs

We are required to capitalize certain contract acquisition costs consisting primarily of commissions paid when contracts are signed. We currently do not pay any commissions upon the signing of a contract; therefore, no commission cost has been incurred as of June 30, 2023 and 2022.

Transaction price allocated to the remaining performance obligations

The $10.0

million upfront payment received from our customer as noted above was being recognized as revenue as component sales were transferred to the customer. Under the new arrangement reached in March 2020, the royalties we expect to earn will be applied against the remaining prepayment. Because we do not have information on projected future shipments by our customer, we are not able to estimate the timing of revenue recognition related to the remaining performance obligations; however, the underlying agreement is scheduled to expire on December 31, 2023. The $

4.6

million contract liability at June 30, 2023 is classified as a current liability on our balance sheet. It is unclear at this time whether recognition of revenue may extend beyond the next twelve months.

The remaining balance of the contract liabilities assumed in our acquisition of assets from Ibeo was approximately $1.0 million as of June 30, 2023.

The following table provides information about the estimated timing of revenue recognition (in thousands):


	Remainder of 2023		2024
Revenue	$	1,128	$	—

5. INVESTMENT SECURITIES,

AVAILABLE-FOR-SALE

AND FAIR VALUE MEASUREMENTS

Our investment securities,

available-for-sale

are comprised of corporate and government debt securities. The principal markets for the debt securities are dealer markets which have a high level of price transparency. The market participants for debt securities are typically large money center banks and regional banks, brokers, dealers, pension funds, and other entities with debt investment portfolios.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the authoritative guidance establishes a three level fair value inputs hierarchy and requires an entity to maximize the use of observable valuation inputs and minimize the use of unobservable inputs. We use market data, assumptions and risks we believe market participants would use in measuring the fair value of the asset or liability, including the risks inherent in the inputs and the valuation techniques. The hierarchy is summarized below.

Level 1 - Quoted prices in active markets for identical assets and liabilities at the measurement date that the reporting entity has the ability to access.

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Unobservable inputs for which there is little or no market data, which requires us to develop our own assumptions, which are significant to the measurement of the fair values.

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The valuation inputs hierarchy classification for assets measured at fair value on a recurring basis are summarized below as of June 30, 2023 and December 31, 2022 (in thousands). These tables do not include cash held in our money market savings accounts.


As of June 30, 2023	Level 1		Level 2		Level 3		Total
Assets
Corporate debt securities	$	—	$	8,629	$	—	$	8,629
U.S. Treasury securities		—		22,936		—		22,936

	$	—	$	31,565	$	—	$	31,565


As of December 31, 2022	Level 1		Level 2		Level 3		Total
Assets
Corporate debt securities	$	—	$	15,500	$	—	$	15,500
U.S. Treasury securities		—		46,673		—		46,673

	$	—	$	62,173	$	—	$	62,173

Our short-term investments are summarized below as of June 30, 2023 and December 31, 2022 (in thousands).


								Investment
	Cost/		Gross		Gross			Securities,
	Amortized		Unrealized		Unrealized			Available-
	Cost		Gains		Losses			For-Sale
As of June 30, 2023
Assets
Corporate debt securities	$	8,645	$	—	$	(16	)	$	8,629
U.S. Treasury securities		22,952		1		(17	)		22,936

	$	31,597	$	1	$	(33	)	$	31,565


								Investment
	Cost/		Gross		Gross			Securities,
	Amortized		Unrealized		Unrealized			Available-
	Cost		Gains		Losses			For-Sale
As of December 31, 2022
Assets
Corporate debt securities	$	15,538	$	—	$	(38	)	$	15,500
U.S. Treasury securities		46,762		2		(91	)		46,673

	$	62,300	$	2	$	(129	)	$	62,173

The maturities of the investment securities

available-for-sale

as of June 30, 2023 and December 31, 2022 are shown below (in thousands):


			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
As of June 30, 2023
Maturity date
Less than one year	$	31,597	$	1	$	(33	)	$	31,565

	$	31,597						$	31,565

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	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
As of December 31, 2022
Maturity date
Less than one year	$	62,300	$	2	$	(129	)	$	62,173

	$	62,300						$	62,173

The following table summarizes investments that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for more than 12 months as of June 30, 2023 and December 31, 2022 (in thousands):


