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 September 30, 1996.
[ ] 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 Identification No.)
Incorporation or organization)
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 No X
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes__________ 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 September 30, 1996
5,733,796 shares of the company's common stock, no par value, were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
PART I
FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets at September 30, 1996 and December 31, 1995. 3
Statements of Operations for the three and nine months ended 4
September 30, 1996 and 1995 and for the period from inception
to September 30, 1996
Statements of Cash Flows for the nine months ended September 30, 5
1996 and 1995 and for the period from inception to
September 30, 1996
Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
MICROVISION, INC.
(a development stage company)
BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995
------------ -----------
(unaudited) (Note)
Current Assets;
Cash and cash equivalents $16,447,000 $ 98,500
Accounts receivable 50,000 -
Receivables from former employees 2,800 69,400
Other current assets 5,300 -
----------- -----------
Total current assets 16,505,100 167,900
Equipment, net 102,500 9,100
Other assets 101,300 2,000
----------- -----------
Total assets $16,708,900 $179,000
=========== ===========
LIABILITIES AND SHAREHOLDERS'EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 920,500 $ 207,500
Accrued liabilities 472,400 336,400
7% Convertible Subordinated Notes due 1997 750,000 -
----------- -----------
Total liabilities 2,142,900 543,900
=========== ===========
Shareholders' Equity (Deficit):
Preferred stock - 2,038,900
Common stock 23,949,100 4,745,900
Deferred compensation (73,600) (42,800)
Accumulated deficit (9,309,500) (7,106,900)
----------- ----------
Total shareholders' equity (deficit) 14,566,000 364,900
----------- ----------
Total liabilities and equity (deficit) $16,708,900 $ 179,000
=========== ==========
See accompanying notes to financial statements.
Note: The balance sheet at December 31, 1995 has been derived from
the audited financial statements at that date but does not
include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
3
MICROVISION, INC.
(a development stage company)
STATEMENT OF OPERATIONS
(unaudited)
May 1993
Three Months Ended Nine Months Ended (inception)
September 30, September 30, through
------------------------- -------------------------- September 30,
1996 1995 1996 1995 1996
---------- --------- --------- ---------- ----------
Contract Revenues $ 50,000 $ 29,300 $ 77,200 $ 29,300 $ 106,500
Research and development
expense 323,300 328,000 1,015,400 1,028,000 5,897,800
Marketing, general and
administrative expense 661,100 560,500 1,331,100 968,400 3,631,400
---------- --------- ----------- ----------- -----------
Total expenses 984,400 888,500 2,346,500 1,996,400 9,529,200
---------- --------- ----------- ----------- -----------
Loss from operations (934,400) (859,200) (2,269,300) (1,967,100) (9,422,700)
Interest income 74,400 12,400 79,400 21,400 161,700
Interest expense 10,300 15,000 12,700 15,000 48,500
---------- --------- ----------- ----------- -----------
Net loss $ (870,300) $(861,800) $(2,202,600) $(1,960,700) $(9,309,500)
========== ========= =========== =========== ===========
Net loss per share $ (0.16) $ (0.18) $ (0.43) $ (0.42)
========== ========= =========== ===========
Weighted average shares
used in computing per
share amounts 5,600,931 4,773,746 5,089,935 4,654,270
========== ========= =========== ===========
See accompanying notes to financial statements.
4
MICROVISION, INC.
(a development stage company)
STATEMENT OF CASH FLOWS
(unaudited)
May 1993
Nine months ended (inception)
September 30, through
---------------------------------- September 30,
1996 1995 1996
---------- ---------- ----------
Cash flows from operating activities:
Net loss $(2,202,600) $(1,960,700) $(9,309,500)
Adjustments to reconcile net loss to
net cash used in operations:
Amortization of deferred compensation 49,200 72,300 256,600
Depreciation and write-off of equipment 9,900 4,000 45,600
Non-cash expenses related to issuance of - -
stock, warrants and options 74,400 467,700 1,182,100
Changes in:
Receivables (50,000) (45,900) (50,000)
Receivables from former employees - - (2,800)
Other current assets (5,300) (3,100) (5,300)
Other assets (99,300) 7,300 (101,300)
Accounts payable 713,000 (40,600) 920,500
Accrued liabilities 136,000 13,600 472,400
----------- ---------- ----------
Net cash used in operating activities (1,374,700) (1,485,400) (6,591,700)
----------- ---------- ----------
Cash flows from investing activities:
Purchases of equipment (103,300) - (148,100)
----------- ---------- ----------
Net cash used in investing activities (103,300) - (148,100)
----------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of convertible
subordinated notes 750,000 750,000
Net proceeds from isssuance of preferred -
stock 1,493,900 3,541,300
Net proceeds from issuance of common
stock 15,582,600 22,436,800
----------- ---------- ----------
Net cash provided by financing activities 17,826,500 3,541,300 23,186,800
----------- ---------- ----------
Net increase in cash and cash equivalents 16,348,500 2,055,900 16,447,000
Cash and equivalents at the beginning
of the period 98,500 67,700 -
----------- ---------- -----------
Cash and equivalents at the end of
the period $16,447,000 $2,123,600 $16,447,000
=========== ========== ===========
See accompanying notes to financial statements.
5
MICROVISION, INC.
(a development stage company)
Notes to Financial Statements
September 30, 1996
MANAGEMENT'S STATEMENT
The accompanying unaudited financial statements at September 30, 1996
and 1995 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, 1995. 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, 1995, which are
included in the Prospectus (Registration Number 333-5276-LA) dated August
27, 1996.
