Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes included in Part II, Item 8 of this Form 10-K. The following discussion focuses on the results of our operations for the year ended December 31, 2025 compared to the year ended December 31, 2024. Similar discussion of the results of our operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024.

Overview

MicroVision, Inc. is defining the next generation of lidar-based perception solutions for automotive, industrial, and security & defense markets. We deliver integrated hardware and software solutions designed for real-world performance, automotive-grade reliability, and economic scalability. Our diverse portfolio of lidar sensors, with both short- and long-range lidar solutions, feature solid-state sensors with varying wavelengths, advanced sensor architectures, design-to-cost engineering, and open software solutions.

Our solutions enable advanced driver assistance systems, or ADAS, and autonomy features for customers in a wide range of markets, including automotive, industrial, and security & defense. Target industrial sectors include robotics, automated warehouse, agriculture, and mining. Our integrated hardware and software solutions enable intelligent autonomous, active safety, and automation systems which depend on secure, cost-effective, and energy-efficient solutions. Our software has been developed in close collaboration with automotive customers and also has broad application in industrial, defense, and commercial vehicle sectors.

We have incurred substantial losses since inception and expect to incur a significant loss during the fiscal year ending December 31, 2025. 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. In October 2024, we entered into a securities purchase agreement with an institutional investor for the purchase of senior secured convertible notes of up to $75.0 million. See Part II, Item 8, Note 7. Notes Payable and Derivative Liability. In February 2025, we entered into another securities purchase agreement with the same institutional investor for the issuance and sale of $8.0 million in shares of common stock, plus warrants to purchase additional shares of common stock for approximately $9.0 million. See Part II, Item 8, Note 8. Warrant Liability. In February 2026, we entered into a securities purchase and exchange agreement with the same investor, pursuant to which we issued two senior secured convertible notes due March 2028 - one for approximately $20.6 million in exchange for the previously existing senior secured convertible note due March 2026 and the other for approximately $22.4 million. See Part II, Item 8, Note 17. Subsequent Events for additional discussion.

There can be no assurance that additional capital will be available or that, if available, it will be available on terms acceptable to us on a timely basis. We cannot be certain that we will succeed in commercializing our technology or products.

Critical 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.

We believe the following key accounting policies require significant judgments and estimates used in the preparation of our consolidated financial statements.

Business Combination

Our business combination is accounted for under the acquisition method. We allocate the fair value of purchase consideration 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 is included in bargain purchase gain in the consolidated statements of operations. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.

Intangible Assets

Our intangible assets consist of acquired technology from the January 2023 Ibeo asset purchase and purchased patents. 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. 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 our intangible assets is based on the difference between the fair value of the asset and its carrying value. During 2025 and 2024, we recorded non-cash impairment charges of $10.1 million and $4.2 million primarily related to our perception software and reference software, respectively. See Part II, Item 8, Note 9. Financial Statement Components - Intangible Assets.

Share-Based Compensation

We issue share-based compensation to employees in the form of stock options, restricted stock units (RSUs), and performance stock units (PSUs). We account for the share-based awards by recognizing the fair value of share-based compensation expense on a straight-line basis over the service period of the award, net of estimated forfeitures. The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model. The fair value of RSUs and non-executive PSUs is determined by the closing price of our common stock on the grant date or the period end date for the awards that are being measured by the service inception date. For performance-based awards, expense is recognized when it is probable the performance criteria will be achieved. If the likelihood becomes improbable that the performance criteria will be achieved, the expense is reversed. The fair value of RSUs and PSUs (other than certain executive PSUs) is determined by the closing price of our common stock on the grant date or the period end date for the awards that are being measured by the service inception date. Executive PSUs issued in 2022 were valued using a Monte Carlo simulation model using the following inputs: stock price, volatility, and risk-free interest rates. Changes in estimated inputs or using other option valuation methods may result in materially different option values and share-based compensation expense.

Leases

Significant judgment may be required when determining whether a contract contains a lease, the length of the lease term, the allocation of the consideration in a contract between lease and non-lease components, and the determination of the discount rate included in our office lease. We review the underlying objective of each contract, the terms of the contract, and consider our current and future business conditions when making these judgments.

Derivative Liability

We evaluate our financial instruments, specifically, our notes payable, 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.

