Earnings Call
Microvision, Inc. (MVIS)
Earnings Call Transcript - MVIS Q2 2020
Operator, Operator
Thank you. Good afternoon, and welcome everyone to MicroVision's second quarter 2020 financial and operating results conference call. Joining me on today's call are Sumit Sharma, Chief Executive Officer; and Steve Holt, Chief Financial Officer. The information in today's conference call includes forward-looking statements; including statements regarding exploration of strategic alternatives, sale of our product verticals or technology; sale or merger of the company; expressions of the interest regarding strategic alternatives; potential value of the company or product vertical; potential competitive advantages; ability to profitably scale modules to large volumes; capacity to generate free cash flow; future demand for consumer electronic, products; future monetization opportunities; expected capabilities of augmented reality and automotive LIDAR products and ability to develop and launch such products; potentially disruptive capabilities of our products; potential markets for our products; ability to execute potential strategic transactions; managing costs; cash to fund operations; potential forgiveness of a portion of loan proceeds under the Payroll Protection Program; future use of shares of common stock completing its strategic transaction; maximizing shareholder value; expected customer order; future royalties; progress under and benefits of existing contracts and license agreements and the negotiation of future agreement; customer product launches; advantages of our technology; litigation; business execution; projections of future operations and financial results; availability of funds; product development applications and benefits; availability and supply of products and key components; commercialization of our technology; market opportunities and future demand; effect of approvals of proposals contained in our preliminary Proxy Statement dated August 5, 2020 as well as statements containing words like; opportunity, potential, possibly, intend, believe, focus, paths, expects, plans, will, could, would, think, endeavoring, enabling, likely, resulting, and other similar expressions. These statements are not guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements. We encourage you to review our various SEC filings, including our Annual Report on Form 10-K filed on March 12, 2020, Form 10-Q filed on May 8, 2020, Preliminary Proxy Statement documents filed August 5, 2020 and various other SEC filings made from time to time in which we discuss risk factors associated with investing in MicroVision. These risk factors could cause results to differ from those implied or expressed in our forward-looking statements. All forward-looking statements are made as of the date of this call, and except as required by law, we undertake no obligation to update this information. The financial numbers presented on the call today are included in our press release and in the 8-K filed today. Both are available from the Investor Relations section of our website. This conference call will also be available for audio replay in the Investor Relations section of MicroVision's website at www.microvision.com. And now I'd like to turn the call over to Sumit Sharma. Sumit?
Sumit Sharma, CEO
Thank you, Lindsey. Good afternoon everyone. For the past two decades, MicroVision has been driven by one simple principle: continuously innovate and advance MEMS-based laser beam scanning and associated detection technology to solve some tough problems and enable high-performance display and LiDAR products. We believe we have created disruptive technology in multiple product verticals and a strong intellectual property portfolio that provides a competitive advantage. We also established key strategic partnerships and believe we have demonstrated to potential customers the capability to profitably scale our modules to large volumes. As we focus on pursuing a strategic transaction, a potential interested partner could reduce margin dollars they would otherwise be paying if they were our customer or see potential revenue and margin from module sales. Our innovation, execution, and intellectual property are the result of our driving principle and represents the value of the company to our shareholders and all parties that may be interested in pursuing a strategic opportunity. Facing uncertainty in global demand and capital markets in Q1 2020, we committed ourselves to finding strategic alternatives, including a potential sale or merger of the Company. With the help of our financial advisors, Craig-Hallum, we have since reached out to more than 100 companies across the globe to explore their interest in strategic alternatives. All the companies that have expressed interest are required to maintain strict confidentiality, as is MicroVision. Therefore, we will not provide specific comments on these discussions until an appropriate agreement is completed. I note that MergerMarket recently published an article about our strategic process. The article referred to strong interest from bidders. I would like to clarify that we are engaged in discussions with certain potentially interested parties who are at various stages of diligence. We do not plan to make public statements about any bids or potential transactions unless and until an appropriate agreement is reached. I can share that a focused group of top-tier OEMs and technology companies are engaged in exploring and potentially pursuing strategic alternatives, which could include a sale or merger of the Company, acquisition of one or more product verticals, strategic investment, and acquisition or licensing of our intellectual property. We believe parties would be particularly interested in our Augmented Reality and Automotive LiDAR verticals. We continue to work closely and responsively with their technical and corporate development teams as well as our board to evaluate options that would maximize shareholder value. We believe that our Interactive Display and Consumer LiDAR verticals would also represent significant value to an acquiring company, as consumer demand returns for smart speaker and smart home products. These product segments launched by OEMs saw large demand and growth for multiple years prior to the outbreak of the COVID-19 pandemic. However, uncertain expectations of global demand for consumer electronics due to the pandemic may have affected current expectations of value for these verticals. MicroVision has a long history of engaging with OEMs for custom development funded by NRE or Non-Recurring Engineering programs. At the outset of our discussions, the full value of the body of work and products MicroVision could bring to market may not have been clear to interested parties or the investment community. It is, therefore, incumbent upon us to clearly identify all these future monetization opportunities as a potential strategic partner. This week we posted videos on our YouTube channel that demonstrate what our modules could potentially enable in the near future if an OEM partners with us on a program using our Augmented Reality or Automotive LiDAR modules. In the MicroVision Augmented Reality video, for example, we share a potential module design using our existing MEMS technology platform