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. 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 for the three and nine month periods ended September 30, 1996 and
1995, 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 $8.00 per unit).
6
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, projection 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 "Risk Factors" section of the Rule 424(b)(4) Prospectus,
Registration Number 333-5276-LA, filed by the Company in August 1996. 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 directly
onto the retina of the eye. In 1993 the Company acquired the exclusive
license to the Virtual Retinal Display technology ("VRD") 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, working with the
University of Washington in the continuing development of the VRD
technology and prototype products, and raising capital. The Company has
generated no 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 cooperatiave development arrangements and research contracts; and the
manufacture and sale of high-performance personal display products to
professional users, directly, through OEM's or through joint ventures.
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 commerically viable.
7
The Company does not expect to have any significant 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 1996 and 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 risks
and uncertainties, 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 commenced establishing and
equipping its own laboratory and facilities in support of this work. 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
completion of the research agreement with the University of Washington and
the development of strategic relationships with systems and equipment
manufactures.
RESULTS OF OPERATIONS
The Company is in the development stage and has not generated
significant revenues. As of September 30, 1996, the Company had an
accumulated deficit since inception of $9.3 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
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1995
Revenue increased $20,700 or 71% to $50,000 in the three months ended
September 30, 1996 from $29,300 for the comparable period in 1995. The
revenue in the period September 30, 1996 resulted from a purchase order
with Lockheed Martin Corp.'s Information Systems Division for a prototype
display model of the VRD for a military trade show which is being
recognized on the percentage completion method. The revenue for the period
ended September 30, 1995 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 months ended September 30,
1996 were at a comparable level with expenditures in the same period of
the previous year. In both periods, the research and development expenses
were primarily the payments made under the Company's research agreement
with the University of Washington. The Company expects its research and
development expenses to increase over amounts in prior periods as it builds
its technical staff and expands its internal research and development
activities.
Marketing, general and administrative expenses increased $100,600 or
18% to $661,100 in the three months ended September 30, 1996 from $560,500
for the comparable period in 1995. The increase reflected increases in
compensation and associated employee costs for both existing employees and
employees hired during the period as well as increases in contract labor
and supplies attributable in part for the fulfillment of the Company's
purchase order from Lockheed Martin Corp. as noted above. The Company
expects marketing, general and administrative expenses to increase over
amounts in prior periods in support of the expected increases in research
and development as well as in marketing activities.
Net interest income in the three months ended September 30, 1996 was
$64,100 as compared to net interest expense of $2,600 in the comparable
period of 1995. This increase reflected higher cash balances resulting
principally from approximately $15.5 million of net proceeds received from
the Company's initial public offering in August 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED
TO NINE MONTHS ENDED SEPTEMBER 30, 1995
Revenue increased by $47,900 or 163% to $77,200 in the nine months
ended September 30, 1996 from $29,300 in the comparable period in 1995. The
increase resulted from the revenue recognized in the three months ended
September 30, 1996 as described above and a second Fujitsu Research
Institute contract recognized in the first quarter of 1996.
9
Research and development expenses for the nine months ended September
30, 1996 did not change significantly from the level for the same period in
the prior year. In both periods, substantially all of the research and
development expenditures were the payments made under the Company's
research contract with the University of Washington.
Marketing, general and administrative expenses increased $362,700 or
37% to $1,331,100 in the nine months ended September 30, 1996 from $968,400
in the comparable period in 1995. The increase resulted largely from
expenditures for compensation and other employee related costs for both
existing employees and employees hired during the period as well as
increases in various operating costs resulting from the increased staffing.
In addition, contract labor and supplies used in part in the fulfillment of
the Company's purchase order with Lockheed Martin Corp. contributed to the
increase. Travel related expenditures also increased as the Company placed
greater emphasis on marketing and business development activities during
the nine month period ended September 30, 1996.
Net interest income increased by $60,300 to $66,700 for the nine
months ended September 30, 1996 over the $6,400 in the comparable period in
1995. The increase reflected higher cash balances resulting principally
from the proceeds of the Company's initial public offering.
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 the foreseeable future, based on the
Company's current operating plan. Budgeted operating and capital
requirements include provision for approximately $1,300,000 in remaining
payments under the research contract with the University of Washington and
up to $750,000 in principal amount for the redemption or repayment of the
Company's 7% Convertible Subordinated Notes, which are due in July 1997 but
which may be redeemed at the option of the holder at par from November 25,
1996 to March 15, 1997. Actual expenses, however, may exceed the amounts
budgeted, and will depend, in part, upon 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.
10
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.
11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the discussion under the heading "Legal
Proceedings" in the Registrant's Prospectus (Registration Number
333-5276-LA) dated August 27, 1996.
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 Pro Forma Loss Per Share
27. Financial Data Schedule
b. Reports on Form 8-K
During the quaterly period ended September 30, 1996, the
Company filed no Current Reports on Form 8-K with the
Commission.
12
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.
RICHARD F. RUTKOWSKI
Date: November 13, 1996 ----------------------------------
Richard F. Rutkowski
President, Chief Executive Officer
(Principal Executive Officer)
RICHARD A. RAISIG
Date: November 13, 1996 ----------------------------------
Richard A. Raisig
Chief Financial Officer
(Principal Financial and Accounting Officer
13
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
11 Computation of Pro Forma Loss Per Share
27 Financial Data Schedule