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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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Dec. 31, 2024
Accounting Policies [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements and accompanying notes include the accounts of the Company and its wholly owned subsidiaries, after elimination of all intercompany balances and transactions. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. These reclassifications had no impact on net loss, shareholders’ equity or cash flows, as previously reported. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts therein. The most significant estimates and assumptions relate to business combinations, valuation of intangibles, valuation of derivative liabilities, revenue recognition, inventory valuation, valuation of share-based payments, income taxes, depreciable lives assessment and related disclosure of contingent assets and liabilities. Due to the inherent uncertainty involved, actual results reported in future periods could differ from those estimates. Foreign Currency Translation Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency. Realized gains and losses on those foreign currency transactions are included in determining net loss for the period of exchange and are recorded in other income in the consolidated statements of operations. Segment Information The Company determines operating segments based on how the chief operating decision maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. The CODM is the Executive Management team. The Company has determined that it operates in one operating segment and one reportable segment, relating to the sale and servicing of lidar hardware and software, as the CODM regularly reviews financial information presented on a consolidated basis. Financial information regularly reviewed by the CODM includes revenue, income or loss from operations, and net income or loss. Business Combination Business combinations are accounted for under the acquisition method. As such, the fair value of the Ibeo purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the fair value of the underlying net assets acquired and liabilities assumed over the purchase consideration was included in bargain purchase gain, net of tax in the consolidated statements of operations. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Cash and Cash Equivalents and Fair Value of Financial Instruments 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. The Company uses market data, assumptions and risks that 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. Financial instruments include cash and cash equivalents, investment securities, accounts receivable, accounts payable and accrued liabilities. The carrying value of financial instruments approximate fair value due to their short maturities. Cash equivalents are comprised of short-term highly rated (A rated securities and above) money market savings accounts. Short-term investment securities primarily consist of debt securities. The Company has classified its entire investment portfolio as available-for-sale. Available-for-sale securities are stated at fair value with unrealized gains and losses included in other comprehensive income (loss). Dividend and interest income are recognized when earned. Realized gains and losses, if any, are presented separately on the income statement. Restricted Cash Restricted cash is held in money market savings accounts and serves as collateral for irrevocable letters of credit related to our facility lease agreements. The restricted cash balance as of December 31, 2024 includes $0.5 million and $0.2 million of collateral under two letters of credit, issued in connection with lease agreements for the Company’s headquarters and general office and lab space, respectively, in Redmond, Washington. The restricted cash balance also includes approximately $1.0 million for a security deposit associated with a lease agreement for office space in Hamburg, Germany. Inventory Inventory consists of raw materials, work in process and finished goods assemblies. 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. Intangible Assets Intangible assets consist of acquired technology from the January 2023 Ibeo asset purchase and purchased patents. As part of the Ibeo asset acquisition, two intangible assets were primarily acquired in the form of Perception software and Reference software, with initial useful lives of 15 years and 8 years, respectively. 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 intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from one to seventeen years. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable (see Note 8. Financial Statement Components – Intangible Assets for discussion of impairment). Recoverability of these assets is measured by comparison of their carrying values to the projected undiscounted net cash flows associated with the related intangible assets or group of assets over their remaining lives. Measurement of an impairment loss for intangible assets is based on the difference between the fair value of the asset and its carrying value. Property and Equipment Property and equipment are stated at cost and depreciated over the estimated useful lives of the assets (two to five years) using the straight-line method. Property and equipment may include assets related to future product lines. As production needs change, management will periodically assess the remaining estimated useful life of production equipment. If necessary, depreciation on production equipment will be adjusted to reflect the remaining estimated useful life. Leasehold improvements are depreciated over the lesser of the estimated useful life or the lease term. Costs for repairs and maintenance are charged to expense as incurred and expenditures for major improvements are capitalized at cost. Gains or losses on the disposition of assets are reflected in the consolidated statements of operations at the time of disposal. Leases Management assesses all contracts executed to determine whether the agreements contain a lease component. Significant judgment may be required to determine whether a contract contains a lease, the length of the lease term, the allocation of the consideration between lease and non-lease components, and the appropriate discount rate to be applied. Management reviews the underlying objective of each contract, the terms of the contract, and considers current and future business conditions when making these judgments. The Company’s lease