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, 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 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 [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 September 30, 1997, 5,817,421
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
Page
Item 1 - Financial Statements
Balance Sheets at September 30, 1997 and December 31, 1996 3
Statement of Operations for the three and nine months ended 4
September 30, 1997 and 1996 and for the period from inception
to September 30, 1997
Statement of Cash Flows for the nine months ended 5
September 30, 1997 and 1996 and for the period from inception
to September 30, 1997
Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
2
MICROVISION, INC.
(A Development Stage Company)
BALANCE SHEETS
September 30, December 31,
1997 1996
------------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 10,021,900 $ 14,265,800
Accounts receivable 263,800 25,000
Other current assets 545,400 86,500
------------ ------------
Total current assets 10,831,100 14,377,300
Equipment, net 455,900 157,800
Other assets 13,800 30,200
------------ ------------
Total assets $ 11,300,800 $ 14,565,300
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 390,800 $ 388,600
Accrued liabilities 636,400 667,600
------------ ------------
Total liabilities 1,027,200 1,056,200
Shareholders' Equity
Common stock 24,798,800 24,116,200
Deferred compensation (455,600) (43,600)
Accumulated deficit (14,069,600) (10,563,500)
------------ ------------
Total shareholders' equity 10,273,600 13,509,100
------------ ------------
Total liabilities and shareholders' equity $ 11,300,800 $ 14,565,300
============ ============
See accompanying notes to financial statements
3
MICROVISION, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
May 1993
(inception)
Three months ended Nine months ended through
September 30, September 30, September 30,
1997 1996 1997 1996 1997
---- ---- ---- ---- ----
Contract revenue $ 750,300 $ 50,000 $ 852,500 $ 77,200 $ 984,000
------------ ------------ ------------ ------------ ------------
Research and development
expense 1,362,600 323,300 2,946,000 1,015,400 9,616,900
Marketing, general and
administrative expense 702,900 661,100 2,110,100 1,331,100 6,260,200
------------ ------------ ------------ ------------ ------------
Total expenses 2,065,500 984,400 5,056,100 2,346,500 15,877,100
------------ ------------ ------------ ------------ ------------
Loss from operations (1,315,200) (934,400) (4,203,600) (2,269,300) (14,893,100)
Other income -- -- 222,500 -- 222,500
Interest income 143,600 74,400 476,700 79,400 839,000
Interest expense (400) (10,300) (1,700) (12,700) (238,000)
------------ ------------ ------------ ------------ ------------
Net loss $ (1,172,000) $ (870,300) $ (3,506,100) $ (2,202,600) $(14,069,600)
============ ============ ============ ============ ============
Net loss per share $ (0.20) $ (0.61)
============ ============
Weighted average shares
outstanding 5,791,700 5,784,300
============ ============
Pro forma net loss per share $ (0.16) $ (0.43)
============ ============
Pro forma weighted average shares
and share equivalents outstanding 5,600,900 5,089,900
============ ============
See accompanying notes to financial statements
4
MICROVISION, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
May 1993
(inception)
through
Nine months ended September 30, September 30,
1997 1996 1997
---- ---- -------------
Cash flows from operating activities:
Net loss $ (3,506,100) $ (2,202,600) $(14,069,600)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and write-off of fixed assets 84,900 9,900 164,600
Non-cash expenses related to issuance of stock, warrants
and options and amortization of deferred compensation 86,400 123,600 1,715,300
Changes in:
Accounts receivable (238,800) (50,000) (263,800)
Other current assets (458,900) (5,300) (545,400)
Other assets 16,400 (99,300) (13,800)
Accounts payable 2,200 713,000 390,800
Accrued liabilities (31,200) 136,000 636,400
------------ ------------ ------------
Net cash used in operating activities (4,045,100) (1,374,700) (11,985,500)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of fixed assets (383,000) (103,300) (620,500)
------------ ------------ ------------
Net cash used in investing activities (383,000) (103,300) (620,500)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from 7% convertible subordinated notes 750,000 750,000
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 184,200 15,582,600 19,095,100
------------ ------------ ------------
Net cash provided by financing activities 184,200 17,826,500 22,627,900
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents (4,243,900) 16,348,500 10,021,900
Cash and cash equivalents at beginning of period 14,265,800 98,500 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 10,021,900 $ 16,447,000 $ 10,021,900
============ ============ ============
See accompanying notes to financial statements
5
MICROVISION, INC.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1997
Management's Statement
The accompanying unaudited financial statements of Microvision, Inc. (the
"Company") at September 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 of the Company for
the twelve month period ended December 31, 1996. These statements include all
adjustments (consisting only of normal recurring adjustments) that, in the
opinion of the Company's management, are necessary for a fair presentation of
the financial position, results of operations and cashflows for the 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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS set forth herein and 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 stock and 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 1996 initial public offering have been included in the calculation
of 1996 pro forma net loss per share 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 a material effect on
earnings per share amounts previously reported.
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 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 an exclusive license (the "Exclusive
License") to the Virtual Retinal Display(TM) technology ("VRD"(TM)) from the
University of Washington and entered into a research agreement (the "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 substantial revenues and has
incurred substantial losses since its inception. The Company expects to continue
to incur substantial 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
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.
To date, the Company's revenues have been derived generally from
cooperative development projects and government research contracts. Revenues
from sales of products may not occur for several years.
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 as
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 expanding its technical and business
staff in support of its technology development and marketing objectives and, in
particular, is hiring additional technical personnel. 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 substantial
revenues. As of September 30, 1997, the Company had an accumulated deficit since
inception of $14.1 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, 1997 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1996
Revenue in the three months ended September 30, 1997 increased $700,300 or
1,400% to $750,300 from $50,000 in the comparable period in 1996. The revenue
for the period ended September 30, 1997 was derived from contracts into which
the Company entered during the prior and current periods. Contract revenue has
been recognized using the percentage of completion method.
