U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1997
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ___________to____________.
Commission File Number 0-21221
MICROVISION, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Washington 91-1600822
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or organization) Identification No.)
2203 Airport Way South, Suite 100, Seattle, Washington 98134
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (206) 623-7055
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 31, 1997, 5,782,213
shares of the Company's common stock, no par value, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
PART I
FINANCIAL INFORMATION
Page
Item 1 - Financial Statements
Balance Sheets at March 31, 1997 and December 31, 1996 3
Statement of Operations for the three months ended 4
March 31, 1997 and 1996 and for the period from inception
to March 31, 1997
Statement of Cash Flows for the three months ended 5
March 31, 1997 and 1996 and for the period from inception
to March 31, 1997
Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
<PAGE>
MICROVISION, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
March 31, December 31,
1997 1996
--------- ------------
Current Assets
Cash and cash equivalents $13,035,700 $14,265,800
Accounts receivable -- 25,000
Other assets 73,000 86,500
----------- -----------
Total current assets 13,108,700 14,377,300
Equipment, net 228,700 157,800
Other assets 11,900 30,200
----------- -----------
Total assets $13,349,300 $14,565,300
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other $ 461,700 $ 388,600
Accrued compensation and related
liabilities 489,100 667,600
------------ -----------
Total liabilities 950,800 1,056,200
------------ -----------
Shareholders' Equity
Common stock 24,142,500 24,116,200
Deferred compensation (21,800) (43,600)
Accumulated deficit (11,722,200) (10,563,500)
------------ -----------
Total shareholders' equity 12,398,500 13,509,100
============ ===========
Total liabilities and equity $ 13,349,300 $14,565,300
============ ===========
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
MICROVISION, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
May 1993
Three Months Ended (inception)
March 31, through
--------- March 31,
1997 1996 1997
---- ---- ----
<S> <C> <C> <C>
Contract revenue $ -- $ 27,200 $ 131,500
Research and development
expense 649,700 $ 350,000 7,320,600
Marketing, general and
administrative expense 680,300 298,200 4,830,400
------------ ----------- ------------
Total expenses 1,330,000 648,200 12,151,000
------------ ----------- ------------
Loss from operations (1,330,000) (621,000) (12,019,500)
Interest income 172,000 3,300 534,300
Interest expense 700 -- 237,000
----------- ----------- ------------
Net loss $(1,158,700) $ (617,700) $(11,722,200)
=========== =========== ============
Net loss per share $ (0.20)
===========
Weighted average shares
outstanding 5,778,900
===========
Pro forma net loss per share $ (0.13)
===========
Pro forma weighted average shares
and share equivalents outstanding 4,838,700
===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
MICROVISION, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
May 1993
Three Months Ended (inception)
March 31, through
--------- March 31,
1997 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flow from operating activities
Net loss $(1,158,700) $ (617,700) $(11,722,200)
Adjustments to reconcile net loss to
net cash used in operations
Depreciation and write off of equipment 5,600 2,400 85,300
Non-cash exepnses related to issuance of
stock, warrants and options and
amortization of deferred compensation 21,800 49,200 1,650,700
Changes in:
Accounts receivable 25,000 (28,400) --
Other current assets 13,500 (22,200) (73,000)
Other assets 18,300 (24,500) (11,900)
Accounts payable and other 73,100 (61,600) 461,700
Accrued compensation and related liabilities (178,500) 101,100 489,100
----------- ----------- ------------
Net cash used in operating activities (1,179,900) (601,700) (9,120,300)
----------- ----------- ------------
Cash flows from investing activities
Purchase of equipment (76,500) (50,900) (314,000)
----------- ----------- ------------
Net cash used in investing activities (76,500) (50,900) (314,000)
----------- ----------- ------------
Cash flows from financing activities
Proceeds from 7 percent convertible subordinated notes 750,000
Repayment of 7 percent convertible subordinated notes (750,000)
Net proceeds from issuance of preferred stock 1,045,800 3,532,800
Net proceeds from issuance of common stock 26,300 18,937,200
----------- ----------- ------------
Net cash provided by financing activities 26,300 1,045,800 22,470,000
----------- ----------- ------------
Net (decrease) increase in cash and cash
equivalents (1,230,100) 393,200 13,035,700
Cash and equivalents at beginning of period 14,265,800 98,500 --
----------- ----------- ------------
Cash and equivalents at the end of period $13,035,700 $ 491,700 $ 13,035,700
=========== =========== ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
MICROVISION, INC.
