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 June 30, 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 (I.R.S. Employer
Incorporation 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 June 30, 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 June 30, 1997 and December 31, 1996 3
Statement of Operations for the three and six months ended 4
June 30, 1997 and 1996 and for the period from inception
to June 30, 1997
Statement of Cash Flows for the six months ended 5
June 30, 1997 and 1996 and for the period from inception
to June 30, 1997
Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
PART II - Other Information 13
2
<PAGE>
<TABLE>
<CAPTION>
MICROVISION, INC.
(A Development Stage Company)
BALANCE SHEETS
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $11,463,400 $14,265,800
Accounts receivable 74,300 25,000
Other current assets 135,200 86,500
----------- -----------
Total current assets 11,672,900 14,377,300
Equipment, net 346,300 157,800
Other assets 12,200 30,200
----------- -----------
Total assets $12,031,400 $14,565,300
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $400,600 $388,600
Accrued liabilities 379,600 667,600
----------- -----------
Total liabilities 780,200 1,056,200
Shareholders' Equity
Common stock 24,154,300 24,116,200
Deferred compensation (5,500) (43,600)
Accumulated deficit (12,897,600) (10,563,500)
------------ -----------
Total shareholders' equity 11,251,200 13,509,100
----------- -----------
Total liabilities and shareholders' equity $12,031,400 $14,565,300
=========== ===========
See accompanying notes to financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
MICROVISION, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
May 1993
(inception)
Three months ended June 30, Six months ended June 30, through
---------------------------- --------------------------- June 30,
1997 1996 1997 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Contract revenue $ 102,200 $ 0 $ 102,200 $ 27,200 $ 233,700
----------- ----------- ---------- ----------- ------------
Research and development
expense 933,700 342,100 1,583,400 692,100 8,254,300
Marketing, general and
administrative expense 726,900 371,800 1,407,200 670,000 5,557,300
----------- ----------- ---------- ----------- ------------
Total expenses 1,660,600 713,900 2,990,600 1,362,100 13,811,600
----------- ----------- ---------- ----------- ------------
Loss from operations (1,558,400) (713,900) (2,888,400) (1,334,900) (13,577,900)
Other income 222,500 0 222,500 0 222,500
Interest income 161,100 1,700 333,100 5,000 695,400
Interest expense (600) (2,400) (1,300) (2,400) (237,600)
----------- ----------- ----------- ----------- ------------
Net loss $(1,175,400) $ (714,600) $(2,334,100) $(1,332,300) $(12,897,600)
=========== =========== =========== =========== ============
Net loss per share $ (0.20) $ (0.40)
=========== ==========
Weighted average shares
outstanding 5,782,200 5,780,600
=========== ===========
Pro forma net loss per share $ (0.15) $ (0.28)
=========== ===========
Pro forma weighted average shares
and share equivalents outstanding 4,766,700 4,766,700
=========== ===========
See accompanying notes to financial statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
MICROVISION, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
May 1993
(inception)
Six months ended June 30, through
--------------------------- June 30,
1997 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(2,334,100) $(1,332,300) $(12,897,600)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and write-off of fixed assets 45,900 5,200 125,600
Non-cash expenses related to issuance of stock, warrants
and options and amortization of deferred compensation 49,900 95,900 1,678,800
Changes in:
Accounts receivable (49,300) 0 (74,300)
Other current assets (48,700) (56,100) (135,200)
Other assets 18,000 (50,400) (12,200)
Accounts payable 12,000 185,600 400,600
Accrued liabilities (288,000) 26,200 379,600
----------- ----------- ------------
Net cash used in operating activities (2,594,300) (1,125,900) (10,534,700)
----------- ----------- ------------
Cash flows from investing activities
Purchase of fixed assets (234,400) (34,100) (471,900)
----------- ----------- ------------
Net cash used in investing activities (234,400) (34,100) (471,900)
----------- ----------- ------------
Cash flows from financing activities
Proceeds from 7% convertible subordinated notes 750,000
Repayment of 7% convertible subordinated notes (750,000)
Net proceeds from issuance of preferred stock 1,493,900 3,532,800
Net proceeds from issuance of common stock 26,300 30,000 18,937,200
----------- ----------- ------------
Net cash provided by financing activities 26,300 1,523,900 22,470,000
----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents (2,802,400) 363,900 11,463,400
Cash and cash equivalents at beginning of period 14,265,800 98,500 0
----------- ----------- ------------
Cash and cash equivalents at end of period $11,463,400 $ 462,400 $ 11,463,400
=========== =========== ============
See accompanying notes to financial statements
</TABLE>
5
<PAGE>
MICROVISION, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1997
Management's Statement
The accompanying unaudited financial statements of Microvision, Inc. (the
"Company") at June 30, 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 SFAS 128 for the year ending 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 27A of the Securities Act of 1933, as amended, and
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 contracts. 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 June 30, 1997, the Company had an accumulated deficit since
inception of $12.9 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 JUNE 30, 1997 COMPARED
TO THREE MONTHS ENDED JUNE 30, 1996
Revenue in the three months ended June 30, 1997 was $102,200. The Company
had no contract revenue in the comparable period of 1996. The revenue for the
period ended June 30, 1997 was derived from contracts into which the Company
entered during the period, as described below. Contract revenue has been
recognized using the percentage of completion method.