that could offer the lightest, smallest volume, low power module packaged into eyewear that resembles frames, currently accepted in the market. I believe one could see how our modules and this design example will be compelling for a mass market product. Our module illustrated in this video is based on existing design model files that are part of our intellectual property and body of work. MicroVision has been willing, ready, and able to develop and launch this module. Even though we were not engaged in a NRE program for development, we expect that the future value it may present should be acknowledged. This potential module has not previously been discussed publicly, but if you see, that it presents a path to a truly mass market product and could represent a very interesting business opportunity to a potential acquirer or strategic partner. With the interest of our shareholders in mind, we are endeavoring to make a compelling case for the opportunity in each vertical, so an acquiring company understands the entire opportunity which would be reflected in a possible transaction. As I mentioned, I will not discuss specifics about the process and progress with any specific party. However, in light of our filing of a preliminary proxy statement earlier today, I would like to provide some general background and context on the strategic alternative process to our shareholders as they considered the company's recommendation to authorize additional shares of common stock in a proxy filing. We are in discussions with certain top-tier OEMs and technology companies, who may be interested in our augmented reality and automotive LiDAR vertical, in particular. We continue to have discussions and explorations into our technology and how we could provide an advantage to their strategic path, with compelling products. Each interested party has its unique objectives and requirements with respect to any potential deal. As we continue to engage with interested parties and actively explore their desired structures, we're endeavouring to make sure that the value of all they would acquire is demonstrated to our design, financial models and examples of other relative transactions in a particular market. We have received feedback from multiple interested parties, recognizing that they think MicroVision technology is the most sophisticated and potentially disruptive that they have reviewed so far. I believe this feedback is a great complement to the hard work our employees have performed for more than two decades. We continue working diligently to find the right match for each party, in an effort to maximize the value of the company for our shareholders. As you may imagine, this can take time and need to develop at the natural phase common to such agreements. I strongly believe that it is critical we have the timing to allow all interested parties to determine the right structure and value. We believe our product verticals include a deep IP moat and body of work that could allow the right of foreign parties multiple disruptive products in multiple verticals. And acquiring companies will also benefit from our experienced engineers joining their team and continue to mature the technology. We believe we have solved the key challenges of supply chain partnerships and established the capability to scale our margins and production. Combined with the large total addressable market size forecast for these verticals, we believe these verticals would represent significant value to them. Our technology could allow them to develop disruptive products under their brand. We are working diligently to ensure that the value of our work, IP, experience, capability, and technology are acknowledged. The entire MicroVision team continues to remain healthy and perform admirably through the COVID-19 pandemic work requirements. In addition to supporting all the technology reviews, I'm happy to share that the MicroVision team has made valuable progress in enabling our automotive LIDAR path. One of the disruptive features that enable our automotive LIDAR is its capability to actively reject and isolate noise while using a 95-nanometer laser. This capability could enable a potential product to support active collision avoidance systems and potential hardware for channel sales to software companies focused on autonomy. Our team successfully completed an important development milestone since the last earnings call, in which we demonstrated in a working prototype the capability of our future LIDAR to actively reject ambient light noise. This milestone is one of few required to demonstrate the disruptive nature of our automotive LiDAR and what output would output more than 20 million points per second at 30 hertz, have a range greater than 200 meters, operable in full sunlight, and include three scanning fields of view in a single latter hardware. During this period, we also completed design details on the 40-degree field of view microdisplay modules shared in our video. I am very proud of our team for continuing to work hard and making meaningful progress. I would like to now switch gears and update on some governance items. As you may recall at the annual shareholder meeting in May, shareholders approved their proposals authorizing the Board of Directors to evaluate and, if necessary, implement a reverse stock split to maintain listing on the NASDAQ global market. First, I want to sincerely thank our shareholders for their support in authorizing a reverse stock split. As you know, the company has regained compliance with NASDAQ listing standards and remains publicly listed on the NASDAQ global market, which helps maintain the value of the company and our ability to execute future strategic transactions. Therefore, I'm happy to announce that after serious evaluation of the situation, the Board of Directors has decided not to affect a reverse stock split within the time frame authorized by shareholders. Also today, we filed a preliminary proxy statement, which includes the request for shareholders to approve an increase in the number of outstanding shares of common stock by an additional 60 million shares. I believe it is in the best interest of all shareholders to support this proposal. As I shared earlier in my update, we are engaged with multiple parties in trying to find the right match to maximize the value of the company. I believe having additional shares of common stock available is important to provide the company with the flexibility it needs to increase its ability to pursue strategic options to increase our shareholder value and is in our best interest as shareholders. We believe we have the cash to fund operations until the end of the year. If closing a transaction takes longer than that, we will need the flexibility that this authorization provides to achieve value for the shareholders. It is very important that everyone votes regardless of how many shares they own. I would like to conclude my remarks today by thanking our employees and our shareholders for their continued support and commitment while we explore a potential merger or sale of the company. Despite global economic headwinds that surround us, we continue to make progress in pursuing a potential strategic transaction. Now let me turn the call over to Steve to discuss the second quarter results.