Warrant Liability

We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant's specific terms and applicable authoritative guidance included in ASC 480, "Distinguishing Liabilities from Equity", and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether the warrants meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period end date while the warrants are outstanding.

Warrants that meet all of the criteria for equity classification are required to be recorded as a component of additional paid-in capital at the time of issuance, or when the conditions for equity classification are met, and are not remeasured. Warrants that do not meet the required criteria for equity classification are classified as liabilities. We adjust such warrants to fair value at each reporting period until the warrants are exercised or expire. Changes in fair value are recognized in our consolidated statements of operations.

Results of Operations

Revenue

		2025				2024				$ change				% change
(In thousands)
Revenue		$	1,208			$	4,696				(3,488	)			(74.3	)

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) transfers 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 decrease in revenue for the year ended December 31, 2025 compared to the same period in 2024 was primarily due a lower sales to a leading manufacturer of agriculture equipment, as well as lower sales of MOVIA L sensors as part of RFQ evaluation processes to an industrial customer and to Daimler Truck North America and affiliates.

Cost of revenue

		2025				% of revenue				2024				% of revenue				$ change				% change
(In thousands)
Cost of revenue		$	18,548				1,535.4			$	7,530				160.3			$	11,018				146.3

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. 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 year ended December 31, 2025 compared to the same period in 2024 was primarily due to $9.9 million of obsolete inventory associated with older configurations of short-range MOVIA L sensors and $3.2 million of adverse purchase commitments related to the production of select MOVIA L sensor inventory. See Part II, Item 8, Note 9. Financial Statement Components for additional discussion.

Research and development expense

		2025				2024				$ change				% change
(In thousands)
Research and development expense		$	31,720			$	49,015			$	(17,295	)			(35.3	)

Research and development expense consists of compensation related costs of employees and contractors engaged in internal research and product development activities, direct materials 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 expenses will be required to further develop our scanning technology.

The decrease in research and development expense during the year ended December 31, 2025 compared to the same period in 2024 was primarily due to a reduced workforce resulting in lower salary and benefits expense of $7.9 million, lower restructuring charges of $5.4 million, lower purchased services of $2.1 million, and lower IT and software costs of $1.1 million. These decreases were partially offset by higher building expenses of $0.9 million.

Sales, marketing, general and administrative expense

		2025				2024				$ change				% change
(In thousands)
Sales, marketing, general and administrative expense		$	20,325			$	29,346			$	(9,021	)			(30.7	)

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 decrease in sales, marketing, general and administrative expense during the year ended December 31, 2025 as compared to the same period in 2024 was primarily due to lower non-cash share based compensation expense of $7.6 million from the reversal of previously recognized expense related to the forfeiture of awards in connection with the executive separations that occurred during the year ended December 31, 2025, lower salary and benefits expense and non-cash compensation of $1.5 million, lower restructuring charges of $0.6 million, and lower trade show expense of $0.4 million. These decreases were partially offset by higher recruiting expenses of $0.6 million, higher building expenses of $0.4 million, higher purchased services fees of $0.3 million, and higher advertising costs of $0.3 million.

Impairment loss on intangible assets

		2025				2024				$ change				% change
(In thousands)
Impairment loss on intangible assets		$	10,057			$	4,181			$	5,876				140.5

During the year ended December 31, 2025, management identified impairment indicators related to perception software, which resulted in a $10.1 million non-cash impairment charge. During the year ended December 31, 2024, management identified impairment indicators related to MOSAIK software. We performed an assessment of projected future cash flows and determined the software was fully impaired, which resulted in a $4.2 million non-cash impairment charge. See Part II, Item 8, Note 9. Financial Statement Components for additional discussion.

Impairment loss on operating lease right-of-use assets

		2025				2024				$ change				% change
(In thousands)
Impairment loss on operating lease right-of-use assets		$	1,201			$	-			$	1,201				-

Impairment loss on operating lease right-of-use assets includes non-cash charges during the year ended December 31, 2025 related to our Hamburg office space lease. See Part II, Item 8, Note 10. Leases for additional discussion.

Impairment loss on property and equipment, net

		2025				2024				$ change				% change
(In thousands)
Impairment loss on property and equipment, net		$	2,185			$	-			$	2,185				-

Impairment loss on property and equipment, net includes non-cash charges during the year ended December 31, 2025 related to abandoned production equipment for prior designs of our long-range MAVIN sensors. See Part II, Item 8, Note 9. Financial Statement Components for additional discussion.

