MICROVISION, INC. (MVIS)

ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking
statements

The
information set forth in this report in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results
of Operations,” and Item 3, “Quantitative and Qualitative Disclosures about Market Risk,” includes “Forward-Looking
Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is subject to the safe harbor created
by those sections. Such statements may include, but are not limited to, projections of revenues and expenses, and measures of income
or loss, status of product development and performance, market opportunity and future demand, partner and customer engagement, cooperative
arrangements, strategic plans, future operations, financing needs or plans of MicroVision, Inc. (“we,” “our,”
or “us”), as well as assumptions relating to the foregoing. The words “anticipate,” “could,” “believe,”
“estimate,” “expect,” “goal,” “may,” “plan,” “will” and similar
expressions identify forward-looking statements. Factors that could cause actual results to differ materially from those projected in
our forward-looking statements include risk factors identified below in Item 1A.

On
July 22, 2026, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation (the “Amendment”)
with the Secretary of State of the State of Delaware to effect a 1-for-15 reverse stock split (the “Reverse Stock Split”)
of shares of common stock, $0.001 par value. Effective August 1, 2026, pursuant to the Reverse Stock Split, every fifteen shares of issued
and outstanding shares of common stock were combined into one share of common stock. Simultaneously, we reduced the total authorized
number of shares of capital stock to 175,000,000 shares consisting of 150,000,000 shares of common stock and 25,000,000 shares of preferred
stock, $0.001 par value. There was no change in the par value per share of common stock of $0.001.

The
historical share and per share information included herein have been adjusted to reflect the Reverse Stock Split.

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 significant losses in the near term. 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 due March 2026 of
up to $75.0 million (the “Prior Note”). See Part I, Item 1, 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 I, Item 1, 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 (the “2026
Notes Financing”) – one for approximately $20.6 million in exchange for the Prior Note and the other for approximately
$22.4 million. See Part I, Item 1, Note 7. Notes Payable and Derivative Liability 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.

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Our
discussion and analysis of our financial condition and results of operations are based upon our condensed 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 industries relevant to our strategic plan, 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. There have been no significant changes to our critical accounting judgments, policies, and
estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2025.

Results
of Operations

Revenue

Revenues
are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration
that we expect to receive in exchange for those goods or services. We 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) occurs over time, the revenue is recognized in
proportion to the transfer of control. If control passes to the customer only upon completion and transfer of the asset, revenue is recognized
at the completion of the contract.

The
increase in revenue for the three and six months ended June 30, 2026 compared to the same period in 2025 was primarily due to shipments
of our long-range IRIS sensors to automotive and industrial customers and shipments of our short-range MOVIA L sensors to a security
and defense customer, among others.

Cost
of Revenue

Cost
of revenue includes both direct and allocated indirect costs of products and services sold to customers. Direct costs include labor,
materials, reserves for estimated warranty expenses, and other costs incurred directly, or charged to us by our contract manufacturers,
in the manufacture of these products. Indirect costs include labor, overhead, and other costs associated with operating our manufacturing
capabilities and our research and development department. Overhead includes the costs of procuring, inspecting and storing material,
facility and other costs, and is allocated to cost of revenue based on the proportion of indirect labor which supported revenue activities.

Cost
of revenue can fluctuate significantly from period to period, depending on the product mix and volume, the level of overhead expense
and the volume of direct material purchased. For the first three and six months of 2026, cost of revenue was positively impacted by sensor
sales out of acquired IRIS and existing MOVIA L inventories.

Research
and Development Expense

Research
and development expense consists of compensation related costs of employees and contractors engaged in internal research and product
development activities, direct material to support development programs, laboratory operations, outsourced development and processing
work, and other operating expenses. We assign our research and development resources based on the business opportunity of the available
projects, the skill mix of the resources available and the contractual commitments we have made to our customers. We believe that a substantial
level of continuing research and development expense will be required to further develop our scanning technology.

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The
increase in research and development expense during the three months ended June 30, 2026 compared to the same period in 2025 was primarily
due to higher salary and benefits expense of $3.3 million due to increased headcount from acquisitions (see Part I, Item 1, Note 4.
Business Combinations), higher building expenses of $1.0 million, higher purchased services of $0.9 million, higher direct materials
and equipment costs of $0.4 million, and higher IT and software costs of $0.3 million. In connection with the Consolidation Plan, the
Redmond-based reductions were substantially complete as of July 3, 2026; accordingly, the upward trend in research and development expense
seen in the first half of 2026 is not expected to continue.

The
increase in research and development expense during the six months ended June 30, 2026 compared to the same period in 2025 was primarily
due to higher salary and benefits expense of $7.0 million, higher one-time employee-related restructuring charges of $1.0 million stemming
from the Luminar acquisition and Consolidation Plan, higher building expenses of $1.8 million, higher purchased services of $0.9 million,
higher direct materials and equipment costs of $0.9 million, and higher IT and software costs of $0.6 million.

Sales,
marketing, general and administrative expense

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 leg

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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.

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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.

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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

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.

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Cost
of revenue

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