(A Development Stage Company)
Notes to Financial Statements
March 31, 1997
Management's Statement
The accompanying unaudited financial statements of Microvision, Inc. (the
"Company") at March 31, 1997 and 1996 and for the periods then ended, including
the period from inception to date, have been prepared in accordance with
generally accepted accounting principles for interim financial information on a
basis consistent with the audited financial statements for the twelve month
period ended December 31, 1996. These statements include all adjustments
(consisting only of normal recurring accruals) that, in the opinion of the
Company's management, are necessary for a fair presentation of the results for
the interim and inception to date periods presented. The interim results are not
necessarily indicative of results that may be expected for a full year and
should be read in conjunction with the Company's audited financial statements
for the year ended December 31, 1996, which are included in the Company's Annual
Report on Form 10-KSB as filed with the Securities and Exchange Commission.
Computation of Earnings (Loss) per Share
Net loss per share information is computed using the weighted average
number of shares of common stock outstanding during each period in which the
Company reports a loss. Common equivalent shares issuable upon the exercise of
outstanding options and warrants to purchase shares of the Company's common
stock (using the treasury stock method) are not included in the calculation of
the net loss per share because the effect of their inclusion is anti-dilutive.
In accordance with Securities and Exchange Commission Staff Accounting Bulletins
(SABs), common equivalent shares issued by the Company at prices below the
public offering price of $8.00 per unit during the period beginning one year
prior to the initial filing of the registration statement for the Company's
initial public offering have been included in the calculation as if they were
outstanding for all periods (using the treasury stock method and the initial
public offering price of $5.25 per share).
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings per Share" (SFAS128). The
Company will adopt SFAS128 for the year ended December 31, 1997. The Company
does not expect that adoption of this standard will have an effect on its
financial statements due to its net loss.
6
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Preliminary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements may include, but are not limited to, projections of
revenues, income, or loss, capital expenditures, plans for product development
and cooperative arrangements, future operations, financing needs or plans of the
Company, as well as assumptions relating to the foregoing. The words "believe,"
"expect," "anticipate," "estimate," "project," and similar expressions identify
forward-looking statements, which speak only as of the date the statement was
made. Such statements are inherently subject to risks and uncertainties as
further described herein and in the "Considerations Related to the Company's
Business" section of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996, as filed with the Securities and Exchange Commission.
The Company's actual results may differ materially from the results projected in
the forward-looking statements.
Overview
The Company commenced operations in May 1993 to develop and commercialize
technology for displaying images and information onto the retina of the viewer's
eye. In 1993, the Company acquired the exclusive license to the Virtual Retinal
Display(TM) technology ("VRD"(TM)) from the University of Washington and entered
into a research agreement with the University of Washington to further develop
the VRD technology. Since its formation, the Company has been in the development
stage, with its principal activities consisting of assembling a qualified
technical, business development and executive management team, continuing
development of the VRD technology and prototype products, raising capital and
marketing of the VRD technology. The Company has not generated significant
revenues and has incurred substantial losses since its inception. The Company
expects to continue to incur significant operating losses for the next several
years.
The Company's objective is to be a leading provider of personal display
products and imaging technology in a broad range of professional and consumer
applications. The Company expects to achieve this objective and to generate
revenues through a combination of the following activities: technology licensing
to original equipment manufacturers ("OEMs") of consumer electronics products;
provision of engineering services associated with cooperative product
development arrangements and research contracts; and the manufacture and sale of
high-performance personal display products to professional users, directly,
through OEMs or through joint ventures.
7
<PAGE>
The Company is in discussions with systems and equipment manufacturers in
the defense and wireless communications, computing, and commercial and consumer
electronics industries. The Company expects to work with certain of these
manufacturers to develop or co-develop specific products that the Company
believes to be the most commercially viable.