Research and Development expenses for the three months ended June 30, 1997
increased $591,600 or 173% to $933,700 from $342,100 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 $612,900 and $21,300 in the periods ended June 30,
1997 and June 30, 1996 respectively, were incurred directly by the Company in
part to further develop the VRD technology.
The increase in research and development expenses of $591,600 for the
quarter ended June 30, 1997 over the comparable period in the prior year
reflects implementation of the Company's operating plan, which calls for
building its technical staff; supporting activities to further develop the
Company's technology; 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 increase also
includes costs incurred in the performance of contracts.
The Company expects its research and development expenses to increase in
the future over prior periods. In addition to costs associated with performing
on contracts, the Company plans to continue to build its technical staff and
related research capabilities in support of current and future contracts;
expanded internal research and development activities; increasing requirements
to support sales and marketing efforts; and preparation for performing on
additional contracts relating to commercialization of the VRD technology into
which the Company expects to enter.
Marketing, general and administrative expenses increased $355,100 or 96% to
$726,900 in the three months ended June 30, 1997 from $371,800 for the
comparable period in 1996. The increase includes increased aggregate
compensation and associated support costs for employees including those employed
at June 30, 1996 and those hired subsequent to that date both in sales and
marketing and in administration. 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 its VRD
technology and anticipated products and as it adds to its sales and marketing
and administrative staff and increases the level of corporate and administrative
activity.
Other income for the period ended June 30, 1997 was $222,500, which
resulted from the reduction of an accrued liability for litigation upon
settlement of the matter at a lesser amount than the established reserve.
Net interest income in the three months ended June 30, 1997 was $160,500 as
compared to net interest expense of $700 in the comparable period of 1996. This
increase
9
<PAGE>
was due to higher cash balances in the three months ended June 30, 1997,
representing the remaining net proceeds received by the Company from its initial
public offering in August 1996.
During the three months ended June 30, 1997, the Company announced that it
had entered into several contracts in both defense and commercial segments for
further development of the VRD technology directed toward meeting specific
customer applications. The defense segment included two Small Business
Innovation Research (SBIR) contracts with the United States Air Force. One SBIR
is to initiate the development of a full-color, high definition, head mounted
display for pilot training applications. The second SBIR is to explore the
development of very wide field of view, immersive display systems for command,
control, communications, and computer information systems.
In the commercial segment, the Company has entered into an agreement with
Saab AB, in collaboration with Ericsson Saab Avionics AB. The Future Products &
Technology Division of Saab and the Ericsson Saab Avionics company and
Microvision will explore the possibilities of advanced visual display systems
incorporating Microvision's VRD technology. The Company also has been contracted
by The Boeing Company to build a technology demonstration system incorporating
Microvision's VRD technology.
Subsequent to June 30, 1997, the Company entered into a third commercial
development contract to incorporate its VRD technology into advanced
helmet-mounted display systems for fixed wing military aircraft. The name of the
contracting company has not been disclosed.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED
TO SIX MONTHS ENDED JUNE 30, 1996
Revenue increased by $75,000 or 276% to $102,200 in the six months ended
June 30, 1997 from $27,200 in the comparable period in 1996. The increase
resulted from the Company recognizing revenue from various contracts entered
into in the six month period ended June 30, 1997, which exceeded the recognition
of revenue from the one contract in process in the comparable period of the
prior year. Contract revenue has been recognized using the percentage of
completion method. See THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1996, for a description of the various contracts entered into
during the period.