Steve Holt, CFO
Thank you, Sumit. Good afternoon, everyone. For the second quarter, revenue was $587,000 with $572,000 of royalty revenue and the balance from contract revenue. All of the second quarter's royalty revenue was attributable to our April 2017 customer, which assumed production responsibility of our product on March 1st. Beginning in the second quarter, the royalty earned is approximately equal to the gross profit we would have earned on each unit if we had not transferred production responsibility to our customer. The agreement to transfer manufacturing responsibility to our customer provides MicroVision with a lower cost structure and lower working capital requirements. Importantly, it enables MicroVision to enjoy the upside should the customer’s unit volume increase in the future. As in the prior arrangement, our customer continues to have a license to produce our components, but we retain ownership of the intellectual property. In comparison, last quarter we recognized $1.5 million of revenue with about $1.2 million in product revenue and the balance in contract and royalty revenue. Second quarter cost of revenue was effectively zero given the transfer of manufacturing responsibility to our April 2017 customer. The resulting gross profit was $588,000. In comparison, gross profit was $70,000 in the prior quarter. The royalties that are due to MicroVision will be credited against the prepayment made by the customer. When the prepayment is exhausted, the customer will begin making cash payments for royalties due. At the end of Q2, the balance of the prepayment stood at $8.7 million. There is no potential scenario we see where MicroVision would be required to repay any portion of the $8.7 million prepayment. This $8.7 million is on the balance sheet as a contract liability. ASC 606, the applicable revenue standard, requires that companies estimate and disclose the timing of when those liabilities are expected to be recognized. This information will be found in the revenue recognition footnote in our Form 10-Q, which we will be filing shortly. Our current estimate is that approximately $1.1 million of the $8.7 million will be recognized over the remainder of the year, and that will result in our royalty revenue being approximately $1.8 million for all of 2020. Operating expenses were $2.9 million in the second quarter, slightly lower than the $3 million to $3.5 million second quarter range we provided on our last call. In comparison, operating expenses were $5 million in the prior quarter, which included approximately $100,000 in charges related to the reduction in workforce we announced in February and other nonrecurring expenses and credit in the quarter. For the second quarter, our net loss was $2.3 million or $0.02 per share. This compares to a loss of $4.9 million or $0.04 per share in the prior quarter. For the second quarter, cash used in operations was $2.9 million, which compares to cash used in the prior quarter of $5.4 million. We ended the second quarter with cash and cash equivalents of $7.8 million. Given our current expense rate, we believe our current cash balance will fund operations through the fourth quarter. During the second quarter, we raised $6.8 million from the Lincoln Park Capital facility that we established in December 2019. At the end of the second quarter, we had $6.7 million available under that Lincoln Park Capital facility. However, given that we only have a few hundred thousand authorized shares of common stock available to issue, the facility does not currently offer an effective opportunity to access the remaining $6.7 million or raise any material amount of cash outside of the facility. During the second quarter, we also secured $1.6 million of funding under the Payroll Protection Plan. We expect a portion of the $1.6 million loan will be forgiven based on the rules of the PPP program. We expect to apply for the appropriate loan forgiveness amount near the end of the third quarter, according to the rules of the program. Now I want to address the Proxy Statement that was filed earlier today. It is a preliminary proxy and will be reviewed by the SEC for a minimum period of 10 days. If there are no SEC comments, we will begin mailing the proxy to shareholders. If the SEC has any comments, we will resolve those comments and send the proxy to the shareholders after resolution. It is very important that everyone votes, regardless of how many shares you own. The proposal to increase the number of authorized shares requires a majority of all shares outstanding to vote in favor of the proposal. That is a high order to reach, and every vote matters. I know that some shareholders do not like the thought of approving more shares because of the dilution that may occur if those shares are subsequently issued. We understand and appreciate that concern. However, we are in the process of trying to sell the company, and the possible acquirers will act in their own best interest. It is in their interest to try to acquire the company at the lowest possible price. We previously indicated that we have cash until the end of the year and that we are essentially out of shares of common stock. So, buyers may attempt to get a lower price by delaying the process until closer to the end of the year. Their thought may be that as we get lower and lower on cash, we might accept a lower price. Having shares of common stock available allows the company to be able to raise cash to keep the staff that we have and allow the sale process to proceed without being forced into an unfavorable position due to cash constraints. Without the additional authorized shares we have very few alternatives to raising funds, none of which we view as appealing, and we could be in a weaker negotiating position. There's also a second reason to approve the increase in authorized common shares. It is possible that shareholder value may be maximized