Interest expense

		2025				2024				$ change				% change
(In thousands)
Interest expense		$	(18,531	)		$	(4,457	)		$	(14,074	)			315.8

The increase in interest expense during the year ended December 31, 2025 compared to the same period in 2024 relates to $7.3 million of non-cash interest expense representing the discount on the 2025 Purchase Agreement for warrants and shares of common stock (see Part II, Item 8, Note 8. Warrant Liability), $9.1 million of non-cash interest expense related to amortization of the debt discount and issuance costs on notes payable, and $2.1 million of non-cash interest expense related to the modification of notes payable (see Part II, Item 8, Note 7. Notes Payable and Derivative Liability).

Unrealized gain (loss) on derivative liability

		2025				2024				$ change				% change
(In thousands)
Unrealized gain (loss) on derivative liability		$	5,709			$	(8,866	)		$	14,575				(164.4	)

Unrealized gain (loss) on derivative liability reflects the revaluation of our derivative liability associated with notes payable as of December 31, 2025 and 2024. Due to the decrease in the fair value of the derivative liability as of December 31, 2025 relative to December 31, 2024, we recognized an unrealized gain during 2025. Due to the increase in the fair value of the derivative liability as of December 31, 2024 relative to its initial measurement on October 23, 2024, we recognized an unrealized loss during 2024. See Part II, Item 8, Note 7. Notes Payable and Derivative Liability for additional discussion.

Unrealized gain on warrant liability

		2025				2024				$ change				% change
(In thousands)
Unrealized gain on warrant liability		$	4,422			$	-			$	4,422				-

Unrealized gain on warrant liability reflects the revaluation of our warrant liability as of December 31, 2025. Due to the decrease in the fair value of the warrant liability during the period, we recognized an unrealized gain during 2025. See Part II, Item 8, Note 8. Warrant Liability for additional discussion of warrants issued during 2025.

Realized loss on debt extinguishment

		2025				2024				$ change				% change
(In thousands)
Realized loss on debt extinguishment		$	(4,654	)		$	-			$	(4,654	)			-

As a result of the debt modification during the year ended December 31, 2025, we recognized a loss on extinguishment of notes payable. See Part II, Item 8, Note 7. Notes Payable and Derivative Liability for additional discussion.

Income Taxes

During the years ended December 31, 2025 and 2024, we recognized a tax benefit of $0.1 million and tax expense $0.5 million, respectively, mainly related to income in foreign jurisdictions, partially offset by a deferred income tax benefit generated by a 2025 loss provision on our Hamburg, Germany office lease. As of December 31, 2025, we had net operating loss carryforwards of approximately $549.4 million for federal income tax reporting purposes. In addition, we have research and development tax credits of $11.2 million. During 2025, $16.0 million federal net operating losses and $0.3 million general business credits expired unused. A majority of the net operating loss carryforwards and research and development credits available to offset future taxable income, if any, will expire in varying amounts from 2026 to 2044, if not previously used.

In certain circumstances, as specified in the Internal Revenue Code, a 50% or more ownership change by certain combinations of our shareholders during any three-year period would result in a limitation on our ability to use a portion of our net operating loss carryforwards.

We recognize interest accrued and penalties related to unrecognized tax benefits in tax expense. We did not have any unrecognized tax benefits at December 31, 2025 or at December 31, 2024.

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. As of December 31, 2025, the Company had $32.3 million in cash and cash equivalents and $42.5 million in short-term investment securities, or $74.8 million total. In February 2026, we raised net proceeds of $20.9 million from the exchange and issuance of senior secured convertible notes to an existing investor. In addition to cash and cash equivalents, the Company also has potential availability of $42.0 million left on our existing $150.0 million ATM facility that was put in place in the first quarter of 2024, subject to certain limitations.

In consideration of the above, after factoring in the $33.2 million purchase price of the Luminar asset acquisition in February 2026 (see Part II, Item 8, Note 17. Subsequent Events), the Company has total liquidity of $104.5 million. Pursuant to terms of the securities purchase and exchange agreement entered into in February 2026, we will maintain minimum cash liquidity of the lesser of $21.5 million or 110% of the then outstanding balance of the Note for the remaining duration of the Note term. 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 $58.7 million during 2025, compared to $68.5 million in 2024. During the years ended December 31, 2025 and 2024, we made payments of $7.7 million and $1.9 million, respectively, to our contract manufacturing partner in connection with the buildup of MOVIA sensor inventory for direct sales to both automotive and non-automotive customers. As of December 31, 2025, we had open purchase commitments of $3.2 million related to the production of MOVIA L sensor inventory. We have determined that certain of the sensors are obsolete and an adverse purchase commitment for the entire balance of open purchase commitments has been recorded as of December 31, 2025.