Research and development expenses in the three months ended September 30,
1997 increased $1,039,300 or 321% to $1,362,600 from $323,300 in the comparable
period in 1996. In each period, the Company made a payment of $320,800 to the
University of Washington pursuant to the Research Agreement. The balance of the
expenses of $1,041,800 and $2,500 in the periods ended September 30, 1997 and
1996 respectively, were incurred directly by the Company in part to further
develop the VRD technology.
The increase in research and development expenses of $1,039,300 for the
quarter ended September 30, 1997 over the comparable period in 1996 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 increased
costs incurred in the performance of contracts.
During the quarter, the Company made the final payment due under its
Research Agreement with the University of Washington, which resulted in the
Company now having paid in full the $5.1 million license fee due under its
Exclusive License for the VRD technology. Subsequent to September 30, 1997, the
Company and the University of Washington agreed to extend the term of the
Research Agreement from October 28, 1997 to March 31, 1998, at no additional
cost to the Company. The extension is expected to enable the University of
Washington to complete performance of certain research activities under the
Research Agreement.
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; expand
internal research and development activities; increase requirements to support
sales and marketing efforts; and prepare for performing on future contracts
relating to commercialization of the VRD technology.
Marketing, general and administrative expenses in the three months ended
September 30, 1997 increased $41,800 or 6% to $702,900 from $661,100 in the
comparable period in 1996. The increase includes increased aggregate
compensation and associated support costs for employees including those employed
at September 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.
9
Net interest income in the three months ended September 30, 1997 was
$143,200 as compared to net interest income of $64,100 in the comparable period
of 1996. This increase was due to higher average cash balances in the three
months ended September 30, 1997, representing the remaining net proceeds
received by the Company from its initial public offering in August 1996.
During the three months ended September 30, 1997, the Company entered into
a commercial development contract to incorporate its VRD technology into
advanced helmet-mounted display systems for fixed wing military aircraft. Also
during this period, the Company delivered on schedule to The Boeing Company a
technology demonstration system incorporating the VRD, which will be used to
demonstrate new kinds of human interfaces for advanced aircrew systems. The
helmet-mounted display is the first full-color VRD system to be delivered by the
Company to any customer.
Subsequent to September 30, 1997, the Company delivered to Saab and
Ericsson Saab Avionics a high-resolution helmet-mounted display demonstration
system incorporating the Company's VRD technology for use in aircraft
simulators. The delivery was made on schedule to Saab and Ericsson Saab Avionics
in support of their joint effort with the Company to develop VRD technology for
use in fighter aircraft.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED
TO NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenue in the nine months ended September 30, 1997 increased by $775,300
or 1,004% to $852,500 from $77,200 in the comparable period in 1996. The
increase resulted from the Company recognizing revenue from various contracts
entered into in the nine month period ended September 30, 1997, which exceeded
the recognition of contract revenue in the comparable period of the prior year.
Contract revenue has been recognized using the percentage of completion method.
Research and development expenses in the nine months ended September 30,
1997 increased $1,930,600 or 190% to $2,946,000 from $1,015,400 in the
comparable period in 1996. In each period, the Company made payments totaling
$962,400 to the University of Washington pursuant to the Research Agreement. The
balance of the expenses of $1,983,600 and $53,000 in the periods ended September
30, 1997 and 1996 respectively, were incurred directly by the Company in part to
further develop the VRD technology.
10
The increase in research and development expenses of $1,930,600 for the
quarter ended September 30, 1997 over the comparable period in 1996 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 increased
costs incurred in the performance of contracts.
Marketing, general and administrative expenses in the nine months ended
September 30, 1997 increased $779,000 or 59% to $2,110,100 from $1,331,100 in
the comparable period in 1996. The increase includes increased aggregate
compensation and associated support costs for employees, including those
employed at September 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 nine month period ended September 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 nine months ended September 30, 1997 was
$475,000 as compared to net interest income of $66,700 in the comparable period
of 1996. This increase was due to higher average cash balances in the nine
months ended Sepember 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 September 30, 1997 was
$10.0 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. 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 any
additional financing will be available when needed or, if available, on terms
satisfactory to the Company.
11
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
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
The annual meeting of the shareholders of the Company was held on
August 7, 1997. Richard F. Rutkowski, Stephen R. Willey, Richard A.
Raisig, Jacob Brouwer, Robert A. Ratliffe, Richard A. Cowell, and
Walter J. Lack were elected as directors for one year terms expiring
at the next annual meeting of shareholders.
The appointment of Price Waterhouse LLP as independent auditors of the
Company for the year ending December 31, 1997 was approved.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Employment Agreement for Richard A. Raisig
10.2 Letter dated September 30, 1997 extending the term of the
Research Agreement between the University of Washington and
Microvision, Inc.
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 September 30, 1997, the Company
filed no Current Reports on Form 8-K with the Commission.
13
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: November 14, 1997 RICHARD F. RUTKOWSKI
----------------------------------
Richard F. Rutkowski
President, Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 RICHARD A. RAISIG
----------------------------------
Richard A. Raisig
Chief Financial Officer
(Principal Financial and Accounting
Officer)
14
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.1 Employment Agreement for Richard A. Raisig
10.2 Letter dated September 30, 1997 extending the term of the
Research Agreement between the University of Washington and
Microvision, Inc.
11 Computation of Net Loss Per Share and Pro Forma Net Loss Per
Share
27 Financial Data Schedule
15