	Less than Twelve Months					Twelve Months or Greater				Total
			Gross					Gross				Gross
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Losses			Value		Losses		Value		Losses
As of June 30, 2023
Corporate debt securities	$	6,440	$	(16	)	$	—	$	—	$	6,440	$	(16	)
U.S. Treasury securities		17,258		(17	)		—		—		17,258		(17	)

	$	23,698	$	(33	)	$	—	$	—	$	23,698	$	(33	)


	Less than Twelve Months					Twelve Months or Greater				Total
			Gross					Gross				Gross
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Losses			Value		Losses		Value		Losses
As of December 31, 2022
Corporate debt securities	$	12,295	$	(38	)	$	—	$	—	$	12,295	$	(38	)
U.S. Treasury securities		34,530		(91	)		—		—		34,530		(91	)

	$	46,825	$	(129	)	$	—	$	—	$	46,825	$	(129	)

6. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS AND SUPPLIERS

Concentration of credit risk

Financial instruments that potentially subject us to a concentration of credit risk are primarily cash equivalents and investment securities. As of June 30, 2023, our cash and cash equivalents are comprised of operating checking accounts and short-term highly rated money market savings accounts. Our short-term investments are comprised of highly rated corporate bonds and U.S. Treasury securities.

Concentration of major customers and suppliers

For the three months ended June 30, 2023, two commercial customers accounted for $65,000 each in revenue, representing 40% of our total revenue, a third commercial customer accounted for $54,000 in revenue, representing 17% of our total revenue, and a fourth commercial customer accounted for $52,000 in revenue, representing 16% of our total revenue. For the six months ended June 30, 2023, one commercial customer accounted for $364,000 in revenue, representing 33% of our total revenue, a second commercial customer accounted for $246,000 in revenue, representing 22% of our total revenue, and a third commercial customer accounted for $128,000 in revenue, representing 11% of our total revenue. For the three and six months ended June 30, 2022, one customer accounted for $314,000 and $664,000 in revenue, respectively, representing 100% of our total revenue for each period.

Typically, a significant concentration of our components and the products we have sold are manufactured and obtained from single or limited-source suppliers. 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 subject us to risks and uncertainties including, but not limited to, increased cost of sales, possible loss of revenues, or significant delays in product development or product deliveries, any of which could adversely affect our financial condition and operating results.

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7. FINANCIAL STATEMENT COMPONENTS

The following financial statement components changed significantly as a result of our January 2023 acquisition of assets from Ibeo.

Inventory

Inventory consists of the following:


(in thousands)	June 30, 2023		December 31, 2022
Raw materials	$	1,499	$	1,556
Work in process		305		—
Finished goods		1,129		305

	$	2,933	$	1,861

Inventory is computed using the

first-in,

first-out

(FIFO) method and is stated at the lower of cost and net realizable value. Management periodically assesses the need to account for obsolescence of inventory and adjusts the carrying value of inventory to its net realizable value when required.

Property and equipment

Property and equipment consists of the following:


(in thousands)	June 30, 2023			December 31, 2022
Production equipment	$	6,140		$	6,140
Leasehold improvements		3,843			3,789
Computer hardware and software/lab equipment		11,916			10,515
Office furniture and equipment		5,196			1,804

		27,095			22,248
Less: Accumulated depreciation		(17,146	)		(15,418	)

	$	9,949		$	6,830

Depreciation expense was $479,000 and $151,000 for the three months ended June 30, 2023 and 2022, respectively. Depreciation expense was $1.7

million and $

380,000 for the six months ended June 30, 2023 and 2022, respectively.

Intangible assets

The components of intangible assets were as follows:


As of June 30, 2023	Gross				Net		Weighted
	Carrying		Accumulated		Carrying		Average Remaining
(in thousands)	Amount		Amortization		Amount		Period (Years)
Acquired technology	$	19,997	$	1,676	$	18,321		13
Backlog		26		—		26		1

	$	20,023	$	1,676		18,347

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PART I. FINANCIAL INFORMATION

	Page

Item 1. Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022		3

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022		4

Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2023 and 2022		5

Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2023 and 2022		6

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022		7

Notes to Condensed Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22

Item 3. Quantitative and Qualitative Disclosures About Market Risk		26

Item 4. Controls and Procedures		27

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		27

Item 1A. Risk Factors		27

Item 5. Other information		36

Item 6. Exhibits		37

Signatures		38


			Research and
	Cost of		Development
Years Ended December 31,	Revenue		Expense		Total
2023	$	1,694	$	16	$	1,710
2024		1,548		22