Investing activities

During the year ended December 31, 2025, cash used in investing activities was $24.6 million compared to cash provided by investment activities of $2.7 million during the same period in 2024. During the year ended December 31, 2025, we purchased short-term investment securities totaling $51.9 million and sold short-term investment securities totaling $30.1 million, compared to purchases of $26.1 million and sales of $35.4 million in the same period of 2024. During the year ended December 31, 2024, we made advances of $2.2 million related to the acquisition of Scantinel assets (see Part II, Item 8. Note 17, Subsequent Events). During the same period in 2024, we made payments totaling $6.3 million related to the acquisition of Ibeo assets.

Financing activities

Net cash provided by financing activities totaled $60.9 million during the year ended December 31, 2025, compared to $72.9 million during the same period of 2024. Net proceeds from issuance of common stock and warrants were $77.4 million during the year ended December 31, 2025, compared to $34.7 million during the same period in 2024. In 2025, we made scheduled principal repayments of $16.5 million associated with our senior secured convertible notes. In 2024, we received approximately $38.1 million in net proceeds, inclusive of debt issuance costs, from the issuance of $45.0 million senior secured convertible notes. See Part II, Item 8. Note 7, Notes Payable and Derivative Liabilities.

The following is a list of our financing activities during 2025 and 2024.

	●	In February 2026, we entered into a securities purchase and exchange agreement with an institutional investor, pursuant to which we issued two senior secured convertible notes due March 2028 - one for approximately $20.6 million in exchange for the previously existing senior secured convertible note due March 2026 and the other for approximately $22.4 million. See Part II, Item 8, Note 17. Subsequent Events for additional discussion.
	●	In February 2025, we entered into a securities purchase agreement for the purchase of 5,750,225 shares of our common stock and warrants to purchase 5,750,225 shares of our common stock for $1.57 per share. We received proceeds, net of all costs, of $7.8 million.
	●	In October 2024, we entered into a Securities Purchase Agreement (the "Purchase Agreement") for the purchase of senior secured convertible notes (the "Note") with an institutional investor (the "Holder"). The principal amount for the initial note was $45.0 million. We received proceeds, net of all costs, of $38.1 million.
	●	In March 2024, we entered into a $150.0 million ATM equity offering agreement with Deutsche Bank Securities, Inc., Mizuho Securities USA LLC and Craig-Hallum Capital Group LLC (collectively, the "Agents"). 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 $150.0 million through or directly to the Agents. As of December 2025, we completed sales under such sales agreement of 80.6 million shares for net proceeds of $104.0 million. As of December 31, 2025, we have approximately $42.0 million available under this sales agreement.

Our capital requirements will depend on many factors, including, but not limited to, the rate at which OEMs and other potential customers introduce products incorporating our technology and the market acceptance and competitive position of such products. Our ability to raise capital will depend on numerous factors, including the following:

	●	Perceptions of our ability to continue as a going concern;
	●	Market acceptance of products incorporating our technology;
	●	Changes in evaluations and recommendations by any securities analysts following our stock or our industry generally;
	●	Announcements by other companies in our industry;
	●	Changes in business or regulatory conditions;
	●	Announcements or implementation by our competitors of technological innovations or new products;
	●	The status of particular development programs and the timing of performance under specific development agreements;
	●	Economic and stock market conditions;
	●	The cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
	●	Our ability to establish cooperative development or licensing arrangements;
	●	Our authorized shares available for sale; or
	●	Other factors unrelated to our company or industry.

If we are successful in establishing OEM co-development arrangements, we may receive full or partial funding for certain non-recurring engineering costs for technology development and/or product development. Nevertheless, we expect our capital requirements to remain high as we expand our activities and operations with the objective of commercializing our technology.

Recent Accounting Pronouncements

See Note 2, "Summary of significant accounting policies," in the notes to the consolidated financial statements found in Part II, Item 8 of this Form 10-K.