by accepting a minority investment from another company. For example, a company may want to purchase a percentage of MicroVision now and then purchase the rest of the company after a milestone or other event takes place. If the buyer was a potential customer or had similar strategic reason for the investment, the shareholders might benefit greatly from that investment. But to be able to do a transaction such as this without the delay of future shareholder approval, MicroVision needs to have more shares available which could be sold to the investing company. Some of you may ask why 60 million shares? The main reason is that the number of shares could allow for a minority investment as I just described and still have a sufficient number of shares that could be available for other purposes. Remember, 60 million shares are not issued if they are approved on the proxy. They would only be issued as needed. It is possible that if the company is sold this year that very few of the shares would need to be issued. Finally, I want you to know we are not asking for the authorization of more shares lightly. We're working hard so that a sale transaction could close within the time period that our current cash will last. However, it takes around 60 days to file a proxy and hold a special shareholder meeting for new shares. So, the result of this won't be known until early in the fourth quarter. As Sumit discussed, MicroVision has developed amazing technology that we believe has a place in augmented reality, automotive LiDAR, and consumer electronics. Having additional shares available gives us an opportunity to pursue all avenues to get the highest value for our shareholders. Please look for your proxy in late August, either in the mail, or via email if you've opted for electronic delivery, and vote in favor of authorizing more shares.
Operator, Operator
Thank you. We will now begin the question-and-answer session. Today's first audio question comes from Glenn Mattson with Ladenburg Thalmann. Please go ahead.
Glenn Mattson, Analyst
Hi, thanks for taking my question. So, just to hit on that topic of the share issuance that Steve you're just talking about. It's an interesting situation. Obviously, the time is not on your side with the cash balance and the burn rate and everything else. So, there is always that thought process that people can wait you out a little bit. But then there's an issue of like how do you balance that versus how much capital you potentially would raise leaving aside the strategic investment thing option for a minute? And you if raise say $5 million or $10 million you're only kicking the can down the road a little further and perhaps people could continue to wait you out. Can you just give a sense of how you balance what the capital needs could be with regards to the negotiations?
Steve Holt, CFO
Right. I think Glenn, the way to think about it is there's a pretty finite level of cash to get us through the end of this year. With the shares available, we have the ability to raise more, and so the certainty of when we would start to run out of cash goes away. That becomes uncertain, right, because you can continue to raise more if the $6.3 million is available say in the Lincoln Park facility becomes available and so you have the ability to continue to go through the sale process the process that we're in and the certainty that there is a finite point in time where either the cash runs out goes away and that's the thing we're trying to take away.
Glenn Mattson, Analyst
I understand your point. Shifting gears a bit, while I know you can't disclose much about the sale process, I've been observing the recent congressional hearings where several major tech companies faced questions about their competitive practices. One recurring theme was the tactics used by these companies, like exploring investments only to back out at the last moment, which leads to alternative arrangements. This makes me think about your situation in two ways. Firstly, it reminds me of when it seemed you were on the verge of securing a significant contract for a home speaker device. Secondly, it raises questions about how you are safeguarding the investments made over the years and the technology developed as you negotiate with larger companies, which is undoubtedly challenging. Could you provide some insights on this?
Sumit Sharma, CEO
If you look at the bigger picture, I believe everyone on the call agrees with what I'm saying. We are all aware of the situation. One thing I take pride in with MicroVision is our determination. We all understand that changes can occur, and we need to adapt accordingly. The intellectual property we've developed holds significant value. Just being in the tech industry doesn't guarantee success. Regarding valuation, the verticals we discuss have their own timelines and goals for acquiring what they need to succeed. If we can endure and reflect on our progress this year, we have been concentrating on strategic alternatives. Different players have their own approaches, but we have managed to survive various challenges over the years. It feels like we are at a turning point now, and our intellectual property is well-developed. Whether it's any market, multiple companies have invested in these areas. The crucial decision often comes down to whether to collaborate or acquire rather than risk going it alone. All of these factors play a role. We understand the landscape and are well-positioned. We have valuable intellectual property, designs, and a dedicated team. We've accomplished a lot, and we need to remain resilient as we navigate through this. That's the best perspective I can provide.
Glenn Mattson, Analyst
Yes. Could you share your thoughts on the talent within the company? Given the current situation, are any employees considering other opportunities? The talent of your team is a significant factor in the value during the sale process.