Research and Development expenses for the six months ended June 30, 1997
increased $891,300 or 129% to $1,583,400 from $692,100 for the comparable period
in 1996. In each period, the Company made payments totaling $641,600 to the
University of Washington pursuant to the Company's Research Agreement. The
balance of the expenses of $941,800 and $50,500 in the periods ended June 30,
1997 and June 30, 1996 respectively, were incurred directly by the Company in
part to further develop the VRD technology.
10
<PAGE>
The increase in research and development expenses of $891,300 for the
quarter ended June 30, 1997 over the comparable period in the prior year
reflects implementation of the Company's operating plan, which calls for
building its technical staff supporting activities to further develop the
Company's technology; 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 increase also
includes costs incurred in the performance of contracts.
Marketing, general and administrative expenses increased $737,200 or 110%
to $1,407,200 in the six months ended June 30, 1997 from $670,000 for the
comparable period in 1996. The increase includes increased aggregate
compensation and associated support costs for employees, including those
employed at June 30, 1996 and those hired subsequent to that date, both in sales
and marketing and in administration. 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 its VRD
technology and anticipated products and as it adds to its sales and marketing
and administrative staff and increases from the level of corporate and
administrative activity.
Other income for the period ended June 30, 1997 was $222,500, which
resulted from the reduction of an accrued liability for litigation upon
settlement of the matter at a lesser amount than the established reserve.
Net interest income in the six months ended June 30, 1997 was $331,800 as
compared to net interest income of $2,600 in the comparable period of 1996. This
increase was due to higher cash balances in the six months ended June 30, 1997,
representing the remaining net proceeds received by the Company from its initial
public offering in August 1996.
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's cash and cash equivalents balance at June 30, 1997 was $11.5
million. The Company believes that this balance will satisfy its budgeted cash
requirements for at least the next twelve months based on the Company's current
operating plan. Actual expenses, however, may exceed the amounts budgeted, and
will depend, in part, on the opportunities that arise for commercialization of
the VRD technology. Budgeted cash requirements include provision for the last
$320,800 payment remaining after June 30, 1997 under the research contract with
the University of Washington. The Company may require additional capital earlier
to develop products, to respond to competitive pressures, or to meet
unanticipated development difficulties.
11
<PAGE>
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.
12
<PAGE>
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
None
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. Exhibits
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 June 30, 1997, the Company filed
no Current Reports on Form 8-K with the Commission.
13
<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: August 13, 1997 RICHARD F. RUTKOWSKI
-----------------------------------------
Richard F. Rutkowski
President, Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1997 RICHARD A. RAISIG
-----------------------------------------
Richard A. Raisig
Chief Financial Officer
(Principal Financial and Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
11 Computation of Net Loss Per Share and Pro Forma Net Loss Per
Share
27 Financial Data Schedule
15
Exhibit 11
<TABLE>
<CAPTION>
MICROVISION, INC.
COMPUTATION OF NET LOSS AND PRO FORMA NET LOSS PER SHARE
Three months ended Six months ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
-------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net loss ($1,175,400) ($714,600) ($2,334,100) ($1,332,300)
=========== =========== =========== ===========
Shares used in computing net loss and
pro forma net loss per share:
Weighted average shares outstanding 5,782,200 3,461,100 5,780,600 3,461,100
Common stock equivalent shares outstanding
during the period 403,600 403,600
Pro form effect of conversion of:
Series A Preferred Stock 859,800 859,800
7% Convertible Subordinated Notes due 1997 42,200 42,200
----------- ----------- ----------- -----------
5,782,200 4,766,700 5,780,600 4,766,700
=========== =========== =========== ===========
Net loss per share ($0.20) ($0.40)
=========== ===========
Pro forma net loss per share ($0.15) ($0.28)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
unaudited financial statements of Microvision, Inc., for the six-month period
ended June 30, 1997 and is qualified in its entirety by reference to such
financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,463,400
<SECURITIES> 0
<RECEIVABLES> 74,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,672,900
<PP&E> 427,000
<DEPRECIATION> 80,700
<TOTAL-ASSETS> 12,031,400
<CURRENT-LIABILITIES> 780,200
<BONDS> 0
0
0
<COMMON> 24,154,300
<OTHER-SE> (12,903,100)
<TOTAL-LIABILITY-AND-EQUITY> 12,031,400
<SALES> 0
<TOTAL-REVENUES> 102,200
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,990,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,300)
<INCOME-PRETAX> (2,334,100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,334,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,334,100)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> 0
</TABLE>