obligations consist of various office and equipment operating leases. Operating lease assets are recorded under the operating lease right-of-use asset (“ROU”) line item, while liabilities are recorded under the current portion of operating lease liability and operating lease liability, net of current portion line items on the consolidated balance sheets. Operating lease ROU assets and liabilities are recognized upon lease commencement based on the present value of payments over the lease term. For leases which do not provide an implicit rate, the Company’s incremental borrowing rate as of the commencement date serves as the discount rate to determine the present value of lease payments. Lease expense from operating leases is recognized on a straight-line basis over the lease term. Notes Payable The Company evaluates all conversion, redemption, and put features contained in its debt instruments to determine if there are any embedded features that require bifurcation as a derivative. The Company accounts for debt as a long-term liability, with the current portion classified as a short-term liability, equal to the amount repayable at maturity, net of any debt discount and issuance costs, within notes payable on the consolidated balance sheets. The debt discount and issuance costs are amortized over the term of the Note, using the effective interest method, as interest expense in the accompanying consolidated statements of operations. Conversions of principal are accounted for in accordance with ASC 470-20, “Debt with Conversion and Other Options,” with immediate expense of the unamortized discount associated with the converted principal. Derivative Liability The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the issuance date and is then re-valued at each reporting date, with changes in the fair value reported as an unrealized gain or loss in earnings on the consolidated statements of operations. The Company has elected to classify the entirety of its derivatives in current liabilities. Revenue Recognition The following is a description of principal activities from which the Company generates revenue. Revenues are recognized when control of the promised goods or services are transferred to customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company evaluates 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, the Company 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 the Company’s 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. Product Revenue Product revenue is primarily derived from sales of lidar hardware and systems. While each contract is individually assessed to identify separate performance obligations, a performance obligation generally consists of an individual sensor or sensor system, inclusive of all materials and integrated software. Transaction prices are normally fixed, as the Company does not include variable consideration or the exchange of any other goods as part of the contract. Revenue is recognized upon shipment of the product to the customer, as control and title of the product passes to the customer at the point of shipment. Product sales generally include acceptance provisions, however, as it can be objectively determined that agreed-upon customer specifications have been met prior to shipment, control of the item passes at the time of shipment. License and Royalty Revenue License and royalty revenue consists of revenue from the licensing of various software and intellectual property owned by MicroVision, and any royalties generated from their use in products sold by customers. Software licenses sold are either a license to install and use, whether perpetual or fixed-term, or a license to access the software, which is normally a volume-based license. Revenue from licenses to install is recognized at the point when the customer is granted the ability to install the software, as these licenses represent functional intellectual property with significant standalone functionality. Revenue from licenses to access is recognized over the period of time in which the Company has ongoing obligations under the agreement, as these licenses represent symbolic intellectual property, which exclude significant standalone functionality. Revenue recognized each period is based on the appropriate measure of progress, typically being the number of usage hours consumed. Revenue from sales-based royalties is recognized based on reports provided by customers which identify the number of royalty-bearing products sold or otherwise distributed. For any customers that fail to provide timely reports, management estimates the number of royalty-bearing products sold based on historical sales volume and available forecast data. Contract Revenue Contract revenue in a particular period is dependent upon when the contract is entered into, the value of the contract, and the availability of technical resources to perform work on the contract. Each performance obligation associated with development contracts is identified at contract inception. The contracts generally include product development and customization specified by the customer. For contracts with multiple product development or customization components, each component is evaluated to determine whether it is distinct within the context of the contract and represents a standalone performance obligation. Components which are deemed not distinct at contract inception are combined into a single performance obligation. Development contracts are primarily fixed-fee contracts. Contract revenue is recognized either at a point in time, or over time, depending upon the characteristics of the individual contract. If control of the deliverable(s) passes to the customer 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 upon completion of the contract. For contracts which include significant customer acceptance provisions, revenue is recognized only upon acceptance of the deliverable(s). If control of deliverables passes to the customer over time, revenue is recognized based on the proportion of total cost expended to the total cost expected to complete the contract performance obligation (defined as the ‘input method’ under Topic 606). For contracts which require the input method of revenue recognition, the determination of the total cost expected to complete the performance obligation(s) involves significant judgment. Management initially estimates the resources required to complete each relevant performance obligation, and incorporates revisions to hour and cost estimates throughout the course of the