Sumit Sharma, CEO
Yes. I think we've been very sensitive to that and we've done everything possible, all the tools that have been given to us to make sure that all the staff is comfortable and feels secure. At this moment, I'm happy to share that we have all the key personnel required to complete a potential transaction.
Kevin Dede, Analyst
Good afternoon, Steve and Sumit. Thank you for taking my question; I really appreciate it. Steve, I believe you did an excellent job highlighting the details of the April 17 contract, especially with the gross profit growing from $50,000 to approximately $580 million this quarter. However, I'm unclear about the unit volume behind that and the current state of the end market. If you could provide some insight, I think it would be beneficial.
Steve Holt, CFO
Yes, we have not shared any per unit information. We mentioned back in Q1 that when we shifted production responsibility to the customer, one of the reasons for that decision was the low volumes. We entered into this agreement because, in the event that the product volume increases significantly, we stand to benefit from it. However, the volumes were quite low, making it challenging for us to sustain production given these low numbers.
Kevin Dede, Analyst
Okay. You seem to have a good understanding of what to expect for the second half, and I'm curious about how to interpret the sequential change between March and June considering your expectation to achieve all of $1.8 million for the entire year.
Steve Holt, CFO
We have some indication of what the usage will be. I think we said, $1.1 million is what we expect to be recognized as royalty revenue over the last half of the year. So that's the indication we have and the knowledge we have from interacting with the customer. Of course that's an estimate and that's what's required in the footnote is for us to estimate that and that's why I disclosed it because I know people are interested in what we see there. So given where we are the first half royalty revenue plus the $1.1 million to come in the second half our estimate would be about $1.8 million for the whole year.
Kevin Dede, Analyst
Okay. Fair enough. Appreciate it. Can you explain how that liability might either benefit or interfere with potential strategic deal?
Steve Holt, CFO
It's essentially a non-cash liability. The company doesn't need to do anything at the moment to earn it. I personally don't view it as a barrier to a transaction since there is no cash liability that someone would be assuming. An acquiring company would be able to recognize that revenue as it comes in over the upcoming period until the entire prepayment balances are utilized. After that, any future royalties would be in cash. Therefore, I don't see it as a significant issue.
Kevin Dede, Analyst
Thank you for highlighting AR and auto LIDAR, Sumit. I recognize the excellent progress you've made. My understanding is that the module used for tracking in a small field is approaching commercial market acceptance. The demonstration you presented at CES was strong evidence of this. Could you share your thoughts on where this stands and whether it might influence interest in a deal?
Sumit Sharma, CEO
Yes. I believe you are referring to our consumer LIDAR that we showcased, which was indeed impressive. However, as you know, earlier this year we shifted our focus to selling the company, which complicates our ability to engage in any development. Interested parties are cautious about where development is headed. We haven't seen any specific increases in that area. But if we look at the broader picture, the main factor driving many aspects is the uncertainty surrounding global demand for consumer electronics. Any data available shows variations across different sectors of the consumer market. Is our body of work valid? Absolutely. Have we had the opportunity to discuss it with interested parties? Certainly. That was part of my prepared remarks. Our role is to ensure they realize the full value of everything we've created, which has significant value. Regardless of the product timeline, those aspects are manageable and represent value. It's a strong demonstration, and I continue to receive positive feedback about it. People are indeed impressed. All of our efforts are part of the overall picture. When you consider our augmented reality, we have a rich history that dates back long before my time, which is something to be proud of and reflects our long journey. AR garners a lot of attention, and it has strong foundational elements. However, consumer LIDAR and the tracking display, along with all our consumer products, also play a vital role in our business.
Kevin Dede, Analyst
Right. So with regard to AR, Sumit could you talk to that 40-degree field of view? That's not going to be enough to substantiate a VR environment. I'm not exactly clear how it plays into an AR environment.
Sumit Sharma, CEO
I have a background in augmented reality spanning over a decade, so I want to share my insights. Before addressing your virtual reality question, let me talk briefly about augmented reality. Consider what you would want from a product. If you're not using glasses, the first requirement is that it must be lightweight. This implies using low power, small batteries, and ensuring a wide field of view, making it feel substantial. However, I'm not sure if I can achieve that. The path to creating a consumer product that scales to mass market is complex, similar to how cellphones are produced in large volumes. For augmented reality to become mainstream, certain features are essential, and while they are not part of extensive, distant research and development, they are integral to MicroVision's established capabilities. We have made significant progress and are demonstrating our potential. The video highlighted our augmented reality capabilities, reminding everyone that they remain relevant. In terms of augmented reality, there is a genuine effort to integrate it into daily life, allowing for quick interactions rather than immersive experiences. Imagine having a digital personal assistant that appears in your line of sight without needing to reach for your phone. Virtual reality, on the other hand, is an entirely different market and is designed for immersion, separating you from your environment. For instance, if you're dreaming of visiting Mount Fuji, it would be amazing to simply wear a VR headset and feel transported there. Each technology serves different experiences and training needs, with augmented reality, virtual reality, and mixed reality all finding their respective places based on their intended use cases. There are various applications for VR, and that’s why ongoing investments in this area remain important, while augmented reality is also a valid pursuit. Mixed reality starts to combine elements from both worlds. It's crucial to consider the market context and the specific problems being addressed. My previous employer was heavily invested in augmented reality, and it's clear that there is a desire to crack the code on how to make this technology widely accessible, as there’s potential in the device everyone envisions, despite the challenges in form factor. I take great pride in our team's efforts, and the video was an excellent chance to illustrate what's possible in the context of strategic opportunities. While my response may have been lengthy, the reality is that both augmented reality and virtual reality are valuable in their own right and neither is less important than the other.