The Company does not expect to have substantial revenues until late 1997 at
the earliest. Revenues in late 1997, if any, are expected to be derived from
cooperative development projects and government research grants. Revenues from
sales of products may not occur until substantially later, if at all.
The Company currently has two prototype versions of the VRD. The Company
expects to continue funding prototype and demonstration versions of products
incorporating the VRD technology throughout 1997. Future revenues, profits and
cash flow, and the Company's ability to achieve its strategic objectives
described herein, will depend upon a number of factors, including acceptance of
the VRD technology by various industries and OEMs, market acceptance of products
incorporating the VRD technology and the technical performance of such products.
Additionally, the Company must be able to attract, retain and motivate qualified
technical and management personnel and both anticipate and adapt to a rapidly
changing, competitive market for information display technologies.
Plan of Operation
The Company intends to invest over the next year in ongoing innovation and
improvements to the VRD technology, including the development of component
technology and additional prototypes as well as the design of subsystems and
products. The Company has established, staffed and equipped an in-house
laboratory to support VRD technology development and product development
engineering associated with future cooperative development projects, which the
Company expects to receive. The Company is adding to its technical and business
staff in support of its technology development and marketing objectives and, in
particular, is adding to its engineering staff. The operating plan also provides
for the development of strategic relationships with systems and equipment
manufacturers and completion of the research agreement with the University of
Washington.
Results of Operations
The Company is in the development stage and has not generated significant
revenues. As of March 31, 1997, the Company had an accumulated deficit since
inception of $11.7 million. The Company expects continuing and increasing
expenditures in research and development as it focuses its efforts on further
development and refinement of the VRD technology and pursues commercialization
of the VRD technology.
8
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED
TO THREE MONTHS ENDED MARCH 31, 1996
The Company had no contract revenue in the three months ended March 31,
1997 compared to $27,200 for the comparable period in 1996. The revenue for the
period ended March 31, 1996 was derived from a contract with Fujitsu Research
Institute, which called for defining possible applications for the VRD
technology.
Research and development expenses for the three month period ended March
31, 1997 increased $299,700, or 86%, to $649,700 from $350,000 for the
comparable period in 1996. In each period, the Company made a payment of
$320,800 to the University of Washington pursuant to the Company's research
agreement. The balance of the expenses of $328,900 and $29,200 in the periods
ended March 31, 1997 and March 31, 1996, respectively, also were incurred by the
Company to further develop the VRD technology.
The increase in research and development expenses of $299,700 for the
quarter ended March 31, 1997 over the comparable period in the prior year
reflects implementation of the Company's operating plan, which calls for
building its technical staff and related technology development activities,
establishing and equipping its own laboratory and performing work in support of
the Company's sales and marketing activities related to the commercialization of
the VRD technology.
The Company expects its research and development expenses to increase in
the future over prior periods as it continues to build its technical staff and
related research capabilities in support of expanded internal research and
development activities as well as increasing requirements in support of sales
and marketing efforts and preparation for performing on contracts relating to
commercialization of the VRD technology into which the Company expects to enter.
Marketing, general and administrative expenses increased $382,100 or 128%
to $680,300 in the three months ended March 31, 1997 from $298,200 for the
comparable period in 1996. The increase includes increased aggregate
compensation and associated support costs for employees including those employed
at March 31, 1996 and those hired subsequent to that date. In January 1997, the
Company hired a Vice President for Sales and Marketing to pursue strategic
relationships with systems and equipment manufacturers for the joint development
of commercial products incorporating VRD technology. The Company expects
marketing, general and administrative expenses to increase in future periods as
the Company makes additional investments in sales and marketing activities to
promote and launch its VRD technology and anticipated products and as it
increases the number of employees and the level of corporate and administrative
activity. The Company also leased additional office space during the quarter to
support planned additions to its staff in research and development as well as in
sales, marketing and administration.
Net interest income in the three months ended March 31, 1997 was $171,300
as compared to $3,300 in the comparable period of 1996. This increase was due to
higher cash balances in the three months ended March 31, 1997, which resulted
principally from approximately $15.5 million of net proceeds received from the
Company's initial public offering in August 1996.