contract as necessary. Cost of Product Revenue Cost of product revenue includes the direct and allocated indirect costs of products sold to customers. Direct costs include labor, materials, reserves for estimated warranty expenses, and other costs incurred directly, or charged by contract manufacturers in the manufacture of these products. Indirect costs include labor, manufacturing overhead, and other costs associated with manufacturing activities. Manufacturing overhead includes the costs of procuring, inspecting and storing material, facility and other costs, and is allocated to cost of product revenue based on the proportion of indirect labor which supported production activities. The cost of product revenue can fluctuate significantly from period to period, depending on product mix and volume, the level of manufacturing overhead expense and the volume of direct material purchased. Cost of Contract Revenue Cost of contract revenue includes both direct and allocated indirect costs of performing work on contracts and producing prototype units and evaluation kits. Direct costs include labor, materials and other costs incurred directly in producing prototype units and evaluation kits or performing work on a contract. Indirect costs include labor and other costs associated with research and development and building technical capabilities and capacity. Cost of contract revenue is determined by the level of direct and indirect costs incurred, which can fluctuate substantially from period to period. Manufacturing overhead, which includes the costs of procuring, inspecting and storing material, and facility and depreciation costs, is allocated to inventory, cost of product revenue, cost of contract revenue, and research and development expense based on the level of effort supporting production or research and development activity. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk are primarily cash, cash equivalents, and investment securities. As of December 31, 2024, cash and cash equivalents are comprised of operating checking accounts and short-term highly rated money market savings accounts. Short-term investments are comprised of highly rated corporate bonds and U.S. Treasury securities. For the year ended December 31, 2024, three customers accounted for 60%, 13%, and 10% of total revenue, respectively, or $2.8 million, $0.6 million, and $0.5 million of total revenue, respectively. For the same period in 2023, two customers accounted for 63% and 11% of total revenue, respectively, or $4.6 million and $0.8 million, respectively. As of December 31, 2024, accounts receivable related to these customers accounted for 82% of total accounts receivable, net of allowances on the consolidated balance sheets. Typically, a significant concentration of components and the products 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 the Company 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 the Company’s financial condition and operating results. Income Taxes Deferred tax assets and liabilities are recorded for differences between the financial statement and tax bases of the assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable for the period increased or decreased by the change in deferred tax assets and liabilities during the period. Research and Development Research and development expense consists of labor and subcontractor costs for internal research and product development activities, direct material to support development programs, laboratory operations, outsourced development and processing work, and other operating expenses. Research and development resources are assigned based on the business opportunity of the available projects, the skill mix of the resources available and the contractual commitments have been made to customers. Research and development costs are expensed as incurred. It is highly likely that a substantial level of continuing research and development expense will be required for the Company to further develop its technology. Share-Based Compensation The Company issues share-based compensation to employees in the form of restricted stock units (RSUs), performance stock units (PSUs), and stock options. Share-based awards are accounted for by recognizing the fair value of share-based compensation expense on a straight-line basis over the service period of the award, net of estimated forfeitures. The fair value of RSUs and PSUs is determined by the closing price of common stock on the date of grant. The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model. Changes in estimated inputs or using other option valuation methods may result in materially different option values and share-based compensation expense. Recently Adopted Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this update expand annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. All disclosure requirements under this standard will also be required for public entities with a single reportable segment. The Company adopted ASU 2023-07 during the year ended December 31, 2024. Recently Issued Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update require disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for the Company for annual periods beginning January 1, 2025, with early adoption permitted. The ASU is expected to result in incremental disclosures to the Company’s financial statements. In March 2024, the FASB issued ASU No. 2024-01, Compensation: Stock Compensation (Topic 718). The amendments in this ASU clarify existing guidance related to profits interest and similar awards. ASU 2024-01 is effective for annual and interim periods for the Company beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact this ASU may have on its financial statements and related disclosures. In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The amendments in this ASU require additional disclosure of specified information about certain costs and expenses in the notes to the financial statements. ASU 2024-03 is effective for annual periods for the Company beginning January 1, 2027, with early adoption permitted. The Company is currently evaluating the impact this ASU may have on its financial statement disclosures. In November 2024, the FASB issued ASU No. 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20). The amendments in this ASU clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in Update 2020-06. The ASU is not expected to have a material impact on the Company’s financial statements or disclosures.

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