Kevin Dede, Analyst
Yes, I understand and appreciate your insights. I was a bit surprised because I thought you had shown a wider field of view, but it seems that isn't the main point. Your argument is stronger in highlighting that you have broad capabilities across multiple technologies.
Sumit Sharma, CEO
Right. So that...
Kevin Dede, Analyst
On that note, could you...
Sumit Sharma, CEO
I'm going to say like...
Kevin Dede, Analyst
I was just hoping you could...
Sumit Sharma, CEO
All right. You go ahead please.
Kevin Dede, Analyst
Okay. Yes. I was hoping you could discuss the differences between display technology and interactive display technology, which seem closer to commercialization. I know Glenn mentioned this as well, but could you review how they differ in terms of their final development and potential interest from buyers?
Sumit Sharma, CEO
Yes. If you consider the micro display, specifically the AR module, it's essentially a display technology, and in some ways, it's more complex than a larger display. Our interactive display adds a 0.3-meter LiDAR, which creates a touch experience without needing a glass surface to clean; virtually any surface can be used. That was the goal. The distinction we make is important because adding LiDAR changes the experience and adds value. If we include features like people tracking on the micro display, it remains categorized as a micro display for AR, but now with additional capabilities for tracking. Can MicroVision achieve that? Yes, but we haven't showcased anything yet. Ultimately, they are all displays; using red, green, and blue lasers means it's a display. With the added infrared, you can create interaction and additional features. We named it an interactive display because it captures the enhanced level of interaction; it’s like comparing a TV to an iPad. They are subsets within the broader development of our display products.
Kevin Dede, Analyst
Okay. Now, my understanding was from the difference in the consumer LIDAR and the auto LiDAR was, I don't know, maybe as much as two years of development time. And I'm wondering whether or not you think that's still fair to say, or if you've moved the auto development forward in light of its interest commercially? Or how you might compare those two now and their relative value?
Sumit Sharma, CEO
I believe the relative value to the company hinges on which product will launch in the market and what the quickest path to revenue is while we are operating. So, in the context of consumer LIDAR, while it might not represent the ultimate potential of what we can build, I believe we have many ideas that we can expand upon. We have established a solid platform that allows us to gauge market interest and size, particularly with concepts like home security. It's essential to have a developmental version to work with, but we also need something more stable and mature for collaboration. We have explored this with a version for the automotive LiDAR segment. It is important to recognize that the automotive LiDAR market is temporary. If you follow the latest developments in automotive, you'll notice significant activity in both consolidation and investment, indicating something substantial is occurring. However, what we are doing is not merely a me-too product; it represents a viable business opportunity. Firstly, there's the necessary active safety ADAS, mandated by regulations akin to having airbags in cars. These systems must contribute to making vehicles safer. Secondly, we see remarkable companies tackling full autonomy, which is much further down the road and requires significant current development for future products. The autonomy players can be viewed as our sales channel; if we have a product, we can sell to them, leading to revenue generation as we engage in meaningful problem-solving. The ultimate target is the global market of 80 million cars per year and the nearly 1 billion cars on the road. By enhancing safety features and anticipating drivers' intentions, we can prevent common accidents, such as when a car cuts into your lane unexpectedly. Thus, while we predict that product development might take at least two years, depending on customer needs, the demand for safety features and sensor technology is immediate. Our focus on sensor development could yield a robust business model that complements both channel sales and OEM opportunities. As we consider strategic transactions, the eventual branding may change, but the work remains significant as it aligns with the pressing conversations in the industry, particularly in Silicon Valley. The timeline for development will be contingent on specific demands, but our foundational technology enables us to solve pressing problems effectively, thereby providing a short-term revenue path. Unlike previous experiences where we relied heavily on OEM partnerships—where delays in adoption could jeopardize us—automotive LIDAR represents a more independent route with potential sales channels. On the other hand, in consumer LIDAR, we face competition from industry giants, requiring us to be conscious of pricing due to their market dominance. It may take longer to establish ourselves here, but automotive LIDAR appears to present a valid and promising business opportunity. Ultimately, consumer LIDAR holds substantial appeal due to its high-volume potential within the consumer market.