9
<PAGE>
Subsequent to March 31, 1997, the Company announced that it had been
awarded two Small Business Innovation Research (SBIR) contracts. In April 1997,
the Company was awarded an SBIR contract from the United States Air Force to
initiate the development of a full-color, high-definition, head-mounted display
for pilot training applications. Also in April 1997, the Company was awarded a
second SBIR contract from the United States Air Force to explore the development
of very wide field of view, immersive display systems for command, control,
communications, and computer information systems.
LIQUIDITY AND CAPITAL RESOURCES
From inception through July 1996, the Company financed its operations
primarily through private equity sales and a private placement of convertible
subordinated notes. In August 1996, the Company completed its initial public
offering of 2,250,000 units, each unit consisting of one share of common stock
and one five-year redeemable warrant to purchase one share of common stock at
$12.00 per share. The Company received net proceeds from the offering of
approximately $15.5 million after deducting underwriting discounts and offering
expenses.
The Company believes that its current cash balances will satisfy its
budgeted cash requirements for at least the next twelve months based on the
Company's current operating plan. Budgeted operating requirements include
provision for $641,600 in payments remaining after March 31, 1997 under the
research contract with the University of Washington. Actual expenses, however,
may exceed the amounts budgeted, and will depend, in part, on the opportunities
that arise for commercialization of the VRD technology. The Company may require
additional capital earlier to develop products, to respond to competitive
pressures, or to meet unanticipated development difficulties. There can be no
assurance that the Company would be successful in attempts to raise additional
capital.
The Company's future expenditures and capital requirements will depend on
numerous factors, including the progress of its research and development
program, the progress in commercialization activities, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments and the ability
of the Company to establish cooperative development, joint venture and licensing
arrangements. If the Company is successful in establishing co-development and
joint venture arrangements, it is expected that the Company's partners would
fund certain non-recurring engineering costs for product development.
Nevertheless, the Company expects its cash requirements to increase
significantly each year as it expands its activities and operations.
Pending use of its cash and cash equivalents, the Company invests in
short-term, interest bearing investment grade securities.
10
<PAGE>
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the discussion under the heading "Legal
Proceedings" in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1996, as filed with the Securities and
Exchange Commission.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit
11. Computation of Net Loss Per Share and Pro Forma Net Loss Per
Share
27. Financial Data Schedule
b. Reports on Form 8-K
During the quarterly period ended March 31, 1997, the Company
filed no Current Reports on Form 8-K with the Commission.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MICROVISION, INC.
Date: May 15, 1997 RICHARD F. RUTKOWSKI
----------------------------------
Richard F. Rutkowski
President, Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1997 RICHARD A. RAISIG
----------------------------------
Richard A. Raisig
Chief Financial Officer
(Principal Financial and Accounting
Officer)
12
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
11 Computation of Net Loss Per Share and Pro Forma Net Loss Per Share
27 Financial Data Schedule
13
Exhibit 11
MICROVISION, INC.
COMPUTATION OF NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
Three months ended
-----------------------------
March 31, March 31,
1997 1996
--------- ---------
Net loss $ (1,158,700) $ (617,700)
============ ==========
Shares utilized in computing net loss per
share and pro forma net loss per share:
Weighted average shares outstanding 5,778,900 3,461,100
Common stock equivalent shares outstanding
during the period 475,600
Pro forma effect of conversion of:
Series A Preferred Stock 859,800
7% Convertible Subordinated Notes due 1997 42,200
------------ ----------
5,778,900 $4,838,700
============ ==========
Net Loss Per Share $(0.20)
============
Pro Forma Net Loss Per Share $(0.13)
==========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
unaudited financial statements of Microvision, Inc., for the three-month period
ended March 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 13,035,700
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,108,700
<PP&E> 282,000
<DEPRECIATION> 53,300
<TOTAL-ASSETS> 13,349,300
<CURRENT-LIABILITIES> 950,800
<BONDS> 0
0
0
<COMMON> 24,142,500
<OTHER-SE> (11,744,000)
<TOTAL-LIABILITY-AND-EQUITY> 13,349,300
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,330,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 700
<INCOME-PRETAX> (1,158,700)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,158,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,158,700)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> 0
</TABLE>