Kevin Dede, Analyst
Okay. Last question for you Sumit about the roughly 100 companies you've interacted with. I'm curious what that number truly signifies in relation to the total number you could potentially engage with. Do you believe there are more opportunities to explore, or is it just a matter of going through the ones you've been focusing on so far?
Sumit Sharma, CEO
We are focused on a much smaller subset of the 100 companies we work with. I would say we have a good representation from top-tier OEMs and leading technology and licensing companies. I don't think we need to look beyond these companies, which is why I describe them as top-tier. That's all I want to share on this topic.
Kevin Dede, Analyst
Yes, fair enough. No, I appreciate that. I just wasn't sure, if you were still investigating other, I guess, potential opportunities or just in the narrowing down phase. I appreciate your perspectives. And again, thank you much for entertaining the questions.
Sumit Sharma, CEO
Thank you.
Operator, Operator
And ladies and gentlemen, this concludes the audio question-and-answer session. I'd like to turn it over to the company for the webcast questions. Please proceed.
Steve Holt, CFO
Okay. We received several hundred questions in advance of the call today. Many of them were on the same topic and many of them have been answered in the prepared remarks. We will not be able to answer all the questions we received, but we'll try to address the questions on a common topic and we appreciate the questions we have received and hope you understand that we may not be able to respond to some questions on some specific topics. So I'll start with some of the questions here. Sumit, would the company sell a particular vertical such as augmented reality? And if so, would that limit your ability to work on other verticals such as automotive LiDAR?
Sumit Sharma, CEO
So I think as we've stated consistently right that we're selling the company and looking at all tragic opportunities, but selling the company is the main part of it. When you think about our core technology and our know-how and our IP, obviously, that's common to all verticals, right? But if you think about each vertical by itself, it has its own version of the hardware, right? The work stands by itself. So if any one of the four verticals somebody wanted to acquire and we could essentially move on, it stands says by itself. It does not deplete our capability to do any other work.
Steve Holt, CFO
Second question. You mentioned there is a focused group of companies interested. Can you tell us how many and what their interest is and who they are?
Sumit Sharma, CEO
Right. So I think I've covered it in my remarks and also the last question that we got started with 100 companies. It is a much smaller group, and they are all in various stages of diligence. And beyond that, we're not going to provide any more color.
Steve Holt, CFO
Next question is what is the likelihood that you will be able to complete a deal before the end of the year? And what happens if you do not close a transaction?
Sumit Sharma, CEO
We cannot predict the likelihood of a specific time frame for closing a deal. If that scenario arises, we will continue to develop our technology as we are currently doing and explore strategic alternatives. However, our primary focus remains on selling the company, and I want to emphasize that clearly.
Steve Holt, CFO
There are several questions concerning the valuation of the company. What do you see as the valuation of the company and a strategic transaction? I'll take that one. We're not going to comment on any particular valuation of the company or comment on other people's opinions regarding valuation. As we mentioned in our prepared remarks, we're working to help companies that may be interested in a strategic transaction to see the value that we see in all the product verticals and in our technology. What I can say is that, in preparing for discussions about valuations, we have prepared analyses of comparable transactions and M&A activity comparisons, discounted cash flow analyses, valuation of intellectual property and other analyses that we've done to be prepared for those kinds of discussions. Next question is please elaborate on why you think the company's technology and intellectual property is best-in-class?
Sumit Sharma, CEO
We encountered some significant challenges with products in augmented reality and automotive LIDAR consumer devices. However, if we consider the fundamental physical problems we address, such as the underlying physics, it relates back to the silicon we use. Instead of creating overly complex solutions, we can simplify these complicated issues. The proof of our best-in-class status lies in comparing our products to competing ones in the market. For instance, in augmented reality micro-displays, users want lightweight devices that resemble regular glasses instead of bulky helmets. This necessitates lightweight designs and wider fields of view, which we achieve through our advanced MicroVision technologies that utilize complex optical systems. This ability to eliminate optics while correcting distortion primarily through electronics is quite remarkable, and I can attest to the difficulty of this achievement, as it's considered the holy grail in the industry. Moreover, for a product to succeed, we need to enable such advancements. In automotive LIDAR, for example, we can operate effectively in full sunlight, which is a significant challenge that others have not managed to overcome. This capability is an indication of our progress, even if it often goes unrecognized. Thus, we confidently believe that we are indeed best-in-class, with independent praise supporting this assertion.
Steve Holt, CFO
Okay. Next question. What is the fully diluted share count? And how many shares are available? So the fully diluted share count is 149.5 million shares. So there are approximately 143.5 million shares outstanding and about two million RSUs and four million options outstanding and that comes to 149.5 million. There was a little bit in this question too about how can they find that out. And so when you look at the cover page of a 10-Q or a 10-K toward the bottom it'll should list what the shares outstanding are a couple of days before that particular SEC filing was made. So, you can see it there. And then if you go to the earnings per share footnote or the equity compensation footnote, you can find out a number of options and RSUs or warrants and those kinds of things are outstanding. In our case it's just options in RSUs. Okay. Next question. Can you tell us more about the videos that were released on the MicroVision YouTube channel?
Sumit Sharma, CEO
Right. Yes. So recently, we put these videos together. MicroVision put this together by the way to demonstrate our vision of the modules for augmented reality in automotive LIDAR space. We've heard from investors that they wanted a better idea of what we are working on and I thought this would be a very good way to communicate and provide some transparency as to what we're working on. The videos certainly help our investors and of course interested parties help visualize a potential value for this module. And as I mentioned earlier, we had early on that we had OEMs and/or LEDs was our primary path. Sometimes we never got a chance to showcase what our technology could do right? So this was a great medium for transparency. So I hope that it was successful.
Steve Holt, CFO
Okay. Can you provide an update on the status of automotive LIDAR development and when you plan to have a demo available?
Sumit Sharma, CEO
I think at one point we targeted November 2020 as our goal, but that was before the pandemic and other strategic developments. Now, we believe that a demonstration in Q1 2021 is a more realistic timeline. This is due to our need to manage various activities and priorities. It's important to recognize that this isn't just about the demo; it's a significant early stage for a product. We've referred to it as a sample capital in the automotive sector aimed at OEMs, and the level of maturity is much higher now. We've been considering these factors for a long time, and now that we're not focused on supporting certain activities, we can make incremental progress toward it. While we are targeting Q1 2021, the global supply chain is currently unpredictable. When we have specific updates, we'll share them. It’s important to understand that this is part of our long-term plan, and for anyone observing the automotive LIDAR sector, the path to OEMs and achieving autonomy is essential. Thus, our efforts are relevant to the strategic transactions we are exploring.
Steve Holt, CFO
Okay. Next question. Several companies have announced LIDAR programs using different LIDAR technologies. How do you see the automotive LIDAR market developing?
Sumit Sharma, CEO
Yes, I believe I've addressed this in my earlier response. There are two main areas fueling the activity in safety ADAS. The active safety ADAS is the more immediate focus, while autonomy is the long-term objective. There are certainly questions about what Mobileye and various companies are doing in this space. Each company has its own approach to solving problems, and it's important to consider how far along they are and whether you would trust their systems with your family. All these companies are highly intelligent and well-funded, but a major disruption is needed as no one has fully solved the issues at hand. The development trajectory suggests that autonomy will continue to push forward, as it's a more complex challenge that will take time before we relinquish control of our vehicles. Currently, there's a great deal of activity in this area, although progress might seem slow. The active safety ADAS represents the significant revenue opportunity right now. Development in both markets will likely happen in tandem. However, once a solution emerges for the ADAS market, it will really take off. Some LIDAR companies have made announcements and secured agreements with OEMs, yet no products are available yet. So, companies are vying for position in both the ADAS and autonomy markets, with each developing at different paces—one being more immediate, while the other is much further down the line.
Steve Holt, CFO
There's a question about the April 2017 customer and royalties, specifically regarding when we would start recognizing some royalty revenue. To reiterate, the April 2017 customer made a cash payment of $10 million in 2017. As we earn royalties, we deduct the amount of those royalties from that prepayment. Once the prepayment is exhausted, the customer will begin making additional cash payments for the royalties we earn. Currently, the prepayment balance is $8.7 million. The royalties earned by MicroVision are recognized as revenue on the income statement. In Q2, we earned $572,000 in royalties, and we expect to earn around $1.8 million for the year. All right. We'll go to the question on intellectual property. What steps are you taking to protect the company's intellectual property?
Sumit Sharma, CEO
So, similar to most other high-tech companies, we take measures such as establishing security protocols, limiting access to proprietary information, right? We also have non-disclosures with our employees that seek to protect our IP, if the employees of the company. So, we think these are prudent proper measures in the space we are in, right? So, we feel confident that we have protected ourselves with this.
Steve Holt, CFO
And then, can you provide a display-only licensee update? I'll take this one. The display-only licensee this goes back to an agreement, I think in like May of 2018. They still have a license and the ability to engage with customers, but we're not aware of their current activity. Don't have any other update on that. And then, how many employees are at the company now? And can you give an idea of what they are working on? We have 33 people working in the company today. There's 10 in support and management, and then there's 23 in engineering. And they're really focused on supporting the diligence requests and that work and they're also working on advancing the automotive LIDAR technology. That's the last question that I have.
Sumit Sharma, CEO
All right. I think in conclusion, I'd just like to close out and thank everybody. Thank our shareholders for continued support. Please take look at the proxy, and it's very important that we vote, and thank you for joining today.
Operator, Operator
Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect.